[Reading] : v4 Deep Dive: Governance

Reading & discussion: v4 Deep Dive: Governance

  1. Read the full article here: https://dydx.exchange/blog/v4-deep-dive-governance :books: :eyeglasses:
  2. View the Twitter thread from Foundation for a deeper breakdown
  3. Discussion in the comments. :studio_microphone: :speaking_head:

-How does on-chain governance work?
-What will governance control on-chain?
-Are there other, off-chain, aspects of governance?


:speaking_head: :arrow_double_down: :arrow_down: :arrow_down_small: Discussion in the comments. :studio_microphone: :speaking_head: :arrow_double_down: :arrow_down: :arrow_down_small:


Hi @charles,

We appreciate the transparency and information provided about governance in the recent post. It’s invaluable for our community to be educated and informed about these critical aspects of our organisation.

However, we find it thought-provoking why our grants program focuses on funding projects like the transition of endorsed delegates to the new governance system, which, quite frankly, seems incompatible with the intended direction. The primary emphasis, in our perspective, should be on supporting research and development of proposals for a completely new, fully autonomous governance platform compatible with the new blockchain.

Furthermore, we’re puzzled about why we’re funding research into onboarding for working groups and so forth before establishing a solid governance architecture. As highlighted in this recent post, 70% of most DAOs are transitioning to a council-based system. This trend is happening for clear reasons, and we ought to take note of this shift.

We’ve noticed resistance from @carlbergman, in financing initiatives that explore alternative options for our governance system. This should be the first and foremost step in crafting a world-class governance system, as initially intended for our community treasury.

It’s understandable that such a transition could potentially pose conflicts of interest for certain entities, like Reverie, or even necessitate a significant mindset shift for foundation members and dYdX Trading Inc. However, moving towards a fully autonomous DAO seems inevitable if we want to uphold the true essence of decentralisation and autonomy.

Here is an example of a flowchart we have been working on that presents an idea as to how we could operate moving forward in a fully autonomous and decentralised system:

We are inviting all community members interested in this cause who hold tokens to reach out directly to kagan@foxlabs.digital or delegate their proposal power to foxlabsdigital.eth - we have a plan and proposal that we’re excited to share with the community to help guide us towards this goal.

Best Regards,


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Hey Kagan,

The post describes v4 using the x/gov module to govern parameters of the protocol through on-chain voting. In other words, it will enable full on-chain governance of the protocol through bonded tokenholders. With that in mind, there isn’t a strong need to explore alternative governance frameworks ahead of launch - it will already be autonomous. As more information about v4 comes out, it’s possible that new or different governance procedures are needed to manage the custom built modules. Or that the community is unhappy with the governance process post launch. But there isn’t a need to revise anything before the protocol launches and we get a full picture of v4 governance.

Instead, we can prepare for challenges that we do know of today - like transitioning endorsed delegates. Using x/gov, we can expect v4 to be governed by the active validator set using delegated tokens. But what if a tokenholder wants to delegate their vote to a non-validator address? Endorsed delegates have played an important role shaping dYdX. This research is a way to keep the existing community involved in governance. Expanding the governance participation set should only strengthen the protocol.

You mention exploring alternative options to the governance system. But do we know what the governance system is beyond using x/gov? We focus our funding on areas of research for problems or topics that are known today. Doing so improves the impact and relevance of research delivered ahead of v4. Funding research to build a new governance system would be trying to solve a problem that we don’t know exists. Instead, we should wait to see how things go at launch and explore the need for other options then.

Quick side note on the model described above:

I’m a big fan of councils (see here for my own version of one) and subDAOs (playbook). Importantly though, establishing off-chain councils and subDAOs is removing autonomy from the DAO, not making it more autonomous. At launch, we expect all bonded tokenholders to have equal voting rights over the entire protocol - there is nothing more autonomous than this. Councils and subDAOs are useful when protocol responsibilities need off-chain procedures, or in the event of harmful voter apathy (e.g. no one votes on an upgrade). On delegated responsibility, we should definitely expect more subDAOs to form, but again there’s little we can do before the responsibilities are known. On voter apathy, Cosmos based chains benefit from the active validator set to solve this issue (see Osmosis passing its second expedited proposal last week as an example).


Hello @carlbergman . I understand that there is very little information available regarding V4, which is actually a problem for both Reverie and Trading. Grant’s subDAO must work closely with the developers, otherwise, what is the point of investing resources into a grants program if it cannot make a significant impact due to the lack of necessary information?

Moreover, I believe that the task at hand should be stated differently. Our goal should not be to transfer the Endorsed Delegate onto Cosmos, especially if it is difficult to accomplish. Instead, we should focus on decentralizing governance and providing users with the ability to influence changes directly or through individuals whom they trust. The council system could help in this regard, in Kagan’s proposed form or some other variation. This requires thorough discussion and research.

At present, the only utility of dydx tokens is their ability to participate in governance. What will users and project enthusiasts think if this utility suddenly disappears? None of the potential validators are currently participating in the community; who will represent token holders’ interests? The ability to influence protocol development is a crucial element that affects user loyalty and unifies the community.

Regarding subDAOs, they are currently completely centralized; we don’t have a DAO yet. Let’s take Operations subDAO as an example; although I believe its proposed program was promising, community members were not given the opportunity to choose trust candidates. true DAO must prioritize community needs above all else; keep that in mind.

I remember the early days of the project when @antonio and other members of the team participated in discussions and shared their vision for the project, which was really cool. I understand that the team and foundation want to abstract themselves from DAO, but since they are developing the product itself, it is impossible to fully do so. We need values and a vision from a team we all believe in, otherwise we wouldn’t be spending our time here.


Hi @carlbergman, I appreciate your explanation of the x/gov module and the autonomous voting process for validators. However, it seems our visions for the future of dYdX’s governance fundamentally diverge.

While fostering a degree of autonomy, the one-token-one-vote system leads to a disproportionate concentration of power, which contradicts the decentralisation principles dYdX aims to uphold. The governance architecture should incorporate preventive mechanisms for proposals that pose risks to the protocol or aren’t aligned with the community’s interests. To this end, establishing a governance council and a risk council to pre-approve proposals before they reach validators would improve efficiency and align with a commitment to decentralisation.

My vision of a comprehensive DAO framework extends beyond voting on governance proposals or introducing centralised entities such as trusts. I envisage an intricate, autonomous governance platform that isn’t manually managed by a handful of people but operates via algorithms and consensus mechanisms, thereby achieving genuine autonomy.

Take for instance, the current Grants Trust you oversee: all decisions and communications go through you, payments need manual processing, and communications remain private. There’s a lack of defined timelines for which you are accountable in assessing applications and issuing approvals, no automatic renewal procedures, and no guidelines for managing personnel.

This system exhibits opacity, reliance on manual processes, and centralisation - all contributing to time and cost inefficiencies. These are all substantial reasons why we should look to design, develop, and implement a fully autonomous and decentralised system. We understand there might be significant conflicts of interest for some people, but this is a necessary step to truly evolve into a fully decentralised platform.

Another crucial consideration, as highlighted in the collective DAO archives, is the significant mindset shift required from all employees of the foundation and Trading Inc. The transition to becoming contributors represents a considerable hurdle that may encounter resistance. Again, we would need to transition these entities into other council structures such as Marketing, Ambassadors, Market Maker and Validator BD, Legal, Treasury, and so on - with fully autonomous algorithms and mechanisms dictating operations at every level.

While it may seem premature to undertake all of this now, exploring a diverse range of approaches is essential to designing a full-spectrum governance solution and platform. Without initiating such exploration now, we risk fostering an echo chamber that stifles innovation and limits our view of what’s possible. Moreover, thorough research, idea generation, consensus building, and eventual implementation will undeniably require significant time.

Given the relatively uncharted territory of decentralised governance, we must remain open-minded and flexible in our approach. Let’s foster an environment where all ideas can be considered, and our community can collectively determine the best path forward.