On-Chain governance for dApps with ICP’s Service Network System (SNS)
Web3 is an overarching concept which encapsulates ways of “decentralizating” everything an organization does — from the way it writes contracts, the way it stores & uses user data, the participative nature of user-builder relationship, including the way an organization is structured overall. Which brings us to the term DAO.
What are DAOs?
DAO’s (Decentralized Autonomous Organizations)simply put, are organizations that are run by it’s users and community, not by board members and owners . The whole operation is community governed, there are community voting systems run by coded rules written in the form of smart contracts. It’s a completely new way of re-imagining corporate structures.
A recent Harvard Business Review post said this about DAO’s:
..sharing ownership allows for more incentive alignment between products and their derivatives, creating incentives for everyone to become a builder and contributor. .. This means the community around a platform can co-create in a way that’s much less adversarial than in the past and …making the platform ecosystem grow even stronger.
DAOs are enabling new forms of economic coordination and decision making — in networks, organizations and communities.
Sounds like something which will require so heavy lifting to run smoothly. But to make things easier, tools & techniques like SNS by The Internet Computer are being developed to make the management of DAO’s easy to handle.
The key to running a DAO — governance systems
A governance system is a way to make decisions, organize voting, make the organization run effectively. Typically done using a “tokenized” approach, it needs to transparent & embedded in the ecosystem of the app.
Most DAO’s are currently using an off-chain governance mechanism
Governance systems in the blockchain ecosystem including the one for Ethereum itself, use an off-chain governance mechanism, whereby proposals, debates, and referenda are all executed outside the network, on a third party service like Aragon. For now it seems easy, however the issues that can emerge are:
- Friction between governance decisions taken off chain and actions taken on the blockchain code
- Things being less transparent and more cumbersome for all network participants.
- Risk of loss/misuse of important governance based discussions and data.
What is an ideal governance process :
An ideal governance process needs to incorporate:
- Frictionless change of the system and itself : It must allow for a seamless update of itself. If the rules & decisions can’t be updated automatically , then the process is not really decentralized.
- Maximum participation of the community : To ensure a decentralized governance process, it is important to design it to incentivise more “token holders” to participate and not restrict it in few hands.
- Easy to plug into a dApp and use : It is essential that an easy embedded tool is available for dApp developers within their blockchain of choice for ease of adoption.
On all accounts, an on-chain governance mechanism will be more ideal as it’s not two different systems talking to each other, allowing for seamless and transparent flows of information, decisions and actions.
The Internet Computer: Service Nervous System
SNS (Service Nervous System) is a fully decentralized open governance system for dApps. The SNS will allow users of a dApp to vote on changes, upgrades etc. These could be things as simple as basic UI upgrades, all the way up to implementing new dApp features or user incentivization models.
The SNS runs by enabling each dApp to issue it’s own participation token. This can also allow entrepreneurs and developers to escape the need for VC funding, as the SNS earmarks a certain allocation of governance tokens for specific parts of the ecosystem, such as developers, the community, a treasury reserve, etc.
Benefits of SNS:
- 100 % on chain governance (frictionless integration)
- Establish an algorithmic DAO very easily
- Easy to create, implement & manage a dApp level governance token
- Tokenization under the control of NNS(IC Governance system)
This means no single entity or centralized party will control the dapp and determine its future. At the same time, it allows the dapp to evolve and upgrade through proposals that are directly responsive to the desires, feedback, and voting of its SNS community
Benefits for dApp community:
- Taking part in collective ownership,
- Ensure that the dApp’s developers cannot, for example, simply stop a service, remove a feature, or update the code in an undesirable way.
- No single entity or centralized party will control the dApp and determine its future.
For a detailed understanding of how SNS works, listen to this community conversation with Lara Schmid, Researcher | DFINITY
For an overview of ICP and the use of DAO’s and advantages of SNS read this guide by Dominic Williams
