Part 5 of our 7-part series with the team at BlockScience features a conversation with Eric Christopher Alston, a contributor to BlockScience as well as a Scholar in Residence at the University of Colorado at Boulder, and Kelsie Nabben, Lead Social Scientist at BlockScience. They delve into a variety of areas, including:
- Defining “governance” and contextualizing its importance within groups
- Identifying current challenges and opportunities within the governance space
- Acknowledging prospective vulnerabilities in governance
- Sharing strategies for creating and maintaining resilient governance systems
- Discussing some emerging governance methodologies and practices
Eric Christopher Alston (EA) is a Scholar in Residence in the Finance Department of the University of Colorado at Boulder. He studies digital governance systems, with a focus on governance of distributed blockchain networks. His research has led to a number of applied opportunities to advise DAOs and other distributed systems on their governance.
Keslie Nabben (KN) is the Lead Social Scientist at BlockScience and a Ph.D. researcher at RMIT University in Australia, where she works on resilience in decentralized technologies.
The interview was conducted by Eugene Leventhal, Executive Director of SCRF.
Audio: Spotify, Apple, Spreaker
Video: YouTube
Key takeaways from the conversation:
What does the word “governance” mean in this context?
EA: The overarching goal of governance is rule-based ordering of people and natural resources, especially surrounding the problems that social groups tend to create when resources are scarce and there’s uncertainty about how to proceed.
KN: One answer to that question is conveyed by the word “governmentality,” which comes out of Michel Foucault. That’s a very broad definition referring to wherever and however governance is operationalized. Another definition comes out of institutional infrastructure and bears specifically on the people, processes, norms, and institutions that run in parallel with technology itself. Yet another definition comes out of the Metagov research community and talks specifically about governance interactions within such systems as solving societal problems or creating societal opportunities, and then seeing their institutions as context for those governance interactions.
One thing that Michael Zargham and others at BlockScience have developed is the idea of a “governance surface,” which basically takes Foucault’s idea of governmentality and combines it with control theory. It borrows the idea of a “control surface,” which defines the parameters of a cybernetic system, and applies that to governance. That yields the idea of a “governance surface,” the set of parameters through which an organization’s code can be modified, and where governance occurs within a decentralized, code-based system. It makes it explicit that someone is making decisions about governance; there’s nothing objective about it; it’s completely subjective. People are making choices about how to shape the field.
EA: When Kelsie and Zargam say “governance surface,” they’re often coming very close to describing what in public governance systems is called a constitution. There’s a set of things that are considered to be apart from the ordinary operations of a system—for example, the triggering of a constitutional amendment process. There’s a shell, Kelsie would probably call it a “surface,” that is relatively more rigid in the vast majority of human organizations. It’s a governance surface that defines the ordinary operations of a particular productive unit or group of individuals.
How does that compare with nation-states or the more traditional ideas that people might have about constitutions versus corporate organizations in blockchain settings?
EA: Part of the furor that surrounds blockchains is that they are relatively decentralized compared to the governance of traditional intermediaries, especially financial intermediaries. Distributed networks like those supporting Bitcoin, Ethereum, etc., actually display characteristics traditionally associated with public constitutional ordering. In this light, the private firm is more like a dictatorship and blockchain networks are much more like democratic constitutional ordering that we have come to associate with public governance contexts.
We’ve had a protean version of smart contracts for a long time: the default commercial rules applied to voluntary economic interactions among individuals. There is a human drive toward standardizing institutional terms to where they become increasingly “off the shelf.” One thing that’s so exciting about innovation in the smart contract space is precisely that we’re defining viable institutional terms that ideally can be replicated in other contexts. That’s directly analogous to the process of normalizing the way we treat commercial players in common law jurisdictions around the world.
KN: There’s a delineation between normative governance and legislative governance. If we look at on-chain governance, we can find the governance surface in what the smart contracts say. But that’s not the only place that governance occurs. People have ongoing conversations in Discord channels, on Discourse forums, the back-channeling and politics, and all the other ways that governance is represented in these systems.
EA: The design of a smart contract obviously matters, but the broader blockchain network within which that smart contract executes greatly defines the terms of that smart contract itself. What are easier to change: the terms of the smart contract, or the blockchain protocol? That’s an analogy to ordinary legislation versus constitutional ordering. Constitutional ordering is obviously harder to amend.
From an ideological perspective, blockchains represent an intention to have openness, bottom-up design, etc. To what extent is there a codification of culture in smart contracts, digital constitutions, and so on? Can these things ever be separated and studied individually?
EA: This is the subject of enshrining “culture” in protocols themselves. We have to assume that the terms of a smart contract represent individual interests sufficiently for those individuals to be entering into that contract. In that sense, the values of the community are revealed at the smart contract level. But it’s also true that a network’s protocol reflects the values of those governed by it. That’s the tension between a “small ‘c’” constitution (i.e., culture as understood by the members of a culture) versus that which is enacted in a formal document in public governance, or the formal protocol in distributed network order. There’s nothing in the U.S. Constitution that guarantees financial privacy, but the Constitution reflects deeply held values for social ordering that are more than what it can articulate at any particular moment. So there’s a constant and interesting tension between the values of the community and the constitution—or the distributed set of rules—that govern that community.
KN: Right. This is the difference between implicit and explicit constitutions, and that’s worth thinking about in the context of “code is law.”
How does blockchain governance compare to the much more familiar forms of state, corporate, or cooperative governance?
KN: Institutional economists look at economic governance in corporate systems and compare that to blockchain. That’s one specific framing, but it’s important to acknowledge the others. There are platform cooperatives, DAOs, and other kinds of participatory democratic organizations, data trusts and other new fiduciary stewards of people’s data.
AE: This gets to the potentially transformative nature of distributed network governance in practice. Institutional economists are saying, “This is potentially a massively important organizational innovation.” And then scholars of cooperatives, both ethnographers and others approaching this with various disciplinary lenses, are saying, “This is potentially really transformative.” That’s a testament to the promise as well as the challenges of working in this field. Traditional mechanisms of corporate governance emerged to ameliorate different incentive problems. One of those classic incentive problems was around how to align the interests of investors with the interests of the managers of their funds. Another set of problems surround information costs. For example, it’s gratifying that a manager can’t govern all of her investment funds precisely because she’s diversified to a level that prevents a single mind from exercising that governance. That may mean that this technology is transformative for certain applications but potentially not others.
This industry may be in a discovery phase where it’s exploring which extremely centralized, even dictatorial, forms of corporate governance still exist because they bring about deep underlying efficiencies, versus the forms that still exist because they are predicated upon old technologies that are not particularly efficient and which we can now get around because we have subsequent innovations. A lot of this DAO discovery process seems to be engaged in answering the question: Which forms of organizational activity now lend themselves to a more decentralized form of governance?
KN: The really exciting thing is the way these systems have evolved in less than 15 years. Satoshi might be rolling over in his grave, if he’s in one. Things have transformed so much since the early days of peer-to-peer distributive networks. It’s now moved well beyond economic infrastructure per se to social systems and spaces for artists and musicians to find collective belonging.
EA: As soon as you constitute an organization, everyone’s relative interests are fixed. This makes for really vexing challenges for any future rule changes because those changes will benefit some members and harm the interests of other members. Organizational change is costly precisely because it creates winners and losers. “Governance as conflict” is what governance is really all about. This often comes across as very pessimistic because the more that organizations evolve and produce disagreements among members, the more you need governance resolution of those questions. The viability of a system is its ability to adapt. Our institutions need to adapt because they cannot anticipate all unforeseen circumstances. The one certainty for governance is, unfortunately, uncertainty. This is called “incompleteness” in institutional scholarship, but in constitutional scholarship it gives rise to the need for amendment rules. How do you change your fundamental ruleset? Or to put it in the language of blockchain communities, how do you update your protocol?
Are there any concrete examples that might help answer the question, “How can I explore community ‘X’ and understand more of what’s going on from a governance perspective?”
KN: One example is a mixed-method vulnerability assessment of LidoDAO that BlockScience performed. Lido was a wildly successful first-mover in offering liquid-staking not only on Ethereum but also Cosmos, Polkdot, Solana and a number of other ecosystems. How do their procedures happen both in terms of change as well as consistency? The study employed ethnography, examination of their forums and social media accounts, and interviews with a number of team members and validators who participated in the DAO. It wasn’t a formal contract audit; it was closer to “what can we find in a limited timeframe?”
An interesting question that came up in that study was, “How do you capture the attention of a DAO?” If these are literally ephemeral communities of shared attention space, they might not know us or ever see us. But if every day, everyone is reading the same updates and posts, and exchanging topics in Discourse, then the researchers can credibly say, “We’ve done our vulnerability assessment, pointed to issues we’ve found, and now you need to think about what you want to address.”
Another interesting client engagement was with Project Wildland, which was devoted to building data containers in an attempt to reclaim digital sovereignty lost to centralized service providers. These were to be individually owned with a large emphasis on privacy and owning your own infrastructure. Wildland was proposing a governance model that works for user-defined organizations, and an economic system called “proof of usage.”
What does it look like to start the journey into one of these client environments? Do you map the ontology first and do some of the meta-level planning and thinking before doing anything else?
KN: Definitely the mapping of some of the concepts discussed today comes first. It’s looking at the animating purpose, and how it relates to the implicit and explicit constitutions. It’s looking at the various stakeholders and stakeholder interests, and what actions are available. How does participation in the system work? Is it membership-based? What are the rules of membership? How do people enter and exit? You can see some of these maps online, including some work for Gitcoin.
What makes this valuable is using this tool, or the information that is surfaced by it, as a feedback loop. And that comes out of the ideas of cybernetics and “second order cybernetics,” which concern how anthropology and computational engineering work hand-in-hand to let researchers look upon a system, look upon its participants and its designers, and then feed back those observations into the system to make it more self-aware or reflexive.
What are some of the most exciting governance research questions you expect to encounter as we move into the future?
EA: The discipline of a bear market. Things are great when there’s a steady influx of capital which defines governance on important margins. When are you likely to see more conflict? When resources in a particular community are scarce. In a general sense, market discipline means that winners emerge and losers fall away. The current bear market is going to be a fascinating one for governance because it means that conflict will emerge with more predictable periodicity. Therefore, it will be a proving moment for different governance systems on different networks. When they all have access to investment capital, and speculative retail investors are crowding in on every exchange they can, that’s not a context where hard decisions have to be wrought, by and large. But in a bear market, there is fruitful analytical material for governance scholars.
KN: Some of the dominant narratives around governance are going to be interesting to examine. For example, ideas about governance automation and governance minimization, and disambiguating what that actually means to people and to some of the other grounding concepts.
Another ongoing area of interest is the notion of “autonomy” as it is used in “Decentralized Autonomous Organization.” What does that actually mean? There has been very little dialogue on that, though a book called Anarchist Cybernetics by Thomas Swann sets out the differences between functional autonomy and collective autonomy, and Michael Zargham of BlockScience has recently done a presentation on that. Automation and AI figured in the original concept of DAOs, and obviously we’re not there yet, but the relation of humans to machines in governance, and how to rehumanize these things, are fascinating subjects to research and think about.