Clear DefinitionsOn-Chain Governance
1 min read
Pronunciation
[on-cheyn guh-ver-nuhns]
Analogy
Imagine a company where the shareholders (token holders) use a transparent, digital voting app (on-chain governance) to directly vote on company policies or changes to the company's software. The voting results are automatically tallied and implemented by the company's system, bypassing the need for a board meeting or executive approval.
Definition
A system where the rules for proposing, voting on, and implementing changes or upgrades to a blockchain protocol or decentralized application (dApp) are written into the protocol's code and executed directly on the blockchain itself, typically controlled by token holders.
Key Points Intro
On-chain governance enables decentralized decision-making directly on the blockchain.
Key Points
Decision-making process is embedded in the blockchain protocol's code.
Token holders typically use their tokens to vote on proposals.
Voting outcomes can directly trigger protocol upgrades or parameter changes.
Aims for transparency and immutability in the governance process.
Example
The Cosmos blockchain uses an on-chain governance module. Atom token holders can submit proposals (e.g., changing a network parameter, funding a project from the community pool) and vote on them directly on the blockchain. If a proposal meets the required thresholds for quorum and approval, it is automatically enacted by the protocol.
Technical Deep Dive
On-chain governance systems involve specific smart contracts or protocol modules dedicated to managing proposals, voting, and execution. Users submit proposals (often requiring a deposit), which enter a voting period. Token holders lock their tokens or delegate voting power to others to cast votes. The protocol automatically tallies votes based on predefined rules (e.g., token-weighted voting, quadratic voting) and, if passed, triggers the execution of the proposed change, which can include upgrading smart contracts or altering protocol parameters.
Security Warning
Can lead to plutocracy if voting power is heavily concentrated among a few large token holders. Vulnerable to voter apathy, where low participation allows a minority of active voters to control decisions. Requires robust smart contract security for the governance module itself.
Caveat
Implementing and managing on-chain governance is complex. Decision-making can be slow and cumbersome, especially for complex proposals. Low voter turnout is a common issue, potentially undermining the decentralization of decision-making.
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