Compound, a financial decentralized app running on ethereum, has removed the ‘guardian,’ with no one now having any say over $100 million worth of assets but the COMP token holders.
Following months of testing and some audits, a passed code proposal is now passed, no ifs, no buts.
Since the Slockit DAO hack in 2016, dapps have used a fail-safe mechanism, a backdoor basically with someone having total control and say over everything within the dapp.
Compound has set the guardian to be an address that has no known private key and no possibly known private key. Address zero, the ethereum network itself, the nodes.
In a fairly detailed description of the new governance, they specify how you can put forth new code if you have 100,000 comp tokens, with at least 400,000 tokens required to vote out of a total 10 million.
If the proposal passes, anyone can send it to the two days cooling off period and then activate it. This you’d think would be so that if there’s some bug or it has somehow been gamed, the token holders can revert.
That’s not the case however. This cooling off period of two days is so that according to Robert Leshner, a Chartered Financial Analyst and founder of Compound:
“If people vote to raise interest rates to 40% and you hate it, and you’re borrowing, you have time to stop using the protocol before the change goes live.”
So if a proposal passes then it passes, there’s nothing anyone can do about it even if say some huge bug is found in those two days, he was asked, with Leshner simply stating: “Right (although the creator can cancel it).”
Some 50% of these tokens have been kept by Compound Lab shareholders or the founding team.
According to an April statement, 2,396,307 COMP has been given to their shareholders, which includes Andreessen Horowitz, Coinbase Ventures, Bain Capital, and others.
Another 2,226,037 tokens have gone to the founders and team and are subject to 4-year vesting.
Another circa 400,000 is for future team members, and close to 800,000 is “for the community to advance governance through other means — which will be announced at a future date.”
Some 4.2 million has now began distribution to the dapp users, with it sent to a Reservoir contract to be distributed at 0.50 comp tokens for each ethereum block in a 50/50 share between borrowers and lenders.
Those comp holders can then delegate their voting rights to reach the threshold requirement of 100,000 tokens for a proposal address, and then if a majority agrees they can order their ‘business’ to do whatever they want.
“The point is for the protocol to run without us; don’t rely on our team to develop the protocol or being a necessary middleman,” Leshner says, so describing an old idea that hasn’t actually been fully applied until now.
Because these dapps are basically just code and because a token can be a way to fully prove ownership, you can have direct governance in the runnings of a digital ‘company’ without requiring the execution or the enforcement of that governance by any one individual or board of directors.
Making the token holders literally the owners, rather than beneficiaries, as they have full control on all aspects.
Here the distribution is somewhat concentrated with the Compound Labs shareholders and team having 50% of tokens and therefore half the say, but even in this setup – which is somewhat common in the traditional world where founders keep 50% and investors the other 50% – this is a novelty as everyone has to follow the actual process.
They have bound themselves to the code, and thus any action they want to do has to be a public action, and there has to be public approval for or against it, without a key that can just overrule all of this.
Dealing with public code also means dealing with all the Nakamotos across the globe who can read it potentially better than you can.
As anyone can order, the Nakamotos can too, and the code will follow their orders just as anyone else’s. So a little bug can be the end of a project, which is why dapps usually have an overruling key.
But Compound has been running for two years and in that time they have now apparently reached the stage where they don’t think they need an overruling key, with the guardian removed and the token holders so being the only kings.
Making this very edgy, and a jump into potentially even a new era in the ethereum space as this idea of us owning code businesses starts becoming a thing once more.
Last time it was tried it was far too soon, but this time it may well work, and if it does, then a vast new space is opened where we own the code.