Great governance makes wealthy countries

A nation's governance is hard and complex, but it can be summarized in:

Governance is the process of taking decisions within an evolving framework to enhance the lives of citizens, residents and other stakeholders.

This definition doesn't apply to populations forcefully governed (by oligarchy, dictators...), since those nations don't optimize for enhancing the lives of their people.

According to such definition, great governance means:

  1. Ultimate power residing in the stakeholders of the nation, being that citizens, residents or any other group (to simplify we'll just refer to citizens from here on).

  2. Checks and balances ensuring that the nation keeps the interests of its citizens at heart.

  3. A robust governance process¬†guiding decision-makers in taking the right decisions, and letting them evolve the governance process itself. Even if citizens delegate some decision-making ‚ÄĒ¬†not everyone can/should vote on everything ‚ÄĒ if they have the ultimate power and a process to claim it, they remain the ultimate decision-makers.

Corruption is directly correlated with the points mentioned above
Corruption is directly correlated with the points mentioned above

From the chart above, we could say that countries like Saudi Arabia don't even satisfy #1, as they are dictatorships. Other countries, like Russia, had a slight period after the fall of the USSR where #1 was met, but #2 (checks and balances) didn't stand the test of time, and right now there are no checks and balances and the country doesn't even meet #1.

Most democratic countries satisfy #1 and #2, but fail at #3. Decision-makers constantly take bad decisions, and the governance process itself rarely gets better. They are stuck in making bad choices, and stuck in not fixing the process that causes them to.

In rare occasions, countries like Switzerland meet all three points. No wonder their corruption is extremely low, a sign of great governance.

Interestingly enough some of these countries rank so low in corruption yet high in GDP per capita, but don't have natural resources. Others that do, like Russia or Saudi Arabia, rank much lower. What does this mean?

This means that no matter how much money a country makes, if governance is flawed nothing else really matters. Thus focusing on getting governance right is the highest leverage thing a country can do.

Great governance for a cloud nation

Following this reasoning, one of the very first things we focused on at Nation3 was creating a robust governance process.

First of all, what shape should a cloud nation take? Obviously a DAO.

DAOs are essentially coordination mechanisms that are decentralized, autonomous, and organized. What does this mean for a cloud nation?

Decentralized because there's no central entity (person, committee...) governing it.

Autonomous because it doesn't depend on any particular person to continue operating. A robust governance process coupled with incentives makes sure of this.

Organized because it can establish and follow processes to achieve its goals.

Because of these properties, DAOs are a much better choice than corporations, which are centrally operated and depend on key people (CEO, board members...).

Traditional nation states are also centrally operated (by an executive arm), they are somewhat autonomous but they are not very well organized.

If you know DAOs, you can of course argue that most aren't decentralized, aren't autonomous and even less so organized. Unfortunately, this is true of most DAOs today because of poor design choices and the novelty of the organizational model.

That's why we paid so much attention into designing a governance process for the Nation3 DAO.

After cofounding Aragon in 2016, our team took DAOs from $0 to their first $1bn in AUM. Leading to that success we made tons of mistakes, but we learned a lot. I applied those learnings to build Nation3’s governance process.

Nation3's governance

Nation3's governance process is a simple but powerful set of rules for citizens to engage with governance. It allows them to:

  • Create governance proposals that are¬†deterministic¬†and¬†understandable.

  • Easily¬†know at a glance what a governance proposal does, helping them inform their decision to vote.

  • Delegate complex operations¬†to guilds/pods, which are subsets of people within the DAO focused on particular topics.

  • Vote less, but better. Since complex operations are delegated, citizens can focus on understanding important proposals and making good voting choices.

Under this model, it isn't the role of governance to micromanage, but instead to guide the roadmap, impose checks and balances and improve governance itself.

If you are somewhat technical, you can dive into the design principles.

Disincentivizing bureaucrats

Most of the logic in the governance process is actually code. Governance proposals must follow the specification detailed in the code, which lays out which data each kind of proposal (e.g. financial) should contain to be valid. Proposal authors can of course explain themselves in a long forum post outlining their motivations, risks and other data points, but the proposal itself is simple and self-contained. It is an actionable piece of data that will trigger an action, like a financial transaction, a public statement or an amendment to the governance process itself.

If you know DAOs, you know most of them end up with bureaucrats flying around like ravens trying to freeride on the hunt. There are endless discussions about how proposals should be implemented, and the more room for subjetivity, the more room for bureaucrats.

Nation3 doesn't welcome bureaucrats, it welcomes builders.

Checks and balances

The current governance process is akin to a primitive cell. It already has the right DNA in itself to evolve, course-correcting its own evolution towards its wanted outcomes.

But it's by no means complete. It puts the power on the citizens and it's efficient, but¬†it needs checks and balances. Today, nothing would prevent a rogue citizen from making a proposal to proclaim someone dictator of Nation3, or to send all the DAO's funds to fund a white supremacist group. If citizens vote yes, it will pass. This is an issue. Checks and balances ensure that, in turbulent times, the nation will course-correct itself. Checks and balances in traditional nation states are ultimately enforced by the military ‚ÄĒ as these states are land-first, even a supreme court ruling¬†ultimately depends on physical force to carry any meaning.

DAOs and smart contracts allow cloud nations to create encoded checks and balances that can be automatically executed ‚ÄĒ¬†unless there‚Äôs an attack to the underlying blockchain‚Äôs security, which in the case of Ethereum might take many billions of dollars (and the number will only go up).

Nation3 will eventually need a constitution. This constitution, while allowing processes to evolve itself, would be our guiding light. Something like encoding the Nation3 manifesto in law.

Then all governance proposals must not be unconstitutional. If a governance proposal is unconstitutional, a dispute would be raised and the author taken to Nation3 Court, which would rule on the proposal's constitutionality.

It would still be possible to modify the constitution, which in itself is an evolution mechanism. But checks and balances are like an onion. Uncontrolled power lies in its core. You cannot make the core disappear, but you can add layers to make it harder to peel. It's about making it harder for a malicious actor to take advantage of turbulent times and destroy checks and balances.

A great governance process is one of the most powerful assets for a cloud nation.

Similarly to how corruption is directly correlated with GDP per capita.

A robust governance process ensures long-term value creation instead of short-term corruption, attracts builders instead of bureaucrats and improves itself in turbulent times and while under attack.

If you are interested in knowing more or building this future with us, subscribe to this publication or join our Discord.

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