Vitalik Buterin, criticized the state of on-chain governance today on his blog, arguing blockchain projects have become overly reliant on token-based voting as they try to become more decentralized.
“The most important thing that can be done today is moving away from the idea that coin voting is the only legitimate form of governance decentralization. Coin voting is attractive because it feels credibly neutral: anyone can go and get some units of the governance token on Uniswap.”
The post from Buterin, who as Ethereum’s founder is one of blockchain’s most influential researchers and developers, throws cold water on the increasingly prevalent notion that decentralized protocols should strive to have most of their decision-making process happen on-chain via token votes. Buterin’s arguments may further push founders and developers to find more democratic governance mechanisms.
For those who are unfamiliar, it’s not uncommon for crypto projects to release some kind of token, usually called a governance token, that allows users to vote on changes in code or uses of the project’s treasury. These tokens work much like equities do in public markets, carrying both the right to vote and a stake in the issuing enterprise.
Buterin argues the main problem with this system is the rich tend to dominate the decision-making process when it’s simply run with tokens.
Hudson Jameson, who was the coordinator for Ethereum’s core developers meetings for four years, and thus deeply involved in governance, agreed.
“Vitalik makes a great point that when it comes to coin voting, many times large portions of the supply stay in the hands of insiders and cliques,” Jameson wrote The Defiant over Telegram.
It’s not only concentration of wealth, but it’s also that users with more modest holdings have very little incentive to participate and a fairly high incentive to accept bribes to back bad decisions, as Buterin explains. That’s because a malicious decision won’t impact a small holder much, but the bribe she gets for supporting it is free and easy money.
Lasse Clausen, a partner at venture firm 1kx, agrees.
“There still exists a large design space for improving the on-chain governance process,” Clausen told The Defiant over Telegram. “One-coin-one-vote was a good start, but protocol designers should continue experimenting.”
False sense of security
Buterin’s fundamental overall point though seems to be that all cryptocurrency communities have lulled themselves into a false sense of security simply because, as he writes, “there have been much fewer examples of outright voter bribing, including obfuscated forms such as using financial markets, that simple economic reasoning would suggest. The natural question to ask is: why haven’t more outright attacks happened yet?”
He gives three reasons: first, crypto has strong community spirit — for now. It’s like a newly founded nation with a sense of mission. Second, a large number of whales that can easily coordinate is protective even if it is less fair. And, finally, because the tools to scale up bribes just aren’t built out well enough yet (but they are coming quickly).
All of that, he promises, will change.
Futarchy and forks
Buterin also goes through a litany of potential patches to governance that might diminish threats from attackers and better steward the individual projects for all their stakeholders.
Haseeb Qureshi, a partner at Dragonfly Capital, told The Defiant over Telegram that the two biggest ideas that Buterin advanced with this post were futarchy and skin-in-the-game voting.
With futarchy, every vote is a bet. If a decision succeeds in meeting an intended objective, those who voted for it get paid by those who voted against it (and vice versa). The hard part is defining an objective outcome that can be measured later in a very complicated world full of unforeseen consequences.
With skin-in-the-game voting, Buterin urges decentralized finance projects to get onto a fork-ready footing. If there were a very bad decision (Buterin cites Hive’s hard fork from Steem as a case in point), the community should be ready to fork the project. Buterin recommends going further than a mere fork and destroying all the tokens of the wallets that supported the malicious decision.
Those ideas “are not fleshed out enough to be realistically used on-chain,” Qureshi wrote, “but I’d love to see some experiments along those lines.”