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1/ humans: wonderfully complex, and often irrational.
while governance is not a new idea, trying to codify this process into software *is* a new phenomenon. join me for a deep dive of these experiments on the @CoinSharesCo blog 👇
while governance is not a new idea, trying to codify this process into software *is* a new phenomenon. join me for a deep dive of these experiments on the @CoinSharesCo blog 👇
2/ if written word isn’t your thing, @_jillruth & i also discuss this on the latest episode of @WGMGpodcast: cms.megaphone.fm/channel/whatgr…
in the context of this thread, governance is broadly defined as the set of processes that comprises how a state, market or system "makes rules"
in the context of this thread, governance is broadly defined as the set of processes that comprises how a state, market or system "makes rules"
3/ one of the more recent pursuits of blockchain-based systems have been attempts to express governance at the protocol-level by coding some of these mechanisms into the network itself.
in my view, blockchain governance takes two forms:
in my view, blockchain governance takes two forms:
4/ so for this piece, I decided to focus on the 5 largest networks deploying on-chain governance today ( $EOS, $DASH, $NEO, $XTZ, $DCR ) & started with a basic question - who has the right to govern?
here's a brief summary of governance dynamics on these networks:
here's a brief summary of governance dynamics on these networks:
5/ each network has its own nuanced mechanism, which makes "participating" in governance incredibly time consuming, and also risky - technically, socially, and financially.
the net effect?
the net effect?
6/ this risk-reward analysis shows that participating in governance is more profitable on some networks than others, which explains why we see more competitive dynamics arising in governance on certain networks
7/ which leads to my second question - who was the *will* to govern?
considering the time & energy required to effectively participate, it seems that there are two key motivations:
(1) money 🤑💰
(2) power 👊⚔️
...and for a minority, perhaps curiosity / masochism / insanity 🤪
considering the time & energy required to effectively participate, it seems that there are two key motivations:
(1) money 🤑💰
(2) power 👊⚔️
...and for a minority, perhaps curiosity / masochism / insanity 🤪
8/ it's not surprising that money and power dominate this conversation - they have always been central to the political process.
it would be foolish to think that crypto governance could mitigate these influences. consider the dynamics of power and incentives for stakeholders:
it would be foolish to think that crypto governance could mitigate these influences. consider the dynamics of power and incentives for stakeholders:
9/ we already see coercion & collusion. just look at the accusations of - and investigations into - cartel-like behavior amongst exchanges, investors, and project teams.
the stakes in these games of governance will grow.
as networks grow in value, incentives will too.
the stakes in these games of governance will grow.
as networks grow in value, incentives will too.
10/ while challenging to measure "participation", a few thoughts:
- if voting presents risks (social, financial, or physical) -> lower turnout
- larger issues / greater "stakes" -> higher turnout
- opportunity for personal gain (power, influence) -> more "thought leadership"
- if voting presents risks (social, financial, or physical) -> lower turnout
- larger issues / greater "stakes" -> higher turnout
- opportunity for personal gain (power, influence) -> more "thought leadership"
11/ we should also remember the unquantifiable “path dependency” stakes. business are being built on top of these networks, and in some cases, are dependent on certain changes being implemented.
the ability to control future network development can be priceless for some.
the ability to control future network development can be priceless for some.
12/ so where does this leave us? I believe the current state of on-chain governance is trending more towards oligopolies.
each protocol has its own ruling party and oligarchs, some better known than others, and these parties will collaborate to maximize outcomes in their favor.
each protocol has its own ruling party and oligarchs, some better known than others, and these parties will collaborate to maximize outcomes in their favor.
13/ those outcomes might also happen to be optimal for all network participants.
*but* I do believe certain exchanges, investors, & individuals will align themselves with protocols where they can “govern” or exert control more effectively, and more actively shape the future.
*but* I do believe certain exchanges, investors, & individuals will align themselves with protocols where they can “govern” or exert control more effectively, and more actively shape the future.
14/ we already see this through services that support crypto funds in “compounding” their assets & taking advantage of the opportunity to earn financial returns in staking.
it's not a stretch that these providers could effectively become “cartels-in-a-box” for large investors.
it's not a stretch that these providers could effectively become “cartels-in-a-box” for large investors.
15/ now some investors may try to convince you they will do what is best for the protocol - and this isn't to suggest investors don't make positive contributions to the community.
however, the “cartel of good intentions” is about charting a course which maximizes profit.
however, the “cartel of good intentions” is about charting a course which maximizes profit.
16/ ultimately, tools are neither inherently good or bad, just or unjust; but they take on these traits when employed by humans.
“absolute power corrupts absolutely” is perhaps a fitting reminder of what happens when we couple power with politics in protocols.
“absolute power corrupts absolutely” is perhaps a fitting reminder of what happens when we couple power with politics in protocols.
17/ history shows us that most forms of governance begin as “benign” in nature - whether it be monarchy, aristocracy or democracy - but over time are abused & become malignant - devolving into tyranny, oligarchy & ochlocracy.
polybius outlined this pattern, called anacyclosis:
polybius outlined this pattern, called anacyclosis:
18/ only time will tell how these networks evolve & grow to maneuver around the risks outlined above.
i have some ideas, which i'll continue to share, but nothing is certain. part of the fun here will be watching these ideas and experiments unfold in real time.
i have some ideas, which i'll continue to share, but nothing is certain. part of the fun here will be watching these ideas and experiments unfold in real time.
19/ details @CoinSharesCo blog: medium.com/coinshares/pol…
lastly: understanding the past is critical to building a better future. protocols are political. even more so when rulers are paid to govern.
eager to hear *your* thoughts.
/fin
lastly: understanding the past is critical to building a better future. protocols are political. even more so when rulers are paid to govern.
eager to hear *your* thoughts.
/fin
