Hi all, I’ve not used the Cardano Forums for a long time because I’m generally on Twitter - but the ideas I want to discuss here far exceed the character limit.
In our discussion on CIP-1694 many people are uncomfortable with the 1-coin-1-vote system of governance that is being proposed. While a few propose 1-person-1-vote, many call for a “middle ground” of “quadratic voting” as used in the Gitcoin grants program. This use of Quadratic Voting was explored in the article “Liberal Radicalism: A Flexible Design For Philanthropic Matching Funds” by Vitalik Buterin, Zoë Hitzig, and E. Glen Weyl and the program has been a very successful way of providing funds for public infrastructure projects on EVM networks. However, I am not convinced that the methodology could be scaled to an ecosystem-wide governance framework such as the one we need for Cardano.
The first place where this methodology breaks down is the fact that Gitcoin is only dealing with funding while Cardano needs to both control the Treasury and make decisions on parameters. But if we just look at the Treasury we already see that Gitcoin and Cardano are different by nature of the funds being distributed. The funds in a Gitcoin challenge are coming from donations by individuals or foundations that want to see a challenge area addressed. In fact, the Gitcoin system is more pointedly called “Quadratic Funding” than “Quadratic Voting” because individuals don’t simply get to vote on how the Challenge Fund is being spent. The voters must put skin in the game by pledging their own donation to projects in the challenge category and then the Challenge Fund is distributed as matching funds.
The Cardano Treasury, by contrast, is coming from a portion of Transaction Fees and the scheduled monetary inflation. To put it colloquially, the Cardano Treasury comes from your taxes. Now, if that’s the case and you’re in favor of a Quadratic Funding mechanism, why are we considering the amount of Stake that is passively held by each individual? Shouldn’t we be looking at the volume of Transactions that are associated with a wallet each Epoch to determine governance instead? After all, they are paying the network fees. I, for one, welcome our new DeFi Overlords! ( / sarcasm)
The second issue I would like to examine is that Gitcoin doesn’t actually follow the Quadratic Voting mechanism discussed in Buterin’s paper. While the Quadratic Funding mechanism was founded on this idea, it has been adjusted over the years to account for people gaming the system. If we try to implement Quadratic Voting ecosystem-wide in Cardano we will undoubtedly have the same problem and be forever chasing the cheaters.
As Pi from SundaeSwap pointed out, it is quite easy for users with large holdings to simply split their bags into multiple wallets to amplify their votes.
That's not how it works— Quantumplation | Pi Lanningham (@Quantumplation) March 18, 2023
24 words => one stake address is purely convention
From the ledger standpoint, each stake address is a private key, which is just a random number. On a cruddy laptop I can generate several million private keys a minute, and each one takes up a few bytes.
The users who would be really disadvantaged in this scenario are the mid-level bag holders who are not sophisticated users. While Quadratic Voting might help level the playing field between someone who holds 10,000 ADA and 100,000 ADA, the user who holds 1,001,000 ADA can just pay someone 1,000 ADA to develop a script that splits her 1,000,000 ADA bag into several 10,000 ADA wallets that can be coordinated.
Proponents of Quadratic Voting say that we can require Decentralized Identities to register for voting and chain analytics to watch for cheating - but we need to carefully think about who will be in charge of such a system. With a Gitcoin challenge this isn’t as big of a deal - you have a voluntary program where people are choosing to engage in charitable giving. That’s quite different from the decentralized governance of the entire Cardano ecosystem and control of the Cardano Treasury.
In a Decentralized Identity system someone has to be in charge of providing the verified credentials and invalidating the credentials of people who misuse the system. Whoever is in charge of catching the cheaters in a Quadratic Voting system and removing their votes from the count would be able to abuse that power. It’s all well and good to say we can install checks and balances but the entire point of cryptocurrencies and blockchain is to build trustless systems where the possibility of human abuse is limited by the mechanisms for manipulation not being present.
Finally, we need to address the basic fact that Cardano is a Proof-of-Stake system. At the end of the day, even in its current form where the three founding entities of Cardano hold the governance keys, the Stake Pool Operators, who gain their legitimacy from the ADA Stakeholders, ultimately make the decisions on how the network is governed. This was very evident in June 2022 when IOG was forced to delay the implementation of the Vasil upgrade because the SPOs demanded more time to test the node software. That was a GOOD exercise of governance where the Stakeholders demanded assurances from the developers that the node software was up to specs.
CIP-1694 is working within this framework by creating a tricameral governance structure where DReps chosen by stake, a Constitutional Committee chosen by the DReps, and the SPOs as a governing house each have a role to play in passage of Proposals. I’m tempted to go into more details why each of these bodies has governance advantages, but I think I should leave that for a different post.
The point I want to make is that it is necessary for DReps to have their power come from governance delegation of Stakeholders because that is the only way that they will be equal to the SPOs. At the end of the day, the SPOs have the ability to execute a coup d’état and fork the chain to a different set of rules if a large enough majority decides to do so. Establishing a balance of power where a healthy body of DReps are in place to counter-balance the SPOs is an important check for the system.
So, does this mean that if you don’t hold a large amount of stake you won’t be able to have an influence on the governance of Cardano? I don’t think that’s the case of all. The great thing about the CIP-1694 framework is that it sets up a minimum viable governance where participation is rewarded. If individuals want to get out there and be active in governance they can attract delegation to serve as a DRep and command far more power than they could ever buy on their own. If a community wants to have a say in how Cardano develops going forward they all delegate to the same DRep and perhaps even get others outside the community to join their cause by adding governance delegation.
In the future we will undoubtedly build layers of governance on top of this basic structure and there may be a very good reason to have some systems where individuals are identified and quadratic voting is utilized. But that will take time to develop and must be approached carefully so that nobody attempts to capture the process for their own means. For now we should utilize the strengths that Cardano has as a Proof-of-Stake system to encourage broad participation and merit-based elevation of leadership.