Ants dancing with elephants? How DeFi can achieve more perfect governance on the chain

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*The picture comes from the Internet

Looking at human organization from a historical perspective, what is the greatest contribution of the blockchain?

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bitcoin

Can we find a corresponding organizational model in reality, which can help us better understand Bitcoin network governance?

The most appropriate governance model to understand is the American federal system. For example, when the Senate needs to pass a new bill, it needs to be submitted by members of the parliament. When the Ministry of Justice receives the request, it can choose whether to pass it, and the state and the federal government can choose not to implement it. own veto. When someone proposes a BIP in the Bitcoin network, developers need to submit a merge request. Miners can develop after receiving the request and choose to pass it. Nodes also have the right to choose asynchronous execution to express their veto rights. Community token holders Objections can also be lodged. Finally, Bitcoin's economic incentives require maintaining trust in the system, which is automatically balanced in everyone's best interest.

Under such rules, miners, nodes, and investors become key factors in governance. The purpose of the Bitcoin governance process is to maintain a set of verification rules, which cover grammar, data structure, resource usage restrictions, integrity checks, and time locks. , memory pool, and block header verification, etc.

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In April 2019, Lane Rettig of the EWASM team, the core developer of Ethereum, posted a Tweet "Ethereum governance has failed, we are actually ruled by technologists: core developers have the final say on protocol updates", which triggered a lot of discussions in the community. discuss.

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*Image sourced from twitter.com

The same separation of powers, the centralization trend of Ethereum governance is inevitable. One of the governance problems is that it relies too much on the creator Vitalik, and the other is that there are limited ways to motivate developers, forcing more developers to work on their own projects. Create tokens to support yourself.

In this regard, Vlad Zamfir, a star developer of Ethereum, believes that "Code is law" is very dangerous, and opposes complete on-chain governance, because everyone only sees governance and decision-making that are not optimized enough but does not see the real internal decision-making operation. Governance on the chain can only represent the interests of a few people, which runs counter to the public spirit of the blockchain.

As the upgrade of Ethereum is about to turn to PoS to help shorten the difference between users and miners, the risk of centralization trends such as Bitcoin will be avoided to a large extent, but the governance process will be longer than before. Members of the Ethereum ecosystem are also constantly exploring to find a better decentralized governance model. MakerDAO occupies more than 50% of the market share in the DeFi market on Ethereum, and uses opinion polls and limited on-chain voting to manage the stable currency DAI.

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Opinion polls originated in the United States in the 19th century. In the latest general election, Trump mentioned his high approval rating in every speech. Therefore, George Gallup once referred to polls as the fingers that can feel the pulse of "democracy". What will polls become when they become rules running on the blockchain?

MakerDAO governance regards the proposal as a public official who is running for election. Community members can choose to vote or not. The foundation votes as a reference for community members. In administrative voting, the voting process of ordinary citizens will continue until the number of votes exceeds Up to the number of affirmative votes in the previous executive vote. The number of votes in MakerDAO is directly proportional to the amount of Stake. When a public opinion survey or administrative voting is opened, users pledge their MKR to participate in voting. After the voting period ends, the party with the highest amount of MKR staked wins. Therefore, the Maker Foundation uses public opinion surveys to measure the community's views on different issues, such as adjusting the stable currency DAI's stable fee rate, etc. At the same time, MakerDAO also has Executive Votes. Once the voting is over, the winning option will take effect.

In December, MakerDAO's new round of community voting centered on the decision "whether to adjust the DAI debt ceiling and SAI stable fee rate", and finally received a total of 51,910 MKR support votes and passed. Two of these addresses account for 66% of total MKR staking, according to mkrgov.science. Several other votes have seen a single address weight more than 90%, including a vote in October where a single address contributed more than 94% of the votes.

Although it seems to be a very democratic governance, the vast majority of voting is still concentrated, and as the supply of MKR continues to rise, this trend will become more and more obvious, and the number of addresses holding a small amount of MKR has been growing steadily . But the number of addresses holding at least 1/100,000 of the total MKR supply (owning at least 6.44 MKR) has remained relatively stable.

According to the statistics of coinmetrics.substack.com, in the voting history of MakerDAO, most of the voting rights are concentrated in a relatively small number of addresses. There are 219,296 and 137,084 MKR in the Maker MultiSig and Maker Governance contracts respectively. When these two addresses are removed for analysis, the adjusted total MKR supply drops from 999,999 to 643,609.

*This data has excluded the holdings of Maker MultiSig and Maker Governance contracts

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*The picture comes from the Internet

At the 2018 Web3 Summit, Gavin Wood, former co-founder of Ethereum and now founder of Polkadot Polkadot, developed a brand new blockchain in just 15 minutes, which amazed everyone, using Substrate.

Why is Substrate a master of on-chain governance?

The current web application implements the HTTP protocol again. Substrate-based development only needs to implement a small number of function callbacks in the code. Substrate provides a technical framework with a high degree of freedom to achieve customization and high availability. At the same time, Substrate also creates a new governance mechanism model , the voting process on the chain is fully transparent and traceable, fast and effective community activity is achieved through rotation, a new decentralized governance is realized, and democracy and the maximization of the interests of each party are realized to a greater extent.

Substrate runs most of the on-chain logic as Runtime. When upgrading, all modifications of the Runtime module can be written into the transaction, and a referendum is initiated in the form of a proposal. After passing the referendum, all nodes will synchronize to the update of the Runtime. And complete the Runtime update at the specified height, the whole process does not need to pause the node to upgrade the client, it is a real seamless upgrade of governance on the chain.

From the perspective of the Polkadot governance process, it is mainly divided into three stages: the first is the public proposal stage, everyone can pledge DOT to make a proposal, and the proposal with a high number of votes can enter the referendum stage, and everyone can choose to support or oppose the proposal. Proposals with enough support are implemented, but a parliamentary system is added that can initiate referendums or cancel existing referendums, and the council also directly addresses potential low turnout through adaptive group bias.

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The general idea behind adaptive quorum bias is that if a parliament proposes a vote, and turnout participation is low, then the proposal in question requires more negative votes than yes votes to reject the referendum. However, with the same low turnout, if an ordinary token holder proposes a vote, the proposal will require far more yes votes than no votes.

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*The picture comes from the Internet

As an example, a miner might be willing to take more risk and voluntarily lock up DOT for a maximum amount of time while voting for a referendum to change their bottom line. If the Referenda is passed, the miners' DOT will be locked and they will face a certain risk of economic loss. If the Referenda does not pass, the miner's tokens are not locked, and if they find it unacceptable, they can sell or exit the system.

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*The picture comes from the Internet

Therefore, unlike previous Bitcoin and MakerDAO voting, Substrate's core voting principle is stake-weighted. If DOT holders use their rights and interests to vote in the general election of the community, all modifications in the Polkadot ecosystem require the approval of a majority of votes before they can be approved, and those with more votes will have more voice in the network , with the development of the ecology, it will continue to be optimized.

If the governance of a single Bitcoin network is compared to the governance within a certain community, then Substrate governance is more like inclusive cross-regional governance. It is worth mentioning that in order to prevent centralized voting and the risk of oligopoly, Substrate has specially designed a proposal pool, regularly selects a proposal from it, and lets the public vote. It does not require parliamentary intervention, but more than half of the proposals agreed It will be implemented, which ensures that the parliamentary system cannot completely monopolize the direction of all proposals and weaken the control of the plutocrats.

Even so, the introduction to Substrate governance here is not complete. You can view the complete governance model through WiKi or Github. As a relay system, Polkadot not only considers the development of a separate ecology in terms of governance, but also provides a complete governance model on the Substrate chain, realizing the efficiency and democracy of the ecology.

Building the future of DeFi based on Substrate

At present, once the design of the decentralized governance model is completed, it is difficult to try and make mistakes and iterate again like traditional products, but Substrate's governance also allows us to see the possibility of evolution. In the future, there will be many small-amount and high-frequency transactions in the DeFi industry. Building DeFi based on Substrate will not only improve scalability, but multi-chain interoperability will also bring better scalability and throughput, and achieve a better DeFi user experience.

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1.《Keynote: Bitcoin’s Network Governance | Pierre Rochard》

2.《Against on-chain governance》

3.《Coin Metrics' State of the Network: Issue 29》

4.《Blockchain Governance: Programming Our Future》

5.《A Walkthrough of Polkadot’s Governance》

References

7.《Blockchain Voter Apathy》