In the past decade blockchain technologies developed and the possibilities to implement these technologies became wider (Parkin, 2019). Not surprisingly the level of adaption of cryptocurrencies grew, which is highlighted by the announced plans of the government of El Salvador to become the first nation to formally adopt bitcoin. Bitcoin is perceived as a revolutionary idea that was designed to “allow online payments” between individuals in a way that explicitly avoided the need to go “through a financial institution (Nakamoto, 2019). Alongside the goal to become a decentralized payment system, bitcoin aimed to embrace a libertarian ideology of non-governmental monetary policies and to free us from politics (Karlstrøm, 2014). In order to achieve both goals, two coordination mechanisms were implemented which allowed bitcoin to be governed by the infrastructure (achieved via the Bitcoin protocol) and via the infrastructure (managed by the community of developers and other stakeholders) (De Filippi & Loveluck, 2016). Despite its intentions bitcoin is now mostly governed via the infrastructure, as the maintenance and development of the Bitcoin code is mainly in the hands of a select group of developers (Zook & Blankenship, 2018). That a small group wield power has lead to multiple split offs, when for instance the Bitcoin developers in 2017 proposed to increase bitcoins capacity various groups split off bitcoin to develop alternative plans, as they were unhappy with the plans and way of governance. This problem is not exclusive to bitcoin, as a referenda proposed by the Elastos team splinted the community and team, Ethereum has lost members as Vlad Zamfir and Charles Hoskinson over disputes. Achieving democratization is something in which many projects struggle. In the recent years we have seen that many cryptocurrency projects added a governance aspect to their issued tokens in order to achieve democratization. Whereby token holders can influence decisions concerning the project such as proposing or deciding on proposals and even sometimes change the governance system itself.
Covalent proposed a similar idea, as the Covalent website states that CQT token holders can vote on proposals to change the system parameters. Furthermore Covalent has on its website a governance forum where possibly future proposals can be discussed. There is however not much activity on the forum and the team has not released much info about governance. On the bases of the available information Covalent is not proposing a revolutionary idea. Also there are some major flaws with the proposed system. Based on the current token allocation the held token amount by community members is relatively low. The voting power and influence of the community will be small, whereas private investors hold a relatively big amount of tokens. And even if the share of held tokens will change governance decisions will be heavily influenced by the opinion of ‘whales’. Furthermore letting the community vote on proposals can lead to the tyranny of the majority in which the 51 percent decides and the will of individuals and small groups become repressed (Hendriks et al., 2017; Van der Meer, 2017). Also, in general proposals offers the voter a binary choice between a yes or no in which there is no room for a centrist compromise, particularly this kind of decision making can lead to resentment by the losers (Georgiadou et al., 2018).
Therefore, I advocate to implement an other governance mechanism that incentivizes active participation of the community while ensuring that whales do not determine governance decisions. Covalent has an unique community aspect in terms of the Alchemist programme. It is a hierarchical system where Alchemists are ranked based on their contributions or the value they add to the project. In order to earn rewards Alchemists have to perform certain tasks and successfully complete a KYC. Alchemists are therefore well-known to the Covalent team and contribute to the project. To increase the power of the community and decreases the power of whales in terms of voting power on proposals I advocate for an alchemist council, which can be perceived as some sort of chamber of governance. Coin holders still influence the decision making process however on an indirect way.
Coin holders will vote on Alchemists who want to become part of the council. The Alchemist council will wield the power to make decisions on proposals and can if they can not decide or want to make a choice propose advisory referenda to help them make decisions. The Alchemist council wont stand alone as alongside them team members will play an advisory and decisive role on the decisions they have to make. The Alchemist council will be some sort of strategic HR aspect that can play a vital role between team and coin holders by deciding on certain proposals. The new chamber of governance will consists of three layers:
● Alchemist council - The council is a representative chamber elected by the coin holders to develop referenda and proposals. It top-down communicate information to coin holders.
● Team members - The Covalent team will help the Alchemist council with looking at the realm of possibilities for referenda and proposals
● Coin Holders - The coin holders are the community at large, using their staked covalent coin to elect alchemist council members
As you can probably see I am still a bit struggling, but I was wondering what you guys think of this idea. So feel free to let me know if you have comments or feedback. You can add me on telegram @bramvdhe or whatsapp +316374703456.
De Filippi, P., & Loveluck, B. (2016). The invisible politics of bitcoin: governance crisis of a decentralized infrastructure. Internet Policy Review , 5 (4).
Karlstrøm, H. (2014). Do libertarians dream of electric coins? The material embeddedness of Bitcoin. Distinktion: Scandinavian Journal of Social Theory , 15 (1), 23-36.
Nakamoto, S. (2019). Bitcoin: A peer-to-peer electronic cash system .
Parkin, J. (2019). The senatorial governance of Bitcoin: making (de) centralized money. Economy and society , 48 (4), 463-487.
Zook, M. A., & Blankenship, J. (2018). New spaces of disruption? The failures of Bitcoin and the rhetorical power of algorithmic governance. Geoforum , 96 , 248-255.