Since its inception, the long term vision for the Balancer Protocol is to be fully governed by BAL token holders, while token ownership is aimed to be widely spread across the Balancer community.
But getting to that ideal, long-term vision of an actually decentralized and effective governance is no easy task. Protocol governance is a highly complex and rapidly evolving topic. The whole crypto ecosystem is still in the very early days of trying to figure out:
- which mechanisms and processes work best
- the necessary infrastructure, tooling and user interfaces that go with them
- the risks and concerns associated with each approach
Experimentation has been running wild in all directions:
- vote delegation,
- minimum quorum,
- specialized committees,
- continuous voting,
- augmented voting power via token lock,
- off-chain voting for signaling / polling,
- on-chain actions from off-chain voting by way of oracles,
- upgradeable smart contracts,
- time delays on sensitive actions,
- emergency actions via multisig (e.g. pause, shutdown),
- legal entities (e.g. foundation) providing support for the DAO,
- tools for DAO treasury management,
- token issuance to cover protocol expenses,
- incentivized voting,
- incentivized off-chain engagement (e.g. forum participation),
- and so on…
While also actively experimenting with governance-related initiatives, the Balancer community has leaned towards the more cautious and thoughtful approach of not trying to rush the path to full decentralization, so each step towards a mature on-chain governance will be taken with due care, having learned from others’ experiences.
Balancer V1 contracts are immutable, so up to now there were no core protocol parameters to tweak/change. Instead, our governance has focused on a fair, inclusive BAL token distribution, which is carried out mainly through the protocol’s liquidity mining. BAL holders have tweaked liquidity mining via off-chain voting. And to make that possible, BalancerLabs proudly developed in-house an open-source tool called Snapshot, which became the widely popular gold standard for off-chain voting in blockchain land. Snapshot was so successful that it’s being spun off as its own initiative so that it can keep up with the improvements required by all its users.
Balancer V2 contracts, on the other hand, are not totally immutable and do allow for some tweaking of the core protocol operation, for instance, in turning on protocol fees. As a placeholder for a future onchain DAO, such limited admin powers will be initially granted to a multisig.
First of all, a very important point: the multisig does NOT have decision making power, as its role is to simply enact on-chain the decisions BAL holders make via off-chain voting.
It will be deployed using Gnosis Safe, the most battle-tested multisig contract on Ethereum. Its n-of-m configuration will start as 6-of-11. Both parameters n and m may evolve and are ultimately defined by BAL holders with protocol security in mind.
Balancer’s multisig signers are a diverse set of widely respected community members. These are the initial signers:
- Alexander Lange (Inflection)
- Ash Egan (Accomplice)
- Davis Ramsey (pools.vision)
- Fabien Marino (Snapshot Labs)
- Jake Brukhman (CoinFund)
- Kain Warwick (Synthetix)
- Kevin Owocki (Gitcoin)
- Mariano Conti (Ethereum)
- David Hoffman (Bankless)
- Trent McConaghy (Ocean Protocol)
- Cooper Turley (Fire-eyes)
Beyond those current signers, the community should strive to keep a short, ordered list of potential signers in order to make any eventual signer substitution as smooth and timely as possible.
During its lifecycle, the operation of the multisig is expected to gradually evolve towards requiring less and less trust, for instance by using SafeSnap (which binds the results from Snapshot off-chain BAL voting to on-chain execution with the help of Reality.eth oracles). Balancer has been an early supporter of SafeSnap.
In the long run, BAL holders are expected to retire the multisig in favor of a full-fledged Balancer DAO.
All signers are expected to create an Ethereum transaction ratifying each decision made by BAL holders through snapshot votes. This signature is expected to be done within the two weeks after the snapshot vote was concluded. Even after quorum is reached (by n signers), the remaining signers are also expected to sign before a multisig action is executed. This procedure aims to regularly confirm each signers’ conformity to the off-chain votes and also to serve as recent proof of their ability to sign.
A signer shall lose his/her role (by action of the remaining multisig signers excluding him/her) in case he/she:
- acts against BAL token holders’ off-chain voting;
- goes through 3 months or 2 votes (whichever takes longer) without performing any of their signer duties.
V2 smart contracts can grant some specific powers to an “admin” address, which will initially point to the multisig’s address.
These powers are:
- set a share of swap fees to be diverted to the protocol (hard capped at 50% of the swap fee);
- set a flashloan fee;
- set a withdrawal fee to be charged by the protocol when an LP extracts tokens from the vault outside of a swap or when internal balances are withdrawn from the vault (the maximum withdrawal fee possible is 0.5% or 50 bps);
- extract from the vault collected protocol fees and/or excess balances (e.g. airdrops), to any destination;
- set the address of the oracle implementation;
- pause/resume swaps on all pools before a 4-month-after-launch deadline, after which Balancer V2 becomes unstoppable;
- set relayer addresses: relayers are (user opt-in, audited) contracts that can make calls to the vault (with the transaction “sender” being any arbitrary address) and use the sender’s ERC20 vault allowance, internal balance or BPTs on their behalf;
- set dynamic-fee controllers: addresses (initially assigned to Gauntlet) that may change the swap fee for pools created by the dynamic-fee pool factory that will be deployed by Balancer Labs.
It’s worth highlighting that the multisig will not have custody of (nor control over) funds from liquidity providers that lie inside Balancer Protocol contracts. Balancer V2 was designed so that even if the multisig goes rogue, all the liquidity is safe and can be withdrawn by their rightful owners.