The Tally Protocol

The incentives for participating in DAOs are broken. Token holders are asked to actively manage and govern multi-billion dollar protocols at their own expense. Large delegates fund their critical research and operations via inconsistent grants or retroactive funding. Token holders hold illiquid unproductive assets with little or no incentive to participate.

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The critical challenges facing DAOs today are directly tied to the inherent dichotomy of governance tokens: they are both assets and voting rights. You cannot fully enjoy the utility of your asset and vote, and you cannot vote and fully enjoy the utility of your asset. DAOs ask their token holders to make an unreasonable choice: forgo the value of their asset to govern or govern without any reward to their asset.

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DAOs must return value to token holders to remain viable. Some of the largest DAOs today are exposed to governance attacks due to lack of participation. Uniswap has 158% of its quorum for sale in DeFi and on centralized exchanges, while the market cap of delegated ENS tokens is lower than the value of the accumulated treasury revenue. It is imperative that token holders are properly incentivized to maintain the security of the protocols they govern. (Source)

The Tally Protocol is the liquidity layer for restaking. The protocol solves the restaking capture problem by separating economic utility of DAO tokens from governance. The system is more efficient as DAOs can return value to token holders proportional to their revenue instead of being forced to attempt to outbid restaking protocols for their own security.

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With the emergence of restaking as a key theme, governance tokens represent additional untapped potential that token holders must forgo in order to operate protocols. The governance tokens on Tally collectively have a market cap over $30 billion. These governance tokens directly control additional value in the form of smart contract TVL (e.g. all the TVL on Arbitrum) and the future value of cash flows (e.g. Arbitrum sequencer revenue and Uniswap fees). Because of their valuable economic properties, it’s likely that restaking systems will attract significant governance token deposits. Restaking activates the economic opportunity of governance tokens, but requires that token holders forgo participation in governance and forgo rewards returned to token holders by the underlying DAO.

Enables Liquid Staked Governance:

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Creates a smart contract layer that allows DAO token holders to mint Tally Liquid Staked Tokens (tLSTs), which make it easy to earn rewards while maintaining voting power and unlocking additional yield opportunities elsewhere.

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Enables governance restaking:

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Users can stake their governance tokens with Tally and receive a tLST in return that can be deposited in restaking systems. The voting power associated with the governance token remains active.

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Increases DAO security:

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Even the largest DAOs today are at risk of attacks due to low participation in governance. The Tally Protocol reactivates voting power held dormant in DeFi smart contracts and centralized exchanges by returning undelegated voting power to the DAO for redistribution. Undelegated tokens staked in the Tally Protocol are also returned to the DAO for redistribution. This way, DAOs can maintain control over their own security while enhancing token utility.
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Incentivizes efffective governance:

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The Tally Protocol ensures token holders no longer have to choose between governance and financial utility. By requiring token holders to delegate to an active participant to earn staking rewards, voting power remains with active DAO voters, enhancing security against malicious attacks and preventing passive governance.

Sustainably incentives DAO delegates:

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The Tally Protocol creates a fair and transparent mechanism for rewarding active delegates. The modularity of the protocol allows DAOs to experiment with new mechanisms and designs for compensation.

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Built for the Ecosystem

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The Tally Protocol is designed to be modular and open such that there are multiple opportunities for third parties to build profitable businesses on top of the protocol.

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Professional delegates can build large businesses by getting compensated with a predictable income stream that is linked to their performance.

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Solvers and market infrastructure firms can build rebalancing mechanisms for claiming and compounding staked returns. Note: this area is currently being researched.