On-chain Governance Research Articles

FUTURE OF BLOCKCHAIN GOVERNANCE: EXPLORING DECENTRALIZED DEMOCRACY

Blockchain technology presents a paradigm shift in governance, offering decentralized frameworks that challenge traditional centralized systems. This paper delves into the concept of decentralized democracy within blockchain governance and its implications for the future. The paper outlines the foundational principles of blockchain, highlighting its ability to facilitate transparent, trustless transactions through distributed consensus mechanisms. The paper then examines various governance models, from centralized to decentralized approaches such as on-chain governance and decentralized autonomous organizations (DAOs), assessing their strengths and weaknesses. Moreover, the research explores the concept of decentralized democracy, elucidating how blockchain enables transparent, auditable voting systems for direct stakeholder participation in decision-making.

Agent-Based Model of Initial Token Allocations: Simulating Distributions post Fair Launch

With advancements in distributed ledger technologies and smart contracts, tokenized voting rights gained prominence within decentralized finance (DeFi). Voting rights tokens (a.k.a. governance tokens) are fungible tokens that grant individual holders the right to vote upon the fate of a project. The motivation behind these tokens is to achieve decentral control within a decentralized autonomous organization (DAO). Because the initial allocations of these tokens is often undemocratic, the DeFi project and DAO of Yearn Finance experimented with a fair launch allocation where no tokens are pre-mined and all participants have an equal opportunity to receive them. Regardless, research on voting rights tokens highlights the formation of timocracies over time. The consideration is that the tokens’ tradability is the cause of concentration. To examine this proposition, this article uses an agent-based model to simulate and analyze the concentration of voting rights tokens post three fair launch allocation scenarios under different trading modalities. The results show that regardless of the allocation, concentration persistently occurs. It confirms the consideration that the ‘disease’ is endogenous: the cause of concentration is the tokens’ tradability. The findings inform theoretical understandings and practical implications for on-chain governance mediated by tokens.

The Dynamics of Governing Enterprise Blockchain Ecosystems

The aim of this paper is to analyze how the governance of an enterprise blockchain ecosystem changes as it matures and increases in size. A review of the literature serves to identify five behavioral drivers of governance, which appear to affect the long-term viability of a blockchain ecosystem: access rights, decision rights, incentives, accountability, and conflict resolution. We subsequently report the findings from a comparative case study of how three large blockchain ecosystems implemented various governance mechanisms to exploit and modify the five behavioral drivers over time. Based on twenty-six interviews and approximately 200 h of participant observations, we propose an analytical framework that consists of three distinctive stages in the life cycle of a blockchain ecosystem. Each stage is characterized by an intricate relationship between off-chain and on-chain governance mechanisms. Based on these findings, various recommendations are provided to increase the long-term viability of blockchain ecosystems.

Towards a systematic understanding of blockchain governance in proposal voting: A dash case study

The transparent and immutable nature of blockchain provides incentives for organizations wishing to create and implement an open, decentralized governance structure. As members exercise their voting rights, a fault-tolerant record accumulates on the blockchain that can be analyzed to diagnose and intercept potential threats to the governing body. To date, there has not been a systematic study of on-chain governance with respect to voting. In this paper, we provide an analysis of blockchain governance through a case study of the first cryptocurrency to adopt on-chain voting, Dash. Our analysis introduces the key characteristics of blockchain governance, steps through a data-driven exploration of Dash's on-chain voting system, and highlights exploitable attack vectors and vulnerabilities for the subversion of Dash's on-chain voting system via a novel network analysis methodology. We then conclude with guidelines for other organizations looking to implement similar blockchain governance solutions while maintaining integrity in their operations.

An On-Chain Governance Model Based on Particle Swarm Optimization for Reducing Blockchain Forks

There is a significant drawback associated with blockchain networks in terms of their processing speed, which is one of the biggest. Due to the fact that sharding has the capability of solving this problem, the scalability of the network can be increased. One of the significant challenges in this study was determining how sharding would affect the probability of forks arising as a consequence of sharding. Towards this end, we have performed a number of experiments on the network EIP-1559 using 120 nodes in order to achieve this objective. During our analysis, we were able to determine that the number of orphan blocks on average decreases by 60% as a result of adding a shard to the system. The new on-chain governance model has also been implemented that utilizes Particle Swarm Optimization(PSO) in order to ensure that forks between different shards are reduced, as well as the probability of them occurring. The results obtained from our study give us the confidence that the proposed on-chain governance model reduces the risks associated with forking and maintains a positive user experience as a result of the results obtained.

Beyond Bitcoin: Recent Trends and Perspectives in Distributed Ledger Technology

In the last four years, the evolution and adoption of blockchain and, more generally, distributed ledger systems have shown the affirmation of many concepts and models with significant differences in system governance and suitable applications. This work aims to analyze distributed ledger technology (DLT) critically. Starting from the topical idea of decentralization, we introduce concepts and building blocks currently adopted in the available systems centering on their functional aspects and impact on possible applications. We present some conceptual framing tools helpful in the application context: a DLT reference architecture, off-chain and on-chain governance models, and classification of consensus protocols. Finally, we introduce the concept of process authenticity, reviewing tools and strategies for integrating DLT with the physical world and proposing a constructive scheme for the authentication of a physical resource through alphanumeric data.

A novel framework for policy based on-chain governance of blockchain networks

Although blockchains are systems that are intended to survive on their own, they still may need human intervention like other Parallel and Distributed Computing (PDC) architectures. The reasons for this intervention are twofold: management of blockchain nodes and governance of blockchain. The second focuses on sustaining blockchain unlike the first one concerning with operation of individual nodes. Proposed blockchain governance models so far include cumbersome processes in which deciding and deployment of changes rely on the involvement of multiple actors. They have been criticized from various aspects such as reducing the decentralized nature of blockchain. In this paper, we propose a novel on-chain governance model exploiting both policy-based management and decentralized identity technologies. Since it allows controlling the behavior of the system via higher level expressions that are easy to understand, the policy based management concept will fit in well with blockchain ecosystems having stakeholders from different knowledge levels. This model is not only more effective regarding existing off-chain governance models but also is simpler and more user friendly than other on-chain governance models. Besides, the emerging decentralized identity concept has the potential for solving many problems related to decision-making process of blockchain governance. By employing this concept, our approach fortifies decentralization, security and fairness while providing well-directed governance. The smart contract based modular design of our framework opens the door for adoption of its components by other governance models as well.

Bitcoin Governance as a Decentralized Financial Market Infrastructure

Bitcoin is the oldest and most widely established cryptocurrency network with the highest market capitalization among all cryptocurrencies. Although bitcoin (with lowercase b) is increasingly viewed as a digital asset belonging to a new asset class, the Bitcoin network (with uppercase B) is a decentralized financial market infrastructure (dFMI) that clears and settles transactions in its native asset without relying on the conventional financial market infrastructures (FMIs). To be a reliable asset class as well as a dFMI, however, Bitcoin needs to have robust governance arrangements; whether such arrangements are built into the protocol (i.e., on-chain governance mechanisms) or relegated to the participants in the Bitcoin network (i.e., off-chain governance mechanisms), or are composed of a combination of both mechanisms (i.e., a hybrid form of governance). This paper studies Bitcoin governance with a focus on its alleged shortcomings. In so doing, after defining Bitcoin governance and its objectives, the paper puts forward an idiosyncratic governance model whose main objective is to preserve and maximize the main value proposition of Bitcoin, i.e., its censorship-resistant property, which allows participants to transact in an environment with minimum social trust. Therefore, Bitcoin governance, including the processes through which Bitcoin governance crises have been resolved and the standards against which the Bitcoin Improvement Proposals (BIPs) are examined, should be analyzed in light of the prevailing narrative of Bitcoin as a censorship-resistant store of value and payment infrastructure. Within such a special governance model, this paper seeks to identify the potential shortcomings in Bitcoin governance by reference to the major governance crises that posed serious threats to Bitcoin in the last decade. It concludes that the existing governance arrangements in the Bitcoin network have been largely successful in dealing with Bitcoin’s major crises that would have otherwise become existential threats to the Bitcoin network.

Blockchain Governance: What We Can Learn from the Economics of Corporate Governance

Understanding the complexities of blockchain governance is urgent. The aim of this paper is to draw on other theories of governance to provide insight into the design of blockchain governance mechanisms. We define blockchain governance as the processes by which stakeholders (those who are affected by and can affect the network) exercise bargaining power over the network. Major considerations include the definition of stakeholders, how the consensus mechanism distributes endogenous bargaining power between those stakeholders, the interaction of exogenous governance mechanisms and institutional frameworks, and the needs for bootstrapping networks. We propose that on-chain governance models can only be partial because of the existence of implicit contracts that embed expectations of return among diverse stakeholders.

Blockchain Governance: What We Can Learn From the Economics of Corporate Governance

Understanding the complexities of blockchain governance is urgent. The aim of this paper is to draw on other theories of governance to provide insight into the design of blockchain governance mechanisms. We define blockchain governance as the processes by which stakeholders (those who are affected by and can affect the network) exercise bargaining power over the network. Major considerations include the definition of stakeholders, how the consensus mechanism distributes endogenous bargaining power between those stakeholders, the interaction of exogenous governance mechanisms and institutional frameworks, and the needs for bootstrapping networks. We propose that on-chain governance models can only be partial because of the existence of implicit contracts that embed expectations of return among diverse stakeholders.

Token Weighted Crowdsourcing

Blockchain-based platforms often rely on token-weighted voting (“ τ -weighting”) to efficiently crowdsource information from their users for a wide range of applications, including content curation, and on-chain governance. We examine the effectiveness of such decentralized platforms at harnessing the “wisdom” and “effort” of the crowd. We find that τ -weighting generally discourages truthful voting, and erodes the platform’s predictive power unless users are “strategic enough” to unravel the underlying aggregation mechanism. Platform accuracy decreases with the number of truthful users and the dispersion in their token holdings, and in many cases, platforms would be better off with an unweighted “1/n” mechanism. When, prior to voting, strategic users can exert effort to endogenously improve their signals, users with more tokens generally exert more effort — a feature often touted in marketing materials as a core advantage of τ-weighting — however, this feature is not attributable to the mechanism itself, and more importantly, the ensuing equilibrium fails to achieve the first-best accuracy of a centralized platform. The optimality gap decreases as the distribution of tokens across users approaches a theoretical optimum, that we derive, but, tends to increase with the dispersion in users’ token holdings. Keywords: blockchain, crowdsourcing, cryptocurrency, information aggregation, on-chain governance, strategic voting, tokenomics, token-curated registries (TCR).

Towards a Systematic Understanding of Blockchain Governance in Proposal Voting: A Dash Case Study

The transparent and immutable nature of the blockchain provides incentives for organizations wishing to create and implement an open, decentralized governance structure. As members exercise their voting rights, a fault tolerant record accumulates on the blockchain that can be analyzed to diagnose and intercept potential threats to the governing body. To date, there has not been a systematic study of on-chain governance with respect to voting. In this paper, we provide an analysis of blockchain governance through a case study of the first cryptocurrency to adopt on-chain voting, Dash. Our analysis introduces the key characteristics of blockchain governance, steps through a data-driven exploration of Dash's on-chain voting system enabled only by the transparent nature of the blockchain and highlights exploitable attack vectors and vulnerabilities for the subversion of Dash's on-chain voting system via a novel network analysis methodology before concluding with guidelines for other organizations looking to implement similar blockchain governance solutions while maintaining integrity in their operations.

Now the Code Runs Itself: On-Chain and Off-Chain Governance of Blockchain Technologies

The invention of Bitcoin in 2008 as a new type of electronic cash has arguably been one of the most radical financial innovations in the last decade. Recently, developer communities of blockchain technologies have started to turn their attention towards the issue of governance. The features of blockchain governance raise questions as to tensions that might arise between a strictly “on-chain” governance system and possible applications of “off-chain” governance. In this paper, we approach these questions by reflecting on a long-running debate in legal philosophy regarding the construction of a positivist legal order. First, we argue that on-chain governance shows striking similarities with Kelsen’s notion of a positivist legal order, characterised by Schmitt as the machine that runs itself. Second, we illustrate some of the problems that emerged from the application of on-chain governance, with particular reference to a calamity in a blockchain-based system called the DAO. Third, we reflect on Schmitt’s argument that the coalescence of private interests is a vulnerability of positivist legal systems, and accordingly posit this as an inherent vulnerability of on-chain governance of existing blockchain-based systems.

Token-Weighted Crowdsourcing

Blockchain-based platforms often rely on token-weighted voting (“τ-weighting”) to efficiently crowdsource information from their users for a wide range of applications, including content curation and on-chain governance. We examine the effectiveness of such decentralized platforms for harnessing the wisdom and effort of the crowd. We find that τ-weighting generally discourages truthful voting and erodes the platform’s predictive power unless users are “strategic enough” to unravel the underlying aggregation mechanism. Platform accuracy decreases with the number of truthful users and the dispersion in their token holdings, and in many cases, platforms would be better off with a “flat” 1/n mechanism. When, prior to voting, strategic users can exert effort to endogenously improve their signals, users with more tokens generally exert more effort—a feature often touted in marketing materials as a core advantage of τ-weighting—however, this feature is not attributable to the mechanism itself, and more importantly, the ensuing equilibrium fails to achieve the first-best accuracy of a centralized platform. The optimality gap decreases as the distribution of tokens across users approaches a theoretical optimum, which we derive, but tends to increase with the dispersion in users’ token holdings. This paper was accepted by Gabriel Weintraub, revenue management and market analytics.

On-Chain Governance of Decentralized Autonomous Organizations: Blockchain Organization Using Semada

This paper initiates an analysis of the consequences of different options in the choice of regulatory protocols and reward structures when founding distributed autonomous organizations (DAOs) on a blockchain. The Semada Team invites all interested parties to participate in and contribute to this joint vision herein and related research projects. With the proper incentives, independent and selfish actors can be organized to collaborate productively toward a common goal. The objective is to identify the ideal protocols that should be chosen for promoting the values and goals of any particular DAO. On-chain governance gives DAOs the opportunity to achieve complete decentralization, anonymity, and autonomy. The first incentive structure that encourages healthy collaboration is a focus on long-term reputation instead of instantly fungible currency rewards. When the focus is on reputation instead of more fungible rewards, damaging arbitrage is demotivated. The Semada platform is a fully decentralized and autonomous blockchain distributed application (DApp) which vests users with verified reputation. Semada is designed to be secure against all known attacks on digital reputation, including Sybil attacks and tyranny of the majority. The next major concern for creating a healthy DAO is a governance model that rewards value enhancing contributions from DAO members, deters bad actors, and evolves over time as circumstances change. No single, static protocol for running a DAO can be complicated enough to properly reflect the will of its members, while remaining immune to gaming by naturally selfish parties. Yet, DAO governance requires a clear system for reaching consensus on new protocols for DAO member behavior. We propose a clear procedure for achieving on-chain regulatory and legislative governance. Semada is designed as an evolutionary platform which rewards continual development of new governance protocols to anticipate and react to inevitable internal and external attacks. Unlike centralized platforms with reputational elements, the decentralized Semada platform gives users complete power to improve the platform and police any diminishments. Semada incentivices value-enhancing contributions and legitimate policing by sharing the totality of all profits amongst its users.

Semadaas Proof of Stake Protocol

The Secure Proof of Stake protocol (SPoS) uses a reputation-verification platform to solve the centralization, efficiency, and security problems that afflict existing blockchain consensus protocols. At heart, a secure proof of stake protocol follows naturally from a secure decentralized autonomous system for validating the reputation of anonymous users. SPoS has several advantageous features over previous PoS protocols. SPoS enables on-chain governance to decide issues such as standards for block creation, policing, and scaling. All protocol upgrades are handled swiftly, decisively, openly, and stably, through the weighted democracy of reputation-staked decision making. Because nodes no longer hash mine but rather check the validity of blocks and vote, SPoS is more efficient than proof-of-work consensus. This paper explains the SPoS protocol and how it maintains decentralization, efficiency, liveness, swift finality, and anonymity, while addressing the security issues of Byzantine faults, the various 51% attacks, stake grinding, the tragedy of the commons, DoS attacks, censorship, liveness faults, Sybil attacks, tyranny of the majority, and soft protocol upgrades.