Cross Chain Governance — Part II
Introduction
This article serves as a continuation of our Governance series (Part 1), delving into the Governance structures of various protocols and dApps. Our objective is to leverage these insights to strengthen the Governance framework of the Tokamak ecosystem.
In particular, we will closely examine the Governance frameworks of Uniswap and Curve. Their deployment across multiple networks makes them excellent subjects for dissecting how they oversee governance. This analysis will show whether their focus is primarily on the Ethereum network or if they engage in cross-chain DAO operations.
Growth of Multi-Chain Ecosystem
The rise in demand for Ethereum smart contracts has resulted in a steady increase in network transaction fees. This is due to the demand for block space on the Ethereum mainnet exceeding its capacity. Although the Ethereum mainnet continues to be highly secure for smart contract execution, many users are now looking for more economical alternatives.
Smart contract adoption on alternative Layer-1 blockchains, sidechains, and Layer-2 rollups has experienced significant growth in the past year, primarily driven by the increasing demands of users and developers.
The multi-chain ecosystem is firmly established, proven by the growing diversification of Total Value Locked in the DeFi landscape across different on-chain platforms. The diagram below illustrates the TVL of chains in existence.
In order to harness the benefits of the multi-chain ecosystem, developers are increasingly opting to deploy their existing smart contract codebase across multiple networks rather than confining it to a single blockchain. This strategic move allows projects to expand their user base and experiment with new features on more economically viable networks that would otherwise be financially restrictive.
Given that both Curve and Uniswap have extended their presence to various networks, we will delve into the governance structures associated with them.
Uniswap Governance
In DeFi projects, governance is often managed through decentralized autonomous organizations (DAOs). These are smart contracts that enable participants to have a say in project decisions. This authority is typically linked to owning a native governance token. To participate in Uniswap's governance, individuals must possess UNI tokens.
The governance process in DeFi usually involves a few steps. Participants can propose changes to the protocol, which are then discussed in the community. This discussion phase lets stakeholders give input, address concerns, and suggest changes.
After the discussion, proposals move to a voting phase. Here, participants can vote to approve or reject the proposal. The voting power is usually based on how many governance tokens a participant holds. Once a proposal meets a set threshold, it becomes part of the protocol.
STEPS INVOLVED IN UNISWAP GOVERNANCE
Phase 1: Temperature Check — Discourse/Snapshot
The “Temperature Check” serves to gauge if there’s enough consensus for making changes to the current state of the protocol.
To proceed with the Temperature check, pose an impartial, general question to the community on gov.uniswap.org regarding a potential alteration. Ensure to include a link to the associated Snapshot poll in the forum post.
Voters on Snapshot express their interest in moving the proposal to the next stage. The length of Snapshot polls should be set to 2 days.
After two days, a majority vote, requiring a minimum of 25,000 UNI tokens in favor, will prevail. The matter will be closed on the governance platform if the Temperature Check does not indicate a desire to change the existing state.
Phase 2: Consensus Check — Discourse/Snapshot
The Consensus Check is a formal process designed to kickstart discussion on a potential proposal.
Here are the steps involved:
- Generate a new snapshot poll, presenting options (binary or multiple choice) derived from the Temperature Check. Ensure one of the options is “Make no Change.” The voting period lasts for five days.
- Create a new topic within the proposal discussion category titled “Consensus Check — [Title].” This post includes links to both the snapshot and the temperature check threads.
- Encourage the community to cast their votes and also share your perspectives. Engage actively in discussions surrounding the proposal.
- Allow five days for voting. The option that receives the majority of votes is the winner. A minimum of 50,000 UNI yes votes is necessary for the consensus check to be successful.
- Moderators will close the Consensus Check topic if the “Make no Change” option emerges as the winner.
Phase 3: Governance Proposal — Governance Portal
To set forth a Governance Proposal, it relies on the consensus check outcome and may encompass up to ten potential actions.
Here's how to proceed:
- Craft the code for the proposal, to be voted upon through the Governance Portal. Any proposed code must undergo a thorough audit by a certified auditor. This auditing process may be compensated through the community treasury.
- Confirm that your address has a minimum of 2.5 million UNI delegated to it, a prerequisite for submitting a proposal. Alternatively, collaborate with someone with enough UNI to meet the proposal threshold on your behalf.
- Open a discussion thread in the Proposal Discussion section on gov.uniswap.org . Include links to relevant Snapshot polls, discussion threads, and the code audit report.
- Activate the propose() function of the Governor Bravo to initiate your proposal.
- Following the activation of the propose() function, a two-day voting delay will commence.
Once this period concludes, a seven-day voting phase begins. Ongoing discussions can be held on the gov.uniswap.org forum. If the proposal successfully passes, a two-day timelock period will ensue before the proposed code is executed.
CROSS-CHAIN DEPLOYMENT
As previously stated, Uniswap expanded its presence by deploying on Alternate L1 (BNB Chain) and various EVM-based chains such as Optimism, Arbitrum, Polygon, Base, and others. This multi-chain strategy has become widely adopted across different DeFi sectors.
You can access a thorough, step-by-step guide on how to proceed with obtaining governance approval for a multi-chain deployment for Uniswap right here .
Uniswap deployments on domains other than Ethereum lack direct access to the on-chain governance system. To enact proposals governing these deployments within the existing Uniswap governance system, a mechanism is needed to transmit governance decisions from the Ethereum mainnet to other domains. Currently, this approach has been implemented in distinct ways for different chains. The frameworks governing Optimism and Polygon adhere to similar design principles and should be effective in facilitating the passage of proposals. (Eg — Wormhole Bridge for message passing between Ethereum and BNB Chain ( Wormhole Bridge Proposal ))
Uniswap V3 is now live on Polygon, Arbitrum, and Optimism, and it's on its way to being deployed on Celo, Moonbeam, and Gnosis Chain. To ensure that Uniswap's deployment on Ethereum governs all instances, each chain needs a messaging bridge. This bridge allows governance decisions from Ethereum L1 to reach the respective chain's Uniswap V3 (“cross-chain governance”).
Five distinct messaging bridges are used for executing governance decisions among these six deployments.
Polygon and Optimism utilize bridges developed by their respective teams. Arbitrum also employs its native bridge. Celo implements Optics 14 , while Moonbeam and Gnosis Chain use Nomad, a forked version of the Optics code.
It means that each new proposal involving protocol parameter changes must be adapted for each bridge and project. This requires custom code, separate votes, and potentially multiple proposal processes. In essence, governing Uniswap as it expands could become expensive and intricate.
To sum up, Uniswap Governance is inherently integrated with L1 Ethereum. The Uniswap L1 governance governs the Uniswap deployments on other domains, and successful proposals are executed on these domains by message-passing through the chosen bridge architecture.
Curve Governance
Curve Finance is a decentralized exchange (DEX) fine-tuned for efficient stablecoin trading on the Ethereum blockchain. It allows users to swap stablecoins with minimal slippage and transaction fees. The Curve DAO is a decentralized autonomous organization that steers the Curve Finance protocol.
Critical decisions within Curve DAO are determined through voting by its native governance token, CRV (Curve DAO Token). CRV holders have the authority to govern the Curve Finance protocol actively. They can submit proposals and vote on protocol parameters, fee adjustments, smart contract upgrades, and other operational facets.
A pivotal component of Curve DAO's governance framework revolves around the VeCRV token. VeCRV is a derivative token collateralized by locked CRV (Curve DAO Token). When CRV holders lock their tokens in the Curve DAO's voting escrow contract, they receive veCRV tokens in return. veCRV tokens confer enhanced governance privileges and rewards compared to standard CRV tokens. veCRV holders yield amplified voting power in Curve DAO's governance processes. This amplification serves as an incentive for sustained commitment and involvement in the governance of Curve DAO.
Beyond the increased voting influence, veCRV holders also gain supplementary rewards through veCRV emissions. These emissions are progressively distributed to VeCRV holders, encouraging CRV holders to engage in long-term governance efforts.
STEPS INVOLVED IN CURVE GOVERNANCE
Vote Lock CRV
Users must lock their CRV tokens in a voting escrow for a week to four years to participate in Curve Finance governance. Longer locks accumulate more voting power in veCRV. For instance, 1,000 CRV locked for a year equals 250 veCRV weight; for four years, it's 1,000veCRV. As the lock expiry approaches, veCRV weight decreases.
Using forum for proposal discussion
To propose changes in Curve Finance, anyone can submit ideas on the Curve Forum for feedback and backing. Proposals should adhere to the forum's template. Authors can collaborate with the Curve Finance team for technical proposals to assess feasibility in a preliminary draft.
Use Snapshot to gauge sentiment
Before officially submitting a proposal for approval on-chain, the proposer can initiate a signaling vote on Curve Snapshot . This serves to gauge the reception of the proposal. To create a poll on Snapshot, the proposal's author must hold a minimum of 1,000 CRV. Snapshot voting persists for a minimum of three days, and a preliminary consensus is indicated if the proposal secures a simple majority in favor, along with a quorum of 5% of the circulating supply.
DAO Voting
Curve community moderators can advance proposals after they pass a signaling vote for an authoritative on-chain vote. There are two vote types: parameter and text. Parameter votes automatically integrate into the DAO after three days, while text proposal votes involving development suggestions require more time for execution. Curve DAO proposals are voted on through the Curve DAO Governance Dashboard . A proposer needs a minimum of 2,500 veCRV to initiate a Curve DAO proposal vote. Only veCRV holders have voting rights. Proposals with over 51% support and 30% of the circulating veCRV supply as quorum progress for implementation.
Implementation
The Curve Finance team implements the text proposals that the governance has approved.
CURVE CROSS-CHAIN DEPLOYMENT
Curve operates on various chains, and there are expansion plans. While Ethereum remains its core chain, other side chains offer speed and cost-efficiency benefits. To Curve Finance on these sidechains, funds are usually utilized transferred from Ethereum via the respective chain's bridge.
You can locate all of Curve's active chains in the “Networks” section on the Curve homepage.
A vital point to remember is that the Curve DAO DApp is accessible solely within the Ethereum network. This implies that DAO voting for proposals is exclusively conducted through Ethereum.
Governance for other Curve deployments (such as optimism, Arbitrum etc.) is overseen through L1 Ethereum, with messaging facilitated by the chosen network's native bridge. An illustrative proposal, like adding a gauge for an Optimism pool, can be found here .
Why Cross-Chain DAO?
Cross-chain DAOs, when operated effectively, offer a framework to synergize the strengths and capabilities of diverse blockchains. They enable a higher level of decentralization, allowing participants from various blockchains to collaborate towards common goals independently of any single blockchain. Additionally, the pooling of resources and talents across different blockchains via cross-chain DAOs is poised to foster the development of dApps that are more innovative and have a broader market reach.
Let's explore some projects highlighting the importance of cross-chain governance:
Unlock DAO
The Unlock Labs team is working on a project to implement cross-chain DAO governance for consistent protocol behavior across different compatible networks. When a proposal affecting the core Unlock Protocol is approved, changes are spread across various chains via bridges, ensuring uniform behavior regardless of the deploying blockchain.
Unlock Labs partnered with Connext and Gnosis Guild to create this innovative architecture, enabling token transfers and code changes between networks. Connext's bridge technology facilitates the seamless execution of instructions from the DAO proposal across different chains.
Moonbeam tutorial for Building a Cross-Chain DAO
For a deeper understanding, our readers can refer to a tutorial on writing smart contracts for a cross-chain DAO provided by Moonbeam Network. This is an illustrative example rather than a definitive definition of a cross-chain DAO. It helps navigate the complexities of creating a complex cross-chain DApp. The tutorial uses OpenZeppelin's Governance smart contracts to show how a DApp concept can evolve from a single-chain to a cross-chain setup. It will also highlight any compatibility issues that may arise during this transition.
Tutorial Link — Building a Cross-Chain DAO with OpenZeppelin's Governor Contract
Conclusion
A cross-chain DAO allows users to conduct on-chain voting on one or more high-throughput blockchain networks. The outcomes are then transmitted back to the L1 blockchain network, where the core governance contracts of the protocol are located. This encourages increased participation by reducing transaction costs for DAO participants, all while upholding on-chain transparency and resistance to censorship for every participant.
Uniswap and Curve have deployments on various platforms, yet these are still governed through proposals published on L1.
Moreover, a cross-chain DAO could efficiently oversee and adjust the parameters of smart contracts across diverse blockchain networks. This broadens the range of what token holders can govern within one or multiple on-chain environments.
