A template for understanding decentralized governance.
As I am writing this article, I am thinking about a governance structure of startups which are truly global and borderless by nature: blockchain formations. In fact, even though the tokens of a particular network might be controlled by an organization, the technology that powers tokens in the form of software, aka the blockchain, enables enhanced structures of governance around a specific token. If you think about it, the typical context of company shares is tied to a particular company owning a piece of intellectual property and employing people to run its operations. Such structure is augmented through tokens, as it allows a number of companies building on the same common layer and the entire ecosystem of companies and networks built around it. If you want to think of it in laymen terms, personally I think that tokens are superior to shares as a way to funnel growth by reducing the reliance of a network to a specific company, allowing for more risk diversification instead.
In principle, it seems that we should all move towards token-based governance models. On the technological side, creating distributed governance models is already possible. It is challenging though, and there are very few examples of efficient governance models. For example, what is the optimal level of a network’s ownership distribution in order to obtain the maximum benefit? Would too much fragmentation cause a stagnation in the development of this ecosystem? What is the minimum level of decentralization required to achieve actual benefits when compared to centralized governance structures? Many are the questions, little is known.
The path to a million tokens.
I believe the very first answer to all of these questions is: how can we design an efficient decentralized governance? In these regards, we should look at centralized governance models, for example, those of startups experiencing sharp growth. Such governance structures, which are a standard in stock ownership and governance, are not in place in the blockchain startups. The startups themselves are recognizing the importance of governance. In fact, after the initial phase of fundraising through a token sale and first market products, the next big question is: how can the network scale to reach more active users? How can we make sure our standards are high enough to disincentivize competing project and rather have more people join the network? How can we establish a firm set of principles and at the same time keep innovating? The most important question then: how can we make sure that the promoters and developers of the network have the right incentives to keep working on a project and that new talent can join in leadership positions?
Issues with blockchain companies which lack a robust governance structure are starting to emerge, hence I believe it is worth thinking about how we want to design a system which is more efficient and effective.
An increasing number of startups are issuing tokens, and I believe this trend will continue. Furthermore, managing different tokens is becoming easier and will become a common thing. If you think in abstract terms, you probably already own tokens without realizing: at least one for each of your social network accounts, you already hold many tokens. Smart-contract-issued tokens allow putting the economic component of value to the token so that more use cases are now possible. My prediction is that it will become quite natural to hold tokens of different organization and become involved in decentralized governance, either directly or through delegated voting (with direct voting, a token holder directly votes on a decision about the network, with indirect voting a delegated board is elected to take the decisions). Direct and indirect forms of voting exist in different forms either in elections, or public votings, or company board meetings. When it comes to blockchain startups, I am very curious to see which governance models prevail in the next months and years.
Where do I see the benefits?
The issuance of tokens, also, has some positive side effects such as reduced legal costs for processes like token distribution and the possibility of cross-border deals which have historically been complex. Therefore, while not completely disrupting the way companies get funded, the possibility of having international formations governed by their tokens is indeed affecting it in a positive way, with a potentially more efficient allocation of capital. Furthermore, the recent technological progress for shared working tools and environments make it actually effective for more people to work remotely. This results in an improved quality of life and efficiency of the cost structure. In practice, even if it might seem an old-fashioned blockchain cliche now, we could say that blockchain can potentially save many costs to companies, not just by digitizing the transfer and organization of value, but also in terms of distribution of work around different areas/cities/countries. I also envision a more globally united world. In this context, if we are successful in delivering effective decentralized governance standards, we will have achieved what was the initial promise of the internet: a globally inclusive economic system.
This is of course not an extensive framework of decentralized governance models and I would like to further expand this article with feedback on experimental and operational governance models, in order to improve it over time. Your contribution is welcome and you can contact me directly at email@example.com. Please like this article to allow more people to share their thoughts on the matter. Thank you for your support!