How does Optimism achieve true decentralization?

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

Foreword

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

Over the past five years, DAOs have grown significantly in size, capabilities, and complexity. More than 3.3 million addresses have actively participated in DAO voting and governance, and the total assets managed by DAO treasuries are close to US$35 billion (data source: DeepDAO).

Although DAOs have great potential, this new collaborative model still faces many challenges in governance and operations. To reduce complexity, DAOs often start as simple centralized organizations and then gradually evolve to more resilient and decentralized organizations, a process known as "progressive decentralization." This report aims to promote the development and adoption of functional governance frameworks that enhance DAOs' operational capabilities and support their growth and decentralization over time. This report draws lessons from nearly 40 failed DAO cases from 2016 to 2024, summarizing negative patterns that affect their viability and effectiveness. In the second half, we will provide actionable recommendations for optimizing the governance of the Optimism Collective based on these insights.

DAO Failure Case Overview

Our team analyzed 37 DAO failure cases between 2016 and 2024 to identify key failure modes. The data was collected from interviews with stakeholders and desk research. Our DAO Failure Dashboard is now publicly available and provides a complete overview of the data.

We categorize the current status of DAOs into three categories: those that are still operating (Active), those that have scaled back operations (Dormant), and those that have completely ceased operations (Terminated). The current status of a DAO is used as a reference indicator to measure the severity and impact of its failure.

We also recorded the main category of each DAO (such as DeFi protocol, L1 blockchain, etc.), the network it belongs to, the voting tools used, and the organizational structure, and annotated its primary and secondary reasons for failure.

The chart shows the main types of failures identified in the current dataset. Among them, DAO’s inability to find market fit for products or services is considered the most important reason for failure, with more than 40% of failure cases belonging to this category. About 30% of failures were due to security incidents caused by vulnerabilities or attacks. In comparison, the proportion of failures related to governance and operations was lower, with voter apathy (8%) and stakeholder disagreement (5%) being the two most common situations in this subcategory. Even if all governance and operations-related failures are combined (accounting for a total of 19%), their probability and impact are still smaller than those of product-related failures.

The chart visualizes the percentage of the main failure types that led to the termination of DAOs (blue columns) with the average share of that failure type in the entire dataset (red line). The gap between the top of the blue column and the top of the red line reflects the severity of a particular failure type in leading to the ultimate termination of the DAO.

Massive vulnerabilities caused by hacker attacks or bugs are another common reason for the termination of DAOs, with nearly 44% of catastrophic DAO failures caused by vulnerability exploits. These data further show that product adaptability and security are the most critical responsibilities of DAOs. The presence of a liquid governance token may be one reason for the high failure rate due to exploits, as hacks often involve protocol native tokens, which puts significant selling pressure on projects. A drop in token prices often severely impacts the operating funds of these DAOs, as most DAOs’ funds are concentrated around their native tokens. Failure to find product-market fit came in second, with 37.5% of major failures related to DAOs failing to find market fit. In some cases, DAOs may be created to achieve a specific goal at a specific point in time, such as aiming to acquire a specific asset or test a specific thesis. When such DAOs fail to achieve their primary goals within a reasonable time, there is often little reason to continue operating. This dynamic reflects the market forces of on-chain economies, where the pace of capital formation and talent flow keeps pace with the speed of the internet. These forces make it relatively easy to attract initial investment, but it becomes increasingly complex to retain attention and talent.

While governance and on-chain voting are often top priorities for DAOs and their operations, the data suggests that litigation and leadership scandals are more likely to lead to DAO collapses. This suggests that “good governance” is critical in DAO leadership, and that getting the right people involved and 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 process of a country — which is often centered around elections and representation rather than direct democracy at the legislative level — than one would typically imagine when thinking of DAOs as a means to engage all stakeholders in governance.

When minor failures are taken into account, the incidence of stakeholder distrust and concentration of power rises significantly, from 3% to 13%, respectively. Further analysis of the case data suggests that voter apathy often leads to concentration of power, which weakens the overall governance of the organization. Furthermore, lack of PMV and stakeholder distrust often go hand in hand. DAOs often lack the mechanisms and rigor to properly coordinate and commit to a specific strategy worth executing. Lack of long-term vision and an architecture that favors numerous small independent projects over large strategic initiatives often result in DAOs with widely varying goals and information flows, which severely limits their ability to grow. However, the reverse is also true - as DAOs typically operate transparently online, they are able to record and make public all organizational processes and data. Introducing a strong data pipeline that leverages information management solutions and AI agents to further organize and put insights into action has the potential to accelerate DAOs' ability to make good decisions.

The current dataset and scope of research provide limited insights into the impact of different voting structures and governance tools on DAOs' ability to make good decisions, as almost all DAOs follow the same native governance token structure and similar tools (Snapshot or Tally). Future research could focus more deeply on patterns that increase the likelihood of specific failure states and provide insights to address these failures.

Key Points

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

The survival of a DAO is highly dependent on the value that its products and services can provide. The decision-making system of a 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 of a DAO

Choosing the most appropriate strategy to advance product development is crucial, which helps to coordinate resources and measure success in a consistent way.

#3 It is crucial to select the right executors and retain a mechanism to withdraw their power

Attracting the right talent is key to realizing the vision of a DAO. DAOs should incentivize contributors and establish processes to partially or completely revoke their permissions when they no longer play a substantive role.

#4 Building a sound data pipeline and information management system is the basis for improving DAO's decision-making ability

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 process large amounts of data, which can significantly improve judgment and action capabilities.

Promoting Optimism Collective to achieve functional decentralization

Optimism Collective is one of the largest and most influential DAOs currently, composed of a series of communities, companies and individuals, aiming to expand Ethereum's capabilities and build a better Internet. It has built a set of inter-chain networks based on shared standards and values through OP Stack - Superchain, and provides financial support for ecological development through OP tokens.

The goal of this analysis is to cross-reference the lessons learned from DAO failures with Optimism’s decentralized working model to identify potential vulnerabilities and provide actionable recommendations for future improvements.

The key governance areas identified in the “Decision Graph Model” provide a focus for this analysis, while the “Decision Design Framework” enhances the adaptability and implementation of analytical insights.

Reviewing Optimism Collective’s Decentralization Path

Before jumping into the key area analysis, we first evaluate the decentralized model built by Optimism based on the key conclusions from the DAO failure research.

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, which improves security through standardization, effectively addresses the major threats posed by vulnerability attacks, and strengthens the market fit of products.

But one of the limitations is: The lack of built-in product promotion guidelines and a clear explanation of how the product creates and captures value. Although DAOs are often compared to countries, the governance of the technology ecosystem is actually highly dependent on its user adoption rate. Therefore, the decentralized design of each layer of the DAO should be closely linked to the core goals to clarify the results to be optimized at each layer.

For example: The protocol layer can use "Superchain's percentage of major crypto transactions" in the Superchain Health Dashboard as the Adoption indicator. The Economy Layer shows the profit and loss trend by comparing "monthly estimated income" to "monthly expenses" and simulates the potential for the DAO to become self-sufficient.

Developing the right top-level strategy is a core decision for the DAO

While the Work Charter, Superchain Product Vision, and quarterly Optimism Season intention documents provide the Collective with overall direction, they have not yet clarified the best strategic path to achieve these goals.

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

We suggest: analogize the mission operation model to a "government ministry", with "public officials" with leadership and professional analytical capabilities responsible for a group of Mission Clusters in specific areas; these mission clusters can preset some contributors to ensure that the core tasks are completed within a specific budget and time frame, and the rest are open to bidding; cluster leaders are responsible for the execution of their missions and communication with the Collective.

An extreme reference case is the OpCo in ArbitrumDAO - a new entity specifically set up to execute strategy, which is expected to receive 22 million ARB in funding within 30 months.

Another challenge is that the current  quarterly seasons ( " and "funding cycles" are short, while most projects often take weeks or even months from allocation to completion. Once the results can be evaluated, the goal has often shifted to the next cycle.

To improve strategic coherence, you can consider: setting goals or intentions that last across seasons; or extending the cycle of a single season, or merging multiple seasons into larger cycles, such as an "era" consisting of 3 to 4 seasons.

It is critical to select the right executors and retain the ability to revoke their power

The dual-chamber governance structure designed by Optimism Collective distinguishes pure token-based voting from electoral representation. Its "citizen" mechanism provides a theoretical path for power recovery, but this function is not yet fully developed. Currently, Citizen House and Token House

The re-election mechanism is imperfect, resulting in some members who are no longer actively involved still having influence, which to some extent hinders the joining of new contributors and even goes against their original intention.

In order to improve 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. In addition, Citizens should be elected into relevant fields based on their knowledge background, rather than being randomly assigned or selected through private processes.

Two types of Citizens can be considered: "Regular Citizens": Participate in governance from the perspective of the board of directors and provide broad opinions; "Expert Citizens": Have deep professional capabilities in a specific sub-field and participate in strategy formulation.

The election of regular citizens should be carried out through an open mechanism; and the evaluation of expert citizens should be based on their verifiable experience and historical contributions. On-chain behavior should be part of voter identity identification —— One of the key innovations of blockchain is that users are owners, and this "ownership" is not limited to holding tokens, but should also be reflected through "citizenship" status.

Building a sound data pipeline and information management system is the basis for improving decision-making capabilities

Currently, understanding and keeping up with the progress of the Optimism Collective is a time-consuming task. Many key information is scattered across multiple platforms, and much of it only exists on the Optimism forum. New tools such as the "Governance Hub" should be established to unify resources.

In addition, a summary report should be published after each season to review progress and showcase results. By establishing a sound data pipeline at all levels, Collective members will be able to use AI agents to process large amounts of data more efficiently and improve governance efficiency.

Overall, Optimism's "Decentralized Work Model" is consistent with DAO The key recommendations from the failed studies are highly consistent. If optimized, they are expected to become a model for progressive decentralization.

Review of core areas

We identify key areas for analysis based on impact, likelihood of occurrence, and relevance to the current state of OP governance.

North Star Goal and Priority Setting (Based on Decision Graph Model)

The current decentralized working model provides a preliminary roadmap, but lacks public discussion and continuous communication. A typical example is the release of the Superchain Product Vision: it outlines a two-year development roadmap, but does not respond to follow-up questions from Citizen and Token House members.

DAO Failure studies have shown that governance models with multiple key stakeholders are more rigorous and active than governance systems dominated by a small core team. Therefore, the "governance" element should be included in the discussion of North Star setting and prioritization to optimize the content of the working model and enhance the participation of a wider 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.

Recommendations:

• The Foundation should work with key ecosystem stakeholders to develop measurable goals to concretize Optimism's mission;

• The development of all major North Star goals needs to be included in the governance voting process;

• The identified priorities should enter a formal input and review phase and be approved through the governance process;

• A fixed period is set to review priorities and allow governance members to propose changes.

Citizens should be deeply involved in the development of goals and priorities based on their expertise, and Token House should serve as the final approval mechanism to ensure that the wishes of token holders are reflected.

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

Collective's budget and spending mechanism (based on the decision graph model)

Many DAOs The failure of the Collective stems from poor financial management, manifested in inefficient budgets and improper treasury control. The above suggestions to improve the efficiency of fund use by clarifying goals and priorities are necessary but not sufficient, and more measures are needed.

Token House should be responsible for approving the budget size of each season, as these allocations directly affect the circulation of OP in the market. All budgets should clearly state their relationship with past projects and their alignment with overall goals. A regular report should be published after each season for governance members to evaluate the effectiveness of the budget. This will enhance the Collective's accountability mechanism and budget-making ability.

In addition, the concentration of most DAO treasury assets in native tokens has proven to be extremely risky - the impact of market fluctuations on coordination capabilities is further amplified. It is recommended that the Optimism treasury structure be decentralized, and OP can be sold in exchange for stablecoins through a decentralized mechanism, or directly purchased by ecosystem-related entities to reduce the risk of selling pressure. Mechanisms can also be designed to increase support for Superchain The holding rate of native tokens, such as OP Chain’s tokens, is 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 issue. A poorly designed voter selection mechanism will lead to low participation and concentration of power.

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

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

An opaque system, where the decision makers and their rationale are unclear, can negatively impact the overall functioning of the system. The suggested approach is to work backwards from the expected outcomes to assess the right types and functions of governance participants based on the overall Optimism strategy. On this basis, a precise evaluation and election process can be published and run. This is particularly important for the (re)election of citizens, as they play a key role in the Optimism Collective.

Since most OP tokens remain unallocated, with just over 1.35 billion (31%) of the 4.3 billion OP tokens in circulation, a key way to improve the quality and resilience of the Token House is therefore to increase the proportion of OP tokens that are newly entering circulation and are delegated for governance. There are many ways to achieve this, but initial pilots could focus on adding conditional rewards to OP tokens, such as airdrops and governance funds, to reward participants who continue to effectively interact with the Optimism Collective over a specific period, similar to equity incentives for startups.

Final Thoughts on Season 7

Season 7 is entirely focused on interoperability, so it is critical to ensure that all layers of the Optimism Collective make substantial progress in this direction. Currently, the development of the protocol layer is well-resourced and progressing rapidly; however, progress on the social and economic layers is lagging significantly.

Without a coordinated push at the social-economic level, the unified Superchain vision will be difficult to achieve.

We must identify the current actual and target state of the social and economic layers and take key steps to advance them. However, the resources and budget currently allocated to social-economic synergies remain insufficient. Therefore, further development of the social and economic layers will largely rely on the collective capabilities and unified will of all stakeholders.

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