On Chain vs. Off Chain
On chain voting refers to governance systems where votes are submitted as transactions and recorded directly on the blockchain. One of the drawbacks here, is that it requires users to pay a transaction fee for each vote.
Smart contracts can be designed to execute proposals automatically based on the outcome of on chain votes, removing the need for a trusted third party or core team to enact vote results. Examples of on chain voting systems include MakerDAO, Aave, and protocols built on Compound's governance framework.
Benefits of On Chain Voting:
- More secure than off chain voting
- No trusted third party required to count or enact votes
- Passed proposals can be executed automatically
- Works well for approving protocol changes or other high risk votes
Drawbacks of On Chain Voting:
- Users to pay (often expensive) transaction fees
- Proposers of automatically executing proposals need to include actionable code
Off chain voting refers to governance systems where individual votes are not submitted as blockchain transactions. No transaction fees are necessary for off chain votes. These voting systems usually have two forms: One-Token-One-Vote and One-Person-One-Vote.
In One-Token-One-Vote, users are prompted to sign a voting message with their wallet. The vote is weighted by how much token is in their wallet. The most prominent off-chain voting platform is Snapshot and has been adopted by about 2K protocols including, SushiSwap, Uniswap, Loot, and more.
In One-Person-One-Vote, a poll is used for individual community members to submit a single vote indicating their sentiments. Examples include polls in Commonwealth forums and Discord chats. These polls can be vulnerable to manipulation by creating multiple accounts. However, they are useful in gauging community sentiment before proposals are put up for token holder voting.
Benefits of Off Chain Voting:
- No transaction fees required to vote
- More participation, particularly from smaller holders and wider community
- One-Person-One-Vote amplifies the voice of smaller holders
- Works well for sentiment polls or other low risk votes
Drawbacks of Off Chain Voting:
- Requires trusted third-parties to collect, report, and action votes
- One-Person-One-Vote can be manipulated by creating multiple accounts
Several protocols are experimenting with using both off chain and on chain votes in different parts of the governance process. For example, Uniswap uses Snapshot off chain voting for initial sentiment polls of token holders - referred to as "Temperature Checks," and only proposals that successfully pass the polling stage are put up for an on chain vote.
Hybrid approaches like this can help reduce transaction fee expenses while still leaving token holders in full control of system functions. Gnosis Guild along with Snapshot are working on a "reality module", which allows for off chain poll results to directly be executed on chain after voting concludes.