As exciting as Defi looks from the outside, away from the regular, bustling day-to-day world of finance, there is a dark side to decentralized finance’s whole governance issue. As we work our way through designing Polkadex’s ecosystem and governance, the more I am in touch with lawyers and regulators from this space, it is increasingly evident that to push our world view of decentralized finance, all the stakeholders in this space should take a balanced idea of introducing such ground-breaking technologies in the hands of people.
I would like to borrow famous words from the worlds best-known capitalist,
Henry Ford — “As soon as they began to run her factories by committees, they went to rack and ruin; there was more debate than production.”
The statement above resonates with the innovation possible with decentralized protocols today. As much as we know the importance of having democratically elected committees run the network protocol, it is equally important to realize that committees cannot run businesses effectively, only professionals commensurately driven by their contribution.
It is one reason why many decentralized protocols cannot move fast and innovate further at a pace expected with their invention. They are caught up in the large, opinionated environment. Without even knowing they are cutting the same branch of the tree, they rest. They are inflexible, large communities looking for a leader to innovate. They are probably the victim of one of the downsides of democracy — an artificially induced Coma.
This is probably the reason behind the formulation of web3’s vision put forward by Juan Benet in one of his famous speeches at the Roundhouse in London, 2018. He said that as engineers, we must innovate responsibly. We have the power to influence the lives of a generation of people fully at the mercy of these innovations for decades to come.
The way we understand it, it is essential to run Polkadex as a business. This way it remains nimble and flexible enough to stay focused on its users and pivot into directions consistent with our long-term vision. Our long-term vision is to use decentralized network protocols as a tool to change people’s everyday lives, banking the unbanked, dilute market monopoly, and make decisions of network participation in the hands of the people.
Now, the question is, how do we achieve these twin objectives? How do you run the network as a business and, at the same time, make decisions decentralized?
It is noticeably clear from the present and past world that governance of some form is necessary among large groups of people, either democratically elected or autocratic. It is the law of nature. The world today understands the need for their citizens’ inclusivity in governance and have come up with democratic structures. It is instead a progression from autocratic to democratic depending on how tolerant the society is.
If you broadly classify the functions of a decentralized application running on a decentralized network protocol, it has two primary functions:
1. Giving back participatory power to people in an open, peer-peer, trustless network. It means anyone can participate in the network if he has the cryptographic keys to participate. He is identified at the network level as just keys or numbers.
2. Setting up and running of useful products and services built around the trust created by the network.
Now, suppose you look at the first function, yes. In that case, the current decentralized protocols are powerful enough to allow this participation to anyone in the world because it is algorithm-driven, irrespective of who you are and your background.
The second function is where things get trickier. You are allowing the participant to use that network as a useful service or product. This could be sending, receiving, exchanging financial instruments and services, or even otherworldly products that use this trust. How do you prevent a criminal or a terrorist from utilizing this open network for advancing his world view? How do you allow the other 99% of good citizens of this world to participate without fear and without being victimized in the name of this 1%? We strongly believe this is where participatory governance comes into play.
Most decentralized networks today have governance functions programmed into the network. They mostly decide on network upgrades, improvement protocols, so on and so forth. One of the reasons the blockchains fork is because the governing council cannot decide which way to go together. They split the chain and push forward their world view in different directions. We cannot judge who is right or wrong here. However, this whimsical approach leads to chain maximalism and a lack of standard protocols among blockchains.
Polkadot and the web3 foundation hold together a vision to allow these different world views to co-exist and function together. The substrate as a framework allows a developer to decide which parts of the network are consensus-driven and which are not. It will enable businesses to better the products and services they build on and put the network’s inclusivity and openness in the governing council’s hands. The governing council, thus elected by the network, which will again be algorithm-driven, allows public participation to decide who has access and who should not have access to the network in participants’ broader interests.
This not only keeps the network open for anyone in the world to participate, but it also allows a robust governance mechanism to prevent bad actors from participating in using a democratically voted system. This achieves the best of both worlds by enabling a foundation to keep building, bettering and finding new markets for the product, rewarding the participants commensurate to their contribution, thereby achieving the right mix of capitalism and socialism and striking the right balance to scale and evolve.
I would like to conclude by quoting two phenomenal people, one an industrialist and one a politician, their words so relevant to our observations above,
“The government should do its job. The government’s job is, in fact, to run the country, to manage the country, to govern the country. And governance is an important thing, not an application where it suits one so, to micro-control where it suits them on the other hand.” — Ratan Tata.
“Government’s first duty is to protect the people, not run their lives.” — Ronald Reagan.
Hence, any governing council’s role in a decentralized network should be to protect its participants and not to meddle with the way the product itself is built, which should be left in the hands of the founders and their vision.
