It’s Time to Walk-the-Talk on Decentralized Governance

This post is part of CoinDesk’s 2019 Year in Review, a collection of 100 op-eds, interviews and takes on the state of blockchain and the world. Jake Yocom-Piatt is the project lead for Decred, an “autonomous digital currency.”

In 2019, governance proved essential to moving decentralized communities forward. Open, accountable decision-making (encapsulated by voting and transparency) avoids some of the mistakes of the ICO run-up when governance was more buzzword than a creed startups lived by.

The words “governance, voting, transparency” are still bandied around loosely at conferences, minimizing their absolute importance to the sustainability of the blockchain industry. 

Still, a renewed focus on these topics in 2019 has been positive and healthy for the industry, even though there is a ways to go next year as we work on how we talk about governance and how to implement it. In 2019, there were notable governance successes and notable governance failures. 

Cryptocurrencies and blockchain technology stem from computer scientists deciding that math and code, instead of rules made by a centralized authority such as bankers or governments, should be the new basis for sending and receiving money. 

Over the past year, more crypto projects have rejected the notion of one centralized leader or CEO calling all the shots and absconding to a secret boardroom to push forward initiatives without consulting the stakeholders involved. 

The time has come, they say, to move past the backroom wheeling and dealing – a hegemon calling all the shots, or a corrupt small group protecting special interests. DevCon, the ethereum conference in October, proved that crypto people (entrepreneurs, coders, users) want equal governance as an active goal of crypto projects. Cryptocurrency users are looking for projects that give them a direct say. 

There are big successes this year. MolochDAO proved that direct developer funding is possible. StakerDAO emerged as a new DAO for investing in existing PoS blockchains. Decred marked one year of Politeia — its off-chain blockchain-anchored proposal that allows stakeholders to vote on development and treasury decisions. 

The crypto governance experiment entered its fifth year in 2019, with notable projects making long-term commitments to governance including Dash, AragonOne, and Tezos. 

But even these established projects with significant governance infrastructure have yet to fully evolve into a truly autonomously governed entity known as a Decentralized Autonomous Organization. 

Paying lip-service to governance, without actually including community members in decisions, simply won’t cut it in the long-term.

Some live the spirit of distributed and transparent governance more faithfully than others. Some groups present themselves as DAOs and don’t follow through on the all the principles. 

Paying lip-service to governance, without actually including community members in decisions, simply won’t cut it in the long-term. Projects pretending to be DAOs will eventually lose their users and developers, splintering into the ether as bag-holders cash out.

At the same time we had all these governance initiatives, 2019 was the year of one of the biggest governance failures in history, with $4 billion dollar blockchain EOS degenerating into a special-interests controlled oligarchy of block producers voting themselves into power for short-term profiteering.

The lesson that this mixed governance bag teaches us is that constitutions, no matter how elegantly laid out, fail if participation incentives don’t align to support the stakeholders involved. For the majority of projects with governance features, the incentives alignment nut was not fully cracked in 2019. 

2020 is the year projects built for the long-term will rise up from the fold. Since starting Decred in early-2016, we’ve learned sustainable funding and carefully aligned incentives for participation are essential to functional governance.

Governance that lasts is a long-haul play, and it’s much easier to start with good incentives than to change them, or add to them later. When special interests play the short-term game, they decide what’s best for them without regard to token holders, and this erodes not only trust but also valuation in the end.

In 2020, governance must evolve into active forums for decision-making with robust voting participation to include community members. 

Real governance requires leadership passing the reins to the community, and leadership actively giving up the reins. Truly decentralized governance needs to take input from all stakeholders involved, which requires strong personalities to share the podium. For that reason, one of Decred’s goals in 2020 is to continue engineering away my authority to remove the possibility of a single point of failure, and it should be a goal of other decentralized projects as well. 

A discussion forum alone isn’t enough – stakeholders also need an open system for proposing and voting on decisions. Incentives need to be structured around “skin in the game,” so any person involved in the decision-making process acts with what they think is best for the long-term direction of the project in mind, not just oracles or experts. Direct say in how funds are spent, what upgrades are key, and how to carry this out, should come from all parts of the community. When token-holders have a direct say and a cost to their decisions, they’re incentivized to participate and contribute.

Crypto governance is about to take a spin towards direct sovereignty, where a variety of participants can join in. Unfortunately, staking minimums are often too high to encourage all-comers to participate. In 2020, more projects will need to tackle this by lowering the barriers to entry if they want to walk-the-talk and provide everyone with a voice in the process.

Next year, as more and more people seek ideas driven by the collective intelligence of the community, we’ll see more DAOs established and more attempts. With the right governance, cryptocurrencies can become digitally sovereign states, replacing both traditional governments and banks in the transfer of value. Decentralized governance holds the promise of direct stakeholder sovereignty in a more fair, private, and free financial system, and it’s about to heat up in 2020.