Why Crypto Governance Sucks | Chase Chapman, David Phelps

The Current State of Crypto Governance

Crypto governance, as it stands today, is far from perfect. Many projects and protocols in the blockchain space have implemented governance systems with the intention of giving users a voice in decision-making. However, these systems often fall short of their intended goals. Chase Chapman, host of the "On The Other Side" podcast, points out a fundamental flaw in the current approach: "We think about governance as this design space that people give a shit about and I just think that's not really true for the most part."

This observation cuts to the heart of the problem. While the idea of decentralized governance is noble, the reality is that most users are not inherently interested in participating in complex decision-making processes. The current governance models often require users to vote on technical proposals or financial decisions that they may not fully understand or care about. This leads to low participation rates and, in some cases, governance decisions that don't truly represent the will of the community.

David Phelps, founder of Jokerace, adds another dimension to this critique: "When you switch it to the word contest, you realize, okay, wait, everything is contest. Your book thing is a contest, your election for president is a contest, but even every social media platform is a contest." This reframing of governance as a contest opens up new possibilities for engagement and participation.

Making Governance Fun and Engaging

One of the key insights from the discussion is the need to make governance more engaging and even fun for users. Chase Chapman suggests that "we need to be thinking about governance a lot more as a feature than as a product itself." This shift in perspective could lead to governance mechanisms being integrated more seamlessly into user experiences, rather than being treated as separate, often burdensome, activities.

David Phelps takes this idea further with his platform, Jokerace. He explains, "It's an on-chain contest platform. And so you deploy a contest. Anyone can deploy a contest on our site to any EVM chain. And the way it works is you put a prompt out to a community. People can submit responses. People can vote on their favorite responses." This approach turns governance into a game-like experience, potentially increasing participation and engagement.

The concept of making governance "addictive" was also discussed, albeit with some caution. Chase Chapman notes, "If governance becomes addictive, we win basically." While acknowledging the potential ethical concerns, she argues that if users are going to be addicted to digital platforms anyway, it's better for them to be addicted to systems where they have actual power and influence.

Learning from Social Media and Gaming

To improve governance systems, the crypto space could learn valuable lessons from social media platforms and games. These systems have successfully created addictive experiences that keep users engaged for hours on end. David Phelps points out, "You want to play a hard game that is challenging, that like raises your heart rate and that is like gives you anxiety that you don't know if you're going to win or not. Like that is what a fun game is."

By incorporating elements of competition, social interaction, and reward systems, governance platforms could potentially increase participation rates and create more dynamic decision-making processes. However, it's crucial to balance this gamification with the seriousness of the decisions being made, especially when it comes to managing large amounts of capital or making significant protocol changes.

The Importance of Context and Identity

Another critical aspect of improving crypto governance is understanding the importance of context and identity. Chase Chapman highlights this: "I think contextualizing identity and the ability for users to control what is shared and what contexts and in what applications and with who is something that people say all the time, but that I think from a like purely human centric perspective also feels like it matters a lot moving forward."

This perspective acknowledges that users may want to present different aspects of their identity in different contexts. A person's behavior and decision-making process might vary significantly between a financial governance decision and a social community decision. Future governance systems should be flexible enough to accommodate these nuances.

The Role of On-Chain Data and Reputation

On-chain data and reputation systems could play a crucial role in the evolution of crypto governance. David Phelps explains, "You can imagine, I never went to contest, but I participated in so many that I've actually gotten more votes than anyone else has combined. And like down the line, when people are deciding they want to do air drops or they want to, you know, give access to builders or they just want to dig into data about who their users are. Like that on-chain reputation that you've built is really, really valuable to you, even if you don't win that specific contest."

This approach could create a more nuanced and fair governance system, where influence is earned through consistent participation and valuable contributions, rather than simply through token ownership. It could also provide a richer dataset for understanding community preferences and behavior, leading to more informed decision-making.

The Challenge of Financialization

While discussing the potential of new governance models, both speakers acknowledged the challenges posed by the financialization of governance tokens. The ability to buy influence in a governance system can lead to centralization and misaligned incentives. Chase Chapman notes, "I think to me, the thing that I've been thinking about in the identity space is the whole thread situation where Instagram launched, Facebook launched threads, they also own Instagram. And so your initial social network on threads was seeded basically through Instagram."

This example illustrates how existing power structures can be reinforced even in seemingly new systems. In the crypto space, this could manifest as wealthy individuals or entities accumulating governance tokens to control decision-making processes. Balancing the need for financial incentives with fair and decentralized governance remains a significant challenge.

The Potential of Layer 2 Solutions and App-Specific Chains

The discussion touched on the potential of Layer 2 solutions and app-specific chains to improve governance systems. However, Chase Chapman cautioned against viewing these technical solutions as a panacea: "You cannot L2 your way to PMF (Product-Market Fit)." This statement emphasizes that while technical improvements are important, they cannot substitute for creating genuinely valuable and engaging user experiences.

That said, the reduced transaction costs and increased scalability offered by Layer 2 solutions and app-specific chains could enable more frequent and granular governance decisions. This could allow for more responsive and adaptive governance systems that can evolve quickly based on community needs and preferences.

The Role of Crypto in Global Financial Inclusion

An important point raised during the discussion was the potential for crypto to enable financial inclusion for the unbanked population globally. David Phelps emphasized this: "The opportunity for crypto, we know this is the unbanked. It's all the people around the world who don't have access to an international finance system. And we finally create an international finance system that can be inclusive and include everyone around the world with internet."

This perspective serves as a reminder of the transformative potential of blockchain technology beyond just creating new financial products for those already well-served by the existing system. Governance models that can accommodate and empower these underserved populations could lead to truly revolutionary changes in global finance and decision-making.

The Future of Digital Communities and Network States

The conversation also touched on the concept of "network states" and digital communities. While acknowledging the potential benefits of digital-first communities, both speakers expressed skepticism about some of the current approaches. Chase Chapman noted, "I think that the, I'm very much aligned with his approach on a lot of that stuff, which is basically like the underlying reasoning behind why the network state might be interesting, i.e. like nation states are failing us. These things are not necessarily designed for like the digital spaces that we spend so much of our time in."

However, they also pointed out potential pitfalls, such as the risk of creating exclusive enclaves for the wealthy rather than inclusive global communities. The ideal future would involve digital communities that can leverage the benefits of blockchain technology to create more equitable and participatory governance systems, without replicating the flaws of existing power structures.

The Need for Experimentation and Failure

Both speakers emphasized the importance of experimentation in developing new governance models. David Phelps noted, "I do think there's a way where you look at like 90% of them failing it like that's a very good thing. That means that like you've enabled tons of experimentation. You've been able to try every version of it. It's like evolution."

This willingness to embrace failure as a learning opportunity is crucial in an emerging field like crypto governance. By trying many different approaches and learning from both successes and failures, the community can iteratively develop more effective and engaging governance systems.

The Importance of User-Owned Internet

Throughout the discussion, the concept of a "user-owned internet" emerged as a guiding principle for the future of crypto governance. Chase Chapman explained, "I think if we don't have the ability to exit these systems, we should at least have a voice in them." This perspective emphasizes the need for governance systems that give users real power and influence over the digital spaces they inhabit.

The goal is to create systems where users are not just consumers of digital products, but active participants in shaping the rules and direction of these platforms. This aligns well with the core ethos of blockchain technology and could lead to more equitable and user-centric digital ecosystems.

Balancing Addictiveness with Ethics

While the speakers advocated for making governance more engaging and even addictive, they also acknowledged the ethical concerns this raises. Chase Chapman noted, "I think there's like definitely a, again, a dark pattern here that you want to be careful about. But I think we need to start using some of these like more questionable practices on the internet."

The challenge lies in creating systems that are engaging enough to drive participation, but not so addictive that they become harmful to users. This requires careful design and ongoing evaluation of the impacts of these systems on user behavior and well-being.

The Role of Narrative and Storytelling

An interesting point raised during the discussion was the importance of narrative and storytelling in driving engagement with governance systems. David Phelps observed, "Even collective movements to succeed need to have characters and figures and like relatable, like voices that people get really into and are excited by."

This suggests that effective governance systems might need to incorporate elements of narrative and personality to create emotional connections with users. This could involve highlighting the stories of active community members, creating engaging content around governance decisions, or developing mascots or avatars that represent different aspects of the governance process.

The Potential of Crypto for International Cooperation

One of the most exciting possibilities discussed was the potential for crypto governance systems to enable new forms of international cooperation. David Phelps highlighted this when discussing Solana: "Solana is, is the international chain, right? The one that doesn't know boundaries and can include everyone."

This global, borderless nature of blockchain technology could allow for governance systems that transcend national boundaries, potentially enabling new forms of global decision-making and resource allocation. This could be particularly powerful for addressing global challenges that require coordinated action across multiple countries.

The Importance of Onchain Literacy

As governance systems become more complex and integrated into various applications, the importance of "onchain literacy" becomes crucial. Chase Chapman notes, "I think we're getting a lot closer to making these things more accessible and making it easier for people who, you know, might skew more towards the like, I don't give a fuck, but are now able to like verify what types of contracts they're using and what the interactions between those contracts are."

Improving onchain literacy involves not just educating users about how blockchain technology works, but also providing tools and interfaces that make it easier for users to understand and interact with onchain data. This could include visualization tools, simplified contract explorers, or AI-powered assistants that can explain complex blockchain interactions in simple terms.

The Role of Passive Governance

An interesting concept that emerged from the discussion was the idea of "passive governance." Chase Chapman explained, "I think that we're going to have two types of governance emerge. One is passive and one is active, where passive is to your point, like Twitter, the like, right? Like TikTok has their own governance of your personalized feed."

This suggests that effective governance systems might incorporate both active decision-making processes and more passive forms of user input. By analyzing user behavior and preferences, systems could make many decisions automatically while still reflecting the collective will of the community. This could reduce the burden on users while still maintaining a high degree of responsiveness to community needs.

The Challenge of Tribalism in Crypto

The discussion touched on the issue of tribalism in the crypto space, particularly around different blockchains. While acknowledging the potential benefits of competition and diverse approaches, the speakers also highlighted the drawbacks of excessive tribalism. David Phelps noted, "I know a lot of people who hold both ETH and Solana like both of those projects, as do I personally. I hope both those tokens. I love them both."

This perspective suggests that the future of crypto governance might involve more interoperability and collaboration between different blockchain ecosystems, rather than a winner-take-all competition. Governance systems that can bridge different chains and communities could play a crucial role in fostering this more collaborative approach.

The Importance of Authenticity in Crypto Communication

An interesting tangent in the discussion was about the importance of authenticity and humor in crypto communication. Both speakers emphasized the value of being genuine and not taking oneself too seriously, even when discussing complex technical topics. David Phelps shared, "For the first six months I was in Twitter, I never told a joke. I wanted to be taken seriously and it was getting like very little traction. And my friends are like, why do you go like this? Stick up your ass on Twitter. You know, like, why can't you be you?"

This approach to communication could have important implications for governance systems. By encouraging more authentic and relatable communication styles, governance platforms could potentially increase engagement and make complex decisions more accessible to a broader audience.

The Potential of Friend Tech and Social Tokens

The discussion touched on the recent phenomenon of Friend Tech, a platform that allows users to buy and sell "shares" in other users. While acknowledging the potential ethical concerns, the speakers saw it as an interesting experiment in combining social dynamics with financial incentives. Chase Chapman noted, "I think what FriendTech to me represents is a lot more of a broader strokes kind of attempt at making crypto in general fun and interesting."

This type of platform could provide insights into new models of governance that more closely align financial incentives with social capital and influence. However, it also raises important questions about the ethics of financializing social relationships and the potential for manipulation or exploitation.

The Need for Better Data in Web3

A challenge highlighted in the discussion was the current lack of rich, non-financial data in Web3 compared to Web2. David Phelps pointed out, "There's still so much less data in Web3, especially because all the data to data has basically been financial and there's been no social data developed compared to even just APIs you can pull from Web2 platforms."

Addressing this data deficit could be crucial for developing more sophisticated and nuanced governance systems. This might involve creating new types of on-chain interactions that generate valuable social and behavioral data, while still maintaining user privacy and control.

The Potential of Crypto for Creative Economics

An interesting point raised was the potential for crypto to enable new economic models for creators. The speakers discussed how blockchain technology could allow for more direct relationships between creators and their audiences, potentially disrupting traditional media and entertainment industries. This could have significant implications for governance, as it might lead to new types of communities organized around shared creative interests.

The Importance of Ethical Considerations in Governance Design

Throughout the discussion, there was an underlying theme of the need for ethical considerations in the design of governance systems. While the speakers advocated for making governance more engaging and even addictive, they also emphasized the importance of doing so responsibly. This suggests that the development of effective crypto governance systems will require not just technical innovation, but also careful consideration of the social and ethical implications of these systems.

The Role of Governance in Shaping the Future of the Internet

Ultimately, the discussion painted a picture of governance as a crucial factor in shaping the future of the internet and digital society. By reimagining governance as an engaging, user-centric feature rather than a burdensome process, the crypto community has the potential to create more participatory and equitable digital ecosystems. This could have far-reaching implications, not just for how blockchain projects are managed, but for how we organize and make decisions in digital spaces more broadly.

As the conversation concluded, it became clear that while there are significant challenges in improving crypto governance, there are also exciting opportunities for innovation. By learning from other fields, embracing experimentation, and keeping user needs at the forefront, the crypto community has the potential to develop governance systems that are not just functional, but truly engaging and empowering for users around the world.

Facts + Figures

• Chase Chapman is the host of a podcast called "On The Other Side" on the Blockworks Network and a contributor at Metropolis.
• David Phelps is the founder of Jokerace, an on-chain contest platform.
• Jokerace allows anyone to deploy a contest on any EVM chain, where people can submit responses and vote on their favorites.
• Friend Tech, an app on Coinbase's Layer 2 network Base, had over 136,000 users in a single week.
• The Mirror Write Race, mentioned as a successful example of crypto governance, was a weekly recurring contest where people competed to get a write token for a publication on Mirror.
• Chase Chapman argued that "You cannot L2 your way to PMF (Product-Market Fit)," cautioning against relying solely on technical solutions to achieve success.
• David Phelps suggested that "90% of them failing" in reference to blockchain experiments could be a good thing, as it enables extensive experimentation.
• Both speakers emphasized the importance of making governance more engaging and even "addictive" to increase participation.
• The speakers highlighted the potential of crypto to enable financial inclusion for the unbanked population globally.
• The concept of "passive governance" was introduced, suggesting that some governance could happen through user behavior analysis rather than active voting.
• The importance of "onchain literacy" was stressed, with a need for tools to make blockchain interactions more understandable to average users.
• The speakers criticized the current state of crypto governance, suggesting that most people don't inherently care about it in its current form.
• The potential of crypto to enable new economic models for creators was discussed, potentially disrupting traditional media and entertainment industries.
• Both speakers emphasized the importance of authenticity and humor in crypto communication, even when discussing complex technical topics.
• The concept of "network states" was discussed, with the speakers expressing skepticism about some current approaches while acknowledging the potential benefits of digital-first communities.

Questions Answered

What's wrong with current crypto governance systems?

Current crypto governance systems often fail to engage users effectively. Many projects assume people are inherently interested in governance, but in reality, most users find it boring or too complex. The systems often require voting on technical proposals or financial decisions that users may not fully understand or care about, leading to low participation rates and potentially unrepresentative decisions.

How can crypto governance be made more engaging?

Crypto governance can be made more engaging by treating it as a feature rather than a standalone product. This could involve integrating governance mechanisms seamlessly into user experiences, gamifying the process, and learning from addictive design patterns used in social media and gaming. The goal is to make participation fun and rewarding, potentially even "addictive," while still maintaining the seriousness of the decisions being made.

What role does identity play in improving crypto governance?

Identity plays a crucial role in improving crypto governance. Future systems should allow for contextual identities, where users can present different aspects of themselves in different governance contexts. On-chain reputation systems could also be developed, where influence is earned through consistent participation and valuable contributions, rather than just token ownership. This could lead to more nuanced and fair governance systems.

How can crypto governance systems be more inclusive?

Crypto governance systems can be more inclusive by focusing on the needs of the unbanked and underserved populations globally. This involves creating systems that are accessible and valuable to people who may not have access to traditional financial services. Additionally, governance systems should strive to bridge different blockchain ecosystems and communities, fostering collaboration rather than competition.

What are the ethical considerations in making governance more engaging?

While making governance more engaging is important, there are ethical considerations to keep in mind. There's a need to balance creating addictive experiences with user well-being. Systems should be designed to drive participation without becoming harmful to users. Additionally, the financialization of governance tokens and social relationships (as seen in platforms like Friend Tech) raises ethical questions that need to be carefully considered.

How can blockchain technology enable new forms of global cooperation?

Blockchain technology's borderless nature could enable new forms of international cooperation through governance systems that transcend national boundaries. This could potentially allow for global decision-making and resource allocation, particularly useful for addressing global challenges that require coordinated action across multiple countries. Platforms built on chains like Solana, which emphasize international accessibility, could play a key role in this.

What is "passive governance" and why is it important?

Passive governance refers to governance mechanisms that work in the background, analyzing user behavior and preferences to make decisions automatically. This is important because it can reduce the burden on users while still maintaining responsiveness to community needs. Examples include personalized feeds on social media platforms, which govern content distribution without requiring active user input.

How can onchain literacy be improved?

Onchain literacy can be improved by developing tools and interfaces that make it easier for users to understand and interact with onchain data. This could include visualization tools, simplified contract explorers, or AI-powered assistants that can explain complex blockchain interactions in simple terms. The goal is to make the underlying technology more accessible and understandable to the average user.

What role does authenticity play in crypto communication and governance?

Authenticity plays a crucial role in crypto communication and governance. Both speakers emphasized the importance of being genuine and not taking oneself too seriously, even when discussing complex technical topics. This approach can make governance more relatable and accessible to a broader audience, potentially increasing engagement and participation.

How can crypto enable new economic models for creators?

Crypto can enable new economic models for creators by allowing for more direct relationships between creators and their audiences. Blockchain technology can facilitate new forms of monetization, ownership, and engagement that bypass traditional intermediaries. This could lead to new types of communities organized around shared creative interests, with governance systems tailored to these specific ecosystems.