Coin holder voting, both for governance of technical features, and for more extensive use cases like deciding who runs validator nodes and who receives money from development bounty funds, is unfortunately continuing to be popular, and so it seems worthwhile for me to write another post explaining why I (and Vlad Zamfir and others) do not consider it wise for Ethereum (or really, any base-layer blockchain) to start adopting these kinds of mechanisms in a tightly coupled form in any significant way.I wrote about the issues with tightly coupled voting in a blog post last year, that focused on theoretical issues as well as focusing on some practical issues experienced by voting systems over the previous two years. Now, the latest scandal in DPOS land seems to be substantially worse. Because the delegate rewards in EOS are now so high (5% annual inflation, about $400m per year), the competition on who gets to run nodes has essentially become yet another frontier of US-China geopolitical economic warfare.
Source: Governance, Part 2: Plutocracy Is Still Bad
When designed properly, decentralized, open source, tokenized cryptoasset networks solve the problem of incentive alignment between network creators and network participants. When the software is public, and the organizing body is a nonprofit rather than a for-profit, the Extraction Imperative is eliminated — because there are literally no longer shareholders with a claim on cash flows. The value is held in the network itself, represented by token ownership. Everyone who participates in the activity of the network, using and accruing tokens in the process, is effectively a network “owner.” Because there is no division between owners and participants, there is no point at which their incentives diverge.
But on-chain governance is dangerous, and I worry it will lead to disastrous outcomes. Blockchains should not be democracies, and the reasons why are subtle and counterintuitive.