DOT re-denominations have demonstrated the potential of on-chain governance, which can achieve changes that are almost impossible on other blockchains.
Original Title: “Polkadot Re-denomination: A Practical Perspective on On-Chain Governance”
Written by: Su Zhu, Co-founder of Three Arrows Capital
Polkadot is a long-awaited protocol, and it will become one of the largest mainnet protocols released in 2020. Its mission is interoperability, shared security, development through WebAssembly, and user-driven network governance.
Today, we first explain the concept of on-chain governance more broadly, and then examine the recent community-driven attempt at re-denomination of DOT (Polkadot’s native token). It interestingly demonstrates the power of on-chain governance and the inherent trade-offs.
Overview of on-chain governance
On-chain governance is a governance and upgrade of blockchain protocols implemented through on-chain voting. Everyone has the opportunity to propose changes to the agreement, making it a referendum. During the voting period, token holders can vote for or against the referendum.
The two largest public blockchains, Bitcoin and Ethereum, currently do not adopt any form of on-chain governance. Instead, they use so-called rough consensus (a concept derived from open source engineering) to express “group consciousness.” In essence, the core maintainers of the code base are discussing rather than voting, and believe in the possibility of reaching agreement through discussion. When this consensus is arbitrarily deemed to have been reached, the core maintainer will arrange for software upgrades.
Although this is effective for many questions, it also means that there is no formal way to deny or affirm an idea. There are informal token voting on Ethereum, or opinion polls to express opinions, and signals can be sent by nodes and miners on Bitcoin. However, these are non-binding preference signals and cannot be directly translated into changes in the protocol layer.
In practice, some technical political disputes cannot be resolved through rough consensus. In extreme cases, not only is there no rough consensus on specific recommendations, but the dispute camp no longer reaches a consensus on how to reach a future agreement. This led to a controversial hard fork-the creation of two independent blockchains that shared transaction history but diverged at a specific time. As far as Bitcoin is concerned, the Bitcoin Cash hard fork occurred in August 2017 because a group of people within Bitcoin believed that the block size limit should be increased, while another group believed that it should not. . In Ethereum, after early experiments went wrong and a large amount of Ether (ETH) entered the hands of hackers, some people preferred the chain that allowed hackers to maintain their interests, while others preferred to roll back the snapshot to the chain before the attack.
In addition to the controversial hard fork, another problem faced by rough consensus governance is that proposals may be repeatedly proposed without any formal way to reject or confirm them. For example, ProgPow, the idea of changing the Ethereum proof-of-work algorithm, is raised every few months, but there is no way to solve this problem. Interestingly, when it is brought up again, it is usually from the core developers of Ethereum, claiming that this technological upgrade seems to be ready for the next fork. In fact, proponents of changes tend to describe their efforts as technological upgrades rather than political upgrades.
Tezos is the first large-scale project to deviate from rough consensus and deploy on-chain governance. The first description was in August 2014, and the mainnet was released in September 2018. Tezos describes itself as a “self-modifying ledger” and assumes that it can be developed and upgraded without forks by formalizing proposals, voting, and implementation. Tezos’ native token, XTZ, allows users to vote on these suggestions with one vote per currency.
Since Tezos, several other projects (including the base layer and the application layer) have sought to use the principles of on-chain governance to determine future course of action. The largest of these is Compound, which is an Ethereum-based autonomous money market application that uses proposal-based voting to determine the parameters of its economic system.
Polkadot re-denomination
Back to Polkadot, the lowest unit of the Polkadot network is a Planck, and the total supply is 10^19 Planck.
Polkadot’s native token is called DOT, which is defined as 10^12 Planck. Therefore, the total supply is 10^7 = 10 million DOT. Calculated at a price of $100/DOT, this means a market value of $1 billion.
The community is considering whether to change the definition of DOT from 10^12 Planck to some other number of Planck, that is, 10^10 Planck. If this is implemented, it means that those who hold 1 DOT will now have 100 DOTs. It is truly unprecedented that such denomination changes occur on major public chains without the need for token swaps or hard forks.
We have summarized its advantages and disadvantages.
Advantage:
- The price of each DOT is closer to $1 instead of $100, which is more readable and reduces the need for decimal places.
- Allowing users to afford complete DOT units will lead to wider participation and participation; the currency price of most newly issued projects is now between $0.5 and $10, including Ethereum’s own initial price ($0.30).
- Greater DOT circulation will make it more likely that people will use them on the network instead of hoarding them.
Disadvantages:
- Users may be confused by this change at first, especially when they have already purchased currency and the wallet/SDK/UI must be updated appropriately.
- Polkadot’s canary network Kusama runs at 10^12 (12 decimal places), which can cause confusion.
- Some people prefer higher unit prices and lower circulation supplies. A supply of 10 million will make DOT one of the current currencies with the lowest money supply.
In mid-May, a non-binding referendum to reset the denomination to 10^10 Planck was held in Kusama and passed, but the same referendum also needs to be held in Polkadot itself to take effect.
The community is now participating in a new referendum. The voting module allows voters to choose between 10 million, 100 million, 1 billion and 10 billion DOT totals. If passed, it will only be executed 72 hours after Polkadot transferability is enabled to allow time for OTC transactions to settle.
Regardless of the result, it demonstrates the potential of on-chain governance, enabling changes that are almost impossible on other blockchains. I personally believe that the advantages of denominations are durability and practicality, which ultimately conforms to the spirit of Polkadot itself.
Thanks for the feedback: D1 Ventures, Jack Platts and Peter Mauric.
Source link: insights.deribit.com
