1/15
Last month there was an interesting DAO proposal on @LidoFinance by @_skozin. The crux of the proposal argues for introducing a Dual Governance scheme, in which $stETH holders will also be granted governing power in addition to $LDO holders.
michaellwy.substack.com/p/ambition-mad…
Last month there was an interesting DAO proposal on @LidoFinance by @_skozin. The crux of the proposal argues for introducing a Dual Governance scheme, in which $stETH holders will also be granted governing power in addition to $LDO holders.
michaellwy.substack.com/p/ambition-mad…
2/15
In my latest blog, I explore how the Dual Governance scheme resembles the structure of a #bicameral legislature (with specific reference to the U.S. Congress) and inherits the spirit of check and balance to address moral hazards.
In my latest blog, I explore how the Dual Governance scheme resembles the structure of a #bicameral legislature (with specific reference to the U.S. Congress) and inherits the spirit of check and balance to address moral hazards.
3/15
Many parallels between #dual #governance and #bicameralism can be observed: both seek to mitigate the principal-agent problem through better alignment of interests and both seek to limit the power of the governing body by introducing elements of checks and balances.
Many parallels between #dual #governance and #bicameralism can be observed: both seek to mitigate the principal-agent problem through better alignment of interests and both seek to limit the power of the governing body by introducing elements of checks and balances.
4/15
One level deeper, we can observe four main rationales for a bicameral legislature and dual governance scheme: 1) representational diversity, 2) virtues of delay, 3) specialization and 4) predictability.
One level deeper, we can observe four main rationales for a bicameral legislature and dual governance scheme: 1) representational diversity, 2) virtues of delay, 3) specialization and 4) predictability.
5/15
1) Representational Diversity. Bicameralism: the Senate serves as a check on popular passions and thus on the possibility of majority tyranny from the house of representatives. Lido: $stETH holders here act as a check to prevent governance capture by $LDO whales.
1) Representational Diversity. Bicameralism: the Senate serves as a check on popular passions and thus on the possibility of majority tyranny from the house of representatives. Lido: $stETH holders here act as a check to prevent governance capture by $LDO whales.
6/15
2) Virtue of Delay. The bicameral legislature and dual governance scheme increase the complexity of the governance process and reduce the prospect of arbitrary changes and therefore thwart the impulse for governing parties to resort to quick fixes when complex problems.
2) Virtue of Delay. The bicameral legislature and dual governance scheme increase the complexity of the governance process and reduce the prospect of arbitrary changes and therefore thwart the impulse for governing parties to resort to quick fixes when complex problems.
7/15
3) Specialization. For Lido’s dual governance scheme, $LDO holders might be better at decisions relating to protocol parameters and maintenance while $stETH holders are better suited to evaluate proposals from the perspective of Ethereum’s network security.
3) Specialization. For Lido’s dual governance scheme, $LDO holders might be better at decisions relating to protocol parameters and maintenance while $stETH holders are better suited to evaluate proposals from the perspective of Ethereum’s network security.
8/15
4) Bicameralism reduces the fickleness of policy-making, while Lido's dual governance adds to the sense of security for its stakers, which is important as the protocol matures.
4) Bicameralism reduces the fickleness of policy-making, while Lido's dual governance adds to the sense of security for its stakers, which is important as the protocol matures.
9/15
Despite that #DAOs are equipped with novel bells and whistles such as “self-executing smart contracts” and “governance tokens on an immutable blockchain”, governance eventually remains an issue of institutional design that technology alone is unable to solve.
Despite that #DAOs are equipped with novel bells and whistles such as “self-executing smart contracts” and “governance tokens on an immutable blockchain”, governance eventually remains an issue of institutional design that technology alone is unable to solve.
10/15
The Upshot? Designing a DAO is not dissimilar from conceiving a constitution. In essence, they are institutional arrangements consisting of systems, processes, and policies for the purpose of coordinating activities efficiently for a common objective.
The Upshot? Designing a DAO is not dissimilar from conceiving a constitution. In essence, they are institutional arrangements consisting of systems, processes, and policies for the purpose of coordinating activities efficiently for a common objective.
11/15
One area of comparative constitutional structures is the evaluation of #veto gates and #veto players. Veto Gate: formal institution that serves as a point in the legislative process where a proposal can be blocked. Veto Player: any group who has the capacity to block a vote
One area of comparative constitutional structures is the evaluation of #veto gates and #veto players. Veto Gate: formal institution that serves as a point in the legislative process where a proposal can be blocked. Veto Player: any group who has the capacity to block a vote
12/15
@LidoFinance's dual governance scheme is perhaps the first DAO to attempt to install a veto gate. How well the scheme will function will hinge on the interactions of veto players (e.g. whether $stETH holders will act as a monolith with homogenous interest).
@LidoFinance's dual governance scheme is perhaps the first DAO to attempt to install a veto gate. How well the scheme will function will hinge on the interactions of veto players (e.g. whether $stETH holders will act as a monolith with homogenous interest).
13/15
As @LidoFinance also provides liquid staking on multiple other chains such as #Polygon, #Solana and #Avalanche, the potential inclusion of non $ETH stakers in Lido DAO’s governance will further complicate the dynamic of $LDO holders and stakers.
As @LidoFinance also provides liquid staking on multiple other chains such as #Polygon, #Solana and #Avalanche, the potential inclusion of non $ETH stakers in Lido DAO’s governance will further complicate the dynamic of $LDO holders and stakers.
14/15
The spirit of checks and balances propounded by James #Madison is not just a timeless canon for polities, but also a tenet for any populous community organization seeking to balance the interests of diverse stakeholders.
The spirit of checks and balances propounded by James #Madison is not just a timeless canon for polities, but also a tenet for any populous community organization seeking to balance the interests of diverse stakeholders.
15/15 (End)
For DAOs to live up to its vision, innovation must materialize on the institutional design level in addition to the technological level.
For DAOs to live up to its vision, innovation must materialize on the institutional design level in addition to the technological level.
Might be of your interest! @LucaProsperi @frankmuci @matt_levine @Darrenlautf @crypto_council @AnthonyLeeZhang
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