DAO Governance: The Path of Decentralization to Extend the Lifespan of Cryptocurrency Projects

Disclaimer: This article is for educational purposes only and does not constitute investment advice.

Trust and Sustainability Brought by Decentralization

A fundamental issue faced by many cryptocurrency projects is centralized control by the founders. In the early stages, rapid decision-making is necessary, making this centralized structure unavoidable. However, as the project matures, delegating power to the community becomes not just an ideal but a practical requirement to ensure long-term trust and longevity.

Pioneering projects like Decentraland and No NPC Society have successfully extended their lifespans by achieving this transition. Reaching full DAO autonomy allows the project to function as an independent ecosystem, no longer dependent on its founders.

Gradual Power Delegation: Implementation Approach in Stages

The process of transitioning a project to a DAO is not merely about relinquishing control but a carefully designed phased process. The initial step involves introducing governance tokens to provide the community with voting mechanisms.

Looking at Decentraland as an example, the community forum and Decentraland Foundation were established first, followed by the introduction of the MANA token. In the early phase, “advisory voting” was used to test the process without actual risk. Subsequently, the project moved gradually to votes on small parameters like fee structures, and eventually evolved into full on-chain voting where the community decides on protocol-wide changes and treasury allocations.

This incremental approach allows emerging communities to gradually acquire the expertise and structure needed for managing complex protocols.

Community Treasury and Immutable Code: Foundations of True Decentralization

The completion of DAO transformation occurs when the founders fully transfer control over protocol changes and the community treasury to the community. The community treasury acts as a “vault,” and governance rights are the “keys.” After this transfer, all changes are executed based on complete community consensus.

To achieve true decentralization, it is essential to make the codebase fully immutable, preventing arbitrary changes by the founders. Bug fixes and feature additions can only be implemented with community approval.

Furthermore, to sustain DAO operations and development, the community treasury must generate autonomous revenue streams. Income from transaction fees, loan interests, and other mechanisms is directly deposited into the treasury, with the community proposing and voting on how to use these funds.

No NPC Society’s Speed-Up Strategy: Merging Democracy and Transparency

No NPC Society adopts a strategy to accelerate this power transfer. The project’s DAO roadmap aims to transfer management rights to the community within six months after the token sale. The implementation leverages Solana’s Realms platform to streamline DAO structure and grants governance rights to NONPC token holders.

To ensure transparency in the democratic process, the project manages the community treasury with a highly transparent multi-signature vault. This approach allows the founding team to step back and become just one voice within the community, enabling organic growth beyond the core team.

Whale Phenomenon and Voting Distortion: Major Challenges in DAO Democracy

Many DAO projects face issues such as decision-making stagnation, low voter participation, and concentration of power among large token holders (whales). The whale phenomenon, in particular, poses a serious threat to democratic governance principles.

To prevent whales from exerting excessive influence, several innovative measures are being introduced. Reputation-based governance determines voting weight based on actual contributions to the project rather than token holdings. This method helps mitigate whale influence and gives more participants a voice.

Another approach is quadratic voting, where voting power of large holders is gradually reduced, promoting more equitable competition with small holders.

To address voter apathy, many projects design incentives for DAO participation, providing community members with clear proposal structures and simple “yes/no” options to lower participation barriers.

Path to DAO: Indicators of Maturity and Trust

Transitioning to a DAO is complex, requiring overcoming many technical challenges, and can only be achieved when a well-established community is in place. Therefore, the transfer of control is seen as a decisive indicator of a project’s maturity and genuine commitment to decentralization.

When control and ownership are distributed across a large global community, the project can achieve greater longevity and trustworthiness. This decentralized model embodies the core value proposition of cryptocurrencies — the trustless decentralization of authority.