Last week, IOHK released a paper ‘A Treasury System for Cryptocurrencies’. Here is an introductory summary of the basic concepts and ideas of the paper for the beginners!
The basic idea of Cardano’s treasury system stems from the “lack of secure and community-inclusive long-term sustainability of funding” in current blockchain systems. The major two approaches to the funding are initial coin offerings (ICO) and donations. Since the two approaches lack sustainability, no long term solution has been developed to date. In addition to that, those approaches have the risks of centralization, in terms of the decision-making on the development process on funding allocation, which is considered to be inappropriate in the decentralized architecture of blockchain technology. Also, disagreements within the community of a project can lead to further problems, as seen with some early blockchain projects.
The concept of a treasury system has been raised to address these issues.
“A treasury system is a community controlled and decentralized collaborative decision-making mechanism for sustainable funding of the underlying blockchain development and maintenance.”
A real-world example to date of a treasury system is Dash. This system still has a few potential theoretical drawbacks such as:
- It does not offer ballot privacy to the voters
- It fails to effectively utilize the knowledge of community experts in the decision-making process
- The voting rule and the decision to allow only masternodes to vote in the election makes it “unfairly” difficult for proposals that do not have the support of the founders and core team to succeed
Thus, in this paper, IOHK team (Bingsheng Zhang, Roman Oliynykov, and Hamed Balogun) brings the concept of liquid democracy to achieve better collaborative intelligence. Some of the features are as follows:
Liquid democracy (also known as delegative democracy) is a hybrid of direct democracy and representative democracy. It provides the benefits of both systems (whilst doing away with their drawbacks) by enabling organisations to take advantage of experts in a treasury voting process, as well as giving the stakeholders the opportunity to vote. For each project, a voter can either vote directly or delegate his/her voting power to an expert who is knowledgeable and reknowned in the corresponding area.
Collaborative decision-making - is a core component of a treasury system that allows members of the community collectively reach some conclusion/decisions. Even though anyone can submit a proposal for projects to be funded during each treasury, due to a shortage of available funds, only a few can be supported. Therefore, a collaborative decision-making mechanism is required.
“This work aims to resolve the funding sustainability issue for long-term cryptocurrency development and maintenance by proposing a novel treasury system”
Contributions of this work :
This work provides and proposes ;
A rigorous security modeling for a blockchain-based treasury voting system that supports liquid democracy/delegative voting
- Modeled the voting system in the Universally Composable (UC) framework. Via an functionality F_VOTE^(t,k). This allows the voters to either delegate their voting power to experts or vote directly on the project.
An efficient design of the treasury system
Collection of fundings can be done via:
(i) Minting new coins, (ii) Taxation from Miners’ reward, (iii) Donations or charity.
Three epochs :
(i) pre-voting epoch - Proposals are submitted, and the voters and experts are registered
(ii) voting epoch - Voting committee is selected, and they generate the voting key. Voters cast ballots
(iii) post-voting epoch – Voting committee computes and signs the treasury decision. The winning proposal will be funded
In this system, coin ownership is distinguished from stake ownership, so the owner of a coin can be different form the owner of the coin’s stake. This allows blockchain-level stake delegation without transferring the ownership of the coin. This hedges the risk of losing the ultimate control of the coin(s) for a coin owner when delegating his/her stake to someone else.
World’s first honest verifier zero-knowledge proof
- This work proposed a novel special honest verifier ZK proof/argument
Prototype implementation of the proposed treasury system for running and benchmarking in the real world environment
- Main functionality of the implementation includes proposal submission, registration of voters, experts, voting committee members and their corresponding deposit lock, randomized selection of the voting committee members among voters etc.
- All implemented protocols are fully decentralized and resilient up to 50% of malicious or faulty participants.