Intro: Current issues with traditional governance
Traditional governance systems, such as the ones existing in governments and organisations, are hierarchical and centralised. Because of this structure, most of the power is in the hand of the upper echelons while most users have little to no chance of influencing decision making. This can become an issue when the users are affected by the choices while the people in control are not incentivised to make changes in their favour. Also, decision makers are difficult to audit and are not always held accountable by other parties. This lack of transparency becomes an even greater issue in the context of representative governance. High profile examples of tampering are the Cambridge Analytica scandal and more generally controversies on the US elections integrity.
Blockchain technology could be deployed to transform governance and community management. This is because a smart contracts-based governance system would be much more difficult to tamper with while also staying transparent and auditable.
What went wrong with traditional governance?
- Failure to deliver on what is promised in the electoral campaign
- Information bottleneck
- Lack of transparency and accountability
- Inequality
- Lack of representation
- Barriers to participation
Blockchain governance
Governance based on blockchain decentralises the power that is normally held by a small leadership group, allowing users to take more control of the system. This can also help preventing a monopoly of power and influence that can put the users at the mercy of whoever is in control. In a decentralised blockchain governance, there are usually three main parties holding decision-making rights:
- Developers
- Node Operators/Miners/Stakers
- Token holders/Investors
The rights and incentives for each party varies depending on the ecosystem and consensus mechanism involved.
How does blockchain governance work without leaders?
Applications built on a decentralised network (dapps) have characteristics that make them ideal in solving the current governance challenges - this is because they are backed by unchangeable smart contracts that control the logic of the dapp independently of individuals or institutions.
Key features of dapps:
- Zero downtime – once the smart contract at the core of an app is deployed and on the blockchain, the network as a whole will always be able to serve clients looking to interact with the contract. Malicious actors therefore cannot launch denial-of-service attacks targeted towards individual dapps.
- Privacy – you don’t need to provide real-world identity to deploy or interact with a dapp.
- Resistance to censorship – no single entity on the network can block users from submitting transactions, deploying dapps, or reading data from the blockchain.
- Complete data integrity – data stored on the blockchain is immutable and indisputable, thanks to cryptographic primitives. Malicious actors cannot forge transactions or other data that has already been made public.
- Trustless computation/verifiable behavior – smart contracts can be analyzed and are guaranteed to execute in predictable ways, without the need to trust a central authority.
Blockchain governance strategies
Incentives and coordination - to bring beneficial change to a shared ecosystem, common incentives must be found. All parties involved should have the same ability to coordinate so that a power imbalance is avoided. Off-chain and on-chain governance have their advantages and limitations - regardless of the strategy, please keep in mind that a blockchain project is not guaranteed to be decentralised.
It's impossible to tell which structure is a better choice without presenting a precise governance context.
Off-Chain governance
This strategy is more similar to existing governance structure - a small, closed group (usually developers or major stakeholders) make and enact proposals.
examples:
- Bitcoin BTC - developers issue Bitcoin improvement proposals (BIPs) that can be approved or rejected by miners
- Ethereum ETH - funded by the non profit Ethereum Foundation - anyone in the Ethereum community can issue Ethereum Improvement Proposals (EIPs) which can be enacted by community stakeholders
- Ripple (XRP) - very centralised, mostly owned and controlled by large financial institutions, strong B2B focus
limitations:
- partnerships with institution/company/foundation - reliance on leadership integrity
- relatively centralised
- lack of innovation incentives
On-Chain governance
This strategy deploys the governance system as integral part of the protocol - smart contracts enable users to coordinate proposals and voting.
examples:
- Tezos - self-amending blockchain, no hard forks, evolves with the community needs
- EOS - staking-based voting rights and rewards
- Polkadot - on-chain collectives create proposals (vetted by the Technical committee) and all stakeholders vote on them in a referendum
limitations:
- no rollback and possiblity of hard forks splitting communities (this does not apply to Tezos)
- reliance on users' integrity
- tends towards plutocracy (for example, ATOM requires a minimum pooled amount to make proposals and the votes on proposals are proportional to staked ATOM)
Current limitations:
- gas fees (you can check up to date gas prices here)
- dapps are not as widely adopted due to development difficulty and not being as user friendly and well known as web2 existing platforms
- plutocracy and institution/whale buy out - see Steemit hard fork and its acquisition through a large stake
Blockchain does not guarantee automatic decentralisation - e.g.: Ripple is owned and managed by a company, therefore has a governance strategy that is not different from traditional companies.
DAOs - the gold standard of decentralised governance
Decentralised Autonomous Organisations (DAOs) are the most decentralised form of on-chain governance to date. There are various forms of DAOs with different voting strategies - however all DAOs eliminate the need for a top-down hierarchy, by coordinating votes and proposals through smart contracts.
DAO platforms
- Moloch - the older platform, focused on crowdfunding for Ethereum dev teams
- DAO Stack - more focused on governance tool
- Colony.io - newer and less known/adopted
- Aragon - focused on accessibility and user experience, it is in active development to make DAOs accessible to users with no coding skills who want to build a community
DAOs are not the future, DAOs are now
- DAONAUTS which is linked to its subreddit
- An extensive list of Aragon based DAOs
Current issues
- gas fees keeping small contributors from participating - (but gasless and L2 solutions are currently in development for Aragon to overcome this)
- low voter turnout
- failure on executing community will
- vulnerability to malicious actors - see The DAO hack
- onboarding and including
Snapshot - a "light" alternative
Snapshot is a off-chain, gasless, multi-governance community polling dashboard
Snapshot spaces are widely deployed by well known platforms, but are not as decentralised as DAOs (off-chain and moderated by an admin group). Snapshot is easier and cheaper (for now) to deploy, manage and run.
examples:
Why all of this matters to us (and tl;dr)
- a new model of governance is sorely needed in the light given the lack of transparency and fairness in existing governance structures
- every member in a community should have the right to propose ideas and vote, regardless of how much currency they are able to invest
- all parties involved should have equal ability to coordinate to avoid power imbalances
- automating voting and proposals on the blockchain will make tampering much more challenging and will reduce the need for vote recounts
- votes and proposals could be done anonymously with smart contracts, giving individuals at risk (or silenced by institutions) a voice
Disclaimer
I have done my best to check the background information and sources extensively (whitepapers, official about, Github pages). I try to stay neutral when covering the various projects, but I will disclose that I quite like Ethereum, Aragon and Sushi after interacting and using the platforms.
As always, if you think there are other projects to include or details to amend, let me know and I will edit them in :) constructive discussions are always very welcome!
Further Reading
Aragon Whitepaper
A peer-reviewed overview of DAOs
What are DAOs
An intro to DAOs by DAOStack
Delegated proof of Stake
Blockchain Governance
On-Chain Governance
Snapshot Github
Snapshot and Aragon Proposals integration