Voting Dynamics: Setting Proposal Thresholds and Quorum for your Tokenized Community, Multisig Wallet or NFT DAO
Two essential decisions for any DAO are the proposal threshold and quorum requirements for voting. At Grape, we recently went through this process and I wanted to share some of our findings
Proposal thresholds are the criteria someone needs to meet in order to introduce a proposal that will be voted on.
In the US Legislative Process, only 535 people can introduce a bill: US Senators and Congressmen. These are the only people on Earth that meet the proposal threshold for the US government.
Proposals in DAOs are very unique in that they are proposals with instructions that will AUTOMATICALLY happen if the vote passes.
Trust-less execution starts with on-chain voting, and this is why setting a logical proposal threshold is so important
An example of what this kind of proposal with an instruction could be:
- Sending assets out of the treasury to an external wallet
- Adding a new signatory to a treasury or program
- Updating a variable in a program: ie increase fees on a trading platform
- Changing voting parameters like quorum or proposal threshold
This kind of dynamic has never existed in human history. There are 1000’s of examples throughout the ages where popular votes were simply ignored or disregarded by governing bodies. Now there is a way for people to vote and know for sure that the vote will be carried out. Trust-less execution starts with on-chain voting, and this is why setting a logical proposal threshold is so important.
What is the major risk or downside associated with a poor voter threshold
- A low threshold can lead to bad/nefarious proposals aimed at attacking the community.
- A high threshold means fewer people can create a proposal; leading to higher centralization
- A high threshold could create a voter-lock where no one can initiate a proposal
- A low threshold can lead to spammed proposals, leading to lower voter engagement
The most common choices for proposal threshold type in DAOs:
Token-voting: a set number of tokens/NFTs required to make a proposal. Anyone that has over X amount of tokens/NFTs can make a proposal. This is how FWB (Friends with Benefits), Nouns, Mango, and Grape handle their proposals. This type of system is good for large, decentralized groups, but also riskier for larger treasuries. Although commonly considered plutocratic, token-voting systems also integrate other voting dynamics like lockers and reputational/meritocratic voting weights.
Multisig — a group of people are (s)elected to become the signatories of a multi-signature treasury. Usually each (s)elected member has equal ability to make a new proposal, but there are ways to have weighted signatories (usually through a token). This is how The Sanctuary and LeDAO handle their proposals. This type of system is good for smaller, newer DAOs, or large treasuries that need a higher level of centralization in their early governance days.
Selecting a Proposal Threshold for a Token-Voting System
While working on Grape’s Proposal Threshold, we looked at Mango, FWB, and Nouns for a good range of options
The range of thresholds here are between 0.001% — 0.50% of circulating supply. As supply grows, those thresholds will also be affected because the total number of circulating tokens is increasing. For FWB, there is 50% supply not circulating, while for Grape there is over 90% remaining.
When deciding your proposal threshold, these are the variables that matter the most
- What percentage of members will be able to make a proposal
- What percentage of circulating supply is that threshold
- How much supply is not circulating
- What percentage of active voters are able to make a proposal
- What is the maximum risk of an attack through proposal
- What is the likelihood of a voter-lock (no one being able to make a proposal)
- What is your quorum set to? (more on this later)
Proposal Threshold Cheat Sheet
Set your proposal threshold so high that only a handful of people can make proposals
Without previous voter stats, it is important to use this phase of early governance to discover what voter turnout will look like for your community.
Keeping a high proposal threshold during this time makes sense, making sure that at least 2 voters can meet that threshold. Deciding this number will come from looking at holder amounts, which are available on most block explorers.
Your DAOs first journey into on-chain voting should be as frictionless as possible. Making sure that every proposal is valuable makes onboarding a better experience during this phase.
Once your DAO has had a few votes, you’ll be able to better understand how many active voters are capable of making a proposal. Anywhere between 2%-33% of voters, where you would choose the higher range for lower risk treasuries. For example if the treasury has no assets, choosing 33% is a low risk decision.
Set your proposal threshold low enough to include and inspire more proposals
As a DAO that already has voter stats, there is enough information to increase decentralization, despite the increased treasury/program risk
For Grape, we chose a threshold of 0.25% of circulating supply because
- We want to increase proposal creation, while keeping quality of proposals high. There were 9 existing voters that have 200,000 Grape and have been active in voting on proposals
- Choosing a number higher than 0.3% would have resulted in only 1 active voter being able to create a proposal. This result was unacceptable to us
- Choosing a lower number would add few active voters and potentially lead to proposal spam
Proposal Thresholds answer the question: who do we want making proposals that we vote on. Although there are risks involved with a poor proposal threshold, all of those risks are handled by a correctly set Quorum.
A quorum is the minimum number of participating members(or in most cases, tokens) required for a governing body to approve a proposal. If a quorum is set to 50%, this means that 50% of all circulating tokens need to vote yes for the proposal to pass. This gets confused for meaning that the proposal will pass with 50% of the voters choosing yes. The calculation looks at circulating supply and requires that 50% of all the tokens need to choose yes for the proposal to pass. Even if 50% of all tokens participate, if 1 token votes for no, that vote will not pass.
Vote-time dictates how long a vote will last; which could be anywhere from 1 minute to 1 month. Generally, this should be set to a duration that mimics communication updates across the group — if a group is meeting on a weekly basis, the quorum should be set to 2–6 days.
What is the major risk or downside associated with a poor quorum threshold
- A low quorum and low time threshold mean that a proposal could theoretically pass without members even knowing the proposal took place
- A high quorum with a high time threshold means that actions relating to treasury and program upgrades will be rare
- A high quorum that is rarely/never achieved could stop all actions relating to treasury and governance
Finding the right balance between action, inaction, and the risks these bring is what we are trying to achieve with a well thought-out quorum
Selecting a Quorum Threshold for a Multisig-Voting System
Set a quorum that ensures quorum will be met most of the time
Quorums for multisig voting systems is usually represented as a ratio: 4/7 for example where 4 signatories out of 7 need to approve the vote. Intuitively, we recommend higher than 50% for all multisig quorums, but this should be adjusted for availability and frequency of decisions. As a guiding thought, always make sure you can make decisions happen instead of trying to prevent signatories attacking in a “Conspiracy” scenario: if you aren’t trusting these people, why are they signatories to begin with!
Vote-time is the metronome for your DAO’s most important functions. Keep it in sync with voter activity!
Most signatory governing bodies communicate quite often, so leaving the vote-time threshold to 1–3 days should be sufficient. Choosing a higher timeframe makes sense if there are a few key members that usually take time to make a decision. In the example below, Sanctuary has set their quorum to 60% with a vote-time of 3 days.
Selecting a Quorum Threshold for a Token-Voting System
Set your first quorum low, and start a polling vote
Because there are no other voter statistics, you are flying blind in your first proposals. Many DAOs claim that their highest voter activity is during the first votes, so measuring activity in the first days is the only way to start defining quorum threshold.
A polling vote is an on-chain vote with no instructions. This is usually done to measure sentiment. Since they have no instructions connected to them, this will help figure out just how active your member base will be, while ensuring that a vote wont “accidentally” go through without enough buy-in.
After you’ve completed 2–3 polling votes, you are now ready to increase quorum. If on average 30% of the circulating supply was active in the vote (not to be confused with achieving 30% quorum approval), you can safely choose 15% as your next quorum. Why? Because you know that quorum will be reached, and that it will be more than 50% of the active voters that have to approve the proposal to pass. The goal is to continuously increase quorum without crippling your DAO with gridlock. In the event voter activity starts to decrease, it will be important to decrease quorum along with it.
For the time threshold, you should also start higher than usual (5–6 days) and keep track of the total votes received at the end of each day. After a few votes, you’ll be able to track how much time needs to pass for quorum to be achieved. After our initial votes, we saw that 80% of all votes happened within the first 4 days, so we chose 6 days for our current vote-time.
Set your quorum with your worst case scenarios in mind
Unlike New DAOs that are trying to figure out how active their members are, Existing DAOs need to make sure that operations keep running. As discussed, the goal should be to have an increasingly higher quorum, but never to the detriment of growth.
The two worst scenarios we need to focus on:
- An inquorate DAO (not enough members to pass an approval) because the quorum is too high
- A “bad” proposal reaching quorum before an adequate number of members can see it (ie a proposal draining the treasury) because the quorum is too low
Safely adjusting quorum higher
2% ahead of quorum, on a bad day, feels like a good number
Tracking DAO activity is the most important variable in assessing how close to the brink your DAO is. At Grape, our quorum is set to 3%. A couple of weeks ago, we had a vote where we achieved 5% participation. Because this was achieved without any particular marketing or focus on increasing participation, we believe we are safely in range of always achieving quorum. Only at this point would we consider increasing quorum to 3.5% (for example), but we are holding off because of another variable; token supplies
Earlier, I referenced FWB’s and Grape’s remaining token supplies. As those tokens come into circulation the quorum requirement will automatically adjust and require even more tokens to participate in voting for a proposal to pass. Keep this in mind as a variable that will require you to lower quorum, potentially even before you see DAO activity decreasing.
Safely adjusting quorum lower
Time is your friend
The best time to consider a lower quorum is when you have not met quorum on a previous vote. There are all kinds of scenarios where voter turnout is lower, and those are the scenarios we need to plan for. If quorum cannot be reached (adding up yes/no votes and not reaching the threshold), you’ll need to lower the DAOs quorum to stay in-line with your DAOs voting activity. The next proposal should be to decrease quorum by 1%.
Adjusting quorum lower is easier than going higher. The biggest risk introduced by a lower quorum is a “bad” proposal getting through without adequate time and people to evaluate and vote on it. This is where time is your best friend. If there is a concern that the new lower quorum might be too low, a DAO should first increase the vote-time. This will help by giving your members more time to vote AND will prevent someone from getting a “bad” proposal passed due to low quorum. Vote-time is the metronome for your DAO’s most important functions. Keep it in sync with your voter activity!
That’s a wrap. Hope this has been helpful and feel free to drop a note if you are building a DAO and want to talk!
About Grape Network
Grape Network is a toolset for building token-based communities on Solana. The network’s tools help DAOs and decentralized communities coordinate members, communication, and incentives more effectively. Grape Networks’ community, The Grape (“Great Ape”) Community, is a token-based membership community focused on accelerating the growth and adoption of Solana.