On June 20th, 2024 we announced the The Tally Protocol: the next step forward in onchain governance that fully actualizes the value of the systems which token holders own and participate in.

The full Tally Protocol Whitepaper can be read here & the announcement thread from Tally CEO & Co-Founder Dennison Bertram can be read here.

Over the next few weeks we will dive deeper into different features of The Tally Protocol’s design & incentive mechanisms with educational content, demo videos, podcast discussions, and guest posts from the Tally partner ecosystem.

A quick refresher on how The Tally Protocol works:

“The Tally Protocol unlocks the economic potential of governance tokens by providing a liquidity layer for governance staking and restaking while reducing the incentive to attack DAO treasuries and optimizing the distribution of voting power.

The protocol is a smart contract layer that creates Liquid Staked Tokens (LSTs) for governance tokens. Tally LSTs (stLSTs) offer token holders a simple and accessible way to take advantage of opportunities to earn staking and restaking rewards, maintain their voting rights, and use the liquid token to participate in DeFi.” (Whitepaper)

Redelegation Strategies

Lack of delegation & delegate activity in DAOs is a problem yet to be solved in onchain governance. Finanicialization of tokens, lack of delegation education, & inadequate delegate reward incentive systems mean DAOs experience extremely low participation in necessary governance activities. The Tally Protocol solves the delegation problem at the incentive layer to reward delegates, accrue value back to the DAO (incentive virtuosity), and protect against apathy induced treasury raids.

The Meta

The underlying utility of governance tokens is voting on proposals. Similar to how Lido solves for the underlying utility of ETH by maintaining a network of validators that produce blocks for Ethereum, the Tally Protocol solves for the underlying utility of governance tokens by maintaining voting power for delegates who vote on governance proposals. Token holders stake their governance tokens with Tally and receive a liquid staked token in return that can be deposited in restaking systems. The Tally Protocol ensures the voting power associated with restaked governance tokens is delegated to active, DAO-aligned contributors.

How it Works

Voting Power Redistribution: For stLST token holders that choose not to delegate their voting power, the protocol returns undelegated voting power to the DAO for redistribution to active delegates. Tokens that are locked in DeFi or restaking services automatically return their voting power to the DAO.

Optimized Governance: Token holders have a financial incentive to hold their delegates accountable for high-quality governance.

Fee Distribution: Protocol fees are shared among Tally, DAO delegates, and rebalancers (who manage the interface between stLSTs and underlying staking contracts) in a fair and aligned manner.

How it Benefits DAOs

Activates undelegated voting power by redistributing it to active delegates according to strategies chosen by stLST holders. This increases governance participation and enhances DAO security. If underlying DAO token holders wish to change the redistribution strategy, they can move into the stLST and alter the redistribution strategies, ensuring that the underlying DAO is always in control.

Creates a revenue stream for delegates that can be used to build feedback mechanisms for effective governance. This aligns delegates with the success of the stLST and encourages the DAO to endorse the stLST as their canonical solution.

Empowers DAOs with control over the critical stLST parameters to align stakeholders with protocol and DAO success.

Delegation is a core component of The Tally Protocol. Understanding how The Protocol is addressing delegation concerns in its design & implementation is essential to adequately participating in the next iteration of onchain governance. Keep an eye out for partner posts diving deeper into delegation & how The Tally Protocol is making real progress with DAOs across the ecosystem.

We will dive deeper into how into governance restaking, rewards, voting passthrough, and other Protocol mechanics in future Educational Series posts.

Interested? Reach out to us at hello@tally.xyz or on Twitter @tallyxyz