Special thanks to Karl Floersch, Dan Robinson and Tina Zhen for feedback and review. See also Notes on Blockchain Governance, Governance, Part 2: Plutocracy Is Still Bad, On Collusion and Coordination, Good and Bad for earlier thinking on similar topics.
One of the important trends in the blockchain space over the past year is the transition from focusing on decentralized finance (DeFi) to also thinking about decentralized governance (DeGov). While the 2020 is often widely, and with much justification, hailed as a year of DeFi, over the year since then the growing complexity and capability of DeFi projects that make up this trend has led to growing interest in decentralized governance to handle that complexity. There are examples inside of Ethereum: YFI, Compound, Synthetix, UNI, Gitcoin and others have all launched, or even started with, some kind of DAO. But it's also true outside of Ethereum, with arguments over infrastructure funding proposals in Bitcoin Cash, infrastructure funding votes in Zcash, and much more.
The rising popularity of formalized decentralized governance of some form is undeniable, and there are important reasons why people are interested in it. But it is also important to keep in mind the risks of such schemes, as the recent hostile takeover of Steem and subsequent mass exodus to Hive makes clear. I would further argue that these trends are unavoidable. Decentralized governance in some contexts is both necessary and dangerous, for reasons that I will get into in this post. How can we get the benefits of DeGov while minimizing the risks? I will argue for one key part of the answer: we need to move beyond coin voting as it exists in its present form.