Original title: DeGo in DeFi
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Translator: DRD
Proofreading: Shirley
Words: 3538
Translation agency: DAOSquare
Glossary
DeGo Decentralised Governance
Governance can be defined as “the act or process of managing or supervising the development direction of something (such as a country or an organization).” In the blockchain field, governance usually means how to guide the current and improve the future in the contractual agreement.
How to govern in the blockchain field has always been a hot topic, and it is also a controversial topic, especially in the blockchain community. Basically, it can be divided into two categories: on-chain governance and off-chain governance. On-chain governance can be understood as an algorithm embedded in the blockchain protocol itself, while off-chain governance is guidance and supervision outside the informal blockchain protocol. Tezos is an example of the former, while Bitcoin and Ethereum belong to the latter. However, this article is not about blockchain governance. Vlad Zamfir, Fred Ehrsam and Vitalik Buterin have published some opinion articles on this topic.
This article mainly introduces the technical process behind decentralized governance (DeGo) in the DeFi protocol on Ethereum. We first introduce the broad prospects of the leading DeFi protocols on Ethereum and summarize some key points of their current governance process. In this context, the basic principle of gas-free voting is proposed, and the project that is the first to adopt Snapshop’s technical background in this field is described. We will further discuss the decentralization challenges facing the current implementation of Snapshot, how to use Aragon to perform on-chain and off-chain voting, and how to use Snapshot to improve the anti-censorship capability of protocol communication on Waku.
Agreement and governance
DeFi is a financial application ecosystem based on a decentralized blockchain protocol. This includes financial instruments such as savings, transactions, credit (loans/borrowing), derivatives and insurance. Different from traditional finance, DeFi has three key factors: (1) Follow smart contract writing rules and execute operations to reduce human intervention factors (2) Transparent open source audit smart contracts and transactions on the blockchain (3) Inaccurate Participate in the creation, use, modification or combination of various projects conditionally.
Maker is a DeFi project that created the most famous Dai stablecoin. Compound and Aave are currently the hottest DeFi lending platforms. Uniswap, Curve and Balancer are the most commonly used decentralized exchanges. Synthetix is a DeFi project used to track the value of physical assets. Yearn is a DeFi project that integrates loan aggregation, income aggregation and insurance. Nexus Mutual is an alternative community-based insurance platform that allows members to insure against the risks of leaks in smart contracts. Aragon is a platform for launching and managing decentralized organizations (DAO), typical applications such as Aave and Curve.
These DeFi projects have corresponding governance mechanisms to collaboratively determine the project’s operating direction and agreement adjustment strategies. Only holders of project-specific governance tokens are allowed to vote in these governance processes. The tokens of the above 10 DeFi projects are MKR, COMP, AAVE, UNI, CRV, BAL, SNX, YFI, NXM and ANT.
Maker’s governance model: “MKR holders are responsible for governing the Maker agreement, which includes adjusting the Dai stablecoin policy, choosing new collateral types, and improving the governance model itself.”
The community discusses in Discourse. Voters need to hold Maker (MKR) tokens and conduct it on a dedicated governance platform.
Governance requires voting to make technical changes to the agreement, such as modifying collateral/vault types, parameters, and smart contracts. Usually a round of research is conducted before voting to roughly judge the overall intentions of voters. The above operations all happen on the chain. MKR voters are locked in the voting contract, and the voting results are measured by the MKR based on the number of votes cast in the proposal.
Maker actually has an informal off-chain governance mechanism. They use Discourse to conduct informal polls on Signal Threads and Informal Polls, giving everyone the opportunity to express their positions on related topics, and evaluate the opinions in the community before deciding whether to move them to the chain. These do not require participants to hold MKR tokens or interact on the blockchain in Ethereum.
When the topic creator confirms that he has received informal support from the community supporters, he sends a request to create a corresponding on-chain governance polling, thereby realizing the migration of governance from off-chain to on-chain.
Compound governance model: Compound contract protocol is managed and upgraded by COMP token holders through three different components, including COMP token, governance module (GovernorAlpha) and Timelock. In general, these contracts allow the community to implement changes through cToken or Comptroller proposals and votes. The content involved can include changes such as adjusting the interest rate model and adding new assets. Any participant with more than 100,000 COMP tokens can propose governance through executable code. When a proposal is created, the community can usually vote during the 3-day voting period. If the proposal gets a majority and has at least 400,000 votes in support, it will queue up in Timelock and be executed two days later. “
Although in the creation stage, the Compound core team has management privileges for contract changes and did not use governance tokens. However, they introduced COMP governance tokens in February 2020 to transition to a future model of community governance by decentralized token holders. .
Community discussions are also conducted in Dicourse. Voting requires holding COMP tokens and conducting them on their dedicated governance portal.
Compound clearly supports no-gas voting and delegation using EIP-712 signatures. The advantage of this is that voters or their representatives can sign their voting information off-chain, and then let a trusted third party spend ETH to pay gas fees to finally complete the on-chain voting.
Aave governance model: “Contract governance consists of different decision-making procedures for risk parameters, improvement opinions and triggers. Aave’s future decisions on contracts will be completed through this procedure. AAVE tokens empower holders to conduct proposals. The right to vote, and act in concert as the manager of the contract.”
Aave implemented a four-stage governance process: 1. Initiatives, community members can initiate proposals and discuss them in Discourse, and submit feasible next-stage opinions. 2. Discuss and gather information, conduct further discussions on the initiative, and then evaluate community feedback on the governance plan. 3. The creation team approves the required smart contracts and submits a proposal or allows AAVE token holders to vote. 4. Vote to approve the implementation plan, and reject the plan if the vote fails.
The Aave governance model was released on the Ethereum mainnet in September 2020. The first suggestion is to migrate from the old LEND token to the new AAVE token and execute it off-chain on the Snapshot platform (described later in this article). The contract management key was handed over to the governance contract in October, thus transferring ownership to the token holder community.
Uniswap governance model: “Uniswap contracts are managed and upgraded by UNI token holders, using three different components: UNI tokens, governance module and Timelock. These contracts allow the community to propose, vote and change Uniswap contracts. Anyone with more than 100,000 Participants of UNI tokens can propose governance through executable code. When a proposal is created, the community can usually vote within a 3-day voting period. If the proposal gets a majority and has at least 4 million votes in support, it It will be queued in Timelock and executed in two days.
Uniswap implemented a three-stage governance process: 1. Temperature research, community members initiate proposal discussions on the Discourse forum, and then conduct evaluation and voting in Uniswap’s Snapshot space. If within 3 days, the proposal receives 25,000 UNI votes, it is considered to have received sufficient support to enter the next stage. 2. Consensus survey, that is, a formal discussion of potential proposals on Discourse, and then another snapshot vote on specific options (including make-no-change options). If within 5 days, a specific plan of the potential proposal receives 50,000 UNI votes, it is considered to be able to enter the next stage. 3. Governance proposal, the winning proposal of the previous stage is edited, audited, and proposed (1% of the support of all UNI token holders is 10M UNI), and then submitted to the governance portal for on-chain voting. After a 7-day voting period, the proposal codes that pass the test (4% of the UNI is required, that is, 40 million UNI) will be queued in Timelock and executed in two days.
Uniswap supports offline signature based on EIP-712. It also supports “soft governance” for matters that do not require voting on the chain through community discussions and other methods.
Curve governance model: “Curve DAO was officially launched on August 13, 2020. Its DAO allows liquidity providers to make decisions on many aspects of adding new pools, changing pool parameters, adding CRV incentives and Curve contract agreements. Curve DAO generation The main purpose of currency issuance is to incentivize liquidity providers on the Curve financial platform and allow as many users as possible to participate in the governance of contract agreements. At present, CRV tokens have three main purposes: voting, mortgage and boosting. These three One thing will require you to lock up your CRV tokens to obtain veCRV tokens before voting.”
CRV is a multi-purpose governance token on the Curve platform, with a time-weighted voting and value accumulation mechanism. CRV holders can lock their CRV into Curve DAO to obtain veCRV (Voting Escrow CRV) tokens required for voting. The longer the lock-up time, the greater the voting power. The shortest lock-up time is one week and the longest is four years. The weight of veCRV will gradually decrease as it approaches the lock-up period.
Participants can also create informal proposals on the governance forum and evaluate them on Snapshot. Modifying the Curve contract agreement requires official proposal suggestions, which are divided into two types: parameters and text. Parameter suggestions are automatically submitted to DAO three days after successful voting, while text suggestions usually require the participation of the Curve team. At least 2500 veCRVs are required to create a new DAO proposal.
Summary: In summary, the governance process described above usually involves three technologies: 1. Discussion forums (such as Discourse), where community members informally propose and discuss options 2. Signal forums (such as Snapshot), where community members holding tokens are online Voting to express their attitude towards the proposal 3. Voting forum, community members holding tokens vote on the chain to officially approve or reject the implementation of the proposal.
Not limited to the blockchain field, many communities are using information platforms such as Discourse, Discord, Gitter, Telegram, or Slack for discussion and communication. The voting forum is currently a standard Dapp, requiring users to link an encrypted wallet (used to access their governance tokens) and a smart contract interface in the blockchain. For the DeFi governance process, currently relatively new and unique tools actually appear in the field of information forums, a typical example is Snapshot.
Snapshot
Snapshot is described as: “A gas-free multi-governance client under the chain, easy to verify, and protect results.” This is an open source project promoted by Fabien Marino of Balancer Labs, which allows token-based projects to be there Issue a proposal to allow token holders to vote off-chain without the need for blockchain transactions, that is, without paying gas and transaction fees. Proposals and votes are stored on IPFS in the form of signature information.
Driving force: Ethereum gas prices hit a record high in 2020, which is largely due to DeFi applications. Although large-fund users or the largest token holders may not worry about the increase in gas fees, this may have a real impact on the future of small token holders. They may therefore give up DeFi governance on the blockchain, especially when many decisions need to be processed by holding tokens. It can be said that this restriction of Ethereum weakens the political decentralization of contract agreements.
Although the critical voting phase may inevitably need to be carried out on the Ethereum blockchain as it is today, to ensure decentralization and resist censorship and supervision. But the relatively less critical, but still important, early stage of information transmission needs to be done off-chain without gas fees. Snapshot aims to meet this current demand.
In addition to the aforementioned projects, other industry-leading DeFi projects are actually using Snapshot, including Yam, Year, Balancer, Sushi, Swerve, Pickle, Aragon, mStable and Cream. Maker and Compound also seem to be considering using Snapshot to complete information transfer.
Architecture : Snapshot has a web client connected to the Hub server. Display the space of different items through the web interface. The Snapshot space is a place for a single project to list voting proposals based on tokens. The Snapshot space is created through the ENS domain on the web interface.
In the space connected to the wallet (tokens of a specific project), we can create a proposal, which includes: title, proposal content, voting options, start/end time and number of tokens, etc., and submit signature information from the wallet ( It is planned to transition to eip-712) in the near future.
Voting on the proposal needs to be done in the space of the designated project. First connect to a wallet (holding the token of the project), and then select the required voting options, and submit the signature information from the wallet.
The signed proposals and voting information are sent to the Snapshot center, which then uploads them to IPFS for distributed storage. In addition, the center also stores the IPFS index information of all proposals and their votes in the database in order to satisfy the client’s request for fast loading.
The method used to calculate the voting results of a proposal is called a strategy (). The strategy is a JavaScript function in the web interface that returns the score for a set of addresses. The default strategy is to calculate the ERC20 token balance of the proposed project in the blockchain for voters. Performing these calculations off-chain actually provides greater flexibility for experimenting with different governance models, because iterating using JavaScript strategies is faster than using smart contracts on the chain.
Decentralization challenge
In the DeFi governance process, off-chain information transmission is becoming a prerequisite for on-chain voting. On-chain voting is becoming less credible, more decentralized, expensive and inefficient. Information transmission is an effective practice of voting, which is free and fast. However, due to the intermediary nature of the practice transaction, this operation is bound to weaken decentralization.
If these challenges can be fully resolved, we can significantly benefit from free, fast, and increasing (lower transaction friction) off-chain voting without compromising the decentralized nature of on-chain execution. We can currently use Snapshot as a blueprint for research.
As far as Snapshot is concerned, if proposals and votes must be transformed into binding on-chain governance, they will depend on two intermediaries:
1. Trusted multi-signature : Recall that multi-signature wallets first appeared in smart contract wallet accounts (on Ethereum), and they executed wallet transactions by enforcing a minimum number of signatures (m-of-n). In the environment of DeFi projects, trusted multi-signatures often come from a group of respected members in the community who are entrusted to execute project decisions (voting) by signing on-chain governance transactions corresponding to the votes of the proposal. . These decisions may involve financial, transaction, or contractual agreement modification.
From the perspective of social technology, trusted multi-signature has the risk of centralization. Although holders of multi-signature power are unlikely to make decisions that deviate from the community’s main focus. But in theory, they may overthrow and abuse their power. The probability of m-of-n collusion is very low (if m is large enough, for example 6-of-9), but not zero. In contrast, according to the size of the project community and the distribution of tokens, an order of magnitude (for example, 100) can be set, requiring holders of a certain number of tokens to share the results of decision-making proposals.
To sum up, in fact, if we can explore a non-credit way to transfer the approval power from off-chain voting to on-chain, we can prevent this decentralized dilution.
2. Centralized Hub: Snapshot Hub is a server whose web interface is used to store and retrieve IPFS signature information corresponding to proposals and votes. This obviously has a centralization risk, although it may be weakened. For example, by running a consortium of servers managed by participating projects, the client-server paradigm inherently weakens decentralization and increases the monitoring potential compared to peer-to-peer (p2p) networks.
This may be solved by completely deleting the storage/retrieval proposal directly from IPFS using a p2p network or some way. People currently think that the latter option is highly possible. The method is to connect related IPFS hash values, but the sequential nature of retrieval may make its efficiency slow and impractical.
Next, we will discuss potential solutions to the above two challenges.
Snapshot + Aragon
Aragon is a leading supplier of DAO-related governance products and infrastructure services. In October 2020, Aragon and Balancer Labs announced a cooperation plan to combine the off-chain voting function of Snapshot with the on-chain execution function of Aragon DAO for optimization.
Optimal execution is an on-chain function that allows (without on-chain verification) to execute submitted results through mortgage bonds. If no one disputes the result within the dispute window, the result will be considered as a binding final decision. If someone questions at the dispute window, the chain will be executed or verified. If there is a violation entity, it will be punished. (Note that this is conceptually similar to optimistic rollups.)
In the proposal, trusted multi-signature is replaced by the DAO of the project token holder. After the Snapshot vote is over, anyone can submit an approved operation to the DAO on the chain. DAO sets a fixed period for disputes before Aragon (agent) executes. Disputes are handled by Aragon (court).
When the DeFi protocol evaluates this proposal, it will be very interesting to see how it works.
Snapshot + Waku
The Status app combines privacy-based communication with wallet functions and a Ðapp browser. The communication software is supported by a decentralized p2p network, which aims to eliminate centralized rent-seeking intermediaries and single points of failure, and to increase resistance to censorship. This communication software is not the only one with two endpoints-from the information source to the server, and then to the target client with a “client-server” architecture. This kind of communication mode is equivalent to them hopping information among all clients. Although each endpoint receives the information, no one knows what the information is except the real information receiver, which realizes the decentralization of communication.
The protocol transport layer of this communication software is implemented by Whisper’s successor Waku, which provides routing, metadata protection, topic-based propagation and encryption algorithms. Waku uses the concept of topic (topic) to divide information. The title is actually a string derived using a specified algorithm and packed in “Envelops” for use. The “envelope” combines the encrypted message with this topic and TTL (time -to-live) are encapsulated together.
Waku v2 is developing a general messaging layer, any project (except Status) can use it to implement a complete, extensible, encryption-centric and user-driven p2p routing protocol. One of the original goals of the Whisper protocol is to promote the application of M2M (machine-to-machine) in Ethereum, such as wallets, Dapp applications, and two-layer expansion to achieve communication-level multi-signature technology and DAO voting. Waku’s goal is to achieve this M2M layer communication.
Using Waku, the Snapshot center can be replaced by nodes in a p2p network, through which signed proposals and voting information are forwarded to IPFS. In the future, a network of user nodes can also be deployed to store votes without relying on IPFS. This is similar to the way that Status communication software uses historical nodes to store information for offline clients.
This method prevents the central server from reviewing proposals by selectively deleting them or voting. In addition, any node can verify the results of the proposal through independent vote counting and, if necessary, exert influence on any opinions submitted on the chain.
Let us recall that the first stage of governance is often discussion. Waku has provided support for Status communication software that supports public channels (except private chat and 1:1 chat). Status communication software also adds community-oriented features, such as read-only channels and audit functions. Combined with the Status wallet, we can bundle discussions and information forums together, driven by token holders and the privacy-protecting Waku protocol, which will be an interesting thing. Community members can discuss governance issues in the communication forum, use tokens in their wallets to resolve priorities, and finally vote on the Dapp chain. Today, the Status app already has these three functions.
to sum up
The governance of decentralized finance (DeFi) agreements covers every aspect of the agreement, such as deploying inventory funds to different work sections, enhancing design and development, adjusting parameters that affect costs and benefits, and integrating with other contractual agreements. Even improving governance itself. As DeFi protocols gain more attention, their governance can be said to become more critical, whether it is to stand out in the same industry and field or to survive.
In this article, we introduced some industry-leading DeFi protocols and summarized the key points in the governance process of Maker, Compound, Aave, Uniswap, and Curve. In this context, we briefly introduce the basic principles of gas-free voting, Snapshot and its architecture. Finally, it discussed the decentralization challenges in the current implementation of Snapshot and how to use Aragon and Waku to solve these challenges.
An effective governance system designed to allow community members holding tokens to participate in an inclusive manner must have the characteristics of good user experience, low friction, and decentralization and anti-censorship as the foundation.
The foundation of decentralized governance (DeGo) meets this demand in the Defi field. The Defi world needs to embrace DeGo.
(Thanks to Barry Gitarts, Fabien Marino, and Corey Petty of Balancer Labs for reviewing the draft of this article and providing useful feedback. Thanks to Alex Howell for the thoughtful illustrations.)
