Hey all, I’m sure you agree that this past week has been incredibly exciting. It was particularly exciting for me, not just because of all the YFI (pronounced waifu) I farmed, but also because of the creation of the community governance system. I’ve been researching and building decentralized governance systems since late 2017 when I started building betoken.fund, a crypto hedge fund dApp 100% owned, governed, and managed by a decentralized & meritocratic community. I’ve always thought it’s a no-brainer to govern DeFi protocols through DAOs, so I’m stoked that it’s finally becoming mainstream.
However, it’s far less exciting for me to see yearn use a naive token-weighted voting system, as it is seriously flawed. I’ve written an extensive critique of it: Why Voting Tokens Are F**king Horrible, And 4 Ways to Fix Them, which is pretty long so here’s the TL;DR:
- Token-based governance systems assume that the price of the token is strongly correlated with the success of the underlying protocol, which is just not true, due to market manipulation, complexity of the protocol, and the possibility to short-sell the governance token.
- Flat organizations (which the yearn governance system currently is) are bad, because not having a formally defined power structure would only lead to the tyranny of structurelessness, where informal power structures form spontaneously from preexisting social relations between members, producing leaders whose power cannot be stripped and preventing talented people without “good friends” from obtaining power.
- If this sounds far-fetched, just keep in mind what happened to the French revolution and the Russian revolution.
To make yearn a protocol that can last for decades (if not centuries), we’re in a unique position to thoughtfully design a governance system that does not explode in our faces. In my opinion, what we need to do is:
- Formalize the governance process. It’s one of the first things that needs to happen, and I’m glad to see it’s already spontaneously happening with YIPs and RFCs, but there’s still a long way to go. For instance, there’s no protocol for debating a YIP, or for what a YIP needs to contain.
- Proposals like voteLock are going in the right direction IMO
- Establish an executive council. We need clear designations of power & responsibilities, and having a council of people working for yearn full time is a good idea. For instance, who should be in charge of the yearn Twitter account? Who should be the forum mods? Who should filter out malicious proposals? Who should have the right to manage the GitHub repos? We need to be able to answer questions like this unequivocally, and having an elected executive council is IMO the best way to do it.
- Share fees/YFI with the council/the dev team/people analyzing proposals. To have a healthy ecosystem, we need to establish clear internal incentives for people to contribute to the protocol in areas we value. We should reward the dev team, reward those who provide valuable analysis of the pros and cons of proposals, and reward those who help the governance system running smoothly. Giving YFI rewards seem to make the most sense, since it will be imbued with governance power once YIP 10 passes. YIP 14 seems to be going in the right direction, but I think it makes more sense to reward contributors with not just money, but also governance power.
Would love some feedback & more ideas! There’s a lot of work to be done to build ourselves a solid governance system.