For the majority of 2021 the team’s primary focus has been the successful deployment of the yAxis v3 Vaults. With that work essentially complete, now is the perfect time to focus on the future of the protocol and yAxis’ “next steps”.
As the project has advanced, the team has not only identified but has actively begun working on potential protocol additions and upgrades. Sitting right at the top of this “wish / to do” list is a revamp of the yAxis DAO.
Our goals with respect to the DAO are numerous. We want to explore, and then implement changes to the governance mechanics/framework that will result in increased transparency, immutability, autonomous functionality, and democratic voting for decision making.
This process is both exciting and formidable, as the changes we as a team and a community ultimately decide upon will have significant and long-lasting effects on the fundamental nature of the project.
DAO’s? A brief recap
DAO’s — decentralised autonomous organizations — are a fundamental part of the exciting wave of innovation found today in crypto and Defi. Industry expectations for DAO’s are high and their potential is truly phenomenal.
“Imagine the ultimate marriage of technology, community, capital, ownership and purpose. That is a DAO.” @nanexcool
“DAOs, at their core, create positive sum economic games. An infinite tide of creativity & shared value. Owner, Stakeholder, and Contributor become synonymous. A truly beautiful future.” @PallerJohn
“DAOs can work and are indeed the future of collaborative work in an interconnected world. Through DAOs and the tooling around them we can coordinate and incentivize large sets of people with common goals.” @LefterisJP
With DAOs, any form of organization that can be expressed as code is possible. @ASvanevik
What exactly are DAOs? Wikipedia describes DAO’s as “an organization represented by rules encoded as a computer program that are transparent, controlled by the organization members and not influenced by a central government” with financial transaction record and program rules maintained on a blockchain.
DAOs can also be thought of as internet-native businesses that can theoretically allow an infinite number of participants (including individuals, companies or other DAOs) to coordinate their thoughts, efforts and resources transparently.
Like traditional companies, DAOs have:
- Bank accounts called “treasuries” that no “one person” has the authority to access without the approval of the group.
- Formal governance. Decisions are governed by proposals and voting to ensure everyone in the organization has a voice.
- Stakeholders who participate in that governance
In essence, the truest form of a DAO is one that runs completely and autonomously according to rules encoded through its programming, eliminating the need for human intervention or centralized coordination and making it a truly “trustless” system.
Dreams versus reality
The goal of creating a truly trustless DAO is laudable and is the ultimate objective for many projects. However, reaching the promised land of the trustless system is fraught with significant challenges.
First, there are the technical challenges of creating a secure and robust code base that allows for the smooth running of the DAO.
Secondly, there are the difficulties of keeping the DAO relevant, responsive and agile in the rapidly evolving landscape of the blockchain world.
Finally, all DAO’s, irrespective of their purpose, are essentially susceptible to the same high-level challenges as they grow:
1. How to make it easier for participants to make meaningful contributions
2. How to maintain operational efficiency as they decentralise
3. How to coordinate decision-making at scale
Points to Avoid
The worlds of DeFi and Crypto move at a breakneck pace. The challenges that a DAO faces today will likely be very different in only a few months. There is a very real possibility that “true” community governance is just too slow for the pace at which this space evolves and will result in competitive disadvantage.
Also of concern for many, is that on-chain voting mechanisms (especially those practicing direct democracy via coin voting) devolve into a plutocracy due to voter apathy and the chilling effect that large token holders can have on governance. A single large vote can often represent more weight than potentially thousands of engaged and enthusiastic community members. Governance tokens are for governing, and this is what gives them inherent value. However, this same mechanism can lead to secondary money markets for buying votes, buying power, and ultimately buying the future of a DAO.
Another potential negative of on-chain voting schemes manifests in the form of “no checks” on power if there are voting outcomes that seem to defy the common good. Some individuals might be driven solely by profit maximization, for example, while the broader community goal is that of protocol security, ecosystem growth, community development and innovation.
Governance can also create unintended side effects. For example, formal governance systems can encourage action versus inaction, even when inaction is superior.
The above all need to be carefully considered when planning for the future of the yAxis DAO.
The yAxis DAO
Like many DAO’s, yAxis has its own governance token, and it is the ownership of these tokens (YAXIS) that lets community members have their say in the running of the project.
Ultimately there will be a circulating supply of 11 million YAXIS that confer voting rights to holders. At present, DAO voting is carried out through Snapshot, with the team favouring quadratic voting in an effort to lessen the voting power and influence of YAXIS “whales”.
A succinct way of describing the current state of the yAxis DAO is “in its adolescence”. The yAxis DAO is far from being fully mature, yet it has most definitely passed through its infancy.
The DAO has a fully functioning voting system, with Community members regularly voting on proposed protocol changes, such as token emission rates and the addition of new strategies.
The vociferous yAxis Community actively debates the pros and cons of proposed protocol changes and community sentiment is most definitely considered when decisions are made. Community members are also free to propose protocol changes, which can be brought to a DAO vote.
But, we do need to make improvements to the DAO’s mechanics, including streamlining and standardising processes, whilst also boosting engagement and educating the community on the importance of a DAO.
The aim of this document is not to propose a definitive path forward. It is written with the intent of igniting community discussion and discourse.
Our goal as a team is to hand over control of the protocol to the community, and to do it in a way that does not affect the efficacy of the project by miring it down with excessive bureaucracy. We need to design a well-governed entity that can provide both technology and community solutions for the continued successful evolution of the ecosystem.
With the above in mind, a future iteration of the yAxis DAO would likely fall into one of the three broad DAO categories listed below.
1: A fully decentralised, fully autonomous, algorithmically managed and trustless DAO where ALL decisions are made through rigid, pre-defined processes characterized by proposal submissions, followed by community debate and finally an on-chain binding vote.
2: A more centralized, member managed, governance mechanism, whereby a close, trusted network of team members governs the majority of the protocol decisions in a nimble and efficient manner. It could be argued that yAxis presently sits in this category.
3: Hybrid governance structure that gives stakeholders a legitimate say in the running of the protocol, whilst also maintaining the ability to enact speedy governance decisions under certain conditions.
Current market sentiment suggests that a hybrid approach is likely required in order for a DAO to have long term viability.
For a DAO to be successful it must embrace and promote community input whilst also retaining the ability to act in an expedited manner when necessary. With that in mind a Hybrid DAO model might have the following features and “participants”.
1: Voters — stakeholders.
This category encompasses the entire YAXIS token holding community, who, through YAXIS ownership participate in protocol votes and in doing so, decentralize the decision-making process of the DAO.
2: Champions — Governors — Council — Policy Committees (Terms to be defined)
A potential hybrid governance model could center around a democratic structure with multiple semi-independent governing bodies (Councils — Policy committees).
Each committee would have its own members, its own goals, and its own operational structure. These multiple committees would allow individuals to contribute in their respective areas of specialty and or interest.
Examples of policy committees / governing bodies might include.
- Engineering — Development and Innovation
- Product — Vault/strategy proposals and management
- Marketing -PR
- Business development — partnership outreach
Prospective committee members would first be required to apply for “Governor/Champion” status, with acceptance being confirmed through democratic elections.
Sitting above, and having oversight of the policy committees would be the Champions Table. The Champions table would consist of Governors that YAXIS Token holders elect at defined and periodic intervals. Members of the Champions table would be responsible for voting to pass or block YIP’s (yAxis Improvement proposals) brought to the Table through the work of the various Policy Committees.
A single member of the Champions Table would act a Protocol President. The President would be elected from within the Champions table, requiring majority members’ support. The President would, in effect, be responsible for the overall strategic direction of the protocol.
System Override and CYIP’s (Community yAxis Improvement Proposal)
CYIP’s would represent a mechanism whereby, if there was a fundamental disagreement between the Champions Table and the yAxis community, structural changes to the nature of the DAO could be proposed and then voted upon.
The community would have the ability to overrule the Champions Table by reaching a quorum (over 50% of circulating supply voting in favour of a proposal) with a Community yAxis Improvement Proposal (CYIP).
3: Growth / Development fund
As mentioned earlier, there needs to be some level of expediated and coordinated decision making so that the running and execution of the yAxis project remains efficient, responsive and competitive within the market.
With this in mind, yAxis might consider the creation of a designated Growth — Development Fund that would be designed to efficiently allocate a portion of Treasury tokens to growth opportunities and for operational expenditure.
The DAO would decide what decisions fall within the remit of the development fund and which decisions do not fall within the remit of the development fund, and would, therefore, require a formal DAO Proposal and voting process.
The remit of the Development / Growth Fund and its “elected” Managers would be decisions involving growth opportunities and operational expenditure related to the the long-term development of the yAxis DAO, including:
- Engaging contractors and new team members / service providers, to perform certain services on behalf of the yAxis DAO. For example, developers and auditors;
- Engaging professional services to support the operational and strategic decision-making of the DAO. For examples, lawyers, accountants marketing professionals, etc;
- Engaging advisors to support operational and strategic decision making of the DAO.
The development fund would be managed by democratically elected parties with the “Funds” assets being deployed through MultiSignature Wallet (MultiSig) approval. Development Fund Managers would have their own DAO approved budget, they would be required to report to the Champions Table and provide periodic transparent financial records detailing all “Fund” expenditure.
The characteristics and functionality of DAO’s within the blockchain space are changing rapidly. When thinking about the future of the yAxis DAO we need to consider many different factors. And we also need to be realistic about what is best for the future of yAxis and for all the stakeholders.
We need a DAO that is suitably responsive to community sentiment but also exhibits sufficient flexibility so that it can evolve in parallel with the continuing evolution of the blockchain space. We also need to be cognizant that decisions taken by the yAxis community now may need to be modified as the yAxis project grows.
The yAxis team would like to encourage all community members to contemplate the nature of DAO’s. We would like everyone to consider what the ideal form of a DAO would look like and what features it would possess. Then, let us know those thoughts and let’s have an open discussion, and let’s build, design and implement a next generation DAO that we can all be proud of.