In light of recent events and discussions, DFINITY would like to outline its position on community members buying and controlling large stakes in SNS projects.
Background SNS framework
The Service Nervous Systems (SNS) framework is designed for allowing decentralized governance of dapps. The governance is stake-based: the participants’ voting power is based on the amount of staked tokens and how long these tokens are staked for.
There are two kinds of SNS proposals. A normal proposal is adopted if at least half of the voting power supports it, whereas a critical proposal requires a two-thirds majority of the voting power to pass, increasing the bar for substantial decisions.
Recent events
In recent weeks, some SNS projects experienced significant shifts in governance dynamics, driven by large investors acquiring substantial portions of the token supply and thus voting power.
One factor that enabled this was the relatively low cost of tokens on the open market due to people selling their tokens. This is often correlated with projects not demonstrating significant progress or transparency on milestone achievements, missing the opportunity to form an engaged community, and insufficiently communicating long-term tokenomics or business plans.
Some investors have taken advantage of these conditions to gain enough voting power to influence the projects’ direction more decisively and hold teams accountable. Similar investor behavior is known as “activist investors” in traditional markets.
In some cases this influence has been further amplified by low voting participation among other neuron holders, especially other large investors. For example, in some SNSs few parties could block critical proposals despite holding less than a third of the voting power, because there was insufficient participation from other voters.
DFINITY’s point of view
First, we would like to establish that the SNS technology functions as specified and designed.
As the SNS has a stake-based governance, it is expected that individuals can gain significant influence or determine the outcome of decisions if they buy and stake enough tokens.
Furthermore, investment activities on the free market are legitimate.
It is a sign for a healthy DAO if the community scrutinizes plans and decisions and demands enough transparency to hold the developer team accountable.
We do think that the recent events surface some weaknesses in how the SNS frameworks are currently used and how the DAO communities are engaged in discussions and decisions.
Building a decentralized project requires ongoing efforts to maintain trust and belief in the project’s vision. Teams must consistently demonstrate that the project is evolving and that holding the token remains worthwhile. If excitement fades, participants are more likely to sell their tokens at low prices, weakening the community.
Just as importantly, participants need to be motivated to actively take part in governance. This is especially true for larger investors, who may not track proposals daily and might need to be approached more pro-actively and in advance to participate in important proposals.
Going forward, DFINITY intends to contribute to this aspect by voting more actively in SNSs where the foundation has neurons.
We also want to add that we don’t support the communication style of certain community members that can be perceived as disrespectful and negatively affects the atmosphere in the ecosystem. Whenever this violates forum guidelines, we moderate the forum accordingly and also published an update to the forum guidelines today. While investors are important for the success of the ecosystem, we want to point out that they do not act on behalf of the DFINITY foundation.
Conclusion
We think this is a great opportunity to reflect how SNS communities can be improved going forward - not only from a technical perspective, but especially when it comes to business planning and community engagement. These lessons may help strengthen the ICP ecosystem and result in more resilient, transparent, and thriving DAO communities.
