[Draft] Reform DAO governance by delegating 5M ENS tokens

[AvsA]

I want to share some ideas on how to reform DAO voting. These is a framework for discussing delegation of DAO votes and I welcome feedback.

TLDR:

The DAO holds over 50% of the voting power. These tokens were intended to be distributed for wider governance but were never done because of their economic value. This proposal discusses how we can delegate them (instead of distributing).

The problem

Here are three graphs that can summarize the issues this proposal wants to address:

ENS Governance is clearly in a crisis. Currently, one delegate has enough quorum to not only execute any proposal, but also to outvote the next 50 other delegates. The issue didn’t start when these new votes were delegated, but rather total delegated votes has been consistently going down (except for two jumps, when the same tokens were being delegated and then undelegated and delegated once again). Voter turnout has also been consistently going down: while in the first years it was common to get 3M votes in a proposal, more recent proposals have struggled to meet the quorum.

The core issue is that most of the delegated voting power has been delegated at airdrop and then these delegations slowly trickle down as users sell their tokens and new buyers don’t care enough to delegate them. When someone receives an airdrop token, specially for free, they have a thousand reasons to sell them, and almost no incentives to use them for governance. Over the past few years, MetaGov stewards have tried to do address the issue by making redelegation free, by distributing more ENS tokens to new contributors and by paying users to stake and delegate their ENS. While these have had some mild successes, they have clearly not been able to reverse the overall trend.

This proposal intends to take a different approach and simply delegate voting power to specific players and stakeholders who have an interest in a working ENS. The amount being proposed here is 5M ENS, which should be enough to be impactful but not so much it can’t be reversed.

Who are ENS Stakeholders?

The original airdrop was distributed to all accounts who ever held ens domains, proportionally to the amount of time they held them – the ENS community of users, so to speak. But they are not the only players who can help make or break ENS, the ones whose continued collaboration is required for ENS to succeed. The people who have the power to sucessfully fork it. While there are many factors, I’d enumerate them as such:

Users: wallets, profiles, subdomains. The original airdrop was targeted at people who paid for .eth identities. But these are not the only names currently available: ENS has built and encouraged many other ways in which wallets can distribute free names for their users. Subdomains, names associated with a web TLD, etc. We need those as the initial distribution of users.

Integrations: apps, exchanges and websites. If ENS is not meaningfully integrated in the broad community so that an ENS name can be counted on to always resolve correctly, then it has no value. If the wallets band together and decide to simply pick a different naming system, then ENS will fail.

Developers: core programmers who understand how the system works. Besides labs, there are many other greatly talented developers who have made meaningful contributions to ENS core protocol and its associated libraries. If we don’t foster them, then we will be losing talent.

Legacy naming systems: domain registrars, DNS hosts, IP repositories, etc. I would argue that a continuing cooperation with the legacy domain system is the path for ENS to keep evolving and being deeply integrated with the largest web infrastructure. Web3, NFTs, Decentralized Internet, these might all have been temporary interests that the overall public is not paying attention to anymore, and in general crypto is slowly finding it’s product market fit not in radicalism but in pragmatic integrations with traditional systems.

ENS Governance Community: stewards, delegates, etc. We can talk a lot about the failures of governance, but we also have to point that despite all the weaknesses, ENS has had an active and diverse community of delegates and stewards that should still have an active role and voice and now are unable to express meaningful dissent. We want to make sure these are empowered again.

There might be others and I welcome further suggestions.

The “Community Treasury”

In the original airdrop, 50M ens were distributed, 25M to the .eth holders and 25M to contributors. Another 50M remained in the control of the dao and were described as such:

The remaining 50% of $ENS tokens is allocated to the DAO. 10% of this allocation will be available to the DAO at launch, with the remaining unlocking over 4 years. […] The DAO is encouraged to allocate these tokens towards community focused initiatives to help the development and growth of ENS, such as grants, hackathons, meetups and more.

While the working groups have worked in many community focused initiatives including grants, hackathons, meetups etc, not many of the DAO tokens themselves were distributed for this purpose. In fact only a few delegation distributions have happened and they collectively distributed less than 150k – way under the 10 million per year that were vesting every year. And now, it so happens that we are five years later and all the 55 million tokens (this includes a few unclaimed airdrops) are now freely unvested.

There were many reasons stewards were reluctant to distribute those tokens. Despite the DAO having consistently refused to treat them as financial assets, they were in many moments hundreds of millions of dollars unvested each year and it felt unreasonable and irresponsible to simply send those to users. And in the few cases these were indeed sent, many of them were not necessarily used for voting purposes and rather sold as soon as they were unvested. It’s understandable: when faced with the opportunity to secure a large financial opportunity that can help them in their lives, or simply vote in a governance process they don’t directly benefit from, it’s hard to put blame on those who pick the former.

Proposal

1. Start a nomination process where anyone who wants to be delegated power can put their name forward.

   1. There will be some minimal threshold requirements, like being a person or company (not anon) who owns an ENS, and has participated in discussions before

   2. The candidate will identify itself in one of the stakeholder groups. Each group will have their own particular minimal requirements and a metric. For some, they will require to have at least M of N requirements (ex: 1000 ENS tokens OR 2 ENS related POAPs OR a github with proof of contributions, etc). The metric will be specific for each stakeholder group. For wallet developers we could use MAUs, or for Registrars we could use amount of TLDs connected to ENS, for Governance community we could use total historical delegation, etc.

2. Once the nomination process is over, there will be no vote, instead we will pick the 10 candidates that fare well on the chosen metric for their stakeholder group. If there are less than 10, then all are chosen

3. 5 million ENS tokens will be transferred from the DAO into the multidelegate contract.

4. For each group, 1M ENS tokens will be delegated in total, equally distributed to all selected voters on step 2. If there are less than 10 voters, they will get proportionally, more votes.

5. Selected voters will get no financial exposure to ENS, nor will they be able to have access to the capital. It still belongs to the DAO. They are volunteers. If they do not vote for a period of longer than 6 months, their votes will be redistributed to other members of their group

Collectively this new group of delegates will represent over 60% of the DAO vote. Past delegates will see their voting power increase because they will also collectively get more delegations, proportional to their past delegation power. This means that no one person or group can unilaterally pass proposals anymore and vote buying becomes harder. But it also means the current set of delegates (now with more power) will be able to coordinate and prevent any one of the new stakeholders from capturing governance.

Some considerations

The DAO still holds more than 50% of all tokens. By enacting such reforms, it can substantially change the way decision power is distributed in the DAO. If this proposal passes, and specially if similar proposals are passed in the future delegating even more ENS to new delegates, then the DAO could be seen as quietly moving away from Token Weighted voting to a new system, which is more similar to a multicameral system: the power balance shifts from market power into self-enforced power in which delegates can continuously control who gets the new votes. This could lead to a reformed DAO where multiple stakeholders each get to balance the DAOs best interest – or it could lead to a plutarchy in which few delegates continuously vote to gather more power and control.

Some of these concerns can be addressed by limiting the amount of ENS tokens the DAO itself can access every year. Of course, at some point the real governance decision on the DAO happens outside itself: if ENS has no users, no integrations, no developers, and no connections to legacy systems, then it ceases to matter who gets to vote.

We can also limit some of that concern by making these delegations time limited, so they automatically expire in 2 years, etc.

Open questions

• What is the right amount of ENS to delegate? Too few and the proposal has no teeth, too much and it might give too much power to a new set of delegates

• Who are the true stakeholders of ENS? Is this proposal overlooking some groups?

• This isn’t a total reformation of the DAO, but a step that can be repeated in the future. Many more proposals should be put forth to improve how the overall governance works, to align the incentives of those voting to participate and make sure they have the best interests of the DAO

[lefterisjp]

The goal of having a much healthier voting distribution is a really good one. To that end delegating those tokens is not a bad idea but deciding how to delegate them and to who is actually quite hard.

Which parties are neutral and users of ENS and would care for its long term survival as an independent protocol not owned by a single entity?

At the moment the DAO has been captured by ENS Labs and people associated directly with them. You can check who delegates to the big delegates to see if they are essentially Labs sock puppets. Giving them more voting power would be a tragedy.

That aside the way you describe it is that essentially the metrics alone will decide. That would mean those metrics would need to be very carefully decided. You gave some examples but would like to see a list of categories and metrics per categories so we can have something more concrete to talk about.

Perhaps the most important point here is that once the capture of the DAO treasury by the ENS Labs controlled foundation passes there no point to any of these and it will just have been too late. So not sure if there is any point but I support any attempts to try and fix this.

[AvsA]

@lefterisjp

That aside the way you describe it is that essentially the metrics alone will decide.

Exactly. The new “delegates” would not be decided by vote.

[jkm.eth]

I think this is a great idea. I’ve long thought a better alternative to the delegate incentive program would be to delegate additional voting power as a reward for participating in the community. For example, for every community call, every person who showed up could receive 100 ENS delegated to them. These can’t be sold so people who just want free money wouldn’t bother to show up, but people who participate regularly would build up more voting power over time (in line with the experience they are gaining by participating in the community).

It sounds like what you are proposing here is the same idea, but issued all at once instead of over time.

I would recommend forum and community call participation as possible metrics. I’m not sure if we have full records of everyone who attended the Google meet calls, but it would be possible to calculate a “forum quality” score using something like the number of posts divided by the number of positive reactions those posts received.

[AvsA]

@jkm.eth

For example, for every community call, every person who showed up could receive 100 ENS delegated to them.

This, of course, falls under the goodhart’s law. We want to give votes to those who participate but don’t want people to participate just to get votes. Also, the reason we now need to be making these decisions in the millions of ENSs is precisely because we failed to delegate hundreds years ago.

[Coltron.eth]

I fear this is a delegation war wrapped in an egalitarian-looking package.

[ethinker]

My thoughts: DAOs require skin in the game, and ENS is no exception.

TL;DR:

I agree that governance participation needs better incentives, but I don’t think moving voting power away from the token is the right solution.

The core issue isn’t that $ENS holders control governance—it’s that holding $ENS has weak economic incentives. Governance should remain token-based, but token holders should have real skin in the game through mechanisms like revenue sharing and buybacks. That aligns voters with the protocol’s long-term success while keeping governance permissionless and market-driven, rather than relying on subjective decisions about who deserves voting power.

By skin in the game, I mean an unavoidable alignment with the DAO’s success: if the DAO doesn’t do well, your own interests are directly affected. Setting aside the aspirational goal of “building a protocol for the Internet,” and assuming that the strongest incentive is ultimately economic, I’d like to focus on that aspect.

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Mismatch between skin in the game and voting power

Today, there is a mismatch between the people who have skin in the game and those who actually hold voting power. This reduces incentives to participate in governance. As we’ve already seen, economic incentives tend to dominate: most people who received the airdrop saw greater value in selling immediately than in holding for future upside.

• Domain holders have significant skin in the game. They are investors and users. They spend money on ENS and actively use the product. Yet they have no voting power.

• Protocols and related projects invest their time, resources, and businesses into creating value around ENS. They are developers and companies building on top of the protocol. They also have no voting power.

• Token holders, on the other hand, effectively own governance. However, holding the token alone does not necessarily create skin in the game. Their only asset is governance over a protocol whose success may never directly translate into economic returns for them.

If economic incentives matter most, why would anyone buy $ENS today?

The protocol generates revenue. $ENS holders decide where that revenue is allocated. But the only way for them to personally capture value is by influencing governance so that funds flow toward themselves or their interests. That doesn’t seem like a particularly healthy or sustainable incentive structure.

So the question becomes:

1. Should domain holders receive voting power? Perhaps. But should someone who has held a domain for five years receive more voting power? Should voting power be based on renewal fees paid? Should a member of the 999 Club receive more voting power than someone in the 10k Club simply because they own a more valuable asset? The mechanism is far from obvious.

2. Should protocols receive voting power? Again, perhaps. But how do we determine which protocol deserves more voting power than another? Which KPIs should we use to measure contributions to ENS? This also seems difficult to define objectively.

3. Should the ENS token remain the governance mechanism? I believe yes—but with much stronger direct incentives for token holders.

Using a token as the governance mechanism is what markets naturally understand: put your own capital at risk and receive greater voting power. Over time, tokens can also be distributed to participants in categories (1) and (2), but the governance primitive should remain the token itself.

Today, voting power ultimately belongs to whoever has invested the most capital into the token market (for example, nick.eth, who holds enough voting power to meaningfully influence governance on his own). But that raises an important question: why hasn’t anyone else chosen to accumulate a similar position?

Because of points (2) and (3), I believe governance power should continue to reside in the token. That’s why this proposal doesn’t fully convince me.

Skin in the game for token holders

Revenue participation

Token holders should directly benefit from the protocol’s economic success.

A portion of protocol fees could be distributed to token holders, while another portion could be used for buybacks and token burns. Naturally, this would require carefully designed tokenomics, including eligibility criteria such as minimum holding periods or other anti-short-term mechanisms.

This would create a much stronger incentive to hold the token, while aligning holders with the protocol’s long-term success. The incentive becomes straightforward:

If ENS as a whole generates more revenue, I benefit. Therefore, I am incentivized to vote for whatever maximizes the protocol’s long-term growth.

This shifts the incentive from:

“The only way I can make money from ENS is by working on the protocol and requesting budget allocations.”

to:

“The more others build on ENS and help the protocol grow, the better it is for me.”

Distribution

Distribution can continue to be handled by the market, just as it is today. The key is creating the right incentive mechanism, and the first proposal addresses exactly that.

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Conclusion

This is an early draft that would certainly benefit from input by tokenomics experts. However, I believe it could be a meaningful direction to increase the governance value of the token by creating the right economic incentives, while naturally improving token distribution over time.

From there, we can also discuss complementary mechanisms such as quadratic voting and other governance improvements. But even on its own, I think this is a proposal worth exploring.

I hope you’ll consider these ideas, and I’d greatly appreciate any feedback.

[xinbenlv]

As a long term .eth name holder, I didn’t get the ENS token drop - maybe I didn’t care enough to even claim them as I was busy with my life. But In this crisis I want to share my voice only to know that name holder has no voice - the token-claimer or token-buyer had. I think one of the reform direction I like to see exactly people who have held the names for a long time.

I am generally in favor of this direction. Thank you @AvsA

BTW, it now becomes more and more like the ICANN “multi-stakeholder model” LOL. Which I think is the right way.

[xinbenlv]

Side note: maybe in addition/inspite of delegating DAO tokens, we can actually just create a “House of Users” so that .eth holders who use them will get to vote and have a voice or even a member of delegate.

[AvsA]

@xinbenlv

we can actually just create a “House of Users”

This is precisely how to think about this proposal. A “house of User”, a “house of integrators”, a “house of DNS”. Each house gets 1 million delegated tokens, distributed to their members in some objective criteria.

@ethinker

My thoughts: DAOs require skin in the game, and ENS is no exception.

Thanks for the thoughtful comment Ethinker. I agree that there should be a way to get more “skin in the game”. But how to do this is not obvious. We did that a little bit by distributing vested ENS to people who had previously received grants, for example. But the equilibrium isn’t easy: give them too little and their vote doesn’t matter, give them too much and it’s crazy not to expect them to sell it. Even with vesting – you can transfer Hedgey contracts and therefore sell your vested tokens at a discount.

Honestly I don’t see how doing tokens buybacks helps this at all. The DAO could very well simply burn all their tokens – what good would it do for governance?

[ethinker]

Thanks for your response, Avsa.

My point is about increasing the economic value of the token, because I believe the market is the mechanism that best aligns incentives. Giving the token clear, direct, and intrinsic economic value would create much stronger incentives for people to participate in governance.

Why? Simply because if capital is allocated wisely, the value of your own capital increases. Your incentives become naturally aligned with the long-term success of the protocol.

The mechanism to achieve this would require a carefully designed tokenomics strategy and would likely involve legal expertise as well. But I believe that’s the direction we should be moving in, and I hope these ideas can serve as a starting point for that discussion.

[AvsA]

@ethinker

My point is about increasing the economic value of the token, because I believe the market is the mechanism that best aligns incentives.

I don’t disagree that there is governance value in accruing economic value for the token. For example, once the value of buying votes becomes smaller than the value of the treasury that can be voted on, then you have a problem – that’s why we have the security council and why I am proposing adding withdrawal limits on the endowment. I would love also a good policy proposal on how to best align incentives. The real trouble is when increasing the value of the token becomes the main target for governance, which is the opposite of what it should do.

[ethinker]

@AvsA

The real trouble is when increasing the value of the token becomes the main target for governance, which is the opposite of what it should do

I think the key is improving the incentives to be a $ENS holder. That creates a virtuous governance cycle: if holding $ENS is directly aligned with ENS success, token holders will naturally vote for the protocol’s long-term growth.

More skin in the game → more governance participation → a more valuable $ENS token → a stronger ENS ecosystem.

[bcvfinance.eth]

We have already seen this problem in other DAOs. Compound’s Delegate Race delegated treasury COMP to selected delegates to improve participation, but when a later proposal tried to recall that voting power, the recall failed and some direct beneficiaries voted against it. Uniswap’s treasury delegation program also improved quorum, but its own discussions recognized the same core issue: delegates with treasury voting power become conflicted when they are expected to vote on renewing or revoking that power.

So even if this kind of mechanism helps participation in the short term, it can easily create a new political class with voting power that was not earned through tokenholder trust or economic risk.

I have said this many times on this forum, and I will say it again: the sustainable path for a DAO is to create a free delegate market by incentivizing tokenholders to delegate and compensating delegates for their services. Ownership authority without capital commitment is a highly risky alternative path.

[liubenben]

Here are some of my thoughts.

1. “Let the bullets fly for a while.” The voting power distribution chart at the beginning of the proposal is certainly eye-catching. However, we must recognize that this highly concentrated voting distribution is a recent phenomenon that emerged in response to a specific governance situation. I don’t believe we should rush to negate this state. There is a famous quote from a Chinese movie: “Let the bullets fly for a while.” We might as well observe for a period to see if this concentration actually improves the protocol’s execution efficiency during this critical time.
Furthermore, the Blockful team is currently advancing the “Delegation Incentives” initiative. This is a much milder, more organic, and market-driven approach. We should observe the actual governance outcomes brought by that initiative first, rather than rushing to tap into the treasury.

2. Voting Power: A Reward or an Operational Burden? For the ecosystem builders this proposal aims to empower, participating in the research, debate, interpretation, and voting of proposals requires a massive amount of time and energy. For most developers, this is an operational burden, not a reward.
A classic example is imToken—they received a massive amount of delegated voting power during the initial distribution, yet they rarely participate in DAO governance votes. This shows that for many ecosystem builders, holding voting power does not naturally translate into the motivation to govern.

3. As @ethinker metioned: The Absence of “Skin in the Game” and Equity Dilution.

[jkm.eth]

@ethinker

My thoughts: DAOs require skin in the game, and ENS is no exception.

I have long agreed with this stance, and I believe financial game theory does work when designing incentives for a brand new DAO. However, in recent years I’ve come to realize that for many established DAOs, it is no longer that simple because the motivations of token holders are so varied.

Some token holders obtained tokens because they want to participate in the DAO. For this cohort, the logic you described can work. But some token holders purchased tokens solely as an investment, and they might be willing to completely exit if there is an opportunity to make a short-term profit at the expense of long-term health. Some token holders also received their tokens for free and won’t feel like they have lost anything if value declines (“nothing to lose” = no skin in the game).

I would argue another type of “skin”, and perhaps one more powerful than money, is time invested in the project. Someone who has spent years contributing to the community may be more concerned about the long-term health of the project than someone who recently purchased tokens as an investment. Compared to “financial skin” participants whose perspectives can be extremely varied, I suspect “time skin” participants have a much narrower range of motivations, so it should be easier to design an incentive system that gets them to make good decisions.

The above proposal attempts to give more voting power to the time-based participants, instead of having all voting power solely exist with the financial participants.

[nick.eth]

I’m very supportive of this as an idea: it helps combat diminishing DAO participation by bringing in exactly the stakeholders most affected by protocol changes and upgrades, and most incentivised to help keep the protocol secure.

This change only makes sense to me if the Foundation is responsible for day-to-day treasury allocation rather than the DAO. With the DAO still directly allocating treasury funds, delegating a huge number of tokens to ecosystem participants becomes a massive incentive for spending expansion under the guise of new grant programs, and immediately results in political fighting over fund allocation rather than protocol governance. With additional checks and balances between new DAO delegates and funding, attention is instead focused on the protocol levers that are so crucial to protect and use with care.

I also think it needs to be rolled out carefully. Rather than 5M tokens on day 1, with delegation active until revoked, I’d suggest starting with a smaller amount, and a fixed duration before which a mechanism like the current Security Council expiry can revoke the delegations. Both amount and duration can be gradually expanded - perhaps starting at 1M and 3 months and graduating up to 5M and a year or even longer. This directly addresses the point raised by @bcvfinance.eth and what we have to learn from Compound and Uniswap. It also allows the Security Council to act as a check against the new delegates entrenching themselves to the disadvantage of the DAO.

Finally, I don’t think it makes sense to grant voting power to our direct competitors.

[AvsA]

@nick.eth

This change only makes sense to me if the Foundation is responsible for day-to-day treasury allocation rather than the DAO.

I don’t disagree. Ideally the DAO should make governance decisions (who sits in the Foundation Board), the Foundation should make spending decisions (who gets funding for which objectives) and the funded teams should only make product decisions.

Finally, I don’t think it makes sense to grant voting power to our direct competitors.

Do you mean DNS registrars? I think any company willing to bring a TLD to be managed by the ENS root in a way that is aligned with our values should have a say in the future of the protocol.

[nick.eth]

@AvsA

Do you mean DNS registrars? I think any company willing to bring a TLD to be managed by the ENS root in a way that is aligned with our values should have a say in the future of the protocol.

No, absolutely in support of that. I was talking about the suggestion of delegating tokens to .wei/.gwei.

[AvsA]

@nick.eth

I was talking about the suggestion of delegating tokens to .wei/.gwei.

I wouldn’t support that either, unless they have the root managed by ENS (which would only happen if they bought the TLD or under some very special other circumstances, like getting a waiver from ICANN as specially designated domain or something)