What is Decentralized Governance?

DeFi, General - September 3, 2020

Video Overview

Governance is an important part of building a company. But how does decentralized governance work in the DeFi world? And is it important? In this video, we explain decentralized governance, and how it ties into shared governance, information governance, and global governance.

A company works according to a certain rulebook. This rulebook is different for how it works externally, and how it works internally. Governance refers to how it works internally.

This ties into the decisions areound how to use the cash generated in the best way, how to vote on decisions, and makes these decisions. Several important financial functions like – dividends paid, cash reinvested, hiring of management and more are governance decisions. All this basically means governance is an important function of a company.

In the DeFi world, governance is decentralized. This means that there are no humans making governance decisisons. These are made by code, according to a rulebook made by the developers. This means that the governance is embedded and does not have to called up, or audited, or verified on an ongoing basis. It is only a one-time effort.

DeFi and DAO

The governance solutions are important because it ties into how decentralized autonomous organizations or a DAO works. Many important DAO companies are creating the building blocks of the DeFi world like insurance, lending platforms and real-world assets.

One of the examples of this is a company called Maker DAO. The stablecoin DAI is created by Maker DAO and operates on the Ethereum blockchain. Another company is Aragon, which allows you to create decentralized companies.

Financial advisors who want to understand these DeFi companies should understand how their decentralized governance works.

Enjoy the video!

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