On-chain governance might seem like a new feature to many Cardano users. However, from a technical standpoint, it utilizes similar functionalities that have been in place since the introduction of staking. Operators need to register a pool, allowing ADA holders to delegate their ADAs. Certificates are used for that. Governance operates in a similar manner: a DRep must register to obtain a DRep ID, and delegators then assign their voting power to registered DReps through these IDs.
Certificates and Keys
Both staking and on-chain governance rely on cryptography. Stake Pool Operators (SPOs) must first register a pool, creating a certificate that is stored on the blockchain along with all necessary information. SPOs control their pool’s block production through private keys, which they must securely protect.
Similarly, DReps register via their wallet or GovTools, generating a governance transaction that must be signed with a private key. This transaction includes the DRep registration certificate, which is permanently stored on the blockchain. Registered DReps then vote on governance actions by signing voting transactions with their private keys.
In the image, you can see a registration process conducted via the Eternl wallet. This transaction included three certificates: Account registration, DRep registration, and DRep delegation. The DRep has successfully registered, and its stake (voting power) has been delegated to its own DRep ID.
All certificates are permanently stored on the blockchain. The Cardano protocol validates the transaction’s signature, and if it is valid, the transaction and its certificate are forever recorded in the ledger. It is a similar process to pool registration, but the certificate contains different data.
The DRep can share their ID with the community and invite other ADA holders to delegate their voting power to them. An ADA holder wishing to delegate their voting power must know the DRep ID they intend to delegate to. The delegation certificate includes both the stake address of the delegator and the DRep ID.
If an ADA holder knows the DRep ID, they can create a transaction that includes the delegation certificate. The transaction must be signed by the private key. Like all other certificates, the delegation certificate will be permanently stored on the blockchain.
Over time, DReps will accumulate more delegations, eventually leading to most ADA coins in circulation being delegated. Some stakes will remain undelegated or will be assigned to Abstain or No-Confidence DReps. ADA holders can reassign their voting power to different DReps, much like they would when delegating ADA to another staking pool.
Registered DReps have the authority to vote both for themselves and on behalf of the delegated stake.
Anyone can submit a governance action for voting by making a refundable deposit of 100,000 ADA. The submitter specifies the number of epochs after which the governance action will either be approved or expire. Governance action can be approved several epochs before potential expiration. Like certificates, governance actions are permanently stored on the blockchain.
You can find details about governance actions in GovTools or a blockchain explorer.
Once a governance action is submitted, all DReps and Direct voters can start voting. Additionally, SPOs vote on certain governance actions using their pool stake. A governance action is identified by the hash of the transaction used to submit it.
All DRep voting transactions are permanently stored on the blockchain. If the governance action is still active, a DRep can change its decision. A DRep can vote on a governance action multiple times, with only its last vote being counted.
Similar to staking, snapshots are used for governance and are taken during the transition between epochs. During these snapshots, the new voting power of all DReps is recorded. New DReps could register during the epoch. Some could retire. Moreover, delegators can change their voting power delegations within an epoch.
Additionally, the protocol tallies votes for all active governance actions. If a governance action reaches the required threshold and the majority of votes are YES, the action is approved.
Conclusion
On-chain governance operates without a central authority. Anyone can register as a DRep and delegate voting power. ADA holders have complete freedom to manage their ADA as they wish at any time. Anyone can propose a governance action by depositing 100,000 ADA. DReps can vote on these actions with their stakes. Once a governance action is approved, it cannot be reversed. If a protocol parameter change is proposed and approved by all governance bodies, including the constitutional committee, the change will occur automatically without any team or external intervention.