Embracing On-Chain Governance

Vesper Finance
Vesper Finance
Published in
3 min readSep 12, 2023

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Excploring on-chain governance to improve protocol decentralization

Overview

Within DeFi, the call for decentralization grows louder by the day. The ability to provide passionate communities with more control and transparency is a system that serves the many, not just the few.

To answer this call, Vesper embarked on a progressive decentralization journey, with the plan to transition to on-chain governance with the launch of esVSP. This means a calculated, phased transition, rather than an immediate handoff.

But first, let’s take a look at what progressive decentralization actually is.

By definition, it is the concept that a project or protocol initially starts with centralized control in the hands of the founding team and gradually, in its journey of growth, relinquishes control to the community and moves toward full on-chain decentralization. It’s a mix of the collective’s voice with the safeguarding of the team’s experience. The beauty of this model lies in its balance as it enables the community to provide sentiment votes for their preferences, while upholding the security of the protocol.

Via veto power, the final decision might diverge even if a majority sentiment is expressed. It’s essential to understand that such deviations, although rare, are grounded in safety concerns, ensuring the protocol’s integrity and long-term sustainability.

What is On-Chain Governance?

In DAOs, on-chain governance stands out as a concrete step toward genuine user empowerment. It’s much like early stages of a progressive decentralization journey, where users vote to shape the protocol, but with a crucial change. In on-chain governance, votes directly lead to actionable outcomes, such as updates, upgrades, or bug fixes. These decisions are often protocol-specific and are firmly in the community’s hands, with no centralized entities intervening.

The term on-chain refers to the kind of governance where rules for instituting changes are embedded directly in the protocol. Using smart contracts, these rules govern and execute collective decisions. Every change made through this system is transparently logged on the blockchain, open for anyone to verify.

Ultimately, this means participation is a matter of choice, made by holding the governance token of the protocol. Your level of involvement is directly proportional to your token holdings, enabling you to decide your voting weight. This often ensures alignment between user interests and the protocol since participation requires holding and locking up for a duration of time.

In contrast to this system is traditional voting, which is limited by transparency, potential external influence, and accountability issues. With every action being recorded on-chain, manipulation becomes less likely, and maintaining accountability is easier to manage.

Traditional vs On-chain Governance — Source: NearWeek Medium

Key Benefits Of On-Chain Governance

Increased Transparency: On-chain governance means even more transparency than before where every vote is recorded on-chain, and every vote is counted.

User Empowerment: If you are passionate about changing the future of a protocol, then being able to vote in proposals that shape the future is an exciting concept.

Economic Synergy: Most protocols, including Vesper, don’t just provide voting capabilities for locking up tokens. Additional benefits usually come hand in hand, enabling the user to be actively incentivized while participating. In the case of esVSP, users will receive revenue share as a reward for locking up their VSP.

Seamless Upgradability: With the introduction of on-chain governance also comes seamless upgradability, where protocols can stay on top of what their community wants, where it also benefits the protocol itself.

Conclusion

The move to on-chain governance is more than just a technical shift, it’s a statement of trust in the community. For Vesper, the introduction of esVSP represents the start of this transition. It’s about giving real power to the users, ensuring transparency in every decision, and committing to a future where the community isn’t just along for the ride — they’re in control. This isn’t just the next phase for most protocols, it’s the next step for a more decentralized and user-centric experience.

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