“Community-governed” or “community-controlled” sound like positive features for a DeFi protocol.
But, they’re actually really dangerous.
A true-DeFi protocol should be governance-free.
And I will explain exactly why.
Governance gives token holders voting power to steer a DeFi protocol's future direction.
For example, AAVE token holders can submit and vote on proposals to alter the lending platform.
Decentralized Autonomous Organizations (DAOs) like MakerDAO codify governance rules into smart contracts, creating a rule by token-majority over the DAI stablecoin.
Although this may sound like a decentralized and democratic process, it can actually turn into tyranny really quickly.
Governance in DeFi can go wrong in one important way.
A singular entity, such as a big bank, can buy the majority of a protocols’ tokens and obtain the majority voting share in the DAO.
Then, if the protocol contains such code, the majority shareholders can vote to change a protocols’ parameters to profit the centralized entity and harm the masses.
A proper analogy for this situation is how the control over the US dollar is held by a select few individuals.
These individuals can then variably change the rules of the US dollar via interest rates and supply inflation.
This leads to a small minority of wealthy individuals who are in the know to get even wealthier. Meanwhile, the large majority of everyday people are stolen from.
For a DeFi protocol to contain similar governance parameters is antithetical to philosophies of DeFi and crypto alike.
A governance-free DeFi protocol has no oversight or controlling entity.
It is entirely decentralized with no group able to modify rules or parameters.
A true DeFi protocol has no admin keys nor a decentralized autonomous organization (DAO).
A governance-free protocol side steps many issues that could arise due to having a governance-structure:
Liquid Loans is a fully-decentralized finished product with no admin keys or DAOs.
As a result, the parameters of the protocol are governance-free and cannot be changed.
This means that these features will remain the same as long as the Liquid Loans code is online:
The governance-free nature of the Liquid Loans protocol ensures a truly-decentralized lending, staking, and decentralized stablecoin-generating platform for all!
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Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.
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