What is on-chain governance and its process?

On-chain governance is a decentralized decision-making process used by many blockchain networks to manage and update their protocols. It allows participants to vote on proposals directly on the blockchain, ensuring that changes are transparent, democratic, and verifiable. This method contrasts with off-chain governance, where decisions are made by a select group of individuals or organizations outside of the blockchain.

The Concept of On-Chain Governance

On-chain governance revolves around the idea that those who hold tokens in a blockchain network should have a say in its development and management. This system aims to democratize the decision-making process, giving every token holder the opportunity to influence the future of the network. By implementing this governance model, blockchain projects can ensure that changes are made with the consensus of the community, reducing the risk of centralized control and promoting a more inclusive ecosystem.

Key Components of On-Chain Governance

The foundation of on-chain governance lies in several key components:

• Proposals: These are suggestions for changes or improvements to the protocol. Anyone can submit a proposal, which is then reviewed and voted on by the community.
• Voting: Token holders can cast their votes on proposals. The voting power is typically proportional to the number of tokens held, ensuring that those with a larger stake in the network have a greater influence.
• Execution: Once a proposal is approved, it is automatically implemented on the blockchain. This ensures that the changes are carried out without the need for manual intervention.

The Process of On-Chain Governance

The process of on-chain governance can be broken down into several stages, each crucial for the effective management of the blockchain network.

Proposal Submission

The first step in the on-chain governance process is the submission of a proposal. Anyone with an interest in the network can draft a proposal, which must include detailed information about the proposed change, its potential impact, and the rationale behind it. Proposals are typically submitted through a designated platform or interface provided by the blockchain project.

Proposal Review

Once a proposal is submitted, it enters a review phase. During this stage, the community and sometimes a designated review committee assess the proposal's feasibility, potential benefits, and risks. Feedback and suggestions are often provided to the proposer, who may need to revise the proposal based on the input received.

Voting Period

After the review phase, the proposal moves to the voting stage. Token holders are notified about the proposal and given a specific timeframe to cast their votes. Voting can be conducted in various ways, such as simple majority, supermajority, or weighted voting, depending on the governance model of the blockchain.

• Simple Majority: A proposal passes if it receives more than 50% of the votes.
• Supermajority: A higher threshold, such as 66% or 75%, is required for the proposal to pass.
• Weighted Voting: Votes are weighted based on the number of tokens held by each voter.

Result Announcement and Execution

Once the voting period ends, the results are tallied and announced to the community. If the proposal receives the required number of votes, it is considered approved and moves to the execution phase. The approved changes are then automatically implemented on the blockchain, ensuring that the network is updated according to the community's decision.

Benefits of On-Chain Governance

On-chain governance offers several advantages that contribute to the overall health and sustainability of a blockchain network.

• Transparency: All proposals, votes, and outcomes are recorded on the blockchain, making the entire process transparent and verifiable by anyone.
• Inclusivity: By allowing token holders to participate in decision-making, on-chain governance ensures that a diverse range of perspectives is considered.
• Efficiency: The automated execution of approved proposals reduces the need for manual intervention, speeding up the implementation of changes.

Challenges and Considerations

While on-chain governance has many benefits, it also comes with its own set of challenges and considerations.

• Voter Apathy: Not all token holders may participate in the voting process, leading to low turnout and potentially skewed results.
• Security Risks: The voting process can be vulnerable to attacks, such as vote buying or manipulation, which could undermine the integrity of the governance system.
• Complexity: The technical nature of blockchain proposals can make it difficult for less technically savvy token holders to understand and vote on them effectively.

Examples of On-Chain Governance in Action

Several blockchain projects have implemented on-chain governance to manage their networks. Here are a few notable examples:

• Tezos: Tezos uses a self-amending protocol that allows the community to vote on and implement upgrades without the need for hard forks. Token holders can submit proposals, and if approved, the changes are automatically applied to the network.
• Decred: Decred employs a hybrid system that combines Proof of Work (PoW) and Proof of Stake (PoS) with on-chain governance. Stakeholders can vote on proposals and changes to the protocol, ensuring that the community has a say in the network's development.
• Aragon: Aragon Network uses on-chain governance to manage its decentralized autonomous organization (DAO). Token holders can propose and vote on changes to the organization's rules and operations, ensuring that the DAO remains aligned with the community's interests.

Frequently Asked Questions

Q: How can someone participate in on-chain governance?

A: To participate in on-chain governance, you need to hold tokens in the blockchain network that uses this system. You can then submit proposals, vote on existing proposals, and engage in discussions about the network's future. Most projects provide user-friendly interfaces or platforms to facilitate participation.

Q: What happens if a proposal does not pass the voting threshold?

A: If a proposal does not receive the required number of votes to pass, it is rejected, and the proposed changes are not implemented. The proposer may choose to revise the proposal and resubmit it for another round of voting.

Q: Can on-chain governance be manipulated by large token holders?

A: While large token holders have more voting power due to their stake in the network, most on-chain governance systems include measures to prevent manipulation. These can include time-locked voting, vote delegation, and other mechanisms designed to ensure a fair and balanced decision-making process.

Q: How does on-chain governance differ from off-chain governance?

A: On-chain governance involves decision-making directly on the blockchain, with transparent and verifiable voting processes. Off-chain governance, on the other hand, involves decision-making outside of the blockchain, often by a select group of individuals or organizations. On-chain governance is generally more democratic and inclusive, while off-chain governance can be more centralized and less transparent.