Governance

There are currently two primary schools of thought when thinking about governing blockchain networks, on-chain governance, and off-chain governance. Their names convey a lot about how they operate.

On-Chain Governance

On-chain governance refers to a process by which network participants propose code updates and vote on those protocol changes through a token. Votes are tallied and the resulting outcomes are executed automatically, on-chain. Supporters of on-chain governance argue that miners and developers can have undue influence over the direction of a protocol and that a more decentralized option is necessary to keep stakeholder retention high. The crux of the on-chain governance argument lies in the fact that it will become increasingly easy to fork any chain, taking with you the complete history of the state and all account balances. In those scenarios, the best way to protect from a hard fork is to have a loyal community. Community members who feel they have a voice are much more likely to stay than those who feel like they have no say in how the network operates.

While there is nowhere near consensus that on-chain governance is a favorable feature, proponents of on-chain governance posit that it has the following benefits:

  • More decentralized form of governance
  • Protection from hard forks
  • Infrastructure upgrades with no downtime

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Off-Chain Governance

Off-chain governance refers to a more informal governance process in which stakeholders coordinate and make decisions outside of the blockchain. This can occur in a variety of ways including in-person discussions, improvement proposals on GitHub, and popular digital messaging platforms. Supporters of off-chain governance argue that the game theory baked into the social structures surrounding blockchain networks is enough to achieve the most optimal outcomes. Similarly, there are doubts as to whether or not on-chain governance will create governance systems with the same problems as traditional systems, namely control by the economically wealthy. Many also state that the risks associated with on-chain voting, in particular, the ability to sybil attack the system, outweigh the potential benefits.

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Alternative Governance Approaches

Futarchy

Liquid Democracy

Quadratic Voting


Governance Tokens

ZRX
DCR
ANT

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