I think “Direct Democracy” is a poor form of governance for Defi. It is technically simple (one token, one vote), but the resources required to participate in direct democracy is a burden that vastly outweighs any benefits.
- Direct Democracy requires stakeholders to be knowledgable
- Direct Democracy requires stakeholders to be present
I own some shares of Apple. Imagine Apple has weekly or daily shareholder meetings during which shareholders call in and vote on every single corporate decision. It would be a disaster because most shareholders do not have the time or knowledge to participate. Rather, corporations figured out that it’s much better for shareholders to be represented by a board that oversees executive decision making.
So direct democracy is a shitshow, and hiring professional decision-makers is better.
Malicious governance takeovers are a result of lazy coding and half-baked incentive structures. If a protocol is designed so that the treasury can be drained by governance, then it’s designed to be taken over. If a protocol is designed so that oracle data can be manipulated, then it is designed to be attacked. Maker is working with banks and using USDC because it is designed to be able to do so. Code is law especially if the code sucks.
The key defense against hostile takeovers is to design the protocol so that there is no benefit to taking over the protocol!
- Build it so the treasury cannot be drained.
- Build it so that oracle data cannot be manipulated.
- Build it so that if somebody has too much control, the protocol becomes less valuable, so that anybody who starts accumulating control is actually devaluing their position. If the protocol is valuable because it’s decentralized, then centralizing it makes it not valuable. If somebody owns most of the tokens, then the sell pressure they would create by attempting to profit would destroy their wealth.
Ok. But isn’t this system not trustless because you are literally trusting people with executive keys to make the right decisions?
Stakeholders also trusted these people to design and code the protocol properly. If the protocol launched immutable, then stakeholders would be putting a ton of trust into the developers getting it right the first time. Giving the creators some time to make sure it works actually dilutes trust so long as the incentives are correct.
Executive key holders should not have access to the treasury or parts of the protocol that would let them benefit without all stakeholders also benefiting.
Imagine a panel of levers that control the protocol. We can put these levers into three categories:
- Levers that can never be used by anybody (ie oracle data, access to collateral)
- Levers that can be used by the executive branch. Tokenholders can disable and enable these switches, or move them to category 1.
- Levers that will be accessible to tokenholders after the executive branch is dissolved.
It would be cool to create a GUI of this panel so the community can see what is happening. It would be useful to create a “heat map” over this GUI to measure what controls are not useful, useful early on, and useful forever.
Of course, the devil is always in the details and these are broad strokes. The more eyes the better. It’s good to be back!
tldr, if you’re buying into the protocol you have already bought into the people who created it. With incentivized constraints on their power, what’s the diff?
