Introducing Sanctum Governance

[eggpanned]

Why Governance

CLOUD holders should shape the future of Sanctum. Good governance helps Sanctum make better decisions, which means a higher chance of Sanctum’s success.

In the short to medium term, good governance helps Sanctum run future incentive programs like Wonderland S2. It is important to us that the community would decide on how future tokens are given out to maximally grow the protocol.

In the long term, for Sanctum to become truly decentralised, we need to have governance that can make better decisions than the core team. In the future, Sanctum will have hundreds of independent contributors, all working to build the best possible version of Sanctum.

How will governance work?

We’re working together with MetaDAO to launch a special type of governance called futarchy.

In regular governance, you stake your tokens and vote with them. Your voting power is proportional to your staked tokens.

In Sanctum’s governance, you vote with your wallet. You buy and sell CLOUD based on whether or not you think the proposal is good for the protocol.

The proposal will only pass if the community thinks it’s bullish. The more people buy vs. sell, the more likely the proposal is to pass.

Importantly, only if the proposal passes do you actually buy and sell CLOUD! If the proposal doesn’t pass, you get all your money back.

What does this mean? If you’re bullish on a proposal, you get to buy CLOUD if it passes. And if you’re bearish, you get to sell your CLOUD if it passes. In this way, those who are aligned with Sanctum’s decisions get more CLOUD, and those no longer aligned exit.

Why did we build governance this way?

The MetaDAO team are serious, long-term aligned builders, and we always want to build long-term partnerships with long-term people. We believe this approach is likely to make better decisions compared to regular token voting. This approach uses the wisdom of the crowds to predict the token price (and therefore, whether this proposal is good or bad for Sanctum) if we implement a particular proposal.

Why should you participate?

Governance helps us make better decisions, which means we’re more likely to succeed together. But also, every vote is a learning experience. It’s not just about blindly voting yes or no. If you’re right about whether or not the proposal is good for Sanctum, you’ll make money, because you’ll have bought CLOUD at lower than market price. And if you’re not right, you’ll learn from the experience, which means you grow as a person. You earn or you learn.

Governance requires time and effort, especially something new like futarchy. By rewarding those who participate, we will get more participation, which means better decisions overall. Therefore, our first vote will be CLOUD-1: “Should Sanctum implement CLOUD staking and active staking rewards?”. Similar to Jupiter’s ASR, we’d like to reward stakers that participate actively in governance – but of course, you have the final say. You can find the full proposal on the Sanctum Research forums here.

How can i participate

Step 1: Discuss

Go to https://research.sanctum.so, read the proposal and discuss. Go to the Discord and discuss wwith your fellow CLOUDS

Step 2: Vote

Our first test vote, CLOUD-0, will go live on Monday, 3rd February 2024. Test it out!

This is a grand experiment in DAO governance that could kickstart a new age of better decision-making. To a better governance!

[0xheat]

I like this approach pretty awesome tbh

[n8tr0n]

The introduction of futarchy-based governance marks a significant evolution in how we, as $CLOUD holders, can actively shape Sanctum’s future. By aligning decision-making with market dynamics, this model ensures that proposals beneficial to the protocol gain traction, while less favorable ones are naturally filtered out.

This approach not only leverages collective intelligence but also offers participants the opportunity to gain or learn from their involvement.

I encourage all community members to engage deeply with this new governance model. By participating in discussions and voting, we can collectively drive Sanctum toward a more decentralized and prosperous future.

[neefus]

Looking forward to it. Thank you.

[luciotamino]

So exciting to see Sanctum governance finally here! It’s been a privilege to watch it take shape and witness the protocol coming of age like this.

I’ve always questioned traditional voting and governance systems, so exploring a completely new model like this is incredibly refreshing. It’s made me reflect on what truly defines good decision-making, especially compared to traditional “democratic” voting. Huge respect to Sanctum for such an innovative approach!

Can’t wait for the CLOUD-0 and CLOUD-1 votings. LFG!

[Lucky]

The voting is finally here, can’t wait to see how the community will shape sanctum

[Siegfried]

From the top of the head, I strongly dislike futarchy.
I am aware, I still have much thinking/learning to do.
Don’t have the capacity for a full fleshed analysis atm, but some reasons are:

• has anyone thought about tax implications of voting? If voting entails buying and selling of tokens, you’re creating taxable events. I don’t want the added hassle of tax implications when voting.

• Voting outcomes may also be biased towards the beliefs of people who have a higher risk-tolerance. Outcomes, especially if the vote is close, might not reflect what people in general prefer / see as most economically beneficial, but what people with a higher risk-tolerance or overblown self-confidence (“Dunning-Kruger effect victims”) prefer or see as most economically beneficial - and that may actually turn out to be not corresponding with overall reality.

[samukapcrypto]

I liked the purpose.
My expectations are on the clouds hahaha

[andrewsaul]

See Introducing Sanctum Governance for my thoughts on what value staking has. I’ll try not to overlap much as I think this is separate to this topic which is about the trade-to-vote model.

Let’s get something out of the way first: I don’t understand why you’d want to create an entirely new token. sCLOUD is a new token that then requires liquidity.

sCLOUD necessarily will trade at some discount/premium to CLOUD based on the mechanics of the staking program so that will influence trading over-and-above the proposals being voted on.

How can you parse apart arbitrage trading vs proposal trading? I’ve not seen MetaDAO ever answer this obvious issue. I personally think it’s what will ultimately sink the whole Futarcy idea if it’s not addressed (but this is problem with academic thought experiments vs real life and it’s a topic for another place & time).

---

If we assume for the moment Futarcy works as intended then let’s address what it’s good at doing.
Most people don’t want to trade. They want to hold tokens and see those tokens go up in value.
Futarcy self selects for active traders. Or at least people who are willing to engage in trading. I like this. Passive holders should be deprioritised at every opportunity. That’s the path to success as it encourages more engagement, not less.
At a very high level Ethereum reduced inflation to appease passive ETH holders. Solana has increased inflation to appease active participants.
The results have been clear for all to see.

So the question then is: What do traders have to offer Sanctum as goes value? What kinds of governance decisions are active traders best suited to offer insight on?
And maybe more importantly: What kinds of governance decisions are active traders going to be ill-suited to? Because these will be all the things a Futarcy program will not let you do.

I’ll give my thoughts in the comments and I encourage others to do so as well.

[andrewsaul]

My thoughts on types of governance decisions.

Traders offer good insights

• CLOUD incentives for SOL staking increase programs: Traders have a good nose for what incentives are going to be insta-dumped & what incentives will see a net positive return. Farmers will always vote for more token rewards but then sell them. Traders will often front run poorly designed and heavily farmed incentive programs by selling.
• fee sharing: I traders often do a lot of research into the value accrual to a token. (see: the mountain of UNI, CRV ect… token research). They’re keenly attuned to the price effect of fees to a token (both intrinsic and extrinsic)
• community engagement program design: most community engagement programs (ambassadors, content bounties, engagement rewards) are farmed relentlessly in crypto today and lead to down-only price action (because none of them are ever linked to metrics that matter). Traders know this and will down vote anything that isn’t going to have clear success/failure metrics attached. this is probably the best use for Futarchy IMO: Stop the wastage/theft of project marketing budgets.

Traders don’t have good insights

• basically anything that market insights are null and void for. So in Sanctum’s case that would be: New tokens (can’t analyse a token that doesn’t yet exist), community member roles, and anything to do with branding. These things rely on good old user sentiment and markets are terrible at this unless there is a very direct link to the actual decisions and something that is tradable (and is traded in reasonable volume).

[Luk4]

Hi everyone,

Imho we need to describe clearly how the deliberation and voting processes work on this platform, namely: (1) how are proposals versioned, (2) how are proposals updated during each phase, (3) what attributes to look for on each proposal on this platform in order to know what the latest version of the proposal is, and (4) how is the community notified about a revised version of the proposal being published.

Not sure how much will be supported by Discourse natively and what will require finding a workaround.

Thank you,

L.

[fplee]

Imho we need to describe clearly how the deliberation and voting processes work on this platform, namely: (1) how are proposals versioned, (2) how are proposals updated during each phase, (3) what attributes to look for on each proposal on this platform in order to know what the latest version of the proposal is, and (4) how is the community notified about a revised version of the proposal being published.

Great points! The “meta-level” deliberation process is just as important to get right as the actual voting process itself. Right now changes are put in a changelog and we’ll announce changes on Discord and so on. Will think about this more and open to suggestions.

[nik4]

I read the docs I saw the videos but it’s quite difficult to understand the exact voting mechanism
I think , most average users/followers can’t understand it
We need more education if it possible before the CLOUD 1
I remember a whiteboard (or was in paper) video with fp+metadao, I think it was the best try @fplee

[Proph3t]

Great points!

@Siegfried

• has anyone thought about tax implications of voting? If voting entails buying and selling of tokens, you’re creating taxable events. I don’t want the added hassle of tax implications when voting.

Yes, futarchy requires you to buy/sell to signal whether a proposal is good or bad, which may or may not have tax implications depending on where you live

@Siegfried

• Voting outcomes may also be biased towards the beliefs of people who have a higher risk-tolerance. Outcomes, especially if the vote is close, might not reflect what people in general prefer / see as most economically beneficial, but what people with a higher risk-tolerance or overblown self-confidence (“Dunning-Kruger effect victims”) prefer or see as most economically beneficial - and that may actually turn out to be not corresponding with overall reality.

The benefit to you, and CLOUD holders in general, is that if these people bid up a bad proposal, you can sell some of your CLOUD in that market at a premium to the spot price

At that point, either the proposal will fail or you’ll have been bought out at a premium, at which point you could buy back in and if you’re right then you’ll have more $CLOUD than what you started with

I’ll point out that people debate whether markets are efficient, or how efficient they are. No one that I’m aware of debates whether voters are efficient or perfectly rational