Okay the title is kinda clickbait, decentralized governance itself isn’t a meme, in fact it is a necessity. It’s the popular mechanism of decentralized governance through token voting that I think is somewhat of a meme.

If you’ve been in this space long enough you would know that most tokens are “governance tokens”. Holders of these governance tokens can vote on upgrades, proposals, and changes to the protocol that are made by the community or the founding team. Majority of the applications that have no clear way for value to accrue to their token by incorporating it into the inner-workings of the protocol often just make a governance token. Granted, most of the time it is done to prevent getting vampire attacked but giving every holder voting rights for every protocol will often lead to sub-optimal outcomes. Only a handful of people are big brain enough to know what’s best for these applications, while the rest will do what they have to in order to pump their bags. 

Governance tokens come in many forms. You have the regular governance tokens, 1 token = 1 vote, the more tokens you hold the more voting power you have. People quickly realized this is a problem because vote-buying is very easy. The other version is quadratic voting where the strength of preference is taken into account, the amount of voting power a participant gets is the square root of the amount of tokens they stake. Another version is the Ve or Vote Escrowed tokenomics made by Curve Finance where users can choose to lock their funds for a certain amount of time. The length of time + amount locked will both contribute to the voting power a person gets. You also get additional rewards for locking your token through Vote Escrow. This mechanism ensures that the people who are looking out for the best interests of the protocol, the long term believers, are given more of a say. Game of aligning incentives.

Now I do not know if the methods listed above are the final answer to decentralized governance, chances are that we see more innovation in this area, but I believe it is worth looking into the alternatives to token voting.

The problem

The total number of people who actively participate in DeFi is fairly miniscule when compared to participants in the traditional financial world. From this small subset of people, there are even fewer people who actively vote on proposals in different protocols. Very few people know what each update actually means and the uninformed people who vote usually just vote with what the smarter people have gone for. So far there hasn’t been any major catastrophe but picture what it’ll be like 10 years from now.

If we ever do onboard hundreds of millions or billions of people into DeFi, think of what the state of voting will be then.

I like to picture it a bit like present day democracies. Yes, people in democracies do have much more freedom than people who live under authoritarian rule, but in some ways democracy is also an illusion, especially if you compare it to what it’s actually supposed to mean. You have very few people who control key pillars of society such as media, data, security, surveillance, and finance and this is used to create sub conscious group think amongst the people, this subconscious group think is then wielded by those in power to get the results they desire.

Similarly, in DeFi when/if the masses get onboarded, I am pretty certain that the majority are not going to sit and read docs & whitepapers, they aren’t going to be active in every discord, they aren’t going to read every governance proposal, not everyone will know how to read smart contract code (even I don’t tbh), I mean most people who are currently active in DeFi don’t even do these things.

So what’s the result of this?

You have a similar situation wherein there are a handful of people who get it and know where money can be extracted if votes can be swayed in their favor. All they have to figure out is how to convey their message to all the governance token holders. I think this a fairly simple task to figure out, one simply needs to either build trust amongst community members or have control of key informational pillars. By informational pillars I mean a platform or personal brand that will simplify these tasks for the average person, much like how news channels simplify complex topics of politics with their own bias subtly included to influence the subconscious of the viewers. People would rather be fed quick bites of information rather than deep dive into every single protocol and you can’t really blame them. People have other shit to do.  

While this is not against the rules, it still isn’t decentralized per se because you basically have the outcome desired by the few taking place because the majority do not realize what is actually happening. I understand that the broader problem here is general human nature, people need to be willing to put in work to stay informed, but the fact of the matter is that the majority simply won’t.

So I’m taking a wild shot here and trying to propose alternate methods of governance. I believe some form of hierarchy developing is inevitable simply due to how human nature is. But what we need to strive for is a system that is immune & resistant to as many points of failure as possible.

Potential Solutions

The obvious solution is for the standard to be for protocols to be designed the Reflexer Finance or Satoshi way. Governance minimized. You make a protocol that fulfils a very specific set of purposes and then that’s it. You just let it run how it’s meant to be run and design it in such a way that doesn’t require constant updating. Let people interact with those smart contracts and that’s the job of the protocol done. No room for unnecessary involvement that can cause issues down the line. There may be small tweaks required on occasion but those shouldn’t be major problems to deal with.

Decentralized systems are more robust & resistant than centralized ones, but communication in a decentralized system is significantly slower. To abstract away the time inefficiencies it technically makes more sense to have a governance minimized protocol. However, since we have rarely seen such protocols in DeFi it is worth looking into other solutions.

Orca protocol:

Orca protocol has reworked DAO structure through something called pods. Each pod represents a specialized set of expertise. The aim is to ensure every member of the DAO naturally gravitates towards contributing to the part of the DAO that they are best at. I consider this a solution in itself because the people who tend to make the most optimal decisions are the ones who are closest to the work. So for example, if there is an upgrade required for the smart contract, the pod of devs will be best equipped to come up with a solution and subsequent proposal.

An interesting tweak that can be made here is that if teams are set on having a token, then token voting can be implemented by limiting voting to specific pods. Let’s take the above example of the pod of devs working on a smart contract upgrade. In this scenario, the token voting can still occur but votes will only be done by members of the dev pod. While this does go against the idea of inclusiveness, I believe it will lead to a more optimal decision by removing the noise that will come from the uninformed voters.

This can even be expanded to potentially make it into a proportional decision-making system. Taking the same example, each member from the pod of devs will have something attached to their name/account (NFT, badge, or anything of the sort) that signifies their role in the DAO. So if a proposal is about a smart contract change then the people who have the Dev badge will have proportionally more voting power than the rest of the DAO about that specific matter, but in another scenario concerning another pod, say marketing for example, the devs may have proportionally less voting power.  

Vitalik:

Vitalik proposed some solutions a couple months ago in his ‘Moving beyond coin voting governance’ article. He proposed two solutions to the issue. One was a proof-of-personhood concept which talks about creating a system such that an account can be corresponded to one unique individual, thereby making the governance structure such that it is 1 human = 1 vote. The other was a proof-of-participation system, essentially making a system that can verify that a certain account has certain qualifications that can allow them to have greater power in the voting process. If you use something like the POAP (Proof of Attendance Protocol) you can potentially verify an account holders educational training or prove that they have made useful contribution within the ecosystem or something along those lines.

I believe it is worth running the experiment to figure out if these systems would work or not. Theoretically they seem good, However I am yet to see them be implemented within any protocol. There will be various logistical and technical hurdles (which I am not well-versed with) to successfully implement this but it is still worth looking into in my opinion.

DIDs-

Expanding upon the 1 person = 1 vote solution proposed by Vitalik, let’s look at Decentralised Identifiers (DIDs). DIDs can be used to create unique identifiers for various things through the power off cryptographic proofs, if a team manages to create a reliable DID system such that 1 account = 1 human therefore 1 human = 1 vote then we can have a fairly egalitarian governance process. Granted, we will still see the same issue of the smarter ones swaying the vote in their favor but at the end of the day that is natural, the smarter ones will find their way and there’s nothing much that can be done to change it. But creating an egalitarian voting system is the most one can do, then you leave it up to the people to organize and decide.

Usage-based:

Usage-based governance would work by focusing on the activity of an address rather than the tokens it holds. A protocol can simply track addresses and order them in the form of amount of usage of the protocol and then accordingly distribute voting power. The addresses that interact with the protocol more often should be given more voting power. This aligns incentives such that the most active & loyal ‘customers’ get the most say in the future of the protocol.

This mechanism can still be gamed. Say you have a wealthy person who has a vested interest in gaining voting power in a certain protocol, they can simply create multiple addresses or even use one address and heavily use the protocol through that/those address to gain a major share of voting power. Also, just because a person uses the protocol the most doesn’t mean that they are the right person to be given the most voting power.  

Delegated voting:

This solution is very similar to present day democracy so it makes me sound very hypocritical but hear me out. We know every token holder does not actively participate in governance, most of the time people often vote in terms of what will make number go up rather than what’s best for the protocol. So rather than having a token for voting, have a token that has utility within a protocol. For governance, allow all the users of the protocol to have some voting power which allows them to elect certain members of the DAO as candidates. These are the people who they believe will make the best decisions. You then have a group of ‘candidates’ who are responsible for multiple “decision making” activities who are fairly monetarily compensated for their work. This is a similar system to the Governance Steering Council (GSR) used by Element Finance.

A way in which this can be implemented is through a voting system used by LaPrimaire.org in 2017. It works like this. Anyone in the DAO is allowed to run for being a candidate in the “decision making team”. Let’s say a total of 100 people decide to run. These 100 people will be randomly assorted into groups of 5 by using the shuffling algorithm. Each voter will be assigned 1 lot of 5 and will be asked to rank candidates on the basis of very good, good, fair, bad, very bad. Once the votes have been done they can automatically be tallied to see who are the ones who got the most very good or good votes and those people can accordingly be added to this team. This process can be repeated as frequently as the members of the DAO please depending how satisfied or not satisfied they are with the way the DAO is headed.

The good part is that you have a group of candidates whose views will be more or less representative of the views of most people within the DAO. So the decisions that are made will most likely not be controversial with the added benefit of removing thousands of people being actively involved in every single decision made by the DAO. Secondly, It will be a group of people so one or two people don’t have all the power. Lastly, this team can be frequently shuffled.

The problems in this scenario is that a voter may get a group of candidates where the person they want to vote for is not present. Another issue is voter turnout, how many people will be interested in participating in such a vote for a DAO?

Trust-

This is not a solution but a thought upon which a solution can be built by those who are smart & technically sound. Blockchains as a network are built to be inherently trustless, this leads to governance being somewhat market-based. Usually, market-based governance tends to be very plutocratic (power ends up concentrating with a few players). Hence, maybe a different way to try and approach governance is by somehow building a layer of trust over a trustless system.

Governance requires coordination and coordination requires cooperation. On some level, to be able successfully cooperate, especially in an organizational setting, you need some level of trust to be established otherwise working with others becomes extremely tough. I don’t know how this could be implemented, or if it is even possible but I think it’s an area that is worth exploring if we are trying to avoid the mistakes made in the traditional system or web 2.

Disrupting incentives

Removing token voting could lead to some spillover effects. One is that it will probably incentivize fewer people to actually be a part of the DAO which is linked to the ownership economy thesis. Most people buy the governance token and participate in the DAO in order to help keep the value of the governance token going up. This is because governance tokens are often bought as proxy exposure to the protocol doing well. By removing governance tokens you remove a large chunk of participants because you remove their incentive to participate. They have no vested stake/ownership therefore their interest will naturally be less in helping it succeed. It’s an interesting double-edged sword.

Concluding thoughts

Out of these solutions, I have no idea which one will work and which will be adopted but what I do know from my observations in this space is that people are willing to put their balls on the line. There is no fear of trying risky experiments because the one that works can really change the shape of the space.

I also understand that the proposals made here imply that we will have a lot less “governance tokens” down the line which means we have fewer shitcoins to gamble on. Don’t get me wrong, I love gambling on ponzi’s as much as the next guy but if you’re thinking in terms of things that are long-term net positive for the space then I think these solutions or any other similar solutions are worth looking into. The crypto economy needs to be as resistant as possible to such points of failure and rethinking decentralized governance is a crucial first step.

Thanks for reading, 0x43A5D9C141125Cd67B9268ef28C7c6a9dC15F3c9 this is my ETH address if you are feeling generous and would like to donate.

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