---
title: 5.3 Protocol Politicians and Governance Design
description: The notion of ‘on-chain’ governance, and the protocol politics
---

# 5.3 Protocol Politicians and Governance Design

The focus of this lecture centers upon the notion of ‘on-chain’ governance, and the protocol politics of crypto-ecosystems and dApps. The context for this lecture is straightforward: With emergent DAO infrastructure, the rise of On-chain organizations, and a massive improvement in DAO tooling, protocols and dApps are making the decision to decentralize governance of their system out to the community based upon (1) Token weight, and / or (2) elected rulers from a variety of mechanisms. This is the beginning of the Age of Network Governance. 

## The Age of Network Governance

When we talk about the age of network governance we are referring to a new relationship between users, investors, and builders, to the products they create in the crypto space. Traditionally, investors may have received equity and by default voting shares in a company. Users, may have been both user and product of the tech company, and builders may have fought to maintain ownership of ‘their baby’ for as long as they could before going public. 

Within crypto-ecosystems, the game has changed. Usually, most dApps and protocols are designed open-source, and with an underlying token as a unit of value for a specific purpose on the protocol. As the protocols and products have evolved, it has led to the decentralized governance of the protocols and products. This governance usually surrounds a couple of key facets of the protocol:



* **Treasury Management:** For example, when Terra bought BTC to try to back up their reserves. Or when Aave voted to approve a new security audit mechanism from Chaos Labs. 
* **Protocol Mechanics:** For example, transitioning ETH to PoS during the Merge. Or voting to make a base-token of a protocol a certain way. Changing rates of emission, and increasing or decreasing fees. 
* **Blocking or Removing Certain Accounts:** This happened with Solana when a large whale attempted to liquidate his position, and the DAO moved swiftly to bar the address from selling. 



![](@site/static/img/bootcamp/mod-em-5.3.1.png)

With a new product, the players involved (users, investors, and builders) are also on a new playing field: Now, value is shared inside of the system that the product has created, such that users, investors, and builders co-llaborate or conflict with one another in the direction of the open-source system. This in turn has led to the emergence of a new role in crypto - notably, the protocol politician. 

## What is a protocol politician?

Bankless has [provided a clear overview of the emergence of protocol politics](https://newsletter.banklesshq.com/p/the-rise-of-the-protocol-politicians) and its implications: Protocol politicians are any participant of a dApp or protocol that has a vested interest in the future of the protocol. This can be via any combination of investment, participation, delegated participation, and so forth. These protocol politicians are not only actively involved in the day to day maintenance and management of a protocol, but they are also compensated for it - up to 600k a year in the case of Aave for example. The importance of protocol politicians, is outlined by Mason Nystrom from Messari: 

[As Mason Nystrom from Messari Writes:](https://messari.io/article/the-latent-power-of-governance-tokens)

_“As crypto protocols grow in value, governance can become a meaningful mechanism to alter the state of the protocol. Because of this principle, the value of governance tokens is latent, but ever-present. The dormant power of governance tokens can be activated for multiple purposes whether 1) as a function or service required within the protocol 2) to control the assets of a protocol, or 3) to alter the existing parameters of a given network.”_

The the crucial questions surrounding the parameters of a protocol politician:

* Do they have skin in the game?
* Are they apolitical?
* Are they accountable to anyone?
* Are they captured by special interests?

Finally, the idea of _delegating_ tokens to someone to make decisions for you, is the final characteristic of a protocol politician. So while an investor or whale may have a large stake in tokens, they may not want to follow the day-to-day governance iterations of the protocol. Delegating tokens to an individual is the basis for an emergent politics [(of which Aave is probably the best example). ](https://twitter.com/aaveaave/status/1294309030408736770)


![](@site/static/img/bootcamp/mod-em-5.3.2.png)


And from these key questions, a specific governance framework can be created to safeguard the protocol from most urgent threats (special interests, accountability, etc.) On the flip side, and in parallel, this leads to new avenues of attack on a protocol:



![](@site/static/img/bootcamp/mod-em-5.3.3.png)


Or to put it concretely, we can take the very real example of a16z - a massive investment fund - stepping in at the last minute to alter a significant proposal on MakerDAO. 



![](@site/static/img/bootcamp/mod-em-5.3.4.png)


What is the significance of this? That if the founders or builders are not thoughtful about network governance, from the beginning, the entire protocol or network can be usurped by a few large token holders later on - and for the rest of the protocol's existence: And this can be the case, despite the founders wishes, or the communities wishes. 

## Why does this matter for projects?

These are questions that every investor should look to understand: 


* How is the protocol or dApp intended to be governed over the long term? 
* Is delegated governance possible?
* What is the scope of governance? 
* Are all management keys signed over to the DAO or do the devs / core team maintain control of certain facets of the protocol? 
* What is the plan to decentralize governance over time, who is responsible for creating the governance framework, and what is the process of launching the governance framework? 

All of these questions relate to the core underlying proposition that: An open-source crypto-economic protocol is governed by the community of participants and not a small majority of creators and investors (as is traditional in Web2). While this can remain the case for some time, it is not in the nature of a protocol or ecosystem to generate significant network effects, permissionless innovation, and un-coordinated development, without the safeguard / assurance that the underlying protocol or dApp is itself governed in a decentralized and public manner. 

On looking to the future of protocol politics, we can listen [to Ric Burton:](https://ricburton.substack.com/p/the-rise-of-protocol-politicians) 

_“Imagine a monetary protocol with the power to affect global economies — a private, protocol-based central bank for open finance. How could such an institution exist without accruing political cruft at every open surface area of decision-making?_

_- Political parties_

_- Forks based on disputes_

_- Vote-buying markets_

_— Lobbyists & interest groups."_
