The Voltaire Era in Cardano is moving forward. It started with the Catalyst Project, a governance system that seeks to finance private projects in the ecosystem, using public funds from the Treasury, voted by the community.
The CIP-1694 (Cardano Improvement Proposal) was recently presented, a proposal to create a governance system. At the end I leave an article that I wrote on this topic (1).
This is an opinion article, and as such you can agree or not, and that is precisely what governance is about, disagreements and points of agreement to manage a social and economic system.
First of all I want to explain the difference between Pure Democracy and Representative Democracy, then I will describe the proposal presented by IOG, and finally mine.
Pure Democracy or Representative Democracy
In Democracy, decision-making corresponds to the people, although the government is exercised by a ruler, or body of rulers, who manage the decisions voted on. The definition of Pure (direct) or Representative Democracy depends on the voting system.
Most of the countries do not have a pure democratic system, but rather a representative government system, understanding Pure Democracy as one in which voting is directed by the members of the system, the population, regardless of whether governance is executed by a person or a collegiate group.
Certain countries have direct vote of the president, but indirect on the laws, since they vote legislators who later will create them. In a Pure Democracy citizens vote on proposed laws. An example of direct voting is the Referendum, an exceptional consultation of the population on a certain issue, which could lead to a bill.
The term democracy has its origin in the Greek, “δημοκρατία dēmokratía”, which means the authority of the people.
Democracy originated in ancient Athens during the 5th century B.C. The leader Solon and then Cleisthenes made numerous important reforms. One of the reasons this system was viable was due to Athens’ small population of about 300,000.
The Republic originates from the Latin word “respublĭca”, official thing or public thing, in the year 509 B.C. in Rome.
Most modern nations, including the United States, are Democratic Republics. Therefore, the form of government is not Pure Democracy.
Another widely used representative system is Parliamentary Democracy, implemented in States that were former monarchies, for example the Republics of the Commonwealth. Thus, the head of State (the King) has been limited in his management, incorporating a Prime Minister, democratically elected, with executive power collegiate through Parliament.
Having explained the basic concepts, we can now consider the two issues related to governance:
1. the system of government itself, Pure Democracy or Representative Democracy, and
2. the voting system, which defines who can vote and what is the voting power of each voter.
The Current Governance Proposal in Cardano
The CIP-1694 consists of four components: the Constitution, the governing body, government actions, and voting mechanisms.
The CIP proposes a representative system for the governing body, which has 3 actors for decision-making for different governance issues, and with voting based on tokens.
I will analyze the governing body and voting mechanisms.
By following a well-defined set of rules for different topics, any Cardano user will be able to submit a governance share, but there will be three different groups, which will be responsible for ratifying these governance shares using their on-chain votes, which will be based on holdings from $ADA:
- A Constitutional Committee
- A group of Delegation Representatives (DReps)
- Stake Pool Operators (SPOs)
CIP says: “As with stake pools, any Ada holder may register to be a DRep and so choose to represent themselves if they wish, or they may, instead, delegate their voting rights to any other registered representative. These voting rights will be based on Ada holdings.”
A few months ago I wrote an article in which I analyzed the DReps system (2).
Then, regarding the voting system, CIP-1694 says:
“Definitions surrounding Voting Stake
We define some notions around voting stake: Lovelace contained in a transaction output is considered active for voting if:
─It contains a registered stake credential.
─The stake credential has delegated its voting rights to a registered DRep.
Relative to some given percentage P, we say that there is sufficient active voting stake if the ratio of the total active voting stake to the total stake in circulation is at least P.
Relative to a percentage P, a DRep (SPO) vote threshold has been met if the sum of the relative stake controlled by the DReps (SPOs) voting ‘yes’ to a governance action minus the sum of the relative stake controlled by the DReps (SPOs) voting ‘no’ is at least P.”
In my opinion, the initial form of government that the Cardano blockchain can have is a DAO, with direct participation of the community and a system of quadratic voting.
I said “initial” because, of course, we will always have to evolve looking for changes that allow us to improve the system of government.
I will explain the three components that I propose: DAO, direct participation and quadratic voting.
A Decentralized Autonomous Organization (DAO) is a system that runs on a blockchain protocol completely and autonomously, according to the rules codified through smart contracts.
By dispensing with the need for human intervention or central coordination, DAOs are often referred to as ‘trustless’ systems.
With cryptographic instructions that are automatically executed when pre-specified conditions are triggered, DAOs enable levels of transparency, cost savings, and decentralized decision-making that were previously unattainable.
The genesis of the DAO is to align the incentives of stakeholders, from founders to shareholders (with governance tokens), users, and the community at large.
I leave my article for you to deepen your knowledge about DAOs (3).
The main rationale presented by those who advocate the need for the representative system (DReps) as opposed to direct participation, argues that most members of the Cardano community do not have sufficient technical knowledge for certain topics, for example improving the L1 protocol. It is then that according to them, a representative who can have this knowledge is more suitable for governance, and they prefer that the voting power be delegated to said representative.
I ask, how is it possible that the average voter, who does not have sufficient technical knowledge, decides which representative does have it and thus delegates their voting power? Should you blindly trust that a certain member is qualified without even delving into the subject? Because if a person studies the subject, listening to the different “expert” voices and understands it that way, to responsibly choose a DRep, then they are qualified to vote by itself without the need to delegate.
Why delegate voting power without knowing and agreeing with the representative? This leads to looking for influencers with good marketing, and this does not result in a very responsible or positive decision for the system.
It is very difficult to always agree with one DRep for all issues, so that means studying the issue to see if that DRep is still suitable to delegate to, and as I said, if you study the issue, watching the debates, each member has the direct voting capacity.
Debates educate and form opinions, so that different members can understand the issue and then vote directly.
If there are members who do not understand a certain topic, and could not study it, then they will not vote, the vote is not mandatory.
Although the IOG proposal allows any member of the community (ADA holder) to be a DRep, the reality is that this application implies one more step in the voting system to be able to exercise the right for oneself, and this does not simplify the things for governance. We have the example of Catalyst, with direct voting, with the simple registration of the wallet, and even then it has very low participation.
This system of intermediary representatives encourages the concentration of power, encourages the community not to DYOR and to delegate their power.
As in representative democracies, the DReps are likely to be more interested in retaining their power, their Status Quo, than actually improving the system. We have unfortunate experiences in different countries about these “professional politicians”.
The blockchain was built with a design without intermediaries, why violate this principle?
Governance must be decentralized, and for this the distribution of power is key, which is the opposite of its concentration in the representatives. And this centralization is also an attack vector.
There are multiple systems for issuing votes, and you can see the best known in my article (4).
The system proposed by CIP-1694 is token-based voting. This is how it is also implemented in the Catalyst Project. The problem that arises is that the weighted weight in ADA holdings gives too much power to large holders, promoting a plutocracy, i.e. a set of wealthy citizens who exert their influence on governance.
In my opinion the system Quadratic Voting is the most appropriate to mitigate this situation, since each voter has a given voting power as “credit” from their holdings, and it is calculated as the square root of the “credits” assigned to each election.
For Cardano it means that the credits are the holdings of $ADA, and to add more credits, more holdings must be added, but they grow less than proportionally.
This matrix compares token-based voting and quadratic voting, showing that quadratic voting increases voting power by less and less as ADA funding increases:
This model protects minorities, respects the “skin in game” criteria, and helps balance power against whales, better distributing community sentiment compared to token-based voting.
I leave an article on the subject (5).
Community members weigh in on this topic. I bring as an example the Twitter thread by Vanessa Harris, with her critical analysis of the full CIP proposal, and you may realize after reading my article I particularly do not agree with her opinion on the DReps issue, but this is what democratic participation is all about, the exchange of ideas looking for the best for the ecosystem.
. . .
(1) A CIP for a Decentralized Governance Mechanism for the Voltaire Era
(2) Decentralization Vulnerable in Cardano Catalyst: dReps
(3) Decentralized Autonomous Organization (DAO): The Brief History, Challenges, and Lessons Learned
(4) Defining Decentralized Governance and the Multitude of Different Models