Struggling on-chain governance experiment tests itself with new experiments
- On-chain governance remains in its experimental and development phase.
- “Achievements themselves create the scar tissue to do better and learn from experience.”
- Many projects are now launching different tokens to separate investment and financial incentives from voting rights in the project.
Crypto governance is going through a tough time right now. Sure, the market as a whole is going through a tough time, but with a steady stream of million-dollar governance attacks having already taken place this year, it seems the concept of on-chain voting is in more trouble than most subsectors. of crypto.
This concept has now been challenged by an array of high profile individuals, with Ethereum (ETH) co-founder Vitalik Buterin Tweeter in April that “we don’t have ‘standard models’ for governance that I would consider remotely acceptable. And it seems that with the recent Earth collapse also underscoring the clear and present danger of attacks on governance, there is no easy or particularly convincing answer to his doubts.
That said, figures working in the industry argue that on-chain governance as an idea and a practice is not fatally flawed. Talk to Cryptonews.comsome argue that new approaches need to be developed, such as the separation of governance powers, while others suggest that governance simply needs time to evolve.
Is on-chain governance fatally flawed?
Governance attacks appear to be one of the recurring themes of 2022, with the Terra blockchain shutting down on May 13, after the price of LUNA plummeted so much that the cost of such an attack became quite cheap.
But even before the events of mid-May, governance took hit after hit as various successful attacks were carried out.
For example, April 17 saw the credit-based stablecoin protocol Beanstalk mined for $182 million, after a hacker acquired more than 67% of the protocol’s governance token, Stalk, allowing them to vote for a code change allowing theft.
Likewise, Build finance experienced a governance attack in February that resulted in the theft of nearly half a million dollars worth of ETH. And in the same month, Justin Sun was accused of hoarding the DeFi protocol CompoundCOMP’s governance token, in order to vote through self-serving proposals, which was not an “attack” but nonetheless showed that on-chain governance is vulnerable to unsavory influences.
However, despite such incidents raising serious questions, those within crypto would not go so far as to argue that on-chain governance is fatally flawed and/or should be abandoned.
“I don’t think the one token, one vote model is fatally flawed, and it’s modeled after the stock voting system that has worked for many years. Of course, if too many chips are concentrated in a few hands, we may have a centralization problem, but that should be solved by distributing the chips to as many people as possible, not by changing the voting model,” Jeff said. Liu, the co-founder of the blockchain forensics company PeckShieldwho reported on the recent Beanstalk exploit.
Other commentators agree with this analysis, with ConsenSys Global fintech co-head Lex Sokolin suggests governance is at a very early stage of development and recent setbacks will help it grow strongly.
“The experiments we see in the market – particularly where there is capital loss – are a move towards knowing attack vectors and creating the systems to defend against them. In a sense, exploits themselves create the scar tissue to do better and learn from experience,” he said. Cryptonews.com.
ConsenSys Senior Decentralized Autonomous Organization (DAO) Strategist Marta Piekarska-Geater also points to the fact that on-chain governance remains in its experimental and development phase.
“The business concept has existed for almost 1.5 thousand years – the first company was founded in 578 in Japan. In 2008 there were 5,586 companies over 200 years old. The oldest still functioning DAOs are Dash and Steamboth funded in 2015, ManufacturerDAO started in 2017,” she said.
Piekarska-Geater adds that on-chain voting and governance is more or less where traditional corporate and financial governance was during the pre-industrial revolution, or before the crises of 1928 and 2008. Of course, the global economy undergoing still severe turbulence and setbacks even now, we probably shouldn’t expect crypto governance to become perfect in the immediate future.
Future directions of on-chain governance
That said, the DAO strategist says she is excited to see where governance is going and how it evolves in the face of challenges and scrutiny.,
“It’s very encouraging to see more and more social scientists and legal experts coming to Web3 to help shape the way DAOs are run,” she said. Cryptonews.com.
A recent development that is of particular interest to him and other figures is the growing separation of governance rights and privileges. This is a simple measure to implement, but it could seriously reduce the scope for future attacks and governance abuses.
“For example, many projects are now launching the vo- or ve- tokens to separate investment and financial incentives from voting rights in the project,” she added.
Lex Sokolin also points to the separation of powers – as we typically see in constitutional and democratic governments – as possibly the most promising development in on-chain governance today.
“For me, it seems to me that bringing all the decision-making together in a concept called ‘governance’ and then treating all the decisions the same way is the main problem. Cash management is different from product development and grants, and each requires different levels of control in order to be reasonably safe and secure,” he said.
Sokolin notes that in traditional companies shareholders do not give the board the ability to instantly move the balance sheet from one bank account to another, whereas in the sovereign state we do not even give elected officials the ability to immediately transfer enable or disable monetary policy from the central bank. As such, why should things be any different in crypto, especially when it claims to be “decentralized”?
“There is a separation of powers, and checks and balances to keep them in line. Similar fault lines need to be built in Web3, and for some things pure democracy may be correct, while for others it will be inappropriate,” he added.
That said, some analysts suggest that all that might be needed is a modification of the existing one-token, one-vote model, perhaps adding an upper limit to the number of tokens an individual can use to vote.
“I would still stick with a token-based voting system because it’s easy to run and verify, but we can mitigate the centralization issue with measures like limiting the number of votes up to a certain point. threshold, for example, an owner can only vote up to 10,000 tokens, no matter how many she has,” Jeff Liu said.
There are other ways to limit the scope of governance hazards, such as starting a project from a decentralized base to begin with, so that decisions on the best possible voting architecture can be made in the interest of the community. of this project.
“Another great development is that many projects these days start as DAO initiatives, which helps build the right community and decision-making process – it’s much harder to start with a DAO-style project. then to decentralize it slowly,” said Marta Piekarska-Gaer.
While few are certain of exactly how governance should be handled in the future, some seem confident that it can be changed and strengthened in ways that make attacks and abuses less common. And with crypto currently going through another reputation-damaging downturn, it certainly needs less.
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