{"id":138105,"date":"2020-12-21T02:37:00","date_gmt":"2020-12-20T23:37:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/defi-projects-without-decentralized-governance-whats-the-point\/"},"modified":"2020-12-21T02:37:00","modified_gmt":"2020-12-20T23:37:00","slug":"defi-projects-without-decentralized-governance-whats-the-point","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/defi-projects-without-decentralized-governance-whats-the-point\/","title":{"rendered":"# DeFi projects without decentralized governance? What&#8217;s the point?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a2cf9ae00568\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a2cf9ae00568\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/defi-projects-without-decentralized-governance-whats-the-point\/#Decentralized_governance_is_one_of_DeFis_key_missions\" >Decentralized governance is one of DeFi\u2019s key missions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/defi-projects-without-decentralized-governance-whats-the-point\/#Putting_the_yield_in_yield_farming\" >Putting the yield in yield farming<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/defi-projects-without-decentralized-governance-whats-the-point\/#Governance_may_mean_more_autonomy_but_is_it_the_best_bet\" >Governance may mean more autonomy, but is it the best bet?<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># DeFi projects without decentralized governance? What&#8217;s the point? <\/strong>&#8221;<br \/>\n<img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjAtMTIvMDcxNWRmOTEtYjc3My00MmU4LTgwOTMtYjIwZmRkMjZiMmMzLmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-5a136f3a>The role of governance in the booming decentralized finance industry is a nascent one, and there are ongoing conversations from key figures in the industry around its purpose and what governance may look like in the future.<\/p>\n<p>Sam Bankman-Fried of FTX recently shared that his firm\u2019s involvement in DeFi will be \u201cmotivated by short-term profits and is not seeking to have a long-term impact in protocols via governance.\u201d In doing so, he\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/thedefiant.substack.com\/p\/when-incentives-are-gone-whats-left-205\">argued<\/a> that he\u2019s simply using DeFi protocols for their intended purposes.<\/p>\n<p>This is not necessarily the case. Some mining programs are designed this way, and Bankman-Fried is playing by the rules. If the project doesn\u2019t want this kind of involvement, then the project should design its program accordingly.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Decentralized_governance_is_one_of_DeFis_key_missions\"><\/span>Decentralized governance is one of DeFi\u2019s key missions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>DeFi hopes to create an open financial system that can be accessible by anyone in the world. Governance tokens are usually designed to fulfill two purposes. First, projects use them to decentralize decision making. The more people involved \u2014 as the logic goes \u2014 the less likely an attack or abuse by a single party can occur.<\/p>\n<p>To achieve the first goal, the tokens are usually also designed to incentivize holders to participate and make beneficial decisions for the DeFi protocol. This way, governance tokens can also be likened to the traditional shareholding system in corporations, which is essential to the success of capitalism by incentivizing shareholders to lend capital and govern a company out of pure self-interest.<\/p>\n<p>Because one goal is to decentralize token holders, the concentration of governance tokens held by a few holders is said to be a problem. However, in the early stages of a project, it can be essential.<\/p>\n<p>The centralization of decision making allows projects to move faster and pivot. For MakerDAO, for example, it was easier to vote on introducing new collateral assets when its Dai stablecoin moved too far from its peg.<\/p>\n<p>But in the long run, when there is wide community participation in a project\u2019s progress, it\u2019s better to have decentralized token distribution because whales could leverage the governance in a way that benefits themselves, but not all stakeholders. In an extreme case, we would call it an attack, but even in MakerDAO\u2019s governance, we can observe that big MKR holders vote against other stakeholders. What\u2019s more, even non-governance tokens benefit from more holders, as those are incentivized to work for the benefit of the project just to have the token price increase in return. For governance tokens, this mechanism works even more so, as token holders can directly influence important product decisions on top of just writing blog posts and schilling on <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">Twitter<\/a>.<\/p>\n<p>Many projects are aware of this and have taken a progressive decentralization <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>roach. Having a limited supply of governance tokens is good because it\u2019s more predictable for holders to have an idea of their voting power over time, and it makes it harder to be exploited by potential bad actors.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Putting_the_yield_in_yield_farming\"><\/span>Putting the yield in yield farming<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Yield farming, or liquidity mining, is a new way to earn rewards with cryptocurrency holdings using permissionless liquidity protocols as a concept \u2014 and has exploded in 2020 amid the DeFi boom.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>Yield farming is a fad, but DeFi promises to change the way we interact with money<\/em><\/strong><\/p>\n<p>Many governance tokens are issued as the yield in these yield farming schemes. Decentralized exchanges benefit from yield farming by capturing liquidity and even increasing the project\u2019s treasury to use it toward a growth strategy. Users, on the other hand, earn yield in the form of the governance token.<\/p>\n<p>The question is: <em>How can this be sustainable?<\/em> If users sell governance tokens, how can projects hold the liquidity and establish a broad base of governance token holders?<\/p>\n<p>Looking at Uniswap, we find that the liquidity was drained to a certain extent with the end of the issuance of its governance token. However, this was less than expected and far from being potentially harmful. An example is the distribution of Uniswap\u2019s UNI governance tokens to holders, which looks sufficiently decentralized to be ready for long-term governance.<\/p>\n<p>Uniswap didn\u2019t have governance before the release of its UNI token a couple of months ago. At that time, changes to the protocol were decided by the Uniswap team alone.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Governance_may_mean_more_autonomy_but_is_it_the_best_bet\"><\/span>Governance may mean more autonomy, but is it the best bet?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>With many examples of founders selling their governance tokens and abandoning projects, there is a growing concern that governance tokens are yet another investment pipedream, which leaves project founders rich and users with empty pockets. As always, there are exceptions. After a long DeFi summer, however, we have seen decent projects and blueprints of how to successfully launch decentralized governance. Uniswap is one example, but even its delicious antagonist SushiSwap seems to have found its niche.<\/p>\n<p>Therefore, as with most things, doing your research before participating, understanding the risk and taking all of this into account when doing your investment calculations are a good way to start. It\u2019s similar to the reasons why some institutions understand that there are high risks of being hacked, so they use risk-adjusted returns for their investment decisions.<\/p>\n<p>Ultimately, decentralized governance does work, as we have seen a lot of successful open-source software, and we believe a project can be successful by involving collective wisdom.<\/p>\n<p>In DeFi, governance tokens may arguably be the best form to leverage collective wisdom and achieve decentralized governance. There is still much for people to explore, and there are projects in which governance is actually based on reputation, which is also a promising approach.<\/p>\n<p class=\"post-content__disclaimer\"><em>The views, thoughts and opinions expressed here are the author\u2019s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.<\/em><\/p>\n<div>\n<div style=\"background: rgb(239, 239, 239); border: 1px solid rgb(204, 204, 204); padding: 10px;\"><strong>Lucas Huang<\/strong> is currently head of growth at TokenLon. Before joining TokenLon, he spent years working at Kyber Network and Deloitte Consulting. He studied computer <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/sciencee\/\" data-internallinksmanager029f6b8e52c=\"5\" title=\"Science\" target=\"_blank\" rel=\"noopener\">science<\/a> at the University of Chicago and accounting information systems at Michigan State University.<\/div>\n<\/div>\n<p><template data-name=\"subscription_form\" data-type=\"defi_newsletter\"><\/template><\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/defi-projects-without-decentralized-governance-what-s-the-point\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# DeFi projects without decentralized governance? What&#8217;s the point? &#8221; The role of governance in the booming decentralized finance industry is a nascent one, and there are ongoing conversations from key figures in the industry around its purpose and what governance may look like in the future. Sam Bankman-Fried of FTX recently shared that his&#8230;<\/p>\n","protected":false},"author":1,"featured_media":138106,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/s3.cointelegraph.com\/uploads\/2020-12\/0715df91-b773-42e8-8093-b20fdd26b2c3.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74894,74863,74983,74868,4965],"class_list":["post-138105","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-blockchain","tag-cryptocurrencies","tag-decentralization","tag-defi","tag-technology"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/138105","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=138105"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/138105\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/138106"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=138105"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=138105"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=138105"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}