HomeNewsOff-Chain Governance Strikes a Chord With DAOs, as 77% Of Them Favor It Over Any Other Form
Off-Chain Governance Strikes a Chord With DAOs, as 77% Of Them Favor It Over Any Other Form

Off-Chain Governance Strikes a Chord With DAOs, as 77% Of Them Favor It Over Any Other Form

Last updated 8th Mar 2023
  • Decentralized Autonomous Organizations (DAOs) favor off-chain governance over other forms.
  • Nonetheless, off-chain governance faces potential stakeholder conflicts and security issues.

Decentralized Autonomous Organizations (DAOs) are gaining popularity due to their ability to facilitate decentralized decision-making and management. One of the most critical decisions they face is their governance; that is how they make decisions. Many DAOs opt for either on-chain or off-chain governance, with a few choosing a hybrid structure.

While arguments exist for all approaches, most DAOs have chosen off-chain governance. This has come to light in a BanklessTimes.com data presentation. According to the site, Off-Chain governance has struck a chord with DAOs, as 77% favor it over any other form.

DAOs Are Seeking Flexibility and Scalability in Governance

BanklessTimes CEO Jonathan Merry has shared his thoughts on the report. He defines off-chain governance as a DAO administration structure whose decision-making process occurs outside the blockchain. Those activities occur over various communication channels, such as forums or chats.

Merry explains that most DAOs opt for off-chain governance because of its flexibility and scalability. He argues:

Off-chain governance allows for more flexibility and faster decision-making. With on-chain governance, the organization must record every decision on the blockchain, which can be slow and expensive. On the other hand, off-chain governance allows for more informal discussions and quicker decision-making processes.
BanklessTimes CEO Jonathan Merry

He concludes that flexibility is essential for DAOs responding to changing market conditions or other external factors.

What Are the Upsides of Off-Chain Governance?

First, off-chain governance allows a broader range of voices to be heard in decision-making. With on-chain governance, only those who hold the DAO's governance tokens can participate in the decision-making process. That can lead to decisions by a small group of individuals, potentially excluding vital perspectives from other stakeholders.

Likewise, it allows for more nuanced discussions, leading to more thoughtful and informed decisions. Contrastingly with on-chain governance, the only option is usually a binary yes/no vote. This can lead to the oversimplification of complex issues and potentially suboptimal decisions.

Moreover, Off-chain governance is often more cost-effective than on-chain governance as it doesn't require the same computational resources or transaction fees. This can be especially important for smaller DAOs with limited resources.

Finally, off-chain governance can help DAOs build stronger communities. By creating spaces for discussion and debate, DAOs can foster a sense of community among their members. This can lead to increased engagement and participation, thus, better decision-making.

Possible Challenges

However, there are also specific challenges that arise from a DAO implementing off-chain governance. For one, stakeholders may have conflicts if they disagree with certain decisions. That's because there might be insufficient time or resources to consider everyone's opinion before making decisions.

Additionally, ensuring security for such systems may prove difficult due to their increased complexity compared with on-chain solutions.

Elizabeth Kerr

Elizabeth Kerr

Elizabeth is a financial content specialist from Manchester. Her specialities include cryptocurrency, data analysis and financial regulation.