Governance is an important field of growth for the blockchain industry. New developments have advanced the state of the art of blockchain governance to a crucial third generation distinct from previous advances. Third-generation blockchain governance is characterized by a high degree of protocol-level, participatory governance that is extended to dapps and DAOs deployed on the blockchain as well.

To date, the term, third-generation, in blockchain has referred to the blockchain protocols themselves. In this model, Bitcoin is a first-generation blockchain based on proof of work consensus; Ethereum is a second-generation blockchain which adds the ability to run smart contracts but still uses proof of work; and EOS and Tron are third-generation blockchains using delegated proof of stake consensus mechanisms to allow much greater speed, capacity, and computing power for smart contracts with ease of use features such as simple account names and no transaction fees. However, with recent advances in blockchain governance tools and protocols, blockchain governance, itself is now entering a third age.

The three generations of blockchain governance are:

First-generation governance (e.g. Bitcoin): The blockchain is governed by its protocol to ensure that blocks and transactions are valid. The process of updating those protocols, however, is an off-chain process.

Second-generation governance (e.g. Tezos): The blockchain’s protocol applies to validating blocks and transactions but also includes an on-chain method to update the protocol, itself.

Third-generation governance (e.g. Telos): The blockchain’s protocol provides methods for validating blocks and transactions, for updating the protocol and other governance functions, and extends these protocol-level governance functions to dapps an DAOs deployed on the blockchain as well.

The history of blockchain governance has largely been about simply ensuring that all transactions are valid. This is still the case for the vast majority of blockchains. Many bitcoiners take pride in the fact that math alone determines consensus. However, this approach ignores the very real need to update the protocol or blockchain source code from time to time. With first-generation governance, this process generally occurs off the chain with developers setting a direction and deploying new code. Most users and miners have little input on what is included or excluded from the new code. Mining pool operators may decide whether or not to support new protocols and miners may decide whether to support the decisions of these pools by directing their hash power to them, but this is the extent of participation.

In a situation where there are two protocols that could be selected (old and new), the one that receives the greatest amount of hash power will be deemed the valid one and the other option either withers or becomes an alternate coin, such as the Bitcoin and Bitcoin Cash split of August 2017. End users only “vote” with their economic involvement: they can buy tokens they like and sell those they don’t. The outcome of first-generation governance for blockchains is often slow and divided development efforts, disconnection of general users from the ongoing development, and occasionally contentious forks when projects have no inclusive method for determining the direction of the project.

With the advent of second-generation governance, blockchain projects incorporate into their protocols methods to modify the protocols, themselves based on some on-chain selection criteria. Second-generation governance blockchains provide ways to iterate on the blockchain’s very design based on determinations made on the chain itself, such as voting. Tezos was one of the first blockchains to incorporate second-generation governance in September 2018 by allowing users to vote on proposed code changes with the winning code automatically updating the chain’s protocol. Second-generation governance allows communities to better determine the direction of a project so that they can avoid contentious splits or divided development efforts. In turn, it allows continuous iteration of protocols, empowering faster evolution and adaptation.

While second-generation blockchains promise important advantages, these are limited to the operation and iteration of the chain, itself. Third-generation blockchain takes this to a crucial new level by extending the protocol-level governance features to dapps and DAOs (Decentralized Autonomous Organizations) deployed on the blockchain, meaning that a wide array of dapps and DAOs can incorporate common tools from the chain, itself, to govern their own operations and development.

Third-generation governance greatly empowers dapps and DAOs to be managed by their users without relying on an entrenched set of developers or leaders. As important as core blockchain protocols are, dapps and DAOs are how the vast majority of future users will interact with blockchain technologies. These dapps have the same needs to evolve and adapt, to maintain cohesive user communities, and to focus development resources as blockchains do. More so than the underlying blockchains, in fact because dapp resources are generally more limited than those of the underlying chain. By extending protocol-level tools maintained and advanced by the chain’s core developers, and adopted by the chain’s users via governance tools, blockchains with third-generation governance allow the dapps and DAOs deployed on them to more rapidly advance than dapps attempting to incorporate governance tools through their own ad hoc development efforts.

The first blockchain to incorporate third-generation governance is Telos. The Telos mainnet launched in December 2018 as a third-generation blockchain based on EOSIO with second-generation governance. Telos incorporates a number of advanced governance features including the election of validating nodes, allocation of work proposal system funds via Telos Works, dispute resolution with elected arbitrators via Telos Resolve, and the update of the Telos protocol, itself, based on user votes and controlled entirely by on-chain smart contracts via Telos Amend.

An update to the underlying Telos governance functions has now extended all of these features to dapps and DAOs on Telos via a suite of governance tools called Telos Decide, which are maintained by Telos core developers at the protocol level.

Telos Decide offers dapp developers a number of types of voting for ballot initiatives and elections, and committee building and management functions. All functions are highly configurable for things such as voting quorums and passage thresholds, terms of office for elected positions, and voting powers and requirements for committees. The tokens used to empower these governance features are also highly configurable, allowing divisible, transferrable tokens that serve both governance and economic functions, to limited-use tokens solely for governance that cannot be transferred or divided — and many possibilities between. For DAOs, Telos Decide will also soon offer modular tools for proposing and voting initiatives that have specific smart contract transactions triggered by their outcomes. (Alpha versions of these can be previewed at app.telos.net.)

While projects like Aragon have previously enabled the creation of configurable DAOs controlled by smart contracts, they were generally standalone dapp projects themselves with no connection to the underlying blockchain protocols and governance tools. Telos takes this to a new level, which allows a greater set of common programming standards and user interfaces due to the common programming interface. This will greatly unlock the potential of dapps and DAOs to govern themselves and adapt to issues that may have been unforeseen at the project’s outset.

While Telos is the first blockchain to create third-generation governance, it’s unlikely to be the last. Dapp developers understand the many advantages of self-sovereign, participatory governance as a way to build and maintain community, and to adapt and iterate based on the decisions of the users. Dapps are decentralized applications and to be truly decentralized, they must not be reliant on a small group of founders or developers for their decision-making and growth. Chains with third-generation governance features offer the dapps and DAOs built on them with the ability to fully deliver on this decentralization using common tools that all developers and users on the chain can quickly become familiar with using.

To learn more about Telos third-generation governance features, there is a Telos Governance Reference article and a Github repository of Telos Decide features.

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About the author: Douglas Horn is the Telos architect and whitepaper author and a Telos core developer. He is the founder of GoodBlock, a Telos block producer and blockchain development company currently releasing the dStor decentralized data storage system.