rewrite this title Why Incentivized Governance is the Next Frontier for DAOs

by
Jana Bertram

Published: May 14, 2025 at 8:34 am Updated: May 14, 2025 at 8:34 am

by Ana

Edited and fact-checked:
May 14, 2025 at 8:34 am

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We’ve been seeing interesting patterns in crypto, and one of them is this. A new protocol introduces a token and spins up a DAO, and suddenly, there’s a burst of activity. When a protocol launches a token and sets up a DAO, there’s often a flash of momentum. At that early stage, the community is energized, excited to participate, and eager to shape the future. Governance feels novel: an experiment worth engaging in. At least, that used to be the case.

In the early days of Web3, DAOs were known as the next big thing. They promised a new paradigm for coordination: borderless, decentralized, and open by design. However, over time, enthusiasm has waned. DAOs, once the darling of crypto Twitter and conference keynotes, have gained a reputation for being chaotic, inefficient, and slow. For builders and users moving at crypto speed, governance began to feel like a bottleneck rather than a breakthrough.

Governance Still Matters—But It Needs a Redesign

And yet, governance remains foundational. Without it, we cannot build credibly neutral platforms and trustworthy systems, not because of who controls them but because no one can control them unilaterally. Robust, well-participated governance is one of the few safeguards against platform risk. It ensures that no single actor can upgrade a protocol, redirect a treasury, or shape incentives in ways that undermine the broader ecosystem. For developers and projects building on top of these platforms, that level of protection isn’t a luxury; it’s essential.

Good governance is possible and powerful when done right. But it doesn’t happen by default. It requires structure, clarity, and, above all, people. People who care, show up and are willing to do the work. That means competent, engaged delegates who understand the protocol and make thoughtful decisions for their communities.

And here’s the hard truth: that level of engagement doesn’t come for free.

Early on, DAO contributors were motivated by reputation, idealism, or the thrill of being early. But those motivations alone aren’t enough to sustain meaningful participation over time. The demands on delegates are significant, including reading proposals, consulting stakeholders, and staying up to date with technical developments. It’s real work. And like all work, it deserves to be compensated.

Incentives Are Not Optional—They’re Infrastructure

This is why incentive programs for delegates have become increasingly common. Arbitrum has one, RARI DAO has one, and several other major DAOs have either launched or proposed similar programs. These efforts recognize that without clear incentives, we’re asking people to do unpaid labor in a competitive, fast-moving, and financially driven ecosystem. 

But delegates alone don’t make a governance system. It needs delegations. Today, the average token holder is often disengaged, disconnected from governance, and unsure how (or why) to participate. So, how do we get them involved?

This is where incentive alignment becomes critical, not just for delegates but for all token holders. In Web3, financial incentives are intuitive; yield is a language everyone understands. Yet governance participation remains one of the few areas where incentives remain spotty or absent altogether. 

Enter: Staking for Governance

Instead of treating staking as passive yield, the staking model flips the script, where rewards are decoupled from real protocol involvement. DAOs should adopt a model where staking is directly tied to delegation and governance participation. Token holders who take the extra step to delegate their tokens, thereby contributing to the protocol’s decision-making capacity, are rewarded for their involvement. 

The token holder and the active delegate can then share those rewards, aligning incentives. This structure creates a powerful flywheel: token holders are motivated to delegate, delegates are encouraged to perform, and governance becomes more active, resilient, and representative.

Importantly, the more tokens are delegated and actively used in voting, the harder it becomes for malicious actors to exploit a DAO through low voter turnout or quorum manipulation. Simply put, incentive-aligned governance isn’t just good—it’s necessary for security and long-term sustainability.

Will staking for governance solve every problem DAOs face? No. Governance is still a design challenge, and each protocol must tailor its model to specific needs. However, without mechanisms that share incentives with active participants, including stakeholders and delegates, we are holding DAOs back from reaching their next stage of maturity.

To build the next generation of decentralized systems, we need governance that’s more than an afterthought. We need systems that recognize effort, reward participation, and protect against apathy. If we get this right, governance can become a strength, not a liability.

The tools are here, and the need is clear. It’s time to make incentivized governance the new default.