oSnap: A case for off-chain governance?

From wintermute 19 DEC 2023 | RESEARCH | AUTHORED BY CALLEN

Introduction

A persistent issue Decentralized Autonomous Organisations (DAOs) face is the notion of voter apathy, which in turn hurts the economic security of a DAO. Voter apathy occurs when the complexity, concentration of power, and time and financial cost outweigh the benefits of participating in governance. In a pseudonymous world like DeFi, solving voter apathy is rather tricky and remains an ongoing challenge.

For many DAOs, their attempt at reducing voter apathy comes by increasing benefits such as Aave’s  Orbit  program and MakerDAO’s  recognized delegate  compensation scheme, which financially rewards top delegates/voters. However, such schemes are only available for a select few and don’t tackle the cost side of the equation for the majority of voters. For example, one of the largest causes of low voting turnout is the gas cost of submitting an on-chain vote, coupled with no tangible benefit to the voter. Unfortunately, this is the inherent cost of decentralized governance.

But what if there was a way to offer off-chain (gasless) voting while ensuring on-chain execution, and would it solve the problem of low voting turnout?

On-chain Voting is Expensive

A prominent theme we’ve noticed as an active governance participant is the difference in participation rate between off-chain votes and on-chain votes, with the former typically receiving a higher voting turnout. This is likely due to the gas cost of submitting an on-chain vote.

For example, when looking at the top major DAOs, the average cost of an on-chain vote per proposal ranges from $4.98 to $18.15, with Uniswap being the cheapest and Compound being the most expensive. Furthermore, the total gas cost of voting for just these 6 DAOs is  $387.6k .

These costs become significant for users over a prolonged period of time, especially for token holders who don’t hold a lot of tokens and therefore, don’t have much sway on a proposal’s outcome, leading to voter apathy.

Illustrated above, such a phenomenon is pretty clear when looking at DAOs like Aave, Uniswap, and dYdX who all enforce an off-chain “Temperature Check” before a proposal can proceed on-chain. Despite both the votes being for the same proposal, the average number of off-chain voters is significantly higher than on-chain voters.

So with off-chain voting participation significantly higher than on-chain, is there a way to offer off-chain voters on-chain execution?

Introducing oSnap

oSnap was launched on Feb 17th by  Risk Labs  as a governance tool for DAOs. It combines off-chain governance voting with trustless on-chain execution by leveraging  UMA’s  Oracle,  Snapshot’s  UI, and  Safe’s  wallet infrastructure. Through oSnap, DAOs can offer gassless voting to token holders while ensuring proposals are executed in a decentralized manner i.e., not having to rely on contributors or team members.

Typically, for a DAO to implement a decentralized governance system they would launch a series of smart contracts forked from battle-tested frameworks like  Governor Bravo  or  Aave Governance V2 . With oSnap, decentralization can be achieved with a single Safe Wallet, abstracting away a lot of the complexity that comes with developing, launching, and maintaining on-chain governance systems.

How does it work?

oSnap utilizes 4 core pieces of infrastructure to achieve trustless off-chain voting:

In conjunction, these pieces of infrastructure handle a proposal’s lifecycle from start to finish; from off-chain to on-chain. But to further understand how they work, let’s take a look at a recent Snapshot  proposal  on  Across Protocol  where Risk Labs requested 100M ACX from the DAO’s treasury to continue funding growth efforts.

Phase 1: Proposal Creation and Voting

Infrastructure: Snapshot oSnap Module/Gnosis SnapSafe

The governance process began with Risk Labs’ proposal creation on Across Protocol’s Snapshot portal, where anyone with at least 20k ACX can submit a proposal. The proposal requested to transfer 100M ACX from the Across DAO’s  treasury  to Risk Labs’  multisig . By using the oSnap Module/Gnosis SnapSafe plugin, they were able to add this as a real transaction to the proposal as highlighted in the image above.

Once created, the proposal immediately went into a 7-day voting period where ACX token holders (incl. ACX liquidity providers, bridge liquidity providers, etc.) cast their votes in favour or against the proposal or choose to abstain; without paying for gas.

After 7 days, the proposal reached the 6M voting quorum and successfully passed with 13M votes in favour.

Phase 2: Liveness Period On-chain Execution

Infrastructure: UMA Oracle, Safe Wallet, oSnap Module

Following the successful completion of the voting period, an individual/proposer (can be anyone) requested to execute the transaction by putting up a 10 WETH bond which started the 5-day liveness period. The liveness period allows anyone to dispute the transaction by matching the proposer’s 10 WETH bond if they believe the transaction is incorrect and/or malicious.

If a dispute has been lodged, the proposal is cancelled and is escalated to  UMA’s Data Verification Mechanism (DVM)  where UMA token holders vote on whether the proposer or disputer is correct with the loser forfeiting their bond. This mechanism helps ensure that malicious or incorrect proposals are not executed on-chain. One downside to this mechanism is that a DAO may struggle to find proposers due to the requirement of locking up capital as a bond when there are no incentives outside of winning a dispute.

Thankfully, Risk Labs’ proposal received no disputes and after the 5-day liveness period, the transaction was verified by UMA’s Oracle and  executed  by an individual, sending 100M ACX from the DAO’s treasury Safe Wallet to Risk Labs and returning the proposer’s 10 WETH bond. By using oSnap, Across DAO was able to save an estimated $1017 on gas voting fees across 172 voters (using the  average price of an on-chain Governor vote ).

Evidently, oSnap’s governance lifecycle isn’t very different to its on-chain counterparts like Aave as shown above, and it’s able to achieve this without DAOs needing to deploy a set of complex smart contracts while also eliminating gas fees for voters. Furthermore, oSnap can be extended to  control a protocol’s smart contract parameters  and a  DAO’s Snapshot portal’s governance parameters .

Are DAOs Interested?

oSnap has seen notable success with $171.52M in funds secured across 13 DAOs and 5 chains. A large portion of oSnap’s Total Value Secured (TVS) is driven by CoW Protocol with $105M (61.3%) in DAO assets, with other prominent protocols such as Across, Connext, and Premia collectively accounting for an additional $55.62M (32.4%) in TVS. Evidently, oSnap’s TVS is heavily driven by its top two protocols (CoW Protocol and Across Protocol) which are some of its earliest testers; showcasing the protocol to other DAOs.

Furthermore, Ethereum and Polygon are the most popular networks by oSnap Safe deployments as indicated below. However, the distribution of TVS paints a different picture with Ethereum accounting for 97.22% of oSnap’s TVS.

This is likely due to the fact that Ethereum has the largest concentration of DAOs with meaningful TVL and the highest on-chain voting gas fees, prompting Ethereum-based DAOs to leverage oSnap’s infrastructure.

While the above metrics indicate oSnap’s trust from large DAOs, an equally important question is whether or not oSnap has been actively facilitating governance votes.

Facilitating Governance

Since its inception, oSnap has facilitated  25 off-chain proposals  of which 21 were successfully executed on-chain, leading to over  $11M  in assets moved. While this number may seem low, it’s important to note that both moving a DAO’s treasury and changing protocol parameters do not occur all too frequently.

Note: Gas cost savings per vote is calculated using the  average cost of a vote for Governor-like governance contracts  as defined by Risk Labs’  Dune dashboard .

However, despite the small number of proposals, we can already see substantial gas savings for DAOs by offering tokenholders gasless voting. Since April this year, an estimated $9.1k in gas voting fees was saved by DAOs using oSnap across 25 proposals. This is estimated using the average price it costs to cast a vote on-chain using the popular Governor governance framework. However, it doesn’t filter for addresses voting with tiny amounts of a DAO’s native token, meaning it may not be a truly representative sample of real voters.

Conclusion

oSnap, an innovative off-chain governance tool introduced by Risk Labs, stands as a solution to the persistent challenge of voter apathy within Decentralized Autonomous Organizations (DAOs). Addressing the drawbacks of on-chain voting, particularly high gas costs and complexity, oSnap seamlessly integrates off-chain voting through Snapshot.org with trustless on-chain execution using UMA’s Oracle and Safe Wallet infrastructure. This approach not only simplifies the governance process for DAOs but also eliminates financial barriers, promoting broader participation. While oSnap is still in its infancy, the product has seen notable growth with its adoption from prominent DAOs like Cow Swap and we expect its adoption to only increase thanks to its ease of use and accessibility.