Governance tokens have a massive impact on the Ethereum ecosystem playing a vital role in the operation of protocols in the billion-dollar Defi industry. Now the minority token holders can extract minimal utility from such tokens for two reasons (1) they cannot influence the votes (2) the significant share of such tokens don't provide any income. As a result, the fundamental value of such tokens for the minority holder is close to zero, and protocols face voters' apathy problem. The Power Pool is a protocol, offering a convenient solution for pooling governance tokens. It allows the token holders to lend, pool, borrow governance tokens, get income from that, and accumulate governance power in protocols based on Ethereum. The Power Pool's mission is to expand the utility of governance tokens to the end-users and provide a new level of coordination of decision making in the Defi ecosystem.
The decision-making is playing a central role in everyone’s life. No matter how serious decisions you make, you are personally affected by many choices of other entities like governments, corporations, financial institutions, and many others. Despite the democratic nature of developed societies, all of them de-facto are governed by influencers of different types – corporations, syndicates, and people with political influence and colossal capital.
The crypto industry and, in particular, the DeFi space is considered to be even more democratic and decentralized in decision-making and value distribution. On-chain governance mechanisms are regarded as a holy grail to make our industry sustainable and resilient. Recently it became evident that Defi in 2020 de-facto develops under the slogan “everyone gets a governance token” (from now “governance token” = GT). No doubts, a lot of crypto users are involved in dozens of “governance experiments” now with varying degrees of quality. Even third-tier and almost dead scammy ICOs try to become a “Defi startup” and introduce a governance token.
The main difference of nowadays hype from the previous ones (like ICO’s bubble) is that some platforms have dozens of thousands of users and billions of dollars of cumulative locked capital. So, governance questions become especially important when we are talking about vast amounts of money. These tokens are not useless (as they were in the ICO epoch) and play a vital role in the ecosystem. The total capitalization of governance tokens can be assumed as ~3-4 bln USD, and it snowballs. It is possible to make a bold prediction about the $25 bln valuations at the end of 2020.
The main question that arises here is the real monetary value of such tokens for different groups of stakeholders. If there is a significant economic activity on the protocol, the possibility of governing is valuable.
Digging deeper into the design and practical implementations results of governance tokens, some issues are evident:
As a result of both mentioned issues, seems that industry as a whole face severe consequences:
We developed an experimental protocol that probably can help to solve mentioned issues providing specials services for the holders of GTs: