On Fairness Concerns in the Blockchain Ecosystem: Voting power distribution to amend smart contracts

Table of Links

Abstract/Zusammenfassung

Publications

Acknowledgements

CHAPTER 1: INTRODUCTION

1. Introduction

   1.1 Overview of thesis contributions

   1.2 Thesis outline

CHAPTER 2: BACKGROUND

2.1 Blockchains & smart contracts

2.2 Transaction prioritization norms

2.3 Transaction prioritization and contention transparency

2.4 Decentralized governance

2.5 Blockchain Scalability with Layer 2.0 Solutions

CHAPTER 3. TRANSACTION PRIORITIZATION NORMS

3. Transaction Prioritization Norms

   3.1 Methodology

   3.2 Analyzing norm adherence

   3.3 Investigating norm violations

   3.4 Dark-fee transactions

   3.5 Concluding remarks

CHAPTER 4. TRANSACTION PRIORITIZATION AND CONTENTION TRANSPARENCY

4. Transaction Prioritization and Contention Transparency

   4.1 Methodology

   4.2 On contention transparency

   4.3 On prioritization transparency

   4.4 Concluding remarks

CHAPTER 5. DECENTRALIZED GOVERNANCE

5. Decentralized Governance

   5.1 Methodology

   5.2 Attacks on governance

   5.3 Compound’s governance

   5.4 Concluding remarks

CHAPTER 6. RELATED WORK

6.1 Transaction prioritization norms

6.2 Transaction prioritization and contention transparency

6.3 Decentralized governance

CHAPTER 7. DISCUSSION, LIMITATIONS & FUTURE WORK

7.1 Transaction ordering

7.2 Transaction transparency

7.3 Voting power distribution to amend smart contracts

Conclusion

Appendices

APPENDIX A: Additional Analysis of Transactions Prioritization Norms

APPENDIX B: Additional analysis of transactions prioritization and contention transparency

APPENDIX C: Additional Analysis of Distribution of Voting Power

Bibliography

7.3 Voting power distribution to amend smart contracts

An inherent concern in the governance of blockchain networks revolves around the concentration of governance tokens among a select group of participants. This situation can potentially pose a threat to the protocol and compromise its integrity, especially if the voting power or authority to make important changes is proportional to the amount of tokens held by each participant. This issue was highlighted in the case of Balancer, a decentralized exchange (DEX) built on top of Ethereum. In this example, a user with a significant amount of governance tokens voted for decisions that were beneficial to the user but detrimental to the protocol (Haig, 2022). Therefore, this scenario of a minority holding a significant amount of tokens can lead to a centralization of decision-making power, which is contrary to the goal of decentralizing governance protocols.

While governance protocols in blockchains aim to eliminate (or at least minimize) centralized decision-making, our work reveals that Compound is not effectively achieving its intended goal. The distribution of tokens, which corresponds to voting power, plays a crucial role in determining the level of decentralization in a protocol. Our work highlights the importance of measuring and analyzing governance protocols to ensure that they are working as intended. In addition, this work motivates further research in this area. For example, our empirical evidence supports recent proposals to redefine voting power based on social rewards, such as a voter’s reputation or contributions to the protocol (Guidi et al., 2021; Liu et al., 2022; Sharma et al., 2023), or the use of a quadratic voting scheme, where voting power is calculated as the square root of the number of tokens held by voters (Buterin et al., 2019b; Lalley and Weyl, 2018).

In light of our findings, we argue for integrating these insights into the design of future governance protocols. There, we can effectively increase fairness and decentralization within these protocols. In addition, it would also be interesting to analyze other widely used governance protocols, such as Uniswap, to ensure that these governance protocols are truly decentralized.

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