DAO Tokyo — Foundations of Multichain Governance
The fifth panel of DAO Tokyo (and our last event report) delved into the intricate world of governance in Layer 2 (L2) scaling solutions, specifically those built on the Ethereum blockchain.
Panelists
- Anthurine Xiang: Co-founder of Ethstorage
- Jacob Lindahl: Senior Partner Engineer, Matter Labs
- Terry Chung: Head of Strategy, Eclipse
- Francesco Renzi: Co-Founder & CEO of SuperFluid
Key Takeaways
The session commenced with each panelist providing an introduction to their respective projects, highlighting their unique contributions to the Ethereum ecosystem.
Ethstorage
Ethstorage emerged as a key player in addressing Ethereum’s storage limitations. Ethstorage operates as a decentralized storage layer specifically tailored to Ethereum, functioning on two levels. Firstly, it serves as a Layer 2 solution itself, offering a platform for storing and managing data directly on the Ethereum blockchain. Secondly, it extends its capabilities beyond its own platform, acting as a storage provider for other Layer 2 and Layer 3 projects that require efficient and secure data storage solutions.
Anthurine acknowledged the distinct nature of Ethstorage compared to typical L2 solutions. Instead of aiming for higher Transactions Per Second (TPS), E-Storage focuses on enhancing Ethereum’s Layer 2 capabilities and providing storage solutions for other Layer 2 and Layer 3 projects. She mentioned that E-Storage was still under development on the public testnet and highlighted the ongoing design process for their governance framework. Antoine emphasized their active involvement in the OP (Optimism) governance and their intention to leverage lessons learned from OP’s experience.
Matter Labs
Matter Labs focuses on advancing privacy and scalability through its flagship project, zkSync, a zero-knowledge rollup, a sophisticated cryptographic technique that bundles transactions off-chain while maintaining verifiable proof of their validity on the Ethereum main chain. This allows for significantly higher transaction throughput while inheriting the security guarantees of Ethereum.
Jacob elaborated on zkSync’s three-pronged governance approach, comprising Token Delegates, a Security Council, and Guardians. He explained that Token Delegates, who hold the zkSync token, have the power to submit and vote on proposals, while the Security Council and Guardians, composed of individual members, hold special or emergency powers to oversee and manage the network’s operations.
Matter Labs distinguishes itself through its strong commitment to the principles outlined in the ZK Credo, a document that serves as the project’s philosophical foundation. This credo champions user privacy, censorship resistance, and decentralization as core values, shaping the development and governance of zkSync.
Eclipse
Eclipse takes a different approach by bridging the capabilities of the Solana blockchain to Ethereum. Eclipse is building the first Solana Virtual Machine Layer 2 on Ethereum. This innovative project enables developers to leverage the high performance and low transaction fees of Solana while benefiting from the security and decentralization of Ethereum.
Terry highlighted the challenge of liveness in L2 solutions, especially in scenarios with a single sequencer failure. He explained how a single point of failure in the sequencer could potentially lead to chain downtime, citing the example of Arbitrum’s optimistic rollup. To mitigate this risk, Terry proposed a decentralized sequencer set coupled with a governance mechanism that allows for the removal of existing sequencers and their replacement with governance-designated entities to prevent collusion and ensure continuous operation. Additionally, he suggested implementing guardrails around the bridge’s upgradeability, similar to a security council, to safeguard against potential vulnerabilities.
Eclipse’s project unlocks a new realm of possibilities for DApps, allowing them to combine the strengths of both blockchains. This opens doors for highly scalable applications that can handle a large volume of transactions without compromising security.
Goverance in L2 Solutions
After the introductions, the conversation transitioned to the core theme of the panel: governance in L2 solutions. Fran skillfully framed the discussion by pointing out the distinct stages of each project. ZkSync, with its live chain, represented a real-world example of governance in action, while Ethstorage, in its testnet phase, provided a perspective on governance design and planning. Eclipse, nearing its launch, offered insights into the considerations and challenges faced during development.
Continuing on the topic of governance, Anthurine introduced Web3 Protocol, a decentralized HTTP protocol, as one of Ethstorage’s products aimed at enhancing the security and resilience of decentralized applications (DApps). She explained that many DApps, despite being decentralized in their core functionality, still rely on centralized components like DNS and infrastructure for their front-end, making them vulnerable to attacks. Web3 Protocol addresses this issue by enabling the decentralization of these components, allowing DApps to store their front-end in smart contracts, thereby enhancing security and making them resistant to typical DNS attacks.
Fran then delved deeper into the role of Security Councils, drawing attention to the perceived distrust in token holders’ ability to make sound decisions regarding capital allocation. He referred to Terry’s earlier statement about Arbitrum’s misallocation of $200 million for gaming incentives, a decision driven by token holder voting, despite Arbitrum’s lack of focus on gaming. Fran questioned the panelists on their views about trusting token holders with such critical decisions.
Terry clarified that Security Councils in existing L2 implementations are not typically controlled by token holders but rather consist of reputable individuals from the crypto and ecosystem communities. He emphasized the limited role of these councils, primarily focused on pausing withdrawals or halting the bridge in emergency situations.
Jacob acknowledged the complexities of governance, particularly in capital allocation. He shared his reservations about token-based governance for capital allocation, citing Arbitrum’s $200 million gaming fund as an example of potential misallocation. He argued that token holders might not always have the necessary expertise or long-term vision to make sound investment decisions, leading to potential fund misuse and negative press. He suggested focusing on empowering token holders with control over aspects directly related to the network’s liveness and safety, aligning their interests with the protocol’s success.
The discussion shifted towards the role of token holders in L2 governance, particularly in relation to sequencer fees. Fran observed that the amount of “tax” paid by L2s to Ethereum had significantly decreased, implying a shift in revenue streams. He inquired about the panelists’ views on the future destination of sequencer fees and their potential allocation.
Terry advocated for directing sequencer fees towards DApps, arguing that DApps are the primary source of fees, driving execution revenue for L2s. He suggested that any excess fees collected due to network effects specific to a particular L2 could be distributed to token holders, subject to legality considerations. He emphasized that token holders, as owners of the protocol, deserve a share of the network’s revenue.
Anthurine agreed with Terry’s view, suggesting that a portion of sequencer fees should be allocated to DApps, allowing them to decide on further distribution mechanisms, including potential rebates to their users. She highlighted the importance of empowering DApps to manage their revenue streams and potentially reward their user base.
The closing remarks from each panelist reinforced their individual project’s commitment to the core principles of decentralization, user empowerment, and innovation in the L2 space. The discussion concluded with a shared sense of optimism and enthusiasm for the future of Ethereum scaling and the crucial role of governance in shaping a more secure, resilient, and inclusive blockchain ecosystem.
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