Ethereum co-founder Vitalik Buterin has taken a deep dive into token-based decentralized governance, suggesting that current voting mechanisms are flawed and could also be holding the DeFi sector again from realizing its full potential.

In a prolonged blog post printed Aug. 16, Buterin acknowledged the crypto group must “transfer past coin voting because it exists in its current type.”

Presently, nearly all of decentralized finance (DeFi) tasks handle their protocol upgrades, reward issuance, and different aspects of governance elections the place votes are distributed amongst token holders in response to the dimensions of their holdings.

Nevertheless, many tasks have come below hearth for permitting their voting course of to be dominated by whales holding huge swathes of the governance tokens, allowing them to vote in support of their personal interests.

Buterin highlighted two points referring to token-based governance, emphasizing the danger of incentives misaligning amongst group members, and its vulnerability to “vote-buying” and “outright assaults” influencing the end result of governance votes. He added:

“An important factor that may be achieved at this time is shifting away from the concept coin voting is the one legit type of governance decentralization.”

Buterin famous the prevalence of “unbundling,” whereby “vote-buying” might be achieved and governance methods might be manipulated by borrowing on crypto collateral and utilizing the tokenized property to vote.

Within the context of unbundling, “the borrower has governance energy with out financial curiosity, and the lender has financial curiosity with out governance energy,” he added.

Wanting past token-based governance, Buterin advocated the exploration of “Proof-of-Humanity”-based governance methods the place one vote is allotted per every of a protocol’s customers.

Buterin additionally supplied “Proof-of-Participation” as a attainable answer, the place voting is restricted to the customers of a protocol which have contributed work to the good thing about a challenge or its group, suggesting voting rights might be completely distributed to addresses that full a particular activity.

Ethereum’s co-founder additionally urged quadratic voting — the place the facility of a single voter is proportional to the sq. root of the financial sources that they decide to a choice — might provide distinctive options to decentralized governance.

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He additionally suggests a “pores and skin within the recreation” strategy that makes particular person voters liable for their choices, stating:

“Coin voting fails as a result of whereas voters are collectively accountable for his or her choices (if everybody votes for a horrible resolution, everybody’s cash drop to zero), every voter shouldn’t be individually accountable.”