The Holy Grail of crypto is to create a truly decentralized autonomous entity (DAE), where governance is hard-coded in the system and community-directed policies are enforced cryptographically and automatically. While this sounds simple in theory, it’s actually quite complex in practice. Projects that claim to be decentralized often have a centralized authority, especially when it comes to handling their funds.
This week, the Decred community will consider a proposal to semi-automate all payments made from its self-funding Treasury. As you might have read here last month, Decred just voted on a proposal to fund the development of a Decentralized Exchange (DEX), which recently passed with the support of 92% of votes. While many projects say they want to be decentralized, few are actually taking concrete steps in that direction.
Decred’s ultimate goal is to become a decentralized autonomous entity directed by the collective intelligence of the community, making smart policy decisions and ensuring a unified, fork-resistant community. With each new Politeia proposal, its censorship-resistant blockchain-anchored public proposal system, Decred is a step closer toward making this vision a reality.
Two pillars of Decred are its unique governance system and its self-funding model, which puts 10% of every block reward back into the Treasury to fund the project’s development. This new Treasury proposal demonstrates both in action: governance, which allows community members to debate the pros and cons of policy decisions and vote on whether or not to implement them; and the advancement of the autonomy of its self-funding Treasury.
Why Decentralize Control of Funds?
The proposal aims to semi-automate the release of treasury funds—handing more control to the coin holders, giving them greater sovereignty over project spending. Concurrently, the move diminishes the idiosyncratic risks of key project members. These risks of centralization include theft, coercion, or project abandonment. With this proposal, Decred is decentralizing management of the project and making significant progress towards delivering on the promise of community sovereignty.
Decentralize Decred Treasury Spending
Currently, humans manually execute and govern spending from the Decred Treasury.
This process is centralized and creates a potential single point of failure:
- Each contractor is required to produce a monthly invoice with a reimbursement report denominated in USD, that is submitted to the project treasury auditors.
- If the invoice is approved, a payout is made to the contractor-provided address from the treasury funds, using an averaged DCR/USD exchange rate over the month the invoice applies to.
- These payouts are made by Decred Holdings Group LLC (“DHG” for short), a conventional corporate entity which holds the treasury funds.
To decentralize the process of spending from the Treasury, a 2-step process is proposed:
- Step 1: A Politeia (“Pi” for short) draft key is used to generate a signed draft spending transaction
- Stakeholders will inspect the proposed spending on the Pi platform and ensure it adheres to proposals already passed on Pi.
- Step 2: This draft transaction is published on-chain, where stakeholders will review and vote to approve the transaction over a period of several days.
- Stakeholders will have the ability to change a single setting in dcrwallet such that they vote to approve or disapprove of draft transactions made by the Pi draft key.
How Will This Work?
The operators of Pi will aggregate all invoices generated by contractors or any other approved expenses each month, then draft a single treasury spend for the entire amount. Everyone will have the chance to see and verify this transaction, as it will be published off-chain on Pi.
Then all Decred stakeholders will have the opportunity to approve the draft transaction on-chain, assuming there are no serious problems with the published draft transaction. If the transaction is voted down, it will need to be reviewed and broken up to deal with contention. Follow-up votes will determine the fate of individual costs. If the treasury transaction is approved it will be published on-chain and the contractors will be able to access their individual payouts.
A Few Caveats & Safeguards
Rogue Voting Service Providers
Voting Service Providers, i.e. stakepools (“VSPs” for short), that vote on behalf of individuals could potentially alter a stakeholder’s voting preferences, which presents a possible attack vector. To avoid this scenario and combat collusion, audit tools will be built into the Decred wallet that will monitor VSPs and alert the user if a VSP is not voting correctly on their behalf. If this happens a stakeholder will be able to warn other stakeholders so that they can take action.
Centralized Authority of Pi Operators
Because Pi operators have the authority to generate this transaction, the process is not completely decentralized. While this design decision is not ideal, it is a trade-off to insure the security of the Treasury.
Without a Pi draft key, stakeholders could collude and drain the treasury, delivering a serious blow to the sustainability of Decred. After weighing the pros and cons, it was decided that the risk of exposing the entire treasury is simply too large.
Malicious actions that the Pi operators can take in this design are limited to: 1) either not publishing draft transactions or 2) publishing malicious draft transactions. The stakeholders retain the power to approve or disapprove all treasury spends. The Decred team is investigating how to eliminate the need for the Pi draft key, and a proposal will be made when the solution is identified.
Evolving toward the DAE
The future of Decred’s Treasury will soon be up for vote, and we’ll see where the collective intelligence of the community decides to take the project. In a world where money is power, decentralizing control of funds is synonymous with decentralizing authority. Decred is pioneering uncharted territory in digital currency and creating a community that simultaneously replaces a central bank and a government. This is not something that happens overnight, but via incremental steps, or in Decred’s case proposal-by-proposal. It is done in a way that ensures security, and helps make Decred a superior store of value for generations to come.
By Marco Peereboom, New Systems Development Lead, Decred