Our Governance Framework explained
This document will introduce the reader to Governance, a term which is widely used but rarely understood.
Governance is not an easy concept to understand. This is because it is something which cannot be easily visualised and lacks a common definition.
If I said to you, what is an apple? You might respond by saying that it is a small round fruit which is commonly red, but can be green or even yellow. If I asked 10 people the same question, I would get a pretty similar answer. Apples are easy, they exist in the physical world and we come across them on a daily basis.
Now, if I asked the same 10 people: what is governance? Someone might say governance is about how the country is run. Someone else might say that governance is about law and order. None of them will provide a correct or incorrect answer, they will provide an answer based on what their conception of governance is.
Governance can come in many shapes and sizes. You can govern something as large as a country, or something smaller such as a school, or something intangible like a social media platform… or a blockchain.
Governance is a challenging concept. It relates to setting rules and standards that people abide by and follow. Most models of governance rely on a hierarchical structure, where a sovereign authority regulates from a top-down perspective. For example, a national government is responsible for setting laws and enforcing them on the public. This makes sense because, without a level of prescribed governance to keep the public in check, order would descend into anarchy.
At cheqd, we like to think about Governance as constituting 4 parts:
Now, let’s break these down simply.
The law is something we are all familiar with. It’s a set of rules imposed on us, usually by a government or sovereign entity in a particular, defined jurisdiction. Non-compliance with law often results in a punishment of some sort.
Importantly, however, laws are rules that you have a choice whether to follow. You can choose to break the law if you want to, if for example you feel a law is morally unjust, however there will be consequences for your actions. Laws act to deter people from breaking them. In this sense, they are guidelines that are enforced by punishment.
Principles and social norms are a fun specimen. They play on human behavioural psychology. The crux of governing through principles and social norms is that if you get enough people to do something, or believe something, the community will innately enforce that thing.
For example, it is not illegal to sing the entire musical of Les Miserables to yourself, rather loudly on the London Underground. In fact, it might make the London Underground a much more cheery place, were carriages to normalise singing. However, there is a social stigma against loud singing on the London underground. As a matter of principle and to enforce this principle, you will not be thrown into a jail cell, but you will receive a lot of cutting stares, disgruntled faces, and maybe someone whispering and gesturing for you to keep it down. Or for particularly awful singing, a tut.
The point is here, that people impose principles that are unwritten, because they follow the general herd mentality of a normalised society, from the perspective of that society.
Most things humans touch or have created in the world have a fiscal element. Or at least, you could probably make a strong argument that is the case. For this reason, when it comes to governance, there is generally a financial angle.
Financial incentives and payment generally align tightly with motivation and willingness to follow a Governance Framework. For example, fines can deter actions from being taken, whereas, gifts and earnings can bring additional momentum in accordance with the rules. Sunstein and Thaler’s Nudge Theory is entirely built around this idea.
In this way, regulating markets and the price of something has a large amount of sway on whether something will be willingly followed. Tokenomics largely implement this for decentralised networks.
Like law, architecture is something that sets the boundaries of what people can and cannot do. In the physical world for example, a locked door in a University signals that students cannot enter. The difference between law and architecture is that people do not have much of a choice to circumvent the architecture regulation. In this case, a student could purchase the tools to break through the locked door, but it would require a high degree of effort and force.
In digital domains, architecture becomes a much more powerful method of governance, as rules, boundaries and punishments can be coded into protocols themselves to deter or incentivise people. These architectural boundaries can be so strong that it can make it near impossible to avoid them. For example if you find a locked door in a video game, unlike in the physical world where it might be possible to break through it, in the digital world there may be no possible method of going through, and the door acts as a permanent and unbreakable barrier.
Architecture becomes increasingly necessary when there are no jurisdictional borders, such as on the internet, where the law can be easily evaded. For this reason, on the internet, it has been suggested by prominent writers such as Lawrence Lessig, that code is law.
Governance is a multifaceted concept, encapsulating each of the four parts, discussed above. It is a way of regulating behaviour and ensuring order in a given system.
All four of these parts weigh into one another, and different weightings can be applied to different Governance Frameworks.
For example, Governance set by governments relies largely on Law & Guidelines, to uphold order and less on Architecture.
This can be represented via the diagram below, which shows how government uses different quantities of the modalities to govern.
Figure showing how governments uses governance modalities
Whereas, the regulation of a Social Media Network relies much more on Principles & Social Norms and less on Markets & Economy.
This is represented in the diagram below.
Figure showing how social media platforms use governance modalities
In this sense, Governance is something flexible, which can be adapted for different use cases, based on a combination of factors such as, among other things:
- 1.Whether there is a clear jurisdiction;
- 2.Whether the system is in the physical or digital world;
- 3.Whether there is a currency.
At cheqd, we use these four constituent parts of Governance to explain how we regulate our Network to ensure a level of order, without restrictive rules on the Network, explained below in the section: What is Decentralised Governance?
"Governance is a way of regulating behaviour and ensuring order in a given system. We think of it as a melting pot with Principles, Laws, Economics and System Design as the ingredients."
"Decentralised governance is the concept that no single person, organisation or entity will be able to unilaterally make decisions or changes that affect the Network. Instead, the direction of change is decided by the democratic votes of an ever-growing, diverse collective."
This is made possible because of the architecture of the Network, which enables the Network to become self-regulating and autonomous over time.
This is how the cheqd Network governance will look to begin:
Figure showing how cheqd uses governance modalities
Over-time the Network may vote to raise or lower these sliders, in accordance with group consensus.
One thing that will stand out looking at this chart is the lack of Law governing the Network.
In this way, the decentralised Network acts as its own Legislature, Executive and Judiciary, as decentralised consensus checks and balances each stage in the passing of a proposal.
Through this notion, accountability for decisions on the Network cannot be attributed to a specific person; and importantly, this means that no single Node Operator or voter on the network can be held directly accountable in the eyes of the law, in line with Entropy.
A decentralised Network where accountability is spread out as such is often referred to as being sufficiently decentralised.
The objective of this Governance Framework is to provide a set of default settings, Principles and Policies for the Network to follow. Through compliance with this Governance Framework, Entropy will continue to increase, until the point of sufficient decentralisation is reached.
This transition from default settings, form, structure and legal accountability and relative centralisation - to sufficient decentralisation, wide-barrel consensus and accountability dilution is crucial to get right. This will be further elaborated on in the Introduction to Entropy.