BoE Official: Shortcomings in Crypto Governance
Speaking to an audience at the University College London (UCL) Center for Blockchain Technologies on Wednesday (19 October), Carolyn Wilkins of the Bank of England’s (BoE) Financial Policy Committee discussed crypto governance, DeFi and the need for regulatory oversight of both.
Wilkins acknowledged the success of Ethereum’s governance protocols, which recently enabled the long-awaited upgrade that saw the network transition to a Proof-of-Stake transaction mechanism. Nonetheless, she warned that there are “serious deficiencies in the governance of the crypto ecosystem.”
Primarily, she discussed the fact that decentralization in the crypto ecosystem is not the same as democracy. Instead, voting rights in most blockchain projects are distributed among token holders according to a model more akin to a system of corporate shareholders than an open democracy.
But since crypto projects are not governed in the same way as corporations, Wilkins said the decentralization and frequent anonymity of token holders raises questions about accountability and transparency. In addition, she noted that concentrations of power arising from individuals owning a large stake in crypto projects that follow the shareholder model of governance are not subject to the same regulatory controls against abuse witnessed elsewhere.
Pointing to the US Commodity Futures Trading Commission’s (CFTC) ongoing enforcement action against the Ooki Decentralized Autonomous Organization (DAO), Wilkins suggested that liability for decentralized crypto projects is a rapidly evolving legal gray area.
See more: The CFTC lawsuit aims to rein in DeFi
Finally, she said there are “hard limits to how decentralized a system can become in practice.”
Wilkins pointed to the way broadly decentralized governance systems like Polkadot and MakerDAO retain contingency powers held by assigned technical committees, saying such mechanisms create an important safeguard against crypto-populism. She said they are useful when it is not practical to achieve consensus from an entire community in the required time frame.
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