Brandon Iles, Co-founder at Ampleforth, a digital asset protocol for synthetic commodity money, notes that the launch of the FORTH governance token is an “important step” for the initiative’s path toward “decentralization.”
Iles has commented on the basics of how the FORTH governance token works, and he’s also expanded a bit by providing more details on how they currently “think” about governance and where they see it headed in the foreseeable future.
Iles has shared the initial post on governance that was published in mid-2019. He claims that their philosophy has remained “largely the same — the best form of governance is not needing any governance at all.” Iles also mentioned that when governance is required, its “surface area” needs to stay as “minimal” as possible. He adds that this is why they “removed upgradeability of the token contract, and why we’d like to eventually remove upgradeability of the policy contract as well.”
Iles writes in a blog post that getting to an “ideal, long-term vision” of a decentralized and effective governance system is not easy. He also notes that the “broader” community is experimenting with various mechanisms, and they’ve chosen a conservative path that focuses on system safety “while keeping options open.” But as the Ampleforth network expands, its governance system “must grow with it and it’s time to take the next steps down the path of decentralization,” Iles added.
He further noted:
“The Ampleforth protocol is governed through a series of sequential steps, each representing increasing levels of consensus from the community. Proposals and ideas are surfaced on the discord or public forums, and are finalized when they are deployed onchain.”
He explained that FORTH is used in the later (but “most important”) parts of the process which includes off-chain signaling, and binding onchain voting.
He added that the onchain vote is “binding” since its success leads to the “actual execution of code, without any intermediaries.” Iles pointed out that this includes “deploying new protocol contracts or modifying the state of existing ones.”
He claims that they’re “generally token minimalists.” But they created FORTH (when there’s already AMPL) because of the following:
- FORTH Keeps AMPL Philosophically Pure
“One of the best parts about AMPL is its simplicity and purity. It’s a base money with an easy to describe supply policy: its value is inherent, and it’s not collateralized or derived from anything else If we add voting capabilities on top, it muddies the water about what AMPL is and from where it’s value derives. Voting capabilities add non-monetary utility, and thus price distortions from non-monetary demand.”
- AMPL Wants to be “Put to Work”
“If AMPL were also used as a governance token, there would be a constant tension between using AMPL in geysers, as collateral, or on lending platforms, and using it for governance. In effect, a single token model would punish people who use AMPL how it was originally intended. This could lead to biased governance outcomes.”
Iles further noted that in the worst case, important governance events may result in “large market movements.” This appears to be a major weakness for an asset that “wants to be a base money & collateral,” Iles added.
Although you can create “vaults” where users can use AMPL and vote with them, this “drastically increases the complexity and dependencies on the governance system,” Iles claims while adding that when we consider “the danger of governance mistakes, we want this component to be a simple and predictable mechanism, without creating distortions in the market.”
He also goes on to share other reasons for creating FORTH:
- Freedom of Distribution
“Via retroactive distribution, more than 75,000 addresses will be eligible to receive FORTH tokens and become founding members of Ampleforth’s governing body. These are members who supported the network long-term and through all market conditions. Importantly, points (and thus tokens) were accrued by time and behavior and not by balances.”
“The aim for this governance token distributions is to strike the right balance between day-1 degree of decentralization, system safety, and agility. In the future, the 2% annual inflation will be distributed to those who continue to support the ecosystem. This will likely be through geyser-like systems, but will be developed in tandem with the community.”
- Freedom for Future Incentives
“AMPL is defined by its supply policy and non-dilutive nature. Changing these fundamental qualities would mean AMPL would no longer be AMPL.”
“A different token, however, is free to be inflationary. For example when the ecosystem distribution out at the end of the 10 year period, the protocol could still run and incentivize geysers. Alternatively, this could be used to pay for oracle or other infrastructure fees if that were ever required.”
- Technical Efficiency
“AMPL is a monetary asset and wants to be liquid. Not needing to keep track of delegation or wallet snapshots keeps AMPL transfers lean and cheap.”
While commenting on governance actions, Iles notes:
“Broadly, there are three main types of risk in decentralized systems: Market, Technical, and Governance. It makes sense to look at each action type as pertaining one of these categories. There’s Economic Governance, Technical Governance, then the design of the governance system itself.”
Iles explains that market risk is the risk that market incentives “do not lead to the equilibria expected before launch.” Prominent examples here include The Bank of England’s Black Wednesday, or “some recent attempts at coupon coins,” he adds.
Iles further notes that Technical Risk is “the risk of software bugs leading to unintended and destructive behavior.” He points out that well-known examples include The DAO Hack and the Parity Multisig Hack.
“Finally, Governance Risk is the risk of a governance system failing to properly protect the long-term stability of the ecosystem. This could be from poor distribution, extractive behavior from minority interest, or misalignment between incentives of the governance holders and the network’s success.”
He also mentioned:
“You’ll notice that Governance, aside from being its own risk, also impacts the first two risks. A poor governance decision could lead to introducing a technical vulnerability or ill-tuned supply policy, therefore it is the foundation on top of which everything lies.”
Although the initiative does “aspire” to be a “rules-based” system, it’s unlikely we’ll be able “to get there completely,” Iles acknoweledges while noting that even Friedman’s k% rule “did not inscribe the inflation rate in stone — it was assumed to be adjusted periodically to match growth of real GDP.” He adds that similarly, they “view the economic parameters of Ampleforth to evolve with its adoption and use.” He also notes that these will “change slowly over the course many years, rather than week to week. Expect Economic Governance tasks to be low volume and high value.”
As noted by Iles, the economic parameters are as follows:
Rebase Window — Currently 20mins every day at 2am UTC
Deviation Threshold — Currently 5%
Rebase Lag (Smoothing Factor) — Currently 10
He confirmed that to date, there has been “one change to the economic parameters. The Rebase Lag was changed from 30 to 10 in Oct 2019.”
While commenting on technical governance, Iles added:
“The need for technical evolution will likely represent the bulk of governance activity. In order for Ample to remain relevant, the system needs to be able to evolve with the surrounding ecosystem.”
- Configuration, e.g.:
- The Orchestrator transaction lists (for new pools or bridges)
- The Oracle providers list
- Logic, e.g.:
- Supply Policy features
- Orchestrator features
- Oracle Medianizer features
- Mechanics: Now
He also mentioned that FORTH holders may vote “with their tokens directly, or delegate to another address who may vote on their behalf.” He also noted FORTH is “an extension of the Compound Governance system, which is rapidly becoming a respected benchmark in the DeFi space.”
He pointed out that FORTH has “a 2% yearly inflation.”
“This is version 1 of governance. If the community decides they want a different form, that can be enacted through governance! However, this first system is simple and easy to understand. Offchain signaling through Snapshot labs uses no gas, and also takes into account delegation power. Onchain votes are done via Compound’s Governor & Timelock — two well-understood and tested mechanisms with broad support.”
“The Governor contract and frontend will roll out and take ownership of the protocol contracts over the course of this year. In the meantime, the existing multisig governance will still be used, but it will be greatly influenced by the new offchain signaling platform. This onboarding period ensures that the Ampleforth community has adequate time to familiarize itself with the governance system before it’s put to the test.”
Iles also noted that this system, when “rolled out fully,” may quite easily “stay as-is with no modifications — and that would be great.”
If the community is “interested though, here are some ideas which could (or should) be added in the future”:
- Augmenting voting power via locking AMPL liquidity
- Continuous Voting for determination of inflation rewards (i.e. CurveDAO gauge weighting)
- …Other ideas we haven’t thought of?
He added that #1 is “something I think will be incredibly valuable, as it creates a direct alignment of interests between the governance network and AMPL itself. #2 gives the community the ability to direct ecosystem development.”
“While decentralized governance may be scary, it is also a step toward broader empowerment of the community. Welcome to the 75 thousand new members of the Ampleforth governing body! This is a great responsibility, but a very exciting one. Let’s all make AMPL as great as it deserves to be — something that stands the test of time.”