At the time of this writing, the elections that will implement ICON’s governance model are only a few weeks away. Accordingly, some of the issues examined below are of particular relevance within an immediate time frame. However, the concepts explored here will play a role in ICON’s governance for years to come.
Much like Chapter 4 ( The Technology of ICON) and Chapter 5 ( ICON Tokenomics & Economy) broke down the white paper and IISS yellow paper, respectively, this chapter was based around an analysis of the governance yellow paper, entitled “ ICONstitution and Governance.” As with the other documents, I suggest reading that document either before or after this article.
If you have not already done so, please take a moment to read the preceding chapters of this series:
- What is ICON?
- ICON’s Genesis
- The People & Teams of ICON
- The Technology of ICON
- ICON Tokenomics & Economy
- Public vs. Private Chains & the Network Effect
- The Growing ICON Ecosystem
Principles of ICON’s Governance
In the yellow paper on governance(“ICONstitution and Governance”), ICON states that governance of the ICON Network embodies three principles:
At it’s core, one of the most critical features of blockchain technology is the decentralized nature of the network. Here is the ICON yellow paper on governance:
“Unlike the conventional network environment, where a single trusted entity processes all tasks, the public blockchain network environment needs a way for all participants to agree with mutual understanding given the large number of unspecified participants autonomously conducting their tasks. This situation is not unlike our traditional society composed of people. People establish a singular law and order under which everyone can build a trustworthy society through mutual understanding. Similarly, a decentralized peer-to-peer network can operate with the highest degree of reliability given the ability to conform to the consensus of its participants, thereby allowing participants of free-will to self-govern their network within a given economic structure.”
Any network will require decisions to be made; if they aren’t to be made by a centralized entity or group, then they must be made through decentralized consensus.
With that in mind, ICON’s governance model is designed to achieve true consensus in a decentralized manner. This is not a unique goal of blockchain governance; they all seek decentralization in some manner, so it’s not surprising to see it listed here. That being said, as you continue to read this chapter, you’ll see that ICON’s model provides a unique approach to governance.
As you likely know, the goal of the ICON public chain is to “Hyperconnect the world” by linking separate blockchains in a manner that allows them to communicate. From that standpoint, the separate blockchains are stakeholders in the network and deserve sufficient representation and input. Accordingly:
“To this end, the ICON Network focuses on supporting multiple communication channels, decision-making structures, and compensation models as to allow multiple individual networks to organize under a mutual understanding. The ICON Network respects the independence of each blockchain community and does not interfere in their governance structures, but must also ensure the security of the interchain network.”
ICON has stated it’s their goal to ensure the voices of participating communities is incorporated into governance model.
This may be the most important and novel principle of ICON’s governance:
“ICON Governance measures the contribution of all ICONists involved in the operation of the ICON Network in accordance with a specified evaluation system and distributes reasonable compensation accordingly. Through this system, each representative can objectively evaluate one’s contribution to the ICON Network, whether through delegation from other ICONists or one’s own contribution. In the ICON Governance, an ICONist who has made a sufficient contribution to the network is considered credible and is qualified to be the subject of major decisions in the network. This approach makes it possible to prove a variety of contributions to the ICON Network, as opposed to merely proving stake, as in the existing “Delegated Proof of Stake” approach.”
In simple terms, ICON’s governance process is designed in a manner that leans toward providing those who contribute the most to the network with the greatest amount of input into the governance of the network. This is important for two key reasons:
- Those who are actively contributing to the network have a track record of acting in the best interest of the network and are less likely to make decisions that would jeopardize the network.
- Those who contribute the most to the network have the most to lose if the network fails or does not grow.
How does this happen in practical terms? As you may remember from Chapter 5 ( ICON Tokenomics & Economy) of this series, the mechanism for quantifying a contribution to the network is the “ICON Incentives Scoring system” (IISS) score. Those who have a higher I_Score will have a more significant voice in electing representatives.
ICONists can receive a higher I_Score either by receiving rewards for their work on the network, or they can receive delegated IISS — and thus a higher I_Score, from ICONists who choose to ‘delegate’ their IISS to a desired representative.
This might get a bit confusing, so let me break it down a bit more simply.
Prior to the launch of the network (which will occur in September 2019), the only way to generate IISS is through receiving a delegated stake from ICONists. Ultimately, this means ICONists themselves — through electing representatives — will be deciding who has contributed the greatest amount to the network (or who likely will contribute the greatest amount). While this process is viewed as delegating your ICX, in reality, the ICX you “delegate” is converted into IISS, which is what is actually delegated. While this process is relatively subjective, delegating will ultimately provide P-Rep candidates with an I_score, with those receiving the highest delegated amount being chosen as representatives.
From this point, their IISS score will come from not only those who choose to delegate, but also from the rewards they will generate through their objective network contributions — in this case, the most significant rewards will flow to those individuals who produce and validate blocks. As their own IISS score increases, their own voice (in the form of I_Score) for who to elect as a representative will grow as well.
In other words, ICONists receive I_Score from the ICON network itself, which rates their contribution on an objective basis and rewards them with IISS. They also receive I_Score from other ICONists who rate their contribution on a subjective basis (by delegating their I_Score to their fellow ICONists who they believe are contributing the most).
Now, let’s take a moment to break down the participants in the ICON Republic.
An ICONist is anyone who uses the ICON Network, including those who simply own a token, as the purchase of the token technically required use of the ICON Network. Numerically speaking, ICONists as a category contain the highest number of participants.
An ICONist has multiple rights:
“a. Right to Governance: An ICONist has the right to voluntarily participate in the decision making of the ICON Network through the delegation of authority, of which is based on one’s respective contribution to the ICON Network, or being oneself a delegate.” In other words, ICONists have a right to participate in their own governance by delegating their IISS in order to elect representatives who act on their behalf.
“b. Right to Compensation: All ICONists shall be fairly compensated for their respective contribution to the ICON Network.” In this case “compensation” refers to the staking rewards received by those who vote for representatives.
“c. Right to Access: Each ICONist has the right to freely use the ICON Network.” This is fairly self-explanatory. Basically, it’s impossible to exclude anyone from using the ICON network.
However, these rights come with responsibilities:
1. All ICONists shall strive to ensure that the ICON Network runs properly. This is done by ensuring they elected representatives who have the best interest of the network in mind, and are technically capable of ensuring the network runs without interruption or corruption.
2. All ICONists shall oppose any transgression against the ICON Network. It’s ultimately in the best interest of all ICONists to oppose representatives who act maliciously or incompetently in their governance of the network.
Representatives are comprised of both P-Reps and C-Reps, each of which is elected from their respective community. In the case of P-Reps, this community is comprised of all ICONists; in the case of C-Reps, they are elected by their respective communities. For instance, a community comprised of a hospital consortium using their own blockchain connected to the ICON public network would elect — through their own internal governance mechanism — a C-Rep to act on their behalf relative to the ICON public chain.
A representative can either serve as a P-Rep or a C-Rep, but cannot serve as both. Additionally, each must meet minimum technical computing requirements in order to generate and validate blocks on the ICON network.
Representatives have two powers: the ability to make governance decisions about network policies, and the ability to verify and generate blocks on the network.
Like ICONists, this power does not come without responsibility. The duties of all representatives are:
“a. Duty to manage the ICON Network.” This is done by validating and producing blocks.
“b. Duty to participate in the governance of the ICON Network.” This means discussing and voting on governance decisions.
“c. Duty to protect the ICON Network.” Representatives must ensure they have sufficient and consistent computing power required to produce blocks on the network, while also supporting governance decisions that do not jeopardize the functioning of the network.
“d. Duty to nurture ICON Network.” Representatives should dedicate resources and activity toward initiatives, projects, and development that will allow the network to grow and flourish over time by making sure it’s enticing for potential enterprise adapters, DApps, and developers to utilize and build upon.
Accordingly, when it comes to voting for a representative, and ICONist should feel confident that their chosen representative(s) will be willing and able to fulfill all of the above responsibilities and duties.
Elements of Governance
Now that we know just who representatives and ICONists are and what their responsibilities entail, let’s look at how governance actually occurs.
The primary mechanism for making decisions regarding the ICON network is through a “Resolution.”
There are two types of resolutions — special resolutions and general resolutions.
A special resolutions are those that specify “to the Constitution or other issues that have significant impact on the ICON Network.” Due to their gravity, they require a 2⁄3 supermajority vote, with a requirement that at least 1⁄3 of representatives (weighted by delegated amount) cast a vote.
General resolutions are less significant and require only a simple majority vote to go into effect.
Any ICONist can submit a resolution. This is done through the “Governance Channel,” which is “organized in the form of a public forum and, although these decision-making processes take place outside of the ICON Network, the issues discussed within the forum provide important ideas for improving the ICON Network.”
This is the equivalent of a town square — a place for all ICONists to suggest ideas and debate them. Inevitably, some ideas will be bad and quickly labeled as such; others may have merit, but after adequate discussion be viewed as not the right path; and another proposal will be seen as a productive idea. These ideas — whether good, bad, or ugly — are referred to as a “progressive suggestion.”
In addition to the Governance Channel, there is also a “Representative Channel,” which “is used by C-Reps and P-Reps to make official decisions regarding resolutions. Representatives can introduce resolutions discussed outside the ICON Network or submit resolutions by reviewing ‘progressive suggestion’ submitted in the Governance Channel.”
Let’s assume that, in the Governance Channel, an ICONist comes up with a resolution that many believe will have a beneficial impact on the ICON network. A representative (either a P-Rep or C-Rep) can take that idea and submit it as a resolution. When this occurs, representatives vote on the resolution and it either passes or fails — depending on if it needs a majority or supermajority — and the resolution is either adopted or rejected. While only representatives can make decisions in this channel, all activities in this channel are entirely public.
Finally, we have the “Developer Channel,” which is similar in nature to the Governance Channel, but is focused on more technical issues. According to ICON, “This channel is used for discussing the development of open-source projects related to the ICON Network, potential technical solutions, and sharing technical documentation used to support the ICON Network. It is a channel dedicated to the developer community and it contains public source code repositories.”
Resolutions can be implemented in two ways — either on-chain, or off-chain. When they are “on chain,” they are inscribed into the ICON Network’s contract and are consequently implemented without further action. Off-chain resolutions are not built into the contract, and thus must be honored by ICONists and representatives.
However, without a binding process to implement an off-chain resolution, how do we ensure the resolution is honored? In this case, disciplinary mechanisms are in place to punish those who refuse to comply with approved resolutions. This includes a special resolution introduced to remove an obstinant representative and prohibit them from ever serving as a representative again. Accordingly, the consequences of refusing to comply with an approved resolution are significant.
The Interests of P-Reps vs. C-Reps
As discussed, there are technically two types of representatives: C-Reps and P-Reps. While P-Reps are elected by the ICON community at large, C-Reps are chosen internally by the community they represent to serve as representatives on their behalf.
When it comes to voting for resolutions, C-Reps will propose and vote on policies that represents the interest of their own community. P-Reps, meanwhile, will vote on policies that benefit the ICON network as a whole. In many cases, these interests will align; however, in others, there may be a divergence between the interest of the ICON network, and the interest of individual communities. In these cases, a compromise between the two groups can be reached, ultimately leading to a better overall outcome for the network and all its communities as a whole.
Governance in Practice
Now that you know all the relevant players and processes, let’s look at a real-life example of how this may play out in real life.
One of the decisions that representatives will have the ability to decide is the exchange rate between Step and ICX. As you may know, Step is a unit of measurement for transaction fees, calculated by the computational resources required to execute a transaction. As of now, 100,000,000 step is equal to 1 ICX.
However, as the value of ICX increases or decreases over time, ICON representatives will be able to vote to change the exchange rate. As of now, if the cost of ICX increases 1000%, so will the cost of using the ICON network. If this happens, it would likely become too expensive to use the network, which would cause usage to drop. Accordingly, it’s important that the network has flexibility to increase or decrease the Step exchange rate in order to balance out the need to make it reasonably inexpensive to use the ICON network, while also expensive enough to minimize inflation and cover network rewards.
Let’s say that after a few weeks of gradual price increases, an ICONist named James believe it’s time to alter the exchange rate. He can go to the Governance Channel — an online forum — and put forth a “progressive proposal” to alter the exchange rate to a certain amount. After some diligent discussion among other ICONists, there is general consensus this is a good idea, but they decide on a number slightly different than what James proposed. At this point, a representative can take this idea and submit it as a formal resolution in the Representative Channel.
At this point, due to it’s importance, it would almost certainly be a specific resolution, meaning it requires a vote approved by at least two-thirds of the aggregate contribution that participated in the vote. It also must have a quorum which shall be one-third of the aggregate contribution either owned or delegated to all representatives.
With the resolution introduced, representatives will vote, and votes with higher I_scores will carry more weight. After all is said and done, the resolution passes.
In this case, the ICON network smart contract would be altered to reflect the new exchange rate, and all future transactions would incorporate this new fee.
Throughout the design of this system of governance, the most consistent theme is the concept of “contribution.” ICON has built a governance model geared entirely toward incentivizing contributions to the network, either as determined objectively by the network itself, or as determined subjectively by fellow ICONists.
This complements ICON’s economic system, which is also geared almost entirely toward incentivizing and rewarding contributions to the network.
Ultimately, ICON believes contributing to the network is the most important thing that an ICONist can do, so much so that they’ve built two models entirely around the concept. Contribution comes in many forms, of course. ICONists can contribute by evangelizing about the project, they can contribute by building upon the project, they can contribute by serving as network validators. All of these aspects make the ICON network stronger, and ultimately more valued by prospective enterprises who may seek to connect their private chain to the ICON public chain.
Accordingly, as an ICONist, when you vote for a P-Rep, you should be doing so based on who will contribute the most to the ICON network over the long term. You shouldn’t do this solely because ICON thinks it’s important; you should do it because it’s in your long-term interest to support representatives who are committed to contributing to the ICON network. Without continued growth; without continued progress; without ongoing development, the large enterprises we all hope will someday connect with the ICON network will have little desire to do so.
If you were a large company exploring the implementation of blockchain technology, would you jump on board a network with activity that peaked in the past, or one that is building and growing more today than it did yesterday?
I think that’s an easy decision.
A network that has atrophied could be the downfall of the ICON project. In the next chapter, I’ll take into consideration some other problems the network could encounter that could be fatal. This won’t be to create FUD, but to ensure the community is aware of potential pitfalls and works together to avoid them.