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Governance can be defined as "the act or process of managing or supervising the direction of something (such as a country or an organization)." In the blockchain world, governance usually means how to guide the present and improve the future in contractua

Original title: "Dego in Defi"

Originally written by Rajeev Gopalakrishna

Original text: Daosquare

Noun explanation

DeGo Decentralised Governance Decentralized governance

DeFi体系大盘点

How to govern the blockchain field has always been a hot and controversial topic, especially in the blockchain community. Basically, it can be divided into two categories: on-chain governance and off-chain governance. On-chain governance can be understood as algorithms embedded in the blockchain protocol itself, while off-chain governance is guidance and supervision outside of the informal blockchain protocol. Tezos is an example of the former, while Bitcoin and Ethereum fall into the latter category. However, this article is not about blockchain governance. Vlad Zamfir, Fred Ehrsam, and Vitalik Buterin, among others, have published a number of opinion pieces on this topic.

This article focuses on the technical process behind Decentralized Governance (DEGO) in the DEFI protocol on Ethereum. We begin by introducing the broad prospects of the leading DEFI protocol on Ethereum and summarizing some key points of their current governance process. In this context, the basic principle of gas-free voting is proposed, and the project that takes the lead in adopting Snapshop's technical background in this field is described. We will discuss further the decentralization challenges of Snapshot's current implementation, the potential for using Aragon for on-chain off-chain voting, and how to improve the censorship resistance of protocol traffic on the Waku with Snapshot.

Agreement and Governance

Defi is a financial application ecosystem based on a decentralized block chain protocol. This includes financial instruments such as savings, trading, credit (loans/loans), derivatives and insurance. Unlike traditional finance, DEFI has three key elements :(1) writing rules and executing operations in compliance with smart contracts to reduce human intervention factors, (2) transparent open source auditing of smart contracts and transactions on the blockchain, and (3) participation in creating, using, modifying or combining various projects without conditions of access.

Maker is the DEFI project that created the most famous DAI stablecoin. Compound and AVE are currently the most popular DEFI lending platforms. Uniswap, Curve and Balancer are among the most widely used decentralized exchanges. Synthetix is a DEFI project that tracks the value of physical assets. Yearn is a DEFI program that integrates loan aggregation, income aggregation, and insurance. Nexus Mutual is an alternative community-based insurance platform that allows members to insure against the risk of holes in smart contracts. Aragon is a platform for starting and managing decentralized organizations (DAOs), typically for applications such as AVE and Curve.

Each of these DEFI projects has a governance mechanism in place to determine the operational direction of the project and the protocol adjustment strategy. Only holders of project-specific governance tokens are allowed to vote in these governance processes. The tokens for the above 10 DEFI projects are MKR, COMP, AAVE, UNI, CRV, BAL, SNX, YFI, NXM and ANT.

Maker Governance Model: "The MKR holders are responsible for the governance of the Maker agreement, which includes adjusting the policy of DAI Stablecoin, selecting new types of collateral, and improving the governance model itself."

The community discusses during Discourse. Voters need to hold Maker (MKR) tokens and do so on a dedicated governance platform.

Governance requires a vote to make technical changes to the protocol, such as modifying collateral/vault types, parameters, and smart contracts. A round of research is usually conducted before voting to get a rough idea of the general mood of the voters. All of this happens on the chain. MKR's voters are locked into voting contracts, and the results are measured by MKR based on the number of votes cast on the proposal.

Maker actually has an informal off-chain governance mechanism. They use Discourse to conduct Informal Polls of Signal Threads and Informal Polls to give people the opportunity to show their positions on relevant topics and evaluate the opinions in the community before deciding whether to move them to the chain. None of these require participants to hold MKR tokens or interact on the Ethereum blockchain.

Once the topic creator confirms that it has informal support from community supporters, it then makes a request to create a corresponding on-chain governance poll to enable governance migration from the chain down to the chain.

Compound Governance: Compound contract agreements are managed and upgraded by Comp token holders through three different components, including Comp Token, GovernorAlpha, and TimeLock. In general, these contracts allow the community to propose and vote on changes through CToken or Comptroller. These could include changes such as adjusting the interest rate model and adding new assets. Any participant with more than 100,000 COMP tokens can propose governance through executable code. When a proposal is created, the community can usually vote during a 3-day voting period. If the proposal gets a majority and at least 400,000 votes are in favor, it gets queued up in Timelock and executed two days later."

While in the Creator phase, the Compound Core team has management privileges over contract changes and does not use governance tokens. But they introduced the COMP governance token in February 2020 to transition to a future model of decentralized token holders governing the community. .

Community discussions also took place at Dicourse. Voting requires holding COMP tokens and doing so on their dedicated governance portal.

Compound explicitly supports non-GAS votes and delegates using the EIP-712 signature. The advantage of this is that voters or their representatives can sign their voting information off the chain and then have a trusted third party pay the ETH for the gas to finally complete the on-chain voting.

AAVE governance pattern: "Contract governance consists of different decision processes for risk parameters, improvement ideas, and trigger incentives. All future decisions of AAVE regarding contracts will be made through this process. The AVE token gives the holder the right to vote on the proposal and act in concert as the custodian of the contract."

AVE has implemented a four-stage governance process: 1. Motion, in which community members can initiate a proposal and discuss in Discourse and submit feasible opinions on the next stage. 2. Discussion and information gathering, further discussion on the initiative, and then assessment of community feedback on the governance options. 3. The creation team approves the required smart contract and submits the proposal or puts the AVE token holders to a vote. 4. Vote to adopt the implementation plan, and reject the plan if the vote fails.

The Aave governance model was released on the ethereum mainnet in September 2020. The first suggestion is to migrate from the old LEND token to the new AVE token, off the chain on the Snapshot platform (described later in this article). The contract management key was handed over to the governance contract in October, thereby transferring ownership to the token holder community.

Uniswap Governance: "Uniswap contracts are managed and upgraded by UNI Token Holders using three different components: UNI Token, Governance Module and TimeLock. These contracts allow the community to propose, vote on and change the Uniswap contract. Any participant with more than 100,000 UNI tokens can propose governance through executable code. When a proposal is created, the community can usually vote during a 3-day voting period. If the proposal receives a majority of votes and at least 4 million votes support it, it is queued up in TimeLock and executed two days later.

Uniswap implements a three-stage governance process: 1. Temperature survey, community members initiate a proposal discussion on the Discourse forum, and then evaluate and vote in Uniswap's Snapshot space. If, within three days, the proposal receives 25,000 UNI votes in favour, it is considered to have sufficient support to proceed to the next stage. 2. Consensus research, in which a Discourse is formally discussed on the potential proposal, followed by another Snapshot vote on specific options (including make-no-change options). If, within five days, 50,000 UNI votes are in favour of a specific version of the potential proposal, it is considered to proceed to the next stage. 3. Governance Proposal. The winning proposals from the previous stage are edited, audited, proposed (requiring 1% support from all UNI token holders, i.e. 10M UNI) and then submitted to the governance portal for on-chain voting. After a seven-day voting period, the proposal code that passes the test (requiring 4% UNI, or 40 million UNI) will be queued up in TimeLock for execution two days later.

Uniswap supports offline signature based on EIP-712. It also supports "soft governance" of matters that do not require an on-chain vote, such as through community discussions.

Curve governance: "Curve DAO was launched on August 13, 2020. Its DAO allows liquidity providers to make many decisions about adding new pools, changing pool parameters, adding CRV incentives, and the Curve contract protocol. The main purpose of the Curve DAO token offering is to motivate liquidity providers on the Curve Financial platform and to involve as many users as possible in the governance of their contractual agreements. There are currently three main uses for CRV tokens: voting, pledging, and nudging. These three things will require you to lock in your CRV token before voting to get your VECRV token."

The CRV is a multi-purpose governance token on the Curve platform, with time-weighted voting and value accumulation. CRV holders can lock their CRV into the Curve DAO to get the VECRV (Vote Hosting CRV) tokens they need to vote. The longer the lockup period, the greater the voting power, with a lockup period of as little as one week and as long as four years. The weight of veCRV decreases as the lock-in period approaches.

Participants can also create informal proposals in the governance forum and evaluate them on Snapshot. Modifying the Curve contract requires official proposals, which come in two types: parameters and text. Parameter recommendations are automatically submitted to the DAO three days after a successful vote, whereas text recommendations typically require the participation of the Curve team. Creating a new DAO proposal requires holding at least 2500 VECRVs.

Conclusion:To sum up, the governance process usually involves three techniques: 1. Discussion forum (such as Discourse), where community members informally propose and discuss solution 2. Signaling forums (such as Snapshot) where community members holding tokens can vote offline to express their attitude to the proposal 3. A voting forum where token holders of the community vote on the chain to formally approve or reject the implementation of the proposal.

Not limited to blockchain, many communities are using messaging platforms such as Discourse, Discord, Gitter, Telegram or Slack to discuss and communicate. Voting forums are currently standard dApps that require users to link to crypto wallets (used to access their governance tokens) and smart contract interfaces in the blockchain. A new and unique tool for the DEFI governance process today is actually found in the information forum area, the classic example being Snapshot.

Snapshot

Snapshot is described as: "An off-chain gas free multiple governance client that is easy to verify and protects results. "It's an open source project, driven by Fabien Marino of Balancer Labs, that allows toen-based projects to publish proposals there, allowing token holders to vote down the chain without having to do a blockchain transaction, i.e. no gas and transaction fees. Proposals and votes are stored on IPFS in the form of signature information.

Driving force: Ethereum gas prices hit an all-time high in 2020, thanks in large part to the Defi app. While big money users or the largest token holders may not be too concerned about the increase in gas charges, it could have a real impact on the future of small token holders. They may therefore forgo DeFi governance on the blockchain, especially when many decisions require holding tokens to process. Arguably, this limitation on Ethereum has weakened the process of political decentralization of contractual agreements.

Although critical voting stages may necessarily need to take place on the Ethereum blockchain as they do today, to ensure decentralization and resist censorship. But the less critical, but still important, early stages of information delivery need to be done off-chain without gas charges. Snapshot aims to meet this need today.

In addition to the projects mentioned above, other leading DEFI projects are actually using Snapshot, including YAM, Yearn, Balancer, Ssushi, Swerve, Pickle, Aragon, MSTable and Cream. Maker and Compound also seem to be considering using Snapshot for information transfer.

DeFi体系大盘点

architecture: Snapshot has a Web client connected to the Hub server. Display the space for different projects through the Web interface. The Snapshot space is where individual projects are used to list voting proposals based on tokens. The Snapshot space is created on the Web interface through the ENS field.

In the space connected to the wallet (tokens for specific items), we can create proposals that include: title, proposal content, voting options, start/end time and token holding number, etc., and submit signing information from the wallet (near term planned transition to EIP-712).

Voting on a proposal takes place in the space of the specified item, connects to a wallet (the token that holds the item), selects the desired voting option, and submits the signature information from the wallet.

Signed proposals and voting information are sent to the Snapshot center, which then uploads them to IPFS for distributed storage. In addition, the center also stores the IPFS index information for all proposals and their votes in the database to satisfy the client's requests for quick loading.

The method used to calculate the vote result of a proposal is called a policy (Strategies& NBSP;) . A policy is a JavaScript function in the Web interface that returns a score for a set of addresses. The default strategy is to calculate the balance of the proposed project's ERC20 token in the blockchain for the voter. Perform these calculations off the chain actually provides more flexibility to experiment with different governance models, because iteration is faster using JavaScript policies than using on-chain smart contracts.

Decentralized challenges

In the DEFI governance process, off-chain messaging is becoming a prerequisite for on-chain voting. On-chain voting is increasingly unreliable, decentralized, expensive and inefficient. Messaging is an effective way to vote, free and fast. However, because of the intermediary nature of the undertrading, this operation is bound to weaken decentralization.

If these challenges can be adequately addressed, we can significantly benefit from free, fast, and increasing off-chain voting (with lower transaction friction) without compromising the decentralized nature of on-chain execution. At present, we can conduct research based on Snapshot.

As of Snapshot today, if there are offers and votes that must be translated into binding on-chain governance, they will depend on two intermediaries:

1. Trusted multiple signatures: Recall that multi-signed wallets first appeared (on Ethereum) in smart contract wallet accounts, which enforced a minimum number of signatures (M-of-N) to perform wallet transactions. In the context of the DEFI project, trusted multiple signatures often come from a group of respected members of the community who are entrusted with executing the project's decisions (votes) by signing an on-chain governance transaction corresponding to the votes received for the proposal. These decisions may relate to financial, trading or contractual changes.

From a social technology perspective, trusted multiple signatures run the risk of centralization. Although the holder of multi-signature power is unlikely to make a decision that deviates from the community's dominant spin. But in theory, they could overturn and abuse their power. The probability of M-of-N collusion is low (if M is large enough, for example, 6-of-9), but not zero. In contrast, depending on the size of the project community and the distribution of tokens, an order of magnitude (for example, 100 tokens) can be set, requiring a certain number of token holders to collectively decide on the outcome of the proposal.

In conclusion, if we can find a non-credit-based way to transfer approval power from off-chain voting to on-chain voting, we can prevent this decentralized dilution.

2. Centralized Hub:The Snapshot Hub is a server whose Web interface stores and retrieves IPFS signature information corresponding to proposals and votes. There is clearly a centralisation risk, although it could be undermined. For example, by running a federation of servers managed by participating projects, the client-server paradigm inherently weakens decentralization and increases the potential for oversight compared to peer-to-peer (P2P) networks.

This may be solved by removing the storage/retrieval proposal entirely from IPFS using a P2P network or in some way. The latter option is currently considered the most likely and involves concatenating the related IPFS hash values, but the sequential nature of the retrieval may make it slow and impractical.

Next, we discuss potential solutions to these two challenges.

Snapshot + Aragon

Aragon is a leading provider of DAO related governance products and infrastructure services. In October 2020, Aragon and Balancer Labs announced a partnership to optimize Snapshot's off-chain voting capabilities with Aragon DAO's on-chain execution capabilities.

Optimized execution is an on-chain capability that allows (without on-chain validation) the execution of a submitted result against a collateralized bond. If no one challenges the result during the dispute window, the result will be deemed to be final and binding. If someone in the dispute window questions, then the chain for execution or validation. If there are offending entities, they will be punished. (Note that this is conceptually analogous to optimistic rollups.)

inOptimistic Snapshot In the proposal, the trusted multiple signature is replaced by the DAO of the item token holder. After the Snapshot vote closes, anyone can submit ballot-approved operations to the DAO on the chain. DAO in AragonAgentA fixed period is set for the dispute before execution. The dispute is with AragonCourt(court) to deal with.

When the DEFI protocol evaluates this proposal, it will be interesting to see how it plays out.

Snapshot + Waku

Status application combining with wallet functions based on the privacy of communication and Ð browser app. The communications software is powered by decentralised P2P networks, which aim to eliminate centralised rent-seeking intermediaries and single points of failure, and increase resistance to censorship. The communication software is not the only one that has two endpoints -- a "client-server" architecture that goes from the source to the server and then to the target client. This communication mode is equivalent to them jumping information across all the clients. Although each endpoint receives the information, no one knows what the information is except the real receiver of the information, thus realizing the communication decentralization.

The communication software's protocol transport layer, implemented by Whisper's successor, Waku, provides routing, metadata protection, topic-based propagation and encryption algorithms. Waku uses the concept of a topic to divide information. A title is actually a string derived from a specified algorithm and Envelops it in an envelope. This Envelops the encrypted message with the topic and TTL (time-to-live).

Waku V2 is developing a common messaging layer that any project (with the exception of Status) can adopt to implement a sophisticated, extensible, encryption-centric and user-driven P2P routing protocol. One of the original goals of the Whisper protocol was to facilitate M2M(machine-to-machine) applications in Ethereum, such as wallets, dApp applications and Layer 2 scaling to enable communication layer multi-signature technology and DAO voting. Waku aims to achieve this kind of M2M layer communication.

With Waku, the Snapshot Center can be replaced by nodes in a P2P network through which signed proposals and voting information are forwarded to IPFS. In the future, a network of user nodes could also be deployed to store the votes without relying on IPFS. This is similar to how the Status communication software uses history nodes to store information for offline clients.

This approach prevents the central server from reviewing proposals or votes by selectively deleting them. In addition, any node can verify the outcome of a proposal through an independent vote count and, if necessary, exert influence over any comments submitted on the chain.

Let us recall that the first stage of governance is often a discussion. Waku already supports the Status messaging software, which supports public channels (in addition to private chat and 1:1 chat). The Status communication software also adds community-oriented features, such as read-only channels and auditing capabilities. With the Status wallet, it would be interesting to bundle discussion and messaging forums together, driven by token holders and privacy protection Waku protocols. Community members can discuss governance issues in communication forums, resolve priorities with tokens in their wallets, and finally vote on the dApp chain. Today, the Status application already has all three capabilities.

conclusion

Governance of the Decentalized Finance (DEFI) protocol covers every aspect of the protocol, such as deploying inventory capital to different work units, enhancing design and development, adjusting parameters that affect costs and revenue, integration with other contract agreements, and even improving governance itself. As the DEFI protocols gain more attention, their governance arguably becomes more critical, both to stand out from the rest of the industry and the field, and to survive.

In this article, we introduced some of the industry's leading DEFI protocols and summarized the key points in the governance process of Maker, Compound, AAVE, Uniswap, and Curve. In this context, we briefly introduce the fundamentals of Gas Free Voting and Snapshot and its architecture. Finally, it discussed the decentralization challenges in Snapshot's current implementation and how to use Aragon and Waku to address them.

An effective governance system aimed at inclusive participation by community members who hold tokens must be user-friendly, frictionless, and based on decentralization and anti-censorship.

The foundation of Decentralized Governance (DEGO) meets this need in the DEFI domain. The DEFI world needs to embrace DEGO.

(Thanks to Barry Gitarts, Fabien Marino, and Corey Petty of Balancer Labs for reviewing the draft of this article and providing useful feedback. Thanks to Alex Howell for the thoughtful illustrations.)