Governance Authority

The formal process for suggesting changes to the protocol. Proposals are typically submitted on-chain and require a bond or deposit to prevent spam. They can range from simple parameter adjustments to complex code upgrades. Key stages include:

• Drafting: Creating a formal specification.
• Temperature Check: An initial, informal community vote.
• On-Chain Proposal: The formal, binding vote is initiated.

The systems used to aggregate stakeholder preferences and reach a decision. Common mechanisms include:

• Token-Weighted Voting: One token equals one vote, used by systems like Compound and Uniswap.
• Quadratic Voting: Voting power increases with the square root of tokens committed, reducing whale dominance.
• Conviction Voting: Voting power increases the longer a vote is locked, used by 1Hive.
• Delegated Voting: Token holders can delegate their voting power to representatives.

The governance authority controls a community treasury, a pool of native tokens or other assets used to fund ecosystem growth. Governance processes decide:

• Grant allocations for development, marketing, and research.
• Budget approvals for core development teams.
• Token buybacks and burns to manage tokenomics.
• Protocol-owned liquidity initiatives. Examples include Aragon DAOs and Optimism's RetroPGF rounds.

The technical process of implementing approved proposals. This is a critical security feature. Methods include:

• Timelock Contracts: Enforce a mandatory delay between a vote's passage and execution, allowing users to exit if they disagree.
• Multisig Execution: A multisignature wallet controlled by elected delegates carries out the upgrade.
• Autonomous Execution: The proposal contract itself contains the code to be executed directly upon passing, as seen in some Compound upgrades.

Systems that allow token holders to delegate their voting power to experts or representatives, creating a more efficient and informed governance layer. This is central to Delegated Proof-of-Stake (DPoS) and many DAOs.

• Delegates (or Validators in DPoS) vote on behalf of their delegators.
• Delegator rewards may be shared to incentivize participation.
• Voting Delegates on platforms like Snapshot allow for off-chain signaling without moving assets.

Mechanisms to handle contested decisions, malicious proposals, or protocol emergencies. These are the circuit breakers of governance.

• Veto Powers: A final authority (e.g., a security council or multisig) can veto a malicious proposal.
• Governance Minimization: Designing the system to require fewer upgrades, reducing attack surface.
• Fork as Exit: The ultimate recourse where a dissenting community can fork the protocol with the updated state, as demonstrated by the Ethereum/ETC split.

A system where token holders delegate their voting power to elected or self-selected representatives, creating a representative democracy. This reduces voter apathy and centralizes expertise.

• Optimism Collective: Token holders elect Citizens' House delegates to vote on grants and incentives.
• Arbitrum DAO: ARB holders delegate to representatives who vote on treasury allocations and protocol upgrades.
• Cosmos Hub: ATOM holders delegate to validators who vote on-chain proposals, linking security and governance.

An experimental model where governance authority is expressed through prediction markets. Decisions are made based on which proposal the market predicts will achieve a better outcome metric.

• Augur: A decentralized prediction market platform where outcomes can be used to inform governance decisions.
• Tezos: Has explored futarchy proposals where token holders vote on desired outcomes, and traders bet on the best policy to achieve them, with the winning policy implemented.
• This model aims to aggregate wisdom and incentivize truth-seeking over sentiment.

Authority is delegated from a main DAO to specialized subDAOs or working groups with domain expertise. This creates a hierarchical or federal structure.

• Aave: The Aave Grants DAO has authority to distribute funds for ecosystem development, independent of the main Aave governance.
• MakerDAO: Has Core Units (e.g., Risk, Oracles) with delegated budgets and operational authority.
• ENS DAO: Uses working groups like the Meta-Governance Working Group to manage specific governance functions.

Authority is constrained by a constitution or charter, and certain bodies may hold veto power to protect against malicious proposals or protocol capture.

• Optimism Collective: The Token House can pass proposals, but the Citizens' House has veto power over treasury fund allocations.
• Compound: Proposals have a timelock delay, during which a Guardian (initially the Compound Labs team) could veto malicious actions.
• These mechanisms add checks and balances, balancing agility with security.

The most common model where voting power is proportional to the amount of governance tokens held. This creates a one-token-one-vote system, aligning influence with economic stake. Key mechanisms include:

• Snapshot: Off-chain signaling to gauge sentiment without gas fees.
• On-chain voting: Binding votes executed via smart contracts, often requiring a quorum and majority threshold.
• Vote delegation: Token holders can delegate their voting power to experts or representatives.

Authority is vested in a small, elected or appointed group of signers (e.g., a 5-of-9 multisig wallet). This model prioritizes security and efficiency over broad decentralization. It's common in early-stage protocols and for controlling treasury funds or protocol parameters. Examples include:

• Gnosis Safe: Standard tool for managing multisig wallets.
• DAO Councils: Elected committees that execute approved proposals or handle emergency actions.

The formal process for enacting change, typically involving distinct phases:

1. Temperature Check: Informal discussion to gauge community interest.
2. Consensus Check: Refining the proposal based on feedback.
3. Governance Vote: Formal, binding on-chain vote by token holders.
4. Timelock & Execution: A mandatory delay between vote passage and execution, allowing users to exit if they disagree with the change.

Participants who actively research proposals and vote on behalf of token holders who delegate to them. This role is critical for an informed and efficient governance process. Key aspects include:

• Voting Power: Accumulated from delegators, making top delegates highly influential.
• Delegate Platforms: Tools like Tally and Boardroom track delegate platforms and voting history.
• Delegate Compensation: Some protocols incentivize participation with grants or a share of protocol revenue.

Vulnerabilities inherent in decentralized governance systems. Common attack vectors include:

• Vote Buying: Accumulating tokens temporarily to swing a vote.
• Tyranny of the Majority: Large holders pushing through self-serving proposals.
• Voter Apathy: Low participation allowing a small group to control outcomes. Mitigations include vote escrow (locking tokens for power), quadratic voting, participation rewards, and veto powers granted to a delay mechanism or safety module.

Contrasting approaches from major protocols:

• Uniswap: Pure token-based governance where UNI holders control the treasury and core parameters.
• Compound: COMP holders govern the protocol, with a built-in Timelock for all upgrades.
• MakerDAO: Complex delegate system with Core Units (paid teams) and Emergency Shutdown modules.
• Optimism: Citizens' House for grant funding and Token House for protocol upgrades, experimenting with retroactive public goods funding.

On-chain governance encodes voting and execution directly into the protocol's smart contracts, where token-holder votes automatically enact changes (e.g., Compound, Uniswap). Off-chain governance relies on social consensus and multi-signature wallets controlled by a core team or foundation to implement decisions discussed on forums (e.g., early Ethereum Improvement Proposals). The former prioritizes automation and censorship resistance; the latter favors flexibility and speed but introduces centralization risk.

The most common mechanism where voting power is proportional to the quantity of governance tokens held. This creates a plutocratic system, aligning power with economic stake. Key considerations include:

• Vote delegation: Users can delegate voting power to experts or representatives.
• Sybil resistance: One token equals one vote, preventing identity-based manipulation.
• Concentration risk: Large token holders ("whales") can exert disproportionate influence, potentially leading to governance attacks.

Critical security layers that constrain how governance authority is executed. A multi-signature wallet (e.g., Gnosis Safe) requires M-of-N approved signatures from a set of trusted entities to execute a transaction, preventing unilateral action. A timelock imposes a mandatory delay between a governance vote's passage and its execution. This delay allows users to review code changes and, if necessary, exit the system before a potentially malicious proposal takes effect.

Governance systems are targets for exploits that seek to drain protocol treasuries or alter rules maliciously. Common attack vectors include:

• Token borrowing: An attacker borrows a large quantity of governance tokens to pass a self-serving proposal.
• Voter apathy: Low participation allows a motivated minority to control outcomes.
• Proposal spam: Flooding the system to obscure a malicious proposal. Mitigations include quorum requirements, vote delay periods, and guardian roles with emergency pause functions.

A development philosophy where a project launches with more centralized control for efficiency and safety, then deliberately transfers authority to a decentralized community over time. This involves:

• Gradual release of governance tokens via airdrops or liquidity mining.
• Handing over admin keys or burning them entirely.
• Establishing community-run treasuries and grant programs. The goal is to eventually achieve credible neutrality, where no single entity controls the protocol's future.

Understanding governance authority requires familiarity with adjacent mechanisms:

• Forking: The ultimate governance mechanism; if a community disagrees with a decision, it can copy the protocol's code and start a new chain (e.g., Ethereum Classic).
• Constitution or Charter: A social contract, often documented off-chain, that outlines the protocol's core values and immutable principles.
• Minimal Viable Governance (MVG): Designing the simplest possible governance system that reduces attack surface while maintaining essential functionality.