【Selected ChainNews】Why is the Snapshot that never issues tokens worth paying attention to in this wave of DAO craze?

The gas-free voting solution of the governance aggregation platform Snapshot has addressed the biggest pain point in the operation and governance of decentralized autonomous organizations, potentially leading to a new experiment in hierarchical governance structures.

Written by: Pan Zhixiong, Director of ChainNews Research. Thanks to blockpunk for providing some materials and perspectives on learning the principles of Snapshot.

After a large number of decentralized finance (DeFi) protocols issued "governance tokens," there has been renewed attention to blockchain governance issues, making the selection of effective protocol governance tools a major concern.

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Good news: Years of infrastructure development have led to a variety of protocols, platforms, and tools on Ethereum that focus on governance services. However, the bad news is that as the Ethereum network becomes congested with DeFi transactions, other low-economic-driven on-chain transactions are forced out, making it particularly challenging for users with smaller fund sizes to participate, significantly impacting user interest and motivation in on-chain governance.

It can be said that the current contradiction on the Ethereum network lies between the increasing user participation enthusiasm and the high costs due to decentralized network throughput limitations. Decentralized Autonomous Organizations (DAOs) have always been an important application scenario for blockchain networks and have thus been greatly affected. If a DAO organization cannot collect the broadest user perspectives and only has whales participating in governance, it goes against the original intention of establishing DAO.

Fortunately, the decentralized trading protocol Balancer has launched the completely open-source off-chain governance voting platform Snapshot, attempting to address the issue of gas costs on the Ethereum network. After launching on Snapshot, it quickly gained support from more than 10 public chain networks and over 200 projects, but whether this will bring centralization risks remains a point of ongoing concern.

Although Snapshot currently appears to be a governance aggregator, with the integration of Aragon's tools, it may evolve into a complete governance solution, providing low-cost and secure toolsets for projects in need of governance.

In the process of achieving the grand goal of perfect governance on the Ethereum network, Snapshot provides a constructive middle path.

What Problems Does On-Chain Governance Encounter?

Blockchain, as a completely open network, can be used to build various general-purpose applications. In addition to the most common decentralized finance (DeFi) applications, decentralized autonomous organizations (DAOs) are also an important scenario.

DAO is a form of organization for projects and participants. Some projects in the industry have started exploring the advancement of projects in the form of DAO, rather than traditional forms such as companies or investment funds. Many DeFi projects with DAO endings are exploring this new concept: PieDAO, KeeperDAO, and even MakerDAO.

As participants in DAO, besides forming a community of interests through tokens, organizing discussions or activities, the most important thing is actually proposing and voting on changes to the project, and then executing them. Ethereum, as a general open platform, can be used as a place for voting implementation.

However, this year, with the explosion of DeFi applications, more and more transactions are guided by arbitrage or potential speculative opportunities, leading to the displacement of on-chain transactions with low economic incentives. This also means that frequent voting activities without direct economic benefits will lack more ordinary users, as most people are not willing to spend tens of dollars in on-chain transaction costs just to vote with a value of a few hundred dollars.

Especially on the day when Uniswap launched its governance token UNI, gas prices exceeded 500, hundreds of times higher than at the beginning of the year. Even now, with gas prices around 20-30, a normal voting on-chain transaction would still cost at least a few dollars.

Snapshot Never Issues Coins

To promote the activity of project governance and allow more extensive users to express their opinions, the decentralized exchange protocol Balancer team has developed a platform called Snapshot, attempting to solve the above-mentioned problems with this off-chain gas-free governance aggregator.

Snapshot can be considered a community-driven platform, and the developers took into account the platform's attributes, so they adopted the very open MIT open-source license agreement and insisted on not issuing tokens or considering a business model, with all funds coming from community donations. This development team is very distinctive, stating that they will not use funding for marketing activities and will publicly disclose all funding transfer details.

Because of this, many DeFi projects have directly adopted the entire solution provided by Snapshot, or used it as a supplement to on-chain governance. Leveraging ready-made "wheels" from others is a common logic in the open-source world.

As a project party, you only need to submit some basic information about the project, and it may take as little as 5 minutes to set up a governance space on the Snapshot platform without any additional cost.

As a user, you only need to access the project party's governance space using wallets like MetaMask, without paying on-chain transactions, to propose or vote on proposals.

Moreover, Snapshot has no restrictions on projects and blockchain networks, so far it has supported 13 public chain networks (including testnets) and over 200 projects, with more being rapidly added.

How Does Gas-Free Governance Work?

Snapshot's solution uses a layer of network signature mechanism and the InterPlanetary File System (IPFS, not Filecoin) to achieve distributed storage, somewhat like using a second layer for scalability.

For Ethereum network accounts, they inherently support message signing. In other words, for Ethereum account addresses, they can all be signed with private keys to ensure that a message is issued by a specific address. The signed message can be on-chain or off-chain, and there are ways off-chain to verify the authenticity of the message.

After the introduction of Ethereum Improvement Proposal EIP-712, originally hexadecimal signature messages were also structured, allowing users to understand what message is being signed through wallets, reducing the risk of users "blindly signing."

When a user votes on a proposal, the front-end wallet (such as MetaMask) will prompt the user to sign the vote action, with the message containing support for a specific "option" of a specific "proposal" for a certain "project."

Once confirmed, this signed message is uploaded to a specific IPFS address through Snapshot. Throughout this process, there is no need to touch the Ethereum mainnet, so no gas fees are required.

When using Snapshot for governance, initiating a proposal follows a similar process. The initiator needs to submit the start and end times of the vote, as well as a snapshot of the block height as a reference for the vote count. Then, it's the signed message, uploaded to IPFS.

During or after the vote, anyone can check the voting status of everyone at any time on the governance proposal page.

Aragon Integrates On-Chain Execution for Snapshot

Snapshot is a purely off-chain governance platform. However, through cooperation with Aragon, governance can be extended on-chain.

As one of the earliest comprehensive DAO governance platforms, Aragon announced a collaboration project related to Snapshot in September this year, planning to bring on-chain execution capabilities to Snapshot. The collaboration is currently live on the testnet.

Aragon believes that voting on-chain is the safest and most decentralized way, and combining the advantages of off-chain and on-chain can achieve a more secure and decentralized governance process at a lower cost. The collaboration between Snapshot and Aragon holds great potential.

Aragon combines two features, Aragon Court and Aragon Agent, to Snapshot to achieve the effect of on-chain voting results.

Aragon Court is a blockchain-based on-chain court launched by Aragon, providing arbitration solutions for disputes and allowing users to stake tokens to apply as jurors, resolving disputes and earning rewards.

Aragon Agent is an "agent" role owned by organizations in Aragon, based on a multi-signature account, which can assist organizations in interacting with other Ethereum accounts or protocols, such as conducting transactions with other DeFi projects.

After Aragon is integrated into Snapshot, the previous process remains unchanged. Users still vote gas-free and store the results on IPFS. However, after the vote, anyone can package and submit the voting results to the chain — of course, this step requires paying some gas fees.

To ensure that the submitted voting results are completely accurate, the system also includes a time lock. If someone maliciously submits results favorable to themselves, within a certain period, everyone can question the results and provide evidence to Aragon Court.

This is actually the optimistic voting concept previously proposed by Aragon, similar to the Optimistic Rollup in the second-layer scalability solution. Initially, it "optimistically" believes that the person submitting the results has submitted complete and correct data, but if someone maliciously attacks, anyone can raise objections and provide evidence.

What New Challenges Does Snapshot Bring?

In terms of the voting process, Snapshot has cryptographic guarantees, ensuring that voting results can be verified and the process is tamper-proof. However, Aragon believes that "the entire voting process of the Snapshot solution is very centralized, and token holders can release their voting preferences, although this is just a signal."

In addition, based on Snapshot governance and projects capable of building their own on-chain governance, there are two independent governance systems that are not interconnected. Users may be confused about whether to participate in project governance on the Snapshot website or the official website of the project party. If integration is possible, it may be a complete governance solution.

For example, you can currently find MakerDAO's governance space on Snapshot, but there are no effective proposals. MakerDAO definitely uses its own pure on-chain governance platform. There are many projects on Snapshot that have governance spaces but are not actually in use.

However, this may promote an experimental hierarchical governance structure, using Snapshot for more extensive opinion collection, allowing more people to propose and vote at a lower cost. Later, the project's own on-chain governance platform can be used for final voting to ensure the process's security.

Are There Any Other Solutions?

DAO may eventually become a fundamental component of blockchain platform collaboration, so the direction explored by Snapshot is very necessary and, in terms of specific implementation effects, far exceeds expectations.

However, besides this, there are more scalability solutions worth trying and integrating into DAO platforms, such as sidechains (xDai) or other Layer 2 solutions.

Recently, xDai gained popularity due to the Circles UBI project. As an Ethereum sidechain, it is very similar to the mainnet in terms of consensus mechanisms, and it uses stablecoins as the blockchain network's fee billing method, making it more user-friendly. Optimistic Rollup and ZK Rollup are Layer 2 scalability solutions that are expected to go live and be widely adopted next year. Many DeFi projects and wallets are already in development and testing with them.

Perhaps DAO platforms can also leverage these solutions to find a balance between decentralization and cost, allowing more people to truly participate in project iterations and decision-making. However, in the short term, Snapshot will be a good choice.

This article is authorized and republished from ChainNews