Can DeFi’s governance issues be truly decentralized?

It’s this time of year again-the nasty kids on campus post their faces all over the campus and ask you to vote for them. You read these selected lists on the campus flyer, and wonder why anyone would run for these student council positions (actually I know, because I used to be the kid on campus). This game is not conducive to any form of governance.

1. Except for a few people, no one really cares about what decisions are made

2. The real power is in the hands of a few people-teachers and administrators

Like the high school student union, DeFi governance is mostly treated as a scam, telling participants that the process is democratic (quote Tina He). In reality, many decisions are usually made by people at the top, and the cost is borne by the end user. A system that forces aristocrats to become “angels” usually does not have the long-term viability of decentralized governance.

Disclaimer: I will use real-world examples of cryptocurrency governance. Regardless of whether they are criticized or praised, my views on the governance process do not affect my outlook on a project or other aspects of the agreement. This is just to provide a useful guide for historical examples and how to solve the problems that arise in DeFi governance.

Decision, decision, decision…

Staring at the campaign speeches outside, you will find that most people really don’t care about what’s happening on campus. A large number of city halls hold events for different reasons, but you don’t really care or have no time to participate. From its simplest form, it can be seen that cryptocurrency suffers from the same problems as the rest of the world, mainly from small governments (like student unions). The vast majority of people just don’t care, the data confirms this:

Can DeFi's governance issues be truly decentralized?

Source: forum page, duneanalytics.com

At present, the most prominent issue of protocol governance is the benefits to terminal voters. Why do they spend time voting? Generally speaking, most people have some motivation to participate in governance, whether it is economic or ethical. Similarly, agreements that want to achieve better governance results should start thinking about how to effectively incentivize good governance. The simple solution involves taking out a small portion of the token vault to motivate the members of the agreement who have contributed a lot, let them vote on important matters, and participate in finding effective ways to understand new proposals.

One of the main problems with the resolution of the agreement comes from the poor implementation of a large number of proposals. The benefit of everyone participating in governance is that they may all propose changes to the functions of the core protocol. The problem here is that there are endless governance proposals, and the meaningless and interesting are all mixed together. In the end, for most people, there are too many proposals to care about. Instead, the possible benefit is to allow the motivated members to reach the quorum required for the new proposal, and then screen the list of resolutions.

Finally, there is the problem of gas cost and small users. Generally speaking, token founders and DAOs should try to minimize the barriers to entry for the smallest participants. At the basic level, founders can use part of the token vault to subsidize the gas fees of representatives below a certain threshold to incentivize good governance.

Oligarchy

Can DeFi's governance issues be truly decentralized?

Oligopoly and aristocratic forms of governance seem to be one of the most common natural forms of primitive government. In any society, the common people should have their own voice, separated from the elite and intellectuals. This idea (for the rich) is very attractive in any society, but there are few examples that produce better results for most people. DeFi is no exception, as Ric Burton mentioned in this article.

Like any new field, most of the early DeFi projects were led by venture capitalists who wanted to support a new form of financial technology. However, along with the growth and development of DeFi, there have also been some structural problems related to true decentralized agreements, mainly because they cannot form a coherent governance model that is ultimately different from cartel-like operations.

In DeFi, governance is usually conducted by voting, and a proposal must reach a certain number of votes before it can be passed. These votes are usually allocated based on token ownership. The more tokens an entity has, the more votes it has and therefore the greater its influence. In theory, this seems to be a standard democratic system. But this simple mechanism contains the seeds for DeFi to cure chronic diseases.

Tokens and development trends are as follows:

Can DeFi's governance issues be truly decentralized?

Now this development trend does not apply to all tokens (such as “fair” issuance, airdrops, etc.), but in general, tokens will flow to the people with the most resources. The problem is that this process usually leaves no room for the smallest users, even if they find the agreement or project very useful.

A simple solution to this problem is a mechanism like Compound, which delegates voting to governing politicians. The idea here is that the community can delegate their votes to certain politicians to perform their governance responsibilities, and small users can also pool their votes. But the problem now is that the governance of Compound is still very seriously dominated by the top voting class, and 4 of the 5 largest holders are venture investors.

Can DeFi's governance issues be truly decentralized?

The problem is that this measure still fails to effectively unite small agreement users to support a few users, and as a result, a few users have a lot of voting rights. What’s interesting is that in some governance structures, large share holders of tokens still do not participate in governance forums, making a large number of votes useless or easy to be swayed by other users in controversial proposals. In general, this process will alienate most users and sacrifice those who want to participate.

Proof of contribution

The agreement should seek “Proof of Devotion” instead of focusing on the largest token holders, but unlike using it as a consensus mechanism, “Proof of Devotion” should be applied to governance weights . In theory, the governance structure should focus on both the largest token holders and the main users with the highest community participation. A simple mechanism in this regard may be that governance can be separated from pure token distribution and issue something like multiple equity, where ownership and voting rights are not symmetrically distributed. During this process. It can not only dilute the voting rights of large inactive currency holders, but also increase the minimum voting weight of small voting groups in the new proposal. In addition, the agreement allows their longest-term token holders/stakeholders to obtain more or less voting tokens/scoring to encourage long-term participants to take governance issues more seriously.

Summarize

DeFi is still in its infancy to a large extent. It is a just-in-flight part of our ecosystem, and it continues to meet most of the needs and uses. In this process, challenges such as governance and people’s participation are predictable, and they are also welcomed as a sign of important development. If adequate measures are taken in this area to create a streamlined procedure for proposals and changes, lower the entry barriers for small participants, and encourage a wider ecosystem to participate in protocol governance, then we are likely to see a completely innovative Centralized autonomous decision-making system.

 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/can-defis-governance-issues-be-truly-decentralized/
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