"The Evolution of Governance: From Signal Voting to On-Chain Decision-Making"

Aug 06, 2023

4 min read

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Introduction:

In the world of decentralized finance (DeFi), governance plays a crucial role in shaping the future of blockchain projects. Over time, various methods have emerged to facilitate decision-making within these ecosystems. This article explores the evolution of governance, from signal voting to on-chain decision-making, and delves into the trade-offs and benefits associated with each approach.

Signal Voting: A Foundation for Governance Legos

Signal voting serves as the backbone of many governance frameworks. Token holders participate by signing their votes using their public-private key pairs. This off-chain approach allows anyone to verify the legitimacy of votes by checking the signatures. Additionally, signal voting is token-weighted, granting voters one vote per token. This method is cost-effective as it does not require users to pay gas fees. However, signal voting alone cannot directly impact the blockchain, and thus, relies on external servers or peer-to-peer networks for vote broadcasting.

Admin Multisig: Sharing Administrative Power

Admin multisig introduces a fixed number of addresses that collectively hold administrative power. By requiring a subset of these addresses to execute commands, such as 3 out of 5 or all 4 out of 4, admin multisig ensures decentralization and security. Gnosis' widely-used smart contract, Safe, enables the implementation of arbitrary size multisigs on Ethereum. This approach is commonly employed for administering protocol contracts and on-chain treasuries.

Combining Signal Voting and Admin Multisig: Snapshot's Approach

Snapshot, a popular governance tool, leverages signal voting to allow token holders to vote freely. However, Snapshot relies on an admin multisig to execute the will of the voters on-chain accurately. Recently, Snapshot announced its integration with the reality.eth oracle, enabling the execution of proposals on-chain. This combination of signal voting and admin multisig provides a seamless transition from idea generation to on-chain decision-making.

The Idea-to-Proposal Lifecycle: Incorporating On-Chain Voting

To ensure the security and integrity of governance systems, on-chain voting has become a crucial component. On-chain voting incurs gas fees but enhances the decentralization and resilience of the ecosystem. The idea-to-proposal lifecycle utilizes signal voting for idea generation and on-chain voting to finalize proposals. This approach strikes a balance between cost-effectiveness and security.

Delegating Authority to a Committee: On-Chain Voting and Admin Multisig

Delegating authority to a committee involves combining on-chain voting with admin multisig. This approach enables the distribution of decision-making power among a select group of individuals. Both Uniswap and Compound have recently implemented on-chain votes to delegate spending authority to their respective multisigs through programs like the Uniswap Grants Program and the Compound Grants Program.

Do We Really Want the Things We Say We Want?

In the realm of governance, it is essential to evaluate our true desires and the trade-offs associated with them. Nick Wignall's perspective suggests that the extent of our desire is proportional to the sacrifices we are willing to make. Therefore, it becomes crucial to honestly assess the trade-offs required to achieve our goals and determine our commitment to them.

Conclusion:

As the DeFi ecosystem continues to evolve, governance mechanisms play a pivotal role in shaping the trajectory of blockchain projects. The combination of signal voting, admin multisig, and on-chain decision-making has emerged as a robust framework for decentralized governance. To ensure effective governance, it is crucial to strike a balance between cost-effectiveness, security, and decentralization. By understanding the evolution of governance, we can make more informed decisions and actively contribute to the growth and success of the DeFi space.

Actionable Advice:

1. Understand the trade-offs: Before actively participating in governance, take the time to analyze the trade-offs associated with different decision-making mechanisms. This will help align your goals with the most suitable governance framework.

2. Engage in on-chain voting: Whenever possible, participate in on-chain voting to contribute to the decentralization and security of the ecosystem. By doing so, you play an active role in shaping the future of blockchain projects.

3. Embrace the idea-to-proposal lifecycle: Explore governance platforms that incorporate both signal voting and on-chain decision-making. This approach allows for the seamless generation of ideas and the execution of proposals while maintaining security and decentralization.