How does Optimism achieve true Decentralization?

Author: Superchain Eco Source: mirror Translation: Shan Ouba, Golden Finance

Introduction

Blockchain technology enables trust and transparency without the need for a central authority, laying the foundation for a new on-chain digital economy. On-chain organizations, particularly decentralized autonomous organizations (DAOs), leverage this infrastructure to manage resources and achieve their goals in a peer-to-peer environment.

In the past five years, the scale, capability, and complexity of DAOs have significantly increased. Over 3.3 million addresses have actively participated in DAO voting and governance, with the total assets managed by DAO treasuries approaching 35 billion dollars (source: DeepDAO).

Despite the enormous potential of DAOs, this new collaborative model still faces numerous challenges in governance and operations. To reduce complexity, DAOs often start from simple centralized organizations and gradually evolve into more resilient and decentralized entities, a process referred to as "progressive decentralization".

This report aims to promote the development and adoption of a functional governance framework, thereby enhancing the operational capabilities of DAOs and supporting their growth and decentralization over time.

This report draws lessons from nearly 40 DAO failure cases from 2016 to 2024, summarizing negative patterns that affect their viability and effectiveness. In the latter part, we will provide actionable suggestions for optimizing the governance of Optimism Collective based on these insights.

Overview of DAO Failure Cases

Our team analyzed 37 DAO failure cases from 2016 to 2024 to identify key failure patterns. The data sources include interviews with stakeholders and desk research. The DAO Failure Dashboard we compiled has been publicly released, providing a complete overview of the data.

We divide the current status of the DAO into three categories: those still in operation (Active), those that have scaled down operations (Dormant), and those that have completely ceased operations (Terminated). The current status of the DAO is used as a reference indicator for measuring the severity and impact of its failure.

We also recorded the main categories of each DAO (such as DeFi protocols, L1 blockchains, etc.), the associated network, the voting tools used, and the organizational structure, and labeled their primary and secondary reasons for failure.

The chart shows the main types of failures identified in the current dataset. Among them, the inability of DAO to find a market fit for products or services is considered the primary reason for failure, accounting for over 40% of the failure cases. About 30% of failures are due to security incidents caused by vulnerabilities or attacks. In comparison, the proportion of failures related to governance and operations is lower, with voter apathy (accounting for 8%) and disagreement among stakeholders (accounting for 5%) being the two most common situations in this subclass. Even when all governance and operations-related failures are combined (accounting for a total of 19%), their probability of occurrence and impact are still smaller compared to product-related failures.

The chart visually compares the percentage of major failure types that lead to the termination of the DAO (blue bars) with the average proportion of that failure type in the entire dataset (red line). The gap between the top of the blue bars and the top of the red line reflects the severity of the specific failure type in leading to the eventual termination of the DAO.

Massive vulnerabilities caused by hacker attacks or exploits are another common reason for the termination of DAOs, with nearly 44% of catastrophic DAO failures resulting from exploitations. This data further indicates that product adaptability and security are the most critical responsibilities of a DAO. The existence of liquidity governance tokens may be one of the reasons for the high failure rate caused by exploitations, as hacker attacks often involve the protocol's native tokens, putting huge selling pressure on the projects. The decline in token prices often severely impacts the operational funds of these DAOs, as most DAOs' funding is centralized around their native tokens.

The inability to find product-market fit ranks second, with 37.5% of major failures related to DAOs failing to find market fit. In some cases, the creation of a DAO may be aimed at achieving specific goals at a certain point in time, such as acquiring specific assets or testing particular hypotheses. When such DAOs fail to achieve their primary objectives within a reasonable timeframe, there is often little reason to continue operations. This dynamic reflects the market forces of on-chain economics, where the speed of capital formation and talent mobility is in sync with the speed of the internet. These forces make attracting initial investments relatively easy, but retaining attention and talent becomes increasingly complex.

While governance and on-chain voting are often the top priorities for DAOs and their operations, data shows that litigation and leadership scandals are more likely to lead to DAO collapses. This indicates that "good governance" is crucial in the leadership of a DAO and suggests that involving the right people who are committed to the DAO's goals is one of the key areas that DAO governance should focus on. This dynamic is more similar to the governance processes of a country—where national governance is typically centered around elections and representative systems, rather than direct democracy at the legislative level—much more so than what people typically imagine when considering DAOs as a means to involve all stakeholders in governance.

If secondary failures are taken into account, the incidence of stakeholder discredit and power concentration will significantly increase, rising from 3% to 13%. Further analysis of case data indicates that voter apathy often leads to power concentration, thereby weakening the overall governance of the organization. Moreover, the lack of PMV and stakeholder discredit often coexist. DAOs typically lack mechanisms and rigor, making it difficult to properly coordinate and commit to a specific strategy worth executing. The absence of a long-term vision, along with a preference for numerous small independent projects rather than large strategic plans, often results in significant discrepancies in goals and information flow within the DAO, severely limiting its developmental capacity. However, the opposite is also true—because DAOs often operate transparently online, they are able to record and publicly disclose all organizational processes and data. Introducing robust data pipelines and utilizing information management solutions and AI agents to further organize and implement insights could potentially accelerate the ability of DAOs to make the right decisions.

Current datasets and research scope provide limited insights into the impact of different voting structures and governance tools on the decision-making capabilities of DAOs, as nearly all DAOs follow the same native governance token structure and similar tools (Snapshot or Tally). Future research could delve deeper into patterns that increase the likelihood of specific failure states occurring and offer insights into addressing these failures.

Key Points

#1 The core of a DAO should focus on the value it creates

The survival of a DAO highly depends on the value that its products and services can provide. The decision-making system of the DAO should be organized around the key performance indicators (KPIs) of products and business.

#2 Formulating the right top-level strategy is the most critical decision for a DAO

Choosing the most appropriate strategy to advance product development is crucial, as it helps to coordinate resource input and measure success consistently.

#3 It is crucial to select the right executor and retain the mechanism to withdraw their powers

Attracting the right talent is key to realizing the vision of a DAO. DAOs should incentivize contributors while establishing processes that allow for partial or complete revocation of their permissions when they are no longer making a substantial contribution.

#4 Building a complete data pipeline and information management system is the foundation for enhancing DAO decision-making capabilities

These systems can provide DAOs with "collective intelligence" that can be used for decision-making, especially when used in conjunction with AI agents that can handle large-scale data, significantly enhancing judgment and action capabilities.

Promoting the Optimism Collective to achieve functional decentralization

Optimism Collective is currently one of the largest and most influential DAOs, composed of a series of communities, companies, and individuals, aimed at expanding Ethereum's capabilities and building a better internet. It has built an interchain network called Superchain based on shared standards and values through the OP Stack, and provides funding support for ecological development through the OP token.

The goal of this analysis is to cross-reference the lessons learned from failed DAO cases with Optimism's decentralized work model, in order to identify potential weak points and provide actionable recommendations for future improvements.

The key governance areas identified in the "decision-making model" provide a focused direction for this analysis; while the "decision design framework" enhances the adaptability and implementability of the analytical insights.

Review of the Decentralized Path of Optimism Collective

Before entering the analysis of key areas, we first evaluate the decentralized model built by Optimism based on the key conclusions from the research on DAO failures.

The value created by DAO's products and services should be the core focus

Optimism has a clear and detailed product development and decentralization roadmap, enhancing security through standardization, effectively addressing the significant threats posed by vulnerability attacks, and improving the product's market fit.

However, one limitation is: a lack of embedded product promotion guidelines and a clear explanation of how the product creates and captures value. Although DAOs are often compared to nations, the governance of the technological ecosystem heavily relies on user adoption rates. Therefore, the decentralized design at various levels of the DAO should be closely linked to core objectives, in order to clarify the outcomes that each level needs to optimize.

For example: the Protocol Layer can use the "Percentage of Major Crypto Transactions by Superchain" in the Superchain Health Dashboard as an Adoption metric. The Economic Layer can demonstrate profit and loss trends by comparing "Monthly Estimated Income" with "Monthly Expenditure" and simulate the potential for the DAO to become self-sufficient.

Formulating the right top-level strategy is the core decision of the DAO

Although the "Work Charter," "Superchain Product Vision," and the quarterly Optimism Season intention documents provide a general direction for the Collective, they have not yet clearly defined the optimal strategic path to achieve these goals.

The current "mission request-driven" funding model allows for the submission of isolated proposals, which in the past has led to issues such as duplicate projects and unallocated funds. Since the effectiveness of a "mission" is influenced by various factors (such as talent resources, urgency, etc.), the setting and allocation of missions require a high level of professional judgment and a strong sense of responsibility.

We recommend: analogizing the mission operational model to a "government department", with "public servants" possessing leadership and analytical skills responsible for a set of Mission Clusters within specific areas; these mission clusters can pre-assign some contributors to ensure the completion of core tasks within a specific budget and timeframe, while the remaining part is publicly tendered; the cluster leader must be responsible for the execution of their assigned missions and communication with the Collective.

An extreme reference case is the OpCo in ArbitrumDAO - a new entity specifically established to execute strategies, expected to receive a funding of 22 million ARB within 30 months.

Another challenge is the current "quarterly season" and "funding cycle" having a relatively short duration, while most projects often take weeks or even months from allocation to completion. By the time the results can be assessed, the focus has often shifted to the next cycle.

To enhance strategic coherence, consider: setting cross-season continuous goals or intentions; or extending the duration of a single season cycle, or merging multiple seasons into a larger cycle, such as referred to as an "era," consisting of 3 to 4 seasons.

It is crucial to choose the right executor and retain the ability to revoke their powers

The dual governance structure designed by Optimism Collective distinguishes between token-based voting and representative election systems. Its "citizen" mechanism provides a theoretical pathway for power reclamation, but this functionality has not yet been fully developed. Currently, the re-election mechanisms of the Citizen House and Token House are inadequate, resulting in some members who are no longer actively participating still holding influence, which to some extent hinders the entry of new contributors and even contradicts its original intention.

To enhance the governance efficiency of Token House, it is recommended to introduce a time-based re-delegation mechanism, such as mandatory re-delegation of token voting rights every X seasons. Furthermore, Citizens should be elected into relevant fields based on their knowledge background, rather than being randomly assigned or selected through private processes.

Consider distinguishing between two types of Citizens: "Regular Citizens": participating in governance from the perspective of the board, providing broad opinions; "Expert Citizens": possessing deep professional capabilities in a specific subfield, participating in strategy formulation.

Elections for regular citizens should be conducted through an open mechanism; while evaluations for expert citizens should be based on their verifiable experience and historical contributions. On-chain behavior should become part of voter identity verification—one of the key innovations of blockchain is that users are also owners, and this "ownership" should not only be limited to holding tokens but should also be reflected through "citizen" identity.

Building a complete data pipeline and information management system is the foundation for enhancing decision-making capabilities

Currently, understanding and keeping up with the progress of Optimism Collective is a time-consuming task. Many key pieces of information are scattered across multiple platforms, with quite a few existing only on the Optimism forum. New tools like 'Governance Hub' should be established to unify and integrate resources.

In addition, a summary report should be released at the end of each season to review progress and showcase achievements. By establishing a well-developed data pipeline at all levels, Collective members will be able to process large amounts of data more efficiently with the help of AI agents, thereby enhancing governance efficiency.

Overall, Optimism's "Decentralized Work Model" is highly consistent with the key recommendations from the research on DAO failures. If optimized, it holds the potential to become a model for progressive decentralization.

Core Area Review

We determine the key areas of analysis based on influence, likelihood of occurrence, and relevance to the current OP governance status.

Polaris Objectives and Priority Setting (Based on Decision Diagram Model)

The current decentralized work model provides a preliminary roadmap, but lacks open discussion and ongoing communication. A typical example is the release of the "Superchain Product Vision": it outlines a two-year development blueprint but has not responded to follow-up questions from Citizen and Token House members.

Research on DAO failures indicates that governance models with multiple key stakeholders are more rigorous and active compared to those dominated by a small core team. Therefore, the "governance" element should be included in discussions on setting and prioritizing North Star metrics to optimize the content of work models and enhance the sense of participation among a broader range of Collective members.

The Optimism Foundation should interact with the community through public channels such as forums and actively respond to feedback from governance members.

Suggestion:

• The foundation collaborates with key ecological stakeholders to establish measurable goals that embody the mission of Optimism;
• The formulation of all major Polaris goals must be included in the governance voting process;
• The identified priorities should enter the formal input and review stage and be approved through the governance process.
• Establish fixed periods to review priorities and allow governance members to propose amendments.

Citizens should deeply engage in the formulation of goals and priorities according to their expertise, while Token House serves as the final approval mechanism to ensure that the will of token holders is reflected.

Once these goals and priorities are set, all proposals funded by Collective must be linked to them in order to receive financial support.

Budget and Expenditure Mechanism of Collective (Based on Decision Graph Model)

Many DAO failures stem from poor financial management, manifested as inefficient budgeting and inadequate treasury control. The aforementioned suggestion to enhance the efficiency of fund utilization through the clarification of objectives and priorities is necessary but insufficient; more measures are needed to complement it.

Token House is responsible for approving the budget size for each season, as these allocations directly affect the circulation of OP in the market. All budgets should clearly state their relationship with past projects, as well as their alignment with overall objectives. A periodic report should be released at the end of each season for governance members to evaluate budget effectiveness. This will enhance the accountability mechanism and budget formulation capability of the Collective.

In addition, it has been confirmed that the concentration of assets in the native tokens of most DAO treasuries is highly risky — the impact of market fluctuations on coordination capabilities is further amplified. It is recommended to diversify the structure of the Optimism treasury, which can be achieved by selling OP for stablecoins through decentralized mechanisms, or by having ecosystem-related entities directly purchase OP to reduce the risk of selling pressure. Mechanisms can also be designed to increase the holding rate of the Superchain native token, such as the tokens of OP Chain, achieved through revenue sharing, Token Swap, and establishing shareholding relationships with key ecosystem partners.

Voter Selection Mechanism (Based on Decision Graph Model)

"Who can become a representative or citizen of the Collective" is a key question. If the mechanism for selecting voters is poorly designed, it will lead to low participation rates and a concentration of power.

The Optimism Collective should continue to build an inclusive and well-structured voter choice system to encourage active participation and ensure that governance decisions align with the overall goals of the Collective.

In addition to the time-limited re-authorization of the token house described earlier in this report, the separation of ordinary citizens and expert citizens, and the potential benefits of incorporating on-chain metrics in representative selection, transparency should also be emphasized.

An opaque system, where decision-makers and their basis are unclear, can have a negative impact on the overall operation of the system. The recommended approach is to derive backwards from expected outcomes based on an overall optimism strategy to assess the correct type and functions of governance participants. On this basis, precise evaluation and election processes can be published and operated. This is especially important for citizens' (re-election) elections, as they play a key role in the optimistic collective.

Due to the fact that most OP tokens have not yet been allocated, among the 4.3 billion OP tokens, the circulation is slightly above 1.35 billion (31%). Therefore, a key method to enhance the quality and resilience of the Token House is to increase the proportion of OP tokens that enter circulation and are delegated for governance. There are many ways to achieve this goal, but initial pilots can focus on incorporating conditional rewards into OP tokens, such as airdrops and governance funds, to reward participants who continuously engage in effective interactions with the Optimism Collective during a specific period, similar to equity incentives for startups.

Final Thoughts on Season Seven

The seventh season focuses entirely on interoperability, so it is crucial to ensure that the various levels of the Optimism Collective make substantial progress in this direction. Currently, there are sufficient development resources for the protocol layer, and progress is rapid; however, the advancements in the social and economic layers are noticeably lagging.

If there is a lack of collaborative promotion at the socio-economic level, the unified vision of Superchain will be difficult to achieve.

We must clarify the actual state and target state of the current social and economic levels, and take key steps to promote progress. However, the resources and budget allocated to social-economic coordination are still insufficient. Therefore, the further development of the social and economic levels will largely depend on the collective capability and unified will of all stakeholders.

As Superchain Eco, we are committed to promoting the accelerated development of the Superchain ecosystem by acting as a resource and coordination hub, advocating sustainable and collaborative practices among various stakeholder groups. We firmly believe in the power of optimism and will continue to proactively drive various actions to enhance the cohesion and synergy of the Collective at social and economic levels.