# "Thanks for the airdrop" 

Source: https://x.com/jamesjohnbeck/status/2070184696948961622

## Summary

The author, who works at ENS Labs, argues that the ENS DAO's token airdrop largely failed to create broad, lasting governance, and supports a proposal from Katherine Wu for a five-seat Foundation board to manage the DAO's treasury. The author says only about 22% of airdrop recipients still hold any $ENS, and 6.9% have held at least their full airdrop amount, with most recipients selling early. The author contends that the Foundation would change stewardship of the treasury and endowment while tokenholders keep control over protocol governance and the power to approve and remove Foundation directors.

## Article

“Thanks for the airdrop.”

That’s usually the response I get when I tell someone I work at ENS Labs. And it makes sense. At the time it was considered one of the fairest distributions. There were no VCs to return capital to. A quarter of the tokens could be claimed as an airdrop by addresses that had registered .eth second-level domain prior to October 31, 2021. Another quarter of the token treasury was allocated to over 100 of the project's contributors. Only 10% of these tokens for the team were available for immediate use, and the remaining $ENS were scheduled to be unlocked over the course of 4 years.

To this, I typically respond, “I had nothing to do with that, but do fondly remember how optimistic I was about the creation of the ENS DAO. I still have the 97 tokens I was airdropped. Do you still have yours?” 

“No, I sold them all [knowing laughter].”

This is often the case. I ran the actual numbers in Dune and as of today, only ~22% of airdrop recipients still hold any $ENS. Just 6.9% have held at least their full airdrop amount (or accumulated more). And this is better than the norm. Most airdrop recipients in the past have sold immediately.

It’s not novel to say that token airdrops have largely failed in “decentralizing” decision making. Even before the airdrop meta died, it was clear that neither governance rights in the protocol nor the potential future value of the token was attractive enough to outweigh the gift of “free money.”

Feeling nostalgic, I looked back at some of my own writing about DAOs in 2021. I wrote about how joining a DAO during the early days of the pandemic was like entering a club with a bunch of internet strangers. You might vote on a DeFi governance proposal; decide which project to fund; gain access to an Erykah Badu concert; join a residency program for artists and developers; collectively buy the sole copy of Wu-Tang Clan’s 2015 album Once Upon a Time in Shaolin; or even team up to buy a copy of the U.S. Constitution. The undeniable draw of web3 at the time was the way in which leaderless online groups of like-minded people can quickly gather, collectively pool capital, and make decisions.

There’s been a lot of performative outrage on this centralized website designed for rage-bait about a new proposal from Katherine Wu, which proposes a five-seat Foundation board to manage the DAO’s treasury. I’ve seen a lot of “I’m so disappointed and sad” comments, which as an empathetic person nostalgic for the early days of crypto made me curious about the real root of people’s disappointment. 

Is it that they think the DAO experiment is coming to an end? Or that this proposal means that token holders won’t have a say in the protocol? If you actually read the proposal, you’d know both of those statements are false. Protocol control such as smart contract upgrades, ENS pricing and fee structures, root key and registry control, and constitutional amendments remain exclusively with ENS tokenholders.

So what’s actually changing then? The core of the dispute is that the new Foundation would have control over the ENS token treasury and endowment. But few would disagree that the current ENS DAO hasn’t been a great steward of that money, and I think it’s worth reading Katherine’s writing in full on this:

The beneficiary of that revenue does not change. What changes is the structure responsible for long-term stewardship of ENS’s capital base.

This is the largest structural change in the proposal, as the treasury, the Endowment, and the locked ENS supply are among the most important long-term assets in the ENS ecosystem. They require a planning structure that can operate across years, not only across individual votes, funding cycles, or short-term budget decisions. One of the major shortcomings of the current model is that ENS has not had a durable vehicle for short, medium, and long-term capital planning. The result is not that tokenholders have failed to care about the ecosystem; it is that the structure has not been well suited to continuous capital stewardship.

To put it bluntly, the ENS DAO hasn’t been effective at long-term capital planning. Most token-holders sold, and even the ones that held, don’t have enough time or care to vote on proposals. Everyone active in the ENS DAO knows this.
https://x.com/avsa/status/2069771759885090839

The governance power that remains active is held by a small set of delegates, which is exactly what the proposal is trying to rationalize into a more functional structure.

Let me give you a more general example to understand a bit more about the day-to-day of what ENS does. Let’s say there’s a service that ENS Labs doesn’t provide as the core builders of the protocol, like creating a secondary marketplace or a subname issuance service. Typically if you are a software company or a non-profit organization, you would issue an RFP, receive bids and then allocate the money at a cost and structure that makes sense.

With the Service Provider Program (SPP1 and 2) this was inverted. Projects applied, and the delegates with the most voting power decided where capital would be allocated, even if one project duplicated the effort of another. It was a “Let a hundred flowers blossom, let a hundred schools of thought contend” Mao Zedong strategy.

So why are some delegates angry? The current lack of decentralization over financial control of the Endowment means that there are delegated token holders that have a lot of power over how money gets distributed year to year. This is the reality of big DAOs that make my earlier writing seem naive. When money is on the line, token-weighted governance doesn't produce democracy or even meritocracy. It produces plutocracy, with only a tiny fraction of token holders actively engaging in decision-making at all.

Despite creating the protocol, Nick Johnson exercised remarkable restraint by choosing not to deploy his full voting weight to override DAO decisions he disagreed with over years of governance. The irony is that when he finally did self-delegate, the howls of "centralization" came loudest from delegates whose only credential is holding tokens. In my humble opinion, the people crying power grab are the ones benefiting most from the broken status quo.

To share an analog, public companies separate governance into distinct layers: shareholders vote on major structural questions (mergers, board composition, charter amendments), while a board of directors (chosen for expertise, fiduciary duty, and accountability) handles operational and capital allocation decisions. You don't let every shareholder vote on whether to sign a vendor contract or rebalance the treasury. 

I joke that so much of my journey in crypto over the last decade has been figuring out things like governance, finance, and desire from first principles, and that what we think is novel ends up being quite similar to how people did it before. The Foundation model being proposed is, in a real sense, catching up to a structure that the traditional governance world figured out decades ago: give operational authority to people with skin in the game beyond a speculative token position. And even still, it doesn’t abandon the benefits of a DAO: tokenholders still have control over protocol governance and over approving and removing Foundation directors.

I started this piece wondering what people were really mourning. I think it's the idea that the airdrop could have been the beginning of something: a genuine transfer of power to a broad, engaged community of stakeholders. But in reality that’s not how it has worked out. Most people took the gift and left. I still have my original airdropped 97 tokens. I'm not sure what that says about me, whether it is sentimentality for the original vision of DAOs, or just bad financial instincts. 

The ENS DAO deserves a governance structure that matches its actual reality. Right now, the idea of a Foundation with a board accountable to the DAO, makes a lot of sense, and better positions ENS the technology to continue to grow with less time spent on the political theatre of an already small group of delegates. Like most proposals, I think that calm, honest discourse can bring it to a place where most ENS community members and users can accept it. 

And like me, if you are lamenting what DAOs have become, there’s nothing stopping you from creating “a group chat with a bank account” today.