Intro to DeFi - Session 9A2 DeFi Governance & DAOs

DAOs MITIGATE SYBIL ATTACKS WITH SBTs WITH

1. Computing over a Soul's constellation of SBTs to differentiate between unique Souls and bots, thus denying voting power to a Soul that appears to be a sybil. 2. Conferring more voting power to Souls who hold more reputable SBTs - like work or educational credentials, licenses, or certifications. 3. Issuing specialized "proof-of-personhood" SBTs, which could help other DAOs bootstrap sybil resistance. 4. Checking for correlations between SBBTs held by Souls who support a particular vote and applying a lower vote weight to voters who are highly correlated.

3 CHARATERISTICS OF DAOs

1. Decentralized Autonomous organizations are not a standard protocol or a specific organization framework. 2. Each protocol has its own way to implement their DAO. 3. Most DeFi platforms use a tokenbased governance model with variations on the parameters.

MITIGATING ISSUES WITH TOKEN GOVERNANCE

1. Delegation: Token holders may delegate their voting power to more active/informed users. 2. Governance limits: Establishing time delays and locks, as well as making fork coordination and execution easier, might help in cases of attacks through token governance loopholes. 3. Non-token governance: Proof of humanity (one person, one vote), proof of participation, and proof of contribution have been proposed. 4. Accountability: Making voters accountable for the consequences of their actions by imposing penalties and rewards based on the outcome.

YEARN FINANCE

A suite of decentralized finance (DeFi) products that let users optimize their earnings on crypto assets through lending and trading services.

UNI

All governance token (UNI) holders can vote on proposals. However, the process to submit a proposal is more complex and requires at least 1,000 UNI tokens to initiate and 2,500,000 UNI tokens to proceed to the final onchain voting stage.

SYNTHETIX

Although the core of the organization is formed by five different DAOs, Synthetix does not have a governance token. The SNX token that is delivered by the organization is used as collateral for minting synthetics, but not for governance power. Proposed improvements can be issued by anyone. Yet, their approval only comes from the Spartan Council. Although proposals are decentralized, approval is less so - akin to a board of directors in corporate governance.

OGANIZATION: DAO vs CORPORATE GOVERNANCE

Flat, typically single-level VS Hierarchical, multi-level

CURVE

For different lengths of time (minimum one week; maximum four years) CRV holders can lock their tokens so they can obtain vote escrowed CRV (veCRV) in order to gain voting and proposal making powers. There is no voting power minimum, but a user must have 2,500 veCRV to create a proposal.

COMPOUND

Governance token (COMP) holders can delegate their tokens to others (who do not even need to hold COMP) to vote. There is a minimum 1% stake to submit a proposal. Proposals are subject to a 3-day voting period. If a majority of COMP holders (subject to at least 400,000 votes being cast) vote in favor of the proposal, the proposal is queued for implementation after 2 days.

SERVICES: DAO vs CORPORATE GOVERNANCE

On-chain, executed programmatically VS Human-enacted, subject to interpretation or manipulation

EXECUTION: DAO vs CORPORATE GOVERNANCE

On-chain, verifiable, transparent VS Opaque, subject to publicity/reporting requirements for public companies

OPENESS: DAO vs CORPORATE GOVERNANCE

Open to all governance token holders, subject to DAO rules VS Open to all shareholders, subject to share class rights

MakerDAOCURVE

Participants must lock up their MKR (Maker DAO's governance token) by transferring them from their private wallets to the voting contract (from where they can be later withdrawn).

APATHY

Risk that small token holders have, individually, negligible impact in shaping the governance of a protocol, they tend to have little incentive to vote. By not voting, small token holders essentially delegate their authority and further empower the already established plutocracy.

PLUTOCRACY

Risk that when governance tokens are concentrated in the hands of few, protocols are not really decentralized and governed by the community. The counter-argument is that large token holders have the largest interest in making decisions that will benefit the network to maximize their wealth.

SBTs

Soulbound Tokens are non-transferable (initially public) tokens representing commitments, credentials, and affiliations. Such tokens would be like an extended resume, issued by other wallets that attest to these social relations.

AAVE

The AAVE token empowers holders to collectively act as governors of the protocol by giving them the capability to propose (submit AAVE Improvement Proposals, or AIPs) and vote.

DxDy

The protocol's ultimate goal is to build a fully decentralized derivatives exchange where no single party, including the team itself, can claim authority over the protocol's fundamental operations.

COIN HOLDERS ABOVE ALL

Token voting governance allows only token holders to have a say on the future of the protocol, leaving other stakeholders out. Token holders are incentivised to satisfy their own interests, even at the expense of the wider community.

DECISION MAKING: DAO vs CORPORATE GOVERNANCE

Voting-based changes only VS Delegated to top management; voting for major matters only

SYBIL ATTACKS

Where a single user can have multiple wallets to accrue voting power or simply hoard tokens to accrue 51% voting power and dispossess the minority.