[Community Post] Six interesting ideas shaping Facebook Libra's governance

Community posts are hand selected contributions from our network. To have your work featured here please contact us at [email protected].

Chris McCoy (@chrisamccoy), co-creator at Storecoin - June 19, 2019

Six Interesting Ideas Shaping Facebook Libra's Governance

Which, if any, will influence the broader crypto governance conversation?

After months of speculation, the world was today introduced to Libra, the ambitious new cryptocurrency and blockchain project from Facebook. While there is still much to be learned about how the project will function in practice, we have a huge amount of new information.

One important piece of this story is a topic that has shaped the larger crypto conversation all year: governance. Given that the main skepticism of any Facebook-backed crypto has to do with how the project is managed - especially with regard to data access and privacy - the structure of the governance will be a hugely determining factor in the impact of the project as a whole.

While major questions that remain, there are still some exciting and perhaps unexpected notes in that regard.

The Libra Association: How It’s Set Up

The Libra Association is organized as a Swiss nonprofit whose members are the validator nodes of the Libra network. Eventually this will include any entity operating a node and holding a sufficient stake in Libra, but at the beginning includes a group of “Founding Members.”

The Association’s two mandates are technical coordination and financial coordination (i.e. managing and allocating the reserve fund). The Libra Association is managed by the Libra Association Council, who vote on key decisions, which can either require a simple majority or a two-thirds super majority based on the type of decision.

To be a Founding Member, entities must serve as validators and must make a $10m investment in the network via the purchase of Libra Investment Tokens (which are different from the eventual Libra cryptocurrency and which entitle holders to divided from the management of the reserve fund).

Participation in the network is initially permissioned. New council members will be added only “upon the achievement of certain network growth milestones, including the adoption by the council of a technical plan for becoming permissionless.

So, what’s interesting about Libra’s governance model?

Key Concept 1: Governance From Day One

First, whatever one thinks about the way the Libra Association governance is articulated, and whatever questions it hasn’t fully answered, it is clear that the project felt the need to articulate a governance scaffolding from day one.

In some ways, this isn’t surprising. Any crypto project initiated by Facebook was always going to face significant scrutiny as it relates to Facebook’s role and power over the ecosystem, so it would seem imperative to try to get out ahead of that conversation, if only from a PR standpoint.

At the same time, it affirms a point which many of today’s crypto projects are coming too: the longer a project goes with informal governance, the harder it is to back into rules for decision making.

Key Concept 2: Limiting the role of Facebook (and any other single entity)

One thing that is clear is that Facebook is extremely focused on drawing some clear limits on its own role in the eventual governance of this system. In many ways, it seems to be the core design consideration: how to limit the power of Facebook - or any single entity - to dictate the evolution of the Libra ecosystem. How much this is a philosophical decision versus a strategic imperative in the light of existing regulatory scrutiny (scrutiny that will inevitably only increase after this announcement) is debatable, but the fact is that limiting the role of any single entity is at the heart of the system.

Key Concept 3 : One Entity, One Vote

The mechanism for this power limitation initially is an even distribution of voting power across the initial council members. In short, once an entity has agreed to run a node and invested their $10m+, they have one vote on the council. This doesn’t change even if they invest more than $10m as compared to other entities. Importantly, Libra notes that they will “prevent related entities from presenting themselves as two distinct Founding Members in order to avoid the circumvention of the above measure.”

Plutocracy in token-holdings based systems is one of the most discussed issues in crypto. Indeed, many of the opponents of on-chain systems, such as Vitalik himself, cite this as one of the major deterrents to those approaches.

Because they are initially taking a permissioned approach where the members of the council are known to each other, Facebook is able to enshrine “one entity, one entity vote” as the rule of the land.

But what happens to voting power when, as is intended, other entities are able to start running nodes and investing in both Libra Investment Tokens and Libra itself?

Key Concept 4: Capped Voting Rights

While it’s not precisely clear, it seems from the Libra Association documentation we have thus far that the initial Founding Member Council principle of one-entity-one-vote will eventually transition to a holdings-based voting system with a cap on how much voting power any one entity can have at 1%.

“Irrespective of the Libra Investment Tokens and/or Libra held by it, a single Founding Member can only be represented by the greater of one vote or 1 percent of the total votes in the council.”

Interestingly, however, the documentation also suggests that this cap only applies to Founding Members, rather than later nodes that come online only through holding Libra in custody. This is an area where clarity would be warranted, as the obvious question would be why Founding Members would be subject to a cap while other, later joining notes wouldn’t.

Key Concept 5: Voting Without Holdings

There is an interesting wrinkly in the voting cap that let’s non-holding entities to participate in Libra’s governance. In short, if an entity holds an amount of Libra Investment Token or Libra that would entitle them to more than the 1% cap, that excess voting power can be delegated to research partners or social impact partners, which are institutions that are mission aligned with Libra, capable of and committed to operating a node, but not able to make the minimum investment ($10m). The voting power allocated in this way must not exceed 1/3 of the overall council voting power. This is an interesting way to involve more actors than just the companies with big enough purses to make significant upfront investments.

Key Concept 6: Separation Of Voting Power from Investment Returns

One of the obvious questions with all of the above limits in voting power is why organizations would chose to participate financially at above the maximum threshold for their ability to participate in governance. The answer is that Libra seems to be disentangling to some extent voting power from financial returns. As they write: “this cap is designed to prevent concentration of voting power in the hands of one party. It does not limit the financial return received from the Libra Investment Tokens, which is proportional to the size of the investment.”

In other words, a single entity can benefit *financially* more than others by holding more LIT; that just doesn’t come with more power to make decisions for the network beyond the one percent threshold.

Conclusion

The Libra story is just beginning. For some, even the power limiting measures above will not be enough to overcome the fact that this is (at least initially) a permissioned chain maintained by an oligarchy of powerful companies. What’s more, there is a period at the beginning of the project where Facebook will continue to have a larger role in shaping the direction. Until the governance is finalized and enshrined, it is, of course, subject to change.

At the same time, it’s hard not to be at least interested in what Facebook has put forth in terms of governance, particularly in the context of the broader governance conversations happening in crypto.

• Will one-entity-one-vote see resonance in other projects as well?
• Will we see projects try to consciously limit power, or separate financial upside from voting power?

Only time will tell, but, boy will it be interesting to watch.

Let us know what you loved about the report, what may be missing, or share any other feedback by filling out this short form. All responses are subject to our Privacy Policy and Terms of Service.