An exploration of MakerDAO’s governance incentives

An exploration of MakerDAO’s governance incentives(scopelift.co)

50 points by benmdi 6 years ago | 18 comments

This is a simple, and thus great, way of using Makers incentive structure against itself.

While specific to the MakerDAO ecosystem, it effectively highlights the complexity and challenge in adequately creating a decentralized governance structure.

Essentially, to remove centralized control, you must structure incentives such that the system ultimately acts as intended, but there is always going to be ways to subvert the incentive structure. The goal is that costs of conducting such activity are too much to be reasonably conducted.

It seems that these systems will take years and years in the wild before their incentive structures are iterated upon enough to finally get to a point where truly large business value will flow through it. Exercises like this are useful in either disproving this whole concept or incrementally improving it.

latchkey 6 years ago | |

You basically described PoW (proof-of-work) mining, which was (imho) the actual innovation with Bitcoin. The current idea though is to build a byzantine fault tolerant system that doesn't require massive amounts of "wasted" power. I put wasted in quotes because it is actually doing something, it is just the output isn't useful for much more than validating the transactions.

Interestingly, Maker is currently built on top of (Ethereum) PoW. Some day, ETH2, which is PoS (proof-of-stake), will solve all the same issues you're talking about. Or at least that is the dream. We will then have a pretty amazing digital rube goldberg machine where we can sit back and watch the gears turn.

snisarenko 6 years ago | | |

PoS will not solve anything. PoS is just obfuscated proof of work. The same amount of "resources" will be wasted in a PoS system, its just going to be a different type of resource.

Required reading

http://www.truthcoin.info/blog/pow-cheapest/

HN Discussion

https://news.ycombinator.com/item?id=16451187

Also newer article http://www.truthcoin.info/blog/pos-still-pointless/

analognoise 6 years ago | | |

I was looking at Etherium recently, and thought HBM on the new Xilinx Alveo would be perfect to attack the problem.

I wish I had an Alveo board. Sheesh, now would be the time. You could fit the whole DAG into HBM.

decentralised 6 years ago | |

That's cryptoeconomics in a nutshell, mechanism design and decentralised governance.

I curate a popular resource on this here: https://github.com/jpantunes/awesome-cryptoeconomics

lazzlazzlazz 6 years ago |

The analogy with the Prisoners' Dilemma is interesting here, but doesn't feel quite right. In the comments, BenWang summarizes it like: "the effects of the attacker will happen to all token holders regardless of what you decide to do with your tokens, therefore, you might as well rent them out."

It seems that the MKR holder in this case could rent them out... or sell MKR and exit their position entirely. And this seriously discounts the fact that eroding Maker security is immediately obvious and can get priced into the MKR token very quickly, defeating the point of a few percentage points of yield.

It makes sense on some conceptual level, but it's not clear that the magnitudes of the incentives result in this toxic game theoretic equilibrium.