Voting Vaults: A New DeFi and Governance Primitive
Introducing Voting Vaults, a new Governance primitive from the Council Protocol. If a user stakes their governance tokens into Compound or…
Introducing Voting Vaults, a new Governance primitive from the Council Protocol. If a user stakes their governance tokens into Compound or AAVE as collateral, they can still vote and participate in governance. This can be applied to any position that requires tokens to be locked, such as AMMs or yield-bearing vaults. Voting Vaults maximize capital efficiency by allowing users to participate in governance while still being able to use those same assets for any other purpose in DeFi. However, Voting Vaults extend to many additional use cases. At its essence, voting vaults define a strategy for what constitutes a vote. They introduce a new form of governance lego pieces, and are just one of the many methods the Council Protocol may consider and pursue to decrease plutocracy, address voter apathy and increase voter participation. The new primitive makes decentralization possible by putting voting power in the hands of many and gives users the ability to vote even when their tokens are locked on other platforms.
Let’s dive into a few examples of voting vaults
Initial Voting Vaults
- Vesting Vault — allows locked / vesting positions to have voting power in the governance system and does so by using a defined multiplier for the vested tokens over unvested.
- Locking Vault — stake governance tokens in the platform to have a proportional voting share.
- Non-transferable Voting Vault — tokens can only be claimed through this wrapping vault which holds account balances and are not transferable to any address.
The following are potential options that might be considered by Governance. Others, not listed here, might also be envisioned/proposed by governance participants.
Possible Near Term Voting Vaults
- Compound/Aave Vault — use tokens as collateral and/or earn interest while keeping voting power. Voting power is defined as a function of lending supply and demand.
- LP Vault — get voting power while providing liquidity.
- Ouroboros Vault — deposit something such as Element principal tokens, or non-governance, protocol tokens to get more votes than your current balance.
- L2-L1 Synthesis Vault — L2 posts balance tree hashes and L1 votes using the merkle balance proof of L2.
- DAO Merger Vault — gives token holders of other protocols the ability to vote.
Possible Long Term Voting Vaults
- Identity Verified Vault — verify your digital identity as a unique person to get voting power. This contrasts with one token, one vote.
- Github Contributor Vault — get voting power for your contributions to the protocol.
- Community Contributor Vault — get voting power for being involved in the community or having a role assigned by the DAO.
Enabling Inclusive Governance
Voting vaults introduce inclusivity by enabling the ability to provide voting power to any contributor or value provider of a protocol. As shown above, an identity voting vault could link to GitHub contributions, discord and forum involvement, and much more. Users who may not hold a large share of governance tokens but bring significant value can now get a larger say in Governance. This can be extended even further. Protocols can even give voting power to the L1 or L2 developers who make the protocol possible in the first place. Users who may not typically be able to get involved because they keep their tokens on an L2, where gas fees are cheaper, can also participate in governance through an L2-L1 synthesis vault. This distribution of power in the hands of more users can further enable decentralization in protocols.
Breaking Down Voting Vaults
Voting Vaults define a strategy for counting votes and providing voting power. To onboard a new voting vault it requires governance to approve the defined strategies. The protocol does not make any assumptions about the vaults and only queries them for voting power. In current governance systems, voting power is defined as one token one vote, with some weighted exceptions. With voting vaults, voting power is a fluid construct and can be assigned in many different ways. The protocol can run multiple vote-counting strategies in parallel and they are designed to be upgraded by Governance, avoiding migration headaches. If getting someone to vote on a proposal is hard, imagine getting them to migrate their tokens from one version of the governance system to the next.
Another benefit to Council is that governance members still get access to delegation when using voting vaults. This means that governance members can go do all the DeFi activities that they love while delegating their vote to someone they align with and trust to make the best decisions for the DAO.
The Opportunity Cost of Participating in Governance
In most DAOs today, users face significant opportunity costs when participating in governance. They have to lock up their tokens in voting contracts and forgo exposure to lending/borrowing or yield generating opportunities. This creates a dynamic in which large sets of users choose not to get involved in governance and prefer to deposit their tokens in interest-bearing positions or borrow against them instead. At the same time, this allows large actors to gain more influence in the system. As a result, many teams or small sets of whales end up running most processes within DAOs due to a lack of community participation, which goes against the purpose of decentralization in the first place. Essentially, Voting Vaults are a way to remedy plutocracy and low voter turnout. They allow for more users to get involved or delegate in governance, even if their governance tokens are locked in other platforms.
Path Forward
The Council Governance Protocol would like to see its own ecosystem of governance lego pieces grow. Projects should be able to pick and choose which voting vaults they want. Do you want layer 2 integration, a vesting vault at a 5% multiplier, and support for LP tokens on borrowing/lending protocols out the gate? Then submit to governance for approval and have fun.
We’d like to hear from community members on how the landscape around voting vaults may expand. What other innovations can be introduced and what further experiments can be tested?
If you’re interested in getting involved more deeply and would like to develop on the Council Protocol, you can dive into the smart contracts or read our documentation and start doing it today. You can also reach out to us in our Discord if you have any questions or want to discuss new kinds of Voting Vaults that have not been explored in this post.
Like the other proposals that we’ve laid out over these past several months, ultimately the Voting Vaults — whether to use them, what to use them for, and how to use them — will be the decision of Governance, not by Element Finance. These are important decisions that will affect the direction of the protocol and how the community operates and thrives. We look forward to witnessing that in the months and years to come.
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