Governance is an extremely hot topic in Ethereum lately as many DeFi protocols are experimenting with various forms of on-chain governance in order to “decentralize” the stewarding of the protocols. These experiments are interesting to watch play out in real time (especially all of the drama) and one topic that I wanted to focus on today was the notion of “meta-governance” or, in other words, protocols governing protocols.
The Index Coop (the organisation that governs the DeFi Pulse Index) currently has a proposal active to add a meta-governance module to the DeFi Pulse Index that would allow it to use its underlying component tokens (AAVE, UNI and COMP) to participate in their respective protocols governance. This would enable Index Coop community members and INDEX token holders to have a material say in the critical governance proposals of these protocols. This voting power wouldn’t be negligible either - the DeFi Pulse Index is already a top holder of AAVE (owning around ~0.3% of the total supply) and due to this, the Index Coop community could potentially become a big player within Aave’s governance process.
I personally think that this is the future of decentralized/on-chain governance because we’ve been seeing the perils of on-chain governance a lot lately (the biggest one being voter apathy which leads to plutocratic outcomes). This is simply because most people who hold “governance tokens” don’t actually care to nor are they motivated to keep up to date with governance proposals or vote on them. On the other hand, adjacent protocols that utilize these tokens (such as the example I outlined above) have an incentive to keep up with the governance of these other protocols in order to protect their own interests.
Synthetix is an example of a project trying to push the boundaries when it comes to governance and they recently announced a new ‘Spartan Council’ that very much looks like a typical board of directors. Basically, if this change is accepted by the community, a form of delegated governance would be introduced for Synthetix that allows SNX token holders to elect seven “council members” which elections happening every three months. There are a bunch of other mechanisms and conditions that are included in this new proposal so I recommend checking out the full post here.
While I believe that the Ethereum network itself opens up amazing new ways for humans to coordinate there is no denying that decentralized governance is really hard and there is no “perfect” solution. It’s mostly an iterative process that involves many different actors trying to come to consensus on what works best for each protocol.
Have a great weekend everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.