Implicit Delegation: Event Horizon’s Governance Solution.
Implicit delegation is a model by which the full governance block mobilizes in favor of the consensus of those who do vote, thereby implicitly delegating the authority of those who don’t vote. Ideologically, implicit delegation represents an effort to shift the paradigm around means of influence from capital-centric to participation-centric.
Where direct governance allocates influence along the lines of capital, and explicit delegation allocates influence along the lines of popularity contests (which often reflect capital), implicit delegation places value emphasis on willingness and active participation.
Limitations of Direct Governance
Direct token governance is the simplest form of proposal handling. Typically, each token holder is eligible to participate in any given proposal and will wield a weight of authority commensurate with the number of tokens they hold. While this process is simple and easy to implement, it falls short along several verticals.
— Low Voter Turnout: DAO governance without delegation leads to quantifiably lower voter turnout.
— Token Under-Utilization: Should a large sum of a DAO’s tokens abstain from governance entirely, it is a complete waste of governing potential. It is as if those non-participatory governance tokens never existed.
— Authority Along the Lines of Capital: In a purely token-weighted, direct governance system, the sole determinant of voting authority is the acquisition of tokens. This structure inherently fails to ensure a meaningful correlation between the voters and those who are informed about the subject matter of a particular proposal. It also neglects to delegate authority to individuals who have significant interest or stake in aspects beyond financial investment.
Liquid Delegation
To address these issues, many protocols have adopted varying forms of liquid delegation, a process by which the governing authority of a token may be entrusted by the token holder to another individual, a delegate, while ownership of the asset itself continues to reside with the original holder. This delegation of authority is made further liquid as the token holder typically may revoke or reallocate their governance authority to other delegates at any point.
History of Liquid Democracy
Interestingly, liquid delegation, or liquid democracy, is far from a novel concept. Its origins date as far back as 1884 when the English author Lewis Caroll, creator of Alice in Wonderland, proposed the concept of transitive governance in his work The Principles of Parliamentary Representation…
“The Elector must understand that, in giving his vote to [a candidate] ‘A’, he gives it him as his absolute property, to use for himself, or to transfer to other candidates, or to leave unused. If he cannot trust the man, for whom he votes, so far as to believe that he will use the vote for the best, how come it that can trust him so far as to wish to return him as member?“— Lewis Caroll, 1884
However, during the time of initial conceptualization, the bureaucratic tedium of coordinating and maintaining a constantly changing ledger of delegation would have been a manual effort. This was a massive barrier to the implementation of the process.
That was until 1967 when Gordon Tullock, a professor of economics and one the founders of public choice theory, noted the potential for an electronic governance solution:
“With modern electronics, there is no necessity for all representatives to meet in the same hall, consequently, there is no maximum on the number of representatives. Voting could easily be done by wire, and the proceedings could be broadcast…”
This mention served as an early example of the potential of digital technologies as a viable mode of governance accounting. Shortly thereafter, in 1969, Economist James C. Miller wrote in Public Choice:
“Instead of electing representatives periodically for a tenure of two years or more, why not allow citizens to vote directly, or delegate proxy, to someone else for as long as they like?”
Miller went on to note such a model could stoke a foundational change in the very bedrock of governance representation itself. In most standard governance models a proportional allocation of governance authority is assigned to each elected representative based solely on their being elected.
This model delineates authority agnostic of the actual number of individuals who supported and partook in each representative’s election. Miller suggested that instead, however, governance authority could be assigned directly proportional to the number of electors who chose to delegate to a given representative. A representative with ten electors supporting them would yield ten times the authority as a representative with a single elector championing them, a weighting concept well recognized by DAO voters today.
Millers’ concepts resurfaced the initial conclusions of Carroll in 1884 amid a far more modernized backdrop of electronic technologies. Yet, he still alluded to further advancement being necessary for the full implementation of liquid democracy.
“In Miller’s view, ‘the advancing technology of electronic computers’ reduced both the decision cost and agency cost of direct decision-making and delegation respectively, allowing for this new form of organization. A ‘recording console’ for each voter, secured by a ‘special metal key, a code combination, or even a thumbprint’ would be available to register decisions.” — Cryptodemocracy: How Blockchain Can Radically Expand Democratic Choice
And, while Gordon and Miller were correct that technology was emerging as a promising solution, Event Horizon contends that the means to effectually implement liquid delegation has only very recently become truly accessible many decades later with the hyper-transferability and accounting mechanisms of blockchain and distributed ledger tech.
v1 Liquid Delegation
Many protocols have begun implementing variants of liquid delegation, including Maker, Optimism, and Arbitrum.
These first-pass implementations typically revolve around what we’ll call explicit delegation, a mode of governance by which voting authority is allocated from the token holder to explicit, individual delegated representatives.
At face value, this process affords several improvements over direct governance:
— Lower Threshold of Participation: delegation requires far less engagement on the part of the token holder for their governance authority to be realized. Rather than track and participate in each and every proposal of the DAO individually, token holders may instead outsource their authority to a representative in a single instance. From then on, the burden of participation is placed upon the representative. And, so long as that representative generally continues to support the preferences of the token holder, no reallocation is necessary and the holder’s experience remains fairly hands-off.
— Better Alignment of Authority with Knowledgeable Parties: In theory, representatives of a DAO are likely to be more vested in, and knowledgable of, a given DAOs governance processes when compared to the average token holder. Because of this, an authority flow from the less engaged average token holder to highly engaged, knowledgeable delegates should increase the baseline informed consideration with which votes are being passed.
However, Event Horizon believes that in practice this often fails, as an explicit delegation mechanism is only as strong as the baseline knowledge of its individual token holders. And, whether this baseline for a particular DAO is high or low, explicit delegation doesn’t address this metric at all.
High Baseline Community Engagement: If baseline token holder knowledge is already high within a given DAO, explicit delegation seeks to solve a knowledge gap problem which doesn’t exist. Worse yet, it actually encourages voter disengagement within a community body that is otherwise well-equipped to effectively participate.
In this case, we champion the idea that it is more worthwhile to encourage the token holder to participate than it is to encourage them to disengage through delegation.
Low Baseline Community Engagement: If a DAO’s community is less informed or engaged, it is less likely that they will allocate authority to reputable delegates. As a result, the issue of limited knowledge set in governance is not resolved. It is simply transformed from an issue diffused across a large swath of non-participatory voters to one concentrated amid a handful of unqualified, highly-active delegates.
In a sense, explicit delegation may offer a DAO the veil of a solution such that they depreciate efforts to educate and engage the community. In actuality, the effects of limited expertise are in fact concentrated, magnified, and fully mobilized through less-than-qualified representatives.
Moreover, absent delegation through information, the delegation process will be susceptible to pure popularity contests (which often reflect capital).
Implicit Delegation
Implicit delegation is a model by which the full governance block mobilizes in favor of the consensus of those who do vote, thereby implicitly delegating the authority of those who don’t vote. Ideologically, implicit delegation represents an effort to shift the paradigm around means of influence from capital-centric to participation-centric.
Where direct governance allocates influence along the lines of capital, and explicit delegation allocates influence along the lines of popularity contests (which often reflect capital), implicit delegation places value emphasis on willingness and active participation.
External Governance: As noted in our past article here , Event Horizon is distinguishable from other yield farms in part due to the fact that it mobilizes both its block of yield assets and the yield accrued within the community treasury, as a powerful voting block.
For example, if Event Horizon offers a yield vault for Sushi tokens, the balance of that vault, as well as the yield derived from that vault, will temporarily be mobilized in the participation of SushiSwap proposals when the HVAX community deems fit.
Extrapolate this same mechanism across multiple DAOs within the broader ecosystem and one can see how Event Horizon pulls billions of dollars of assets from the voting sidelines of today’s yield positions and liquidity pools into the center of governance.
This process of mobilizing the community voter block to affect change in the proposals of other External DAOs (or ExDAO) is what is referred to as External Governance.
Internal Governance: When it comes to determining when and how the voter block is mobilized, Event Horizon, like a standard DAO, engages in an internal governance process by which the HVAX token holders vote to establish the community’s exact path forward, including its participation in other DAOs.
Event Horizon’s novel approach to internal governance is called Implicit Delegation.
Through implicit delegation, there is no explicit allocation of votership from token holder to representative (though, in a future publication, we will detail the potential strengths of leveraging a hybrid implicit/explicit model). Rather, the entirety of the voter block’s external authority moves with the consensus of those who do vote. While the authority of non-participants, those who do not vote, is thus implicitly delegated to active participants. This results in a massive vote multiple for those who vote.
In effect, implicit delegation draws from the strengths of both direct governance and common-form delegation. Like direct governance, token holders maintain personal sovereignty over their governance assets thereby averting concerns of popularity power consolidation and emphasizing community knowledge and engagement. Like explicit delegation, authority is allocated from those who do not wish to actively vote, to those who do.
Power Economics of Implicit Delegation
Implicit delegation takes the problem of systemically low voter turnout and inverses the issue to create a rather novel solution. Much like the gauge mechanisms seen in veToken models, the lower the rate of voter participation, the greater incentive there is for on to participate.
If participation within Event Horizon’s ecosystem is low, let’s say 1%, the full voter block will move with the will of that 1%. As a result, we can assume that the voters who compose the participatory 1% will in effect receive a 100x multiple to their voter footprint as they mobilize the much larger non-participatory portion of the block.
As a comparative example, in a standard DAO model, if one hundred individuals each hold one governance token, and just one individual vote, that one individual wields just one voter share. The remaining ninety-nine tokens functionally did not exist for the sake of the given proposal as their owners never cast their vote. That is 99% entropy of governance value.
However, if the same one hundred individuals were to stake their assets within Event Horizon, each maintained one HVAX token, and still, only one individual decided to participate, that one individual would this time wield the entire one hundred unit voter block. That is 100% token participation every time.
If two individuals were to vote, they would split the sum voter footprint, each assuming fifty units of votership. This is a roughly 50x improvement relative to their initial single voting share. As more people participate, the voter pool is further shared, and as fewer participate, there is more available authority to be captured and a greater incentive to join the vote.
Implicit Delegation turns the problem of low token participation into a solution. The fewer people who vote, the larger the vote multiple. If vote participation goes up as a result, that’s also good news. It’s a win-win.
Conclusion
Explicit delegation, while a step in the right direction, fails to adequately reward those who vote while also fails to adequately incentivize further participation.
Absent proper information and context, simple delegation of authority from holder to delegate is only by the narrowest of band a preservation of individual voting rights. The notion of individual governance rights should extend beyond the limited definition of one’s tokens being utilized in a fashion they are at minimum somewhat aware of. This is especially the case in instances of limited dissemination of knowledge across a community or when popularity or capital are used to directly influence the process.
Notions of true individual sovereignty should maintain three core components:
- Facilitation of a knowledgeable voter base:
By removing the ability to mask a lack of direct community engagement behind flawed representative delegation schemes, implicit delegation leans into advocating for community education and the transparent distribution of relevant information between all parties involved. Event Horizon is only as strong as its community. - Encouragement of participation in the governance process:
Implicit Delegation’s game theory provides increasing reason and reward when voting as participation declines. - A meaningful impact held by the voting body:
Event Horizon affords community voters a significant multiple to governance authority when compared to voting natively in an ExDAO proposal. In fact, the only instance by which individuals would not wield some form of leveraged authority is in instances of complete, 100% participation. Should that ever be the case, the Event Horizon team and community would be able to proudly say the issue of voter turnout has been solved.
Event Horizon’s Implicit Delegation is an evolution of the current DAO delegation narrative which affords significant improvements with little compromise. It provides an avenue to draw billions of dollars in unutilized governance authority into the arena. It then allows this newly mobilized authority to be utilized by those in the community who may not have the most capital, nor the most popularity, but are the most vested and willing.
It is worth noting, that many of the mechanics of Implicit Delegation emerge at the level of the second layer or meta-governance layer. For elements of Implicit delegation to function properly, such as its multiplied governance effect, there must be a base-layer voter block that is distributed based on participation in a meta-layer proposal. The closest comparable within the context of base-layer governance alone would be a proposal without quorum by which those who vote, no matter how few, determine the outcome of the proposal. This fails to achieve many of the benefits of ID.
