What are on-chain real world assets and why is governance a contentious issue?
On-chain real world assets are digital assets that are stored on a blockchain platform. These assets can represent anything of value, including traditional asset classes like commodities, stocks, and bonds. The key advantage of storing assets on a blockchain is that it enables fractional ownership and transfer of ownership without the need for a central authority or third party intermediaries. However, because on-chain real world assets are still in the early stages of development, there is currently no agreed upon standard for how they should be governed. This lack of governance standards has led to some contentious debates among developers, investors, and other stakeholders about how these assets should be managed and controlled.
Governance is a contentious issue because there is no centralised authority over these assets. This means that anyone can create or trade them, and there is no one entity that can control or regulate them. This can lead to problems if people start creating fake assets or if the value of the assets fluctuates wildly, as there is no one to manage or stabilise them.
There is a great deal of debate surrounding the best way to govern on-chain real world assets. Some believe that a centralised authority is necessary in order to ensure proper management and control of these assets, while others argue that decentralised governance would be more effective. There are pros and cons to both approaches, and there is no clear consensus on which is the best way forward.
Different platforms have different governance models, and there is still much experimentation going on in this area.
The case for decentralised governance of on-chain RWAs
On-chain real world assets (RWAs) are a new and emerging asset class that are still largely unregulated.
Decentralised governance of on-chain RWAs could provide more transparency and accountability than traditional centralised methods. With decentralised governance, there would be no single entity in control of the RWAs, and all decisions regarding them would be made democratically by the community. This could lead to greater accountability, as anyone who is unhappy with a decision can voice their concerns openly and try to sway the vote. Additionally, because everyone would have a say in how the RWAs are managed, it is likely that better decisions would be made overall, as opposed to having a small group of people making all the decisions.
Decentralised governance could also help to prevent fraud and manipulation of on-chain RWAs.
There are still some challenges associated with decentralised governance of on-chain RWAs, such as ensuring security and preventing abuse by bad actors. However, there are also many potential benefits to this approach, including greater transparency and accountability. With proper safeguards in place, decentralised governance of on-chain RWAs could be a very powerful tool for managing real world assets.
Overall, decentralised governance of on-chain RWAs has the potential to be a more efficient and effective way to manage these assets in the long term.
The case for centralised governance of on-chain RWAs
The case for centralised governance of on-chain RWAs is that it would allow for more efficient decision-making when it comes to managing these assets. With centralised governance, a team of experts would be able to make decisions about how the assets are managed and operated, without having to go through a lengthy and potentially inefficient process of decentralised decision-making. This could lead to better overall management of on-chain RWAs, and ultimately, better outcomes for everyone involved.
Centralized governance would also allow for better coordination between different stakeholders in the ecosystem, such as developers, exchanges, and users.
Estate Protocol’s RWA Governance System
With a goal of democratising access to real estate investing, the decision in favour of more decentralised governance was an easy one. The hard part was finding the balance between efficiency in decision making; something which is directly correlated to returns and the bottom line for stakeholders, and fraud prevention and transparency, ensuring the robustness and longevity of the platform.
We studied many different systems of governance deployed throughout history and their impact on stakeholders. While democracies have the best track record, there have been many different types of democratic systems in place. The purest form of democracy in history has been “Direct Democracy”, a system where the participants decide on policy decisions directly without using elected representatives as proxies. While this system has its advantages, it can also be quite chaotic and difficult to manage in large groups. This is why many democracies today use some form of representative democracy, where people elect representatives to make decisions on their behalf.
Estate Protocol is proposing a Swiss-style, hybrid form of governance for on-chain real world assets that combines aspects of both direct and representative democracy.
Under this system, asset holders would vote directly on some key decisions, but also elect a property management company which would have more day-to-day responsibility for managing the platform and making smaller decisions. This hybrid approach could provide the best of both worlds: the direct involvement of asset holders in major decision making, combined with the stability and efficiency that comes from having a dedicated team of experts responsible for running the show.
The classification for what constitutes as a key decision would be based on the potential economic impact on the asset. If the impact is estimated to be equal to or greater than one month’s rent, then it requires the decision to go to a vote. Estate Protocol would use snapshot.org to host and execute token-gated (through BRIX tokens) governance decisions.
We would also create spaces for RWA owners to organise and communicate to debate potential decisions — ensuring a greater possibility of consensus being reached.