Review of the Dash Budget System, the First Blockchain-based Decentralized Governance System
In August 2015, to little fanfare, the cryptocurrency Dash launched the first functioning decentralized governance system. The Dash Budget System (DBS) was a method for allocating funds from the Dash blockchain’s block rewards to projects that support the Dash network. The DBS was also a governance system, for as the saying goes, “He who controls the purse strings makes the rules.” In the case of Dash, the purse strings would be controlled in a completely decentralized manner, distributed by the blockchain based on voting by the Dash Masternode owners.
It has been sixteen months since that momentous occasion, so I thought it would be useful to review how it has worked in practice since that time. Fortunately, one of the advantages to a blockchain-based governance system is that voting results are transparent and open to the public, and anyone can easily see the results. I have created a tool to make that easier at DashVoteTracker.com, and using this tool we can study the past sixteen months of proposals.
At the time of the DBS’s creation, Dash was trading at about $2.60/DASH, and so a typical monthly funding allocation (around 7,500 Dash) was worth around $20,000. Today a monthly allocation is worth over $83,000 (at today’s rate of $11.10/Dash). Since the DBS came into existence, 180 proposals have been submitted to it, and it has allocated over 109,000 Dash. The DBS has funded the core development team, marketing initiatives, and the purchase of a domain name. It’s also helped the Dash community to set the direction of the cryptocurrency.
Let’s look at a few highlights, and even some lowlights.
Most Popular Proposals
What have been the most popular proposals in the history of the DBS?
Block Size Limitation Increase. The most popular proposal in the history of the DBS came in January 2016, when Evan Duffield, the creator of Dash, put a blocksize limitation increase to a vote. This is especially noteworthy considering the rancorous debate that has transpired in the Bitcoin community over this very issue. Dash Masternode owners gave this proposal — which raised the blocksize limit to 2MB from the existing 1MB — overwhelming support, and it garnered the most “yes” votes ever — 2,129 — against only 18 “no” votes.
Dash N Drink Vending Machine. The second-most popular proposal, with over 1,800 “yes” votes, was funding for the “Dash N Drink” vending machine. This vending machine, which could process Dash payments instantly using Dash’s innovative InstantSend functionality, was featured at the North American Bitcoin Conference in January 2016. This was one instance of using funds from the DBS for projects outside the work of the core development team. The proposal was submitted and managed by a Dash community member, and showed that Masternode owners were willing to distribute blockchain funds to any worthy project that advanced Dash. The Dash N Drink vending machine succeeded in bringing many new members into the Dash community.
Core Team Salary. The third-most popular proposal is also the first proposal ever made, as well as the longest-running proposal: a salary for the Dash core development team. This supplies a built-in means for funding the development of the Dash protocol itself. Unlike other cryptocurrencies, which have to depend on either altruistic believers or private company funding, Dash is truly self-funding.
Which proposals have received the most funds in the history of the DBS?
Dash Public Awareness. The proposal that has received the most funds — as denominated in Dash — is the Dash Public Awareness proposal, which was also submitted on the first day of the DBS. Originally set for 100 monthly payments, it was later voted down at the request of the submitter (Duffield), but not before accumulating nine payments totaling 19,404 Dash. Such an ambiguously-defined, high-amount proposal represents the very early days of the DBS. Eventually, such large “generic” proposals were seen by Masternode owners to be an improper way to use the DBS effectively, and now the core team submits proposals on a project-by-project basis.
Core Team Salary. The Dash core team salary proposal has received the second-most total funds, and, as it is still active, will soon catapult to the top spot. It has currently received sixteen payments totaling 18,816 Dash, and is ranked the most popular active proposal. This proposal signals the Masternode owners’ faith in the Dash core development team. If that trust were to falter, defunding this proposal would be the mechanism to “fire” that team. (Imagine being able to fire the Bitcoin core team!)
Dash World. Of the twenty top funded proposals, only two were submitted by non-Dash core team members. The biggest payout to a non-Dash core team member (6th overall) was the Dash World Marketing proposal, which accumulated 3,100 Dash over four payment periods. As we will see shortly, funding thus far has been dominated by the Dash core development team.
Diversity of Submitters
Although the core team submitters account for most funding in the DBS (see below), there is a diversity of submitters to the system. Since its inception, 55 different people have made submissions to the DBS, and 27 different people have received approval. Examples include Amanda B. Johnson for her multiple video-based marketing projects, and a proposal funding advertising on The Crypto Show.
Some might see the DBS as a ticket to free Dash, but the numbers show that this is not the case. Of all the proposals submitted to the network, 46 (28% of completed proposals) have been rejected by the Masternode owners. Most were rejected when initially proposed, but some have been down-voted subsequent to initial approval. For example, in December 2015, Evan Duffield submitted a three-month proposal to fund PR work by Transform.PR. It was initially approved, and the first payment of 1,100 Dash was duly distributed by the blockchain. However, controversy arose in the Dash community questioning the value of this project, and it was subsequently down-voted before the second payment was made. This action demonstrated the independence of the Masternode owners, and the fact that no one person — not even the founder of Dash himself — has control of the Dash purse strings.
Every new innovation can produce great advances in the way humans operate, but these advances also often include weaknesses to be improved. The blockchain-based decentralized system that is the DBS is no different. What are some of those weaknesses?
If you look at all 180 proposals submitted in the history of the DBS, 98 have been submitted by two people: Evan Duffield and Ryan Taylor (“babygiraffe”), Director of Finance for Dash. In essence, these are the submissions by the core development team. This represents 54% of all proposals, but actually the imbalance is more lopsided than that. The total funds allocated to the proposals from these two individuals — over 96,000 Dash out of 109,000 total — represents a staggering 88% of all Dash funds allocated in the history of the DBS. Of course, the funds did not go to these two individuals alone; the vast majority were distributed to the various members of the core development team or paid out to vendors.
Such a large portion to the core development team is understandable in the early stages of a project. When the DBS started, there weren’t many substantial proposals being submitted by other community members. However, the core team submitters still represent the lion’s share of funding; for example, in the current monthly cycle core team proposals account for 80% of all requested funding (and will likely represent an even higher percentage of actually received funding). In the core team’s defense, they typically wait until the end of each budget cycle and ask for funds that would otherwise be burned this cycle due to a lack of proposals. Eventually, however, a healthy Dash ecosystem will include funding to a much broader range of proposals.
The results of the most popular proposal — the blocksize limitation increase — also reveal a weakness. Although this vote was passed almost a year ago, the Dash blocksize limit has not yet actually been raised. According to the core development team, the current low transaction volume doesn’t require an immediate upgrade. This is likely to be true, but the lack of implementation does tell us something about the DBS when it comes to pure governance decisions. Although the Masternode owners can vote on a suggested change in the protocol, it is still the Dash core development team that must be trusted to implement it. Of course, if the Masternode owners were upset over this lack of progress, they could always “fire” the development team by revoking their salaries.
Whereas the lack of implementation with the blocksize limitation increase is defensible, the same cannot be said for the proposal with the third biggest payout in the history of the DBS: the Dash-Lamassu ATM integration proposal. This proposal, which was initially proposed in December 2015 and ran for 12 months (just recently receiving its last payment), received 7,323.12 Dash, which has a current value over $81,000. The proposal promised to integrate Dash into existing Lamassu ATM machines, giving users the ability to quickly and easily convert their fiat into Dash (and vice versa). Proposed by Duffield and managed by Daniel Diaz, the Head of Business Development for Dash, this was initially a very popular proposal, and continued to receive funding for an entire year. However, the project has been fraught with delays and poor communication and has yielded no results. Many Dash community members see this particular proposal as proof of weaknesses in the current DBS, because it distributed a large number of Dash with no tangible results, and no accountability.
The Dash Budget System is the first functioning blockchain-based governance system. During its brief history, it has allowed the Dash cryptocurrency to self-fund a sizable development team. It has funded substantial marketing projects, including Dash: Detailed, which has increased awareness of Dash. With the block size limitation increase, it even allowed Dash to quickly resolve a debate that has plagued Bitcoin for years.
Addressing the weaknesses of the system that its first sixteen months of operation have revealed is a crucial next step in strengthening Dash and the DBS. Currently, there is no mechanism in which to hold proposal owners accountable if they don’t deliver on a project. This can be most clearly seen with the block size increase vote and the Lamassu ATM project. Although a proposal can be defunded mid-project, historically it is difficult to get Masternode owners to switch their votes after a project has been approved initially. Some possible ways to overcome these weaknesses include: an easier mechanism to defund a project, multi-sig addresses to receive funding that is only released with deliverables, and limitations on the length of any project timeline.
The idea of a completely blockchain-based decentralized governance system was the stuff of dreams or a Philip Dick novel just a few years ago. Dash, however, has made such a system a reality, and in doing so it is forging a path that others can follow.
Disclaimer: the author is currently a Dash Masternode owner.