The Token Holder’s Guide to Delegation

adminDecember 11, 2023

For many reasons—from saving gas costs by bundling votes to token holders not having time to maintain the context to thoughtfully vote on proposals—delegation has emerged as the primary mechanism for DAOs to boost governance participation and make decisions more effectively.

DAOs like Uniswap, Arbitrum, Optimism, and ENS are all delegate voting DAOs, meaning token holders can delegate their voting power to an individual or group to vote for them. It’s essentially representative governance with optionality to choose your representative or exercise direct democracy if you want to cast votes yourself.

Being a token holder in a delegate voting DAO is a powerful role. By delegating tokens, you’re assigning voting power, and therefore decision-making power, to another address. So how do you choose the delegate that will best represent your interests?

We interviewed delegates across the ecosystem to hear the standards they would set when delegating their tokens. Let’s cover the broad topics they recommended token holders look into when determining who they should delegate to.

Are their incentives aligned with yours?

Incentive alignment was the topic that came up most in our interviews with delegates.

“It’s essential to make sure the delegate’s values and long-term vision align with yours,” said Simona Pop, advisor for the Optimism Foundation, Government Strategy at Element Foundation, and Public Goods Steward at ENS. “They should share a common perspective on the broader objectives of the DAO, as well as an interest in the paths to achieving said objectives.”

The MKR Holders Guide to Delegation dives into incentive alignment as well. It reads, “Your delegate will have different incentives than you. These may not be solely financial. These may not always be permanent.” They give examples of incentives that delegates may have, such as holding MKR, having Maker Protocol as their primary employment, and believing that Maker Protocol benefits society. Not all of these incentives are permanent, so a delegate can go from being incentive-aligned to not being so. That’s why continuously re-evaluating your delegation is so important.

Superphiz, delegate for Diva, Hop protocol, and part of the Oracle DAO at Rocket Pool, shared some questions to consider about incentive alignment. “What are their goals in crypto? Are they profit maximalists? Web3 builders? Ecosystem developers? How does that align with your values?”

One of the ways token holders can identify value alignment is by looking at their voting history. This is one of the advantages to votes being onchain: there’s a transparent record of voting history.

DAOplomats, a governance service project active in Gitcoin, Aave, BanklessDAO, 1inch, and others, said that looking at voting history is one important way to make the decision around delegation. “Their voting history should resonate with your beliefs and priorities,” they said.

Questions to consider:

What incentives does my delegate have to behave in a certain way?
Are they part of another team that might want to push a certain initiative?
Are they being paid by the DAO, or not?

Do they have a deep understanding of the DAO and its mission? Are they the right person for the job?

Simona Pop mentioned “Knowledge and Context” as an important category to look into when finding the right delegate. “This is a VERY important one that many people miss – a deep understanding of the DAO’s mission and the wider ecosystem it operates in. This enables them to make informed decisions.”

Matt Fiebach, Research Analyst at Blockworks Research, an entity which is a delegate at Uniswap and Arbitrum, noted that knowledge required to be a good delegate varies significantly based on the DAO. “Depending on the DAO, the skills and expertise needed can change drastically,” he said. “For example, Uniswap DAO only controls a treasury, licenses, and a fee switch and most contracts are immutable; whereas Arbitrum DAO has power over pretty much every aspect of the protocol. So of course these require different levels of knowledge in their delegates.”

One way this qualification can be evaluated is by how long the delegate has been involved in the project. Max Lomuscio, a delegate for Arbitrum, said that “long term commitment of the delegate to the project” is one of the key areas to consider when delegating.

It can be hard to know what the delegate is thinking about the DAO and its mission, so this is when delegate mission statements and member profiles can play an important role. If the delegate shared an announcement with a plan for how they want to use their delegation, this can be part of your decision.

Questions to consider:

How long have they been a delegate or been part of the DAO?
Do they have a clear understanding of the DAO’s mission, or do they seem to have a diverging agenda for the DAO?
Do they have a long term commitment to the project? Are they involved in a lot of other things that might cause that commitment to waver?

Are they willing to be contrarian rather than always going with the majority?

Another quality to look for in delegates is having opinions they’re willing to stand by, even if they’re not the most popular opinions. Diversity of ideas and contrarianism is healthy for a DAO, because debate means ideas are pushed up against and molded into their best form, rather than just letting the first iteration pass.

Delegates that always vote with the majority might be doing so to keep their delegation. This can be a centralization problem, because if most delegates are following the crowd, then the number of delegates actually making a decision is significantly lower.

“I look for delegates that have a strong vision and aren’t afraid to take contrarian positions,” said Carl Cervone, a Gitcoin delegate who is also a token holder who has delegated in Arbitrum, Optimism, and ENS. “I appreciate delegates who are active in governance discussions before things go to a vote, especially if it’s a contentious issue. This keeps them accountable to the people they represent. I’ve never found myself in a situation where I re-delegated right before a vote, but I appreciate the fact that it’s an option.”

The contrarian positions should be made thoughtfully, however. Max Lomuscio recommended token holders look for delegates who have “a previous track record of making smart decisions.” In other words, if they’re taking the minority stance, do you believe they’re doing so for a good reason?

Questions to consider:

Has the delegate always voted with the crowd, or are they willing to take minority opinions?
Do they put forward diverse ideas in the DAO’s communication channels, such as the forum?
Do they seem to make thoughtful and informed decisions?

How transparent are they about their decisions, and could they be easily lobbied or bribed?

Transparency is another topic that came up multiple times in our interviews.

DAOplomats said that transparency was one of the most important things to look for in a delegate. “They should clearly explain their voting decisions and be open to feedback, delegates should share any conflicts of interest whenever possible.”

Transparency of intention, not just action, was also raised. “They should be trustworthy and transparent in their intentions and actions,” said Simona. “You may look for a proven track record of acting ethically and consistently with the best interests of the community in mind.”

Transparency is also important because it can showcase that the delegate cannot be easily lobbied or bribed.

“I want to double down on integrity, said Griff Green, delegate for Optimism, Arbitrum, ENS, and others. “As a delegate in various ecosystems, I get lobbied all the time from groups that are trying to pass proposals and have even been offered bribes! Crypto politics is just as dirty as regular politics is said to be.”

Delegates who share the rationale behind their decisions may be more trustworthy than those who do not. However, trustworthiness can be hard to measure and could just be a gut feeling you have when making your delegation choice.

Questions to consider:

How do they share the thinking behind the decisions they make?
Do they actively try to share the rationale of their decisions, or do they avoid it?
Do any of their past actions lead you to believe that they could be lobbied or bribed?

Are they able to put in the time required to get context and do due diligence on proposals?

Many delegates raised the point that keeping up with context required to cast informed votes is a big job. So, it might not be reasonable for delegates to be split across a ton of different roles at once.

“Good delegates should have a deep commitment to a couple things rather than a surface level commitment to a lot of things,” said superphiz.eth. “You should have a good idea what their priorities are without much digging.”

Part of being a delegate is also being proactive to find the right information, which can be a major time sink as well.

“You also shouldn’t expect context to be served to you on a platter,” said Carl Cervone. “You have to be proactive, get to know the core team, go out of your way to make connections, hang out on the forum, join the majority of governance calls, etc. For this reason, I can’t imagine being a “good” delegate at more than one or two DAOs at any given time. It’s a labor of love. If you can’t make the commitment, then your interests are better served by delegating your vote to someone who can.”

Being able to get the right context to understand proposals can require much more than just time, though. It can require specific knowledge and expertise, such as understanding smart contracts, business development, or tokenomics. “A delegate should also have an existing reputation to uphold, bandwidth to stay up with proposals, and sophistication to do proper due diligence into those proposals,” said Matt from Blockworks Research.

Questions to consider:

How many other projects is the delegate involved in?
How much time do they seem to put toward their work of delegating?
Do they have the right skill set to be able to do proposal due diligence?

Do they move solutions forward?

In DAOs, it can be easy to find the problems, but skip driving a solution forward. A good delegate is someone who can move initiatives and solutions forward for the DAO and it’s product or protocol.

A delegate’s ability to drive outcomes came up in our interviews. “In a hiring context, the priority list of qualities I look for are: motivation, transferable skills, and values alignment. For governance it’s the same list, but we also want to understand their capacity for advocacy, building consensus and driving outcomes,” said Rob Morris, delegate and multisig member at JokeCouncil, BibliothecaDAO, Thorchain, and others.

Because DAOs are decentralized, it can require a lot of internal motivation to drive outcomes effectively. You might want to consider delegating your tokens to someone who has a track record of making real change.

Questions to consider:

Do they put forward solutions, rather than just pointing out problems?
Can they collaborate with others to drive outcomes?

Token holders should continuously re-evaluate if the delegate is right for them

Once you choose the delegate that works for you, you’re not completely off the hook as a token holder.

“Set-it-and-forget-it delegating is very dangerous to a DAO,” said Bob-Rossi, delegate for Hop and Arbitrum. ”It can create a centralizing effect as it limits the ability for new delegates to gain traction in an established DAO. Plus, a delegate who no longer aligns with your ideals, or possibly isn’t voting at all, will be effectively wasting your votes.”

He noted that token holders need to actively keep up with how their delegates are voting to make sure their voting power is being used in a way that represents their interests. “A way to combat that issue is to periodically review the actions of those you delegate to and changing who you support if they no longer effectively represent your interests,” he said.

DisruptionJoe, a delegate at Arbitrum and Gitcoin, expressed a similar sentiment. “The way it works today, token holders delegate on day one and aren’t expected to show up on election day after that. Their job is done. We need ways to engage the token holders in a way that encourages holding context as a voter and contributing value as a community member.”

Consider setting a reminder every few months to re-evaluate your delegation and ensure your delegate is voting in a way that aligns with your interests and values.

Responsible delegation can be the difference between an effective DAO and an ineffective one

“Ineffective or participation-starved governance will kill the Maker Protocol over the long term just as surely as governance attacks will in the short term,” is written on the MKR Holder’s Guide to Governance.

Luckily, responsible delegation can solve that.

Responsible delegation can be the way to build effective governance with sufficient participation. More participation increases security, and makes for a more resilient DAO overall. And responsible delegation starts with token holders.