By Kyle, Investment Manager@Bing Ventures

Metagovernance refers to the decentralized decision-making organisation exercised certain control by the fragmented and modular interactive governance model. The reason why I think the era of DeFi2.0 is far away is that the definition of DeFi2.0 should not be limited to a simple nested combination of revenue products. The true use case DeFi2.0 would be to transfer the benefits of liquidity from the token staking incentive model to the broader metagovernance.

Unnecessary elements can lead to lower DeFi efficiency and increase unintended consequences. If several DeFi projects with the same functionality are available, I will preferentially choose the project with a higher degree of metagovernance. Note that functional equality here refers to the comparable performance of projects under the same measure.

Wells Wilder, an American, believes that no analytical tool can predict market movements with absolute accuracy. To survive in the market is to adapt to the market, and to follow the trend is the essence of Adam’s theory. Before entering a speculative market such as DeFi, it is important to know whether the trend of the market is up or down. How to excavate a true quality project when the DeFi2.0 trend comes is what this paper needs to discuss.

Greater aggression

We all know that DeFi can reduce costs and frictions, increase efficiency and competition, and expand the penetration of financial services. However, at the same time, because of the fragility of rapid growth and the high risk to financial stability, it leads to systematic risks and potential impact on financial stability. DeFi2.0 shows the urgency of DeFi2.0 in the current increasingly aggressive centralized regulatory system. The demand for DeFi2.0 reveals several potential trends in the future:

• Friction forward;
• A good TradeFi access process and refinement;
• Rational pricing of decentralized credit risk, especially for retail investors;
• More risk alternatives in the return portfolio;
• Establish a regulatory approved liquidity management framework;

DeFi2.0 will bring innovation to the form of new banking for crypto assets and provide greater efficiency and investment opportunities. The competitive pressure coming from DeFi2.0 has a significant negative impact on the revenue of traditional banks. The lack of a centralized entity governing DeFi is a challenge to the current centralized regulation.

The space around centralized stablecoin issuers and centralized exchanges is getting smaller and smaller. Obeying the sound governance scheme DeFi2.0 project will attract more risk-symmetric capital. Liquidity will become more aggressive as it continues to attract more users from traditional finance.

The value of Ockham’s Razor

Occam’s Razor is described in one sentence as “Do not add entities unless necessary.” DeFi also follows the optimal cost path. Other things being equal, the project that costs less is better and more valuable. So from this perspective, we take Cosmos ecology as an example.

The advantages of Cosmos, such as minimalism and modularity, are inherited from the design of the single-chain architecture. Cosmos is probably one of the slimmest public chains out there, and its developed environment is much more user-friendly than Ethereum. The design idea of application chain is a direct embodiment of the razor law, which can not only solve the problem of block competition, but also improve the efficiency of governance and voting participation on the chain.

Centralized off-chain governance is too node-oriented, and less direct on-chain governance through the use of multiple signatures is not friendly to other actors in the community, such as developers and coin holders. Unlike Ethereum, Cosmos designed Cosmos Hub and introduced the incentive model of pledge. This single liquidity center design improves the effectiveness of dynamic governance with more governance balance and inclusiveness.

The first step of metagovernance

Similarly, we compare the Osmosis with Evmos. Osmosis, as the first interchain liquidity protocol and core application chain in Cosmos ecosystem, has a natural first-mover advantage. The first step of Osmosis metagovernance includes internal discussion and open discussion between nodes. We found that some nodes are keen on on-chain governance, similar to democratic elections. But the current Osmosis governance is still greatly influenced by its top 20 nodes.

Osmosis plans to introduce a Token House & Citizens House governance paradigm similar to that of the House of Lords and Commons. The Token House adopts the conventional DPOS/PBFT mechanism to select representatives for proxy voting. Citizens House manages the allocation of funds for public goods. Interestingly, professional citizenship will be granted by “soul bound,” and the citizen’s collection will grow over time and there will be incentives to do so.

Compared with Osmosis, Evmos has a higher degree of node centralization. But metagovernance has become an important direction for the project community. Evmos creates metagovernance value around the following points:

• To increase the attention of the idea of Evmos governance process in social media;
• Promote a culture of community collaboration, innovation and transparency;
• Focus on pre-proposal discussions and public opinion surveys to continuously improve the process.

The metagovernance framework is the basis for the DeFi2.0 community and contributors to flourish. Effective governance requires modular tools, clear processes, community engagement, research and data, and the willingness and flexibility of users to adapt. Ideally, all proposals that make it to the on-chain ballot should have solved most of the community issues.

In the future, on-chain governance of the entire Cosmos ecosystem can be governed by a unified DAO tool center, and inter-chain security can make significant progress in preventing governance attacks such as vote bribery, node collusion, and Sybil attacks. The single-threaded modular metagovernance pattern will enable Cosmos and its in-ecosystem projects to build bottom-up governance processes from modular and easy to compose computing components and exhibit highly generic performance.

More importantly, Cosmos has strong inter-chain and cross-chain interoperability. The DeFi2.0 blue chip project will be born in priority on the basis of the paradigm of “liquidity is governance”.

Managed by a unified governance center, metagovernance can occur through a ubiquitous network layer as diverse communities within the Cosmos ecosystem share and connect their components and data, and create greater trustless and redeem capabilities for the new DeFi summer.