The Governance Spectrum

I have now written many posts about how the true unique proposition offered by crypto is zero governance immutable protocols/blockchains. However, in reality, there’s a wide range of governance solutions that’ll be implemented by blockchain protocols, sometimes to the extent that they are just communities that use blockchains as one of their many tools.

There may be some ungoverned ghost protocols/chains out there, but of the very few protocols that people actually use, Bitcoin is closest to minimal governance. For its stated purpose, Bitcoin is pretty much “complete”, and while there’s some interest in upgrading the chain with minor new features, without an organised effort it’s pretty difficult to get upgrades through. Largely used as an alternative store-of-value, Bitcoin doesn’t necessarily need many upgrades, though in the future we may need a couple for more sustainable economics and quantum-resistance.

This does also expose the limitations of minimal/zero governance protocols - they can only work for very specific types of protocols. It can work for Bitcoin because it’s just a device to keep track of numbers by cryptographic locations. The numbers are extremely valuable, indeed, but they are just numbers shuttling back and forth, and often not even that - just staying put at the same addresses for years.

Next up would be Ethereum which is very much actively governed and has a roadmap of upgrades for the next decade or so. It’s more of a loose governance, a dance between the dozen client teams, the EF, and the community. To get to where Bitcoin is, we’ll need to see the EF dissolve, and all of the major upgrades like zkEVM, statelessness, danksharding etc. implemented. Of course, there’s a trade-off to consider - maybe those incremental upgrades are not as important as minimizing governance early.

Coming to the application layer, Maker and Aave are the two most prominent DAOs. Maker is certainly more actively governed, often with debate and contentious votes, but often with satisfactory end results. Then there are those like Cosmos Hub which are all drama but with no results (only half joking).

Anyway, back to the application layer… while Aave is perhaps the smoothest run DAO in crypto. Aave has done an excellent job at progressive decentralization, pragmatically balancing with active development. Today, Aave is somewhere in the middle of its journey towards minimizing governance. There are still plenty of proposals by only a couple of leading entities, but they are mostly minor operational in scope. There’s still a ways to go, but it’s on the right path towards balancing governance minimization and operations.

On the other end of the spectrum is probably Optimism. It has openly embraced governance, inspired by real-world governance, and over time its governance systems have only gotten more complex - going the opposite way of DAOs. Many of these systems are well worth experimenting with, but there’s sometimes a sense of over-governance, as can be seen from the outcry regarding a recent “Code of Conduct violation” proposal . Disclosure: I’m an Optimism Token House delegate, and one of the reasons it’s the only project I’m actively involved with governance, despite considering many others, is precisely because of these experiments. To be clear, Optimism governance is very flawed, and the $OP token is still catastrophically bad, but this leads to an important thing about DAOs - perfection is the enemy. You can never satisfy everyone and solve every problem, it’s important to remain as inclusive as possible. But hey, maybe that’s a topic for another time.

Anyhoo, where was I? Ah, yes, Optimism and experiments with governance… While there will be many mistakes, it’s really the only major protocol experimenting with the full scope of governance, and will offer valuable data to other DAOs.

But this spectrum can probably extend farther past Optimism. We could have communities, clubs, cooperatives and perhaps even democratic nation states run their own blockchain-inspired systems, but merely use it as a tool among hundreds of other tools.

Once again, I still believe that the unique proposition of blockchain protocols is zero governance, immutable protocols, but in reality, there’s going to be a wide variety of governance. The challenge is finding the right governance systems for the specific project, and I hope to see DAOs experiment more in this regard, particularly taking inspiration from centuries of history in real-world governance, rather than just copy-pasting existing DAOs (99% of which are dysfunctional).