A new model of unplutocratic on-chain blockchain governance for decentralized applications
Article Aims & A Bit of Background
There has been much debate pertaining to the viability of on-chain governance, mostly concerning its “inevitable descent” into a Plutocracy. Vlad Zamfir and Vitalik Buterin have put forth counter-arguments, which focus on the misalignment of stakeholder incentives, and susceptibility to attacks, respectively.
We argue that on-chain governance is not inherently Plutocratic, but rather, the current implementations fail to satisfy the incentives of all stakeholders, by virtue of their adherence to a “one coin, one vote” system.
In this article, we put forth our proposal for an unplutocratic on-chain governance system for decentralized applications, specifically pertaining to decentralized marketplaces built on CRUZEO.
A few key concepts
Each marketplace dApp built on CRUZEO comprises multiple groups of stakeholders. These include:
- Marketplace Builders (Developers, Marketers, etc.)
- Marketplace Consumers (MAUs)
- Marketplace Token-holders (For investment purposes, rewards, votes)
It’s important to note that users may belong to several of these stakeholder groups simultaneously. It is our goal to align the incentives of all these stakeholders, while ensuring they are equitably represented within a formal on-chain governance system, without subjecting network participants to Plutocracy or malicious attacks.
Marketplace Tokens
Whenever a marketplace is deployed, a unique token is deployed with it. We’ll refer to these tokens as “marketplace tokens” for now. Each marketplace token is incrementally earned by marketplace consumers as a reward for network usage. (E.g — In a decentralized ridesharing marketplace, riders and drivers would earn tokens as they participate in more rides)
Digital Identities
Each marketplace user is connected to a self-sovereign digital identity. Each digital identity is linked to data which does not necessarily have to include the number of tokens held. As we’ll explain shortly, this is critical for avoiding an on-chain Plutocracy.
The Governance Process
- Phase 1: Motions are put forth by the top 10% monthly active users (MAUs). At this stage, motions cannot be submitted by token holders.
- Phase 2: Marketplace token holders now stake their tokens to buy voting tickets. These tickets entitle the token holders to second a motion.
- Phase 3: A debate is held. Only motions which have been put forth by marketplace consumers and seconded by marketplace token holders are considered debate-worthy.
- Phase 4: The final vote is now held. One user, one vote. 2000 voter cap. Only verified stakeholders have voting rights.
Process Analysis
Stage 1: Unfortunately, the incentives of token holders and consumers are not always aligned. Holders have a strong incentive to vote in ways which appreciate their holdings, which is often detrimental to the utility of the underlying network.
On the other hand, it must be said that token holders are still stakeholders, and thus must be equitably represented. A governance structure can only be considered Plutocractic if it’s wholly controlled by participants of great wealth. Partially representing token holders is fine, as long as the other network participants are also fairly represented.
In Stage 1, only the top 10% most MAUs are able to table a motion. This ensures that any motion which goes the distance is in the best interest of the users. We cap the number of voters in this round to the top 10% of active users for a specific reason: if we were to purely represent the will of all network participants in a direct democracy, marketplace dystopias would arise. This is because there are so many possible motions that could be tabled, and there is not enough time for each network participant to thoroughly research and debate every possible motion. This would be of great detriment to the quality of vote outcomes.
Stage 2: Once a motion has been tabled by the MAUs, it is now the token holders turn to have their say. Each token holder can choose to stake their tokens for a period of time in return for voting tickets. This process is similar to Decred’s governance ticket staking system. Each voting ticket can then be used to second a motion, which serves as a de facto vote of confidence for the motion in question.
This system ensures that any motion which can significantly impact each marketplace is supported by both token holders and users.
Stage 3: Once a motion has the support of verified active users and token holders, it can be debated. A debate encompassing all stakeholders is necessary to enable voters to make a well-informed decision during the next phase.
All stakeholders, representing all viewpoints are invited to debate each motion. It’s important for the governance process to facilitate the expression of the collective intelligence of all stakeholders, as this will return better decisions in the long run.
Stage 4: Now that all stakeholders have had the chance to rationally consider and debate a multilaterally supported motion, a loosely-coupled vote is to occur.
In this vote, up to 2000 network participants with verified digital identities are each entitled to one vote. The network participants called upon for a vote are randomly selected in a lottery system. Statistically speaking, these 2000 voters will have views which closely represent all network participants. Furthermore, with only 2000 voters required to ultimately pass a motion, votes can be made with speed, thus keeping the decision-making process lean.
On conclusion of the vote, a bounty for the implementation of the vote result is offered. This acts as a strong incentive for a group of engineers/product managers/marketers to implement the will of the stakeholders while keeping the vote non-binding. Keeping the vote loosely-coupled is incredibly important to mitigate fatal malicious attacks on each marketplace network.
Conclusion
Breaking away from the unilateral assumption that on-chain governance = Plutocracy is necessary for the adoption of governance systems which align the incentives of all network participants. This is crucial for enabling high-quality DAOs, both at the protocol and application layers.
Our proposed governance system equitably represents each stakeholder group in isolated voting stages. It distinguishes these groups by incorporating digital identities and usage as a function of governance, which prevents decentralized marketplaces from descending into Plutocracies.
Perhaps most importantly, the voting process is kept somewhat loosely-coupled, which is critical to preventing malicious attack vectors which can threaten a marketplace with economic and political chaos.
Many have advocated for the further development of cryptoeconomic systems. We share these views that models which align economic incentives and cryptography require further design and testing before we can see them implemented in decentralized protocols and applications.
Thank you for reading! Please leave a clap 👏 if this article provided you with some valuable insights.
CRUZEO is a platform where both developers and non-technical users can build decentralized marketplaces. If we look at online marketplaces today such as AirBnb and Uber, they’re run by intermediaries which impose high commissions, perform data surveillance, monopolistic practices, and labor abuses.
We’re creating an ecosystem of cheaper and fairer online marketplaces, where network participants (as opposed to intermediaries), govern and share the created value.
