Author: @0xMavWisdom

Recently, Vitalik, the co-founder of Etherpad, expressed his views on governance Token and started a discussion with twitter users. He believes that governance as a manifestation of Token value is pathological, and governance Token is just a kind of "memecoin". Currently, there are some highly profitable projects in the market, such as UNI and ENS, but for regulatory reasons, the profits are not distributed to the holders, and many teams do not want to touch the legal boundary, so they adopt the form of governance Token.

In the cryptocurrency space, most of the Tokens with governance functions still appear to be centralized. This can first be seen in the centralization of power by the team, such as Compound COMP, which distributes approximately 46% to shareholders, founders and the Compound team, where the overweighting of Token holdings by the team creates the irrelevance of user voting, especially by retail investors. While many project teams indirectly decentralize governance by rewarding users with a certain amount of governance Tokens through incentives such as liquidity mining, there is no denying that many Tokens are still concentrated in the hands of the team. Second, as Vitalik says, "paying $500 for a 0.0001% chance to influence the outcome of some vote is not a good deal. The only people who think it's a good deal are multi-millionaires and hedge funds". The "whales" are also one of the main actors in the centralization of Token governance. With their vast wealth, they have enough purchasing power to gain a voice, and more capital means more power to make decisions on matters. At the same time, we have seen news like "Binance becomes Uniswap's largest proxy address", where CEX appropriates Tokens from users with governance rights to participate in voting on decentralized projects and influence the outcome of decisions. Given the huge market share of users on centralized exchanges and the precedent of FTX, it is not unlikely that CEX could be guilty of participating in the governance of decentralized projects.

There are various ways to centralize governance Token, and as the only function of Token, it is difficult for ordinary users to have a voice, which not only goes against the spirit of decentralization but also leaves small holders with no incentive to participate in governance. When people buy a governance Token, they have a social desire to be part of and influence meaningful and enjoyable decisions on matters. The problem with voting is finding a way to listen to the entire community, not just the Token-rich, and when most Tokens are concentrated in the hands of a few, the average person has no incentive or ability to exercise a voice in this.

Governing Token as "votes that can be bought" makes project voting governance more vulnerable to bribery attacks. A typical example in the capital-rich cryptocurrency market is the Curve "bribery" case, as the liquidity incentive of each pool on the Curve platform will be determined by its veCRV voting power, and the amount of veCRV depends on the number of CRVs in the hands of the holder, and the more veCRV holders vote for it, the higher its liquidity incentive will be. In order to increase their APY, different mining pools "bribe" others to vote for them by buying them, using the CRV voting power, which also results in the famous Curve war of governance. Bribery attacks can be helpful to the project itself under reasonable mechanisms, but it is important to recognize that bribery attacks or bribery contests like the Curve war are just profitable for the elite with a lot of access, and only further constrict the already small holders with little impact.

In addition, the value capture of governance Tokens has been criticized for being priced in part by users' expectations that they may one day be able to turn them into securities, but under existing laws and regulations, maintaining the status quo ante is more likely in the long run. There is also the potential for future dilution of governance rights under single-function conditions; pragmatically, between the choice of a governance Token and a Token with real empowerment, investors should prefer to participate in the governance of a web3 project that is willing to give them real value.

To be clear, Vitalik does not oppose the governance function of Token, but rather accuses governance Token of having a single function, arguing that the right to govern Token cannot be its primary valuation narrative. As early as 2021, he expressed his views in "Moving beyond coin voting governance", where he argued that decentralized governance is necessary, affirming that decentralized governance still makes important contributions to protocol maintenance and upgrades, funding public goods, etc.

The centralization of Token governance is to some extent a failure of the project Token design to the game of human nature. Limited governance may become one of the directions to solve the problem, such as implementing measures to reduce the number of voting decisions, setting the upper limit of governance authority parameters, adding time delay (T+X mode), limited governance monopoly until the cumbersome process, the scarcity of authority. The speculative behavior of governance Token is also one of the dilemmas. On the surface, governance is the motive for holders to purchase, but in fact, holders only speculate to obtain profit spread, and most governance Token holders are indifferent to participate in the decision making of affairs and do not see the value of their governance rights, resulting in low participation in governance and leading to the waste of certain governance rights. In response to the problem that only Token holders can participate in governance, Vitalik proposes a non-Token-driven governance solution. First, a proof-of-personality system represented by Proof Of Humanity and Bright ID, i.e., a system that verifies that an account corresponds to a unique individual, confirms that the user is a real person, and assigns the user one vote of governance. The second is the use of proof of participation systems, which allow the system to prove that an account corresponds to someone who has participated in an activity, passed some educational training or done some useful work in the ecosystem, represented by POAP, thus increasing the governance rights of users who really act for the community in return. Non-Token-driven governance also limits the monopoly of pure Token-driven participation, and encourages community participants to actually work for the project rather than just buy Tokens for speculation. Non-Token-driven governance is a mechanism to avoid excessive profitability, and Vitalik believes that this non-Token-driven governance is a form of anti-collusion, ensuring that the voting rights of non-monetary resources remain non-financial, rather than selling their governance rights to the highest bidder.

In addition, to address vote-buying, some DAOs have experimented with timelock techniques, which require users to lock their Token and not transfer it for voting for a period of time. This technique can limit vote-buying in the short term, and the timelock mechanism acts like a paywall on an e-newsletter site, raising the bar for vote-buying. Other communities have tried to reject exchange voting rights outright, as CEX would implement a centralized mechanism that separates Token benefit sharing rights from governance rights, allowing rights to be split. Instead, when users deposit their Tokens on a centralized exchange, the exchange has full custody of those tokens and the exchange has the ability to use those tokens for voting. But Vitalik believes that whichever bribery solution is currently in place is only a stop-gap approach, and that the current block voting solution is a good one. The current blockchain and DAO are still more dependent on other factors to avoid these serious vote-buying attacks.

To sum up, most of these measures can only be considered as temporary measures. The important problem of governance Token is its single function, and the solution needs to expand its basic function and not be limited to simple governance.

Reference article:

https://vitalik.eth.limo/general/2021/08/16/voting3.html

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