Tokens and Governance and dYdX

This is an interesting interview that touches on many general crypto issues, with obviously a focus on current and future solutions proposed by dXdY.

I know this was posted elsewhere, but two things caught my attention.

Tokenisation

The dYdX token was not launched till September 2021, some 4 years after the project started. They didn't need a token-launch earlier as they had investor funding, but Antonio Juliano's reply remains valid.\

The DYDX token is structured in such a way that the rewards from holding it are aligned directly to actions performed on the platform. This is something more token creators need to think about. Merely buying and holding for passive income is not always a good model, especially if the token has a minting rate that is slowly lowering returns.

The lack of price data, means that SwapSpace's DYDX predictions are wildly inconsistent. However, we can already see how the price has tracked BTC or, perhaps more importantly, crypto market volume.

The DYDX token also serves as a governance token for the dYdX DAO.

Governance

This brings us to the next issue of governance using a voting system based on stake-weighted voting. The question is something I ask all the time: What is to stop the DAO being controlled by malicious third parties?

As Santiago puts it, "There are some things that require a fairly high degree of expertise to govern. Do you worry that at any point your DAO, or other DAOs, are expecting community members to step up - like, who is actually credibly competent and equipped to govern?" Furthermore, "It can open up in a vector of attack for these systems; if you borrow a lot of these governance shares and then can implement the proposal that might be problematic." Essentially, this is the problem of collusion, and more distressing is the issue of malicious collusion to effectively damage a whole platform that encodes decisions taken by a DAO. It is also an issue of competence - just look at democracies - but mainly about collusion.

Antonio Juliano does not answer this final question; he merely talks about having "strong voices" without noting that tokens trump words.

It has struck me for some years that the concept of decentralisation as applied to stake-weighted DAOs is a fundamental weakness, and not a strength. I don't have a solution, but to ignore the issue means being open to being taken over by a third party with the intention and ammunition to do so.

This is not just a theoretical issue, as Santiago mentions the case of Compound Finance; a scan through their governance proposals shows many issues about the whole process. It would probably take a new post to look at this in detail, as I am not familiar with the malicious proposal alluded to. This also opens up the very important and interesting topic on the mathematics of voting systems.