Hi Mango Markets Community,
We are Tushar Jain and Spencer Applebaum from the Multicoin Capital team. Multicoin Capital is a thesis-driven investment firm that invests exclusively within the crypto ecosystem. We manage a hedge fund and a venture fund with several billion in AUM, investing across both public and private markets.
Because we run both a hedge fund and venture fund, we have unique market insights as it relates to early-stage DeFi platforms. We are primary counterparties to all of the major CeFi market infrastructure providers, including but not limited to market makers, OTC desks, lenders, exchanges, custodians, staking providers, etc. We speak with these players on a daily basis to understand their pain points and why they have been hesitant to participate in the DeFi ecosystem. We use these conversations to drive a lot of our theses in the venture fund, and we think that Mango Markets solves a lot of problems existing DeFi derivatives platforms face.
We are DAO members and MNGO governance token holders who participated in the public sale along with the rest of the community. We purchased ~$10 million of MNGO tokens at the same price as all of you. Based on on-chain data and discussions with other participants, we believe we are one of the largest holders of MNGO tokens. As such, we have a significant amount of “skin in the game” and are incentivized to drive value for all stakeholders in the project.
On-chain governance helps make governing decisions open and transparent. It is intended to support decentralization of the protocol governance to the community as the Mango Markets protocol continues its journey toward complete decentralization.
Traditionally, on-chain governance had the following features:
- Equal weight – “One Token One Vote”
- Limited skin in the game – no cost to vote
This approach is vulnerable to people borrowing tokens to vote. With the low voter turnout seen with governance votes in many other protocols, this attack vector is fairly easy to execute. We anticipate a higher signal in the voting process when voters have to own the consequences of their votes.
“One token one vote” also commonly concentrates voting power in the hands of whales and early miners and adaptors. This can lead to smaller holders becoming disenfranchised and disengaged from governance. Large holders can also manipulate the voting process by concentrating their votes at the end of a voting period.
We propose a governance implementation that consists of two parts, explained in detail below.
Vote Power by Lock
Anyone can call a Mango Markets governance vote to a vote with a minimum of 1,000,000 MNGO voting power (defined below). This will be a variable that can be adjusted by governance. This minimum vote threshold is necessary to protect against spam proposals. The voting power used to call a vote will also be eligible to vote.
We recommend that the voting process lasts for 3 days. The reveal period—which we explain in detail below—lasts 1 day.
During voting, MNGO holders can lock up their tokens in a “staking contract”. The minimum lockup period is 30 days and the maximum lockup period is 1,460 days (both the minimum and maximum time thresholds can be decided by MNGO governance).
A person’s voting power is determined by 1) the amount of MGNO they vote with, and 2) the amount of time they commit to locking up their tokens.
There is a linear multiplier for time applied to the amount of MNGO voted with. For the maximum amount of 1,460 days, users receive 500x the voting power. For the minimum amount of a 30 day lockup, users receive 1x the voting power.
As a simple example, let’s imagine Alice, Bob, and Charlie all have 100 MNGO:
- Alice chooses to lock up her tokens for 30 days, and thus her voting power is 100
- Bob commits to locking up his tokens for 730 days, and thus his voting power is 250 * 100 = 25,000
- Charlie commits to locking up his tokens for 1,460 days, and thus his voting power is 500 * 100 = 50,000
As the lockup burns down, so does the voting power. For example, if Charlie locked up his 100 tokens for 1,460 days and 730 days have passed then Charlie would have 25,000 vote power for any vote that happens at that time. This is to ensure a gradual decrease in voting power such that users don’t go from having a lot of voting power one day to zero voting power the next day.
At the time of a vote, the voting contract looks at how many tokens a voter has and how long they are locked for. Voters can always extend their lockup period just prior to voting. Locked tokens can vote as many times as they want.
One of the challenges with the aforementioned locking mechanism is that most participants will wait until the last minute to vote. This is because there is a cost—namely, giving up liquidity—to vote. As such, if a vote is going someone’s way, she may not want to participate and lock up tokens.
In order to incentivize honest voting and maximal participation, we propose that Mango governance adopt a commit-and-reveal scheme. With this feature, votes would be submitted anonymously. Upon the completion of the voting period, there would be a 1 day reveal period in which participants can review the results of the vote.
The result of this should be maximal participation for important decisions because individual participants won’t know whether their vote will matter or not.
The minimum threshold to win a vote is 60%. We believe that dApps should only change when there is broad consensus amongst stakeholders and seek to avoid giving too much power to narrow majorities.
Benefits of these mechanisms
- Consequences to voting (locking up tokens), so less risk of low conviction votes.
- Having a contentious vote is extremely time-consuming and requires longer lockups (because people will want more power to swing the vote), so it is worth building consensus on a proposal prior to voting.
- Locking via vote creates scarcity on the circulating market supply of MNGO for all network participants.
- Much less oligarchic than one token one vote, partially preventing whales from de facto control of governance proposals. In governance by lock, whales who try to control contentious governance decisions start locking up tokens and bearing the cost.
- The Mango Markets early contributors and developers have entirely unlocked tokens. As such, if they want outsized influence on the direction of the protocol, they should show that they have skin in the game for an extended period of time.
- With the commit-and-reveal mechanism, participants may lock up tokens longer than necessary because they won’t know if a vote will be contentious or not.