Disclaimer: The opinions and perspectives expressed in this article are the personal views of the author and do not reflect the stance of the editorial team at crypto.news.
When cryptography and cryptocurrencies first emerged, their power lay in their ability to operate independently from centralized control, which has long fueled inequality in financial systems. As we enter 2023, centralization has led to the downfall of prominent figures in the industry, from Changpeng Zhao’s departure from Binance to Sam Bankman-Fried’s FTX saga and Terra’s Luna, to the corruption and grave mistakes plaguing BlockFi. These incidents have forever altered the landscape of web3. The key to the next phase of decentralization lies in un-governance, ensuring the future security of cryptocurrencies and decentralized finance.
But what exactly is un-governance?
At its core, un-governance embraces decentralization, advocating for protocols with minimal, if any, human intervention in their governance. By relying on smart contracts, un-governed protocols aim to eliminate human errors that can harm even the most prominent projects and their communities. True decentralization occurs when a system operates without the typical top-down decision-making structures found in traditional financial systems and some defi systems.
Minimizing governance is crucial to prevent long-term centralization and enhance security for investors, users, and contributors. One approach to achieving this is through an additional layer of decentralized governance via a dedicated DAO.
How is un-governance manifesting in reality?
Some projects are already moving towards improved governance, but having DAO in the name does not guarantee true decentralization or protection from malicious actors. A prime example is Indexed Finance, a defi protocol governed by an inactive DAO that fell victim to a malicious governance proposal. This incident highlights the risks of leaving governance solely in the hands of token holders. In contrast, protocols like Reflexer and Open Dollar, which are non-upgradable, ensure that the DAO cannot make malicious code upgrades.
Un-governance advocates for a reduced role for stakeholders, asserting that once a system is set in motion with its foundational code and algorithms, it should operate autonomously, much like an old watch that requires no further human intervention once set.
How can we strike a balance with un-governance?
The crucial question is how to determine the appropriate level of governance needed to eradicate corruption from projects. Centralized power structures that exert unfair influence over decisions and procedures can lead to corruption. In contrast, an ideal system distributes power and influence equitably, devoid of a single point of control. In the realm of defi and DAOs, governance stakeholders drive essential decisions, from protocol upgrades to fee structures.
To ensure the prosperity of the web3 space, projects must prioritize constructing governance frameworks that prevent corruption, market speculation, and poor decision-making from jeopardizing investor funds. Neglecting to address inefficient governance could jeopardize the industry’s future.
What’s at stake if decentralization is not embraced industry-wide?
The stability of the web3 space, including stablecoins like USDC and DAI, hinges on maintaining value and attracting users. Instability and insecurity can deter new users and businesses from entering the space, hindering widespread adoption. Fostering a safe environment is essential for crypto’s acceptance.
What lies ahead?
Since the DAO boom of 2021, advancements in DAO tooling and structures have enhanced best practices for decentralized communities. Projects like Collab.Land and Govrn have laid the groundwork for token-gated communities and automated contribution tracking in DAOs. Embracing un-governance is crucial for the long-term growth and prosperity of cryptocurrencies and defi.
In conclusion, the opportunity cost of ineffective governance is too high to ignore. Prioritizing un-governance is essential for the sustained growth and success of the industry.