By Oleg Fomenko, Co-Founder of Sweatcoin and Sweat Economy
The maturation of Web3 is like the evolution of the Internet–evolving significantly since its inception, in incremental steps while overcoming a myriad of hurdles. However, Web3, a more intelligent, interconnected, and ownership-driven iteration of the Web, is still very much in its infancy, one of Web3’s key features is decentralized finance (DeFi), which has opened up a wealth of possibilities for global economies, despite garnering notable regulatory scrutiny. In all this, one central feature of the blockchain landscape has gone largely unnoticed in mainstream conversation, and that is the decentralized governance (governance models controlled by decentralized parties as opposed to one large centralized entity) on which many Web3 projects are built upon.
Decentralization is a rejection of the centralized, governance structures at the heart of traditional business models. Users have grasped the benefits of redistributing power through “decentralized autonomous organizations,” or DAOs. We need only look at the success of Uniswap, a leading crypto trading platform governed by a decentralized community, to see the heights that DAOs can reach. For all the intriguing potential of DAOs, however, their ability to function effectively hinges heavily on the people within them.
Decentralization - What’s The Hype?
DAOs renounce conventional hierarchy in favor of democracy. They enable all stakeholders to have a voice in a project, influencing the project's growth strategies or product upgrades. Typically, all parties hold a governance token and cast votes on process decisions, which are then recorded transparently on the blockchain. Many DAOs hold billions of dollars worth of assets and conduct business at a significant scale, all without centralized management. It almost sounds too good to be true — perhaps because, sometimes, it is.
Problems with the DAO Structure
In recent years, many ecosystems have seen voter participation rapidly dwindle. This doesn’t come as much of a surprise, given the inherent corruption and inefficiency that can plague DAOs. Web3 users are intent on giving people back control, but control is a responsibility—some might say a burden—that takes time and energy. Not everyone wants to take it on. Power to the people doesn’t work if the people aren’t interested in exercising that power.
Some of the most common problems associated with DAOs include unclear or suboptimal dispute resolution mechanisms. Many DAOs enable wolfpack-like activities among voters and the jury is still out on how DAOs should distribute voting (governance) tokens among participants. The majority of DAOs distribute their tokens through a process of buying and selling, meaning that ‘de facto’ power often falls to the users with the deepest lined pockets. “If our wealth commands us, we are poor indeed” (Edmund Burke). Some DAOs have begun to incorporate quadratic voting to tackle these issues, allowing voters to rank their choices in terms of preference, and enabling the intensity of conviction to be weighted. However, while this method of voting encourages equal participation and a neutral power balance, it is a complicated process for non-crypto native users to navigate and thus serves as another educational barrier to participation.
Incentivizing Effort and Engagement
While DAOs struggle to establish efficiency and encourage collaborative coordination, they possess immense potential. It’s time to consider ways power can be decided by factors other than wealth. What if there were a way to incentivize people to participate in DAOs, by offering more than just the opportunity to participate?
Case in point: the move-to-earn (M2E) sector. With this system, participants are rewarded directly for their efforts, and the network’s growth depends entirely on the equal contributions of all token holders. In addition to having voting rights, M2E apps grant token holders access to exclusive rewards, without requiring users to spend a single penny. As a bonus, DAOs in the M2E sector use game theory to grow and scale their businesses. The more steps users take, the bigger the network grows, and the more tokens that are minted. Since users have a stake in the game, they are entitled to a portion of its future success. In this way, DAO users in the move-to-earn space can actively build their wealth — both literally and metaphorically.
Another challenge associated with DAOs lies in establishing accountability and transparency around decision-making. It’s almost impossible to hold participants accountable for their actions or decisions when there is an underlying protocol of anonymity. What happens when there is a consistent misalignment in people’s views around a particular decision? Can users really promote collective collaboration within these DAOs? When someone says “Let’s vote on it”, how can users be sure that they don’t narrow the options pool before the creative conversation has fully begun?
The solution to this is continuous approval voting. With this method of voting, new proposals can be submitted at any time, as long as they surpass the voting weight of the last successful proposal implemented. Another possible idea would be to introduce an inactivity fee, where users who fail to participate regularly will hold reduced levels of influence when it comes to their voting power. Not only does this prevent parties with a fake vested interest in the project from ruling the roost, but it also ensures all token holders are fully aligned with the project’s central mission and vision.
DAOs could take a page out of real-world political party playbooks to promote grassroots engagement within their communities. Decentralized governance is not only about technical tools and protocols; it’s also about building and maintaining social interactions and communities. This is something the move-to-earn space does very well. After all, the founding mission of DAOs was to promote creative collaboration, so DAOs should introduce the tools to enable this. This could be in the form of online forums, chat groups, social media platforms, or events where the community members can network in person.
DAOs are certainly uncovering the blueprint for success, albeit slowly. It’s important to remember that all successful projects follow the failures of more than 95% of innovations. Done right, DAOs have the potential to upend the traditional mainstream models of power we see today, allowing communities to shape tomorrow’s technological market. There’s no doubt that move-to-earn apps are on the right track in achieving this; using personal and monetary reward incentives is the first step toward encouraging active and productive member behaviors. The rest will follow.
About Oleg Fomenko
Oleg Fomenko is the co–founder Sweat Economy, which is establishing the movement economy by realizing the value of physical activitiy and rewarding steps. Oleg has more than 15 years of experience as an entrepreneur. Nine years prior to the launch of Sweat Economy, Oleg co–founded Sweatcoin, a digital currency backed by physical movement and a stepping stone to the launch of $SWEAT–tokenized physical activity. Sweatcoin has more than 140 million users, and $SWEAT has more than 10 million token holders. $SWEAT is the 9th most widely held and 13th most actively used token in the Web3 world.
About Sweat Economy and Sweatcoin
Sweat Economy is a Web3 ecosystem on a mission to promote healthier lifestyles by encouraging people to move more. Powered by $SWEAT, a tokenized physical activity (crypto asset and the unit of physical activity value minted by steps). The token is managed via the intuitive, non–custodial Sweat Wallet dApp. Sweat Wallet is a top 5 dApp globally, designed for the crypto–curious. With over 140M+ registered Sweatcoin users, and over 7.5M Sweat Wallet users, Sweat Economy is facilitating one of the most significant onboardings in Web3 history.
Meanwhile, Sweatcoin, launched in 2015, has been the No. 1 mobile app in over 60 countries. Sweatcoin forms the basis of the movement economy. Users can earn rewards simply by walking, and they can redeem the value of their activity on a unique marketplace. Sweatcoin (which involves non–crypto rewards) validates a user's steps and connects to the wider on–chain Sweat Economy ecosystem through the Sweat Wallet mobile app, allowing movement to generate digital assets called $SWEAT. Users can additionally earn rewards by putting their $SWEAT into Growth Jars.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.