Vitalik Buterin, the co-founder of Ethereum, claims that the blockchain industry has shifted its focus from DeFi to token-based decentralized governance (DeGov). He asserts that the current voting system is restricting the DeFi sector from reaching its full potential.
According to the blog post published on August 16, Vitalik asserts other alternate options to move beyond the coin-voting method. Moreover, he is suggesting an approach with two natural alternatives “proof-of-personhood” or “proof-of-participation”.
The voting mechanism is based on the size of the token holders’ holdings, and the votes are distributed among them. The majority of DeFi projects have been implemented solely through the voting process. Furthermore, because whales control the majority of governance tokens, voting allows them to support projects based on their personal interests.
Significantly, Buterin specifies problems with coin-voting into three categories, they are whales’ participation, giving power to one constituency, and conflicts-of-interests. Additionally, he mentions the occurrence of “unbundling” in which the borrower has governance power but no economic interest. On the other hand, the lender has both governance power and economic interest but no governance power.
Solutions For The Issues
Buterin suggests solutions for the issues regarding the coin-voting method for governance tokens. He proposed the investigation of “Proof-of-Humanity”-based governance systems in which one vote is assigned to each protocol user.
More so, the other possible solution is “Proof-of-Participation”, in which voting is restricted to protocol users who have made a contribution to the benefit of a project.
Furthermore, he also suggested ‘skin in the game’ which is an approach that the decisions rely on the single voter. Individual responsibility is created as a result of this: if an attack occurs and your coins vote in favor of the attack, your coins are destroyed.
In the conclusion, Buterin states that there can be much more done for the development of non-coin-driven governance algorithms. He added:
“The most important thing that can be done today is to abandon the notion that coin voting is the only legitimate form of governance decentralization.”