Ethereum Founder States Token-Based Decentralized Governance Stops DeFi Sector From Growing

Ethereum Creator suggests “proof-of-participation” and “proof-of-humanity” as the alternatives for the present coin voting. However, there is more to DeFi than what is happening now, he asserts.

Vitalik Buterin, the co-founder of Ethereum, has taken an in-depth assessment of the token-based decentralized government. He suggests that the present voting structure is defective. As a result, the governance may be a limiting factor to DeFi, preventing it from achieving its full capacity.

Ethereum Creators Suggests Surpassing Coin Voting

Vitalik Buterin recently published an extended blog post stating that there is the need for the Crypto society to surpass coin voting, which is in existence now.

At the moment, many DeFi projects control their reward issuance, protocol upgrades, and other aspects of governance voting where the ballot is shared between token holders as per the number of their assets.

Nevertheless, many projects are being criticized for allowing their electoral process to be influenced by whales holding extensive swathes of governance tokens. Thus; enabling them to use their votes to reinforce their own interests.

Buterin calls attention to two challenges that are connected to token-based governance. First, he emphasizes that there is a threat of twisting incentives between community members. Furthermore, he added that the governance is vulnerable to “outright attacks” and “vote-buying” to sway the governance vote results.

Manipulating Governance With Vote Buying

Ethereum founder finds “unbundling” common, and states you can achieve “vote-buying” to manipulate governance systems. If you can borrow on your crypto collateral and voting with your tokenized assets.

In unbundling, the governance power goes to the borrower excepting economic interest while the economic interest goes to the lender except for governance power, says Buterin.

Looking farther than token-based governance, Buterin promotes the survey of “Proof-of-Humanity”-based government structure where every protocol user is allocated one vote each.

The possible solution to this problem is “Proof-of-Participation” Buterin offers. In this case, only the protocols users who contributed work that benefits a project or project community can vote. Furthermore, it suggests that voting rights should be shared exclusively with those who finish a particular task.

Vitalik Buterin also recommends quadratic voting. In this case, the voting authority of one person corresponds with the square root of economic assets which they invested. Again, this can provide unique results for decentralized governance.

The co-founder of Ethereum also proposes a “skin in the game” technique that ensures that individual voters are accountable for their decisions. According to him:

“The failure of coin voting is because, though collectively, voters are responsible for the decisions they made, individually, they are not accountable.”

If each person is to vote for a bad decision, everybody’s coin will fall to zero.