Comprehensive analysis of MakerDAO governance system: take 2% governance events as an example

MakerDAO governance: a study on the GAF framework of Maker governance
Article: cao Yin, managing director of the digital Renaissance foundation

There have been many studies on the application of DeFi, but there has been little discussion on DeFi's governance. Perhaps because DeFi is still in the outbreak stage of rapid development, the importance of governance has not been revealed. As a result, DeFi developers and researchers are more focused on making the pie bigger than they have time to figure out how to divide it.

However, the importance of governance to DeFi cannot be overemphasized. A scientific governance model is not only a firewall for DeFi projects to meet internal and external challenges, but also a moat for competition between DeFi projects. A key reason why MakerDAO can be the most important cornerstone of the DeFi ecosystem is its scientific governance system.

This study will apply the GAF (Governance Analytic Framework) Framework, an emerging political science research method in the past two years, start with a Governance challenge of MakerDAO, analyze Maker's Governance system in a panoramic manner, and summarize Governance Suggestions that are helpful to other DeFi projects.

GAF framework

In the traditional study of political science, governance has always been an important focus of attention. In order to deal with collective problems, organizations need decision-making methods with collective participation. In the decision-making process, stakeholders interact with each other, resulting in the emergence of norms, rules and institutions, which is the origin of governance. Every organization needs institutions for decision-making and conflict resolution, and that is what governance is all about.

Governance is not limited to time and space, and can even be neither mandatory nor prescriptive. Governance is also ubiquitous in informal organizations and open organizations. Governance is not so much a system as a spontaneous phenomenon, which can be observed in any human organization. This is especially true for open decentralized organizations and business ecosystems based on blockchain, which do not require vertical authority and regulatory authority.

The extension of DeFi governance research should include all governance processes, including not only written formal governance norms, but also informal community governance. Even a single DeFi governance should be placed in a larger open financial system for overall governance research.

In order to conduct scientific research and comparison on DeFi's Governance, this paper will adopt the Governance Analytic Framework GAF (Governance Analytic Framework), which has just emerged in political science research in recent years, to conduct a panoramic analysis of MakerDAO based on real challenges.

GAF framework is composed of five close contact analysis module: question (Problem), Social Norms, Social Norms), participants (Actors), interactive node (Nodal Points) and Process (Process).

· "problems" are a set of interrelated governance challenges.

,"Participants" refer to specific individuals or groups, such as MKR holders, Maker teams, etc., who can create or influence social norms through collective actions to guide, regulate and sanction the actions of other individuals or groups.

,"Social norms" are formal or informal contracts between participants and mechanisms for joint decision-making. Social norms can be loosely defined as Shared beliefs about what is appropriate behavior in a particular organization, such as the five Core Foundation Principles of MakerDAO.Social norms are not immutable within organizations and can be modified through collective interactions within organizations. Note that in DeFi project, many social norms are not officially, but from the default, greater, chain blocks, community culture, such as for centralized system alert, the participants were asked to must be responsible for their actions, this comes from the larger ecological values, currently in MakerDAO plays a more important influence.

,"Interaction nodes" are places where problems are discussed among participants, social norms are formulated, and governance behaviors occur. Note, interactive node can be a real club, also can be the event meeting, every interaction between participants, and involves the interests of the group to discuss places and situations can be called interactive node, which, of course including the DeFi programs online BBS, such as MakerDao Forum, Reddit channel, Chat groups, the Governance of online meetings on a regular basis.

,"Process" refers to the change of governance over time under the complex interaction of the parties involved.

From the perspective of the rule of law society under the governance of sovereign government, in the DeFi governance study, most of the participants, social norms and processes are informal and not recognized by the legislators and law enforcers with authority (in other words, DeFi is "illegal" and not within the scope of existing legal protection).

Maker GAF framework analysis background: "2%" events

On February 11, Maker of the Governance system has launched a regular Governance Poll survey (Governance) vote, the vote is held regularly every Tuesday to Dai Saving Rate (DSR) Spread Adjustment (DSR spreads) survey, the purpose is to research in the MKR holders to evaluate whether need to adjust the Stability of the Dai Fee (Stability Fee) and Dai savings interest Rate differentials between (DSR).

The survey gave voters six options: 0 percent, 0.25 percent, 0.5 percent, 1 percent, 2 percent and 4 percent. MKR holders vote for one option with MKR. If the result of the Vote is different from the existing interest rate spread, the Governance system will issue an Executive Vote, and the MKR holders will again Vote on whether to write a new contract from the previous Governance Poll into the Maker agreement to formally adjust the existing interest rate spread.

Since the launch of DSR in Maker in 2019, similar DSR adjustment and spread adjustment Governance Poll have been held regularly every week in Maker's Governance system, and there has been no notable controversy. But the spread adjustment vote on February 11th caused controversy in the community.

Shortly after the vote, when the spread between deposits and loans was 0.5 per cent, MKR orca voted heavily for the "2 per cent" option, about 30 per cent of the total, just a few percentage points short of the first option, 0.5 per cent. There was an immediate backlash in the community, with posts on the Maker forum asking who chose the 2% option and why, and calling on MKR holders who had not yet voted to vote for the other option rather than the 2% option.

Here, briefly explain why the 2 per cent spread caused a backlash within the community. Dai deposit rate (DSR) plays a very important role in MakerDAO's monetary policy management, maintaining Dai's anchor with the us dollar just like the stable rate. DSR can influence the behavior of Dai holders, thereby stabilizing Dai prices from the demand side of Dai. If the price of Dai falls below the $1 target price, the DSR should be increased to provide an incentive for users to buy and deposit Dai in the market and raise Dai prices. If Dai prices are above the $1 target, the Dai deposit rate should be lowered to slow Dai supply and bring Dai prices back to the dollar anchor.

As an important tool of monetary policy, the adjustment of DSR should follow the principle of continuity of monetary policy, otherwise, it will inevitably lead to the de-anchoring of Dai and dollar price. The 2 per cent option is four times the 0.5 per cent spread at the time, and a victory in the Governance Poll and Executive Vote would deal a major blow to Maker's anchor to the dollar, the cornerstone of monetary policy.

Perhaps because of pressure from the community, or for other reasons we don't know, the "2%" whale changed his original choice and chose 0.5% four hours before the end of the Governance Poll, avoiding community divisions and ending a monetary policy crisis.

From the perspective of the GAF analysis framework, this "2%" event is a good opportunity to gain an in-depth understanding of Maker governance.

Problem definition

The first step in studying governance using the GAF framework is to understand and clearly define the relevant issues, deconstruct and refactor the issues. In any social system, different actors may see things differently. Some people's problems may be an opportunity for others.

For the closely related and nested DeFi worlds, accepting this diversity of worldviews is a fundamental condition for studying DeFi governance. Now that DeFi is in its early stages, the current DeFi governance participants consider themselves pioneers with a strong sense of mission in their governance roles. So. Each participant tries to impose his or her own position on others. In some DeFi projects with the DAO as the governance body, setting the agenda has begun to become a Game of Throne. Different players are mobilizing their resources and trying to persuade others to accept their ideas in various situations. In some forum discussions, I even found that some DeFi governance participants even started to use symbolic violence against dissenters (e.g., "this is for the good of the project! You must be here to cause trouble").

Therefore, in the "2%" incident, after problems will surface phenomenon of deconstruction and reconstruction, the inner governance core contradictions have emerged: the Maker in the existing management system, represent different interests and the role of different governance participants in voice and governance rights (MKR holdings) under the condition of inequality, how to define and realize the maximum of collective interests? How do you set the agenda and agree on key issues?

Participant analysis

The actor analysis is central to the GAF analysis framework, and the first step is to identify which actors are involved in the governance process. We can't just analyze the role of MKR holders in Maker governance, we need to include all players who can influence Maker governance decisions, whether or not their influence is officially recognized by Maker, and whether or not they have an MKR to vote on.

MKR voters: 645

MKR voters participate in the Governance Poll and Executive Vote to change Maker protocols and Governance mechanisms. Active MKR voters actively influence other voters to ensure that the issue of their choice is voted on.

So far, the cumulative number of MKR voting addresses is 645, but the gini coefficient between the MKR holders who voted is as high as 0.98, meaning that the number of MKR holders is very different.

No voters holding MKR: number unknown

Although the Maker governance community is active, 87% of MKR actually does not participate in voting governance. There are many reasons why these MKR holders are not voting:

,The foundation holds MKR and does not vote on governance according to the governance rules

,MKR's short-term investors are not concerned about Maker's long-term development

,Lack of knowledge and ability to participate in MKR voting governance

,Governance is a neutral concept holder who believes that it is better not to govern than to govern

,Drifters, who have no personal standing, believe they can be represented by MKR voters who are actively involved in governing

These non-voting MKR holders are also participants in the Maker governance system because the success or failure of Maker governance directly affects the market price of MKR, so non-voting MKR holders are likely to vote in the future or express opinions in the community to influence the governance of Maker.

In addition, the Maker foundation has sold a significant portion of the foundation's non-voting MKR to strategic investors such as DragonFly, Paradigm, and A16Z, which will also become active participants in the governance of Maker. It is not ruled out that in the future the Maker foundation will release more non-voting MKR to participate in the governance in the same way.

Maker Foundation Interim Risk Team: about 3 people

Until Maker's risk management is thoroughly decentralized, the interim risk team within the Maker foundation is responsible for managing the various risks in the DAI system. Their task is to manage the mortgage portfolio and recommend appropriate monetary policy. At present, the monetary policy Governance Poll launched regularly every week is under the responsibility of the temporary risk team.

The Maker Governance and Community Team: about 3 people

Design Maker's Governance rules, convene weekly Governance calls, manage Maker forums, and other community platforms.

Maker forum participants: 185 active users

The Maker forum is an important forum for Maker governance, where participants can express their views regardless of whether they own MKR or not. As long as according to the Maker of the BBS Signal resolution process, any BBS participants can initiate Signal bill BBS to Vote and to Vote, to reach consensus within the BBS of Signal bill will be adopted by Maker temporary risk team, and in the Governance chain by Poll and Executive Vote, if all pass, will become a part of the Maker agreement relevant bill. ,

We can classify the above five types of participants according to the strength of the four dimensions, "+" stands for strong, "-" stands for weak, "!" Stands for incomparability

Note:

* : it is impossible to know the number of MKR holdings of Maker forum participants, but it is common sense that MKR whales who are actively involved in voting governance must be interested in registering for Maker forums, especially institutional strategic investors such as A16Z, Paradigm, and DragonFly who hold substantial MKR holdings.
** : assume that this section of MKR voters and forum participants do not repeat

Thus, in the Maker governance, even in the absence of mandatory law, the authority and institutional centralized phenomenon, but there are still not the Maker BBS participants and Maker related internal team can discuss through BBS, internal mobilization, collective action way to exert important influence on other participants, to reinforce or change other people vote for.

These active participants in governance are more important to the outcome of governance than the non-participatory MKR voters. In other words, whoever can effectively influence these active participants in the forum activities can influence the decision of the Maker system.

After going through the hundreds of posts and discussions on the Maker forum, I did find some very active and influential non-official forum participants. These people actively discussed, debated, and initiated Signal to Vote on the resolution, transforming its influence into the key results of the Governance Poll and Executive Vote, thus profoundly influencing and shaping the agreement ecology of Maker.

However, compared with the traditional institutionalized centralized system, Maker's participation in governance is open, and anyone who can read and write English can participate freely. Of course, it is also free to quit. Therefore, the influence within the Maker governance system is not fixed, but requires the participants to continuously establish and consolidate their influence.

Now the number of active governance participants Maker is less, basically is the DAO and DeFi enthusiast, high ability in science and discussion, therefore, the Maker of current governance like early ancient Greek city-state democracy, anyone can comment on the square, but must be fully open debate, after test and consensus will be adopted by a vote.

In the "2%" case, it is clear how the actors play a role in influencing Maker governance decisions.

Shortly after the launch of the Governance Poll, Joshua_Pritikin, an active participant in the Maker forum, posted a post on the Maker forum asking "Who is voting 15K MKR to increase the DSR Spread to 2%".

Immediately, Maker governance and community team member "LongForWisdom" and other forum members joined the discussion, which revolved around the following issues

1. Analyze the motivation of 2% voting whales

2. Discuss the impact of interest margin size on Maker's core interests

3. Call on MKR holders to support the low spread option (Joshua, who initiated the discussion, strongly recommends the 0% option)

The discussion in the forum influenced and changed the results of the ongoing Governance Poll:

1. After the discussion began, the number of votes for the 0% option increased rapidly (although the total number of votes was not large).

2. Top100, which initially supported the 2 percent option, changed its vote and voted again for the more conservative 0.5 percent option

Temporary risk team, in the process Maker launched the Governance Poll, and limit the voting options, Maker BBS participants found the problem, puts forward the opinion, to mobilize the vote, Maker of Governance and community team to BBS the identity of the participants also actively participate in the discussion, and due to its official status, its views relatively ordinary members of the BBS has a greater influence, BBS members joint mobilization and affected the MKR voters' choices, and vote for the part not MKR holders to vote, all participants interaction, eventually formed the management results.

Analysis of social norms

As mentioned earlier, social norms are the rules by which society operates and the rules by which rules are made. In any community, any situation that requires the participants to make collective decisions and take joint actions will inevitably produce social norms. Not only the written mandatory norms can be called norms, in many communities, informal norms also play a very important role in decision-making.

Regardless of canonical form, the standard of legitimacy from the core of the community interests and values, this is for the purpose of the specification, so you can call it "yuan specification" (meta - norms). Yuan specification in essence is not standard, so you need to RMB according to the specification "fundamental norms" (constitutive norms) to clearly defined community of the fundamental social contract relationship. In the governance system of a sovereign state, the constitution plays a similar role, clarifying the core interests and values of the state, as well as the responsibilities and obligations of the state and the government, which can be understood as a contract between citizens and the state. Under the fundamental norms, is a specific "controls sexual norms" (regulative norms), has been clear about the specific rules of governance.

Within the DeFi project, there are also categories of meta-specification, radical specification, regulatory specification, and informal specification.

As a DeFi stable currency project, decentralization and currency stability are the core interests of Maker, the meta-norm of Maker and the purpose of Maker governance.

The Maker community held its first MKR vote on September 12, 2018, and adopted Maker's fundamental specification: the five Core Foundation Principles. These five principles fully embody Maker's values of governance,

1. Scientific Governance & & NBSP;

2. Serving The Underserved

3. Sustainable Finance

4. Gradual Decentralization
5. Driving Dai Adoption

Based on the five principles, the Maker foundation has designed a series of regulatory specifications, including the most important decision mechanism: Governance Poll and Executive Vote.

In addition to regulatory norms, informal norms are also prevalent in the Maker community. The rules of debate in the Maker forum, the critical Suggestions from external media, and the discussion etiquette on social media are all informal norms that influence the governance of Maker. Although informal specifications do not have legitimacy or enforcement, in open and decentralized DeFi governance, informal specifications often have more influence than formal regulatory specifications because of their interactivity and flexibility that regulatory specifications do not have.

In "2%" incident, MKR whale although completely within the control rules of sexual norms, in the Governance of Poll voted 2% option, but their behavior is in conflict with the core interests yuan specification with Maker, therefore, Maker BBS participants in community BBS launched fierce debate, for 2% vote through community informal specification form negative consensus, in turn affect the decision of the sexual norms and changed the control, thus maintaining the Maker yuan norms and fundamental norms.

Interactive node analysis

In the governance process, recurring interactions occur between participants. Problems (Problems), participants (Actors), Process (Process), Social Norms, Social Norms) gathered together, and interactive space and medium (such as online BBS, conference calls) is interaction nodes.

In national governance, the most common and important interaction nodes are various congresses, such as parliament. In DeFi project governance, the common interaction nodes are various online groups.

Maker Governance does not have offline interaction nodes, but has multiple online ones, including Maker's Reddit community, Chat channel, Twitter, Governance Call, and Maker forums, the most important of which is Maker forum.

Governance participants learn about the progress of Maker through Maker's official Twitter and Medium, and engage in impromptu and limited preliminary discussions on Twitter; Chat channel as a real-time Chat tool, participants and developers in the efficient exchange of governance advice; The Reddit community is mostly queried posts that serve as community education and opinion gathering;

In the end, all meaningful Governance opinions will be collected from Twitter, Chat and Reddit to the Maker forum, and open in-depth debates will be held on the forum, which will be refined to form Signal bill voting, then Governance Poll and Executive Vote, and finally change the Maker Protocol.

To Maker BBS for the finish line, the opinions of each node in the governance of interactive communication plays a different role, formed an efficient and extensive management opinion transmission, amplification, filter and feedback, and finally refined into motion of the funnel, makes the final in Maker bill with the scientific nature is formed on the BBS, representative, and enforceability.

The Maker forum played a crucial governance role in the "2%" event. Around 2% option, participants quickly to Maker in the BBS discuss interaction, analysis is applied on top of other interactive node information, points out that this option is for Maker the threat of core interests, and immediately called for 2% vote whale can timely change the choice, also called on other MKR cash to positive vote for reasonable spread option.

Governance process analysis

Interactive node gave us research governance participants in specific management problems, the possibility of the lateral interaction between the social norms, governance processes these governance interactive section slices, longitudinally in time, the structure of the interaction between participants we can see, the change of the social norms and rules, the influence of the shift, and from the time scale to find the direction of change, to predict the future development of governance system from a higher level.

The cornerstone of Maker governance is scientific governance. The results of governance must be based on a scientific model that can be replicated and tested. Neither the MKR holder nor the Maker foundation has special authority to arbitrarily change the parameters of the system.

The interaction node and governance rule design of Maker fully embodies the principles of scientific governance and progressive decentralization in the five basic principles of Maker. Governance debate at different interaction nodes becomes a compromise solution to seek consensus. Hierarchical communication platforms enable serious governance participants to focus on scientific governance based on theory and data at key interaction nodes, rather than the polarizing public opinion battle on ordinary social media. After the governance participants agree on the interaction nodes at each level, the MKR holders vote on the governance results based on the governance rules. The specific governance process can be represented by the following figure:

In the case of the "2%" event, the disputed spread Governance Poll belongs to Maker's regular monetary policy Poll, so the Governance process does not start from scratch as shown above, but begins with the Governance Poll. So spreads in the Poll options and voters to vote before the vote was not discussed at each intersection nodes after full debate (although in each Governance Poll will be held before the Governance Call, but due to the conference Call limitations, in the form of poor Governance effect), as a result, the parties to the outcome of the vote and there is no consensus expectations, so just can appear more than expected results.

Before each Maker monetary policy Governance Poll, all parties should conduct a forum vote similar to Signal Request in the Maker forum in advance, so that MKR holders representing different interests can fully express their opinions on the monetary policy to be voted, expose their differences in advance through debates, and reach consensus in advance. Rather than the "2 percent" event, where the Governance Poll opens after the vote and then takes urgent action to find a temporary consensus.

Fortunately, there was a strong consensus among MKR holders, and after discussion and calls from forum participants, the 2% option changed its mind and switched to a reasonable spread option, averting a monetary policy crisis.

The key conclusion

The GAF analysis framework enables us to systematically study the governance structure of DeFi ecology on a case-by-case basis and identify the key impact factors, thereby reasonably evaluating and continuously improving the governance system of DeFi project.

The "2%" event is a little governance challenge, Maker BBS interaction nodes as a key governance plays a important role in shaping of consensus and community mobilization, the Maker of social norms and rules of governance is practical and effective play a role, to represent the interests of the different MKR voters and governance participants' interaction and decision making can quickly back to the Maker community's core interests, collective agreement reached fast on specific issues and take collective action, rather than cause greater differences. Through the analysis of the GAF framework, we can extract some important recommendations that are of general significance to DeFi project governance.

1. Maker's governance system is worth learning from other DeFi

Maker's governance system has a sound governance framework, and advanced meta-norms and basic principles have gathered a large number of high-level serious participants to join Maker's governance. The multi-level governance rules clearly guide the governance behaviors of participants representing different interests. The mature bill discussion system makes the open debate based on facts instead of the emotional polarization common in online discussions. Multiple visual governance tools make governance results measurable and comparable; Low-value community gossip and serious and rational high-level governance discussions can be carried out separately on different interaction nodes of the hierarchy, while ensuring that valuable Suggestions and opinions can emerge from the interaction nodes at all levels and enter the final decision-making channel of governance. Currently, of all DeFi and Dapp projects, none is as complete and mature as Maker's governance system.

2. Governance is more than just voting

Governance is the process of collective decision-making by participants, while voting is only the last step in the decision-making process. A healthy DeFi governance system needs to provide interaction nodes for governance participants to communicate with each other and express opinions, executable governance rules and scientific proposal system before voting.

3. High-quality governance participants are very important

Maker brings together a group of professional DeFi researchers and developers, who are the backbone of Maker's high-level decentralized governance and also attract more high-level governance participants to join, forming a positive cycle.

4. Importance of meta-specification, no project without soul can have high quality governance

Maker emphasizes the values of decentralization, freedom and inclusive finance, attracting a group of people who recognize its values to participate in governance, including high-level governance participants. Maker is also the only confirmed by the vote will core idea (the five basic principles) written fixed DeFi programs, five basic principles from the height of the values has been clear about the future development direction of the Maker and governance principles, the participants on the Maker's governance rules change with consensus, greatly reduce the difficulty of the participants used to coordinate the collective decision-making.

Conversely, if a DeFi project does not have clear core values, it is difficult for the project to have high quality governance.

5. Interaction nodes are important and should be layered

According to the characteristics of different social media and online platforms, the design enables governance participants at different levels and levels of participation to fully express their opinions without affecting the layered and hierarchical interactive node strategy of real in-depth discussion. Although instant messaging software (Telegram, Wechat) is convenient, due to its performance limitations and user habits, it is not suitable as a platform for conducting serious governance discussions and forming governance proposals. Online forums are the best choice for serious governance activities.

6. The formulation of governance rules needs to be participatory and the threshold of participation in governance should be lowered as much as possible

Maker has very detailed proposal text format and best practice guidance, which greatly reduces the threshold for ordinary participants to participate in governance, making governance more representative and able to gather more good ideas.

7. Governance is a science and requires scientific tools

Maker's principle of scientific governance emphasizes that governance can be measured, evidence can be tested and results can be repeated. The team and the community developed a series of scientific governance tools to analyze the process of each vote through data visualization, enabling bill proposers to scientifically analyze the governance effect.

8. DeFi governance should break project boundaries

Who's behind the 2 percent spread this time? Maker's monetary policy has become the cornerstone of monetary policy in the DeFi world, and the adjustment of Maker's rates will have a significant impact on all third-party platforms that provide Dai lending and related services, such as dydx, compound, etc., and this impact will grow as Dai's debt ceiling is raised. Other DeFi project parties will inevitably participate in Maker governance by buying or leasing MKR, or at least influence Maker's monetary policy by influencing other MKR holders. While the strategic investors of Maker, A16Z, Dragonfly, and Paradigm have also invested in other DeFi projects, will these strategic investors who hold a large amount of MKR consider the interests of other DeFi in their portfolio when participating in the governance of Maker?

DeFi will enter into the era of "global governance". When designing DeFi protocol, we should not only consider the composability of DeFi protocol's financial products, but also consider the composability of DeFi governance.

The original link: https://www.chainnews.com/articles/764385201922.htm

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