Stakely Blog
May 20, 2022

Introducing Governance: Quick start guide about on-chain proposals

May 20, 2022

Like the traditional system, blockchain technology has principles and ways of functioning which helps the technology achieve its aims and objectives; the totality of the rules, mode of expression, and implementation of the rules are called blockchain governance.

Governance is essential to blockchain protocol because no single body is responsible for creating and maintaining rules. For blockchain to function and grow, it needs a form of governance that will conduct its affairs.

However, the absence of a defined body for the creation and maintenance of rules has caused significant setbacks to the growth of the technology, particularly public blockchain.

Many blockchain projects are experiencing stagnancy, and some have turned to dead projects. An example of such a project is the EOS blockchain, among others.

For blockchain technology to be wholly successful and generally be accepted, it has to pass the governance test while maintaining complete decentralization, and one of the ways to do that is through on-chain proposals. Failure to find a balance will always lead to the centralization of power or stagnancy of blockchain technology.

But, before we can fully understand how to balance governance in blockchain, we need to know what governance is all about and understand how it works. Let's take a quick deep dive into the anatomy of governance.

What is governance?

Governance is all about the means and protocols used in any organization to control and maintain the existence and growth of the organization; it's also a mechanism used to hold an organization and its people together for its smooth running.

There are different types of governance, but the common ones are political governance and corporate governance, which are centralized in nature; however, all types of governance have some features in standard irrespective of whether it's decentralized or centralized, these features are summarized into three primary functionality of governance, and they are:

  1. Set of rules.
  2. Interaction with the rules.
  3. How to uphold and enforce the rules.

Now let's talk about governance in blockchain technology, how rules are made, how blockchain users relate to the rules and how the rules are enforced.

Governance in blockchain technology

The mode of governance in blockchain technology shares similarities in protocol with other types of traditional governance, from political to corporate governance, the only difference between them is that blockchain protocols are decentralized, immutable and transparent. A single entity can't control or implement the rules embedded in the blockchain system.

Blockchain has created an alternative and more effective way of exercising the government's responsibilities or functionality; below is a quick explanation of how blockchain protocol helps exhibit governance functionalities more effectively.

  1. Set of rules Different rules and regulations are written and embedded in computer codes that are encrypted cryptographically and stored all over the servers connected with the blockchain system, making the rules and regulations governing the blockchain immutable and transparent.

  1. Interaction with the rules The rules and regulations on blockchain systems are made available to everyone, especially open-source blockchains; anyone can go on GitHub and other avenues to view and interact with the codes that govern the blockchain's functionality. People can also view some of these rules on the blockchain white paper, which are publicly available.

  2. How to enforce the rules The beautiful of blockchain technology is that once an individual or user fails to abide or follow the laid down rules of the blockchain system, the system, through smart-contract, won't respond to such users' queries and commands, and the smart contract feature is responsible for enforcing the laid down rules in a blockchain.

Governance in a blockchain system has protocols, and the protocol comprises five significant mechanisms or participants: developers, nodes, validators or miners, users, and shareholders.

Although all the network participants are responsible for blockchain governance, sometimes there are conflicts of interest due to human differences and personal gains, which leads to delays in implementing changes that will lead to the growth of the blockchain.

Participation in Blockchain governance

The decentralization feature of blockchain protocol makes it easy for anyone in the blockchain community to participate in the protocol governance. However, specific rules and regulations are embedded inside different blockchains protocols that determine how the system is governed; these rules vary from blockchain to blockchain, either public or private blockchains.

Importance of proposals in blockchain governance

Proposals are significant in blockchain governance because proposal helps the blockchain protocol maintain decentralization and transparency by giving every network participant the ability to participate in the system's governance.

How blockchain governance works

Proposals are rules and regulations proposed to a blockchain network, and the primary purpose of proposals is to make changes to the system. However, there are different ways proposals are presented to the blockchain communities; the significant ones are off-chain proposals and on-chain proposals.

  1. The off-chain proposal is when changes to a blockchain protocol are achieved off the blockchain, an agreement is reached in the blockchain community, and decisions are made outside the blockchain network; however, decisions made off-chain are implemented on the blockchain. Also, an off-chain consensus is particular to proof-of-work blockchains.

For instance, the Bitcoin blockchain uses an off-chain mechanism to make changes to its system. It uses a mailing list to coordinate its (BIP) bitcoin improvement proposals. There are different avenues like slack and others where developers propose changes to their blockchain and accept ideas from people.

  1. The on-chain proposal is when changes to a blockchain protocol are implemented directly on the blockchain through voting. The on-chain proposal is particular to proof-of-stake blockchains.

For instance, Polygon uses an on-chain approach to effect changes to its protocol; the proposal is shown on the blockchain, and users stake their MATIC tokens to become eligible to participate in the consensus process.

Note! Consensus is how proposals to a blockchain are accepted or rejected by network participants.

Our primary focus in this article is on-chain proposals, so we will expand further on it by diving deeper into what an on-chain proposal is and the process involved in actualizing it.

On-chain proposal process

When a proposal is proposed to the blockchain network majorly by the developers, every participant on the blockchain will be allowed to access the proposals and determine whether the proposal should be accepted or rejected through voting.

However, there are different ways to vote on proposals on different (on-chain) blockchains, but the common ones are direct and indirect voting.

  • Direct voting is when a blockchain network participant partakes in the governance or decision-making process of the blockchain directly.

  • Indirect voting is also called delegation; it's when blockchain network participants delegate their voting right to delegates who then exercise the voting right on their behalf in the decision-making process of the blockchain.

How the proposal is approved or rejected

In most cases, a consensus is reached in on-chain blockchains protocol when the majority or ⅔ of voters reject or accept the proposal; however, if the proposal is accepted, the developers will go ahead to encrypt the changes into computer codes; after that, the codes will be deployed on the blockchain through smart-contract in other to enforce the proposals.

Real-life use case of on-chain proposal

There are many real-life use cases of on-chain proposals. Many new crypto projects are opting for on-chain proposals partly due to the increased adoption of the Proof-of-Stake consensus mechanism. A good example is the Juno blockchain.

Juno Network
Juno Network

Juno is an open-source blockchain network that allows for the interoperability of smart contracts; it's a layer two blockchain built on the Cosmos ecosystem.

Recently, Juno performed on-chain governance with its proposal 16. The proposal seeks approval of the community to confiscate a whale's fund that was perceived to be manipulating the tokens airdrop (token giveaway).

Proposal 16 has passed the voting or consensus stage, and the majority of the network participants voted in approval of the proposal to confiscate the whale's token.

Although the proposal vote was in close range, as 40.85% voted in support of the proposal, 33.76% voted to oppose the proposal, 21.79% abstained from the proposal, while there was a 3.35% veto vote against the proposal.

The protocol has the go-ahead to implement the changes and confiscate the users' funds. However, the changes have not yet been finalized because some procedures are to follow. After all, this is not a mere system upgrade. The proposal 16 changes require a hard fork or backward-incompatible code change of the Juno blockchain.

Procedures to implement the proposal 16 changes on the Juno blockchain

Proposals are significant to on-chain governance because it helps keep the blockchain functioning and also helps maintain the blockchain system. On-chain proposal governance also helps conduct checks and balances on all the network participants. While also preventing the concentration of power, as seen in proposal 16 on the Juno blockchain.

The proposal 16 changes can be done in two ways on the Juno blockchain, the first is to conduct a backward-incompatible code change, and the second is to conduct a hard fork to the Juno blockchain. The backward-incompatible code change will require recording a snapshot of the blockchain state; after that, developers will change the whale's balance and then restart the blockchain.

The second method of implementing proposal 16 is through a hard fork; a hard fork changes blockchain protocol by dividing the blockchain into two, validating unvalidated transactions or vice-versa.


Although The process of reaching consensus on proposals in on-chain governance has not yet been perfected, there are records of failed blockchain projects, partly due to the inability of the network participant to reach consensus through on-chain governance. However, the process is still early, and developers are working to improve the process worldwide.

Also, new crypto projects like Juno and others are improving and working to make reaching consensus on proposals in on-chain governance possible without side effects on the blockchain. Projects like Juno are evidence that on-chain proposals can effectively govern and maintain blockchain systems.

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Richard Alagbe


What is governance?
Governance in blockchain technology
Importance of proposals in blockchain governance
On-chain proposal process
Real-life use case of on-chain proposal

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