DeFi governance is one of the most hotly discussed topics in the DeFi industry recently. From Uniswap’s proposal to fund 1 million UNI for the DeFi Education Fund, to Sushiswap’s proposal to sell tokens at a discounted price to some investment institutions, and to Aave’s listing of BOND tokens a few days ago The currency proposal was rejected by a few giant whale addresses with a 99% opposition rate, causing public concerns about the abuse of governance power by some DeFi oligarchs.

Immutable Capital partner Zaheer Ebtikar recently analyzed the problems exposed in the DeFi governance process on the Deribit blog. He believes that the governance participation of most DeFi protocols is generally too low. The reasons include high participation costs, too many proposals, and there are also governance problems. The problem of excessive power tilting towards token holders instead of the main contributors to the community also proposes corresponding solutions.

Author | Zaheer Ebtikar

Compilation | Hu Tao

It’s that time of year again when that annoying kid on campus is slapping your face all over the campus asking you to vote. You read the list of promises on campaign flyers and wonder why anyone bothers with these student council positions (I know, because I was that kid on campus).

The game is against any form of governance: no one really cares about the decisions being made, except a few; the real power is in the hands of a few — teachers and administrators.

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Why Most Users Don't Engage

Staring at the campaign speeches outside, you realize that most people really aren't bothered by what's going on around campus. Too many town halls because you don't really care or don't have enough bandwidth to attend. In its simplest form, cryptocurrencies face the same problems as the rest of the world, and mostly from smaller governments. The vast majority of people will not participate at all, as the following data can attest:

The most obvious problem with current protocol governance is the interests of the ultimate voters, why should they spend their time voting? In general, most people have an incentive to participate in governance, whether based on economic or moral principles. Likewise, protocols that want better governance outcomes should start thinking about positive ways to incentivize good governance. Simple solutions include using a small token vault to incentivize dedicated members of the protocol to vote on key issues and help find meaningful ways to understand new proposals.

One of the main problems with the resolution of the agreement comes from the poor implementation of the large number of proposals. The nice thing about anyone participating in governance is that they can propose changes to the functionality of the core protocol. The resulting question is,Nonsensical and interesting proposals are mixed in the endless governance proposals,In the end there are too many proposals for most people to care about them. Instead, it may be beneficial to have motivated members reach a quorum for new proposals and sift through the list of resolutions.

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Oligarchy

The form of government of oligarchy and aristocracy seems to be one of the most common natural forms of primitive government.The idea that commoners should channel their voices to the elite and knowledgeable is an attractive idea (to the wealthy) in any society, but rarely leads to better outcomes for the majority.DeFi is no exception.

As with any new field, much of the early DeFi was started by venture capitalists looking to back new forms of financial technology. But as DeFi has grown and developed, there have been some structural concerns about protocols being truly decentralized, primarily because they are not governed coherently and ultimately do not operate like a cartel.

In DeFi, governance is usually carried out by voting, and proposals must reach a certain voting threshold to pass. These votes are usually assigned by token ownership. The more tokens an entity holds, the more votes it has and thus more influence.On paper, this seems like standard democracy. But this simple mechanism contains the seeds of DeFi governance malaise.

The tokens and development process are as follows:

Now this doesn't apply to all tokens (fair distribution, airdrops, etc.), but usually tokens are transferred to the entity with the most resources.The problem is that this process often kills the smallest users, even though they might find the protocol or project the most useful.

A simple solution to this problem is Compound to delegate products created by governing politicians with their votes. The idea here is that communities can delegate their votes to certain politicians acting on their behalf for governance, while smaller users can pool their votes. The problem is that in today's world, Compound's governance still largely reflects a very heavy constituency, where 4 out of the 5 largest holders are venture capitalists.

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proof of contribution

Instead of focusing on the largest token holders, the protocol should seek so-called proof-of-dedication, but the term should not be used as a consensus mechanism, but should apply to governance weight.

In theory, governance should be structured to focus on both the major users with the highest community engagement and the largest token holders.A simple mechanism might be that governance could be split through token distribution, but instead issued like multi-class shares, where ownership and voting rights are not evenly distributed.

This process can be done in a way that limits voting dilution to a minimum of large inactive participants and prioritizes smaller voting blocs for new proposals.in conclusion

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in conclusion

DeFi is still in its infancy, a fledgling part of our ecosystem that has gradually fulfilled most of its needs and uses. Along the way, challenges such as governance and popular participation are expected and hallmarks of significant growth.

If the industry can do enough to create a streamlined proposal and change process, lower the barriers to entry for smaller players, and incentivize the wider ecosystem to participate in the governance of its protocols, then we may well see a completely transformative The system realizes decentralized autonomous decision-making.