Governance of Large Scale Blockchain-based Solutions

[Music] um good morning good afternoon and good evening everybody i'm karen i'm a director of ecosystem at hyperledger at the linux foundation um and we're going to be talking with nadia and marta today about the challenges and issues and promise of governance of large-scale blockchain networks so first let's start off with some introductions um get to know each other so please nadia would you start by sharing how you're involved in this topic and tell us a little bit about your role at the world economic forum thank you karen and uh thank you victoria and daniel for this wonderful convention i should say it's not a convention the european blockchain week really that you've put together it's also been great to connect with um with some other parties in the blockchain space hi everyone yeah so i'm nordia hewitt i work very much at the intersection of blockchain and governance i lead projects at the world economic economic forum that shapes the future of technology governance more specifically in the blockchain and data policy space but also other emerging technologies more specifically i'm at the center for the fourth industrial revolution technology that's based in san francisco yes um nice and early bright and early for me every year and at the center our mission is to maximize the benefits of science and technology for society through a global hub of expertise knowledge sharing and collaboration then with partners around the world we co-design and pilot innovative new approaches to policy and governance in the fourth industrial revolution as it pertains to governance and blockchain networks i've laid a number of governance frameworks for blockchain and distributed ledger technology karen i can refer back to some of them during our chat today one example is a paper we released a few months ago focused on bridging the governance gap within dispute resolutions for blockchain-based transactions as one example of work i've done in the blockchain governance space thank you nadia um marta please tell us a little bit about how you've been involved in this topic as well um so uh my name is marta guiller picarska and uh for a long time since until uh quite recently i've been um karen's colleague i was in hyper ledger where i was doing uh a lot of research and analysis of the different governance models within the enterprise setting so hyperledger being really focused on enterprises and uh consortius uh that's kind of where where we were aiming at and trying to understand the different models and different uh ways of doing that uh obviously najis and world economic forum papers and toolkits were quite crucial um currently i'm a community in duna in at balancer labs which is a d5 startup uh so looking at the governance from a very different perspective perspective of decentralized autonomous organizations how do you create a healthy community that actually participates in decisions once uh a protocol uh is turned into a dao from you know a company great well i look forward to hearing more about that and um for everybody we are treating this as a coffee chat so feel free to grab your coffees early for nadia and san francisco um and please we will have some time in the end for q a um and if you have any questions along the way please feel free to post them in the chat um and we may jump in and answer some of them if relevant before the q a session even so feel free to ask questions at any point so let's dive in um let's start by defining um what we mean by governance since this is a pretty broad topic as i think nadia was talking to us about just before we went live um it's good for us to have us all be on the same page there's lots of different types of governance um and in different dlt technologies so let's set the context here for this conversation and what the definition is that we're working off of and feel free either one of you maggie i feel like it's your yeah you should take it so when we think about governance right we talking about the kind of questions like who who controls the network who owns the technology what are the incentives for the ecosystem to participate right what roles do they play et cetera et cetera and when we talk about governance i keep on always emphasizing that creating the framework for entities to effectively work together and that is just as important as building the related technology solution so it's really fantastic to see a convention as today focus on topics within governance as well because it's many times as i say more as important or even some can argue more important than building the technology solution it's important to plan in advance right if you have a network or an alliance of companies who come together to work on blockchain when and how decisions will be made and how differences of opinions should be resolved is critical and that really is is what uh what governance is about there's i would say not one single solution to allow for every desperate interest to be accommodated so again when you talk about governance it's it's very broad um and because there's no one single solution i think it even makes it more important for blockchain networks to establish the rules of the road early on and that's really important and whether we talk about permission list or permission as blockchain governance is essential no matter the complexity of the smart contracts the code which the group requires it requires group decision making so really at the end of that i would say for blockchain network whether you are in a consortium or other you have to ensure that you can handle unexpected events so planning in advance with governance is very important martha there's definitely a few areas maybe you can add on to that well i i very much agree obviously with what you're saying i think that you know a lot of the time um we still see situations where governance is an afterthought like we've the when we create a consortium or when people create a consortium or they create a a project that they eventually want to decentralize uh it's the same thing you know they are so focused on technology or so focused on the product that there is kind of like we will figure it out as we go and it's a very hard problem and we've seen that in linux foundation with a lot of the open source projects as well it's very hard to open source a project that was developed in a closed environment because if you develop a project in an environment they're centralized and um there's like the decision making is very kind of closed and then you try to change that it has to be changed with the changing the perception and also kind of line of thinking it's a very different thinking um so in this blockchain space i feel like we're pretty good with working with open source but a lot of companies still come in with a very close source mindset and so they don't understand what it means to create a successful governance uh within a blockchain project yeah sorry i karen i was just is she martha just i think it's so important that martha that you come also with the angle of open source it's it's really really critical to put that in there and that actually also reminded me that a question that's quite prevalent within blockchain governance now that we're sort of still sitting the context and the scene is the question of how much should be unchained versus off-chain governance uh right now the overwhelming majority and i marked i don't know whether you have even more insights on that or more up-to-date but right now the overwhelming majority of governance of decentralized systems is performed off-chain for unchained what i'm seeing is that unchained governance has been more prevalent in public change there's one example neo which i'm interested in following a little bit so neo is an open source blockchain network and like others they have a queen they serve as a platform for deploying smart contracts that are they support dapps it's interrupt syndrome um but they announced uh recently that they deploying a new governance mechanism which is based on unchained voting so that's interesting and instead of making binary choices they are more looking at their gov engine governance as looking at a multifaceted spectrum so basically what that means is they evaluate design choices on a multi-pronged spectrum so neo can then decide on a sliding scale how much unchained versus blockchain governance would be most efficient their announcement was only at the end of 2020 so we'll have to see how that plays out but that's a question that comes up a lot is the unchained versus off-chain governance and i think also important to point out again just for context is that when you talk about governance it's always important to understand governance of what exactly we know that blockchain solution is not one thing you know layers of the tech stack where are you talking about it are you talking about governance at the protocol layer or are we talking about governance um at the dap layer so there's a lot of those type of distinctions and categorizations that you need to be clear about when you have conversations or when you tackle a project that entails blockchain governance yeah yeah so go ahead no no no go ahead there's really different elements to it you know there's um the blockchain governance the technical governance um and then there's the business governance um and and what you're doing here um especially in some of the more consortia permission networks is you're bringing um you know competing parties together and so they need to have common rules for how they work together to make it a fair playing field and so that's really um not as easy to figure out as as um it may seem and is is a real challenge i want to get into that later but first i want to go back to um you mentioned nadia that you were working on a report and i think marta you are involved as well with this world economic forum report on governance um uh what were some of the takeaways from that research that came from that so this world economic forum report um it's one of the projects i led worked very closely with martha who provided input um as well as other global collaborators um it's also work that we've done very closely with latham and watkins um for those consortium blockchain networks out there looking at consortia legal guidance jamie c black and her team and dc is fantastic um so basically how did we get to write about the dispute resolution for blockchain transactions and i'll post the link to the paper in the in the chat box um in somewhere during the this chat but basically the focus of the white paper is dispute resolution which is a critical part of uh governance we co-designed the dispute resolution frameworks uh because it seemed to be a gap in the market this is now last year and that we started down that road um it seems like something that people never really get right the dispute resolution piece or never even really think about as mart martha referred to earlier it's it's something that's not thought about early enough and many times the practical aspects get ignored as dlt practitioners we want this to work right we want to drive adoption by making people feel comfortable that this is not just a situation where when something is under ledger you're stuck if things go wrong networks will never really grow if there's no path towards resolving disputes and and martha i think you can speak a lot about this i'd love to hear more thoughts on that but just going back sort of to the paper then the focus was on enterprise systems so more permission systems and we looked at dispute resolution related to unchanging sections for enterprise users and again this is different from off-chain dispute resolution dispute dispute resolutions uh what many might call business governance which are often more nuanced more appropriately resolved through traditional means such as arbitration litigation mediation etc in general unchained disputes are more likely to be binary like you know that this party delivered the agreed goods that that entity initiate the payment and it through the work uh with this multi-stakeholder group including martha it was really interesting to look at how off-chain governance plays into dispute resolution agreement on dispute resolution forums the selection of governing law we also looked at different privates uh in that's in network their dispute resolution mechanism and when you get a consortium to work together you you need to look at the pros and cons of private dispute resolution versus public sort of out of network dispute resolution for instance arbitration might be a preferable option in some cases so as a blockchain network you need to think about enforcement if a party does not comply with actions or is or required as a result of the serious resolution then what's next as a contempt an injunction you know a court enforcement might be necessary ultimately but we're hoping that the threat of being terminated from the blockchain network completely should make people want to abide by the agreed resolution so that's uh some of the pixel things that we get on into the in in on the in the paper i think the learnings from the report yeah so so i kind of love the thoughts here i think first thing that i wanted to come back to is kind of why are we even talking about governance uh and how is it different to what we know right because one thing that occurs to me is that kind of we kind of jumped as we all worked on this topic for a long time we jumped into well there are different types of governance and so on however why wouldn't we just use what we stand what we normally use in regular environments right in companies there is governance in companies there is a boss there are vps they have they make decisions there are legal teams to deal with it and so on um and i think that the crucial part here is how much um blockchain blockchain projects or dlt projects involve multiple parties that don't necessarily trust each other that's kind of the core of the problem right how do we collaborate within the group of people that we don't know or a group of organizations that we don't know and we don't know if we want to trust them or not um and so this problem of dispute resolution uh as well comes from a you know a much bigger challenge of uh if you know if something goes wrong and i trust other people then probably will solve it somehow but if i something goes wrong and i don't trust my environment then it starts being really heated and very dangerous in some ways and that's why the process of this resolution has to be in place very early on and of course could be modified but it isn't really something that should be you know like let's figure it out or as we go um and um to to nadia's points indeed you know the question of on chain gov entering dispute resolution option dispute resolution um i guess there is a question how much of it is needed when we talk about uh big kind of consortium standard consortiums like we trade or um trade lands or any of the other ones right how much does it really matter that they are using the blockchain technology underneath to make the decisions on chain they're using the chain the way that they would be using you know machine learning or whatever else right so we kind of we we say it as if it was a wrong thing or a bad thing that consortias don't choose on chain governance but i'm not sure it's the wrong thing it's just their choice and many of those projects or consortiums as i spoke to them and i i know that nadja had similar experiences there was we they would say we started off and we really wanted to make it inclusive and we had this very complicated process where everyone were able to say something but nobody was participating anyway so we were stuck on not being able to make a decision because half of our governance was just not there so the participation is another big issue there um and there is a difference in a lot of ways between incentives and motivation uh in terms of you know what motivates you to participate in the governance or what what makes you participate because you'll get something out of it um yeah you kind of started to get into that marta about what the challenges or hurdles are so you can set up the governance but then people have to actually you know use it and do it right um and and and so what are some of the uh some examples of challenges you've seen um with governance whether it be um on chain or off-chain i think participation is the biggest challenge and it doesn't matter you know when i was in hyperledger i thought oh gosh you know it's all because this these big companies just want to get their product and they don't need to make decisions but now that i moved into the d5 space and uh actually um both balancer and the uh maker dao and uni swap they all have actual like on-chain governance all the decisions are being done recorded on chain and voted on chain by the community usually it's the interesting concept so the way that um defy space is trying to solve the problem of participation is by issuing governance tokens which are tokens that enable you to vote uh in in in on the next features or new releases and make the more tokens you have the more power you have right one token one vote if i have million tokens i have million votes well it turns out that people hold the tokens because they are valuable but they are don't really uh participate then in the voting like the fraction of people it's a bit like with pub with public election you know we everyone over 18 is allowed to vote and yet only 30 shows up to the polling stations right so this is definitely the participation is a major issue and then um getting uh some a good mechanism for everyone to feel included and that their voice is heard is another big thing because these projects um both in the enterprise setting and in in d5 really you have that those dominating parties that when they start dominating naturally uh the power is delegated to them so the rest of the participants stop uh kind of participating because they don't feel like they are needed and if it's you know a big company and a bunch of smaller companies in a consortium enterprise consortium or is it you know a major token holder versus minor token holders in uh in a d5 space so that that would be another thing and then i think nadja you touched upon some of the issues with the dispute resolution as being also a challenge so if you want to go there yeah yeah so biggest hurdles uh i i teach at ucla the university of california los angeles and on courses on blockchain governance blockchain yeah governance collaboration etc and it's very difficult to find case studies to bring to students to say hey here's the lessons learned here's things where things didn't go wrong because you don't you can't go exactly and google what went wrong and you have the ceo talking about oh this went wrong we want to share with the rest of the world lessons from this to avoid so it's actually a very very difficult thing to get to and get right because it's not an area that many are very transparent on and many times i see cases where i know that the root cause is really something different and you know publicly the the narrative is maybe provided for a bit of a different lens i i really like what martha said and i cannot agree more on the participation piece for me participation together with incentives comes to mind always as one of the biggest hurdles one example that i think most are familiar with and and is the trade lanes example um it's a more well-known solution trade links it's basically a logistic blockchain network that was initiated in collaboration between mrs and ibm and this was one of the first deployments of blockchain technology in the shipping and logistics and supply chain space and to me that really sort of showed which is we've seen years after that happening in other sectors and blockchain networks as well the challenge of competitors joining each other's solutions you know in other sectors where i've been involved we can see a competitor just say oh come sector come industry come and join my blockchain solution but it's very difficult for computer x to join competitor wise solution and that is why we have actually many times seen a more neutral or impartial third party in this space that is needed to bring the blockchain network together i mean martha you were at linux foundation i think they are oh carolyn karen you today with linux deletion both of you are working in this where linux is many times used as that more you know impartial party to um other nonprofits academia etc to bring the blockchain network together when competitors don't want to join each other's systems so maybe back to the trade lanes example when initially and when they initially launched it again initiated by maersk and ibm uh competition and some others in the sector they were hesitant to join the system right a lot of the competition came back the response was listen we want to see an emphasis on building a joint system technically the solution you know could be a very good platform for many but it required a governance going back to the important aspect of governance that really would make it an industry platform and not just one that is associated with one or two companies and this is really the weakness that we're currently seeing in many initiatives and i say weakness in a way that it's opportunities that you know individual projects may claim that they offer an industry platform but you know where does the control lay and that brings us back to the important governance question which also brings us back to the incentive question because you need incentives you need big investments what is the upfront funding who keeps paying for the the maintenance who funds the the large efforts that's required to do and bring people together like i'm not even talking about the technology solution i'm talking about the investment in time and cost required to get a minimum viable ecosystem together so that brings you the incentive it's all ankitarian wild to say let's all compare hold hands and build us together which we all agree would be a much better representation of what an industry solution looks like and need and help you build common standards but then you go back to the governance questions of well who pays what you know i'm bringing a lot of a lot of uh intellectual property in knowledge from my i'm bringing money i'm bringing this i'm bringing that and then it becomes kind of it is it's tricky tricky discussions then when you talk about such collaborative affairs um and then of course you go back to ip intellectual property which was in this example one of the the the governance topics that needed to be worked through if you join the blockchain consortium you get a position on the board you have some vote you have a seated table but then who owns the ip and you know going back to really value propositions and incentives and the models that we design accordingly it's really interesting magic because you know as you're speaking about that i have a different point but just to directly connect to that as you're talking about it i realized that uh it's we are talking about this being an issue of you know blockchain governance but actually um you know i've been a long-term participant in w3c which is the you know one of the standardization bodies uh i'm now with another ieee group on governance and uh but in both cases it was very heavy legal kind of requirements and uh yeah how do we participate whose ip it is what we create you know if we create something together is it everyone's is it just mine of the project leaders or nobodies you know all of those questions they are not very specific to blockchain projects they're specific to humans i think and the fact that we need to figure out those things one last point and it kind of uh comes to a lot of i'm reading the chat uh in the meantime um and uh i a lot of what we are saying here also is that there are no good templates or frameworks to follow well uh world economic forum has done a great job trying to define some of it but i as i've talked to a lot of those consortiums it's like well can i just take a template and plug it into my my thing and there is no such thing yeah yeah there really isn't um you know thank you nadia for mentioning the linux effort you know we launched this open governance project to um help be that neutral party and bring those organizations together and we've launched trust over ip and now open ideal on that um but there's a lot more that can be done i just want to kind of wrap up the takeaways um because we didn't get to too many questions but we sort of blended them in um you know think about governance early um it's it a lot of people are focused on the technology but think about governance very early on in whatever projects that you're working on the participation how are you going to get people incentivized to actually get involved in the governance think about the power dynamics make sure that there isn't a heavy weight that is taking up all the air in the room and that everyone is included and involved um and then um understand that it is it is like martha said it's sort of hard and nadia hard to find the lessons learned because no one wants to talk about how they didn't get along with other companies right they didn't want to nobody wants to talk about that so world economic forum is trying to bring some light to that um but if you're struggling with it it's because everyone is struggling with with it really yes i i um karen you want me to just add on to that how are we on time i think we are out of time right yeah so thank you everybody fantastic that was great awesome women you just get lost carried away thank you very much karen yeah it was it was it was hard to keep it within just 30 minutes so thank you nadia and martha so much and thank you for all the good questions if if you want to connect with us and continue the conversation feel free to connect with us on linkedin or something or umbrella yeah umbrella yeah thank you karen so much thank you nadia and thank you martha we had martha with us in our first edition in 2018 in barcelona so it's great to see you again martha and we had nadia with us in 2019 in copenhagen and also in 2020 online very nice to see you again and fantastic conversation i've shared the link that yeah so no okay the audience has the link to to the article the report and again thank you for the lovely discussion now audience it's it's about to we're about to talk about nft so please go to the schedule tab our next section and you can meet also the speakers both nadia karen and martha umbrella and if not on linkedin thank you ladies you