What is on-chain governance?
Governance is one of the most important blockchain fundamentals. It is to a large extent the differentiator between traditional, i.e., centralized organizations and decentralized ones — between one single point of failure and a fault-tolerant system. It is, in fact, the guarantee that the power will be redistributed and all interested parties will be empowered to not only actively participate in the decision-making process, but also to have oversight of the outcome.
And since we mentioned decentralization, it is safe to say that it is directly related and proportional to governance. The larger and widely spread the community, the safer the network, the more legitimate each governance decision will be. However, even if the community is significantly decentralized, governance vote results may still turn out to be centralized and non-representative. In addition, there are certain circumstances under which decentralized governance may be quite difficult, even dangerous to implement, which is why it continues to be subject to intensive research and experimentation.
Parameters of on-chain governance
What type of decisions can be entrusted to on-chain governance? Every major choice throughout the development of a blockchain network can be put to vote by the community — from changes of minor protocol parameters to shifts of development focus and direction. Actually, each protocol upgrade represents a governance vote in itself since those ensuring the proper functioning and security of the system — miners (PoW) or validators (PoS), either approve and commit to the proposed changes, or reject them, thus effectively forking the network. In such a case, the majority vote determines which fork will remain the legitimate one.
What kinds of governance voting systems exist? In the most common case, the holders of a given cryptocurrency are identified as members of the respective community and by extension as having the right to cast a vote in the governance process. Accordingly, the bigger the amount an account or wallet holds, the bigger its voting power. This is often referred to as “coin voting” or “stake-weighted voting”.
Unfortunately, this coin voting model generates a number of issues. First and foremost, it ties the decision-making process with the voters’ financial status and thus prevents some categories of voters from equal participation in the process. Since the “wealthiest” community members have more substantial voting power, this system effectively discriminates against smaller coin holders. Second, it may easily lead to power centralization if one single so-called “whale” holder may possess the majority vote power to make decisions on a whim.
It has even been observed that wealthy holders, particularly interested in a given outcome of a vote, may bribe minority coin holders to vote in their favor. Fortunately, before getting really decentralized, blockchain organizations usually begin their existence backed by a strong developer foundation that always works in the organization’s best interest. It has the capacity to outweigh such bribe attacks and to guarantee a fair and just governance process.
Of course, the coin voting system has its benefits too. As you can imagine, it can be a rather arduous task to keep a decentralized community updated and to get people particularly engaged with a certain governance proposal. That being so, the weak participation in governance votes is a recurrent problem and plagues the whole blockchain space. However, when community members are somehow financially involved with the project, they are more likely to participate. Especially if the given governance proposal may in any way influence them generating additional funds.
Fetch.ai also sticks to the coin voting model as the most established and well researched model in existence. It goes one step further by allowing only tokens staked on the Fetch network to participate in the vote. This is done again with the assumption that people having financial incentive from the given blockchain network will be more inclined to cast a vote.
Though not so widely used, there are other voting systems in existence, such as the one account — one vote method, for instance. It aims at achieving a fairer model by giving each individual the right to vote independently of their coin holdings. However, this also poses problems given the unlimited possibility of new accounts creation as inherently account creation is permissionless and without sybil resistance guardrails.
Who can participate in governance? In the context of blockchain organizations, the term “community members” may be used for many different categories of users. These can be people and organizations securing the network (miners and validators), users of the project’s dApps (decentralized apps), or simply social media followers and people interested in the projects. Some of these are necessarily coin holders, but others are not. That shows the coin voting method only serves one part of a project’s community and other more inclusive models are needed.
Additionally, a more important consideration stems from the fact that these different classes of community members may often have opposing interests and thus strive for opposing outcomes of a governance vote. For example, wishing to generate a larger income a miner would be campaigning for increasing the network’s gas limit, whereas a dApp user wanting to pay less for sending transactions would vote to decrease it. This is why it is of utmost importance for each governance system to ensure plurality and variety of opinions.
What is vote rights delegation? Along with work, studies and personal life, no regular person has the time and energy to follow each governance proposal, go through all the educational materials and discussions around it, and make sure not to miss the usually very limited voting period. Especially if they use several different blockchain protocols at once, which is often the case. Moreover, no community member can be required to be technically proficient in everything related to the given blockchain network, whereas some governance proposals may concern quite sophisticated and complex technological parameters.
These two reasons among others have initiated the possibility and practice of voting rights delegation. In reality, if community members don’t have the time to participate in votes, or do not feel technically prepared to make the right decision, they can transfer their voting rights into someone else. That way, someone more technically knowledgeable will receive a larger voting power to influence the final result.
Besides, the delegation of voting rights has the additional benefit of, to some extent, solving the weak participation problem. Being backed by a larger portion of the potential voters surely makes a decision more legitimate. What is more, a malicious actor would need to accumulate more coins in order to sway the vote.
Fetch on-chain governance
Fetch.ai has consistently demonstrated a commitment to give its community a voice and to push for more decentralization. The team had been preparing the ground for the launch of on-chain governance and had purposefully worked toward getting the community ready even before the Fetch mainnet v2.0 had started.
Back in the year 2020 and in a testnet environment, the team came up with a special initiative aimed at familiarizing, and even rewarding community members willing to engage with governance questions.
Fast forward to 2021 when Fetch mainnet v2.0 became a reality and the first official governance proposal was voted on. It concerned increasing the number of active validators on the Fetch network from 50 to 60 with the aim of allowing new validators joining the system and of enhancing the network’s decentralization and security. The proposal was predominantly supported as it attracted a quorum of more than 50% of the voting power.
That first proposal set the criteria of success for all votes to follow — it required for 40% of the tokens staked on the network to participate in the vote and for 50% or more of that stake to determine the result. Also, it gave FET token holders the right to propose changes and to initiate votes and thus opened the floor to an ever more dynamic community participation in the decision-making process.
Fetch Improvement Proposals
In mid-2022 the Fetch team released the Fetch Improvement Proposals (FIP) initiative that somewhat “institutionalized” the Fetch on-chain governance. As a result, the whole process of proposing and implementing new changes to the network became much more transparent, inclusive and straightforward, and accelerated exponentially.
Within less than four months, five governance proposals were laid out, discussed and accepted, thus making the Fetch network much more robust, competitive and secure.
- FIP-001 sought to reduce the voting period for governance proposals on the Fetch network from 14 to 5 days. Its goal was to speed up the whole governance process and, by extension, the execution of network updates.
- FIP-002 asked the community to increase the max_gas setting on the Fetch network from 2M to 3M and max bytes per block from 200KB to 300KB. These reforms were needed in order to accommodate the Fetch network for builders trying to deploy more complex smart contracts.
- FIP-003 suggested for the base minimum commission offered by validators to be increased to 5%. This proposal aimed at reverting a trend where the low-to-zero percent commission offered by some validators lead to further centralizing the Fetch network.
- FIP-004 looked for the transaction fees on the Fetch Network to be raised to 2 aFET. The goal here was to prevent network congestion and spam attacks by requiring validators to set their minimum_gas_prices value to 2 aFET.
- FIP-005 once again searched for increasing the number of active validators on the Fetch network, this time to 70, and to push further the decentralization of the network.
New features for the Fetch ecosystem, its processes, protocol primitives, or environment continue to be subject to changes by FIPs. The Fetch team welcomes the community to not only voice their opinions on the FIPs created by others but also propose new FIPs that would benefit the overall Fetch community by attracting builders, innovators and dreamers.
