Governance Rights

Voting power determines a participant's influence in a governance system and is typically derived from a governance token. Weighting mechanisms define how this power is calculated:

• Token-weighted: One token equals one vote, the most common model.
• Quadratic Voting: Voting power increases with the square root of tokens held, designed to reduce whale dominance.
• Delegated Voting: Token holders can delegate their voting power to other addresses (delegates or representatives).
• Time-weighted: Power increases based on the duration tokens are locked (e.g., veToken models).

A formal, on-chain process for introducing and ratifying changes. A standard lifecycle includes:

• Temperature Check: An informal, off-chain signal to gauge community sentiment.
• Proposal Submission: Formal, on-chain proposal creation, often requiring a minimum token deposit or delegate sponsorship.
• Voting Period: A fixed timeframe where token holders cast votes for, against, or abstain.
• Timelock & Execution: If passed, proposals enter a mandatory waiting period (timelock) for review before the encoded actions are automatically executed by the protocol.

A mechanism allowing token holders to transfer their voting power to a trusted third party without transferring asset ownership. This addresses voter apathy and enables specialized governance.

• Delegates (or representatives) vote on behalf of their delegators, often publishing platforms or voting histories.
• Systems like Compound Governance and Uniswap use this model to consolidate expertise and participation.
• It creates a political layer where delegates can build reputations and voting blocs.

A core governance right is the authority to manage the protocol's community treasury—a pool of assets (often native tokens and accrued fees) owned by the protocol itself. Governance votes can:

• Approve grants to fund ecosystem development.
• Allocate funds for liquidity mining incentives.
• Execute buybacks and burns of the native token.
• Compensate contributors or cover operational expenses. Control over treasury spending is one of the most consequential powers in decentralized governance.

Governance rights often include the ability to tune key protocol parameters without requiring a full upgrade. This allows for agile optimization of economic and risk settings. Common adjustable parameters include:

• Fee structures (e.g., swap fees, borrowing rates).
• Collateral factors and loan-to-value (LTV) ratios in lending protocols.
• Reward emission rates and distributions in liquidity pools.
• Security parameters like oracle addresses or guardian multisig thresholds.

The ultimate governance right is the power to upgrade the protocol's core smart contract logic. This is typically executed via a proxy contract pattern or a module upgrade system.

• Proposals pass new implementation contract addresses.
• After a successful vote and timelock, governance can execute the upgrade, changing the protocol's fundamental behavior.
• This carries significant risk, making security practices like audits and bug bounties critical prior to execution. Some protocols use a more conservative multisig for final execution even after a vote.

The privilege to create and submit formal governance proposals for a community vote. This is often gated by a minimum token holding or deposit to prevent spam. Proposals can range from parameter adjustments to treasury allocations and smart contract upgrades.

• Example: On Compound, a user must hold at least 65,000 COMP to submit a proposal.
• Purpose: Initiates the formal governance process, moving ideas from forum discussion to executable code.

The right to cast votes on active proposals, with voting weight typically proportional to the holder's token balance. Votes are recorded on-chain, making the process transparent and immutable.

• Mechanisms: Can be direct (1 token = 1 vote) or use vote delegation.
• Quorum: Many systems require a minimum percentage of total supply to vote for a result to be valid.
• Example: A Uniswap governance proposal requires a 40 million UNI quorum and a majority to pass.

The ability to delegate one's voting power to another address without transferring token ownership. This allows token holders to participate passively by entrusting votes to knowledgeable community members or delegates.

• Key Feature: Enables the emergence of expert representatives and improves voter participation.
• Use Case: In MakerDAO, MKR holders can delegate to recognized delegates who analyze and vote on complex financial parameter changes.

The privilege to propose and vote on the allocation of the protocol's treasury funds. This is one of the most significant powers, governing grants, bug bounties, liquidity incentives, and other capital expenditures.

• Scope: Decisions can involve transferring millions in stablecoins or native tokens.
• Process: Typically requires a multi-step proposal, including a detailed budget and on-chain transaction payload for execution upon approval.

The right to vote on changes to the protocol's key economic and operational parameters. These are lower-risk changes that do not alter core contract logic but fine-tune system performance.

• Common Parameters: Interest rates, collateral ratios, fee structures, reward emission schedules, and staking/unstaking delays.
• Example: Aave governance regularly votes on Risk Parameter updates for different asset markets to maintain protocol safety.

The ultimate privilege to approve upgrades to the protocol's core smart contracts. This is executed through a Timelock contract, which queues the approved upgrade for a mandatory delay before execution, giving users time to react.

• Significance: Allows for bug fixes, feature additions, and migration to new contract architectures.
• Safety Mechanism: The Timelock period is a critical security feature, preventing immediate execution of malicious code.

A system designed to reduce the influence of large token holders (whales) by making the cost of votes increase quadratically. The number of votes a user can cast is the square root of the amount of tokens or credits they commit. This promotes more egalitarian outcomes by making it expensive to concentrate voting power.

• Gitcoin Grants: Uses quadratic funding, a related mechanism, to allocate matching funds for public goods, where the weight of a contributor's vote increases with the square root of their donation amount.

Governance rights are delegated to a small, elected or appointed group of signers (a multisignature wallet or council) for efficiency and security. This is common in early-stage protocols or for executing time-sensitive technical upgrades.

• Arbitrum DAO's Security Council: A 12-of-15 multisig empowered to execute emergency upgrades.
• Optimism's Citizen House & Token House: A bicameral system where the Token House (OP holders) votes on grants and incentives, while a smaller, identity-verified Citizen House votes on protocol upgrades.

A governance paradigm proposed by economist Robin Hanson, where voters bet on outcomes rather than voting on proposals directly. The community votes on a metric of success (e.g., 'higher TVL'), and prediction markets are created for proposals. The proposal predicted by the market to best improve the metric is automatically implemented. While theoretically powerful for decision-making under uncertainty, it has seen limited practical implementation in crypto due to complexity.

• Gnosis (GNO): Has experimented with futarchy concepts for some internal decisions.

Governance rights are decoupled from pure financial weight, often based on identity, participation, or reputation. Soulbound Tokens (SBTs) are non-transferable tokens that represent credentials, memberships, or achievements.

• Gitcoin Passport: Uses a decentralized identity score to weight voting in grant rounds, combating sybil attacks.
• Optimism's AttestationStation: A base primitive for issuing on-chain attestations (SBT-like) that could underpin future reputation-based governance. This model aims to align voting power with long-term contribution rather than capital.

A governance attack where a malicious actor accumulates voting power (often through token purchases or borrowing) to pass proposals that benefit them at the network's expense. This undermines the one-token-one-vote ideal.

• Mechanism: An attacker may use flash loans to temporarily borrow a massive amount of governance tokens, vote, and then repay the loan.
• Example: The attempted Mango Markets exploit involved using governance tokens acquired from an exploit to vote on a proposal that would absolve the attacker of responsibility.

A systemic risk where a small minority of token holders controls governance outcomes due to widespread voter disengagement. This leads to de facto centralization and makes the protocol vulnerable to capture.

• Consequence: A proposal with a 60% approval rate may represent the will of only 5% of total token holders.
• Mitigation: Protocols use vote delegation, quorum thresholds, and incentives to boost participation.

The risk that governance rights over a protocol's treasury can be used to siphon funds. Malicious or poorly designed proposals can authorize transfers of pooled assets to an attacker's address.

• Attack Vector: A proposal disguised as a legitimate grant or payment contains code to drain the treasury.
• Defense: Implementing multi-sig timelocks, rage-quit mechanisms (like in Moloch DAOs), and requiring high quorums for treasury transactions.

Governance rights allow changes to critical system parameters (e.g., interest rates, collateral factors, fee structures). An attacker could manipulate these to destabilize the protocol or create arbitrage opportunities for themselves.

• Examples: Lowering liquidation thresholds to trigger unnecessary liquidations, or adjusting fee switches to extract maximum value.
• Safeguard: Using gradual parameter updates (like Compound's Governor Bravo) and separate risk parameter governance modules.

The concentration of governance tokens among founders, early investors, or large exchanges (through staking services). This creates whale dominance, where a few entities can unilaterally control governance.

• Sources: Foundation/Team allocations, venture capital holdings, and centralized exchange custody of user tokens.
• Impact: Defeats the purpose of decentralized governance and can lead to decisions that favor insiders.

The governance process itself is executed by smart contracts (e.g., Governor contracts). Bugs in these contracts can lead to frozen governance, passed malicious proposals, or stolen voting power.

• Key Components: Timelock controllers, vote tallying logic, and proposal execution functions are all attack surfaces.
• Prevention: Extensive auditing of governance contracts and using battle-tested frameworks like OpenZeppelin's Governor.