Voting Mechanisms in Governance Token Systems: How DAOs Make Decisions

When you hold a governance token, you’re not just owning a piece of a blockchain project-you’re holding a vote. That vote can decide whether a protocol changes its interest rates, allocates millions in treasury funds, or even shuts down entirely. But not all votes are created equal. Behind every governance proposal in a DAO lies a voting mechanism, and the one chosen can make the difference between true decentralization and a system controlled by a handful of wealthy wallets.

How Voting Works in Governance Token Systems

At its core, a governance token gives holders the right to vote on changes to a decentralized protocol. These tokens are usually ERC-20 tokens on Ethereum, though some now run on Polygon, Solana, or Optimism. The most basic system-token-based voting-gives one vote per token. If you hold 1,000 UNI tokens, you get 1,000 votes. If you hold 10 million, you get 10 million. It sounds fair until you realize that the top 10 holders of Uniswap’s UNI token control nearly half of all voting power, according to TokenTerminal’s Q1 2024 data.

This isn’t just a theoretical problem. In May 2023, a single proposal (#132) passed with 51.3% of votes from wallets representing just 0.02% of all token holders. That’s not democracy. That’s plutocracy dressed up as decentralization. And it’s why many projects are now experimenting with alternatives.

The Six Main Voting Mechanisms

As of 2024, six voting systems dominate the landscape. Each tries to solve a different flaw in the original model.

• Token-based voting - Used by Uniswap, Aave, and MakerDAO. Simple, transparent, and easy to implement. But it rewards wealth, not participation.
• Quadratic voting - Used by Gitcoin and experimented with by Aragon. Voting power doesn’t scale linearly. To cast 2 votes, you need 4 tokens. For 3 votes, you need 9. This makes it harder for whales to dominate. But it’s expensive-voting with 100 tokens costs roughly 10,000 gas units, compared to 21,000 for a standard transaction. And it still requires users to buy tokens just to vote.
• Conviction voting - Pioneered by Aragon. Your vote gets stronger the longer you hold it. If you vote on a proposal and keep your tokens locked for 30 days, your vote counts more. This rewards long-term commitment. But it’s too slow for emergencies. In March 2023, Curve Finance’s urgent fix for a security flaw took 72 hours to pass because of this delay.
• Holographic voting - Developed by DAOstack. Before a proposal can be voted on, someone must deposit ANT tokens (around $500 worth) as a signal of confidence. This filters out low-quality proposals. But it also blocks smaller participants who can’t afford the deposit.
• Liquid voting - Used by Lido DAO. You can delegate your vote to someone else-a delegate you trust. This increases participation by 37%, according to Krayon Digital’s 2024 report. But it creates new power centers. In Q4 2023, three delegates controlled 62% of Lido’s voting power. Delegation can be smart… or it can become a new form of centralization.
• Multisig voting - Common in smaller DAOs like Friends With Benefits. Instead of token weight, you need multiple signatures to approve actions. Maybe three out of five key members must agree. This adds security but slows things down. Approval times average 72 hours, versus 15 minutes for token-based systems.

Why Most People Don’t Vote

Here’s the uncomfortable truth: 73% of governance token holders never vote. DeepDAO’s 2024 study found the median participation rate across 127 DAOs is just 4.7%. That’s far below the 20-40% quorum most DAOs require to pass proposals.

Why? Three big reasons:

1. Gas costs - Voting on Ethereum can cost $1.50 to $5 per vote. For someone holding $200 worth of tokens, that’s a significant barrier.
2. Whale dominance - If your vote counts for 0.0001% of the total, why bother? Reddit threads like "Why I stopped voting in DAOs" have over 1,200 upvotes, with users saying their vote feels meaningless.
3. Complexity - Most DAOs don’t explain proposals clearly. Technical jargon, no video summaries, no AMAs. A Twitter study by @DAO_Analyst found DAOs that used explainers saw 38% higher participation.

Some DAOs are fixing this. Aave’s Proposal #102 (adding the GHO stablecoin) saw 22% participation-far above average-because they provided clear breakdowns, live Q&As, and delegated voting options. Community managers made a difference.

The Big Problems: Attacks, Regulations, and Failure

Governance systems aren’t just inefficient-they’re dangerous.

In April 2022, Beanstalk Farms lost $182 million because an attacker used a flash loan to borrow enough tokens to control 67% of the vote. They then approved a proposal to drain the treasury. No one noticed until it was too late.

Another major threat: regulatory action. In February 2024, the SEC sued Uniswap Labs, claiming its UNI token is an unregistered security. That lawsuit sent shockwaves through the space. According to TokenSoft, 32% of planned governance token launches were put on hold.

And then there’s the failure rate. Since 2022, 68 governance token projects have shut down. That’s a 32% failure rate, mostly because no one voted, funding ran out, or the system got hacked. The ConstitutionDAO collapse is a classic example: 19,000 people pooled 17,477 ETH to buy a copy of the U.S. Constitution… but couldn’t agree on how to manage the funds afterward.

What’s Changing in 2025?

The next generation of governance systems is already here.

Uniswap’s proposed Governance v3 (announced July 2024) combines token-based voting with a delegated council of experts. This tries to balance broad participation with technical competence.

Off-chain voting is now standard. Snapshot lets users vote without paying gas. The vote is recorded on IPFS, then executed on-chain only if it passes. This cuts gas costs by 92%, according to Aragon’s July 2024 case study.

Privacy is improving too. Aztec Network’s zero-knowledge voting system, launched in May 2024, lets people vote without revealing how they voted or how many tokens they hold. That reduces the risk of coercion and whale manipulation.

And AI is stepping in. GovAI, a new tool launched in early 2025, scans governance proposals and flags technical risks with 92% accuracy. It doesn’t vote-but it helps users understand what they’re voting on.

Regulators are catching up. Switzerland’s FINMA published DAO governance guidelines in June 2024, recognizing certain voting structures as legally valid corporate forms. This could be the first step toward real legal clarity.

What You Should Do

If you hold governance tokens, here’s what actually matters:

• Don’t ignore proposals - Even small votes add up. If 1,000 people each vote with 100 tokens, that’s 100,000 votes. That’s enough to counter a whale.
• Use delegation - If you don’t understand the tech, delegate to someone who does. Look for delegates with a track record, not just big wallets.
• Check gas costs - Use Snapshot for signaling. Only vote on-chain if the proposal is critical and the gas fee is under $1.
• Ask for better education - If a DAO doesn’t explain proposals clearly, say so. Communities respond to feedback.

DAOs are still experimental. But they’re the closest thing we have to truly open, community-run organizations. The voting mechanisms they use will determine whether they succeed-or become another failed experiment in decentralization.