The promise of decentralization is profound but reality has shown us that it comes with some harder tradeoffs. The same mechanisms used to ensure fairness can be a major point of failure in decentralized systems. Blockchain governance relies on social consensus, which relies on an assumption that a distributed group of token holders will act in the best interest of the protocol. While failures of these systems are more uncommon than exchange failures, the consequences can be just as severe. Here, we explore what to expect if there is a collapse of on-chain governance:
The Risks of Voter Apathy and Plutocracy: On-Chain Governance
Voter apathy is one of the most common ways blockchain governance collapses. There are many protocols that have just a small percentage of token holders participating in governance. This leaves an opening for malicious whales to come in and take over the network by holding a sufficient amount of the token to override the minority participants. This advantage can be used to pass proposals that prioritize the dominant players’ benefit at the expense of the larger community. This effectively puts them in charge of the token’s future.
Governance Attacks and Flash Loans
The 51% attack is one of the most dreaded attacks in modern blockchains. This kind of attack often involves the attacker (often through a loan) acquiring a greater than 50% share of the blockchain’s token to instantly swing votes in their favor. One of the most extreme examples of this case saw the attacker drain a protocol’s treasury.
The Human Safety Net
Recovering from failures of on-chain governance often requires a social solution. One of the most common ways of recovery is community voting to perform a hard fork to revert a malicious proposal.
Disclaimer: BFM Times acts as a source of information for knowledge purposes and does not claim to be a financial advisor. Kindly consult your financial advisor before investing.
