Crypto Governance and Obyte: Who Decides and What?

Imagine a world where no one has the power to control your money. A world in which the game's rules are decided by all those who participate in it, without intermediaries. Lovely, isn't it? But how could millions agree on managing money if it’s already difficult among a few? The concept of decentralized governance, the focus of this article, could answer that question.

Governance is about making decisions regarding the development and operations of a project. That ‘project’ could be an entire financial system. To understand how governance works in the crypto industry, we have to first understand a few concepts.

Decentralized Governance Models

First of all, we have the opposition between decentralization and centralization. That world mentioned earlier is only possible under the decentralized model. This concept is popular in the industry, and probably you've heard about it. Decentralization is the process of distributing and dispersing the power of a central authority.

On the other hand, the centralized model is the one we see in traditional institutions. Behind them, a private company, an agency, a third-party organization, or a state regulates, controls, and/or manipulates the system.

Two other important concepts are on-chain and off-chain governance. On-chain governance allows (as you probably guessed) all decisions to take place within the distributed ledger system. To make this possible, there are specific rules contained in the code that are applied automatically once the decision is made. 

Typically, nodes or stakeholders have voting power. That means some users may have more power than others, depending on how much they participate in the network. On-chain governance (automatic) can be as fast as traditional governance. Additionally, voting could be incentivized by on-chain rewards for participants.

For its part, off-chain governance (depending on human actors) may be more similar to traditional systems. Depending on the platform, the ultimate authority to implement changes could be in the hands of a few leaders. That could be a risk for the project, so, it’s recommended to choose the most decentralized option possible. 

Crypto platforms as NGOs (and not companies)

To favor decentralized governance, most crypto projects have decided to not register as companies owned by their founders, publicly-listed companies, or limited liability companies. This is because those models describe for-profit organizations; with objectives that go against the idea of decentralization.

For this reason, we see crypto projects usually registered as foundations (NGOs) because the foundation status links them to a cause and eliminates the profit motive, which better aligns the organization’s interests with those of the community. 

These organizations provide support in terms of development, education, and research, without enriching individual entities. This is crucial because it aims to balance the scalability, transparency, and security of a distributed network operating without a central authority.

Obyte Foundation, Grants, and Voting

Obyte is a distributed ledger based on a directed acyclic graph (DAG). It doesn’t have blocks or miners, and, as a decentralized digital system, it doesn’t have any leadership. Nobody controls it. That’s what decentralization means. However, apart from the ledger, there’s also a team and a legal foundation. 

There is not much to govern in the Obyte ledger in the first place. Users have an inalienable right to add new transactions and handle their funds, independently of any governance and those who participate in it. The governance is only applied to select the order providers (OPs) –well-known users whose transactions work as guides to order the DAG. OPs are selected after they meet some established requirements and the community votes, either by indicating the preferred order providers in their transactions or by voting in a poll (see below). 

The implementation of the community’s will is up to the existing OPs though, so the governance in Obyte has an off-chain component. The above applies to the network-wide governance. In addition, users of specific dapps might have governance rights in those dapps too, depending on how that system is designed.

Speaking about the team and the foundations, they are obviously off-chain entities, and they are responsible for the adoption of the Obyte technology and ledger. The Obyte Foundation was conceived under a decentralized premise. It’s a non-profit legal entity registered in Liechtenstein and led by Dr. Alexander Lins, Mag. Lucas Martin Mair, and Anton Churymov (Obyte founder). 

Its purpose is to foster the development and adoption of the platform and distribute the undistributed bytes (Obyte native currency) to useful projects. One such way is through grants. If projects apply for funding, the Obyte Foundation's Grants Committee will vote on whether to award it or not.

Projects eligible for funding must be open source and/or align with our values and goals, benefit the Obyte ecosystem, and generally respond to fairly strict rules about what the Obyte Foundation can use undistributed funds for. In addition, Dapps built on Obyte are more secure, easier to develop, and allow on-chain governance to be implemented. 

Anyone can organize a poll on the network. The poll organizer decides which votes are valid. Obyte doesn’t impose anything except the stipulation that the choices must be within the allowed set. Thus, the weighting of the votes and the interpretation of the results are also up to the poll organizer. The same is true about the implementation of the decision made in the vote.

To vote, depending on the Dapp, community users may need to acquire specific governance tokens. However, all GBYTE holders can vote on general network polls through the Chatbot Poll, available in the Obyte wallet. 

Governance Tokens in Obyte

Governance tokens exist all over the crypto industry and allow stakeholders to participate in the decision-making of a project. Hence, the community is often more involved in the project's success, as they’re directly affected by governance decisions and may get additional rewards for participation.

Voting through governance tokens can be used to implement changes related to fees, distribution of rewards among exchange pools, and even improve security. Owners of governance tokens are usually more invested in the project's success, as they stand to gain or lose more, depending on the outcome. 

They can use their holdings to influence the direction and features of the protocol. As such, it’s possible to implement changes related to the user interface, change fees, and reward distribution, or even modify the underlying code of a project.

There are multiple governance token options among the Dapps developed in Obyte. Let's see some of them.

Ostable

In Ostable, our advanced stablecoin protocol powered by bonding curves, there’s a group of people - the owners of SFUSD - capable of making governance decisions that would keep one of the stable currencies — OUSD — stable, liquid, and widely used.

SFUSD holders have the power to vote on adjusting the interest rate and other important parameters that affect the stability of the ecosystem. They also can vote on replacing the Decision Engine (DE) program that manages the fund. Also, SFUSD holders can vote to bring on a management team whose goal is to encourage the use of OUSD, which has a direct impact on the price of SFUSD.

Other stablecoins on Ostable have their own governance tokens. The decisions made in the votes are automatically applied, independently of any human actors. Thus, the entire governance process in Ostable is on-chain, both decision making and implementation of the made decisions.

Oswap Token

Oswap.io is the Obyte’s most important DEX, and its new governance asset is the OSWAP Token. Each holder of this coin can vote on its preferred distribution of rewards on liquidity mining pools. In addition, users can decide on the exchange fee, issuance rate, target appreciation rate, oracles, and other parameters that define the token.

Anyone can lock their OSWAP tokens between 14 days and 4 years to gain voting power. This also entitles the user to a share of the coin emissions. Longer lock-in periods generate more voting power and a higher share of emissions —higher rewards. Like Ostable, governance in OSWAP token is fully on-chain.

Oswap.io

Beyond the OSWAP Token, each pool on the Oswap.io DEX has its own governance. Holders of the tokens of each pool can suggest and vote on fees, interest rates, pool leverage, and more. For example, users that have deposited their tokens to the GBYTE-WBTC pool are stakeholders of this pool and they can vote on its internal parameters, even if they don’t own OSWAP tokens.

Again, governance in Oswap pools is fully on-chain.

 Counterstake Bridge

Using this protocol, users can exchange across different ledgers and import external tokens to Obyte. Community members with voting power are the holders of the tokens being bridged (imported or exported).

Thus, they can decide the ratio between the stake and the claimed amount, how much the stake grows in each subsequent challenging period, the minimum stake amount, the large threshold, and the challenging periods (in hours) for regular and large amounts.

Here again, governance in each Counterstake bridge is fully on-chain. 

In the future, the CS Token will serve as a native governance token in the Counterstake Bridge. It’s supposed to be designed to automatically decrease its supply as the platform gets more widely used. The more actively the protocol is used, the faster the supply would decrease, leading to token appreciation.

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This way, Obyte enables various governance models that allow the stakeholders to influence the direction of the Dapp they have a stake in. If you're a developer, you can decide what level of decentralization and what kind of governance system you want to implement in your apps. 

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