Governance of DeFi protocols is often “token-weighted”, i.e., one dollar-one-vote.
In real life, this very non-democratic sort of voting is generally not used except in the very undemocratic world of corporate governance. This kind of governance obviously produces results that favor the wealthy. Which, frankly, is what they are designed to do. And, as we’ve seen in the corporate world, this kind of governance is open to abuse of many kinds.
So today’s “DeFi” systems that use “token-weighted” voting faithfully replicated the worst of corporate governance, except even more opaque, at lightning speed, and outside any legal framework. What could possibly go wrong?
Now, it’s also obvious that “weighted” voting is not exactly an “innovation” no matter what proponents may claim. But the cryptocommunity has actually invented at least one new thing: a new term, a “governance attack” on a cryptocurrency system [1].
If I understand correctly, this word refers to various ways to legally subvert weighted voting, to essentially buy the result you want.
In the specific case discussed by Thurman, the alleged technique was simple: borrow money to buy enough votes to secure the desired outcome. Presumably, the result would pay off to more than cover the borrowing.
This is sort of like a conventional proxy fight except that it is opaque and happening at light speed. It can be very difficult to prevent this sort of manipulation, and it may not be detectable until after the fact. And, obviously, there is no appeal or legal recourse. “The code is the law.”
It’s kind of a mystery to me why anyone would voluntarily put up with this stuff. It definitely isn’t democratic, in the sense of representing the interests of all stakeholders. It’s not fair, nor transparent. And I wouldn’t trust any “governance” that can be so easily and opaquely manipulated.
All of which is ironic, no? Because the whole point of Nakamotoan governance is to be democratic, fair, transparent, and “trustless”, i.e., trustworthy because there is no human in the loop.
But this mischief is innovative, so we needed a new word to describe it.
So, I’d say that “Governance Attack” is not only a good name for a band, it’s a candidate for CryptoTulip of the Year recognition.
- Andrew Thurman (2022) Tron’s Justin Sun Accused of ‘Governance Attack’ on DeFi Lender Compound. Coindesk, https://www.coindesk.com/tech/2022/02/04/trons-justin-sun-accused-of-governance-attack-on-defi-lender-compound/
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