We Talk About Blockchain Governance, So Why Not Blockchain Politics?
TL;DR: As we transition from a business paradigm of closed-door and centralized to a network paradigm of open and participatory, we’d benefit from recognizing that decision-making is an inherently political process.
An interesting thing happened yesterday. A funding announcement that might have, in other contexts, been greeted with nothing but excitement and optimism instead provoked a mixed-to-negative reaction. What’s going on?
Yesterday, Maker and A16Z announced that the firm’s new crypto arm would be buying 6% of MKR for $15m. The money will provide 3 years of support for the Maker team & community, as well as avail them of the extensive Andreessen team for support around market adoption and regulatory support.
a16z crypto purchases 6% of MKR, backing Stablecoin Vanguard MakerDAO
Signaling their support of MakerDAO’s Dai stablecoin, investment fund a16z crypto has purchased 6% of the total MKR…
At first glance, this is nothing but win, right? An absolutely top-tier firm signaling its strong commitment to a project in a sea of competitors; providing resources they need to build unconcerned about cash for a meaningful period of time, and empowering them with support and coverage (to the extent possible) as regulatory scrutiny increase.
The problem is political. Or, more specifically, the problem is a failure to recognize that decisions in public blockchain networks are inherently political.
Blockchains are not startups. At least, they are not only startups. What they share with their startup cousins is a reflexive relationship between the promise of new technology and private risk capital. Where they differ is that, through tokenization, they engage network participants from the get-go as a class of citizen-owner that is a distinctly more significant stakeholder than, say, the users of a centralized social media app.
These citizen owners don’t yet, in most cases have actual rights. Indeed, one of the more interestingly challenges for blockchains is that their extreme desire to not be seen as securities (and so avoid the regulatory burden that comes with that designation) leads them to under-experiment with the equity-like rights and assurances that could actually give tokens teeth.
Nonetheless, if token holders don’t have rights, they do expect abiding by certain norms. In some ways, norms within networks are simply rights without recourse.
In the case of most public blockchains in general and Maker specifically, one of those expected norms is transparency. A popular post about MakerDAO from Nick Tomaino called it out specifically.
Lessons From MakerDAO
Unless you’ve been studying the blockchain space closely over the past few years, you likely haven’t heard of MakerDAO…
The main blowback of the A16Z-Maker deal is that it was negotiated privately, outside of community guidance or established governance process. While the token allocation was from the team’s pool (and so well within their rights to sell), any significant sale of an asset has the potential to impact market price. Importantly, the price paid was not market rate but in fact at a ~44% discount, making the fear of a larger market price reaction even more relevant.
The point of this isn’t that the Maker team did anything wrong — either in the legal or moral sense. In fact, it’s easy to see how they could be incredibly excited about how much the deal could help the Maker ecosystem thrive. It’s even easy to imagine how they might have been nervous that public scrutiny could jeopardize a deal that they believed to be essential to the long-term health of their ecosystem, and sought to insulate it from any external court of public opinion.
The problem is that there is an inherent tension between project leaders making important decisions behind closed doors and public stakeholder networks where participants expect to have a voice in the important decisions.
Democracy and stakeholder engagement are not efficient ways to run companies. In fact, democratic institutions for stakeholder decision-making processes are more or less designed to slow down the pace at which change can happen in order to avoid radical swings and shifts.
The process by which decisions get made in these sort of stakeholder systems aren’t just the euphemistically-termed “governance” but messy, chaotic “politics.” Leaders who want their vision of the future enacted have to specifically engage in political campaigns to convince stakeholders that their way is the right way, and to do so knowing that, sometimes, they’ll lose.
In terms of Maker specifically, my feeling is that the net-net of the sale is good for the project and will ultimately be something the ecosystem rallies around rather than the reverse. The more interesting thing to me is that it is an early case study in something I anticipate we’re going to see a lot more in the coming years: the bumpiness in transitioning our mental models from “move fast and break things” to “campaign to rally sentiment and accept that sometimes you can’t get what you want.”
In that process, I believe we’d be well served to accept that: first, decisions made by leaders on behalf of stakeholder networks are inherently political; and second; the process by which decisions are made in networks isn’t just governance but politics, with all the good and bad that entails.
To read more about the Maker deal, check out this piece from Mike Dudas and The Block: