Skin in Game: Governance on the Agreements Network

How does the Agreement Network ensure its health? Introducing a carefully designed forward-compatible environment of an open network, trusted validator nodes, voting, skin-in-game staking and token rewards.

Governance – it’s how we manage group activity and plan for a future full of change. In designing an open blockchain application, governance is a foundational issue that blurs the boundaries between tech, law and business. Effective self-governance in the Agreements Network (AN) is critical to its role as infrastructure on which modern legal products operate.

Monax got its start in this industry in the summer of 2014 as an experiment in decentralized governance when we built eris – a framework for decentralized organizations using blockchains and smart contract technology. Much of that code was incorporated into Hyperledger as Hyperledger Burrow in 2017. We’ve built and tested a strong foundation that will support transformative network governance models.

A resilient decentralized governance system requires sound design from multiple perspectives.

  • It must provide methods for handling the day-to-day needs of platform operations.
  • It must provide mechanisms for dealing with change.
  • It must provide mechanisms for enforcement of governance rules.
  • It must be fair, trustworthy and represent the interests of all stakeholders, a non-zero-sum model.
  • It should utilize network resources in order to enforce community cohesion, e.g., reputation and ratings.

The Agreements Network carefully combines an open network, trusted validator nodes, voting, skin-in-game staking and token rewards to produce a forward-compatible environment custom designed to promote growth of it’s open ecosystem. The initial iteration of the governance structure is rooted in a commitment to integrity and simplicity, leveraging Monax (and our fellow co-founder’s) experience operating decentralized governance systems along with a determination to operate resilient legal infrastructure for the modern, networked economy.

Governance Incentives and Mechanisms on the Agreements Network

In the Agreements Network, the basic tools for managing day-to-day operation of the blockchain are tokens and validator nodes. The same tokens are used as consideration for bonds that allow the production of legal products within the Agreements Network.

Token Mechanism

The Agreements Network requires “skin in the game” from many of its user groups. This promotes self-interest and reward for good work within the Agreements Network.

People who seek to make money using the Agreements Network must have a stake in the health of the ecosystem in order to earn. This means that folks who want to earn via the Network must acquire tokens and place them into a bond. A bond, in the context of the Agreements Network is essentially a protocol-controlled escrow account. This bond provides two functions to the network. First, it ensures that participants have “skin in the game” when they seek to make money within the context of the network. Second, it provides protection against spam in the Network.

The network uses bonds extensively within its token economics protocol. If the users follow the network’s rules and later wish to receive their bond back, they may do so. If the users violate the Network’s rules then they have a portion of their bond “slashed,” or reduced. This bond is then distributed to the validator pool for platform.

Any user seeking to make money in the Network by building legal products needs to place a bond in the form of Agreements Network tokens before their products are added to the network. The number of tokens required to bond an Archetype is an asymptotic variable, a function of the total number of Archetypes within the system, calculated to enable the network to scale dramatically over time. For more detail have a look in the Agreements Network Whitepaper.



Day-to-day Operations

The day-to-day operational needs of the Agreements Network are performed by the Network Validators. Validators are known entities with proof of stake that operate Agreements Network blockchain nodes. Blockchain functionality supported by the Network Validators enables us to design liquidity, incentive, evidence and automation processes that execute inexpensively and scale rapidly. Tokens are the means by which data is transferred and proved in blockchain networks. We can give tokens valuable properties and move them in network commerce to create and enforce incentives to acquire tokens, run validator nodes, maintain operations and encourage healthy content production and consumption.

The primary mechanism for managing Agreements Network priorities over time is voting. The voting mechanism is informed by traditional corporate governance structures, but reimagined for resilience in open, decentralized networks. Voting power is a function of validator bonding tokens, i.e., skin in the game. Because the Agreements Network is designed and tooled with existing contract and regulatory structures ensures in mind, it encourages user compliance with expected protocols without overly prescribing or restricting user activities.

A concrete example of how we leverage the governance and voting mechanism is the process for addition of new smart contracts to the Agreements Network. Because the Network has been designed to be a low- or no-code solution for most of its users, is not necessarily a frequent occurence for new solidity smart contracts to be added to the Burrow-based blockchain running the Network. However, there will be times when the contracts providing the base protocol need to be updated, or when new features are desired to be added to the chain by actors within the ecosystem. To ensure that these actors have a right to participate at a foundational level within the system the rules for adding new smart contracts work like this:

Not just anyone can add new smart contracts to the Network; however anyone can propose to the validators that new smart contracts are added to the Network. Validators then have a right to quality assure those contracts, and vote on whether they should be added to the chain. If the validators vote by a +23 supermajority (required for consensus) then the contracts are automatically deployed in the next block following finalization of the vote. If the validators do not approve then the contracts are not added to the chain.

Beyond Tokens: Reputation and the Marketplace

Producers of legal products have another mechanism of ensuring compliance with Agreements Network standards: reputation. Since Producers have “skin in game” and are known (either explicitly or pseudonymously), another method for Producers to increase their value proposition and earnings in the Network is through maintaining high standards of product quality. Tester results and popularity of an Archetype may increase the value proposition of its creator, creating a virtuous cycle of useful products.

Testers are first class citizens of the Agreements Network’s smart contract protocol. Testing involves review by lawyers other than the producer of the archetype to signal to the network that an archetype is fit for its purpose. Testers put their ‘skin in the game’ via bonding against that archetype. In return for placing this bond, testers receive a portion of the fees that are paid when the archetype is used to create a new Active Agreement within the Network.

Long-term Governance and Change

The primary mechanism for managing Agreements Network priorities over time is voting. The voting mechanism is informed by traditional corporate governance structures, but reimagined for resilience in open, decentralized networks. Voting power is a function of validator bonding tokens, i.e., skin in the game. Because the Agreements Network is designed and tooled with existing contract and regulatory structures in mind, it encourages user compliance with expected protocols without overly prescribing or restricting user activities.

Get skin in the game. Find out more about the Agreements Network.

Photo by James Wainscoat on Unsplash

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