- Vitalik believes that the existing voting mechanism is flawed. It may prevent the decentralized financial sector (DeFi) from reaching its full potential.
- Buterin pointed out the prevalence of “unbundling”. Through that “vote-buying” can be achieved.
- He suggested that quadratic voting can provide a unique decentralized governance solution. n that, the power of voters is proportional to the square root of the economic resources they invest in the solution.
Vitalik Buterin, the co-founder of Ethereum, has thoroughly studied token-based decentralized governance. He believes that the existing voting mechanism is flawed. It may prevent the decentralized financial sector (DeFi) from reaching its full potential. On Monday, an in-depth blog post was published. In that, Vitalik said that the cryptocurrency community has to “move beyond coin voting as it exists in its present form”.
At present, most of the DeFi projects deal with protocol upgrades, reward issuance, and other aspects of management elections. There, the votes are allocated to token holders based on how many tokens they hold. But, a lot of these projects have been criticized for being dominated by whales in the voting process. They possess a large number of government tokens thus allowing them to vote for their personal interests.
Vitalik Buterin further emphasized two issues related to token-based governance. He focused on the risk of inconsistent incentives among community members and their vulnerability to “vote-buying” and “outright attacks” that affect governance voting results. He said:
“The most important thing that can be done today is moving away from the idea that coin voting is the only legitimate form of governance decentralization.”
A Brief On Vitalik Buterin’s Ideas
Buterin pointed out the prevalence of “unbundling”. Through that “vote-buying” can be achieved. Also, all the governance systems can be manipulated just by borrowing on the crypto collaterals and using the tokenized assets to vote. While talking about unbundling, he said, “the borrower has governance power without economic interest, and the lender has an economic interest without governance power”.
Buterin’s ideas are not limited to just token-based governance, but they also advocate research on “Proof-of-Humanity” based governance systems. There, every protocol user has a say. Buterin also proposes “Proof-of-Participation” as a considerable solution. In this solution, voting is limited to protocol users. These are the users who are working for the benefit of the project and its community. Besides, he assumes that voting rights can only be allocated to the delegated addresses that complete a given task.
Vitalik also suggested that quadratic voting can provide a unique decentralized governance solution. In that, the power of voters is proportional to the square root of the economic resources they invest in the solution. Moreover, Buterin also suggests a “skin in the game” approach. This approach makes the voters fully responsible for their decisions. He stated:
“Coin voting fails because while voters are collectively accountable for their decisions (if everyone votes for a terrible decision, everyone’s coins drop to zero), each voter is not individually accountable.”
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