Governance

Governance and Evolution: How Blockchains Make Decisions Together

The Town Hall Analogy

Imagine a town with no mayor. Instead, every citizen gets a voice. When the town needs a new playground, everyone votes. When roads need fixing, everyone decides together. That’s blockchain governance!

A blockchain is like a digital town. The “citizens” are people who own tokens or run computers (nodes). They all help decide:

• What rules to follow
• When to make changes
• How to spend the town’s money

Let’s explore how this digital democracy works!

On-Chain Governance: Voting Right on the Blockchain

What Is It?

On-chain governance is like voting with magic paper that counts itself!

When you vote, your choice is recorded directly on the blockchain. The computer counts all votes automatically. If enough people agree, the change happens by itself!

graph TD
    A["Someone Has an Idea"] --> B["Proposal Created on Blockchain"]
    B --> C["Token Holders Vote"]
    C --> D{Enough Votes?}
    D -->|Yes| E["Change Happens Automatically"]
    D -->|No| F["Proposal Rejected"]

Real Example

Tezos uses on-chain governance:

1. Someone proposes a new rule
2. Token holders vote with their XTZ tokens
3. If approved, the blockchain updates itself!

Why It’s Cool:

• No one can cheat the count
• Changes happen fast
• Everyone can see every vote

Simple Analogy: Imagine a classroom where students press buttons to vote. The screen shows results instantly. No teacher needed to count!

Off-Chain Governance: Discussing Before Deciding

What Is It?

Off-chain governance is like a family meeting before making a big decision.

People talk on forums, social media, and in meetings FIRST. Then developers write code. Finally, node operators choose to run the new code.

graph TD
    A["Discussion on Forums/Discord"] --> B["Developers Write Code"]
    B --> C["Community Reviews"]
    C --> D["Node Operators Choose to Update"]
    D --> E["Change Implemented"]

Real Example

Bitcoin uses off-chain governance:

1. Developers discuss on mailing lists
2. They write a BIP (Bitcoin Improvement Proposal)
3. Miners and node operators decide if they want the update

Why It’s Useful:

• More time to think carefully
• Experts can explain complex ideas
• No rush to vote

Simple Analogy: Before your family buys a new car, everyone discusses options at dinner. Then Dad and Mom decide together. No voting machine needed!

Improvement Proposals: The Idea Box

What Is It?

An improvement proposal is like putting a suggestion in the school’s idea box!

Anyone can write down their idea for making the blockchain better. The proposal explains:

• What’s the problem?
• What’s the solution?
• How will it work?

Types of Proposals

Real Example

EIP-1559 changed how Ethereum handles fees:

1. Someone wrote the idea down
2. Developers reviewed it
3. Community discussed for months
4. Everyone agreed
5. Ethereum upgraded!

Simple Analogy: You want pizza Friday at school. You write: “Problem: Boring lunches. Solution: Pizza Friday!” Teachers review it. Students vote. Pizza Friday begins!

Voting Mechanisms: How Votes Count

Different Ways to Count Votes

Not all voting is the same! Here are the main ways blockchains count votes:

1. Token-Weighted Voting

More tokens = More voting power

If you have 100 tokens and I have 10, your vote counts 10x more than mine.

Good: Rewards people who invest more Bad: Rich people control everything

2. Quadratic Voting

Square root of tokens = Voting power

If you have 100 tokens, you get 10 votes (√100 = 10). If I have 4 tokens, I get 2 votes (√4 = 2).

Good: Reduces power of whales Bad: More complex to understand

3. One Person, One Vote

Every person gets one vote

Like a regular election! Everyone equal.

Good: Fair for everyone Bad: Hard to prove identity on blockchain

4. Conviction Voting

The longer you vote, the stronger it gets

Your vote starts weak. If you keep it for weeks, it grows stronger!

Good: Rewards long-term thinking Bad: Slow to make decisions

graph TD
    A["Voting Types"] --> B["Token-Weighted"]
    A --> C["Quadratic"]
    A --> D["One Person One Vote"]
    A --> E["Conviction"]
    B --> B1["More tokens = More power"]
    C --> C1["Square root balances power"]
    D --> D1["Everyone equal"]
    E --> E1["Time increases power"]

DAOs: The Robot Organizations

What Is a DAO?

A DAO (Decentralized Autonomous Organization) is like a club run by computer code!

Imagine a club where:

• Rules are written in code
• No president or boss
• Everyone votes on decisions
• Money is managed automatically

Simple Analogy: Think of a vending machine that runs a lemonade stand. The machine collects money, orders lemons, and pays workers. No human boss needed!

Real Example

MakerDAO manages the DAI stablecoin:

• 10,000+ token holders vote on decisions
• No CEO or company
• Code handles everything automatically

DAO Structure: How Robot Clubs Are Built

The Main Parts

graph TD
    A["DAO Structure"] --> B["Token Holders"]
    A --> C["Smart Contracts"]
    A --> D["Proposals"]
    A --> E["Treasury"]
    B --> B1["Vote on proposals"]
    C --> C1["Execute decisions"]
    D --> D1["Ideas for changes"]
    E --> E1["Shared money pot"]

Key Roles in a DAO

How Decisions Flow

1. Someone has an idea → They write a proposal
2. Discussion period → Community talks about it
3. Voting period → Token holders vote
4. Execution → If passed, smart contract runs it

Simple Analogy: Imagine your soccer team is a DAO:

• Token Holders = Team members who vote
• Proposals = Ideas like “new uniforms” or “practice schedule”
• Smart Contract = The rulebook that enforces decisions
• Treasury = The team’s shared piggy bank

Treasury Management: The Shared Piggy Bank

What Is a DAO Treasury?

A treasury is the DAO’s shared money. It’s stored in a smart contract that the DAO controls together.

Think of it as a giant piggy bank where:

• Only the group can open it
• Spending requires votes
• Everything is transparent

How Treasuries Get Money

How Treasuries Spend Money

graph TD
    A["Treasury Uses"] --> B["Pay Contributors"]
    A --> C["Fund Development"]
    A --> D["Marketing"]
    A --> E["Grants"]
    A --> F["Investments"]

Real Example

Uniswap Treasury has over $2 billion:

• Funded by protocol fees
• Community votes on spending
• Pays for grants, development, and growth

Safety Rules

DAOs use multi-sig wallets for safety:

• Multiple people must approve spending
• No single person can steal funds
• Often requires 3 of 5 or 4 of 7 signatures

Simple Analogy: Imagine a treasure chest with 5 locks. To open it, you need at least 3 keys. This way, no single pirate can run away with the gold!

Putting It All Together

The Complete Picture

graph TD
    A["Blockchain Governance"] --> B["On-Chain"]
    A --> C["Off-Chain"]
    B --> D["Automatic execution"]
    C --> E["Community discussion"]
    D --> F["Voting Mechanisms"]
    E --> F
    F --> G["DAOs"]
    G --> H["Structure"]
    G --> I["Treasury"]
    H --> J["Token holders vote"]
    I --> K["Shared funds managed"]

Quick Summary

Why This Matters

Blockchain governance is revolutionary because:

Power to the people - No single company or government controls it

Transparency - Every vote and decision is visible

Automation - Code executes decisions without middlemen

Global participation - Anyone, anywhere can join

You now understand how millions of people around the world make decisions together without ever meeting. That’s the magic of blockchain governance!

Remember: In the old world, a few people made decisions for everyone. In the blockchain world, everyone makes decisions together. You’re now part of that future!