DAO Governance is a core part of every DeFi platform. It allows investors to participate in the decision-making process. Relying on an off-chain DAO governance may pose some fundamental security risks for Aada Finance. Therefore, the following proposal opens up the possibility of embracing the on-chain DAO governance. The community will have complete and transparent control over the proposal submission. Meanwhile, the platform will ensure a fair voting system based on users’ commitment to the governance process.
On-chain governance is the decentralized upgrading of a blockchain or a protocol by implementing changes decided by stakeholder voting. Typically, everyone can make a proposal, which token holders can choose to approve or reject. It’s important to note that there are different strategies for conducting on-chain governance. Still, the benefits are generally the same. Ultimately, on-chain decision-making ensures transparency, quicker consensus, and higher protocol security against malicious hard forks.
- Voting will require Aada Bonds and take place on the Aada Governance Forum.
- The Governance Forum will list proposals in the form of polls, which stakeholders will be able to vote on.
- The process will be conducted through linked-wallet voting, which will require a Voting Contract.
- To vote, stakeholders will have to “lock up” their Aada Bonds by transferring them into the Voting Contract.
- All votes will be based on the equivalent of AADA that the bonds represent.
- Each poll will last for three or seven days. The bonds will be returned to the participants after the voting period.
- Only Aada Bond owners will be able to make proposals and vote.
- The voting will be weighted by the Aada Bonds’ equivalent in AADA. The process will focus on the number of AADA represented by the bonds.
Undoubtedly, the advantages of on-chain governance are prevalent compared to its off-chain counterpart. Here are some of the most essential rationale in support of the proposal:
At its core, a true DAO should allow any entity that holds the blockchain’s underlying token to make and vote on proposals. Unlike informal systems, on-chain governance will enable users to directly influence changes.
Active engagement in the protocol’s development is vital for building a robust community. As the threshold for staking on the Aada dApp is already set at 25 AADA, governance participation is easily accessible. Thanks to their fair say, the on-chain concept will make stakeholders feel more enfranchised. Besides, the staking requirement will further incentivize token holders to become involved with the AADA use cases.
Transparency is another crucial part of every DAO. On-chain governance finds an easy solution to the dilemma by providing transparent and consistent consensus rules. Thanks to the pre-defined and agreed-upon parameters, stakeholders will have the motivation to support the system.
One of the significant flaws of off-chain governance is the inefficient governance consensus mechanism. The biggest issue is that informal systems can propose code updates that the community can theoretically debate indefinitely. In contrast, the on-chain vehicle can implement code changes much quicker. The main advantage is the fixed interval of time where the stakeholders can cast their votes.
Typically, informal systems rely on the general belief that the agreed-upon updates will be implemented. However, that’s not always the case. In this regard, on-chain governance will make all positive decisions irrefutable and bound to be deployed. That way, Aada Finance will align entirely with the ethos of decentralization.
On-chain governance has many perks over its informal counterpart. While transforming the Aada DAO into a genuinely decentralized entity, it will also promote active participation. As a result, token holders will be incentivized to become stakeholders. Ultimately, we’ll create an efficient DAO Governance system that will also promote the organic growth of the community. Also, the strategy will help Aada Finance earn more long-term supporters.