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Reflections on the new Cardano Governance Structure

Published 17.6.2024

Cardano's forthcoming governance framework will consist of three distinct entities: the Constitution Committee (CC), Delegated Representatives (DReps), and Staking Pool Operators (SPOs). Once the Chang hard fork is deployed, these entities will take control of Cardano. SPOs can use pool stakes to vote. Any ADA holder can register as a DRep and request delegations. There will be an Interim CC consisting of 7 members. An individual can hold all 3 roles. Let's think about what this means for Cardano.

No ID, No Enforcement of Rules

In a pseudo-anonymous environment, enforcing the strict separation of roles is impossible. The freedom to assume the role of a Staking Pool Operator (SPO), register as a Delegated Representative (DRep), or vie for a position on the Constitutional Committee (CC) is open to all. It's not permissible to restrict these opportunities from individuals.

In a decentralized ecosystem, there should be no entity that has the power to force something like this. Governance, akin to block production, should be incentive-driven with decision-making authority proportionally distributed according to ADA coin ownership among stakeholders.

The absence of a Know Your Customer (KYC) process in on-chain governance, coupled with the initial non-utilization of decentralized identity, makes it technically unenforceable to prevent an individual from holding all three governance roles.

An individual may manage several Cardano wallets anonymously.

Stakeholders should indeed have a voice in shaping the governance structure they desire. ADA holders are tasked with deciding to whom they entrust decision-making authority and whether they support a candidate's pursuit of multiple governance positions.

Journalists are often heralded as the sentinels of democracy. In the Cardano ecosystem, it will be crucial to monitor the roles held by various participants and their voting behaviors on specific governance proposals.

One Entity, Three Roles in Governance

A single party could potentially occupy all three roles. The question of whether it is beneficial for a single entity to hold all three governance roles is open for discussion.

From a constitutional perspective, CC members are tasked with evaluating governance actions. A 'YES' vote indicates alignment with the constitution, leaving subsequent decisions to DReps and SPOs.

CC members assess only the constitutionality of governance actions.

DReps and SPOs can of course take the Constitution into account when making decisions. In their case, however, it is not binding, but rather, let's say, prudent.

The Cardano constitution will be based on principles, not strict rules. CC members should protect decentralization, security, the immutability of the ledger, liveness, long-term sustainability, openness, permissionless-ness, and similar key aspects of every blockchain project.

DReps and SPOs may pursue specific objectives and may potentially underestimate the importance of their decisions concerning the needs of the protocol. CC members serve as guardians of key features of the blockchain that will be explicitly defined in the constitution.

Can an individual hold the role of a CC member and be a DRep at the same time? Or even be an SPO in addition? In that case, the individual would vote on specific governance actions 3 times, each time in a different role. This can present a complex decision dilemma.

For instance, a governance motion to express No-Confidence in the committee is voted on solely by DReps and SPOs.

A CC member with a DRep role could vote 'YES,' 'NO,' or 'Abstain.' In such scenarios, abstaining might be the most appropriate course of action.

However, an individual may feel that the attempt to dissolve the commission is unfair and as a DRep (and SPO) vote 'NO'. If the stake of DRep were large, his vote could potentially prevent the dissolution of the commission.

There could be a backlash from ADA holders who don't like this behavior. They could delegate ADA coins to another DRep. The next vote on the same governance action could end up with a different result.

Consider a proposal to allocate substantial ADA funds for marketing purposes. Assessing this requirement from the point of view of the constitution, i.e. from the principle of long-term sustainability, can be difficult. Some CC members may have a different opinion on where the line is between an adequate budget and a waste of ADA from the project coffers.

How should one vote as a CC member and as a DRep? Is it feasible for the same individual to cast different votes in each role?

A CC member might reject the proposal as unconstitutional due to the 'excessive withdrawal', voting 'NO.' Yet, the same individual, aiming to enhance marketing efforts as a DRep, might vote 'YES'.

Alternatively, a CC member could approve the amount as constitutional with a 'YES' vote, while in the role of a DRep, opt for a 'NO' vote due to differing priorities.

Nevertheless, consistent voting across roles is also a possibility. Maybe that's reasonable behavior. If an individual considers the requirement to be excessive as a CC member, this should or could also apply to the DRep role.

Similar complex dilemmas can arise if an individual is sitting in multiple chairs. ADA holders should carefully consider whether or not this is a desirable distribution of power for them. Alternatively, they could demand statements from CC candidates regarding how they will vote in such cases.

It would be beneficial if the CC candidates would publicly declare in advance if they plan to give up the DRep position if elected.

We are not saying that every CC member has to give up the DRep position. There will certainly be those who do not want to hold more positions and, on the contrary, candidates who will hold all three governance positions. And maybe some individuals deserve such trust from the community.

Compensation For Work For Governance

An additional aspect to consider is the potential incentives for active participation in governance. SPOs are already compensated by the protocol for block production, and their stakes contribute to governance votes. It's anticipated that there will be no supplementary rewards for voting.

It's projected that a select group of DReps will receive financial compensation, which could be distributed either proportionally or equally. The exact number of DReps eligible for such rewards is yet to be determined.

Members of the Interim CC do not receive financial rewards. Nonetheless, the community might opt to provide compensation to CC members in the future.

Should this occur, it will be important to deliberate on whether individuals should be compensated for each role they fulfill, particularly if CC members also serve as DReps.

Let's not forget that we are also talking about IOG, Cardano Foundation, Emurgo, and Intersect who will be CC members. Should they be DReps? I think that even these entities should publicly declare their intention in advance.

Separation of Power

The concept of power separation resonates with democratic values.

The separation of power involves dividing the functions of government among separate and independent bodies. This division typically includes the legislative, executive, and judicial branches. It ensures that no single entity or branch has absolute control over the entire government.

Checks and balances are mechanisms that allow separate branches to limit the powers of the others. This system ensures that power is shared and that each branch can prevent actions by the others that might exceed their authority or violate the Constitution.

From our perspective, members of the CC should avoid holding positions as DReps simultaneously.

Having a single individual perform the roles of president, finance minister, and constitutional judge at once defies logic. Similarly, it is not practical for someone to evaluate a governance action first through the lens of constitutionality and then through a subjective assessment of its impact on the ecosystem. These perspectives can conflict. A governance action might be "objectively" in line with the constitution, yet "subjectively" considered an imprudent expenditure of ADA.

It would be beneficial to have dedicated guardians of the constitution who are not encumbered by the need to vote from the standpoint of DReps or potentially even as SPOs. Should DReps and SPOs find the performance of CC members unsatisfactory, the process to disband the committee through a DReps and SPOs vote should be straightforward. CC members, therefore, should refrain from voting in the capacity of DReps. Ideally, they should not have the ability to vote.

Conclusion

The purpose of the article is to provoke contemplation and inquiry among readers. As we embark on the Voltaire phase, it's viewed as an ongoing experiment. The system's paramount attribute should be its adaptability—correcting its flaws and reinforcing its successes. Transparency is key. The power to govern and modify the system should rest firmly in the hands of ADA holders. Preserving these qualities gives us optimism for positive progress.

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