Proposal Threshold

What is Proposal Threshold?

A proposal threshold is the minimum amount of governance tokens a participant must hold or have delegated to them in order to submit a formal proposal to a DAO. It acts as a security and anti-spam measure to ensure that only those with a significant "skin in the game" can initiate major changes to the protocol.

How does Proposal Threshold work?

1. A community member develops an idea for a protocol change, such as adjusting a fee or launching a new grant program.
2. Before the proposal can be officially uploaded to the blockchain, the governance contract checks the proposer's token balance.
3. The contract verifies that the proposer holds more than the required number of tokens at the current block height.
4. If the proposer does not meet the threshold, they can seek "delegations" from other token holders to reach the required amount.
5. Once the threshold is met, the proposal is successfully submitted and enters the public discussion and voting phases.
6. The threshold is often set as a small percentage of the total token supply, such as 1 percent or 0.5 percent.

Why does Proposal Threshold matter?

Without these thresholds, a DAO's governance process could be paralyzed by an endless stream of low-quality or malicious proposals from users with little to no investment in the project. However, setting the threshold too high can lead to centralization, where only the largest "whales" have the power to suggest improvements to the network.

Key features of Proposal Threshold

• Minimum token requirement for initiating a formal governance vote
• Prevention of spam and low-effort proposals within a DAO
• Requirement for proposers to have a meaningful economic stake in the project
• Ability to reach the threshold through the aggregation of delegated votes
• Transparent and verifiable requirement encoded in the smart contract
• Key parameter that can be adjusted through the governance process itself

Examples of Proposal Threshold

In the Uniswap DAO, a member must have 2.5 million UNI tokens delegated to them to submit an on-chain proposal. Compound Finance originally had a very high threshold that was later lowered to encourage more community participation.

A small DAO might set its threshold at just 100 tokens

to keep the process open and democratic. Adjusting this value is often one of the first 3 tasks for a new governance working group.