Is plutocratic on-chain governance really a bad thing?

Every week the Mosaic research team will delve into important topics within the cryptoasset space.

Jul 17, 2018 · 11 min read

Lanre Ige (@lanrayige)

Aims and why this matters

There have been a number of important articles written against on-chain governance over the last year. In particular, two noticeable blog posts by Vlad Zamfir and Vitalik Buterin outline both moralistic and technical arguments against such governance based on the belief that they inevitably descend into plutocracies (i.e. societies that are ruled or controlled by people of great wealth). This article will try to elucidate some of the thinking around on-chain governance and help discern whether all on-chain governance is or becomes plutocratic, and if so, whether plutocratic governance is necessarily a bad thing.

The first section of this article gives an overview of the important high-level concepts in blockchain governance, before focusing on arguments which characterize on-chain governance as plutocratic. Finally, several approaches under which on-chain governance may be saved from plutocracy are considered.

Richard Red wrote an excellent article about plutocracy and on-chain governance which we advise you to read before ours, as there’s some overlap and his article helped inspire ours:

Blockchain Governance

The topic of blockchain governance and on-chain voting has been all the rage over the last few months in the industry — especially with token sale projects such as 0x & MakerDAO aiming to develop coherent governance structures for their ecosystems. Moreover, the less-than-perfect launch of on-chain governance blockchains like EOS — as well as the imminent launch of Tezos (another on-chain governance blockchain) — highlight how important the topic of governance is.

We define blockchain governance as:

“How public communities and key stakeholders arrive at collective action specifically with respect to protocol change. “

Conversations around blockchain governance tend to distinguish between two kinds: Off-Chain Governance and On-Chain Governance.

Off-chain Governance: A governance process whereby decision-making takes place on a social level (off-chain) and then, afterwards, is acted on by developers who encode it into the blockchain protocol. Examples include Bitcoin and Ethereum.

On-chain Governance: A governance process whereby rules, voting, and choices are hardcoded (on-chain) into the blockchain protocol. Examples include Tezos and EOS. Voting in a democratic system relies on a “one person, one vote” system. On-chain governance, on the other hand, is often considered plutocratic because of the way voting is carried out. The on-chain voting systems rely on the number of native tokens (corresponding to the protocol being governed) that a given address holds.

A generic on-chain voting system would employ a “one token, one vote” policy or some derivation thereof (quadratic voting, etc.). These ‘one token, one vote’ systems often suffice given that there are no current decentralized identity systems which allows for ‘one person, one vote’ on-chain voting. On-chain voting systems, however, often have much more complexity than simply being ‘one token, one vote’. Holding tokens does not always directly entitle individuals to a vote: users often must take some kind of action such as: the staking of the tokens; the ‘buying of ticket’, as in the case of Decred: or holding a certain threshold of token, as is the case with DASH and masternode governance.

Protocol-level versus application-level governance

One must also distinguish between two kinds of blockchain-based governance: protocol- and application-level governance.

I) Protocol-level governance – this is governance over changes to a given blockchain protocol such as Ethereum or Bitcoin. This type of governance has historically been off-chain, but there have been more recent efforts at on-chain protocol-level governance.

II) Application-level governance – this relates to the inner workings of blockchain-based applications. For example, users being able to vote for the content they see on a decentralized video sharing application, or the voting mechanisms of a Token-Curated Registry.

It is useful to draw the distinction since both of the negative accusations of on-chain voting as ‘plutocratic’ (as well as the assumption that plutocratic governance is bad) most often hold on the protocol-level, but not necessarily for the application-level.

Blockchain governance and plutocracy

Vlad Zamfir and Vitalik Buterin have each written articles on blockchain governance and the perils of plutocracy which you can read respectively here and here. The two articles offer two fundamental arguments against ‘plutocratic’ blockchain governance systems:

  1. Coin-holder and blockchain user interests are not naturally aligned (Vlad).
  2. Plutocratic/On-chain governance schemes open the protocol up to attack vectors — such as bribery and vote-memeing (Vitalik).

Let us look more closely at these viewpoints. The argument for (1) rests on a ‘Blockchains-as-a-Public-Good’ (BaaPG) view of governance. To quote Vlad:

“Not only is on-chain coin-based governance inconsistent with user interests, it is also antithetical to the ethos of public blockchains. The blockchain is for the public, to serve the public interest. It isn’t for cryptocurrency whales to get more rich. Cryptocurrency holdings (like wealth in global society) is highly concentrated in the hands of a very small number of people. The blockchain isn’t supposed to be owned by anyone… nevermind by a small group of super rich individuals.”

The BaaPG view does seem to make sense for protocol-level governance for networks such as Bitcoin and Ethereum. These networks purport to be decentralized which means that no central authority controls them and that access to them is permissionless.

There also seem to be commonalities between the blockchains under this view and global public goods. Global public goods are defined by:

a) Non-rivalry: Consumption of this good by anyone does not reduce the quantity available to other agents.

b) Non-excludability: It is impossible to prevent anyone from consuming that good.

c) Availability: It is available more-or-less worldwide.

It can be argued that blockchains such as Bitcoin and Ethereum fulfil criteria (b) and (c), but certainly not (a). An incredibly rich user who is willing to pay above-average gas prices could prevent poorer users from interacting with smart contracts on the Ethereum blockchain — this isn’t the case for a global public good like air. Nevertheless, it is intuitive to draw similarities between blockchains and global public goods; perhaps they are better classified as common-pool resources.

The argument for (2) rests on the susceptibility of on-chain voting schemes to bribery attacks. Phil Daian et al. give a useful summary in their recently-published article about on-chain bribery:

“On-chain voting schemes further complicate incentives, creating an unstable and tangled mess of incentives that can at any time be altered by trustless smart contract or Dark DAO-style vote buying, bribery, and griefing schemes. We encourage the community to be highly skeptical of the outcome of any on-chain vote, specifically as on-chain voting becomes an ever-important staple of decision making in blockchain systems. The space for designing mechanisms that enable new forms of abuse with lower-than-ever coordination costs supports the position that votes should be used for signals not decisions, and that a wide variety of voting mechanisms should fill such roles.”

On-chain voting schemes are currently susceptible to bribery attacks and the very act of bribery seems to be plutocratic — as wealthy individuals and institutions are able to (easily) exert disproportionate control over a blockchain’s governance process. The possibility of bribery in relation to the governance process can lead to less-than-ideal outcomes; for example, where an entire blockchain is controlled by a single entity or cartel who may act against the long-term interests of the blockchain and its users.

There is the implicit idea within Vitalik’s thesis (2 above) of a BaaPG conception of blockchain governance as well. Under this argument, a single coin-holding majority decision could still be less than ideal if other users are left significantly worst-off, which seems to follow from the belief that coin-holders are not the only stakeholders which matter (the PaaBG view).

Justifying on-chain governance and plutocracy

For one to disagree with the points made above against ‘plutocratic’ blockchain governance, there are several options:

  • Argue that on-chain governance is not, in fact, plutocratic
  • Argue that blockchains (all or some) are not public goods
  • Argue that off-chain voting is just as susceptible to attacks

On-chain voting ≠ Plutocracy (?)

The easiest way to argue against the on-chain governance as a plutocracy claim is to argue that loosely coupled voting offers a sidestep away from plutocracy. Vitalik Buterin distinguishes between two modalities of on-chain voting:

  • Tightly-coupled voting — which means that a change approved by a vote is binding.
  • Loosely-coupled voting — which means that voting acts as a coordination tool and that changes are not binding.

Particular implementations of on-chain voting exist on a spectrum between being tightly and loosely coupled; voting schemes which are more loosely-coupled depend less on the outcome of a particular coin vote and more on other social signals. Consider the following examples:

  • The DAO Carbon Vote. Following the DAO hack, a carbon vote was held as to whether the Ethereum community was to fork in order to recover lost funds. The vote here was non-binding and used solely as a way to gauge the sentiment of ETH holders. This is perhaps the most loosely-coupled on-chain voting scheme a blockchain could employ.
  • Decred’s Governance. Governance of Decred works through the network’s hybrid proof of work (PoW) and proof of stake (PoS) block creation mechanism. PoS contributors, known as stakeholders, can effectively override PoW contributors, known as miners, if 60% or more of the stakeholders vote against a particular block created by a miner. When Decred stakeholders buy a ticket they indicate how it will vote on any open issues. Also at the time they purchase tickets, they lock their DCR until those tickets are selected to vote. The PoW component of Decred block creation helps ensure that some parts of Decred’s governance process occurs off-chain — resulting in a more loosely-coupled voting process — and this will be maintained with the mainnet launch of Politeia in the coming months.
  • 0x’s Planned Governance. 0x’s governance process is still in the ideation stage but the linked document outlines some of the project’s high-level thinking on the topic. The first two phases of the decentralized governance rollout are to be: (1) A community managed token registry for token addresses and exchange rates; and (2) Community Veto Power. Both suggestions are examples of loosely-coupled on-chain voting since they would rely on off-chain tools to build social consensus before any on-chain votes are carried out.

These three examples of on-chain voting all show examples of voting which also rely on off-chain governance. The presence of off-chain voting helps prevent these systems from descending into plutocracies as being a token holders is not necessarily the only criteria which decides who is in system’s decision making process.

Blockchains ≠ Public Goods (?)

As we have previously argued (BaaPG), Public Blockchains do not currently fulfil the criteria of global public goods. This could change in the future, however. As scalability (of blockchains) and interoperability (between blockchains) increase, it is likely that blockchain usage will become less rivalrous. This is similar to how internet usage has arguably become (near) non-rivalrous over time as improvements in physical infrastructure — such as fibre optic cables and more efficient protocols for routing — lessen the probability of noticeable congestion at peak times. If we no longer view blockchains as public goods, the ‘on-chain voting is plutocratic’ charge becomes less meaningful. If blockchains are private goods that users pay for then it seems to make sense that those willing to pay more ought to have more control over the good.

Blockchains are more like common-pool resources: a type of good consisting of a natural or human-made resource system (e.g. an irrigation system or fishing grounds), whose size or characteristics make it costly, but not impossible, to exclude potential beneficiaries from obtaining benefits from its use. There is a good amount of literature on approaches to the governance of common-pool resources (e.g. Adams et al., WOCAT, Agrawal) but discussion of this is outside of the scope of this article. What can be said, however, is that viewing blockchains as a common-pool resource shifts the moral argument against plutocratic on-chain governance from “it’s unjust for blockchains (as a public good) to be governed by a plutocracy” to “it’s unsustainable for blockchains (as a common-pool resource) to be governed by a plutocracy”.

Off-chain voting ≠ Vote-buying/-memeing resistant (?)

Even if we do not consider blockchains as public goods, there is still the argument that on-chain voting leaves blockchain governance vulnerable to numerous attack vectors. A counter argument would require one to show that on-chain voting is no more vulnerable than off-chain voting. For example, there has been some research done which shows that off-chain voting blockchains may be vulnerable to bribery as well — which could be codified into smart contracts. Moreover, there are some that believe that miners of certain blockchains receive bribes to continue mining specific cryptocurrencies. Thus, it should be obvious that bribery is not something exclusive to on-chain voting systems. On-chain bribery seems more viable since it is easy for voters to prove that they have voted a specific way and for bribers to credibly commit to paying bribes, both in a trust-minimized fashion. Off-chain vote bribery ostensibly requires much more trust from both parties. Neither off-chain or on-chain vote bribery seem especially practical currently, but as blockchains scale, on-chain vote bribery will only become more feasible.


  • The importance of loosely-coupled voting

On-chain governance has its problems but critics often lack nuance when analyzing the viability of different on-chain voting schemes. The most important finding from this piece is that the plutocratic tendencies of on-chain voting systems can be mitigated through the adoption of varying degrees of loosely-coupled voting.

  • Differences between application-level and protocol-level governance

It is also important to differentiate between on-chain protocol-level governance present in companies such as Decred, Tezos, & EOS, and on-chain application-level governance present in projects like MakerDAO and 0x. The stakes involved in the former are much higher than the latter which means that the incentives for attackers to carry out bribery attacks are much lower for application-level governance. Moreover, while blockchains could still be argued to be public goods, there’s no reason why application-level projects like MakerDAO need to be seen as public goods. Generally, the argument against on-chain governance is stronger for the protocol level.


This article has analyzed the arguments relating to on-chain blockchain governance being plutocratic. It has shown how on-chain governance is often a lot more nuanced than critics make it out to be. The key to preventing an on-chain governance system from descending into a plutocracy is to ensure there are checks and balances in the form of loosely-coupled voting systems — with Decred being an excellent example of this.

End of weekly research report

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This article is intended for informational purposes only. The views expressed herein are not and should not be construed as legal or investment advice or recommendations. Recipients of this article should do their own due diligence, considering their specific financial circumstances, investment objectives, and risk tolerance before investing. The individuals contributing to this article have positions in some or all of the assets discussed. This article is neither an offer, nor the solicitation of an offer, to buy or sell any of the assets mentioned herein.

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