Not So Fast: The Push and Pull of Decentralization

How quickly should governance decentralize?

Sep 26, 2024

Some big governance moves are afoot. Although we can’t address all of them here, we’d like to take a moment to survey the discussion underway in the Optimism Collective — which has been a trailblazer in protocol governance. The situation is instructive.

This particular discussion began with a post from GFX Labs that detailed a proposal (accompanied by a petition) to accelerate the decentralization of Optimism’s governance.

GFX Labs argues that full community governance has been held back by the Optimism Foundation and OP Labs, organizations that continue to control (and guide) the central elements of Optimism governance.

“We view the Foundation and Labs as parents to governance. Just as there is sometimes tension when a child has grown up, and the parents need time to adjust to the new dynamic, we understand it can be difficult to let go of the reins. The Foundation has done a wonderful job raising governance, but governance has matured, and it’s time to begin the transition from Foundation overseeing governance to governance being a full partner in developing and growing Optimism.”

💣 The Push

The proposal recommends transferring control of the Optimism protocol from the Foundation and OP Labs to its governance system in three phases by summer 2025.

Phase I involves the immediate transfer of ownership of the OP token contract, governance contract, governance fund, and collected ETH to governance control.
Phase II, concluding by the end of Q1 2025, includes bringing the Bridge L1 Escrow under governance control, presenting a roadmap for decentralizing the Optimism mainnet sequencer, and revising the Law of Chains.
Phase III aims for full governance control over the protocol by Q2 2025, including complete technical control, disclosure of Foundation grants, and the completed decentralization of the sequencer.

This plan aims to enhance decentralization, empower the governance Collective to provide clear direction and align Optimism more closely with competitors like Arbitrum, where the DAO has complete system control.

🪢 The Pull

In response, the Foundation acknowledges the importance of progressive decentralization and outlines ongoing initiatives to share information and involve the community. They distinguish their approach by emphasizing a gradual, experimental approach, as per the Working Constitution.

The Foundations strategic considerations include:

Gradual Decentralization: Emphasizing a measured approach over several years to ensure security and sustainability.
Security Risks: Highlighting potential dangers in rapidly transferring control of key contracts, which could pose existential threats or violate user trust, especially regarding assets held in escrow.
User Trust and Social Contract: Stressing the importance of not violating user expectations could erode trust and harm long-term viability.
Adherence to Foundational Documents: Underlining the significance of the Law of Chains as a critical governing document that should not be frequently altered.
Strategic Alignment: Asserting that governance responsibilities should come online as they support strategic initiatives, not merely for the sake of decentralization.
Distinct Approach: Noting that direct comparisons to other ecosystems can be counterproductive due to Optimism's unique path toward decentralization.

💭 The Sentiment

The sentiment in the forum is mixed. Some, such as Lefteris Karapetsas agree with the initiative and insist that “we can do better.” Others, such as Katie Garcia, believe that “decentralizing too quickly would be catastrophic.” Several commenters appreciate the push for decentralization but express concerns over the aggressive timeline and potential risks. They advocate for a clear, flexible roadmap with checkpoints, suggest retaining Foundation control over funds initially, emphasize the need for fully engaged governance participants, caution against rapid changes due to Optimism's complex governance model, and highlight the importance of proceeding cautiously while acknowledging progress made.

Optimism (i.e., the Labs and Foundation teams) has long been a leader in creating thoughtful, organized, and transparent governance initiatives. The teams have invented novel structures and have been upfront about their experimental nature. The urge to push for more rapid decentralization comes perhaps from a certain anxiety: the industry moves fast, and there is serious competition from other L2s. The idea with the proposal is that with governance control fully shifted to the Collective; the Collective can be more nimble and proactive, gaining market share for the Optimism ecosystem. This seems all to be good in principle, but moving too quickly into decentralization can be messy and even disastrous. The discussion prompted by GFX Labs is necessary, as is the caution urged by many.

Are you feeling lost in all these updates? The Boardroom Feed is here to help you navigate governance discussions, proposals, and more. Explore it for personalized alerts and summaries:

🔍 Other Key Developments Across the Ecosystem

1. Optimism Seeks Full Financial Audit
The Optimism community is debating a proposal for a full financial audit to ensure transparency and accountability. This mission request emphasizes the importance of verifying that funds are being used effectively and could set a new standard for governance transparency across similar DAOs. Read more.

2. Arbitrum’s Seed LatAm Delegate Pushes for Open Communication
A new communication thread has emerged in Arbitrum, led by Seed LatAm Delegates, to foster transparent and inclusive dialogue. They aim to enhance representation and responsiveness to Latin American users within the governance framework. Read more.

3. Uniswap Prepares for Governance Attacks
In a forward-thinking move, Uniswap has proposed safeguarding its governance mechanisms from potential attacks. This RFC outlines risk scenarios and potential security measures to prevent the manipulation of governance structures. Read more.

4. zkNation Debates Governance Cycles
zkNation has proposed formalizing governance cycles, which would standardize decision-making processes across the platform. This move aims to clarify and structure how proposals are introduced, reviewed, and passed. Read more.

5. Decentraland Proposes DAO Restructuring
The Decentraland community is considering restructuring the way its DAO operates. The proposal addresses inefficiencies in the current model and seeks to streamline operations, giving members more effective control over governance decisions. Read more.

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