Some thoughts on EOS governance

Finally Block.one has become interested again in the blockchain governance. It made a good effort before the EOS blockchain was launched but then a complete silence followed.

I’ve been very busy lately with other stuff, so I haven’t been able to focus on EOS governance as much as I’d like to. So this will be also just a quickly made random collection of my current thoughts instead of a more coherent text. Sorry about that.

Mistakes have been made

Block.one did really big mistake by completely changing their view on the constitution just after the blockchain was launched. They released their alternative constitution but didn’t try to sell it to the community or in any other way persuade the EOS community to adopt it. They just stopped the governance stuff completely.

This was a huge mistake because it caused a governance crisis which is still going on today. It divided the community without an easy way to resolve the situation. This was made worse by EOSIO software lacking a referendum feature. It’s very close now but we haven’t still been able to vote on anything.

Voter rewards are a bad idea

Brendan Blumer has been tweeting about governance stuff lately and has shown positive attitude for having some kind of voting rewards. That would bring more voters to the ecosystem. But is it a good thing?

You get what you pay for. This applies to voting, too. If you incentivize voting, you get more votes, but that doesn’t mean the end result will be better for the whole ecosystem.

Most likely it will increase the amount of uninformed votes. People who are too lazy (to research which BP candidates are the best) will start to vote just because they get paid for it.

Voting creates beneficial results only if voters will make an effort to actually find good candidates. Increasing the amount of votes given doesn’t do any good for the ecosystem just by itself — there needs to be an incentive to vote well.

With voter rewards, the ratio between informed and uninformed voters will get worse so the whole system will suffer.

Money for voter rewards will be mostly wasted

If some part of the new tokens is used for voter rewards, we need to ask what we get for it. IMHO it’s a really bad deal for the community. Benefits will be mostly better marketing because it will attract more speculators/investors who can make money by voting.

My guess is that the benefit the community gets from voter rewards won’t be as big as the cost of giving away new tokens created by inflation.

As mentioned earlier, this might be even worse because the quality of voting will suffer. If the result really is that the community will pay for low-quality votes from inflation, it really doesn’t make a lot of sense to me to implement this kind of system.

Race to the bottom?

While I haven’t seen any concrete plans, Brendan seems to favor some kind of system where BPs give up part of their income for voter rewards.

This would be really bad idea because it incentivizes BPs to scale down the actual work and to find a sweet spot where they can do as little work as possible while still getting elected.

Currently BP candidates are doing beneficial projects for the community as a way to market themselves. If they have to give away part of their income, they will make less of these projects and focus more on doing their actual BP work with as little money as possible.

My guess is that the end result will be worse for the community because crypto folks always choose the short term profits (voter rewards) instead of long term benefits (better ecosystem and higher token valuation).

Worker Proposal System

Brendan has also stated that he wants the WPS is to be gone. It’s true that it will be hard to design right — but do we have any other option?

The EOS community must find a way to fund the development of public goods. Things that will benefit the whole ecosystem. So far WPS critics haven’t represented any credible alternative, they have been just focusing on criticizing the WPS.

So far BPs have done a lot of good stuff, but as mentioned earlier, if we force them to compete with lower pay instead of creating more beneficial projects, we will see a lot less of them.

So who is going to do the development of public goods? If the community doesn’t have any means to do it, then Block.one will be fully responsible for it. But that’s not an optimal situation because we have seen that Block.one doesn’t listen to the community, instead it just does what it wants and doesn’t even tell us what they are working on and when they will publish something.

ECAF

Brendan has also stated that he wants ECAF gone. But I haven’t seen good reasons for that.

So far ECAF has been in very high demand. The service is used by the community members a lot more than anybody estimated when the blockchain was launched. So why get rid of it when it’s clearly something that the people really want?

If we don’t replace it with something else (an institution/organization or a process/mechanism) for handling the disputes arising from the constitution, then our constitution will probably become impossible to enforce. If we want to have a good way to make a judgement when the rules have been broken, we need a clear process to do that. What’s the process if ECAF is gone?

It’s OK to be critical of ECAF but if you want to get rid of it, I want to hear your alternative. Just throwing it away without giving any thought how to replace its function in the ecosystem will very likely end up badly.

Lately there has been a lot of discussion about enforcing the rules. Many people claim that they want to get rid of rules which can’t be enforced. But if we get rid of ECAF, then we will have a hard time of getting any of the rules enforced because there is no official process to decide when a rule has been broken. When the community lacks this process, it won’t be able to enforce anything in a reliable manner.

What is needed is more skin in the game

So, how do we get people to care more about the long term success of the platform instead of short term profits (voter rewards)?

The answer is simple (although sometimes implementation might be difficult to get right): just add more skin in the game.

For EOS, maybe the most obvious solution is to make the staking times for voting longer. Originally it was planned to be six months but it was shortened to only 3 days. A big mistake.

I’ve been a strong supporter of a system where the voting power of tokens depends on the lockup time. Users should be able to choose for how long they lock their tokens. The longer the locking time, the more voting power they get.

This would create very good incentives because those who are willing to really put their skin in the game would get most of the voting power. This would also give more voting power for small fishes who truly believe in EOS, from big whales who are just speculators and not interested in the long term development of the blockchain. Speculators are usually afraid of losing the liquidity of their tokens.

This would be also an efficient way to reduce the power of exchanges. They need liquid tokens so they wouldn’t be so keen to lock the tokens of their customers for long times.

Order vs. chaos; official vs. unofficial rules

All blockchains are governed blockchains. So the most important question is: what’s exactly the governance process? Is it open and transparent or is everything run by unofficial shadow government behind closed doors?

Lately there has been a lot of voices demanding more or less a shadow governance. Official rules which are enforced are seen for some reason as a bad solution, although nobody has been able to articulate exactly why.

Unofficial governance processes are usually bad. This has been my experience, and also the theory seems to support this. This is how folks at Corda Network Foundation have been thinking about it:

“Transparency: In my mind, there are two kinds of governance: implicit and explicit. Implicit governance happens with informal decision making, in corridors, where those ‘in the know’ make decisions without having to consult the rest. In some ways this is the governance model for “permission-less” distributed ledgers like Bitcoin. Some newcomers assume there is no governance at all; I say if you can’t identify the governance, it’s because you haven’t looked hard enough. All systems have someone who is ultimately in control, even if it is implicit. I dislike this model intensely, at least for business-critical systems. Corda Network has an explicit model, where all decision-making rules are written down (in legal Articles and Bylaws!) and must be adhered to. Furthermore, the governance, costs and fees for the network will be published.”

This is a comment for Ethereum governance discussion by Richard Hunter:

“Research done at MIT CISR in the early 2000s, as well as more-recent research on decision-making processes, indicate that the single most important leading indicator for the success of a governance arrangement is the ability of participants to clearly articulate how it works. Governance mechanisms that are well-understood by participants tend to succeed regardless of the structure of input and decision rights and processes involved; mechanisms that are poorly understood tend to fail.”

About the current state of Ethereum governance:

“To put it bluntly, this sounds very much like a governance process that is designed to fail. Given the explanation above, I wonder whether any two participants in this governance process would offer the same description of how it works. It is also a process that is highly prone to manipulation by motivated actors, because (according to this description) very few people understand how it’s supposed to work in the first place, and therefore would have little basis to question changes (or even notice changes) in how it works.”

I very much agree with this. If I have understood Brendan correctly, he favors some kind of system where BPs will have pretty much all the powers for EOS governance. But this is not very clear and formal process: It will be very hard for stakeholders to know how to actually advance something they think would be beneficial for the ecosystem. Should they become BP candidates? Should they join a BP? Can they talk to BPs, and if yes, will BPs listen to them?

I’m afraid a system run by BPs would become basically a shadow government where all decisions will be done behind closed doors. So far most of the BP candidates haven’t really been very open about what they are doing and the reasons behind their actions.