What Is On-Chain Governance? How DAO Voting Affects Protocols
On-Chain Governance in a Nutshell: Token holders vote on protocol changes, and the outcome directly executes as code.
On-chain governance means that all major protocol changes—from parameter adjustments and feature upgrades to fund allocation—are decided bytoken holder votes. Once a vote passes, the changes areautomatically executed by smart contracts, without requiring approval from any centralized team.
In simple terms:code sets the rules, token holders vote, and the result becomes on-chain action.
1. How On-Chain Governance Works: Proposal – Vote – Execution
A typical on-chain governance process has three stages:
1. Proposal Submission
Users or addresses holding a sufficient number of tokens can submit governance proposals. Different protocols have different thresholds—for example, Compound requires at least25,000 COMP tokens(about 0.01% of total supply), while Uniswap requires10 million UNI tokensto submit a proposal.
The threshold is designed to prevent spam proposals, but it also means ordinary users often cannot directly submit proposals.
2. Voting Phase
After a proposal enters the voting period, all token holders can vote. Voting is typicallytoken-weighted—the more tokens you hold, the greater your voting power.
For example, on Arbitrum: holding ARB tokens allows participation in Arbitrum DAO on-chain governance votes, covering upgrades to Arbitrum One and Nova chains, DAO treasury spending, and more. Voting power is directly determined by the number of ARB tokens in your wallet, and you can also delegate voting power to another address.
Different protocols have varying voting periods and approval thresholds:
Compound voting period is about3 days, with a threshold of400,000 yes votes
Uniswap voting period is7 days, with a threshold of40 million yes votes
3. Execution Phase
If a proposal receives enough votes to pass, the smart contractautomatically executesthe proposal's content—whether it's modifying protocol parameters, upgrading contract code, or transferring funds from the DAO treasury.
For example, Solana launched its on-chain governance system (SGP) in July 2026. Validators can stake100,000 SOL(approximately $7.7 million) to submit a proposal. Proposals need15% of active stakesupport to enter voting, and must receivetwo-thirds supermajority approvalto pass. Voting results are recorded on-chain and verified via Merkle proofs. Once passed, core developers implement the technical changes accordingly.
2. Real-World Examples of On-Chain Governance
Compound and Uniswap Governance Practices
According to an analysis of over370 governance proposalsand millions of on-chain events from Compound and Uniswap:
In Compound and Uniswap governance,3-5 core votersare enough to decide the outcome of most proposals.
10 addresses control50.53%of voting power on Compound and35.73%on Uniswap.
On average, passing a proposal requires only3.18 voters(Compound) and4.7 voters(Uniswap).
DAO-Controlled Smart Contracts
In the Solana ecosystem, when a program's (smart contract)upgrade authorityis transferred to a DAO, the program becomes a "DAO-owned program." Thereafter, any code upgrade must go through the DAO proposal-vote process. Community members vote on whether to approve new versions, and no single individual can modify the code.
Decentraland's Hybrid Model
Decentraland's DAO uses a combination ofoff-chain voting (Snapshot) + multi-signature execution: token holders vote for free on Snapshot, and approved proposals are executed on the Ethereum mainnet via a multi-sig wallet by the "DAO Committee." The committee consists of3 trusted memberselected by the community. All transactions have a 24-hour delay and can be paused or canceled by a security advisory board.
3. Advantages and Limitations of On-Chain Governance
Advantages:
Transparency: All proposals, votes, and executions are recorded on-chain and cannot be tampered with.
Disintermediation: No need for CEOs or boards; decisions are made directly by token holders.
Instant Execution: Approved proposals are automatically executed by code, without manual intervention.
Limitations:
Oligarchic Token Holders: Research shows on-chain governance is highly centralized in practice. A few large holders ("whales") can sway voting outcomes, while small holders face high participation costs and limited influence.
Voting Costs: On-chain voting requires gas fees, creating a "voting tax" for small holders. The average cost per vote is$6.82on Compound and$2.42on Uniswap, which is relatively higher for small token holders.
Low Participation: Compound's delegated token participation rate hovered around20%in 2024, with about13 delegatescontrolling a majority of voting power.
4. How to Participate in On-Chain Governance
If you hold a protocol's governance token, the steps to participate are typically:
Hold governance tokens: e.g., UNI, COMP, ARB, etc.
Access the governance interface: via the protocol's official governance page or platforms like Snapshot.
Review current proposals: Understand the content and potential impact of proposals.
Vote or delegate: Vote with your tokens, or delegate voting power to a trusted address (suitable for users who cannot monitor governance continuously).
Track results: Check after voting ends whether the proposal passed; passed proposals proceed to execution.
Note: Different protocols have different voting entry points, voting periods, and approval thresholds. Always refer to the protocol's official documentation.
