Governance
On and Off the Blockchain

laurent hardy

@donhylo

WHO I AM

2009  Bio Engineer

2010   Water & Energy Nexus

2012   MSc Renewable Energy Systems Technology

2012   Complex Adaptive Systems

2016   Ethereum Madrid

2018   Cryptoeconomics.hub 

@donhylo

where and how do you think is governance involved?

Part One

How are DECISIONS being taken on the blockchain?

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Governance is critical and hard

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  1. no IP on the tech

  2. the purpose is to empower individuals

  3. subjected to forks

  4. network effect is community driven

GOVERNANCE is cRITICAL

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  1. the distinction between users and investors is fading

  2. values should be embedded into the protocol

  3. you don't get the trust of users, you earn it

  4. having users' best interest while pursuing your vision

  5. engage the community and appeal to participants before upgrading

  6. design governance mechanisms that work

GOVERNANCE is hard

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When is governance involved?

  1. maintain or evolve the tech

  2. engage with users

  3. solve issues or crisis

it's all about decision making

ethereum

maintain or evolve the technology

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THE DAO IS CODE. |

engage with users

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@donhylo

@donhylo

@donhylo

very low participation ~4.5%

very unequal wealth distribution

solve issues or crisis

Collateralised Debt Position

Collateral

Dai

cryptocurrency, assets, etc.

stablecoin

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collateral

dai

Good CDP

$300

$180

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Reference [Dollar]

Stablecoin [Dai]

stable

unstable

risky

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Lines of defence

market forces

market keepers

reserve of value

governance parameters

oracles

global settlement

off–chain reserves

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Layers of governance

protocol vs. application

objective vs. subjective

game theory

consensus algorithms

to reach consensus
about an objective state

reverse

mechanism design

cryptography

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token designs

to reach consensus
about matters mostly subjective

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How would you design the supervision of the cleaning process of the Green Village?

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What is governance

in the context of blockchains

every node on the blockchain network implements a version of the protocol

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node operators take the decision of wether to implement a protocol update or not

GOVERNANCE as decision making processes

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node operators coordinate to reach consensus on the state of the blockchain

GOVERNANCE as coordination game

private information

(preferences or types)

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GOVERNANCE decision making

rewards

tokens

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GOVERNANCE decision making

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processes

(to establish the decision making process)

politics

(to legitimise or make illegitimate the decision making process)

GOVERNANCE processes & politics

Part Two

Design of Governance Protocols

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An ideal governance process has structure (internal and external) that guarantees that participants (using their information to bear out their incentives) interact with the process to produce decisions that optimally represent the interest of all stakeholders, and it does so with sustained legitimacy and procedural fairness

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GOVERNANCE language

governance process

decisions

participants

stakeholders

structure

behavior

information

incentives

internal

external

formalised

institutionalised

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GOVERNANCE language

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STAKEHOLDERS CAN BE

DISENFRANCHISED OR REPRESENTED

STAKEHOLDERS CAN BE

apathetic or engaged

A governance process can be legitimate or illegitimate

GOVERNANCE language

Legitimacy promotes engagement, prevents apathy, revolution and forking

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GOVERNANCE language

Governance is the process of establishing and maintaining the legitimacy of decision making processes

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GOVERNANCE language

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Governance can be seen as illegitimate and lead to disenfranchisement, apathy, revolution and forking

Governance can be seen as legitimate and lead to formalisation and institutionalisation

The knowledge participants have structures the coordination game

Governance as a coordination game in which the goal is to take the best decision

The decisions of the participants in governance affect stakeholders

Governance as a decision making process

Governance is the process of establishing and maintaining the legitimacy of decision making processes

GOVERNANCE summary

On-Chain

Off-Chain

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GOVERNANCE On-Chain vs. Off-Chain governance

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GOVERNANCE On-Chain vs. Off-Chain governance

"Governance is a process, if it's not a process it's arbitrary and probably random. It will only work effectively if it's a process. On–chain governance is simply the effective execution of that process."

gavin.wood

"...people who think that the purpose of blockchains is to completely expunge soft mushy human intuitions and feelings in favor of completely algorithmic governance (emphasis on “completely”) are absolutely crazy."

vitalik.buterin

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GOVERNANCE On-Chain vs. Off-Chain governance

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EOS

Through a Delegated Proof–of–Stake, 21 delegates get elected to be block producers and verify transactions by staking. All the governance happens on–chain.

TEZOS

An on–chain governance process allows the Proof–of–Stake core protocol to be upgraded automatically.

DECRED

A combination of Proof–of–Work and Proof–of–Stake allows to get the best of the 2 alternatives.

GOVERNANCE On-Chain vs. Off-Chain governance

In the application layer

Governance affect the usage of the service: tokens in circulation, upgrades, fees, internal decisions

In the blockchain layer

Governance affect the infrastructure: consensus mechanism, architecture, attacks, rewards, fees, language

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GOVERNANCE Layers of governance

Governance Architecture

futarchy

liquid democracy

quadratic voting

Voting Mechanism

1 person = 1 vote

1 token = 1 vote

reputation ~ vote

Code Governance

soft forks

hard forks

 

Monetary Policy

inflation funding

incentive mechanisms (tcr,

discount, stake, auction, etc.)

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GOVERNANCE governance toolbox

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1 voice credit gives you 1 vote

4 voices credit give you 2 votes

25 voices credit give you 5 votes

...

the more voice you want in the issue, the less votes you can cast

GOVERNANCE Quadratic Voting

@donhylo

Antoine Belle Charles
Chop 3 1 2
Restore 2 3 1
Go Free 1 2 3

Chop prevails over Restore as both Antoine and Charles prefer it to the alternative

Restore prevails over Go Free as both Antoine and Belle prefer it to the alternative

No determinate outcome!

Execution beats Restoration by 2:1

Restoration beats Freedom by 2:1

Freedom beats Execution by 2:1

Go Free prevails over Chop as both Belle and Charles prefer it to the alternative

source: Radical Markets

GOVERNANCE CONDORCET JURY THEOREM

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vote can only tell you wether one person prefers one outcome to another but not how much that person prefers the outcome

source: Radical Markets

GOVERNANCE CONDORCET JURY THEOREM

"...most people would be both incapable of, and uninterested in, making informed decisions on proposals to update a computer program, as the questions would involve technical issues of both finance and programming. Some kind of representative system might be necessary, but the representatives would necessarily have discretion, and be vulnerable to political influence, and we are back where we started."

e.posner

"...most people would be both incapable of, and uninterested in, making informed decisions on proposals to update a computer program, as the questions would involve technical issues of both finance and programming. Some kind of representative system might be necessary, but the representatives would necessarily have discretion, and be vulnerable to political influence, and we are back where we started."

e.posner

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any idea?

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unstoppable organisations

Aragon Core

 

Aragon is a project that aims to disintermediate the creation and maintenance of organizational structures by using blockchain technology.

 

We want to empower people across the world to easily and securely manage their organizations.

 

We provide the tools for anyone to become an entrepreneur and run their own organization, to take control of their own lives.

source: aragon.one

Aragon Network

 

The Aragon Network will decentralise its governance by gradually handing over control of the project to its users.

 

Aragon Network will be the first community governed decentralized organization whose goal is to act as a digital jurisdiction, an online decentralised court system that isn’t bound by traditional artificial barriers such as national jurisdictions or the borders of a single country.

source: aragon.one

source: Colony website

source: Colony website

Colony features

 

  • Ownership according to contribution

  • Influence according to merit

  • Fair Reward

  • Permissive by default

  • Dispute and Resolution

source: Colony website

What is

reputation?

What is reputation?

grades

diplomas

certificates

GitHub commits

publications

products built

opinions

spoken languages

social media

\sum{merits}=Reputation
merits=Reputation\sum{merits}=Reputation

XP

Reputation scores encapsulate everything

What work you did, how much that work was worth, what your peers thought of your work, how long you’ve been doing work.

Reputation can be gained

By completing tasks within the colony, evaluating the quality of other’s tasks, or administrative work like flagging bad behavior.

Reputation is organized

By domains and tagged with different skills, so that colony members gain influence only in the areas of their expertise.

Reputation decays over time

Persistent and regular contribution toward a colony is the only way to stay influential.

DAICO

v.buterin  

ETH

developers 

investors

Pros

More responsible access to funds

Safe refund for investors

51% attack resistant

Cons

Susceptible to unequal distribution of tokens

Education of investors is required

Maintaining engagement is required

No weighting votes according to reputation

Feedback is welcome.

Thanks.

Governance On and Off the Blockchain

By Laurent Hardy

Governance On and Off the Blockchain

Governance is critical and hard because it should allow participants to engage in the decision making process of any project, and at the same time let them feel represented and engaged. Unfortunately, it is often the weak spot of new projects in the blockchain space. We explore the structure of the governance process proposed by Vlad Zamfir, some governance tools, and finally we take a look at a couple of projects to illustrate the concept.

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