Web3 Governance: Studying Political Systems at Scale Using DAOs

Decentralized Autonomous Organizations (DAOs) offer a unique perspective for studying political institutions at a large scale, according to a recent paper from a16z crypto. The study leverages public data from the web3 startup Optimism, which used a large-scale experiment to create a new incentive system aimed at encouraging democratic participation.

Experiment Details and Findings

Optimism, a Layer 2 scaling solution built on Ethereum, deployed over $28 million worth of digital tokens to its users to reward participation in the startup’s voting process. This experiment, known as airdrop 2, involved distributing 11.7 million OP tokens on February 9, 2023, to over 300,000 unique addresses. The eligibility criteria for these rewards were not disclosed until the day the airdrop occurred.

The rewards were structured as follows:

1. Governance delegation reward: 6.8 million OP tokens sent to 57,204 addresses.
2. Gas usage reward: 2.5 million OP tokens sent to 280,057 addresses.
3. Four bonus attributes: 161,759 eligible addresses.

The study found a significant increase in new daily delegations immediately following the announcement. This included new wallets that had not previously participated in delegation activities. Additionally, wallets receiving larger rewards were more likely to delegate at higher rates, particularly to other addresses rather than self-delegation.

Incentive Structures and Prosocial Behavior

Optimism’s approach aimed to incentivize prosocial behavior by promising future rewards and giving users a greater stake in the community through governance power. Despite the potential for participants to sell their token rewards, the study found evidence of increased voting and governance participation, suggesting that the size of the reward directly influences engagement levels.

Two main effects were examined:

1. Whether addresses changed their behavior in anticipation of future rewards, including new wallets delegating for the first time.
2. Whether rewarded addresses showed sustained participation beyond merely pocketing the rewards.

The analysis concluded that incentives for democratic participation can have a meaningful impact, at least temporarily, under certain conditions:

1. Incentives provide a stake in the community, linked to voting power.
2. A promise of future rewards, with Optimism publicly allocating a portion of their budget for this purpose.

Broader Implications for Political Science

The findings from this experiment support existing theories suggesting that long-term economic stakes can increase political participation. This is similar to how homeownership or universal basic income (UBI) programs have been shown to increase voter turnout in traditional settings.

For political scientists, these insights are invaluable for understanding how giving individuals a durable stake in their local communities might boost participation. This might extend to encouraging participation in financial markets or other community activities.

Optimism’s innovative approach to incentivizing governance participation in the web3 space demonstrates the practical applications of political economy theories in online platforms. This enables iterative experimentation with governance models, potentially leading to more effective and inclusive political systems.

For more detailed information, please refer to the original [source](https://a16zcrypto.com/posts/article/the-web3-governance-lab/).