DMD Diamond opens up opportunities for true decentralized governance

Starting from the large DMD 4.1 upgrade, we will introduce a decentralized governance module. The voting model we’ve chosen is efficient and fair: instead of favoring the largest stakeholders the way many DeFi ‘DAOs’ do, it allows for true cooperation without a waste of resources.

Why the majority of blockchain DAOs don’t work

DAO is a trendy word in the blockchain world. A lot of projects, especially in DeFI, boast of their plans to implement a DAO and a system of governance. However, very few actually end up using it — and even fewer get any satisfying results.

Why? We can identify two reasons:

1) Prohibitively high fees. Most of the functioning DAOs are on Ethereum, and gas fees on the Ethereum blockchain haven’t gone below $10 for many months (right now it’s $20). Casting a vote means sending tokens to a voting smart contract: it’s a transaction, so it incurs a gas fee.

And who will agree to pay $10 or $20 just in order to vote on a decision? Only those who have a real stake in the system. Governance on Ethereum boils down to the largest token holders making all the decisions, and usually these large stakeholders are the platform admins. Yearn Finance is a good example of this.

Some projects have tried to incentivize small token holders to vote by paying them increased staking rewards on the tokens locked in the voting contract. In our view, it’s not a solution, it’s a waste of tokens.

2) Overestimating users’ activism. Ancient Athens was the only place where direct democracy worked for any length of time — and even there it eventually led to disaster. We aren’t in ancient Athens, and few users are motivated enough to spend their time on studying governance proposals, stake tokens on the voting contract, etc.

In short, decentralized governance doesn’t mean that everyone should vote. Rather, it means that a) voting is done on-chain; b) everyone is able to impact the decisions in an economical and efficient way, and c) those who actually vote are accountable to the others. That’s the approach that DMDv4 Diamond has chosen.

The DMDv4 voting model

The DAO Governance module allows validator candidates to vote on all sorts of proposals, from system upgrades to funding for promising startups built on the DMD blockchain.

Meanwhile, DMD holders stake coins on the candidate of their choice and expect them to vote on their behalf. For instance, a candidate can make their personal position on a matter known in advance so that those DMD holders who think the same way can stake coins on that validator. This way, distributed governance is enabled through delegated Proof-of-Stake.

Since transaction fees in DMDv4 are very low, the staking and voting process will not incur any noticeable expenditure for the coin holders and delegates. There will be no need to compensate users for voting with extra rewards, so no resources will be wasted, as it often happens in Ethereum-based DeFi.

Proposals and community discussion in DMDv4

Everyone will be able to submit a proposal of any type, be it a code change, funding request, etc. Submissions will be subject to a fee. This is done to prevent malicious agents from spamming the system.

The governance process will be structured as monthly cycles. In the first half of the cycle, users can submit their ideas, followed by a community discussion and deliberation by the validator candidates. After two weeks of such joint evaluation and feedback, validator candidates will have two weeks to vote on the open proposals. Those that pass will be allocated funds from the Funding pot if needed.

Changing the decision

Technically a validator can change their vote any time, even minutes before the voting ends. Since the whole procedure is transparent, stakers will see if someone has changed the decision — and demand an explanation. If they aren’t satisfied with the justification provided, or if they notice that their chosen candidate is fickle, the delegates will simply unstake their DMD coins from that validator as soon as the epoch ends, choosing someone else.

This way candidates will be motivated to make up their mind, vote early, and stick with their decision. Being consistent and voting in accordance with the stakers’ preferences will earn the candidate more staked coins, increasing their chances to be selected as validators and earn epoch rewards.

Thus, the DMDv4 governance system naturally promotes cooperation and collective decision-making. It’s the validators who vote, but ultimately it’s all the DMDv4 holders who decide.

As we’ve said, the governance module will be introduced as part of the big 4.1 upgrade. If you’d like to know more about the voting procedure and the funding pot, join the official DMDv4 Telegram chat — we’ll be happy to answer all your questions, even the most technical ones.