Evolution towards DAO automation with governance tokens

The process by which a cryptocurrency project evolves into a fully decentralized autonomous organization (DAO) is a gradual transfer of power. Central to this transformation is the governance token, which functions as a mechanism to grant voting rights to the community.

The Value of Decentralization in Decentralized Finance

The intrinsic appeal of cryptocurrencies lies in their decentralized nature. However, all projects initially start with centralized management by the core development team. Code design, feature implementation, strategic decisions—all are under the control of the founders.

This stage is unavoidable. Until the project gains traction, swift decision-making and strong leadership are essential. However, the long-term vision of DeFi and Web3 ultimately aims for complete power transfer to the community.

Gradual Power Transfer Centered on Governance Tokens

For a project to achieve DAO status, it requires a systematic roadmap—not just relinquishing power suddenly. The first step is the design and introduction of governance tokens.

Decentraland is a representative example of this approach. The project first established the Decentraland Foundation and created a forum for community discussions. Subsequently, they introduced MANA and LAND tokens, establishing a system that grants voting rights to holders.

Governance token holders can participate in platform change proposals, voting, and decisions on the community treasury’s use. This mechanism transforms members from mere users to “stakeholders.”

Phased Expansion of Voting Rights and Trial and Error

Power transfer is not completed in a single step. Decentraland has undergone multiple trial phases.

Initially, they started with non-binding “advisory” votes. This step tests the voting mechanism and governance process without risking the protocol. Next, they implemented on-chain voting for limited parameters such as fee structures and interest rates. Finally, they moved toward full voting on protocol-wide changes and treasury allocations.

This incremental approach minimizes systemic risk exposure until the community gains sufficient experience.

Criteria for Achieving Full DAO Autonomy

For a project to become a truly decentralized autonomous organization, the founding team must relinquish all control. This is not merely a formal decision but a concrete transfer of power.

• Complete management rights over code changes
• Full community management of the community treasury
• Protocol modifications, bug fixes, and feature additions only executed with community consensus

If the community treasury is likened to a “safe” and the governance token to a “key,” then once these are fully handed over to the community, the code itself becomes the ultimate law. Changes are executed not by the founders’ orders but solely by the community’s will.

Self-Funding and Building Revenue Loops

A fully functional DAO requires independent funding sources. Revenue generated through transaction fees, loan interests, and other mechanisms flows directly into the community treasury. The community then proposes how to allocate these funds, which are decided through voting.

This system allows the DAO to operate and develop autonomously without relying on the founding team’s support.

Examples of Projects Aiming for Rapid Transition

Some projects adopt a more aggressive DAO schedule. No NPC Society, which is rapidly gaining attention within the crypto community, is a notable example.

Their DAO transition roadmap aims to transfer treasury and governance rights to the community within six months after private and public token sales. To achieve this, they utilize Solana’s Realms platform to streamline the DAO structure and use NONPC tokens as governance tokens.

For transparency, they employ multi-signature wallets to manage democratic processes, providing full visibility to the community. The founding team plans to gradually step back and transition to an equal footing with community members.

Major Challenges and Countermeasures in DAO Management

While envisioning an ideal DAO is easy, implementation involves many challenges.

Decision-Making Stagnation: Complex proposal processes can slow down decisions. Structuring proposals, providing clear impact explanations, and using simple “approve/reject” options are effective countermeasures.

Low Voting Participation: Many community members tend not to vote. Incentivizing participation and implementing reward mechanisms for DAO activities can address this.

Whale Control (Large Token Holders): A few large holders may exert excessive influence. Advanced voting models, such as:

Innovative Voting Mechanisms for Fairness

Simple voting based on token amounts directly links economic power to voting rights. Multiple methods can create a more democratic voting system.

Reputation-Based Governance: Voting weight is determined by an individual’s contributions to the project rather than token holdings. This model emphasizes long-term participation and the input of development contributors.

Quadratic Voting: This mechanism reduces the voting weight of large holders. Voting power is proportional to the square root of holdings, alleviating dominance by wealth concentration.

These approaches enable broader and more inclusive governance.

Path to DAO Maturity and Indicators

Achieving full DAO status is not just about overcoming technical hurdles. It should only proceed once a well-established community is formed and thorough testing is completed.

Deciding to transfer management rights to the community is a decisive milestone indicating project maturity and commitment to decentralization. When control and ownership are distributed across a large global community, the project’s lifespan and reliability are significantly enhanced.

The true value of cryptocurrencies lies in this gradual transfer of power and the establishment of comprehensive decision-making mechanisms through governance tokens.