Decentralized Governance With #Blockchains - (Chris Coney) WCSS:036

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Why this is important to investors
In my view, this is important to investors for a couple of reasons.
It’s akin to assessing the credibility of the management team in charge of a publicly traded company.
In that scenario, part of your decision on whether to buy the stock is whether you have faith in the management team to make good decisions and steer the company in a positive direction, which ultimately has a positive impact on the share price.


Through what I’m going to cover today, hopefully you’ll see how decisions of a superior quality can be gotten from decentralized governance and thus how crypto projects with these kinds of governance systems should have a higher success rate and greater longevity.
The key to decentralized governance lies in its flexibility.
By that I mean, the greater the number of people a decision is spread across the better, that’s the basis of democracy for example.
By contrast, there are plenty of companies that have failed or been out innovated because a small group of executives just couldn’t keep up with the times.
Isn’t this the same as shareholder voting rights?
Now I know what you’re going to say…
“Isn’t this the same as a stock with voting rights?”
In some ways yes, but blockchain technology facilitates stakeholder voting in a way that has significantly less friction and allows a wider range of people to participate.
So how does decentralized governance work?
Now like I always say, “There is nothing new under the sun”.
Modern coin offerings are just a blend of two concepts, IPOs and crowdfunding.
With traditional crowdfunding, you propose a product, get the funding upfront to make the product, and then deliver the product to the funders upon completion.
The benefits being that it’s low risk for both sides, and you get to test the market to see if there is sufficient demand.
If the project doesn’t get enough funding, then maybe the product wouldn’t have sold anyway.
Then an IPO is where you buy a share in a company in the hope that it will take that cash and use it to grow the company enough to increase the share price beyond what you paid for it.
Now when you blend these two together, you get modern coin offerings.
How do modern coin offerings work?
With a modern coin offering we have the benefit of tokenizing the ecosystem surrounding the product.
A founding team proposes a new product, gathers funding from the crowd and then uses that money to create the product.
The incentive for the crowd of funders is that they get project tokens in exchange.
Those tokens typically have one or both of the following features:
You can only pay for the product with the native token
You can use the token to vote on how the product should develop
Generally speaking, and in my opinion, a project needs both.
Forcing people to pay for the product with the native token, that is the value anchor. The token value is effectively backed by demand for the product.
To put that into perspective, the ultimate value anchor for the US dollar is the fact that the US government will only accept payment for taxes in that currency.
But the US dollar isn’t related to your voting rights. Your right to vote in the US governmental system comes from your US citizenship and your individuality.
And herein lies a topic of huge debate in crypto and decentralized governance.
Proof of person
Almost all decentralized governance systems ruling crypto projects today are proof of stake systems.
That means your voting power is typically equal to the number of tokens you have. Thus you can prove how much you have at stake by your wallet balance and should therefore have more influence over the product.
The problem is those tokens can be bought on the open market.
Does that mean you can effectively buy the vote? Well yes and no.
Yes you can buy more tokens to increase your voting power, but if you wanted to take over the majority of the tokens, buying them up on the market would push the price towards infinity, making each token progressively more expensive.
That doesn’t stop someone accumulating tokens over time though.
The other problem is the sybil attack.
That’s where I setup 1,000 Ethereum wallets to make myself appear to be 1,000 different voters.
Because it costs nothing for me to create a new Ethereum wallet, I can create as many as I like.
Now if there are tokens involved the wallets do me no good, but I can use those 1,000 wallets to spread my tokens out and still appear to be 1,000 different voters.
You could consider this the downside to being able to create a wallet with no ID requirements.
But how is decentralised governance superior though?
Now back to my suggestion earlier about decentralized governance producing superior outcomes.