Here Is How to Improve DeFi Governance Using Ideas from Computational Voting Theory

As the decentralized concern (DeFi) marketplace evolves, it seems paramount that caller and existent protocols incorporated much blase governance techniques.

Governance is 1 of the cardinal gathering blocks of decentralized concern (DeFi). The ideas of decentralizing and democratizing governance successful DeFi protocols are incredibly novel, but the techniques haven’t evolved astatine the aforesaid gait arsenic the remainder of the DeFi ecosystem.

Jesus Rodriguez is CTO and co-founder of blockchain information level IntoTheBlock, arsenic good arsenic main idiosyncratic of AI steadfast Invector Labs and an progressive investor, talker and writer successful crypto and artificial intelligence.

For each the innovation that we person seen successful the DeFi space, astir protocols contiguous are governed by decentralized autonomous organizations (DAO) that run utilizing a basal one-token, one-vote model. The simplicity of that exemplary makes it incredibly casual to instrumentality but besides creates wide vulnerability surfaces for DeFi protocols. Just arsenic we were penning this article, stablecoin protocol BeanStalk was a unfortunate of a governance onslaught that resulted successful a $182M exploit. This benignant of onslaught reflects the fragility of the one-token, one-vote exemplary which, by definition, favors ample token holders astatine the disbursal of different participants successful the protocol.

Fortunately, determination is simply a comparatively chartless country of machine subject known arsenic computational voting mentation that includes plentifulness of ideas that tin beryllium incorporated into adjacent procreation DeFi governance models.

A little past of computational voting theory

Voting mentation is an past country of mathematics tracing backmost to Plato’s unfinished publication “The Laws” successful which the Greek philosopher projected multi-stage voting arsenic an alternate to the accepted antiauthoritarian models.

During the 1950s, voting mentation received caller momentum with the enactment of economists specified arsenic Nobel Prize victor Kenneth Arrow. Arrow’s impossibility theorem has go the cornerstone of societal prime theory.

The emergence of multi-agent systems successful areas similar artificial quality (AI) triggered a caller question of probe successful voting theory. The blockchain abstraction has been an adopter of galore caller ideas successful voting mentation successful the signifier of statement protocols. Although DeFi has been dilatory to follow much blase voting paradigms, we are already seeing modern ideas from computational voting mentation making its mode into DeFi governance models.

Beyond the 'one token, 1 vote' Model

Native tokens successful DeFi protocols align users with an economical involvement successful the protocol portion besides giving them the close to enactment successful the governance process. This duality of worth seems logical but becomes problematic successful simpler governance methods similar "one-token, one-vote" due to the fact that ample token holders tin manipulate proposals to payment their economical interest.

In wide terms, determination are 2 cardinal types of approaches to amended DeFi governance models:

There are plentifulness of ideas successful modern voting mentation that tin beryllium adapted to code these 2 cardinal points.

One of the favourite options of the crypto assemblage is quadratic voting (QV). The conception was primitively projected by scientists William Vickrey, Edward H. Clarke, and Theodore Groves but was truly popularized by Microsoft Research New England’s economist Glen Weyl. The halfway QV exemplary enables voters to acquisition votes wherever the terms of votes is simply a quadratic relation of the fig of votes purchased. When applied to DeFi governance, we tin envision that voters volition person to walk governance tokens astatine a outgo that grows quadratically comparative to the fig of votes. Two votes volition outgo 4 tokens, 3 votes volition outgo 9 tokens, etc.

Ideas similar QV makes it harder for ample token holders to manipulate governance proposals fixed the accrued outgo of acquiring votes. Gitcoin has been 1 of the astir salient projects experimenting with ideas astir QV with comparatively bully results.

A situation for the "one token, 1 vote" exemplary successful DeFi governance is that each proposals person the aforesaid level of attraction careless of their relevance. This allows ample token holders to manipulate important governance decisions since they don’t get the due attraction of the community.

Proposed by Matan Field and respective contributors from DAOstack, holographic statement (HC) tries to curate attraction to applicable governance proposals. The halfway mechanics uses tokens that tin beryllium staked to boost attraction to relevance proposals. HC besides introduces a 2nd token that tin beryllium staked to stake connected the result of a proposal. Token holders that stake connected the close result get compensated portion those voting against volition suffer their stake. The dual token mechanics drives attraction to the important proposals portion besides ensuring that the economical involvement of ample token holders is aligned with the community.

3. Proof of participation

An absorbing thought that has been outlined by respective guardant thinkers successful the DeFi ecosystem, including Vitalik Buterin, is to bounds governance to accounts that are actively participating successful the protocol. Imagine a DeFi lending protocol that restricts its governance mechanics to addresses that person actively issued and borrowed loans, person a trading past without liquidations oregon person adjacent contributed to antithetic governance proposals. Although not bulletproof, this method tin importantly bounds governance attacks arsenic voters volition request to beryllium actively progressive successful the protocol.

A somewhat evident concept, besides outlined by Vitalik Buterin successful a caller blog post, is the thought of constraining governance proposals to definite aspects oregon parameters of a DeFi protocol. For instance, see an automated marketplace shaper (AMM) protocol successful which governance proposals are constrained to changing weights wrong definite ranges successful liquidity pools. Similarly, DeFi protocols tin present clip delays betwixt the clip an impactful connection is approved and its implementation, giving the assemblage clip to bespeak connected it and hole for the impact. This should little the probability of catastrophic attacks via governance manipulations.

Improved DAO-DeFi governance

The accelerated level of innovation and maturation successful DeFi has challenged immoderate the simplicity of governance models. The existent procreation of governance models correspond an important vector of attacks and marketplace manipulations. Just similar voting models person evolved passim our socioeconomic history, the adjacent signifier of DeFi requires much robust governance mechanisms. Thankfully, the answers mightiness already beryllium successful the affluent past of computational voting theory.

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