On the Path for Viable Governance of a Global Currency
Part I of IV: How We Woke Up from the Folly of Fully Decentralised Governance.
Let the Saga begin
The journey began two years ago when we realised the stark need for a global currency, not impacted by any single nation-state. We saw blockchain technology and the vision of decentralisation as the obvious enablers for the issuance of such currency.
Back then, blockchain looked like the perfect impartial governor, one that seeks only to govern a contract by the letter (or rather by the byte). The promise of algorithmically decentralised governance for alleviating, and even eradicating the need for central authority was exciting.
We imagined a solid monetary policy executed by a smart contract, not prone to biases or external pressures. We believed that our main advantage compared to other blockchain-based currencies would be a better more mature monetary solution.
So, the smart contract was created
It includes elaborate central banking tools covered by Monte Carlo simulations and a defence mechanism for various sorts of game theory attacks. In its design, we were advised by world-renowned monetary experts who tested the model and supported us in making it more robust. To face changing realities, the model is built to self-adjust according to the size of the economy and to recalibrate alongside the adoption of trust in the currency.
But do we need a red button?
This simple question posed by our research team started a snowball of governance-related questions: Do we want to possess the ability to halt the contract in case of hacking? Answering ‘yes’ was the easy part, but we need to decide who this we is. Who holds the power? The trivial answer is “the consensus of holders” — but this will likely take time, so consensus may be reached long after the horse has bolted. Maybe the Saga Foundation council? Or should it only be me?
And, by whose authority? Under what protocol? What would instil confidence in the participants that we would not abuse this power for reasons other than those intended and declared?
And if such a central capability exists — why bother using blockchain, to begin with?
And that was just the tip of the iceberg
We quickly realised what a global currency entails; the management of reserves, updating the monetary policy and interacting with a world outside of the blockchain. These functions necessitate proper care. But, how could we integrate expertise-based decisions in a decentralised system?
Hoping to find suitable answers, we looked at other decentralised projects. Gradually, we recognised that all of them rely on some kind of central decision-making authority. Some governance systems granted decision-making rights to a central authority. More commonly, we found that an informal and often hidden structure takes control when the price of true decentralisation is too hefty to pay. When decentralisation was respected, the result was often stagnation.
We failed to find a system suitable for managing a global currency that allows efficient and professional decision-making without undermining the sovereignty of its holders.
Leading us to a fundamental realisation: while blockchain infrastructure is a useful tool for the execution of existing contracts, it is incompetent, on its own, for dealing with governance challenges.
We do not underestimate blockchain
The quest to create non-governmental, non-corporate (un-owned) solutions, has seen a significant surplus following the invention of blockchain. As a tool, blockchain will likely play a significant role in their evolution. It has undoubtedly bolstered the quests and attempts for different sovereignty solutions, Bitcoin being one example. However, in and for itself — blockchain does not allow such solutions to flourish. Whether you marvel at the Bitcoin monetary model or find it deficient, the inherent inability of such a model to efficiently adapt to a changing reality, due to its malfunctioning governance framework, will condemn it at some point in time.
A governance framework capable of dealing with the update of contracts, interacting with the world outside of the blockchain and allowing professional decision-making in unpredictable scenarios, is indispensable for a global digital currency. Blockchain is therefore limited to the execution of contracts, all other governance functions must occur on-top of it.
Central decision-making is inevitable
Realising this, a series of challenges and tensions concerning this central authority immediately surface: How do we mitigate the principal-agent problem? Or in other words, how do ensure the central authority acts according to the interests of its currency holders? How do we integrate the expertise crucial for managing a global currency, into the decision-making process? And what should be the specific role of blockchain in our governance?
We embarked on a journey to find answers to these questions.
The answers we found, made us realise that governance, not a single bit less than monetary craftsmanship, is at the foundation of our endeavour.
This is part one of a series of posts describing Saga’s governance approach and suggested governance framework.
In the next post, we look into prevailing governance systems and single out relevant elements for designing our own governance framework.