Welcome back! Today I’m covering crypto governance proposals and the main voting tool in use today, Snapshot.
Governance Tokens & Proposals
One of the main purposes of ERC-20 tokens today is to allow community members to create and vote on governance proposals. In the future, tokens may look more like equities with dividend payments. Today, though, they are mostly used for governance or token-gated access purposes (e.g. accessing a newsletter by owning tokens).
Uniswap's token, for example, has no claim on revenue generated by the platform $UNI can be used to vote in governance matters with Uniswap but does not yet have any claimable fees associated with it. In the future, governance token holders could vote to "turn on the fee switch" and start earning fees based on Uniswap's trading volume.
Governance proposals can relate to many different topics within protocols:
Treasury management - what should the protocol do with its treasury account?
Establishing grant programs to benefit the protocol - Aave and Uniswap both have grant programs that were created through governance votes
Changes to the protocol - should a fee switch be turned on? Should fees be lowered or increased? Should different tokens be supported by the platform?
Budgets for the protocol DAO
Meta-governance - how many tokens should be needed to make a proposal? (Uniswap just lowered their threshold, for example)
Governance proposals are often initiated on forums (https://gov.indexcoop.com/) for discussion before a formal vote is proposed. Each protocol has their own rules and standards for how it does governance proposals.
Once the proposal is ready to be put to a vote, we head over to Snapshot, the main tool for voting on crypto governance proposals.
Snapshot
Snapshot has become the default platform for hosting governance votes. Anyone who has used their crypto to vote in governance proposals should be familiar with it.
As you can see in the screenshot above, Snapshot is the voting platform of choice for a number of top DAOs and protocols. There are many more DAOs with Snapshot spaces that aren't shown here as well. Having one voting platform makes it easier for token holders to vote as they're familiar with the website and don't have to re-learn how to vote for each protocol they're involved with.
Voting on Snapshot
Let's look at a recent vote that’s taken place on Snapshot. Someone submitted a proposal in the Balancer space to create a Balancer Grants DAO. The proposer has done lots of work to outline what the program will look like. He describes the background of the proposal, what the grant process would look like, the budget, and who will sit on the grants committee.
Ultimately, the proposal passed, with 99.38% of voters opting to establish the grants DAO.
In the example above, the proposer has chosen to use single choice voting, but Snapshot allows for several different types:
The proposer has also set the start and end dates for the vote. Each community has different rules around voting, including how long that votes will be active. Sometimes communities require minimum token ownership before submitting proposals to prevent spam (Uniswap requires 1,000 $UNI tokens before submitting Snapshots).
The Snapshot
How does Snapshot ensure that people don't just buy up tokens once a vote is active in order to swing the outcome? Check out the Snapshot field in the Balancer screenshot above.
This number references an Ethereum block, block 13013840. This field is set by the proposer when creating the vote. It looks like in this example, the block occurred just before the vote went live.
Snapshot determines voting power based on tokens held when this block was mined. If you bought or sold tokens after the block, that change in token ownership will not be reflected in the vote at hand.
Delegating Votes
Snapshot also allows you to delegate your votes to other people. Perhaps you're too busy to stay on top of all of these governance proposals. You can delegate your votes to a friend or trusted wallet who can then use your voting power on your behalf.
The Voting Process
All votes on Snapshot are public. If others know your Ethereum address, they'll be able to see which way you voted.
Today, Snapshot records all votes off-chain in order to save on gas fees. Remember, anything written to the Ethereum blockchain requires ETH to be spent, so it's cheaper to vote off chain. It's less secure to vote off-chain because theoretically Snapshot could game the vote on the back end. Voting off-chain also allows smaller holders to have their voices heard; these smaller voters would be unlikely to spend $10 to vote on a proposal if they hold just $100-200 worth of tokens.
In the future, we could see governance voting move on chain. As Ethereum scales, transaction costs should drop and we can then vote on chain in a more secure fashion.
Also, as votes move on chain, we could see proposal execution become much more autonomous. Proposers could submit smart contract code that will automatically be executed if the proposal is approved, lowering the chances of human error or malicious behavior during execution.
Summary
You can use your crypto for more than just speculation! Becoming an active participant is much more exciting than simply speculating. And by actively voting on governance proposals, you’ll be building your on-chain resume. 5 years down the road, others will be able to look back and see that you were a valuable early participant in a protocol’s governance; your ETH address will be an asset in its own right!
