Bits: Governance is the next unlock

Summary: Crypto is ready to pave the way for sustainable decentralization (DAOs), but governance is still unsolved.

Crypto projects have always strived for decentralization. Now, many are actually doing it — they are decentralizing their organization via decision making (Compound, Uniswap, Maker) with more on the way. Simultaneously, these projects have amassed large treasuries (est. ~$6–7b, some featured below) as teams retain 10–30% of their token balance to fund future protocol development in a decentralized manner. These teams are quickly seeking transparent, scalable, high velocity means of governing those funds.

By decentralizing, protocols shift decisions on treasury spend of all sizes to a public forum. Stakeholders (often anonymous / fragmented around the world) vote on everything from a $10k design outlay to $1m+ developer grants and everything in between. As these protocols evolve, these use cases become more complex e.g. the first DAO M&A deal between Inverse Finance & Tonic Finance or redesigned liquidity incentives around stablecoin pegs.

These votes have historically happened in forum posts, Slack channels and Telegram groups. They’ve become painpoints for protocols, which rely on lean teams and governing delegates nominated by the community. While protocol spending is growing quickly, (estimated to hit $1b by EOY), protocols are increasingly bottlenecked by this nascent form of governance. In addition to the sheer coordination work and decreased velocity of growth, this system clearly lacks security (putting funds at risk), regulatory clarity / accountability (putting the leads at risk), participation incentives (no clear hub to initiate votes and communications) and transparency (no follow up post vote). As such, teams and delegates have become active advocates for adopting new governance tools.

While the governance stack is just emerging, it’s clear that the demands will expand vertically with more use cases, and horizontally as DAOs become the default organizational structure across web3 infrastructure, DeFi, NFTs and beyond. A best in class governance solution will be key in transforming the existing crypto landscape >> accelerating new innovation around those projects >> ultimately underpinning completely new collaborative & ownership structures.