On The Path to Governance: Questions Unfold

13 May, 2019

Written by Ido Sadeh Man, Founder & Foundation Council President at the Saga Foundation

In part I of this blog series about Saga’s governance framework, we recounted how we came to understand that central decision making is inevitable for adequate management of a global currency. That led us to a series of questions concerning the genuine representation of the currency holders, incorporation of the expertise required for managing a global currency into the governance system, and the exact role of blockchain, to name a few.

Defining the governance framework’s target function

In order to answer these questions, we had to develop a more definite understanding of the purpose of our governance system. In other words, what do we want our system to achieve? Our answer was based on acknowledging that the holders of the currency are its sovereign and therefore that the governance system must represent them. In order for this fundamental principle to hold, the system must: (a) enable effective formulation of the holders’ individual wills into a general will, and (b) support the general will’s effective fulfillment.

Saga is not the first attempt of issuing currency; so with these two requirements in mind, we set out to examine large scale, existing governance systems encompassing currencies and their relevance for our project.

Decentralised governance — a tool not an orthodoxy

Basically, in decentralised systems, participants take part in all governance duties. So almost by definition, participants have a strong ability to express their individual wills. The problem starts with our first requirement, the need to formulate individual wills into a general one. This challenge is at the heart of a very wide discussion about governance in the decentralised community.

In contrast, we found that our second requirement, the effective fulfillment of the general will is often overlooked, but no less crucial. A global currency requires professional decision-making abilities to manage its reserves, to update its monetary policy, to evolve and react to changing realities and ultimately to ensure its stability and success. This cannot be achieved when relying on fully decentralised solutions.

Fully decentralised governance entails so many inherent and unanswerable shortcomings, that we believe it to be an inefficient governance framework for any complex subject matter.

The inability to introduce expertise in complex decision making, occurrences of populism, inefficiency and stagnation by design and other systemic risks are making it a non-rational choice of governance — even if its short term advantages seem appealing.

The notion that a scalable global currency can afford to be governed by a decentralised community, relying on quasi-referendums is naive if not absurd.

Accepting the need for centralised solutions opened up the game board to both centralised and decentralised governance tools for fulfilling our requirements as well as for considering various combinations. We are not rejecting decentralisation all together, but we do claim that the necessary centralised tools are too easily rejected in the decentralised governance debate.

Corporations — diligent and effective non-representation

A priori, the basic purpose of corporations is unaligned, if not contradictory, to our target:

While we are attempting to design governance that places representation of its participants at its core, corporations are legitimately designed to generate value for their shareholders.

One can imagine several scenarios where the interests of currency holders differ from those of the issuer even when ‘all is well’. This conflict of interest peaks in times of crisis, when monetary responsibility, and not sacrificing the soundness of the currency on the altar of short term stock price or profit, is required.

However, corporations have issued currencies in the past, and some are envisaging the same nowadays. And so, in spite of the inherent conflict of interests between shareholders and currency holders — we looked at the mechanisms that allow such currencies to exist.

Corporations have proven to be extremely flexible, lean-modelled and adept in providing services worldwide. Their ability to operate at a global scale has proven to be unparalleled. So many of the services that we used to receive from local and national providers, from reading the news through the ordering of a cab and reserving a hotel room — are currently provided by evergrowing global corporations.

Moreover, a lean managerial body, capable of efficient and swift decision making and execution, concentrated around a sound and modeled mission — is one that can be adopted, even if the target shifts to the representation of holders.

Lastly, the shareholders voting mechanism, reliant on stake (or the number of shares they hold) was one to be considered for a financial operation such as currency issuance (our next blog post will deal with this issue in more detail).

So although supposedly, the ill-representation of currency holders should have ruled out the corporation’s structure as an inspiration to our governance framework, we found the advantages in terms of effective management something to aspire to.

Nation states governance: the endless journey for an optimal balance

At first glance, our target function very much resembles that of a nation-state — a social contract designed for representing its sovereigns — the citizens, and for carrying out their general will efficiently.

Here, a balance point in the inherent tension between the expression of will and its effective fulfillment is achieved by separation of powers in a constitutionalised formation of governing bodies.

Though mostly efficient throughout the past few centuries, nation-states are currently struggling to keep up with the rapid developments in our lives. For us, it seems that this struggle is rooted in three main limitations — nation states are bound, monolithic, and non-liquid:

  • Bound — nation-states are inherently bound by nationality and geography, in a world where human interactions have greatly exceeded those boundaries. This makes governing activity extremely hard and ungrateful — How can one govern citizens, whose common ground and basis for agreement are straying by the day? For our endeavour of creating a global currency, this is a key issue, as currency holders and their representing bodies must also be global.
  • Monolithic — one vote is designed to elect representatives for all aspects of our lives — from education through health to the economy. This unified structure, once relying on nationality as the prime identity feature is struggling to cope with increasingly divided societies, whose “general will” becomes almost impossible to ascertain.
  • Non-liquid — as our reality changes much faster than our representative bodies. The out of date linkage between participants and the decisions taken in their name, seems to be at the core of many social frustrations and the trust crisis in the institutions of the liberal democracy. However, the same technological advancements that are responsible for these rapid changes and for the overflow of data, could be harnessed to allow in turn swift, large scale and more active participation in decision making.
  • Regardless, nation-states offer a tested and an elaborate form of governance, unparalleled to date in scale and longevity. As a governance system, it has evolved through the centuries to balance some of the most fundamental governing tensions. Just like the corporation, it is a living structure allowing for a dynamic treatment of such tensions in real time.

    We chose to draw inspiration from all three, finding the nation-state’s purpose as the most similar to our own, looking to remedy its shortcomings.

    Assembling the building blocks

    We carefully chose features from these governance systems to establish and enhance our own system.

    For incorporating expertise and to ensure effective management, we looked to the corporate model and chose to rely on a small team of professional executives to manage the currency. We refer to this team as the Foundation Council.

    For establishing the sovereignty of the currency holders and for ensuring the Foundation Council’s accountability, we looked at the nation-state model. Thus, we determined that the Foundation Council should be elected directly by the currency holders.

    Another key feature we adopted from the nation-states is the separation of powers in a multi-branch structure. Hence, we established an entity designed to reflect the participants will — the Assembly. Its duties consist of monitoring, scrutinising and in extreme cases even dissolving the Foundation Council. For dispute resolution between entities within the governance system, we added a judiciary entity. Lastly, as Saga is an issuer of the currency, we added a designated entity for monetary management. We made sure that like its national counterpart — central banks, it enjoys a relatively high level of independence.

    The main feature we took from decentralised governance systems is utilising blockchain and smart contracts for execution, including the control of supply of money, monitoring all balances and value transfers and ensuring a transparent and an immutable ledger. We see the blockchain as an important check and balance mechanism; looking at the smart contract as an entity on its own. It is responsible for reliably and transparently executing decisions made by various entities in the governance system, where otherwise high levels of trust would have been required.

    But the journey is by no means over

    We still had to understand the role of identity and stake in our voting systems. We still had to determine how these entities check and balance each other, without leading to stagnation. We still had to see what technologies, other than Blockchain, we can harness to enhance participants’ representation. The following posts in this series will lay out the solutions we found for these and other issues.

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