Lido's dual governance scheme may be the first DAO to try to put a veto gate in its institutional design, however it is uncertain whether this scheme will be successful in achieving the stated goals.
Original title: "Ambition Made to Counteract Ambition: DAO Governance and Bicameralism"
Written by: Michael Li
Compilation: Kxp, BlockBeats
Introduction
One of Lido's last innovative governance proposals, a brilliant liquidity staking protocol, was largely underappreciated. The core proposition of the proposal is to support the "dual governance scheme", that is, in addition to LDO holders, stETH holders will also be given the right to govern the Lido protocol.
When we delve into the details of this proposal, we will find that although DAO has novel features such as "self-executing smart contracts" and "governance tokens based on permissionless blockchains", the core issue of governance will ultimately come down to the effective mechanisms. Construct.
Like the fine art of nation building, DAOs require a shared sense of purpose, cooperation, and a strong decision-making framework. These all involve navigating complex power relationships and balancing different interests in pursuit of common goals. In this article, we compare the dual governance scheme with the bicameral structure of the U.S. Congress, analyze their shared approach to checks and balances, and explore what makes each unique.
Lido's Dual Governance Proposal
Lido is a decentralized autonomous organization providing liquidity staking solutions for Ethereum. The Lido ecosystem is currently governed by its protocol token, LDO, which empowers users to vote on events, upgrades, and changes on the platform. The price of Lido's stETH derivative Token and ETH maintains a 1:1 redemption ratio, which represents the ETH holdings pledged by users.
Considering the huge amount of pledged ETH controlled by the protocol (6.17 million ETH, about $11.5 billion), Lido's core developers believe that they must change Lido DAO's governance model to resist moral hazard.
Therefore, the dual governance proposal aims to solve the principal-agent problem that arises in the current state of governance, where LDO holders (agents) may act in their own interests without regard to the interests of stETH holders (principals).
In this case, stakers are more concerned with the interests of the Ethereum network, while the interests of LDO holders are less aligned. In a worst-case scenario, LDO holders could even stage a heist and steal ETH staked in the smart contract, abusing their control over the liquidity staking code. This is because Lido DAO has the ability to upgrade the stETH contract to enable it to burn stETH from any address and mint it to other addresses. This means that while the DAO does not directly control the ETH backing stETH, it can, by modifying the code, steal funds from users, destroy their stETH and mint it elsewhere.
The dual governance scheme is designed to better align the incentives of both parties to ensure that such incidents do not occur. Under this scheme, LDO holders can still propose protocol changes, but stakers also gain veto power to reject proposals deemed to be "key governance decisions." This is critical to protect the interests of stakers and prevent governance from being taken over or the protocol out of balance.
The dual governance mechanism is designed to give active stETH community members time to react to controversial decisions. First, there is an execution time lock on all important decisions, giving the community the opportunity to express dissent through the Veto Escrow smart contract. If a small portion of the community (say 5%) disagrees, the governance mechanism will enter a temporary veto state.
If a significant portion of the overall stETH supply joins the upgrade process, governance will move to a veto negotiation state, allowing stakers to negotiate with governance. A successful negotiation will resume normal governance operations. However, if the negotiation fails or a majority of stETH supply joins the upgrade process, a global settlement will be triggered, dissolving the agreement and returning ETH to stakers.
Veto Lift Voting is a mechanism that allows stETH holders to allow certain governance decisions to be enforced in the event of a disagreement between LDOs and stETH holders. When governance is in a veto negotiation state, holders of stETH locked in Veto Escrow can initiate a vote with two possible outcomes: to lift the veto or not to lift the veto.
Voting will last for a fixed period of time, the initial two-thirds of the time allows voting to choose any result, and the last third of the time only allows voting to choose not to lift the veto. A successful vote requires a minimum quorum and more votes in favor of lifting the veto. If successful, the veto is lifted and the decision becomes enforceable; otherwise, the decision remains unenforceable. This two-stage mechanism will ensure fairness and prevent situations where a vote is suddenly overridden without a chance to react.
Bicameral – A bicameral legislature
Lido's dual governance scheme is designed to emulate the principle of a bicameral system, where the authoritative legislative body consists of two houses, or agencies.
A typical example is the US Congress, which consists of the House of Representatives and the Senate. In designing the structure of Congress, the Framers also faced the principal-agent problem, that is, the problem between elected officials (agents) and citizens (principals). The design of the bicameral system aims to prevent authority from being controlled by populist "mob rule" through the Senate, and at the same time prevent authority from being alienated from public opinion and from the general opinion of voters.
Of course, such a constitutional arrangement is not only the result of deliberate design, but also a historical inevitability, because it is deeply rooted in real politics and the tug-of-war between states with large and small populations. However, the Great Compromise of 1787 finally allowed representation in the House of Commons to be distributed according to population and representation in the House of Lords to be distributed equally among the states.
During the formulation of the U.S. Constitution, the framers intentionally designed the membership and scope of governance of the two chambers, and incorporated the principle of checks and balances of power to prevent abuse of power and protect civil liberties.
For example, the number of representatives in the House of Representatives is directly related to the population of each state, and representatives are elected every two years. By contrast, members of the Senate are appointed by state legislatures to six-year terms that are staggered so that one-third of senators are re-elected every two years. Additionally, each state has equal representation in the Senate, with two senators per state, regardless of population.
The Constitution gives the House of Representatives and the Senate a distinct scope of functions and powers. The Senate has power to ratify treaties and presidential appointments, while the House of Representatives has exclusive power to enact fiscal bills (tax laws). Ultimately, laws need to be approved by each legislature.
Dual Governance and Bicameralism
We can observe many similarities between dual governance mechanisms and bicameralism. At a higher level, they all alleviate the principal-agent problem through the coordination of interests and limit the power of the governing body by introducing checks and balances. On further research, we can see that bicameral and dual governance schemes are designed with four main features: 1) diversity of representation, 2) reasonable delay, 3) professionalism, and 4) predictability.
Diversity of representation: In the U.S. Congress, the Senate can limit the crazy actions of the people, and then check and balance the tyranny of the majority in the House of Representatives. In Lido, dual governance expands representative diversity by combining the interests of stETH holders with those of LDO holders. Here, stETH holders act as a defense mechanism to ensure that LDO large holders cannot control governance, thereby ensuring a more balanced decision-making process.
Reasonable delay: Bicameral and dual governance schemes add to the complexity of the governance process. In Congress, where a bill often needs to be negotiated between two chambers, in Lido's case, the introduction of a time-lock mechanism reduces the possibility of random changes, thereby curbing the ruling party's impulse to adopt quick solutions when dealing with complex issues. Of course, on the other hand, such a design may also lead to more deadlock, that is, the situation where no bill can be passed.
Professionalism: Hamilton and Madison make the following point in The Federalist Papers 62:
"A body called up by the majority from private activity, appointed for a short period of time, and having no lasting motive to devote the idle hours of public office to the study of the laws, affairs, and general interests of the state, cannot avoid the committed various important errors in the exercise of its legislative duties." (The Federalist Papers 62).
On the contrary, senators are more conducive to accumulating governance-related expertise and network resources because of their longer tenure. In fact, an important responsibility of the Senate is to review and improve matters originating in the House of Representatives. House members are closer to voters and can more accurately represent public opinion. For Lido's dual governance scheme, it is reasonable to assume that LDO holders are better at deciding protocol parameters and maintenance, while stETH holders are better suited to evaluate proposals from an Ethereum network security perspective.
Stability and predictability: In Federalist Papers 62, Madison also states: "Authorities, like individuals, are short-lived unless they are truly respected; A degree of order and stability is not truly respectable". The bicameral system limits the capriciousness of policy makers, while Lido's dual governance increases stakers' sense of security, which is critical to the development of the protocol.
Constitutional Engineering and DAO Design
Of course, the bicameral system is not just an exclusive product of the United States. Its historical roots can be traced back to the ancient societies of Greece and Rome. The modern bicameral system originated in England and has been adopted in many other countries, although their specific designs vary.
The above comparison of the dual governance proposals for the US Congress and the Lido is done at the micro level. From a broader perspective, designing a DAO is not dissimilar to conceiving a constitution. In essence, they are institutional arrangements of systems, processes and policies designed to efficiently coordinate activities to achieve a common goal. The research on constitutional engineering has a long history and can be used as an important reference for emerging DAO design.
One of the perspectives to compare constitutional structures is to evaluate the veto gate and the vetoes. Veto Gates refer to formal bodies that can block proposals during the legislative process; Veto Players refer to any person or group capable of blocking proposals.
For example, the presidential and bicameral legislature in the United States has three veto gates: the presidential veto, both chambers, and the Supreme Court. However, the number of vetoes depends on the political status of the political party, and the relative dominance of one party may lead to one vetoer controlling all three veto gates.
Lido's dual governance scheme is perhaps the first DAO to attempt to build a veto gate into its institutional design. However, the success of the package in achieving its stated goals remains uncertain and will depend on the interaction among vetoers. For example, it remains to be seen whether stETH holders will act as a whole group with unified interests. Since Lido also offers liquidity staking on multiple other chains (such as Polygon, Solana, and Avalanche), whether non-ETH stakers are included (or excluded) in Lido DAO's governance will further complicate LDO holders and stakers relationship between those.
Optimism Collective：Token House 与 Citizens' House
After exploring Lido’s dual governance approach in detail, it’s worth noting that other projects are also exploring innovative governance structures. One of the prime examples is Optimism, an Optimistic Layer 2 Rollup on Ethereum that takes a unique bicameral approach to meet the diverse needs of its community members.
Optimism Collective consists of two parts: Token House and Citizens' House. The Token House is composed of OP Token holders to vote on various governance proposals, while the Citizens' House is responsible for retroactive public goods funding support (RetroPGF).
RetroPGF consists of a series of experiments in which Citizens' House members allocate a portion of protocol profits or token reserves to projects that make significant contributions to public goods, based on certain criteria. The underlying concept of RetroPGF is that retroactively identifying and rewarding projects that have proven their worth is more effective than allocating up-front allocations for potential future benefits.
In each round of RetroPGF, Citizens vote to allocate funds to deserving projects based on their contributions over a predetermined period of time. This approach creates a strong incentive for the community to develop public goods that positively impact the Optimism Collective. As a result, the ecosystem becomes easier to build, learn from, and connect to, which ultimately drives increased block space usage and demand.
Identity-based Citizen House membership will promote diversity, prevent oligarchy, and encourage long-term commitment, aligned with the Optimism Collective's goal of supporting public goods. By separating membership from token holding, Citizen House can maintain a more inclusive and balanced decision-making process, reducing the risk of manipulation and collusion. This approach ensures that the governance of public goods funds prioritizes the well-being and sustainable growth of the entire community, rather than just focusing on the growth of token value.
Conclusion - Checks and Balances in Power Structures
In The Post-Capitalist Society (1993), Peter Drucker, the father of modern management theory, posited an autonomous community organization that sits between the private and public sectors.
“Every developed country needs a self-governing, self-governing community organizing sector that provides the community services that people need. Most importantly, it will create community connections and revitalize citizenship. Historically, people The fate of a person is closely related to the community to which he belongs. In post-capitalist societies and polities, individuals must take responsibility for their communities and actively contribute to their development and prosperity.”
The core innovation of the blockchain lies in governance—a new model for distributing trust. Blockchain-powered DAOs have formed the basis of many organic communities, and they certainly have the potential to fulfill Drucker's vision of fostering a "new kind of civic center." However, the road to this goal is complex and fraught with challenges.
"Ambition must be counterbalanced by ambition." --The Federalist Papers No. 51
The spirit of checks and balances proposed by James Madison is not only an eternal political principle, but also the principle that any community organization with a large population should follow when balancing the interests of all parties. It is therefore encouraging to see organizations like the Lido DAO and the Optimism Collective actively adopting more complex institutional arrangements in their governance processes.
In order to realize DAO's vision of a new form of social organization and get rid of the intervention of centralized institutions, innovation must be realized not only at the technical level, but also at the system design level. To truly realize their potential, DAOs should explore the diverse realms of constitutional engineering and draw valuable lessons from the rise and fall of past political structures.
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Deep Dive into Lido Governance: Checks and Balances in the Power Structure
Original title: "Ambition Made to Counteract Ambition: DAO Governance and Bicameralism"
Written by: Michael Li
Compilation: Kxp, BlockBeats
Introduction
One of Lido's last innovative governance proposals, a brilliant liquidity staking protocol, was largely underappreciated. The core proposition of the proposal is to support the "dual governance scheme", that is, in addition to LDO holders, stETH holders will also be given the right to govern the Lido protocol.
When we delve into the details of this proposal, we will find that although DAO has novel features such as "self-executing smart contracts" and "governance tokens based on permissionless blockchains", the core issue of governance will ultimately come down to the effective mechanisms. Construct.
Like the fine art of nation building, DAOs require a shared sense of purpose, cooperation, and a strong decision-making framework. These all involve navigating complex power relationships and balancing different interests in pursuit of common goals. In this article, we compare the dual governance scheme with the bicameral structure of the U.S. Congress, analyze their shared approach to checks and balances, and explore what makes each unique.
Lido's Dual Governance Proposal
Lido is a decentralized autonomous organization providing liquidity staking solutions for Ethereum. The Lido ecosystem is currently governed by its protocol token, LDO, which empowers users to vote on events, upgrades, and changes on the platform. The price of Lido's stETH derivative Token and ETH maintains a 1:1 redemption ratio, which represents the ETH holdings pledged by users.
Considering the huge amount of pledged ETH controlled by the protocol (6.17 million ETH, about $11.5 billion), Lido's core developers believe that they must change Lido DAO's governance model to resist moral hazard.
Therefore, the dual governance proposal aims to solve the principal-agent problem that arises in the current state of governance, where LDO holders (agents) may act in their own interests without regard to the interests of stETH holders (principals).
In this case, stakers are more concerned with the interests of the Ethereum network, while the interests of LDO holders are less aligned. In a worst-case scenario, LDO holders could even stage a heist and steal ETH staked in the smart contract, abusing their control over the liquidity staking code. This is because Lido DAO has the ability to upgrade the stETH contract to enable it to burn stETH from any address and mint it to other addresses. This means that while the DAO does not directly control the ETH backing stETH, it can, by modifying the code, steal funds from users, destroy their stETH and mint it elsewhere.
The dual governance scheme is designed to better align the incentives of both parties to ensure that such incidents do not occur. Under this scheme, LDO holders can still propose protocol changes, but stakers also gain veto power to reject proposals deemed to be "key governance decisions." This is critical to protect the interests of stakers and prevent governance from being taken over or the protocol out of balance.
The dual governance mechanism is designed to give active stETH community members time to react to controversial decisions. First, there is an execution time lock on all important decisions, giving the community the opportunity to express dissent through the Veto Escrow smart contract. If a small portion of the community (say 5%) disagrees, the governance mechanism will enter a temporary veto state.
If a significant portion of the overall stETH supply joins the upgrade process, governance will move to a veto negotiation state, allowing stakers to negotiate with governance. A successful negotiation will resume normal governance operations. However, if the negotiation fails or a majority of stETH supply joins the upgrade process, a global settlement will be triggered, dissolving the agreement and returning ETH to stakers.
Veto Lift Voting is a mechanism that allows stETH holders to allow certain governance decisions to be enforced in the event of a disagreement between LDOs and stETH holders. When governance is in a veto negotiation state, holders of stETH locked in Veto Escrow can initiate a vote with two possible outcomes: to lift the veto or not to lift the veto.
Voting will last for a fixed period of time, the initial two-thirds of the time allows voting to choose any result, and the last third of the time only allows voting to choose not to lift the veto. A successful vote requires a minimum quorum and more votes in favor of lifting the veto. If successful, the veto is lifted and the decision becomes enforceable; otherwise, the decision remains unenforceable. This two-stage mechanism will ensure fairness and prevent situations where a vote is suddenly overridden without a chance to react.
Bicameral – A bicameral legislature
Lido's dual governance scheme is designed to emulate the principle of a bicameral system, where the authoritative legislative body consists of two houses, or agencies.
A typical example is the US Congress, which consists of the House of Representatives and the Senate. In designing the structure of Congress, the Framers also faced the principal-agent problem, that is, the problem between elected officials (agents) and citizens (principals). The design of the bicameral system aims to prevent authority from being controlled by populist "mob rule" through the Senate, and at the same time prevent authority from being alienated from public opinion and from the general opinion of voters.
Of course, such a constitutional arrangement is not only the result of deliberate design, but also a historical inevitability, because it is deeply rooted in real politics and the tug-of-war between states with large and small populations. However, the Great Compromise of 1787 finally allowed representation in the House of Commons to be distributed according to population and representation in the House of Lords to be distributed equally among the states.
During the formulation of the U.S. Constitution, the framers intentionally designed the membership and scope of governance of the two chambers, and incorporated the principle of checks and balances of power to prevent abuse of power and protect civil liberties.
For example, the number of representatives in the House of Representatives is directly related to the population of each state, and representatives are elected every two years. By contrast, members of the Senate are appointed by state legislatures to six-year terms that are staggered so that one-third of senators are re-elected every two years. Additionally, each state has equal representation in the Senate, with two senators per state, regardless of population.
The Constitution gives the House of Representatives and the Senate a distinct scope of functions and powers. The Senate has power to ratify treaties and presidential appointments, while the House of Representatives has exclusive power to enact fiscal bills (tax laws). Ultimately, laws need to be approved by each legislature.
Dual Governance and Bicameralism
We can observe many similarities between dual governance mechanisms and bicameralism. At a higher level, they all alleviate the principal-agent problem through the coordination of interests and limit the power of the governing body by introducing checks and balances. On further research, we can see that bicameral and dual governance schemes are designed with four main features: 1) diversity of representation, 2) reasonable delay, 3) professionalism, and 4) predictability.
Diversity of representation: In the U.S. Congress, the Senate can limit the crazy actions of the people, and then check and balance the tyranny of the majority in the House of Representatives. In Lido, dual governance expands representative diversity by combining the interests of stETH holders with those of LDO holders. Here, stETH holders act as a defense mechanism to ensure that LDO large holders cannot control governance, thereby ensuring a more balanced decision-making process.
Reasonable delay: Bicameral and dual governance schemes add to the complexity of the governance process. In Congress, where a bill often needs to be negotiated between two chambers, in Lido's case, the introduction of a time-lock mechanism reduces the possibility of random changes, thereby curbing the ruling party's impulse to adopt quick solutions when dealing with complex issues. Of course, on the other hand, such a design may also lead to more deadlock, that is, the situation where no bill can be passed.
Professionalism: Hamilton and Madison make the following point in The Federalist Papers 62:
"A body called up by the majority from private activity, appointed for a short period of time, and having no lasting motive to devote the idle hours of public office to the study of the laws, affairs, and general interests of the state, cannot avoid the committed various important errors in the exercise of its legislative duties." (The Federalist Papers 62).
On the contrary, senators are more conducive to accumulating governance-related expertise and network resources because of their longer tenure. In fact, an important responsibility of the Senate is to review and improve matters originating in the House of Representatives. House members are closer to voters and can more accurately represent public opinion. For Lido's dual governance scheme, it is reasonable to assume that LDO holders are better at deciding protocol parameters and maintenance, while stETH holders are better suited to evaluate proposals from an Ethereum network security perspective.
Constitutional Engineering and DAO Design
Of course, the bicameral system is not just an exclusive product of the United States. Its historical roots can be traced back to the ancient societies of Greece and Rome. The modern bicameral system originated in England and has been adopted in many other countries, although their specific designs vary.
The above comparison of the dual governance proposals for the US Congress and the Lido is done at the micro level. From a broader perspective, designing a DAO is not dissimilar to conceiving a constitution. In essence, they are institutional arrangements of systems, processes and policies designed to efficiently coordinate activities to achieve a common goal. The research on constitutional engineering has a long history and can be used as an important reference for emerging DAO design.
One of the perspectives to compare constitutional structures is to evaluate the veto gate and the vetoes. Veto Gates refer to formal bodies that can block proposals during the legislative process; Veto Players refer to any person or group capable of blocking proposals.
For example, the presidential and bicameral legislature in the United States has three veto gates: the presidential veto, both chambers, and the Supreme Court. However, the number of vetoes depends on the political status of the political party, and the relative dominance of one party may lead to one vetoer controlling all three veto gates.
Lido's dual governance scheme is perhaps the first DAO to attempt to build a veto gate into its institutional design. However, the success of the package in achieving its stated goals remains uncertain and will depend on the interaction among vetoers. For example, it remains to be seen whether stETH holders will act as a whole group with unified interests. Since Lido also offers liquidity staking on multiple other chains (such as Polygon, Solana, and Avalanche), whether non-ETH stakers are included (or excluded) in Lido DAO's governance will further complicate LDO holders and stakers relationship between those.
Optimism Collective：Token House 与 Citizens' House
After exploring Lido’s dual governance approach in detail, it’s worth noting that other projects are also exploring innovative governance structures. One of the prime examples is Optimism, an Optimistic Layer 2 Rollup on Ethereum that takes a unique bicameral approach to meet the diverse needs of its community members.
Optimism Collective consists of two parts: Token House and Citizens' House. The Token House is composed of OP Token holders to vote on various governance proposals, while the Citizens' House is responsible for retroactive public goods funding support (RetroPGF).
RetroPGF consists of a series of experiments in which Citizens' House members allocate a portion of protocol profits or token reserves to projects that make significant contributions to public goods, based on certain criteria. The underlying concept of RetroPGF is that retroactively identifying and rewarding projects that have proven their worth is more effective than allocating up-front allocations for potential future benefits.
In each round of RetroPGF, Citizens vote to allocate funds to deserving projects based on their contributions over a predetermined period of time. This approach creates a strong incentive for the community to develop public goods that positively impact the Optimism Collective. As a result, the ecosystem becomes easier to build, learn from, and connect to, which ultimately drives increased block space usage and demand.
Identity-based Citizen House membership will promote diversity, prevent oligarchy, and encourage long-term commitment, aligned with the Optimism Collective's goal of supporting public goods. By separating membership from token holding, Citizen House can maintain a more inclusive and balanced decision-making process, reducing the risk of manipulation and collusion. This approach ensures that the governance of public goods funds prioritizes the well-being and sustainable growth of the entire community, rather than just focusing on the growth of token value.
Conclusion - Checks and Balances in Power Structures
In The Post-Capitalist Society (1993), Peter Drucker, the father of modern management theory, posited an autonomous community organization that sits between the private and public sectors.
“Every developed country needs a self-governing, self-governing community organizing sector that provides the community services that people need. Most importantly, it will create community connections and revitalize citizenship. Historically, people The fate of a person is closely related to the community to which he belongs. In post-capitalist societies and polities, individuals must take responsibility for their communities and actively contribute to their development and prosperity.”
The core innovation of the blockchain lies in governance—a new model for distributing trust. Blockchain-powered DAOs have formed the basis of many organic communities, and they certainly have the potential to fulfill Drucker's vision of fostering a "new kind of civic center." However, the road to this goal is complex and fraught with challenges.
"Ambition must be counterbalanced by ambition." --The Federalist Papers No. 51
The spirit of checks and balances proposed by James Madison is not only an eternal political principle, but also the principle that any community organization with a large population should follow when balancing the interests of all parties. It is therefore encouraging to see organizations like the Lido DAO and the Optimism Collective actively adopting more complex institutional arrangements in their governance processes.
In order to realize DAO's vision of a new form of social organization and get rid of the intervention of centralized institutions, innovation must be realized not only at the technical level, but also at the system design level. To truly realize their potential, DAOs should explore the diverse realms of constitutional engineering and draw valuable lessons from the rise and fall of past political structures.