What are the limitations of coin voting?
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Coin voting has several limitations, as discussed by experts in decentralized governance:
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Centralization of Power: Coin voting often results in governance power being concentrated among a small number of large token holders, or "whales". This centralization can misalign with the decentralized ethos and lead to decisions that favor whales over the broader community 1 2 3.
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Low Participation: Voter participation rates in coin voting systems tend to be very low since most token holders have insignificant governance power compared to large stakeholders. This apathy can further skew governance decisions towards the interests of a few 4.
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Financialization: The separation of economic interest and governance power can undermine the system. For example, governance tokens can be rented or sold, leading to financial manipulation and governance decisions that do not reflect the real interests of long-term stakeholders 3.
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Slow Response Times: Governance decisions often require time delays to ensure stability and prevent rushed changes. However, these delays can make protocols less competitive and adaptive compared to more centralized counterparts 1.
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Complexity and Inaccessibility: Many people in the broader world have not participated in governance decisions and may find the process of using assets to vote unfamiliar and complex. This limits broader engagement and innovation within governance systems 5.
Efforts to address these limitations include experimenting with quadratic voting, which weights votes differently to reduce the influence of whales, and exploring one-person-one-vote systems to better capture diverse participation levels 6. Concepts like "badge holders" with non-transferable tokens also present potential alternatives to traditional coin voting, aiming to balance quality governance input with decentralization 6.
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