With adoption accelerating, blockchain’s potential to transform life in every way — from how business is conducted to labor division, operating systems and methods of collaboration — comes closer to fruition every day. If blockchain is the foundation to a truly digital model, then governance is the key to linking together the on and off-chain worlds. Governance itself encompasses and dictates the functionality of blockchain, from its organization structure to workflow execution, voting and incentives.
Conceptually, governance can be understood as on and off-chain; the former being divided into protocol and contract levels. With the blockchain space rapidly diversifying, governance is also rapidly evolving to drive new and novel forms of collaboration, interaction, profit distribution and risk structure, based on each chain’s unique profit value.
Today’s on- and off-chain governance paradigms
Moving forward, I believe there are several premises that must be accounted for when building governance frameworks.
First, the digital world cannot be separated from reality. Like the off-chain world, on-chain governance also includes a two-tier structure, under which governing units serve as capital for users to engage in various democratic processes. Moreover, external on-chain governance components such as, server clusters, nodes and other infrastructures, dictate how capital rights and interests are addressed. On-chain governance dictates the usage of external funds, energy and human resources. It is also constructing new identities, ways of participating and power relations. In short, on-chain governance is both a reflection of today’s paradigm and a looking glass into the future.
Secondly, the on and off-chain worlds are merging as the boundaries between social and corporate governance become increasingly blurred. While blockchain started off as more focused on economic governance, this focus has shifted in recent years with institutions and enterprises experimenting with blockchain to achieve more efficient social governance. As the line between corporate and economic governance thins out, each chain’s future will slowly but surely hinge on the interests and will of their user base, thus significantly bolstering the pressing need for next generation governance at the protocol level.
Thirdly, the market is currently dominated by stake-weighted voting, which gravitates towards greater centralization, dynamic adjustments and third-party proxy agents. Given blockchain’s fundamentally decentralized nature, on-chain governance depends heavily upon a network’s consensus mechanism of choice — which can be understood as the negotiation method by which the interests and rights of community developers, miners and token holders. Within the context of proof-of-work, or PoW, consensus, the emphasis is on workload. It would require a high level of centralized authority and responsibility to validate parties’ work, rather than relying on the code to autonomously validate miners’ work. In that way, PoW is essentially the same as traditional decision-making.
However, under proof-of-stake voting, the following scenarios will enable greater democracy and decentralization:
- One person, one vote based on identity.
- Secondary voting based on identity.
- Hashing power voting.
- Voting for transaction fees at the account level.
- Voting of transaction fees at the contract layer.
- Election Committee.
- Relative majority voting method.
- Other pledge-related indicators, including long-term node maintenance, long-term binding validators, long-term coin holders, oracles and clients.
- Any combination of the above modes.
Fourth, there are still various design issues related to on-chain governance. Under today’s governance systems, power tends to be concentrated in the hands of a few. Moreover, low-voting rates also negatively impact the effectiveness of governance and network security. Thus, future innovations in governance must also address the aforementioned concerns from a design level by offering voting stronger incentives for stakeholders, while also introducing loosely coupled voting to ensure more representative governance.
Overall, the current paradigm illustrates that on-chain governance represents the transformation of the digital world’s economic and social organization. With the advent of the digital age, people’s identities have been increasingly split between various governance entities, rather than resting in the hands of a single one. By introducing new organizational structures and concepts, we can pioneer a completely new incentive mechanism to optimize on- and off-chain governance, beyond what simple corporate structuring can achieve.
Based on these premises, sustainable and effective governance must satisfy the following requirements:
- A two-way mechanism to interact with the real world.
- Comprehensive social governance.
- Movement towards achieving the community’s vision.
- Effective incentives and punishments through comprehensive mechanisms.
- Clearly delineated responsibilities and powers for on-chain governance.
Structuring on-chain governance to drive sustainability and adoption
If we understand governance as a key driver for blockchain adoption, networks must approach decisions, such as consensus mechanisms, various participants’ roles — and more — with great care and deliberation. Moreover, to bring together the on and off-chain worlds, on-chain governance must evolve to enable the following:
- The mapping of real-world legal units or jurisdictions to the chain.
- A comprehensive identity system which ties network participants’ identity to their social identity.
- Participation in governance via greater rights with the caveat that such rights can be revoked in.
By leveraging code, on-chain governance enables the elimination of uncertainties to create binding agreements, ensuring that any approved network changes will be implemented. Moreover, on-chain governance also incentivizes greater responsibility, due to blockchain’s inherently transparent nature, thus ensuring a decision-making trail. On top of bolstering community trust and fairness, this transparency also empowers users to make informed choices regarding which platforms they join.
However, as previously mentioned, today’s governance systems still face design issues — namely low turnout rates and the manipulation of voters by powerful token holders. Regarding the latter, there is still the concern that governance systems favor powerful token holders. This results in greater emphasis on profit generation, rather than achieving a public blockchain’s vision.
Thus, I propose the key components for effective governance, namely:
Coordination mechanisms: To ensure sustainability, transaction costs and user usage must be coordinated to minimize conflicts between users and stakeholders. As transaction fees heavily influence a user’s ability to participate in a network, maintaining low and stable costs incentivize their participation, which is key for representative governance and network security. In short, the aforementioned mechanism would allow users — the true holders of the network — to be able to participate.
Coordination between currency holders and governance participants: To realize effective governance and ensure that the chain’s interests are represented, there must be significant overlap. Such measures like economic incentives and elections, or the decoupling of governance rights from tokens, are necessary to create more overlap between these groups.
Coordination of candidates and selected candidates: To ensure network efficiency, elections must also implement screening mechanisms to secure the right number of candidates to meet platform needs. Moreover, platforms must provide a proper balance of economic incentives, powers and responsibilities for long-term and stable governance.
Incentive measures: To reward participation, the following incentives should be provided:
- User: Ability to use DApp; low-cost network service.
- Token Holders: GAS or token issuance via voting.
- Nodes: Receive transaction fees for packaged transactions or network fees for winning elections.
- Token Holders: Opportunity costs.
- Nodes: Fines for misbehavior.
Overall, effective governance must fulfill the following conditions — first, decision-making that is based on complete and symmetrical information. Second, there is a cost associated with making and changing choices. Finally, governance must be flexible enough to drive forward organization interest while accounting for individual choice.
Driving flexible, dynamic and sustainable governance to win the future
Based on the aforementioned points, I believe that “elastic manageability”, defined as “an ability to adapt to various social jurisdictions,” is the governance solution for both now and the future. Through elastic manageability, we can coordinate the interests of various parties, balance decentralization and centralization, and establish an effective incentives and consequences system. Through an on-chain identity system and node verification, we can connect the on-chain and off-chain world for true integration.
Under this system, I believe the two key mechanisms are as follows:
- Coordination mechanisms.
- Dual-track election mechanisms.
Token holders can vote on the direction for a community-based organization, which is entrusted to act in the platform’s best interests. To incentivize participation and ensure representational change, direct incentives, such as tokens, should be issued based on the token holders’ degree of participation. From my perspective, enabling users to vote for representational institutions and consensus nodes enables a platform to dynamically adjust based on changing community and industry needs.
Moreover, an on-chain identity system is also crucial. As previously noted, the on-chain world cannot be disconnected from the off-chain world. Rather, the sovereign states and legal jurisdictions of the real world must be mapped onto the chain. Governance mechanisms should reflect this through an on-chain social identity system, which reflects users’ on-chain address and transaction records, decentralized identifier documents, and registration jurisdiction. Based on these aspects, users’ off-chain regulations will provide soft guidance for on-chain activity by jurisdiction.
The types of services provided on the public chain could be affected by local regulations. This real world identity mapping, along with dynamic elections, means that token holders are empowered to make decisions and adjust accordingly for future transactions. When processing transactions, different nodes will react differently to different types of transactions, which will affect the types of services processed on the public blockchain to varying degrees.
For example, for a certain type of specific transaction, consensus nodes that exceed the fault tolerance rate cannot pass this type of transaction, due to the influence of the local judicial system. At this time, the judicial influence on this type of specific transaction is reflected in the public chain. Under the framework of dynamic elections, token holders will then make a decision whether to continue to vote for the affected nodes in the next term. Node candidates can also make adjustments according to the voter’s strategy.
Added value through dynamic elections
Through this flexible and dynamic management system, I believe we can fully understand decentralized on-chain business management, node operation management and on-chain voting governance. Local regulations affect the voters’ strategic choices and indirectly affect the behavior of network participants.
Through repeated governance cycles, blockchains eventually move towards developing a balance, which incorporates the interest of all — including real world concerns. This opens up the path for sustainable and responsible growth both in the on- and off-chain world.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Da Hongfei is best known for co-founding the blockchain-based “Smart Economy” network Neo with Erick Zhang in 2014. Da received his education at the South China University of Technology, receiving degrees in technology and English. He worked at a consulting firm until 2013, after which he learned how to code before founding Neo. Along with Zhang, Da also founded OnChain — a commercial blockchain firm that provides services to private companies.
DOGE is Young People’s Middle Finger to the System, Says Mike Novogratz
Mike Novogratz, in a research report, stated that Dogecoin is “the most honest shitcoin”, calling it a “store of value” for young people wishing to express a “little bit of a middle finger to the system”.
Dogecoin’s Recent Price Action
DOGE has entered a steep and stunning climb during the past few months, going from mere pennies to over $0.65. Young people betting on the speculative and volatile crypto asset have made staggering amounts of money thanks to the recent insane rate of return.
Many theorize that this rise has been fueled by Tesla founder and business mogul Elon Musk, who often refers to Dogecoin on his infamous Twitter profile, tweeting in a (usually) positive manner. Oftentimes when an “Elon tweet” comes out regarding Dogecoin, it gives a nice little boost to the price.
Most recently, Elon Musk revealed that he would be hosting SNL, dropping a single hint: Dogefather. This enigmatic message has spurred thousands of young people worldwide to invest in DOGE, which, although extremely risky, has been facing undeniably bullish price action as of late. Will Elon Musk’s SNL special provide the fuel needed for DOGE to power through to over a dollar, or will it be a ‘sell the news’ event?
Novogratz Draws Parallels to GME
Novogratz, in his interview, urged people to “listen to what Dogecoin is saying”, as he sees it as very comparable to the GameStop fiasco (where a group of young retail traders pushed GME to new heights, partially in an attempt to liquidate hedge funds that were shorting the stock).
“There is nihilism and excitement to it,” Novogratz stated, adding, “there’s something really pure about it.”
Indeed, Dogecoin is not a successful ‘company’ in the traditional sense, and there is little to no innovative development work going on behind the scenes, but we’ve seen (in the stock market, for example) that the power of the masses if placed behind a single unifying idea, can work wonders.
It’s a massive game of tug of war — whether or not Dogecoin can sustain this dizzying momentum remains to be seen. One thing is for sure: millions of people will be tuning in to watch SNL this week.
Latin America’s Biggest Online Marketplace, MercadoLibre, Disclosed Bitcoin Holdings
On a financial results report dated May 5th, e-commerce giant MercadoLibre dropped the bomb. The company is the latest institution to add Bitcoin to its balance sheet. It follows MicroStrategy, Square, and Tesla’s highly covered buys. Bitcoin’s institutional adoption is in its infancy, but advancing non-stop.
In the financial highlights for 2021’s First Quarter, the company wrote a succinct:
As part of our treasury strategy this quarter we purchased $7.8 million in bitcoin, a digital asset that we are disclosing within our indefinite-lived intangible assets.
A modest allocation, considering MercadoLibre has almost $4B in assets, a cash reserve of $1.1B. It also has a market capitalization of approximately $76B. However, the move might be part of a bigger plan. The company recently opened a section on their website dedicated to real state commerce in Bitcoin and Bitcoin only. The pilot program includes 75 properties and 7 real state agencies willing to accept the cryptocurrency.
The Bitcoin-on-the-balance-sheet club
The investment puts MercadoLibre in a pretty exclusive club. The institutional adoption pioneer was MicroStrategy, a company that then issued bonds to buy even more Bitcoin. Twice. At the time, Bitcoinist reported:
Microstrategy announced today that it purchased $15 million worth of Bitcoin. The company’s CEO, Michael Saylor, tweeted this morning that his company had bought approximately 253 BTC, bringing its total holdings to about 91,579 BTC.
After that, Square announced a moderate buy of $50M worth of Bitcoin, and months later another one of $170M. It’s worth noting that the company buys and sells BTC through their flagship product CashApp. And that it keeps buying more. Six months ago, Bitcoinist reported:
Ikigai Asset Management’s Hans Hague recently noted that per his analysis, Square and Grayscale alone have accumulated $2.3 billion worth of Bitcoin in the past quarter.
The biggest player of all, of course, is Elon Musk’s Tesla. Reports that the company made more money from that investment than for selling cars are all over the Internet. In any case, Tesla made a big splash when it entered the space. Bitcoinist reported:
Traders flocked into the cryptocurrency market a day after American carmaker Tesla announced that it had purchased $1.5bn worth of Bitcoin as “alternative reserve assets” to their cash holdings.
In its filing with the Securities and Exchange Commission, Tesla said it plans to buy more Bitcoin in the future and—maybe—even enable its use as a medium of payment for its products and services.
MercadoLibre stock chart | Source: MELI on TradingView.com
More about MercadoLibre
It may not be a big name in the European and North American markets, but MercadoLibre is ubiquitous in Latin America. The company operates in:
- Costa Rica
- Dominican Republic
In the quoted financial results report, they describe themselves as:
Founded in 1999, MercadoLibre is the largest online commerce ecosystem in Latin America, serving as an integrated regional platform and as a provider of the necessary digital and technology-based tools that allow businesses and individuals to trade products and services in the region. The Company enables commerce through its marketplace platform which allows users to buy and sell in most of Latin America.
A question remains, will Bitcoin holdings make MercadoLibre’s stock rise?
Featured Image by Mark König on Unsplash - Charts: TradingView
Coinsmart. Beste Bitcoin-Börse in Europa
Novogratz’s Galaxy Digital set to acquire BitGo for $1.2B
Galaxy Digital is in the process of acquiring BitGo for $1.2 billion, which would be settled in stock and cash
Galaxy Digital, the firm owned by popular investor Mike Novogratz, is set to acquire BitGo, a leading independent digital assets infrastructure provider. The deal is worth roughly $1.2 billion and will be paid in both stock and cash.
In a press release yesterday Galaxy Digital said, “The acquisition will position Galaxy Digital as a leading global full-service platform for institutions seeking access to the crypto economy, offering an unparalleled breadth of industry-leading products and services at scale.”
Several reports surfaced last month, suggesting that the two companies are in advanced talks regarding an acquisition. Mike Novogratz, CEO and Founder of Galaxy Digital, said the acquisition of BitGo would turn his company into a one-stop-shop for institutions, boosting their efforts to institutionalise digital asset ecosystems and blockchain technology. Novogratz added, “The power of the technology, solutions, and people we will have as a result of this acquisition will unlock unique value for our clients and drive long-term growth for our combined business. We are excited to welcome Mike Belshe and the talented BitGo team to Galaxy Digital.”
Per the terms of the agreement, BitGo shareholders are set to receive 33.8 million newly issued shares of Galaxy Digital common stock. Furthermore, they will be paid $265 million in cash, which brings the total value of the deal to approximately $1.2 billion.
BitGo is one of the leading regulated custodians in the cryptocurrency sector. It currently provides services to over 150 exchanges and 400 institutional clients. BitGo controls over $40 billion in assets under management by supporting the custody of over 400 coins and tokens. BitGo CEO and Founder Mike Belshe said joining Galaxy Digital is an exciting new chapter for the company, allowing their clients to access a wide set of financial solutions.
Galaxy Digital planning to go public in the US
Galaxy Digital is a publicly-listed company in Canada. However, the firm is planning to officially list on a US stock exchange this year. In that regard, the company’s board of directors approved a proposed reorganisation and domestication designed to help the company achieve its goal of going public in the United States.
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