Abstract

Central entities shall not exert undue influence under the label of a decentralized system. That is, entities who own, manage or control considerable funds in the form of assets that are decisive for on-chain governance shall not dominate decision-making. E.g., 🔷 neither IOG nor Emurgo nor the Cardano Foundation shall act as (dominating) DReps or voters in the Catalyst Program 🔷 votes should not be decided by single entities with large assets. This proposal covers the issue of the role central entities should take in a general sense. It may eventually evolve into several CIPS or governance actions to be implemented on-chain as algorithmic measures.

Motivation

Resolving the contradiction between central elements in a system and the idea of decentralization. Counteracting detrimental forms of behavior and intrinsic forms of of system failure. Specifically the founding entities shall adhere to a code of good conduct and practice given their prominent role. As an example: It should not be the case that CF votes with a voting power of 180M ₳ (obtained by "fiat lux" or "deus ex machina" with the genesis distrubution - an amount not earned through contributions or investments) in a Catalyst Fund where the average voting power of all other participants together is about 50M ₳. This situation effectively means that whatever CF votes for eventually wins and renders the whole voting pointless. In particular, the following specific problem areas are addressed: ✅ Keep central actors from undermining decentralization ✅ Ensure the diversity, quality and quantity of on-chain activities and initiatives ✅ Prevent self-interest and power games from dominating or derailing development ✅ Maintain direction, stability and growth for the ecosystem ✅ Foster transparent decision-making and allocation of funds

Rational

Possible measures for implementation: (Currently, this is an ongoing collection of ideas. Some may be better, others less suitable, some may have potential, others may prove detrimental upon closer examination.) 🛡 Voting power limit for DReps: Implementing an upper limit for voting power for DReps as described below in a general sense. There are DReps that centralize a substantial amount of voting power acquired as influencers or acting as agents of a founding entity. 🛡 Enabling **cummulative voting** as opposed to simple weighted voting in appropriate cases (such as Project Catalyst): Instead of voting for any number of proposals with full voting power, participants have to split their voting power among the proposals they want to vote for. For example, a central unit with a voting power of 180M can only use it once on a single proposal or has to distribute it across several proposals. This reduces the influence of big players and is also multi-wallet resistant (i.e. voters splitting their wallets for voting cannot gain any advantage from this). Additionally, cummulative voting counteracts the effects of purchased votes as voting power can only be sold and used once. 🛡 **A (relative) upper limit for voting power**: If this limit is exceeded, voting power is restricted or participation in voting is excluded. This may be set generally or for specific votes. The limit should not be set as an absolute value (without empirical evidence) but rather as percentage of the total voting power used in a vote to determine the outcome. Example: If the voting power of an actor exceeds 30% of the total voting power used, it is reduced to this value as a limit. Although this approach may reduce excessive voting power, it may not eliminate undue influence (unless participation is not completely excluded which may also be inappropriate). Example: If a single voter uses a voting power of 180M ₳ against the rest of the community with a voting power of 50M ₳, the dominant voter with a reduction to 30% still has a voting power of 0.3 * (180M + 50M) = 69M, which is enough to decide the outcome. What remains is that this method can encourage participation as it becomes more likely for the rest of the community to stay competitive against voters with a substantial amount of voting power. In the illustration with a dominant voter that has his voting power reduced to 30% of the total voting power used voting remains fair, if the rest of the community has at least 43% of the voting power of the dominant voter [0.3 * (x + y) = y which gives y as (0.3 / 0.7) * x]. When it comes to the example of a (single) dominant voter throwing a voting power of 180M ₳ into the ring and there is a reduction to 30% of the overall voting power, the rest of the community has to bring a voting power of more than 77M ₳ to obtain a fair result. 🛡 **Relative upper limit with balanced voting power**: If the voting power of a participant exceeds a certain proportion of the total voting power used, it is reduced to that limit and the surplus is distributed proportionally to the other voters. This may eliminate undue influence. [Details and description TBD.] 🛡 Inclusion of **historical values**: Taking into account active stake from past epochs (snapshots) as an averaging or weighting mechanism may remove wrong incentives for splitting wallets as an immediate bypass of limitations in voting power. 🛡 **A separate class of addresses for central entities** (such as the founding entities) or institutions that hold a guarantor position. This class only allows the rights in decentralized governance that are appropriate for these actors. The rights associated with these addresses may be adjusted over time or for specific votes. 🛡 Measures to prevent or make it more difficult to vote multiple times with different wallets or identities (needs to be defined). 🛡 Self-commitment by the founding entities to abstain from certain votes (such as voting in Project Catalyst) or roles (being a DRep) - a mechanism for this has to be defined. 🛡 The deposit of a collateral that will be retained in the event of violations (needs further definition or refinemet). 🛡 (Caution: here live mighty dragons) The possibility of suspending, annulling or rectifying votes in the event of irregularities (needs further definition or refinemet).

Supporting links