Stepping back, the question naturally arises: why is there such a large delta within on-chain voting?
To start, not all proposals are created equal: without picking on 0x, ZEIP-23 may not be as important to 0x as the stability fee is for Maker to support Dai’s peg at $1). Below are general thoughts on a few high level barriers to voter participation.
On-chain governance’s underlying assumption is that because token holders and “owners” of a protocol are one and the same, they are economically incentivized to vote in the protocol’s best interest. If tokenholders vote for a proposal that has a negative effect on the protocol, the token’s price will reflect that decision and they will lose money.
While voters are theoretically incentivized to govern given their passive ownership in the underlying network, they may need more “skin in the game” to actively participate. Otherwise voters will remain apathetic if the issue at hand is of a low degree of importance, as shown in practice.
I believe we’ll continue to see future on-chain voting implementations be strongly coupled with direct financial incentives.
Community leaders can help address this with market education (i.e. Jacob Arluck’s piece outlining Tezos Athens) but the average hodler just may not be willing to devote significant time researching the nuances and implications of a specific proposal.
Governance Voting Dashboard via vote.makerdao.com
To play devil’s advocate, Maker may only want more sophisticated investors to participate and requiring a cold wallet may be a natural filter.
However, the broader point still stands that meaningful improvements are needed to reduce voter friction in order for crypto to go mainstream. This rings true not just for voting, but for decentralized applications in general.
I expect other custodians will follow in Coinbase’s foot steps, which could lead to another potential point of centralization if a majority of voting takes place via 3rd party custodians.
Unfortunately in today’s retail-driven market with little actual utility and functionality, tokenholders are mostly investors and speculators. It’s important to have all stakeholder views represented in decentralized networks, especially users.
While the lack of stakeholder diversity is ultimately a byproduct of the ICO bubble, technological improvements will eventually lead to greater utility and a more balanced & diverse group of stakeholders.
While insignificant today, there are still opportunity costs when locking up tokens as the voter forgoes the ability to sell, or in the near future, earn interest from lending as #DeFi infrastructure continues to mature. Purely speculation, but if many token holders are opportunistic investors as previously hypothesized, then these speculators may value this liquidity significantly more than the future value of the protocol. Tourists vs. Citizens.
However, as we look to future on-chain governance implementations in the next section, these same opportunity costs can be leveraged to incentive behavior in unique on-chain governance designs.
This is Part Two of a Three part series. To read Part One, an intro to Decentralized Voting, click here. For Part Three on Blockchain Voting Governance Design, check back this week.
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All material presented in this article represents the research analysis and opinions of the author. Nothing in this article should be construed as investment advice.
