Stewardship

Stewards typically hold proposal rights to suggest protocol changes (e.g., parameter adjustments, treasury allocations) and voting power to approve or reject such proposals. This is often executed via governance tokens or delegated authority.

• Example: A DAO member submits a proposal to adjust a lending protocol's collateral factor, which is then voted on by token holders.

A core duty is the custodianship and strategic deployment of the protocol's treasury, which consists of accumulated fees or native tokens. Stewards authorize budgets for grants, development, marketing, and security audits to ensure long-term sustainability.

• Example: A governance vote to allocate funds from the treasury to a bug bounty program or a core development team.

Stewards manage critical protocol parameters that define its economic and operational security. This can include fee rates, reward schedules, collateral ratios, and slashing conditions. Adjustments are made via governance to optimize performance and risk.

• Example: Voting to increase the staking reward rate to attract more validators or adjusting a liquidation threshold in a DeFi protocol.

Stewards are responsible for authorizing and executing smart contract upgrades or protocol forks. This involves a multi-step process: 1) Code audit and review, 2) Governance proposal, 3) Timelock delay for community review, and 4) Final execution. This power is crucial for fixing bugs and adding features.

• Example: A steward multisig executing a ratified upgrade to a decentralized exchange's core contracts after a successful vote.

In many systems, token holders can delegate their voting power to a steward (e.g., a person, company, or sub-DAO) who acts as their representative. This creates a layer of representative democracy where experts can make informed decisions, improving voter participation and decision quality.

• Example: A token holder delegates their governance tokens to a known developer or research organization to vote on technical proposals on their behalf.

Stewards may act as arbiters in disputes, such as validating oracle data discrepancies, adjudicating insurance claims, or resolving governance disputes. This role is often formalized in decentralized courts or security councils that can intervene in emergencies.

• Example: A decentralized insurance protocol's stewards vote to approve or deny a payout claim based on provided evidence of a smart contract exploit.

Stewardship is most visible in on-chain governance for protocol upgrades. For example:

• Uniswap uses its UNI token for voting on proposals, including fee mechanism changes.
• Compound's COMP token holders vote on adjustments to collateral factors and supported assets.
• Arbitrum DAO governs its Nitro upgrade and treasury allocation through the ARB token.

Managing a protocol's treasury is a core stewardship function. This involves:

• Budget allocation for grants, security audits, and developer incentives.
• Multi-signature wallets controlled by elected delegates or a security council.
• Optimism's RetroPGF (Retroactive Public Goods Funding) is a prime example, where badgeholders steward the distribution of millions in OP tokens to ecosystem contributors.

Stewards act as first responders during crises. Key implementations include:

• Emergency multisigs or pause guardians with time-locked powers to halt protocol functions in case of an exploit.
• MakerDAO's Emergency Shutdown Module allows MKR holders to trigger a systematic shutdown to protect collateral.
• Security councils, like those in Optimism and Arbitrum, are small, elected groups empowered to execute critical bug fixes without a full governance vote.

Continuous adjustment of protocol parameters is a daily stewardship task. This includes:

• Lending protocols like Aave adjusting Loan-to-Value (LTV) ratios, liquidation thresholds, and interest rate models.
• Decentralized exchanges modifying fee tiers or pool weights.
• Synthetix governance adjusts staking rewards, debt pool composition, and synthetic asset fees to maintain system solvency.

Many token holders delegate their voting power to experts. This creates a class of professional stewards:

• Delegates publish platforms and vote on behalf of delegators.
• Platforms like Tally and Sybil track delegate activity and voting history.
• This model separates capital ownership from governance expertise, aiming for more informed decision-making at scale.

Stewardship extends to managing protocol forks and spin-offs. Key examples:

• The Uniswap v3 license expiration led to forks like PancakeSwap v3 on multiple chains, requiring stewardship of the new codebase.
• Compound Treasury, a regulated institutional product, requires separate stewardship for compliance and risk.
• L2 ecosystem funds (e.g., Arbitrum, Polygon) are stewarded to bootstrap and sustain application development on their networks.

The primary role of a steward is to participate in on-chain governance. This involves voting on proposals that dictate a protocol's future, such as:

• Parameter adjustments (e.g., fee changes, risk parameters).
• Treasury management and fund allocation.
• Approval of core protocol upgrades or smart contract changes. Stewards use governance tokens to signal their preferences, with their voting power often proportional to their token stake.

In Proof-of-Stake (PoS) networks, stewardship is operationalized through staking. Token holders act as stewards by delegating their stake to validators or running validator nodes themselves. This role is critical for:

• Network Security: Stake is used as collateral to secure the chain against attacks.
• Consensus Participation: Validators propose and attest to new blocks.
• Economic Alignment: Stewards are incentivized to act honestly through staking rewards and slashing penalties for misbehavior.

Many DAOs and protocols have a community treasury funded by protocol revenue or token reserves. Stewards are responsible for its prudent management. Key activities include:

• Reviewing and voting on funding proposals for grants, development, and marketing.
• Ensuring long-term financial sustainability of the protocol.
• Managing asset diversification and risk for the treasury's holdings, which may include native tokens and other cryptocurrencies.

In DeFi protocols (e.g., lending markets, stablecoins), stewards must actively monitor and adjust risk parameters to ensure system solvency and stability. This includes:

• Setting collateral factors and loan-to-value (LTV) ratios.
• Managing liquidation thresholds and incentives.
• Adding or removing approved collateral assets based on volatility and liquidity assessments. Failure in this stewardship role can lead to undercollateralization and protocol insolvency.

Technical stewards, often core developers or elected security councils, are responsible for the protocol's code integrity. Their duties involve:

• Auditing proposed smart contract upgrades for security vulnerabilities.
• Managing timelocks and multisig wallets to execute upgrades safely.
• Responding to emergencies, such as pausing contracts in the event of an exploit. This role requires deep technical expertise and is a fiduciary responsibility to all users.

Beyond formal governance, stewardship involves curating the broader ecosystem. This includes:

• Signal voting on forum discussions to gauge community sentiment before on-chain proposals.
• Moderating communication channels and fostering productive discourse.
• Onboarding new users and developers, and advocating for the protocol's values and long-term vision. This social layer is essential for decentralized coordination.

Stewardship is a fiduciary role where a party is entrusted with the custody, administration, or execution of assets or rules on behalf of others, without holding direct ownership rights. It is a critical concept separating operational control from beneficial ownership in systems like DAO treasuries, multi-signature wallets, and upgradeable proxy contracts. Unlike an owner, a steward's powers are explicitly defined and limited by the governing smart contract code or off-chain agreement.

Programmable agents act as automated stewards, enforcing rules with cryptographic certainty. Key examples include:

• Timelock Controllers: Enforce a mandatory delay for executing privileged operations, allowing for community review.
• Multi-signature Wallets (Multisigs): Require M-of-N predefined signatures to authorize a transaction, distributing trust.
• Governance Modules: Execute proposals that have passed a formal on-chain vote, acting as a steward of the community's will. These contracts eliminate reliance on a single trusted human intermediary.

Stewardship frameworks are designed to mitigate key-man risk—the over-reliance on a single individual or entity. Effective mitigations include:

• Role Separation: Distributing powers (e.g., proposer, executor, canceller) among different parties or contracts.
• Transparency & Accountability: All steward actions are recorded on-chain for public audit.
• Progressive Decentralization: The goal is often to reduce steward privileges over time as the system matures, moving control to broader governance.

A primary application of stewardship is the management of a DAO treasury. Stewards (often a multisig council or a dedicated subDAO) are authorized to execute approved budgets, manage investments, or interact with DeFi protocols, but cannot unilaterally withdraw funds. Their actions are constrained by the DAO's constitution or governance framework, making them accountable fiduciaries for the collective's assets.

For upgradeable protocols, stewardship governs the power to change critical system parameters or logic. This is often managed through a structured process:

• A governance token vote approves a change.
• A steward (e.g., a timelock contract) is the only entity with the technical ability to execute the upgrade after a delay.
• This creates a checks-and-balances system, preventing instant, unilateral changes by developers or a single governance holder.

While stewards are meant to be trust-minimized, centralization risks persist:

• Collusion: If a multisig council or a small group of key holders colludes, they can bypass intended safeguards.
• Governance Capture: A malicious actor could acquire enough voting power to appoint themselves as a steward.
• Code Bugs: The smart contract acting as steward may contain vulnerabilities, making it a high-value attack target. Continuous auditing and robust, decentralized steward design are essential countermeasures.