Cardano and Ethereum: Governance models

How do different blockchain projects approach the critical issue of decision-making? To the always-fraught question of governance, Web 3 and blockchain have introduced the value of decentralization. Instead of traditional, top-down decision making, a web of dreamers connected by internet tubes imagine a world of distributed, sovereign participants, who each have a part to play in governing.

So what does that look like? The story of decentralized governance, enabled by blockchain technology, is just getting started. Different projects are trying different things. Different things have worked, and failed. Today we’ll take a look at Ethereum and Cardano, two prominent blockchain platforms with distinct philosophies and mechanisms for governance.

Ethereum: Community-Driven, Informal Governance

Ethereum, launched in 2015, has always been a frontrunner in the blockchain world, primarily known for introducing smart contract functionality. The governance model of Ethereum is largely informal and community-driven. This model relies heavily on the broader community, including developers, miners (now validators post-Ethereum 2.0), and users, to propose and debate changes.

Ethereum Improvement Proposals (EIPs)
The primary mechanism for governance in Ethereum is through Ethereum Improvement Proposals (EIPs). These are documents that anyone in the community can submit, detailing changes or additions to the Ethereum protocol. Notable EIPs, like EIP-1559 (which introduced a new fee structure), undergo extensive discussion and review by the community before being implemented. Ethereum EIPs can be read at https://eips.ethereum.org/. Conversations around EIPs typically happen on https://ethereum-magicians.org/

Decentralized Decision-Making
Ethereum does not have a formal governance structure or a central governing body. Decisions are made in a decentralized manner, largely based on the consensus of core developers, node operators, validators and the wider community. This approach fosters a democratic and open environment, but it can also lead to slower decision-making and potential disagreements within the community.

One popular Ethereum governance moment came in the summer of 2016, just months after Ethereum came online. It centered around an incident dubbed “The DAO Hack.” To come to human consensus about how to respond, a vote was held on a centralized voting platform. When it came time to execute on the decision, there was still heavy opposition. This resulted in two Ethereum chains–the unadulterated ledger history known today as Ethereum classic, and the altered ledger carrying on what we know as Ethereum today.

Another major governance moment came around the transition from proof of work to proof of stake. There was no formal pass or fail vote to rule them all, but lots and lots of conversations on forums, podcasts, and core developer meetings. At the end of the day, the “vote,” such as it was, was seeing whether proof of stake would be adopted by users. Almost 3 years before pulling the switch on proof-of-stake, a separate blockchain (the beacon chain) was stood up. People were asked to lock 32 Eth (equivalent to over 20K USD). For that amount you get the privilege of accruing rewards while locking up your funds until an unknown time when the network might transition to proof of stake. Just 1 year after the beacon chain launched, over $38.4B worth of Eth from almost 21,000 validators was locked up. This signaled ‘approval’ to keep moving in that direction.

Ethereum Foundation’s Role
The Ethereum Foundation, a non-profit organization, plays a significant role in funding and guiding Ethereum’s development. However, it does not have formal control over the governance process. According to their website, the role of the Foundation is to support Ethereum and related technologies. Their primary initiatives include:

• Devcon, an annual conference for all Ethereum developers, researchers, thinkers, and makers.
• Fellowship program: to support talented individuals making significant contributions to Ethereum. This initiative tries to address gaps across cultures, nationalities, and economic classes.
• Ecosystem Support Program: this is one means of getting financial support if you’re building in Ethereum or for Ethereum.

If these elements and anecdotes seem like a motley collection of random facts, you’re not missing something. Ethereum currently doesn’t have a specific plan for how governance will be executed in the future. Developers working on Ethereum are doing it because they like it, because they have ideas that might make money (like any other business), or because they are sponsored by the foundation. Knowing what shape and direction Ethereum’s governance will take in two years, or five, or 20, is anyone’s guess. When you hear about potential updates or proposed changes on this chain, it might be worth peeking behind the curtain to understand more about this evolving approach to decentralized governance.

Cardano: Formal Governance with a Layered Approach

Cardano, created by one of the co-founders of Ethereum, takes a more structured approach to governance. Launched in 2017, Cardano is designed to be a more secure and scalable blockchain platform, and its governance model reflects a focus on formal processes and community participation.

Three-Layered Governance Structure
Cardano’s original governance was structured in three layers: The Cardano Foundation, which oversees the development and promotion of the platform; IOG (Formerly IOHK), responsible for Cardano’s research and development; and EMURGO, which focuses on commercial ventures. This structured approach provides clear roles and responsibilities, enhancing efficiency in decision-making.

Dividing power between these three entities was Cardano’s first nod to the value of decentralization. The Cardano roadmap has always pointed to a future where each of these founding entities will ultimately cede their control of the network to the broader community of builders and users.

Project Catalyst
Project Catalyst is the exploration of how that transition of power could take place. Project Catalyst is a Cardano experiment in community innovation and governance and accessible governance tooling. It allows Ada holders to propose and vote on projects and improvements to the Cardano ecosystem. Voting power is proportional to the number of Ada tokens a user holds. Project Teams who win funding through project Catalyst are doing real work that expands the usefulness and impact of the Cardano blockchain. As of this writing over 1,300 proposals from 950+ community members have been funded to build on Cardano through Project Catalyst.

Each funding round makes the process incrementally more decentralized, however it should be acknowledged that the “experiment” is still fundamentally administered by IOG, one of Cardano’s founding partners. It is hoped that by working through multiple rounds of Project Catalyst, the Cardano community can learn how to fully manage effective decentralized governance.

On-Chain Governance Cardano aims to implement a fully on-chain governance system where ada holders can directly vote on protocol changes and funding decisions. This approach intends to ensure that decision-making power is distributed among all stakeholders in a transparent and fair manner. This is what is referred to as the “Voltaire” era on the Cardano road map

Conclusion

Decentralized Governance enabled by blockchain is a new idea, and there’s no single right way to do it! We hope our readers will stay curious, and be interested and inspired by the ways that decentralized decision-making could lead to exciting opportunities in the future. When you have a chance to participate in decentralized governance, try it! You will help shape what that future looks like.