Cryptocurrency governance has become increasingly popular, but has drawn questions about whom the system benefits.

Cryptocurrency governance protocols started to increase in popularity after the Bitcoin block size debacle that ended up causing a chain split and the creation of Bitcoin Cash. Prior to this development, there was primarily off-chain governance systems such as community updates through forums, forum polls, foundation decisions, etc, as the blog post CoinShares references. However, governance coins enhanced this dynamic by adding on-chain governance systems such as delegation services, staking pools, and voting service providers integrated into the coin’s protocol.

Nevertheless, each cryptocurrency that focuses on governance implemented their own unique take on the subject, which created many variations in structure, risk models, participation ratios, parties involved, and rewards. These variations have caused a discussion about who benefits from which coins – the users or the speculators. The blog post categorizes and discusses the attributes of various governance cryptocurrencies such as Dash, EOS, NEO, tezos, and Decred.

Source: CoinShare Blog, “Politics, Power & Protocols”, Meltem Demirors, https://medium.com/coinshares/politics-power-protocols-101562734f71

Structure serves a specific purpose

In biology, there is a common trope that “structure has purpose”, which means that every aspect of a plant or animal has evolved to benefit some creature in one way or another. Likewise, the way a governance structure is designed carries with it specific economic incentives that will benefit various parties. However, low voter participation tends to benefit the speculators over everyday users and the author discussed some of things that would lower voter participation.

  • “Ease of Voting”: If voting is technically or physically difficult then casual users will be discriminated against
  • “Importance of Voting”: If participants feel that their vote is overshadowed by large whales then they will not feel a part of the system.
  • “Risk of Voting”: If there is political, financial, social, or physical risk then voting participation will be lowered.
  • “Personal Gain”: If dishonest actors (aka scammers) can easily get access to funds, then many will feel like the community has become diluted

While decentralized governance systems want to avoid lower voter participation levels so it is not only speculators and investors influencing the cryptocurrency, the system also wants to minimize mob rule and shouting matches that are unproductive and alienating. Unsurprisingly, this is a very thin line to keep straight, but the author proposes some policy prescriptions.

  • “Tenure of rulers must be kept short to prevent them becoming despots”
  • “External threats, whether real or imagined, preserve internal peace”
  • “If any one individual gains too much power — whether it be monetary, political, or military — banish them”
  • “Decision makers and governance bodies must never accept money to make decisions”
  • “The middle class must be large”
  • “If all citizens are aware of law, history, and constitution, they will endeavor to maintain “good” governance”

Some of these suggestions focus on general governance systems, would rely on restructuring crypto protocols, or giving a certain group banning authority, but they nevertheless highlight ideas to ponder that could create a more equitable, and thus usable, cryptocurrency. The advantage of having many decentralized governance coins is that the competition will put pressure on each other to develop a product and service that consumers desire.

Dash encourages diverse usability and participation

Dash has been the first and longest running Decentralized Autonomous Organizations (DAO) and has been able to utilize its structure to achieve unprecedented advancements in transaction fees, confirmation speeds, and merchant adoption. These developments partly arose from the DAO Treasury, which uses 10% of monthly block rewards to fund proposals to advance the Dash network. The decision on which proposals to fund is made by Dash Masternodes, whom must stake 1,000 Dash each. In the report, and elsewhere, Dash has received criticism for being centralized due to its relatively expensive Masternode system, but community members are increasingly participating in fractional Masternode pools that bring more equality into the system.

Source: https://dashintel.org/masternode_network

Then while each Masternode has a strong financial incentive to act in the best interest of Dash by properly up-keeping the Masternode and voting on proposals, monthly voter participation hovers around 20%-40% with spikes during price increases. As a demonstration of the network’s robustness, there are initiatives to increase voter participation. Dash Watch emerged to not only keep proposal owners accountable to the network, but also make the voting evaluation process easier to encourage more voting. Then with version 0.13 update, Deterministic Masternode Lists will allow Masternodes to easily delegate voting responsibility to third parties.

Additionally, the community continually emphasizes easy usability to achieve mass adoption, which keeps expanding the “middle class” of Dash. While Dash may not have all the solutions required for a perfect governance cryptocurrency, it has many of the features, and most importantly, the demonstrated ability to survive and adapt in a very volatile sector, which inspires confidence that Dash will discover more solutions as time progresses.