Governance can be an intimidating word, but it need not be. For any sustained human effort: how do we make decisions about what is done, who will do it, and who they are accountable to? The answer is governance.
Nations usually have layers of politics that enshroud the actual governance, but it’s in there. Within a company or civic organization, bylaws might guide how decisions are made and roles are assigned. The ethical and behavioral standards you hold for yourself, and which guide your daily choices, are an example of self-governance. At all these levels there are different ways to implement governance, and results vary.
Blockchains like Ethereum and Cardano are new technology tools that aim for decentralization at all levels - including at the decision making and accountability layer. In most ways, decentralization to this extent has never been possible before. The internet itself enables global decentralized communication, and the immutable ledger of blockchain keeps everyone honest.
In our last article we learned that Ethereum and Cardano are two good examples to learn about different approaches to decentralized governance. Ethereum’s “approach” is extremely informal. There is no concrete plan for long-term governance; they are learning as they go, and decisions are happening in different ways. Cardano has a much more defined goal for governance, and is also learning along the way to that goal. Let’s look a little more closely at how it’s going so far.
Building on Ethereum
In Ethereum, funding and grants generally come from one organization or another. Private companies like Lido Finance with their LEGO grant program, AAVE, Balancer, and Chainlink are popular companies with grant programs. The Ethereum Foundation also has an Ecosystem Support Program (ESP) that doles out grants to teams building in, on, or for Ethereum. In 2021 the ESP awarded $26.9 M to 136 teams. In Q4 2022, $750,000 was granted to 22 teams to help innovate in the area of privacy and Ethereum Layer 2 solutions. Some of the notable winners were:
Stackr Network: a web2-friendly developer tool for launching standalone customizable app-specific rollups.
Jose Figueroa: was awarded funding for research and education on Ethereum scaling solutions.
Blockscout: Blockscout, already used by many Ethereum L2 projects for exploring their transactions, was awarded funding to improve and expand the tool.
Building on Cardano
Rather than 1 to 3 three entities funding a few incredible projects and teams as is the case of Ethereum, Cardano, via Project Catalyst, casts a much wider net. As of this writing over 1,300 proposals from 950+ community members have been funded. Here are some notable ones:
Ledger Live Integration: Over 500k USD was awarded over 2 years to a group of developers from Strica and the community to enable a rich Cardano experience on the ledger live platform.
Cross-chain Messaging Protocol: Over 1.5M Ada plus 312K USD over 1 year was awarded to the Spectrum team to bring interoperability between Cardano and other blockchains
Blockfrost tooling: Five Binaries, the company behind the infrastructure powering lots of light wallet applications has been awarded over 460K USD and 360K Ada over the course of three years to iterate and improve on their product.
Wallet Connect: DCSpark, the team that holds the record for receiving the most funds from Project Catalyst was awarded 200k USD to add Cardano support to the WalletConnect, the industry standard for allowing non blockchain applications to easily interact with a user’s blockchain wallet.
Blockchain training lab in Kenya: Our team here at lLido Nation was awarded 38K USD to establish a Cardano blockchain training lab in Kenya. The lab now boasts 10 up-and-coming blockchain developers already contributing to multiple Cardano projects in the community.
Comparison and Implications
Community Involvement
Both platforms emphasize community involvement, but they do so differently. Ethereum relies on a broad community consensus, while Cardano is prioritizing a more systematic voting process.
Accountability
To receive an Ethereum ESP grant you must go through full KYC, with the option to shield your real world identity from the public. Payouts are offered in Eth or Stablecoin as well as fiat currencies. Winner proposals are typically selected by a small working group; things are more of a top down approach.
On the Cardano side, there is a fund operator that sets broad guidelines and constraints, typically as a result of holding workshops with the community. From there on, ada holders ultimately decide which proposals are awarded funding. There is no KYC but a community operated proof-of-humanity. Verification of the work is handled via a milestone-based process, also carried out by members from the community.
Decentralization
Ethereum’s model is perceived as more cyberpunk, with the core developers and node operators ultimately making the final decision for the former to do the work and latter to update their nodes with the new code.
Cardano is aiming for more decentralized governance, but still has defined entities (Cardano Foundation, IOG, EMURGO) playing significant roles in its governance.
Flexibility & Structure
Ethereum’s informal governance model offers flexibility and fosters a grassroots approach to innovation, but it can sometimes lead to uncertainty and slower consensus.
In contrast, Cardano’s more formal and structured governance model can provide clarity, but it also risks being less adaptable to rapid changes.
Consensus & Power
Ethereum’s unstructured model relies on community consensus-building. Lacking an ultimate decider or formal voting process, a decision can be considered finalized when enough people get on the decision-boat and sail away in it. There is certainly a risk here that important decisions could be stuck in the works forever. It also risks splitting the chain if two strong factions pull hard enough in different directions; this has happened on Ethereum once, as we mentioned in the last article.
Cardano’s current governance is token based. Since real world identities do not yet live on the blockchain, it’s the only verifiable thing to count in a vote. So 1 Ada = 1 Vote. In a late 2022 tweet, Vatalik Buterin slammed token-based governance as being pathological, adding: “You’re literally saying I’m buying $X because later on someone might buy it from me and a bunch of other people to twist the protocol toward their special interests.” The Project Catalyst experiment has also shown us that 1 Ada = 1 Vote usually leads to a few individuals having outsized power, leading to feelings of disenfranchisement and voicelessness amongst many community members.
Scalability & Upgrades
Ethereum’s transition to Ethereum 2.0, including the shift from proof-of-work to proof-of-stake, highlighted the challenges of coordinating major upgrades in a decentralized, informal governance structure. Cardano’s structured approach may offer advantages in implementing large-scale upgrades more smoothly.
Conclusion
Since the Ethereum ecosystem is so informal and ever-changing, following the story of who is building on Ethereum and who is funding it can be difficult. Users in different parts of the ecosystem are likely to be more aware and plugged into different streams of development and funding. Newcomers might find it takes a while to understand how it all works.
Cardano’s Project Catalyst is a fascinating experiment but it has its detractors as well. Something to keep our interest is that part of its stated purpose is to learn from what doesn’t work, change, and evolve. It’s also nice that there is a defined place to look for opportunities to participate as a builder, or as a user who may be curious about who is building, and what they built.
Remember, governance is just about deciding what will be built and who will build it. Blockchain seems to promise new ways of organizing these decisions, but it’s still an area of early exploration.
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