a16z: This is how we delegate DeFi governance rights

The well-known Silicon Valley venture capital firm Andreessen Horowitz a16z is an important indicator in the technology venture capital circle. Its investments in cryptocurrency startups have been a focal point of the industry. On the 26th, a16z published an article titled "Open Sourcing Our Token Delegate Program", discussing how a16z delegates governance tokens it holds to various specialized organizations and seeks public engagement on maximizing governance rights.

It was also revealed that a16z allocated governance tokens from Compound and Uniswap to several tech companies, academic institutions, and opinion leaders.

Here is the full translation:

"Open-Sourcing Our Delegation Program"

Cryptocurrency talks about removing gatekeepers, i.e., barriers to entry. This characteristic sets it apart from traditional internet services, maintaining openness, neutrality, and fairness. However, cryptocurrency protocols are not yet fully formed. Over time, they will evolve toward this state, as networks expand upwards, shifting control outward.

As this process unfolds, a new group of "protocol governors" emerges, taking the reins from the original development teams. If done well, this new community will have incentives to act in the best interest of the protocol, diverse enough to balance competing interests. This will keep the protocol neutral and flexible; resistant to arbitrary changes but able to undergo necessary upgrades.

The ultimate outcome is to create an open protocol free from control by any individual or company, capable of operating sustainably as designed, and remaining open to all. While many advanced protocols are already undergoing this transition, it is undoubtedly a challenging endeavor. Cases like MakerDAO, Compound, and Uniswap serve as examples.

As stakeholders in these networks, our goal is to help facilitate these transitions as much as possible. We have previously discussed several potential methods, but we want to extend a particularly effective one: token delegation.

Literal meaning, delegation refers to the process where token holders transfer their on-chain governance rights to others. But fundamentally, delegation is a way to augment important participants' involvement in the governance process. When done effectively, it will eventually become a way to establish high-quality governance institutions for the long term.

However, to truly unlock these benefits, a "strong" form of delegation is needed. One that not only reduces surface-level centralization but also enhances the quality and diversity of governance institutions. Perhaps most importantly, each delegated representative, independent of token holders, can vote according to their own judgment.

Over the past year, we have established delegation programs based on precise principles, delegating over half of the voting power to many suitable representatives, which have been applied in protocols like Compound, Uniswap, and Celo. These include top non-profit organizations like Kiva and Mercy Corps, global enterprises like Deutsche Telekom, crypto startups like Gauntlet, Argent, and Dharma, university organizations like the Stanford Blockchain Club and the Columbia University Blockchain, and prominent opinion leaders like Getty Hill.

We are excited to share this initiative with the community and open-source all its components, including:

• Best practices of token delegation
• Standards for evaluating delegates
• Legal mechanisms and sample documents
• Current a16z delegation network
• Ideas for future improvements

We hope to release these resources to assist various community members, including developers considering protocol governance, token holders interested in delegation, individuals or teams willing to become delegates, etc. If this resonates with you, please reach out to us—we would love to hear your thoughts and find ways to collaborate!

Best Practices of Token Delegation

Over the past year, we have collaborated with dozens of delegates across many top protocols. Here are some best practices we have identified throughout the process that we believe are valuable to others as well.

Early Delegation: Delegation is valuable at any point in the protocol's lifecycle. However, it may be most impactful in the early stages when the protocol is live but the native tokens are not widely distributed. During this period, delegation is valuable for several reasons. Firstly, it can accelerate the distribution of governance power ahead of the token distribution schedule. This is especially crucial in protocols with long distribution cycles, where governance tokens may take years to be widely dispersed across the community. In such cases, delegation allows for more participants to have a voice in the process, aiding in increased participation in the near term. In the long run, it can also help facilitate the development of high-quality governance institutions (more on this below). Given that these impacts intensify over time, early incorporation of delegation can be beneficial.

Elevating Community Leaders: Delegation can serve as a means to elevate those community members who demonstrate leadership in early governance. These individuals are often active users who understand the protocol and wish for its development but do not hold enough tokens to meaningfully participate in governance. We have seen many examples where individuals or small teams have shown leadership and, therefore, received token delegation to drive meaningful upgrades to the protocol. This, in turn, encourages further delegation, upgrades, etc., forming a virtuous cycle. Internally identifying these types of leaders and uplifting them through delegation helps in the long-term interest of the protocol.

Recruiting External Perspectives: Delegation initially provides a tool to incorporate new perspectives into the protocol ecosystem. These perspectives often come from individuals or groups interested in crypto, bringing valuable unique skills but have not had the opportunity to engage in protocol governance. As delegation to them requires little or no upfront cost, these individuals can contribute right away. We have delegated to many non-profit and student organizations and witnessed individuals becoming leaders in governance communities. This approach helps increase governance diversity within the protocol and the entire crypto ecosystem.

Ensuring Delegate Independence: Delegates must have the right to vote independently of token holders. This is a fundamental attribute of any well-designed delegation process. At a minimum, this means token holders should not attempt to overtly or covertly influence or dominate their delegates' participation in any way. We further recommend that token holders commit to a certain minimum duration of delegation, with rights to be revoked only under exceptional circumstances, such as prolonged non-participation by the delegator. There may be other ways to further build on this concept, but overall, this mechanism allows delegates to ensure they can vote in a manner they deem appropriate.

Providing Ongoing Transparency: As delegation becomes more prevalent, ongoing transparency from token holders to their delegate networks will become increasingly important. This provides visibility to the community on matters such as stakeholders, delegation terms, relationships between delegators and delegates, etc. It also allows the community to benefit from public scrutiny and feedback on these mechanisms through iterative improvements. We are committed to maintaining this transparency in our program and encourage others to do the same.

Evaluating Delegate Standards

When evaluating potential candidates, we assess based on many key criteria to ensure the identification of individuals who can meaningfully assist governance institutions and become long-term community leaders.

We have already published a comprehensive assessment rubric, which is currently used to score our delegates. In general, we focus on the following areas:

• Protocol Engagement: How involved is the candidate in the protocol and its governance?
• Primary Expertise: What is the candidate's background, and why are they qualified to participate?
• Participation History: How is the candidate's experience in community participation, and how are they generally perceived by the public?
• Absence of Conflicts of Interest: Does the candidate have any significant conflicts of interest with the protocol, or do they stand to benefit from the protocol's failure?
• Alignment with Protocol Prosperity: Is the candidate aligned with the long-term interests of the protocol?
• Independence from a16z: Does the candidate maintain complete "distance" from a16z to ensure independent voting after delegation?
• Impact on Power Decentralization: Does delegating to the candidate help further distribute governance power in the network?
• Diversity of Perspectives: Does delegating to the candidate increase the overall diversity of governance perspectives and help avoid groupthink?
• Overall Management Aptitude: Does the candidate embody a managerial spirit and believe in the protocol's fundamental mission?

We score candidates on a 0-2 scale for each category, based on a complete set of questions contained in the rubric, typically selecting advancing candidates with a score of 70% or higher. As seen in the chart below, there are many different ways to achieve a passing score, not relying on a single background or personal profile.

Legal Mechanisms and Sample Documents

For qualified candidates, we sign a brief agreement outlining the basic terms of delegation. Here is our sample agreement. Similar to the evaluation criteria, this is the delegation sample we are currently using.

Here are our key terms and the fundamental principles behind them:

Participation: We require delegate representatives to stay informed and participate in a manner they reasonably believe is in the best interest of the protocol. Beyond this, they are free to participate.

Delegation Amount: We aim to provide each delegate with a sufficient amount of tokens, measured through various related metrics, such as tokens for significant proposals, to have a meaningful impact on governance.

Compensation: We provide a minimal fee to each delegate to cover all their expenses. All cases are at a minimum amount of $500 per month or less, used to cover gas fees incurred in voting and proposal submissions, etc.

Term and Termination: We commit to maintaining delegation for a period of at least six months, with revocation only in very few circumstances. Furthermore, even if delegates vote against in every vote, we cannot revoke delegation during the term. This helps ensure delegates have the right to vote independently in any way they see fit.

Renewal: At the end of the initial term, our delegation will automatically renew unless otherwise agreed upon.

Once delegates join, they are free to participate in governance. We occasionally contact delegates, but otherwise, they are entirely independent from us after our initial delegation.

Current a16z Delegation Network

Below are the breakdowns of our current Compound and Uniswap delegation networks, including the types of delegation:

While our representative network has grown and diversified since we first launched the program earlier this year, we are still in the early stages. We look forward to seeing a more diverse representative ecosystem emerge over time. If that could be you, please let us know!

Future Outlook

Ultimately, we are staunch supporters of delegation and believe it can play a vital role in protocol governance. We are releasing this framework as a practical starting point for others to begin considering delegation and how to embody it.

Lastly, we plan to continue building it in several key areas. First, continuing to diversify the types of delegates we collaborate with, including the categories listed above and new ones.

If you are interested in becoming a delegate, please reach out to us! Second, engaging in more new protocols that allow on-chain delegation. We are open to hearing your thoughts and collaborating with developers and community members considering this decision. Third, integrating feedback and ideas from the community to improve our framework and enhance it further, so please let us know your thoughts!