Comprehensive analysis of the MakerDAO governance system: Taking 2% governance events as an example

Written by: Cao Yin, Managing Director, Digital Renaissance Foundation

Source: Chain News

There have been a lot of research studies on DeFi, but there has been very little discussion on DeFi governance research. Perhaps because DeFi is still in an explosive stage of rapid development, the importance of governance has not yet emerged. DeFi is a new thing, and currently it has not been fatal. Sexual governance challenges. Therefore, DeFi developers and researchers pay more attention to making cakes, and have no time to study how to divide the cake.

However, the importance of governance for DeFi cannot be overemphasized. A scientific governance model is not only a firewall for DeFi projects to deal with internal and external challenges, but also a moat for competition between DeFi projects. One of the key reasons why MakerDAO can become the most important cornerstone of the DeFi ecosystem is its scientific governance system.

This research will apply the emerging political research method GAF ​​(Governance Analytic Framework) framework in the past two years, starting from a governance challenge of MakerDAO, analyzing Maker's governance system in a panoramic manner, and summarizing what is helpful for other DeFi projects. Governance recommendations.

GAF framework

In traditional political science research, governance has always been an important focus of attention. In order to respond to collective problems, organizations need collective participation in decision-making methods. During the decision-making process, interactions among stakeholders have resulted in norms and rules And the emergence of institutions, this is the origin of governance. Every organization needs systems for decision-making and conflict resolution, and that's what governance means.

Governance is not limited to time and space. It can be neither mandatory nor prescriptive. Governance also exists in informal and open organizations. Governance is more a system than a system. This spontaneous phenomenon can be observed in any human tissue. This is especially true of open decentralized organizations and business ecosystems based on blockchains, which do not require the premise of vertical authority and regulatory power.

The extension of DeFi governance research should include all governance processes, including not only formal formal governance norms, but also informal community governance should also be included in the scope of research, and even a single DeFi governance should be put into the larger open financial system for the overall situation Sexual governance research.

In order to conduct scientific research and comparison of DeFi governance, this article will use the governance research methodology GAF (Governance Analytic Framework) framework that has just emerged in political research in recent years to perform a panoramic analysis of MakerDAO based on real challenges.

The GAF framework consists of five closely related analysis modules: Problems, Social Norms, Actors, Nodal Points, and Processes.

  • "Problems" are a series of interrelated governance challenges.
  • "Participant" refers to a specific individual or group, such as MKR holders, Maker team, etc. Participants can create or influence social norms through collective action, thereby guiding, regulating and sanctioning other individual or collective actions.
  • "Social norms" are formal or informal contracts and joint decision-making mechanisms between participants. Social norms can be broadly defined as a common belief in what is appropriate behavior in a particular organization, such as the five basic principles of MakerDAO Foundation Principles). Social norms are not static in an organization and can be modified through collective interaction within the organization. Note that in the DeFi project, many social norms are not formally written, but come from the default, larger, blockchain community culture, such as the vigilance of a centralized system, which requires participants to be responsible for their own behavior This value influence from the larger ecology is currently playing a more important role in MakerDAO.
  • "Interaction nodes" are places where participants discuss issues, formulate social norms, and govern behavior. Note that the interaction node can be an entity's club or an event meeting. Any place or occasion where participants interact and generate discussions involving organizational interests can be referred to as an interaction node. Includes online forums for various DeFi projects, such as the MakerDao Forum, Reddit Channel, Chat Group, and regular online Governance meetings.
  • "Process" refers to the changes in governance that occur over time under the complex interactions of the participating parties.

From the perspective of a rule-of-law society under the governance of a sovereign government, in the study of DeFi governance, the vast majority of participants, social norms and processes are informal and are not recognized by authoritative lawmakers and law enforcement (instead In other words, DeFi is "illegal" and not covered by existing legal protections.)

Maker GAF framework analysis background: "2%" event

On February 11, Maker's governance system initiated a regular Governance Poll (governance survey) poll. This poll is a regular Dai Saving Rate (DSR) Spread Adjustment survey that is held every Tuesday. The purpose is to: Investigate among MKR holders whether it is necessary to adjust the interest rate difference between Dai's Stability Fee and Dai's Savings Rate (DSR).

The survey provided voters with six options: 0%, 0.25%, 0.5%, 1%, 2%, and 4%. MKR holders vote for one of these options with MKR. If the voting result is different from the existing interest rate difference, the governance system will launch Executive Vote, and MKR holders will vote again to decide whether to write the previous interest rate adjustment result of the Government Poll into a new contract and incorporate it into the Maker agreement. Adjust existing interest rate differentials.

Since DSR went live in Maker in 2019, similar DSR adjustments and spread adjustments, Governance Poll, have been held weekly in the Maker governance system without noticeable controversy. However, the spread-adjusted vote on February 11 caused controversy within the community.

The deposit and loan spread at that time was 0.5%. Soon after the voting began, a large amount of MKR whale voted in favor of the "2%" option, which accounted for about 30% of the total votes at that time, only a few less than the first option of 0.5%. percentage point. This immediately caused a lot of opposition in the community. Immediately someone posted on the Maker forum, asking who and why did they choose the 2% option, and called on MKR holders who have not yet voted to vote for other options, not to let 2%. The options are passed.

Here, first briefly explain the reason why the 2% spread caused fierce opposition within the community. The Dai Deposit Rate (DSR) plays a very important role in the governance of MakerDAO's monetary policy, and, like the stable rate, keeps the Dai anchored in the US dollar. DSR can affect the behavior of Dai holders, and thus stabilize the price of Dai from the demand side of Dai. If the price of Dai is lower than the target price of US $ 1, the DSR should be increased to encourage users to buy from the market and deposit in Dai to increase the price of Dai; if the price of Dai is higher than the target price of US $ 1, the Dai deposit interest rate should be reduced to slow down Dai In short supply, the price of Dai fell back to the dollar anchor level.

As an important monetary policy tool, the adjustment of DSR should follow the principle of continuity of monetary policy, otherwise, Dai will inevitably be delinked from the USD price. The 2% option is four times the 0.5% spread at that time. If it wins in the Government Poll and Executive Vote, it will be a major blow to the cornerstone of Maker's monetary policy: the anchor with the US dollar.

It may be because of the pressure of community appeal, or because of other reasons we do n’t know. The “2%” giant whale changed its original choice four hours before the Governance Poll ended, choosing 0.5% to avoid the community. With differences, a monetary policy crisis ends.

From the perspective of the GAF analysis framework, this "2%" incident is a good opportunity to deeply understand the governance of Maker.

Problem definition

The first step in applying GAF to study governance is to understand and clearly define related issues, deconstruct and restructure them. In any social system, different actors may look at issues from a completely different perspective. Some people's problems may be an opportunity for others.

For a closely-connected and nested DeFi world, accepting this diverse worldview is a basic condition for studying DeFi governance. DeFi is now in its early stages, and current DeFi governance participants consider themselves to be pioneers and have a strong sense of mission for their governance role. therefore. Each participant tries to impose his or her own position on others. In some DeFi projects with DAO as the governing body, setting the agenda has begun to become a Game of Throne. Different participants are mobilizing their resources and trying to convince others to accept their views through persuasion on various occasions. In some forum discussions, I even found that some DeFi governance participants even began to apply symbolic violence to dissidents (for example: "This is for the sake of the project! You must be messing around").

Therefore, in this "2%" incident, after deconstructing and reconstructing the problem surface phenomenon, the inner core contradictions of governance surfaced: In Maker's existing governance system, governance participants representing different interests and different roles How to define and realize the maximum collective benefit in the case of unequal speech rights and governance rights (MKR holdings)? How to set the agenda and agree on key issues?

Participant analysis

Participant analysis is at the center of the GAF analysis framework. First, you need to identify which participants are in the governance process. We can't just analyze the role of MKR holders in Maker governance. We need to include all participants who can influence Maker governance decisions within the analysis framework, regardless of whether their influence is officially recognized by Maker and whether they hold MKR. Ability to participate in voting.

MKR Voters: 645

MKR voters will participate in the Government Poll and Executive Vote to change the Maker agreement and governance mechanism. Active MKR voters will actively influence other voters to ensure that the topic of their choice can be voted through.

As of now, the cumulative voting address of MKR is 645. However, the Gini coefficient between MKR holdings participating in voting is as high as 0.98, which means that the holdings of MKR holders are very different.

Holders of MKR non-voters: unknown number

Although the Maker governance community is active, in fact 87% of MKRs have not participated in voting governance. There are many reasons why these MKR holders are not voting:

  • The foundation holds MKR and does not participate in governance voting according to governance rules
  • MKR short-term investors do not care about the long-term development of Maker
  • Lack of knowledge and ability to participate in MKR voting governance
  • Governance of neutral concept holders, believe that no governance is better than governance
  • Followers, no personal position, believe that MKR voters who actively participate in governance can represent themselves

These non-voting MKR holders are also participants in the Maker governance system, because the success or failure of Maker governance directly affects the market price of MKR, so non-voting MKR holders may participate in voting in the future or express opinions in the community to affect Governance of Maker.

Moreover, the Maker Foundation has sold a considerable portion of the foundation's non-voting MKR to strategic investors DragonFly, Paradigm, A16Z. These institutions will also become active participants in Maker governance. It is not excluded that the Maker Foundation will release more in the same way in the future. Non-voting MKR participates in governance.

Maker Interim Risk Team: about 3 people

Before Maker's risk management was completely decentralized, the temporary risk team within the Maker Foundation was responsible for managing various risks in the DAI system. Their task was to manage the mortgage asset portfolio and recommend appropriate monetary policies. The monetary policy Governance Poll, which is regularly launched every week, is under the responsibility of the temporary risk team.

Maker Governance and Community Team: about 3 people

Design Maker's governance rules, convene weekly Government Calls, manage Maker forums and other community platforms.

Maker Forum participants: 185 active users

The Maker Forum is an important occasion for Maker Governance. Forum participants can express their opinions in the forum whether or not they hold MKR. As long as the Signal motion initiation process of the Maker Forum is followed, any forum participant can initiate a voting and participate in the voting of the Signal motion forum. The Signal motion that has reached a consensus within the forum will be adopted by the Maker temporary risk team, and the Government Poll and Executive will be launched on the chain. Vote, if all are passed, the relevant bill will become part of the Maker agreement. ·

We can classify the above five categories of governance importance according to the strength of the four dimensions. "+" Represents strong, "-" represents weak, and "!" Represents impossible to compare.


*: It is impossible to know the number of MKR held by Maker Forum participants, but according to common sense, MKR whales actively participating in voting governance will inevitably care about and register with the Maker Forum, especially institutional strategies such as A16Z, Paradigm, and DragonFly that hold a large number of MKRs investor. **: Assuming MKR voters and forum participants do not overlap in this section It can be seen that in Maker's governance, even if there is no authoritative and compulsory law, there is still a non-institutional centralization phenomenon. Maker forum participants and Maker related internal teams can use forum discussions, internal mobilization, collective action, etc. Other participants exert significant influence to consolidate or change the voting choices of others.

These active governance participants are more important to governance outcomes than non-participating MKR voters. In other words, whoever can effectively influence these active participants in forum activities can influence the decisions of the Maker system.

After carefully reviewing the hundreds of posts and discussions on the Maker forum, I did find some very active and influential unofficial forum participants. These people actively discuss, debate, and initiate Signal voting, transforming their influence into key outcomes of the Government Poll and Executive Vote, thus deeply affecting and shaping Maker's protocol ecosystem.

However, compared to the traditional institutionalized centralized system, Maker's governance participation is open, and anyone with English literacy can participate freely. Of course, withdrawal is also free. Therefore, the influence within the Maker governance system is not fixed, but requires participants to continue to build and consolidate their influence.

At present, Maker has a small number of active governance participants. Basically, they are enthusiasts of DAO and DeFi, and have high scientific discussion skills. Therefore, the current Maker governance is much like the early city-state democracy in ancient Greece. Anyone can Opinions are expressed on the square, but they must be voted for after full public debate, testing and consensus.

In the "2%" event, you can clearly see how participants are playing a role in influencing Maker's governance decisions.

Shortly after the launch of the Government Poll, Joshua_Pritikin, an active participant in the Maker Forum, immediately posted a question in the Maker Forum asking "Who is voting 15K MKR to increase the DSR Spread to 2%".

Immediately, LongForWisdom, a member of the Maker Governance and Community team, and other forum members joined the discussion and discussed the following issues

  1. Analyze the motivation of 2% voting for whale
  2. Discuss the impact of spreads on Maker's core benefits
  3. Call on MKR holders to support the low spread option (the initiator of the discussion, Joshua, strongly recommends the 0% option)

Discussions on the forum influenced and changed the outcome of the ongoing Government Poll:

  1. After the discussion began, supporters of the 0% option increased rapidly (although the total number of votes was not large)
  2. The whale that started to support the 2% option changed the option and re-voted in favor of the more conservative 0.5% option

In the process, the Maker Interim Risk Team initiated the Governance Poll and limited voting options. Maker forum participants found issues, raised opinions, and mobilized voting. The Maker Governance and Community Team also actively participated in discussions as forum participants, and Due to its official status, its views have more influence than ordinary forum members. Forum members have jointly mobilized and influenced the choice of MKR voters, and have won the participation of some unvoted MKR holders to vote. The interaction of all participants, In the end, governance results were formed.

Social norm analysis

As mentioned earlier, the so-called social norms are actually the rules for the operation of society and the rules that make them. In any community, any situation that requires the collective decision-making and joint action of participants will inevitably lead to social norms, and not only compulsory norms in writing can be called norms. In many communities, informal norms are also Plays a very important role in decision-making.

Regardless of the form of the norm, the legitimacy of the norm comes from the core interests and values ​​of the community. This is the purpose of formulating the norm, so it can be called "meta-norms". Meta norms are not norms in nature, so “constitutive norms” need to be formulated according to meta norms to clearly define the fundamental social contract relationship of the community. In the governance system of a sovereign state, the constitution plays a similar role, clarifying the country's core interests and values, as well as the responsibilities and obligations of the state and government, which can be understood as a contract between citizens and the state. Underneath the fundamental norms, there are specific "regulative norms" that define specific governance rules.

In the DeFi project, there are also classifications of meta norms, fundamental norms, regulatory norms, and informal norms.

Maker is a DeFi stable currency project. Decentralization and currency stability are the core interests of Maker, the Maker's meta-standard, and the purpose of Maker governance.

The Maker community held its first MKR vote on September 12, 2018, which passed Maker's fundamental norms: Five Fundamental Principles (Core Foundation Principles). These five principles fully reflect Maker's governance values,

  1. Scientific Governance
  2. Serving The Underserved
  3. Sustainable Finance
  4. Gradual Decentralization 5. Widespread use of Dai (Driving Dai Adoption)

Based on five principles, the Maker Foundation has designed a series of regulatory norms, including the most important decision-making mechanisms: Government Poll and Executive Vote.

In addition to regulatory norms, informal norms also prevail in the Maker community, rules of debate on the Maker forum, criticisms and suggestions from external media, and discussion etiquette on social media are all informal norms that influence Maker's governance. Although informal norms are not legal or mandatory, in open and decentralized DeFi governance, the impact of informal norms is often stronger than formal regulatory norms, because they have Interactivity and flexibility.

In the "2%" incident, although the MKR giant whale acted completely within the rules of regulatory norms and voted for the 2% option in Government Poll, its behavior conflicted with Maker's core interests meta-specification. Therefore, the Maker Forum Participants initiated a fierce discussion on 2% of votes in the community forum, formed oppositional consensus through the informal norms of the community, which in turn affected and changed the decision-making results of the regulatory norms, thereby maintaining the Maker meta norms and fundamental norms.

Interactive node analysis

During the governance process, repeated interactions occur among participants. Problems, actors, processes, and social norms come together, and the places and media where interactions occur (eg online forums, conference calls) are interaction nodes.

In national governance, the most common and important interaction nodes are various congresses, such as parliaments. In DeFi project governance, common interaction nodes are various online groups.

Maker governance does not have offline interactive nodes, but there are multiple online interactive nodes, including Maker's Reddit community, Chat channel, Twitter, Government Call, and the Maker forum. The most important one is the Maker forum.

Governance participants learn about Maker's progress through Maker's official Twitter and Medium, and conduct impromptu and limited-depth preliminary discussions on Twitter; the Chat channel serves as an instant chat tool where participants and developers can exchange governance opinions efficiently; the Reddit community Some are inquiring posts that serve as a community education and collect opinions;

In the end, all meaningful governance opinions will be gathered from Twitter, Chat, and Reddit to the Maker Forum, and open and in-depth debates will be conducted on the forum to refine and form the Signal motion vote, which will then form the Government Poll and Executive Vote, and eventually change the Maker Protocol.

Taking the Maker Forum as the end point, each node played a different role in the interactive dissemination of governance opinions, forming an efficient and extensive governance opinion transmission, amplification, feedback, screening, and ultimately funnel for the final refinement of the motion, making the final The motion formed at the forum is scientific, representative, and enforceable.

In the "2%" incident, the Maker Forum played a crucial governance role. Around the 2% option, participants quickly started discussions and interactions in the Maker forum, analyzed the information applied on other interactive nodes, pointed out the possible threats this option poses to Maker's core interests, and immediately appealed to 2% to vote that the whale can be timely Change your choices and call on other MKR holders to actively vote for a reasonable spread option.

Governance process analysis

Interaction nodes give us the possibility to study the horizontal interaction between governance participants and social norms on specific governance issues. The governance process slices the cross-sections of these governance interactions and connects them vertically in time, enabling us to see participants clearly. The changes in the structure of interactions, social norms and rules, the influence of each other, and the direction of change is found on a time scale, so as to predict the future development of the governance system from a higher level.

The cornerstone of Maker's governance is scientific governance. The results of governance must be based on a scientific model that can be copied and tested. Neither the MKR holder nor the Maker Foundation has the special power to arbitrarily change the system parameters. All governance processes depend on Based on factual and provable scientific arguments.

The design of Maker's interaction nodes and governance rules fully reflects the principles of scientific governance and progressive decentralization in the five basic principles of Maker. Governance debates on different interactive nodes have become a compromise solution for seeking consensus. Hierarchical communication platforms allow serious governance participants to focus on scientific governance based on theory and data on key interactive nodes, rather than on ordinary social media. That polarized public opinion war. After the governance participants reach consensus on the interactive nodes at all levels, the MKR holders then vote according to the governance rules to determine the governance results. The specific governance process can be represented by the following figure:

In the "2%" incident, the disputed spread Governor Governance Poll is a regular vote of Maker's monetary policy, so the governance process does not start from scratch as shown above, but starts with the Governance Poll. Therefore, the spread options in Poll and the voting intentions of voters have not been fully debated on the exchange nodes before voting (although a Government Call is held before each Government Poll, but due to the limitation of the form of the conference call , Poor governance effect), as a result, the parties did not form a consensus expectation on the voting results, so the voting results exceeded expectations.

Before each Maker monetary policy Governance Poll, all parties should be allowed to vote in the Maker forum in a forum similar to Signal Request, so that MKR holders representing different interests can fully express their opinions on the monetary policy to be voted on, and advance through debate. Expose differences and form consensus in advance. Instead of the "2%" incident, the Governance Poll began to vote before revealing differences, and then carried out emergency operations to seek temporary consensus.

Fortunately, the consensus of MKR holders is very strong. Following the discussion and appeal of forum participants, the 2% option voting whale finally changed its opinion, canceled the 2% option, switched to a reasonable spread option, and eliminated a currency. Policy crisis.

Key conclusions

The GAF analysis framework enables us to analyze and study the governance structure of the DeFi ecosystem systematically on specific issues, and to find the key impact factors among them. Then we can reasonably evaluate and continuously improve the governance system of the DeFi project.

This "2%" incident is a small governance challenge. As a key governance interaction node, the Maker Forum has played an important role in shaping consensus and community mobilization, and Maker's social norms and governance rules have also effectively played a role To allow the interaction and decision-making of MKR voters and governance participants representing different interests to quickly return to the core interests of the Maker community, quickly reach collective consensus on specific issues, and take collective action instead of causing larger Disagreement. Through the analysis of the GAF framework, we can extract some important suggestions that have universal significance for DeFi project governance.

1. Maker's governance system is worth learning from other DeFi

Maker's governance system has a complete governance structure. Advanced meta-standards and basic principles have brought together a large number of high-level serious participants to join Maker governance. Multi-level governance rules clearly guide the governance behavior of participants representing different interests. ’S motion discussion system makes open fact-based debates replace the common emotional polemics of online discussions; multiple visual governance tools make governance results measurable and comparable; low-value community chats and serious and high-level governance discussions Separate layers of different interactive nodes, while ensuring that valuable suggestions and perspectives can emerge from the interactive nodes at all levels and enter the final governance decision channel; at present, all DeFi and Dapp projects have no one. Compete with the completeness and maturity of the Maker governance system.

2. Governance is more than voting

Governance is the collective decision-making process of participants, and voting is only the last step in the decision-making process. A healthy DeFi governance system, before voting, it is necessary to provide governance participants with interactive nodes to exchange and express their opinions, and executable governance. Rules, scientific proposal system.

3. High-quality governance participants are very important

Maker has gathered a group of professional DeFi researchers and developers. These high-level governance participants are the mainstay of Maker's high-level decentralized governance. At the same time, it also attracts more high-level governance participants to join, forming a positive cycle. .

4. The importance of meta norms, projects without souls cannot have high-quality governance

Maker's emphasis on the values ​​of decentralization, freedom, and inclusive finance has attracted a group of people who recognize its values ​​to participate in governance, including many high-level governance participants. Maker is also the only DeFi project that has confirmed the core ideas (five basic principles) in writing. The five basic principles clarify the future development direction and basic governance principles of Maker from the perspective of values. The change has a consensus expectation, which greatly reduces the difficulty in coordinating the collective decision-making of the participants.

Conversely, if a DeFi project does not have clear core values, it will be difficult for the project to have high-quality governance.

5. Interaction nodes are important.

According to the characteristics of different social media and online platforms, design a hierarchical and interactive node strategy that allows different levels of governance participants with different levels of participation to fully express their opinions without affecting the true in-depth discussion. Although the instant messaging software (Telegram, Wechat) is convenient, it is not suitable as a platform for conducting serious governance discussions and forming governance proposals due to its performance limitations and user habits. Online forums are the best choice for serious governance activities.

6. Governance rules need to be participatory, and the threshold for governance participation should be minimized

Maker has a very detailed motion text format and best practice guidance, which greatly reduces the threshold for ordinary participants to participate in governance, makes governance more representative, and can gather more good ideas.

7. Governance is a science and requires scientific tools

Maker's scientific governance principles emphasize that governance is measurable, evidence is testable, and results repeatable. The team and community have developed a series of scientific governance tools to analyze the process of each vote through data visualization, so that the proposer can scientifically analyze the governance effect.

8. DeFi governance should break project boundaries

Who is the giant whale behind the 2% spread option this time? Maker's monetary policy has become the cornerstone monetary policy of the DeFi world. The adjustment of Maker's rate will have a significant impact on all third-party platforms that provide Dai lending and related services, such as dydx, compound, etc., as Dai ’s debt ceiling continues to increase This effect will grow larger. Other DeFi project parties will inevitably participate in the governance of Makers by purchasing or leasing MKR, at least by affecting other MKR holders to influence Maker's monetary policy. Maker's strategic investors, A16Z, Dragonfly, and Paradigm have also invested in other DeFi projects. Will these strategic investors holding a large number of MKRs also consider the interests of other DeFi in their portfolio when participating in Maker governance?

DeFi will enter the era of "Global Governance". When designing the DeFi protocol, we should not only consider the composability of financial products of the DeFi protocol, but also consider the composability of DeFi governance. DeFi's governance will be more like TCM in the future, rather than Western medicine, the whole is greater than the sum of the parts.