ConstitutionDAO and the High Cost of On-Chain Participation
In late 2021, ConstitutionDAO spent between $1.5 million and $2.1 million on Ethereum gas fees. These fees came from thousands of individual donations and refunds. The DAO, or decentralized autonomous organization, aimed to give communities direct control over projects.
While token holders theoretically had voting rights, high transaction costs limited full participation to wealthy members. This challenge shows how money still influences who can have a say, despite promises of decentralization and equal access.
Challenges of On-Chain Governance
Economic Inefficiency
On-chain voting allows direct decision-making but causes high economic inefficiencies. During busy voting periods, Ethereum gas fees can spike sharply. A 2022 ETH Zurich study found that popular votes become extremely costly, as seen during the Ethereum Name Service launch in 2021. Community members spent millions to vote due to these spikes.
Holding governance tokens also locks up capital that could earn returns elsewhere. By November 2025, average gas costs per proposal ranged from hundreds to low thousands of dollars, reduced by Layer 2 solutions. Still, voting expenses can drain resources that projects might otherwise use to grow.
Voter Apathy and Concentration of Power
High costs contribute to voter apathy and unequal voting power. Research shows that in 17 out of 21 DAOs studied, fewer than ten wallets held enough voting power to decide outcomes alone. Although DAOs appear decentralized, a small group often controls decisions.
Delegation systems may worsen this, as delegates tend to represent large holders more than the broader community. For example, a single large holder in Lido can wield as much voting power as thousands combined. Many token holders avoid participation due to confusing processes and gas fees. This dynamic concentrates influence despite decentralized infrastructure.
Security Risks and Attacks
Decentralized governance adds new security vulnerabilities. On April 18, 2022, Beanstalk Farms, an Ethereum-based stablecoin protocol, lost $182 million to an exploit. Attackers used a flash loan to acquire governance tokens temporarily and passed a malicious proposal that drained all funds.
The attacker then laundered funds through Tornado Cash, which obscures transaction origins. Beanstalk’s smart contracts were audited before the flash loan exploit became possible. This attack demonstrated that open governance can be exploited through the voting process itself.
Governance Complexity and Emerging Solutions
Decision Overload and Delegation Risks
As DAOs grow, members face many proposals each year, leading to “analysis paralysis.” Most participants feel overwhelmed, resulting in rushed or uninformed votes. Only a small group reviews proposals carefully, while others skip votes or rely on delegates.
Some DAOs have adopted off-chain voting platforms like Snapshot to reduce gas costs. Despite easing expenses, these systems do not solve the fundamental issue of decision fatigue. Over-relying on delegates risks increasing centralization, as a few individuals make most decisions.
Innovative Governance Models
- Two-step voting as used by Layer 2 chains like Optimism splits proposal verification and community approval to limit power concentration.
- Futarchy, tried by Solana’s MetaDAO, lets members bet on outcomes rather than vote yes or no. This encourages smaller participants to engage but requires complex technical setups and gas fees.
- Hybrid models combine off-chain discussion and on-chain voting to improve deliberation but may reduce transparency and complicate coordination.
Despite these experiments, most DAOs still favor simple token-weighted voting due to lower costs and straightforward implementation.
The True Cost of Decentralized Governance
On-chain governance carries financial, social, and technical costs. While community-led decision-making is appealing, complexity and expenses risk undermining DAOs. Treating governance as a budget item is essential to manage participation costs.
Decentralization has never been inexpensive. However, better governance designs can lower barriers and improve safety. This ensures control remains with the entire community, not just those who can afford high fees.
