Meta's Mark Zuckerberg Could Teach DAOs, Like Compound, a Governance Lesson

For the dream of decentralized autonomous organizations to work, they need to take lessons learned from Silicon Valley and its multi-classes of shares.

The recent governance "attack" on lending protocol Compound by a whale, known as Humpy, has sparked a discussion on the challenges of decentralized autonomous organization (DAO) governance. Some have attributed the attack to voter apathy, while others, like security audit firm OpenZeppelin, view it as an exploit on the governance model itself.

According to Michael Lewellen of OpenZeppelin, governance models that heavily favor token holders, without any meaningful checks on their actions, are inherently susceptible to such attacks.

"It's just a matter of time," Lewellen said in an interview with CoinDesk at Devcon.

While decentralization is a key principle in blockchain, Lewellen believes it may not be as beneficial in the context of governance.

“Decentralization is like an objective good, but it’s not a good in governance the same way it's a good in blockchain. More voices in that discussion aren't necessarily better if a lot of those voices are not aligned with the DAO and are not informed.”

Lewellen emphasizes the need for know-your-customer (KYC) initiatives in DAO governance to introduce accountability without compromising anonymity. He suggests using zero-knowledge cryptography to verify identities without revealing personal information.

"There should be a way to verify this is a real person, and they're not pretending to be others. For instance, zero-knowledge cryptography can help verify identities without exposing personal information,” Lewellen said.

Such measures would also prevent actors like Humpy from creating multiple delegate profiles to manipulate governance.

“If someone has significant governing power, they should be upfront about it,” Lewellin said. “People should have the chance to recognize exactly what sort of influence they have and have the ability to counter it if necessary.”

Lewellen also highlights the importance of wargaming exercises to prepare for worst-case scenarios.

“Threat modeling for worst-case scenarios should be a standard practice,” Lewellin said. “Teams need real answers to questions like: What if a malicious actor acquires significant voting power? How do we respond on-chain?”

To address the issue of voter apathy, Lewellen suggests exploring mechanisms to incentivize good participation and prioritize decision-making quality over quantity, especially when it comes to critical decisions involving user funds and protocol security.

“We need to give token holders reasons to be responsible stewards of the protocol,” Lewellin said. "By rewarding participation, we can ensure that governance decisions are made by informed and engaged stakeholders.”

Ultimately, Lewellen believes that DAOs handling billions of dollars should consider structuring their governance more like Meta, with multiple classes of tokens, as opposed to the current one-token-one-vote system in DAOs.

“We need governance systems that reflect this reality, systems that balance decentralization with safeguards to ensure long-term sustainability,” Lewellen said.