From Centralized to Decentralized

The issue of governance is a hot topic in crypto right now due in part to the regulatory clampdown that’s taking place in the US. However, the issue isn’t as simple and straightforward as some might imagine.

Although it’s gaining popularity at present, it’s something that’s always been at the heart of our plans as Deniz, our CEO explains, “I believe that governance is a vital aspect of the Paribus vision and it will be very important to ensure our long-term success.”

He adds, “The goal of transitioning into a DAO has been a key tenet since the inception of Paribus. We want to create a system that empowers the community to make changes and provides transparency for everyone involved.“

Part of the promise of Web3 is decentralization, which removes single points of failure, giving back power and responsibility to the individuals who make up the community. Rather than centralizing the governance of projects, many have opted to democratize control instead.

As liberating as this sounds in theory, it’s somewhat harder to achieve effectively in practice. Due to issues such as the Pareto distribution, power has a tendency to gather and collect into the hands of a disproportionate few in any given society. It’s a principle that has occurred naturally throughout time and is one factor that makes governance and decentralization more challenging.

To overcome such issues, it’s important that projects don’t rush into adopting a decentralized governance model. In the past, many have tried to do this too quickly with some unforeseen consequences.

As Wilson, our COO describes, “We have taken a look at the DAO space and it has given us a guidepost for our decisions in how we form the Paribus DAO. We have observed many lessons and we take from the examples of DAOs who prioritize transparency, inclusivity, and community engagement. While at the same time, avoiding following in the same direction of DAOs that are very centralized and do not create incentives that align with the interest of the community.”

A unique approach to solving this conundrum was proposed by one of the co-founders of Ethereum, Vitalik Buterin. The method he suggested was to take a quadratic approach to voting structures.

The basic premise is that a quadratic curve can be used to allocate voting power, such that larger holders are rewarded less proportionally than smaller ones. One concern is that it may be vulnerable to manipulation by bad actors who create fake accounts or coordinate with others to vote in a way that maximizes their impact.

It’s an area that Simon, our CTO is keeping close tabs on, “Quadratic voting is a powerful tool that allows for a more equitable distribution of voting power among community members. The idea of governance is to allow for members to have a fair say in the direction of the protocol, but unfortunately, most DAOs don’t work this way.”

Adding, “Our hope with implementing quadratic voting is that we can pass proposals that benefit everyone. We will also seek to integrate other strategies to promote fairness within our governance system.”

Despite having some limitations, Quadratic Voting represents an exciting new approach to decentralizing governance that can democratize projects and promote a more engaged and supportive community. It can help to build a more sustainable and equitable ecosystem by amplifying the impact of smaller voters and incentivizing broader community support.