Framework for Meta-Governance

[cedrick]

Meta-Governance Matters

As DeFi’s largest asset manager, Index Coop has a unique and outsized impact on the greater DeFi ecosystem. As $DPI and Index Coop’s other index products grow, Index Coop’s impact will be further amplified. By creating a strong meta-governance framework early, Index Coop will establish itself as a trusted entity within the tokens held by $DPI and the rest of DeFi.

Inspiration and Caveats from TradFi

Governance in public TradFi is extensively regulated and an area of growing focus. While big players in the market, like Vanguard and Blackrock, have enormous economic and voting power, much of public governance is dictated by the recommendations of two other entities: Glass Lewis and ISS. These entities research voting proposals and other issues of importance to public company shareholders. There are some things TradFi does well in this arena:

• Detailed disclosure and solicitations for voting on particular proposals.
• The ability to outsource your voting power to a proxy on your behalf.
• Actors which spend extensive time and money looking into company governance and voting proposals, and which then make specific recommendations on issues.
• Public notification of upcoming proposals on which a shareholder is entitled to vote.

At the same time, however, there are flaws with TradFi governance:

• Votes can become too issue-specific and the forest can be lost for the trees: Glass Lewis/ISS can overexert their power by recommending voting against the election of company directors or specific issues because of unrelated actions taken by the company which Glass Lewis/ISS disagrees with (e.g., lack of specific ESG proposals).
• Due to the size of most public companies, the individual voter has no incentive to participate in governance because their vote has essentially zero impact.

To address these flaws with the TradFi system at Index Coop are two proposals:

1. Focusing on a principles-based governance structure rather than a rules-based governance structure.
2. Encouraging participation of all $INDEX holders through incentives.

Principles Over Rules

Rather than approaching meta-governance for $INDEX holders like ISS/Glass Lewis do for public stockholders, where there is a right and wrong answer on each specific governance topic (down to the strength of specific policies that are adopted by a company), meta-governance proposals should be recommended using a set of principles, followed in order:

1. In a specific meta-governance proposal, where there is a clearly superior option for reasons that do not need to be enumerated, that is the outcome that should be targeted (because Index Coop likely sees more proposals than other DAOs due to meta-governance, it is likely well-positioned to identify such options).
2. Where there is no clearly superior option, the outcome that is reasonably expected to improve the value of the underlying token should be targeted.
3. Where neither outcome will necessarily affect the value of the underlying token, the outcome that is reasonably expected to improve liquidity of the underlying token should be targeted.
4. Otherwise, the outcome which may improve transparency and decentralization should be targeted.

Although intuitive, establishing such principles is important for alignment across Index Coop and to serve as a systems-first means of reviewing proposals.

Governance Mining

Governance mining is likely the most effective way to grow $INDEX holder participation in meta-governance votes. Voter participation is important for several reasons:

• Dissipates a concentration in power of the largest $INDEX holders by incentivizing a larger total number of $INDEX holders to participate in votes.
• Avoids potential gamification by actors looking to impact underlying proposals via $INDEX meta-governance.
• Proves to the tokens underlying $DPI (and other current and future Index Coop partners) that Index Coop is a trusted entity which takes governance seriously. As $DPI grows, Index Coop’s impact will grow at least proportionately; if we prove we are a serious entity in the ecosystem, this will help bring projects and proposals to Index Coop rather than vice versa.
• The crypto community as a whole, and especially the Index Coop DAO, is one built on decentralization, transparency and trust, all of which are strengthened when there is more widespread participation.

To encourage participation in meta-governance matters we can incentivize voting through the following structure:

• Once an $INDEX holder has voted in at least one meta-governance proposal, they are eligible to receive rewards so long as they participate in at least 2/3rds of the meta-governance proposals that have taken place since they first voted.
• If an $INDEX holder drops below a 66.67% average participation record in meta-governance proposals, they are ineligible to receive new rewards until their average returns above the threshold.
• The reward per meta-governance proposal that those $INDEX holders who are above the threshold will receive will be relatively small, so, practically (due to gas costs), the reward will only be distributed once large enough. This serves as a de facto vesting structure, such that if a holder sells their $INDEX prior to the distribution, accrued but unpaid rewards are forfeited.
• To discuss the following:
  • (i) appropriate voting threshold (average voter participation record since first vote)
  • (ii) size of voting reward per $INDEX token
  • (iii) at what point “vesting”/distribution can occur (and whether this is necessary/desirable)
  • (iv) what the reward should actually be (e.g., $INDEX or another/new product as a means to build out liquidity)
  • (v) feasibility of monitoring participation.

Proxy System

Not all $INDEX holders care about the non-economic benefits of holding the token, and we have an opportunity to provide a means of allowing them to transfer that right to a group who will take the charge seriously. Considerations for discussions:

• Whether to incentivize a proxy election with rewards. Index Coop would be receiving a valued benefit and there’s likely a value-clearing spread between how Index Coop values meta-governance power and passive holders’ indifference.
• This would also allow Index Coop (through a specific meta-governance committee or working group) to exert more influence on meta-governance votes and allow the principle-based voting more room to flourish (and also increase incentive for underlying tokens to coordinate with Index Coop).
• It’s worth noting that there’s some tension with decentralization here, but the idea is to target those holders who do not or would not want to participate in the voting. Still, open to feedback on this point.

Other Considerations

In addition to the above, there are other considerations to encourage participation:

• How to better alert and keep informed $INDEX holders of upcoming meta-governance votes for those who are not monitoring the forum / Discord (i.e., opt-in email/text/twitter alerts strictly for votes closing shortly). There was a suggestion in Discord to use the Ethereum Push Notification System once available, which I think would be effective.
• Which meta-governance votes, if any, do we not care about in the face of voter fatigue, which may grow as the community grows and novelty wears off? With 10 tokens underlying $DPI, this could potentially mean 10x the number of votes.
• For consideration with the BD team: as $DPI and $INDEX grow, Index Coop more formally reaching out to underlying tokens to establish a system for such projects to approach Index Coop to solicit votes on proposals, rather than Index Coop monitoring what is going on with each token. Once large enough, like with Vanguard/Blackrock, underlying tokens will want to make sure $INDEX is aligned with their proposals.

Conclusion

$DPI represents one of the easiest entry-points to DeFi for new users, so as the space continues to grow, we should expect $DPI to grow and, concurrently, the average $DPI or $INDEX holder’s interest in and understanding of the DeFi space to naturally be lower. In order to (i) prove to the tokens underlying $DPI that we are a trusted partner who will take governance seriously and (ii) avoid potential gamification of $INDEX to impact votes, this means we will need to encourage greater $INDEX holder participation in meta-governance and begin building more formal systems for governing it.

Thanks to @BigSky7 and @fallow8 for your comments and suggestions on this.

[Tim_Malibu]

@cedrick this is an excellent intro to considering a framework for such an important power as how we can participate in DPI projects we are supporting in the market.

Can you suggest good next steps to for these ideas and discussion points?

Thank you!

[Mringz]

Hey Cedrick, I really like your thinking here. Aligning $INDEX productivity with governance is a really innovative way of thinking. I also appreciate the fact that we are looking at using TradFi practices as a way too improve our practices in DeFi, we should always be striving to build a better financial system than the existing one. Index Coop is lead by our set of principles bringing these principles into our meta-governance will be a significant step in our evolution as a DAO. I share your view that we have a huge responsibility to the holders of our products and the crypto community in general, we should be guiding and setting the standard for responsible governance in order to build trust in our organization as well as the broader crypto industry in general.

Additionally, this delicate process is of huge importance and will take time to refine from an engineer point with getting alignment on what the right principles should be to guide our meta-governance activities. However I do believe within in the eco-system we do have the right partner’s to get this process right like @kevinknielsen from Boardroom and @brian_rabbitholegg from Rabbithole that care deeply about this subject and are willing assist any DAO in improving governance.

[LemonadeAlpha]

Great post,

I think we should consider rewarding metagov voters in the indices that participate in metagovernance, e.g. DPI and MVI.

That would be an extremely novel value capture mechanism in a non self-referential token, and would incentivize participation where it has been lacking in this huge initiative we have touted as a key piece of Index Coop.

We should also allow metagov voters to delegate to metagoverners.

[overanalyser]

It’s good to see more thoughts on meta governance.

I’ve been thinking that delegated voting makes sense for the coop (certainly for meta governance). Implement Governance Mining - #3 by overanalyser maybe the delegates should receive a bonus on their voting rewards (with a higher threshold?)

I also wonder if we should modify the criteria for meta governance votes, If the snapshot is overwhelming one way or the other, should we allow a lower quorum to pass.

It’s something we and others are developing:

Accelerated Capital 📈👾 (accel_capital)

[0x_Dev]

Really great to see this post, @cedrick,

Thanks.

I’d not as fully considered the Coop’s role in the wider crypto ecosystem here, which is another reason to get our internal governance and external meta-governance right. The former obviously being important for our own internal success and keeping and growing a vibrant community. Great call on push notifications re voting events - I’ve missed a few votes due to no pushes and not monitoring Discord actively enough.

What would you suggest the priorities are for meta-governance in the next 3,6,12 months?

For internal governance, I’d personally like to see I) delegate voting, 2) push notifications to INDEX holders re vote events, and 3) community voting with unvested INDEX - and you’ve now sold me on rewards for consistent voting behavior. If I had to pick one of these to get done in 3 months, I’d go for 1) delegate voting, which I think would be most impactful for metagov due to a majority of INDEX holders long-term not wanting to do their own metagov voting.

Push notifications seems like a feature which would then add most value for INDEX holders wanting to actively participate in meta-gov - potentially a smaller cohort.

[DarkForestCapital]

Great post @cedrick and a lot of content in there. I love that it boils down to some really simple actions we can take though, and the principles in particular stick out as something we haven’t discussed much but are a really nice way to solve the issue of communicating on each vote.

I think the idea of delegation to an elected and compensated group of 5-6 individuals is a great way to ensure tokens are incentivised into this kind of system, but then deployed most effectively. Governance of any kind is already a time intensive operation, to have meta-gov laid on top pretty much makes it full-time.

Clearly there are a lot of details to flesh out (and I expect a proposal for a meta-gov working group any day now) but overall think your post lays out things we need to head in the right direction.

• Communicating principles to guide voting
• Getting some kind of small but focused group elected(?) to become delegates
• Incentivising active participation

Look forward to seeing things progress in this area!

[cedrick]

Thanks, all - been great to read these responses and suggestions and speak to a number of people about these topics on the weekly calls and one on one. Some responses below:

@Tim_Malibu and @0x_Dev - you both asked about action steps. It will be critical to have ongoing discussions about what is practical from a technical perspective and build further community buy-in, but I think the below is probably what makes most sense for carrying things forward:

1. Creating a more formal organizational structure to discuss and work on meta-governance issues. As discussed on today’s org call, there are a number of small groups working on various meta-gov-related issues, and it would be helpful to have more structure and transparency linking these efforts. I’m working to connect everyone interested in the topic now and get a sense of what is already underway.

2. Formalizing principles for meta-governance.

3. Implementing simple things like push notifications for votes (via EPNS when out of beta) or potentially via opt-in email, which are low-effort but hopefully easy-wins.

4. Governance mining and creating a proxy system are the next two big picture potential objectives, likely in that order for practical reasons. There is some experimentation in the works on the mining front but a meta-gov working group will need to fully outline and propose solutions.

@DarkForestCapital, completely agree. I think having an elected group of dedicated individuals focused on this topic makes a lot of sense, especially as we continue to scale.