The Value of Metagovernance and why should I care?
The Value of Metagovernance and why should I care?
By now, you have likely heard of the “metagovernance” concept, and you may have participated in a few metagovernance votes that may only seem tangentially relevant, but the true value and power behind metagovernance that get others excited may still be elusive.
To demonstrate the full power and potential of metagovernance, we are going to look at the TradFi world using BlackRock as an example, we will look briefly at our one real-world example of metagovernance, and then we are going to imagine where metagovernance could take us.
Metagovernance: How Whales influence Wall Street:
BlackRock index funds often represent the largest single voting block across the S&P 500. Each year Larry Fink, the CEO of BlackRock writes a letter to CEOs advocating for issues his investors care most about. Recognizing growing environmental concerns starting in 2017, Larry Fink put CEOs on notice when he declared the “environment matters” to his investors. In 2018, he asked CEOs “how are we managing our impact on the environment?” In 2019, he declared “environmental risks and opportunities” were a priority for BlackRock’s investment strategy, and finally in 2020, he got serious when he stated Blackrock was “exiting investments that present a high sustainability-related risk”. Now with the world’s attention, in 2021, he charged CEOs to publicly “disclose how they will compete in a net-zero economy”. Larry Fink was wielding the power of his $9 trillion in assets under management with a simple message on sustainability: clean up your business, or else.
In the old world, this influence is called “investment stewardship”, in Web3 it’s called “Metagovernance”.
Levering Metagovernance
Practically, metagovernance is still new and the Index Co-op was the first to provide this capability in late 2020. It was around this time we started to see educational articles, like An Introduction to Metagovernance pop up, to help investors understand this new tool, but it was not until late 2021 when we saw the first example of metagovernance be used for real influence. In September of 2021, FEI Protocol used a position in $INDEX to get FEI listed as a decentralized currency into AAVE money markets. In short, Fei Protocol partnered with Index Co-op to lever a $36 million AAVE position in the DPI Index, solely based on a $4 million position in the $INDEX token. FEI did this in a three-step process:
- Acquire a $4 million position in $INDEX tokens,
- Use the $4 million to vote on the Index Co-op proposal via IIP-82,
- Lever Index Co-op’s $36 million AAVE position in DPI to get Add FEI to Aave V2 approved.
As a first attempt, this took coordination across parties, but the next round will likely be easier, and potentially — seamless. For more details, The Tally Newsletter has a good summary of how Fei Protocol Used Metagovernance Power to Drive Aave Proposal.
We are still early:
The FEI case is (to date) the only time levered metagovernance has been used. However, if you consider the distance between using $INDEX to influence a single vote in AAVE, to Blackrock influencing Fortune 500 Companies to take sustainability seriously, you can imagine we are still early. Here are some headlines that metagovernance could deliver in the next 24 months:
- “$INDEX token used to avert hostile activist take-over”
- “Index Co-op on track to be the biggest single DeFi voting block”
- “The IC community insists on the diversification of Treasuries”
- “Hedge Fund turns to Index Co-op to push longer-term thinking”
- “$INDEX Tokens in demand as new projects look to lever Index funds “
And finally:
- “$INDEX Token up 100x as buyers look to lever the power of $5 billion in AUM”
So what should you do?
Educate yourself and others on the power of metagovernance. The more community members who understand the potential, the better we can strategically position Index Co-op as the metagovernance leader. If you hold $INDEX, go to Snapshot weekly and exercise your right to vote. If you don’t want the hassle, delegate your vote to the community. If you don’t hold $INDEX — go buy or earn some today. Not financial advice.
