The Road to Decentralized Governance in web3
#1 Governance Series
The web3 community has come to recognize that governance is one of the most fundamental aspects and drivers of this industry’s growth. At the same time, the topic presents many challenges to founders of projects and protocols from across all web3 sectors. And equally for its communities.
In this article, you’ll learn more about DAO governance, what it takes to decentralize an organization, and how the team at StableLab envisions governance 2.0.
What is governance in web3:
Let’s start with a brief overview. Governance describes the key workings around the decentralization of decision-making. Decision-makers are people within an organization who have the power over strategic decisions like acquisition, expansion, or investment. While traditional organizations have a centralized structure where individual leaders or a board of directors make decisions — web3 uses smart contracts and tokens to redistribute that power among token holders.
A decentralized structure means that the power over decision-making is given to an organization’s community, mostly represented by governance token holders. In practice, this means that next to shareholders, the users and individual investors receive decision-making rights over aspects such as company treasury, revenue, operation, strategy or policy. For the community, this represents one of the greatest innovations — its inclusion.
What does it take to decentralize an organization?
To enable decentralized decision-making, founders are required to work on a suitable governance framework that determines the fundamental direction of it. How to design the ideal DAO? How to facilitate active participation? How to best include community? How to avoid malicious voters? How to ensure sustainable growth of the organization? There are many questions on the road to decentralized governance, yet only a few can answer them.
Eventually, the goal of these efforts is to become a fully functioning DAO, a Decentralized Autonomous Organization. But only a few protocols are close to reaching full decentralization and there is a reason for it. While the idea of decentralization within open source communities is not new, the maturity and possibilities we have recently seen is. We have witnessed how financial primitives, driven by the evolution of smart-contract based platforms, have enabled true community ownership, decision making and profit sharing. However, to date there are only a few DAOs with more “mature” governance structures.
This means that there is a small sample size to look at, and there’s no real “governance framework” to follow for guidance. So, where are the best practices and standards that founders and communities demand?
We believe that many projects are hampered in their growth by this issue. Wanting to work in a decentralized manner, they have to use trial and error. At the same time, efficiency is negatively affected by decentralization due to the increased number of participants in the decision(s). It creates a great need for coordination which was not present before. The lack of appropriate governance practices amplifies this problem. It becomes clear how important it is that both community and protocol are prepared for the handover of responsibility. Whether they are actually ready is the next question.
Let’s build Governance 2.0
We aim to further elaborate our vision for the future and show where we currently stand. We share a strong belief in the importance and possibilities of governance and want to contribute to advancing it. Therefore, StableLab recently started taking its governance research journey to the next level, to help identify and develop a set of best practices together with partners and industry experts.
Our goal is to shape what could be the beginning of something that the industry is highly demanding: governance standards.
In our governance lab, these standards will be designed and tested with the aim of supporting them in a scientific approach where appropriate. We believe that to ensure governance maturity, we must verify the approach in a matter where we support it with empirical data and analysis. A scientific approach ensures that our methodologies are vetted on several fronts including both theoretical and practical terms.
With that we want to create an agile yet robust framework of basic governance principles that enable DAOs to create their own path to decentralization.
Needless to say, this is a journey that involves not just one actor, but the entire ecosystem with its participants — the community. To meet this aspiration, we are currently gathering a working group of governance experts and will open the discussion with a survey in the format of expert interviews.
To conduct the governance survey, we started with the analysis of several well-respected protocols and L1s that already implemented governance. The aim of this analysis is to extract and categorize the most relevant governance models, identify their methods, and understand their main features. By doing so, we are able to group these features to represent the components of DAO governance.
Get in touch,
If you would like to support us in our governance efforts,
If you and your team need guidance on governance related matters, or
If you are a founder who is building something interesting in web3