Governance In Cryptocurrency, Snapshot In Covalent.

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 process by which stakeholders (those who are affected by and can affect the network) exercise bargaining powers 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 need for bootstrapping networks. We propose that on-chain governance models can only be partially utilized because of the existence of implicit contracts that embed expectations of return among diverse stakeholders.

Governance disputes surrounding blockchain protocols have extended beyond Bitcoin (including, for instance, the DAO hack on Ethereum) and have raised important questions on how blockchains should be governed. It is common to distinguish between “on-chain” or “off-chain” governance. On-chain governance describes the project of explicitly building governance arrangements within the protocol itself, such as the implementations of EOS, Tezos, and Dash that allow certain categories of stakeholders to vote on modification proposals. Off-chain governance typically describes governance structures external to the protocol, particularly the role and management of foundations or firms funded by token sales or other token distributions (for example, Zcash’s Electric Coin Company and Zcash Foundation), or community meeting places such as Reddit, Telegram, Slack, dedicated forums, and Twitter.

What Is a Governance Token?

Governance tokens are tokens that developers create to allow token holders to help shape the future of a protocol. Governance token holders can influence decisions concerning the project such as proposing or deciding on new feature proposals and even changing the governance system itself.

In many cases, the changes proposed, vetted, and then voted on through on-chain governance accessed by using governance tokens are applied automatically due to smart contracts. In other cases, the team maintaining the project is tasked with applying the changes or hiring someone who will.

Proponents of systems that use governance tokens believe that they allow for user control, which holds true to the original cryptocurrency ideals of decentralization and democratization. In most cases, organizations that let users control the development of their systems are called decentralized autonomous organizations (DAOs).

What Is On-Chain Governance?

On-chain governance is a system for managing and implementing changes to cryptocurrency blockchains. In this type of governance, rules for instituting changes are encoded into the blockchain protocol. Developers propose changes through code updates and each node votes on whether to accept or reject the proposed change.

  • On-chain governance is a system for managing and implementing changes to cryptocurrency blockchains.
  • On-chain governance includes rules for instituting changes that are encoded into the blockchain protocol.
  • Developers propose changes through code updates and each node or participant votes on whether to accept or reject the proposed change.

What Is Off-Chain Governance?

Off-chain governance is different from ‘on-chain governance,’ in that, you guessed it, decision-making happens informally — away from the blockchain’s underlying codebase. A network’s stakeholders vie for its control by coordinating through a number of different avenues including community forums, social media sites, and the project’s official communication channels.

Off-chain governance looks and behaves a lot similar to politics in the existing world. Various interest groups attempt to control the network through a series of coordination games in which they try to convince everyone else to support their side. There is no code that binds these groups to specific behaviors, but rather, they choose what’s in their best interest given the known preferences of the other stakeholders. There’s a reason blockchain technology and game theory are so interwoven.

Snapshot, Off-Chain Governance.

Snapshot is a “governance-as-a-service” provider for a number of decentralized finance projects, including Yearn.finance, SushiSwap, Balancer, Aave, Cream, and others. It provides a simple interface to create governance proposals and lets users vote on them by connecting their wallets and the governance tokens contained within. The actual voting process is conducted off-chain, however, to save on gas costs and complexity.

Snapshot proposals are not binding. Team members and multi-signature key holders for the projects are expected to execute the proposals, but the process relies entirely on their goodwill. SafeSnap changes that by introducing the option of automatically executing transactions that would enable the proposal once the governance vote passes.

So, I believe this governance tool, Snapshot, it’s going to aid in making difficult decisions and I believe the community will be more than ready to participate in it.

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