SoK: Blockchain Governance

Abstract: Blockchain systems come with a promise of decentralization that often stumbles on a roadblock when key decisions about modifying the software codebase need to be made. This is attested by the fact that both of the two major cryptocurrencies, Bitcoin and Ethereum, have undergone hard forks that resulted in the creation of alternative systems, creating confusion and opportunities for fraudulent activities. These events, and numerous others, underscore the importance of Blockchain governance, namely the set of processes that blockchain platforms utilize in order to perform decision-making and converge to a widely accepted direction for the system to evolve. While a rich topic of study in other areas, governance of blockchain platforms is lacking a well established set of methods and practices that are adopted industry wide. This makes the topic of blockchain governance a fertile domain for a thorough systematization that we undertake in this work. We start by distilling a comprehensive array of properties for sound governance systems drawn from academic sources as well as grey literature of election systems and blockchain white papers. These are divided into seven categories, confidentiality, verifiability, accountability, sustainability, Pareto efficiency, suffrage and liveness that capture the whole spectrum of desiderata of governance systems. We proceed to classify ten well-documented blockchain systems. While all properties are satisfied, even partially, by at least one system, no system that satisfies most of them. Our work lays out a foundation for assessing blockchain governance processes. While it highlights shortcomings and deficiencies in currently deployed systems, it can also be a catalyst for improving these processes to the highest possible standard with appropriate trade-offs, something direly needed for blockchain platforms to operate effectively in the long term.

• The paper’s main contribution is offering a comprehensive analytical framework that evaluates blockchain governance through seven distinct properties.
• The study employs a comparative analysis of platforms such as Bitcoin, Ethereum, Tezos, and Polkadot to investigate trade-offs in suffrage, accountability, and liveness.
• The findings emphasize that no single governance model perfectly balances all core properties, calling for tailored approaches to enhance decentralized decision-making.

Blockchain Governance: An Analytical Overview

The paper "SoK: Blockchain Governance" provides an analytical systematization of blockchain governance, focusing on properties that define governance mechanisms within blockchain platforms (2201.07188). It aims to establish a foundational understanding necessary for improving blockchain governance models by classifying current systems and addressing various properties and trade-offs.

Key Governance Properties

The paper identifies seven core governance properties—Suffrage, Pareto Efficiency, Confidentiality, Verifiability, Accountability, Sustainability, and Liveness. These properties frame the evaluation of blockchain governance systems.

Suffrage

Suffrage is categorized into Identity-Based, Token-Based, Mining-Based, Meritocratic, and Universal suffrage. Blockchain governance usually deviates from traditional "one person, one vote" systems due to challenges in identity verification. Instead, token holding or mining power often determines voting weight. Quadratic voting is suggested to balance identity and token-based suffrage by scaling vote costs quadratically.

Pareto Efficiency

Pareto efficiency in governance ensures no alternative is better for any participant without being worse for another. It assesses decision-making mechanisms like approval and instant-runoff voting employed on blockchain platforms.

Confidentiality

Confidentiality involves secrecy and pseudonymity. Secrecy ensures votes are confidential, whereas pseudonymity ensures participants' real-world identities are protected. However, high confidentiality often conflicts with verifiability and compliance requirements.

Verifiability

Verifiability ensures votes are counted accurately and transparently. Complete end-to-end verifiability encompasses individual and universal verifiability, where individuals can verify their vote and any observer can check the overall tally.

Accountability

Accountability requires participants to be responsible for their actions, often necessitating "skin in the game" mechanics, where voters or proposers face tangible consequences for their decisions. This is essential for aligning incentives with community interests.

Sustainability

Sustainability focuses on incentivizing development (proposing improvements) and participation (voting). Effective incentives are crucial to ensure continuous contributions to platform evolution.

Liveness

Liveness refers to rapid decision-making infrastructure capable of addressing urgent issues. It ensures governance can operate within a timeline that matches the urgency of matters, balancing speed with thoroughness.

Evaluation of Existing Systems

The paper evaluates several blockchain platforms—Bitcoin, Ethereum, Tezos, Polkadot, and more—highlighting how each meets or fails to meet the aforementioned governance properties. Most systems exhibit weaknesses in balancing these properties due to the inherent trade-offs between, for example, privacy and accountability or between suffrage inclusivity and liveness efficiency.

Bitcoin and Ethereum

Bitcoin and Ethereum primarily operate on informal governance models with high miner influence. These systems exhibit token-based or merit-based suffrage but lack clear accountability, comprehensive verifiability, and rapid response mechanisms.

Tezos and Polkadot

Tezos uses self-amending governance with digital voting tied to token holdings, focusing on on-chain procedures while aiming for Pareto efficiency through structured voting periods. Polkadot incorporates a council and technical committees for adaptive governance, balancing token suffrage with delegated authority.

Compound and MakerDAO

Platform-specific governance tokens empower decision-making in Compound and MakerDAO. However, challenges arise in ensuring comprehensive accountability and effective participation rewards.

Trade-Offs and Challenges

The study discusses inherent trade-offs, such as between privacy and verifiability or accountability and participant utility. It acknowledges that achieving a perfect balance among all properties is impractical, advocating for explicit trade-off management tailored to each blockchain's context.

Conclusion

The paper provides a comprehensive framework for understanding blockchain governance, highlighting substantial gaps and opportunities for future work. By analyzing current platforms, it underscores the necessity for nuanced governance models that address the complexities and unique requirements of decentralized environments. The work serves as a catalyst for refining governance practices, urging deeper exploration into optimizing such systems for better decentralized coordination and decision-making.