Educational Byte: What is On-chain Governance?

Especially in the context of cryptocurrencies, ‘governance’ is about making decisions about a certain platform, network, or coin. Since this is a decentralization-focused world, a governance model in which users’ voices are taken into account may be preferred by a lot of participants. Hence, the on-chain governance model was created.

On-chain governance is a way for a community from a certain crypto network to make decisions directly on the system itself, using a transparent (and automatic) voting process. Instead of relying on outside groups or central authorities, token holders (or network participants) can vote on important updates, rules, or changes to the network or similar systems by submitting their votes through transactions on the chain.

This voting is usually weighted by the amount of tokens each participant holds, meaning their influence matches their stake in the network. On-chain governance gives the community a decentralized way to help shape the future of their favorite platforms while keeping all decisions visible and secure. These platforms could include main chains, decentralized applications, and more.\

On-chain vs. Off-chain Governance

Of course, on-chain governance isn’t the only way to make decisions in a crypto network. Off-chain governance, opposing the on-chain model, happens outside the network, often involving discussions and decisions among key developers, stakeholders, and community members. Examples include community forums, social media debates, and meetings between developers.

While this allows for flexible and informal decision-making, it can lack transparency and might concentrate power among a few influential voices. Off-chain governance can be less structured, but it’s also sometimes faster to respond to urgent issues, as decisions don’t need to go through a formal voting process —at least not involving a high number of people. The people could be a risk factor, though. The implementation of off-chain governance decisions still involves people, and they might fail to do what is expected from them.

For its part, on-chain governance has significant advantages when it comes to fairness and transparency. It allows for a more direct, decentralized approach, where decisions are logged and open for anyone to vote and verify. This model helps prevent centralized control and gives regular token holders real power in the network’s future.

Its primary drawback could be that on-chain governance can be slow and costly due to network fees (depending on the network), and large stakeholders can sometimes have outsized influence. However, many platforms are working to make on-chain voting more accessible, helping ensure it remains a democratic process as the technology evolves.

Besides, unlike off-chain governance, on-chain governance often incentivizes participants by offering rewards, such as tokens, for voting on proposals or contributing to discussions. These rewards encourage active engagement from the community, ensuring that more users participate in decision-making processes.

On-chain Governance in Obyte

Over the years, the Obyte ecosystem has offered several decentralized apps (Dapps) that have their own on-chain governance systems including governance tokens. These assets allow users to vote on essential decisions affecting a specific platform or pool inside of it, while being rewarded. By holding these tokens, community members can influence changes like fee structures and reward distributions, making their participation valuable and rewarding. For instance, the DEX Oswap.io has its own governance token, OSWAP.

More recently, Obyte has introduced a robust on-chain governance system that enhances its decentralized structure. This allows the Obyte community to influence decisions regarding the main network parameters and the selection of Order Providers (OPs) —essential nodes that guide transaction ordering.

A website for on-chain governance is now available to vote on parameters like OPs, Threshold Size (oversize fee trigger), Base TPS Fee (calculation basis for TPS transaction fees), TPS Interval (TPS fee growth rate), and TPS Fee Multiplier (prepayment factor). Voting weight is based on GBYTE balances. By enabling users to vote directly on-chain using this system, Obyte promotes a more decentralized governance model, empowering the community to take an active role in shaping the network's future.

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