Why Crypto Protocols Are Failing at Governance, and How to Fix It Charles St Louis

good morning everyone my name is charles san louis i'm the chief operating officer at element finance and one of the contributors to our governance initiatives and as everyone knows here governance research is not an island so there's a lot of people that thank for that so today i'm going to be talking about why crypto protocols are failing and why that's not necessarily a bad thing but also how to fix it but before i get into it i want to ask everyone here a few questions everyone raised their hand if they actually participated in their last election did they vote okay not bad who here has participated in decentralized governance whether it's for a dollar protocol a little less how many people didn't raise their hand because they didn't think their vote mattered here all right so since humans have existed we've had some form of governance or another it began with tribes and clans resources became scarce so people had to group together and make resource allocation a little more efficient give or take a couple years or so we had kingdoms come along so with kingdoms came kings taxation and better resource a defense more years later we had empires so this is when the kingdoms formed together and they ruled nations together but the thing about empires is that they always fall and then maybe just a little more than a couple years later we formed democracies and this is when the first concept of the vote actually evolved so there was more participation in actual governance as opposed to just one person some man making all the calls everyone actually had to say to vote and this was great for many reasons but it also came with problems a lot of these people didn't actually want to vote even if they were reminded to vote and instead a lot of bad ideas and proposals came forward and pushed through because no one really cared we also had problems such as tyranny of the majority and that's why we kind of moved towards the republic where it's not mutually exclusive from democracy but it does allow people to actually allocate their voting way to people to actually do the things that they're good at doing and govern for them so today after millions of years of governance evolution we still have many forms of these governments still existing today in one form or another and all of that came through a lot of failures and lots of evolution and people working together and of course it took millions of years so at this point you're probably wondering why i'm talking about the history of governance and you want to get to the point well the point here is that governance fails and evolves they evolve with time nothing works perfectly and clearly nothing is permanent so now thinking with the hopes of this paraphrased version of history that i just gave i'm hoping that everyone here did see some trends in how the decentralized governance space has evolved over the past couple years and of course we've had the liberty with this technology that we have blockchain and crypto to actually test these experiments in real time with real people way faster so we don't have to go through millions of years of evolution to actually test these things and see how they work but some of the similarities that i see with the centralized governance today is i mean direct democracy with the one token one vote obviously it comes with a couple problems such as a capital barrier where people have to earn or pay for a vote and that kind of definitely reduces the inclusivity of the things that we want to all vote on there's reputational voting which is quite new non-transferable voting based on your reputation and your contribution to the community you're working in and then there's representative democracy so with token voting and delegation so if you don't want to vote you can go ahead and vote delegate your vote to someone you trust and will make the right decisions for you and then we have republic like dowse so these are dows that vote in teams to run governance run operations or even run protocol engineering but the problem here is they don't have authority they have to go through the same governance process as everyone else and that's not efficient for operations of dowse that we want to move quick and make changes especially in cases of hacks or big issues so i'm hoping you can see some of the similarities between the evolution of governance from the beginning until how we've done it in the industry today so at the beginning of my talk i mentioned that i'm going to talk about how we're going to fix this and i'm sure you're waiting for the answer but to be completely honest i'm not going to tell you about an answer that fixed all our problems it's more so about building a system that adapts as we want so by building more adaptable governance systems that are flexible upgradeable modular we can adapt and evolve more efficiently than our ancestors and with less turmoil no wars are needed here so what do these systems look like well i see these systems looking as a way to continuously improve and strengthen inclusivity as history has shown us governance hasn't been very fair for everyone in terms of inclusivity it took thousands of years to give many types of people their own vote and say it was very closed off so how can we continuously strengthen and adapt with our governance systems to allow every type of person in our community to have a say in governance not just the people who hold tokens on that note i think we also want to make voting not a burden a very few people here raise their hand when i asked if they voted in any governance here so a lot of people just don't want to do it and how can we make that better and more a pleasant experience we also want these systems to be able to upgrade easily or change with current political dynamics so the system needs to act accordingly in a very urgent scenario we want to have a system that can push that forward very fast to fix it so that all the people involved aren't affected in a very bad way and lastly we want to make operating endow more efficient a lot of dowels go through tons of proposals and it takes months to push forward especially technical proposals so how can we make these things more efficient for everyone so that we can continuously push forward finance crypto and all things alike so at element we're not just a fixed rate protocol we've also spent so so many hours researching governance we have a stellar team of people who've spent years thinking through governance looking at the problems thinking how we can improve it and as such we built a governance protocol to match and we hope that the entire industry will see this as a way to build more adaptable governance and as a starting point it can be upgraded it can change we want everyone to use this and build with us so like i said earlier council is a protocol that can be upgraded it's not always a bad thing and it's modular and flexible which i'll get to in a little bit there's many elements pun intended to the council protocol but these are the few ones that i really wanted to cover today because i think they're just so important to everyone here the first is a take on representative democracy and liquid democracy so it's a governance steering council elected through delegation the second has to be my absolute favorite it's called voting vaults i like to say it's a way to increase inclusivity but also capital efficiency so it mitigates the fact that only a small portion of people in regular government systems get to vote but also it doesn't make it burdensome to vote as well oh yeah so these voting votes work by assigning voting power to any position or value provider in your protocol or community the third is optimistic grants if anyone here has been a part of a grants model i'm sure they can acknowledge the fact that it's a very pessimistic model it always assumes that the grantee is going to fail and that payment method reflects that so with optimistic grants we have the system that allows high budget grants with clawback abilities so if they're not meeting their milestones the actual funds can get clawed back and lastly we want the dow teams to have authority so many teams in this industry such as make your dow core units or the stewards from ens and git coin they all have these voted in authorities they're paid by the protocol which is just mind-blowing to begin with but they don't have the area of expertise and authority to actually act efficiently in their areas of expertise so how can we make that better now i don't have time to talk about all four today but i really want to highlight the two ones that really stand out for me and for all the rest you can go visit elements blog posts and our social media if you're interested and we're happy to talk more about it in our discord so the first one is the governance steering council and like i mentioned before it is a form of representative democracy or liquid democracy and it's all done through delegation so the community is the gsc is elected on a rolling basis and there's a delegation threshold so if you surpass that delegation threshold you're on the gsc and in order to stay there you have to be very transparent communicative with all your voting what you're doing or else people will kind of lose respect for you and on delegate and move on to someone that actually follows their needs so like i mentioned before these people elected through governance is great but do they have authority with the gse they do this authority comes with the ability to actually spend portions of the treasury up to a certain limit for things like conference sponsorship grants one-off projects it allows them to actually spend the treasury with a ha without having to go through all the governance process to just give a small grant the other authorities that the gst have are the ability to push proposals directly on chain in cases of urgency or prioritization so unlike a regular community member they have to go through the proposal process an off chain vote and an on train vote the gst can propose something directly on chain of course the community does have the last say in vita power but this does help push things forward in urgent situations the gst concept can be spread quite vastly so from the start we'll have one but the council or gst concept can be spread to other things such as protocol engineering sub-dial-like models where these people are elected and trusted from the community and can actually have area of areas of expertise authority so let's say a protocol steering council could make a quick change and propose it very quickly a treasury could make actual higher spending limits and give like big grants to projects working on the element protocol or whatever community this concept uses to govern back to voting vaults my absolute favorite part so the really cool thing about voting vaults is that it allows you to assign voting power to any position or use case in your community so like i mentioned earlier the one token one vote is very specific and it has a lot of barriers for everyone in the community often the biggest contributors especially from my experience at maker is that the biggest contributors to these thousand projects are actually in the forums in on the rocket chat or discord now on github pushing pr's but none of them have a say and they have a very often have a very low amount of governance tokens to actually make an impact so they kind of sit back and just wait so this allows that concept to rebalance and actually have these people have a higher say or an equal say as the people who purchase these tokens on the market just to vote in governance these voting vaults are module and upgradeable so let's say we gave a very high voting power to someone who's a github contributor if that's way too high we can essentially just adjust that voting power in the future so it's not permanent and it can change based on current dynamics the last part is something that really resonates with me and that is having capital fish and voting in governance today you often have to lock your governance tokens in a voting contract and that's all you can do there's a large opportunity cost there so with voting vaults you can actually go and do all the things you want to do in d5 such as borrow against your collateral on compound or average maker or have an lp position open or go and get that yield farming this allows you to participate in all that defy while maintaining the ability to vote and delegate in governance therefore increasing governance participation now a lot of that was theoretical so i wanted to give a couple more examples of what voting vaults can be and what they can be extended to so like i mentioned before compound ave you can have your tokens as collateral or earn interest while keeping voting power not too far away you have the lp vault where you can have an lp position open and still get voting power while providing liquidity the last one is the most important to me and that is an identity verified vault for all the people who contribute to your protocols on github the forum's discord and are actually in the trenches doing the work you can have individual voting vaults for those people to have them participate in equalizing governance or you can even take it to the next level where people can have one identity vault that aggregates all these together and provides you a score with the highest voting power so the next time you vote using voting vaults you can tell yourself that you're voting with maximum capital efficiency so what can we all do with this now council is open source and anyone can use this and we want you to we want you to fork this protocol we want you to use it to govern your dowels and your protocols you can also build with us you can go ahead and build voting vaults and propose them to our governance to add your protocols ability to participate in ours and the like it's all open source and on our github and the special thing about this as well is as because it's module modular if you don't want to incorporate the gsc into your governance system or your doubt you can go ahead and just take the voting vaults aspect and use it in your current system you can pick and choose which parts of this protocol that you want to adapt in your dow model so that fits your current needs so i'll leave it off with the fact that i think my good friend in the front here he sent me the quote it's by thomas jefferson you deserve the governance that no you elect the governance that you deserve so if you want your community to have a say in your governance and not just be gated to tote one token one vote and you want the real contributors to have value choose this model and it will help you make that more equal i think 2022 is a big year for governance innovation and everyone here has to play a part in that we can't just stick to the snapshot in multisig votes it's not decentralized we've got to push these things forward if you want to see change and don't be afraid to fail because as history has told us we evolved through failure and that's how we get it done so i salute you all for being here i appreciate listening to this talk and cheers to more experimentation in this space thank you