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Token-based Decentralized Governance Is Holding Defi Back, Says Vitalik Buterin

Ethereum co-founder and lead developer Vitalik Buterin took a deep dive into the existence of token-based decentralized governance, claiming the system was flawed. According to Buterin, the existing voting mechanism is flawed, and they are preventing the decentralized finance (Defi) sector from reaching its full potential.

The Canadian programmer explained in a lengthy blog post published on Monday, explaining the reasons for the crypto community to innovate further than its current. The bottom-line of the blog post indicates that the current coin voting system is flawed and lacking in several key aspects and that the community needs to move beyond its current form.

Buterin highlighted two major issues related to token-based governance. He emphasized the risks of incentives, and how they are not aligned among community members, adding the system was vulnerable to outright attacks from hackers, while also being at the risk of rigging the vote mechanisms due to vote-buying. These risks influenced the results of governance votes, as Buterin stated.

The Ethereum co-founder made it clear that coin voting was not the only legitimate form of governance decentralization. He urged the community to move away from that mechanisms as it is flawed.

The majority of Defi projects manage their platforms and other facets of governance elections with votes. The token-based governance provides votes to token holders, distributing the votes according to the size of an individual’s holdings.

Buterin’s claims may hold true as many projects have been in hot water got allowing their voting process to be ruled by whales. Since whales hold a vast amount of governance tokens, it makes sense for them to influence the voting process, and only cast votes if it supported their personal interests, rigging the overall process as Vitalik Buterin speculates.

The Ethereum co-founder has noted how the occurrence of vote-buying can be achieved, and the governance systems can be manipulated. He explained that by borrowing on crypto collateral and using tokenized assets to votes, the outcome of the governance system can be changed.

In the post, Buterin suggested the use of “Proof-of-Humanity” governance systems in which one vote is allocated per each protocol user.

He also suggested the use of quadratic voting, and the “Proof of Participation” system, the latter offering voting privileges to limited users. Buterin also suggested a “skin in the game” tactic that holds individual votes accountable for their decisions.

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