cryptoninjas

Title: CompoundDAO's
Setback: A Catalyst for Voting Bloc Entropy Propose

On July 28, 2024, CompoundDAO’s governance suffered a blow when Proposal 289 allowed a group known as the “Golden Boys” to take control of $24 million from the DAO’s treasury. Though the proposal wasn’t inherently malicious, it exposed a serious flaw in the DAO’s governance system—voter apathy. With only 7% of token holders participating, this case sheds light on the limitations of existing decentralization metrics like the Nakamoto Coefficient, which often misses risks related to how voting power is controlled.

2. Enter Voting Bloc Entropy (VBE)

A new approach, called Voting Bloc Entropy (VBE), addresses these gaps. The metric was proposed by Andrés Fábrega, Jay Yu, Amy Zhao, and Ari Juels. It is their creation and part of their research on DAO governance and decentralization.

2.1. What is VBE?

VBE doesn’t just look at token distribution—it analyzes voting patterns and forms clusters called “voting blocs.” These blocs highlight how power is aggregated within a DAO, making it easier to detect centralization risks.

In the CompoundDAO scenario, VBE would treat the Golden Boys as a unified voting bloc, regardless of how many wallets they used. VBE would also recognize the significant number of inactive token holders as part of an “inactivity whale,” representing a massive block of non-participation. By factoring in both active and inactive blocs, VBE provides a clearer view of real governance decentralization.

2.2. The Power of VBE

VBE isn’t just about identifying problems; it offers actionable insights for improving DAO governance. By highlighting how power is concentrated, DAOs can take steps to redistribute influence more equitably. For instance, delegation—a practice where token holders can delegate their votes—often reduces centralization. While one might assume delegation increases control by consolidating power, VBE shows that it can help combat voter apathy and decentralize decision-making by shrinking the inactivity whale.

2.3. Practical Application and IC3 VBE Dashboard

To help DAOs monitor decentralization, the IC3 VBE dashboard has been launched. This tool tracks VBE metrics across DAOs, enabling operators to observe changes in governance dynamics over time. By comparing VBE scores, DAOs can better understand how their governance compares to others and identify fluctuations that may signal issues. The dashboard provides an essential resource for tracking the health of decentralized governance.

Additionally, VBE can help tackle voter apathy. Clustering delegates into voting blocs, much like political parties, would allow token holders to align with specific groups representing their interests. This may encourage more active participation and foster greater community engagement.