a16z: What can Web3 learn from the history of traditional governance?

Web3 creates a new “lab” for community governance, where public and private incentives are intertwined, projects are open source and for-profit, and public products and private projects can coexist. In Web3, governance is continuous, participation is completely open, and execution is swift.

Web3 governance is defined by different classes of actors, as clients are the owners. As a result, a new form of digital engagement has surfaced with extensive experimentation and rapid iteration cycles.

However, participation in Web3 governance has so far been low, and group decisions are easily captured and manipulated by interest groups. To address this issue, we may be able to draw some lessons from the history of system governance.

While Web3 is new, governance is not. Societies and organisations have faced almost the same governance challenges over the past millennia – sprouting in the Church of Athens, where citizens came together to make collective policy decisions, rising up in the Dutch East India Company, where good governance spreads risk and gathers at scale Capital, by adding a layer of legal separation between shareholders and creditors, has driven a whole new era of organizational design and privatized governance.

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In this article, a16z draws on its expertise in political science and political economy research, as well as its long-term experience of observing and actively participating in Web3 governance in DAOs, to explore the key challenges of decentralized governance, and to build future mature decentralized governance. Centralized governance systems offer a way forward.

How Representative Systems Improve Web3 Decentralized Governance

Some argue that representative Web3 governance is not as good as direct governance, but this is a myth: by requiring less of community members, representative Web3 governance can actually empower them to direct and centralize their activities to encourage participation and prevent Interest groups seize the system.

The same logic applies to corporate governance. Apple does not require shareholders to vote on the technical framework of the next iPhone. Amazon also does not publicly solicit shareholder feedback on its implementation of each step of its development plan. Instead, a small group of shareholders periodically makes decisions, such as the election of a board tasked with an oversight role on behalf of shareholders.

The current pain point of Web3 governance may be system complexity, we expect to see more complex and broader manifestations in Web3 governance continue to develop, from a first-principles perspective, if the Web3 community needs to implement the relationship between participants in the ecosystem The system design and social contract formed between them requires the use of specific tools.

While Web3 governance differs from traditional governance archetypes, it is also possible to draw from traditional frameworks to build more inclusive and efficient organizations, such as:

1. Clearly define the roles of internal units,

2. Requiring representatives to have certain expertise to make relevant decisions

3. Leave strategic capital allocation decisions to all members as a check on the organization itself.

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These changes, in turn, can facilitate the scalability of Web3 governance, effectively organizing governance in a representative manner, and without sacrificing organizational determinacy, agility, or inclusiveness.

Start the accountability flywheel

Representative Web3 governance only works if it addresses the principal-agent problem: representatives must want to win re-election, and community members must have the necessary information to determine whether their representative is worthy of re-election. Likewise, in corporate governance, board members must act in the long-term interest of the company or risk being removed by shareholders, even if such removals are uncommon.

Web3 makes us think about this differently. There is no board of directors in Web3, and many participants are anonymous, with low barriers to participation and disengagement. In general, the more informed and attentive community members are, the more motivated delegates will be to do their job well. And when the representative does a better job, the stakeholders will trust the organizational system more and are more willing to devote time and energy to the organization, which further enhances the representative’s motivation to do a good job. If there is a virtuous cycle, the system itself can be self-reinforcing, that is: good governance produces more good governance – we call it the accountability flywheel.

Web3 has a powerful tool to promote accountability, Tokens, which can be used as a whole new tool for allocating economic, social and political rights to stakeholders within the ecosystem, just like startups incentivize employees with ownership, Tokens Can be used to incentivize contributors and users to continue creating value on the network.

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But relying on tokens alone is not enough to stimulate the accountability flywheel, we can also help by:

1. Encourage competent and dedicated representatives by appropriately compensating contributors and users, defining their roles, and possibly securing them for a certain tenure.

2. Tokens can play a key role in maintaining long-term incentives by designing a token release schedule, similar to offering performance-based stock options to company board members.

How to express the right to speak in Web3 governance?

Those who represent token holders are usually an important part of the Web3 system, but they are not the only ones. As Vitalik Buterin pointed out in his 2016 article on Decentralized Governance, there are many other important voices in the community beyond large token holders that may not be included in pure token voting. The Web3 governance design (one token, one vote) has become a difficult problem to solve, because the weight of tokens is usually biased towards the founding team and institutional investors, while those stakeholders who hold little or no tokens are actively participating protocol.

On the other hand, non-Token holders do not bear the economic consequences of their actions, especially in an open governance system, which makes Token governance a double-edged sword. So, how to solve these problems? In fact, optimization experiments have already started in the Web3 field, such as:

1. Distribute governance tokens directly to relevant groups.

Typical example: Anyone who made a meaningful contribution to the protocol is traced back and can then be rewarded with an airdrop.

2. Create separate governance functions.

Typical example: Optimism’s “Citizen’s House”, which is a voting room composed of community contributors, everyone votes through non-transferable tokens, and the Citizen’s House will allocate funds for public goods projects.

3. Reserve some incentives for specific groups, such as full-time contributors, active forum members, or user groups.

Typical example: There is currently no Web3 community, but this is a logical future scenario where Web3 system governance is not limited to Token voting.

4. Granting power to non-token holders by other means

Case in point: Lido’s governance proposal gives dual governance powers to LDO holders and stETH holders, the latter of which will have veto power over certain types of proposals.

A Useful Model for Web3 Governance: Indirect Liability

At this stage, almost all Web3-native organizations don’t take advantage of indirect accountability, but they should, and there are two general approaches you can try:

1. Give delegates (whether appointed or elected) formal supervisory powers.

  • This approach may be closest to a traditional corporate governance model, not enough, representatives in Web3 may have more power than a corporate board of directors, and could require token holders to conduct broader direct votes where appropriate.
  • The key oversight power is the “power of the wallet,” as outlined in traditional corporate bylaws. In Web3 governance, this means the power to oversee the community treasury, and the ability to fund or defund certain positions, projects, and groups within the organization.

2. Create an executive committee that will either allow the representatives with the most delegated tokens to participate in governance, or allow full-time employees hired by the representatives. The executive committee will be responsible for overseeing the workforce and formulating a unified vision for the organization.

  • This model is more like the parliamentary model in Western countries, or the “parliamentary manager”-style city government in the United States.

It is important to note that when designing any governance system, participants should not create information asymmetries that may require the application of securities laws to the underlying token to protect holders and users, especially the community needs to ensure that governance design does not result in the underlying token Value is overly reliant on the “management efforts” of such representatives, otherwise the token could be considered a security by the SEC.

Epilogue

Web3 is new, but governance is not.

Building on what we’ve learned from traditional governance over the centuries, we’ve been refining and improving, Web3 organizations can leverage the power of representation, balance expertise, and develop a mechanism for better oversight and trust.

More importantly, Web3 organizations shouldn’t stop there. Compared with traditional forms of governance, Web3 governance can go further and faster. In the real world, democratic experiments are slow, and it can take decades or even centuries to figure out whether one constitutional form is better than another. But in Web3, the protocol can continuously experiment to develop and test new representations, driving the governance cycle to be shorter.

Web3 governance presents an excellent opportunity for platforms to be better governed, thereby enabling more credible and lasting commitments with counterparties, unlocking the enormous growth potential of new forms of economic activity.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a16z-what-can-web3-learn-from-the-history-of-traditional-governance/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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