LIP-21: Simple On-chain Delegation

Proposals The LIP - Lido Improvement Proposal - Process
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TL;DR

Lido DAO-ops workstream contributors propose implementing Simple On-chain Delegation to address the security and operational hurdles arising from the lack of delegation for on-chain voting.

The Simple On-chain Delegation allows LDO token holders to delegate their voting power to other addresses and delegates to participate in on-chain voting on behalf of their delegated voters.

This quick and cost-effective solution involves some simplification of the user experience; however, it is intended to address urgent needs while the contributors are working on a more comprehensive solution.

Motivation

In the current conditions, reaching a quorum in on-chain voting has become highly challenging, and several consecutive votes failed to reach a quorum. The absence of an on-chain delegation is a blocker for stable and sufficient participation in on-chain voting and protocol development.

Abstract

This proposal is intended to allow LDO holders to designate addresses as their delegates. Delegates will be able to take part in on-chain voting using the voting power delegated to them. Each delegate will be able to use the voting power of multiple delegated voters.

Alongside that, it’s proposed to add TRP (Token Rewards Plan) participants the ability to delegate their LDO rewards.

Projects objective

Three vectors can be directly or indirectly solved through on-chain delegation:

  1. Activate the voting power of the voters who are already involved in the governance process and have delegated their voting power on off-chain snapshot.org but have never participated in on-chain voting.
  2. Ease the on-chain voting process for those who are already involved in the governance process and participate in on-chain voting but irregularly. There are various reasons for this: limited and complex access to cold wallets given the short 48-hour voting phase or multi-sig as a token holder.
  3. Attract those willing to participate in the governance process when Lido DAO determines an open delegation mechanism with a list of delegates.

Contributors to the DAO operations value stream are targeting a 20-30M LDO increase in the quarterly active voting power participation for on-chain votes (for Q4 2023, the quarterly active VP on on-chain votes accounted for ~90M LDO, and on off-chain snapshot.org ~120M LDO).

Design Requirements and trade-offs

A proper full-fledged delegation mechanism involves maintaining an accounting to track actual delegated voting power at any moment accurately. Implementing this is a complex and time-consuming project.

The current solution is a simplified version that addresses three basic requirements:

  1. There is a mapping of token holders’ and delegates’ addresses; the token holder can set a delegate and cancel the delegation, and the delegate can obtain the addresses of all those who have delegated to them.
  2. A delegate can vote on behalf of a token holder or a list of token holders.
  3. A token holder has an ultimate authority, they can override the delegate’s decision on a vote.

:mag_right: You can dive into the design description of the solution in the specification: LIP-21. Simple On-chain Delegation.
Comments are welcome! :pray:

Next steps

Now the solution is going through several security audits.
:zap: The snapshot vote is scheduled for the March slot.
:chains: And on-chain voting (hopefully the last one without the delegation feature) is planned for the April slot.
Stay in touch!

22 Likes
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So so so so happy to see this happening!!!

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Super important proposal. Reaching quorum on some of these Aragon votes has been a huge operational hassle + security risk as well

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This proposal is super important, and it’s awesome that the team figured out a way to quickly and safely implement on-chain delegation.

Getting a quorum on Aragon matters has been a real operational pain and even a security risk, so this is a great solution to improve that.

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This is very much welcome.

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nice to see this coming!

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Great proposal! I’m wondering how it will work with the custodies? Will custodies now be able to delegate all of the voting power of the deposited tokens to a custody owned address and vote on behalf of all deposited tokens? Are there any workarounds here?

If you are not considering CEXes to participate in the delegation than what are the audience you are aiming for? Is it a large holders that store LDO on the hardware wallets or multisigs?

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We are thrilled to see this proposal is coming. Thanks @zuzu_eeka and the whole DAO-Ops workstream contributors.

As @dgusakov pointed out, we are also curious about how this change will be utilized from the front-end side. Is the team going to implement a simple UI for token delegations or integrated into Aragon or any tools the Lido will use?

2 Likes
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Hello!
Great question.
Contributors are in talks with various custody providers to ensure that the proposed UI will allow tokenholders who store their tokens in custody to easily interact with the delegation feature.
Most of those we’ve already spoken to support the ability to delegate voting power through a web interface to an address inside or outside of custody. This should simplify the user flow for such tokenholders.
After the launch, we also plan to continue this work to make the delegation feature available to all LDO holders in different custodies.

As for your next questions,

If you’re not considering the participation of centralized exchanges in delegation, who are you targeting? Is it large holders who store LDO on hardware wallets or multisigs?

Besides holders who store LDO on hardware wallets or multisigs, we aim to remove some barriers for those who keep their tokens in custody.

Also, the presence of on-chain delegation will open the possibility for DAO to decide on launching a public delegate program, which could also positively affect participation and the number of meaningful actors in the governance process.

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The UI for interacting with the delegation contracts is indeed included in the proposal, and more detailed information on how it will be implemented will become available closer to the release date if the DAO supports this proposal in the upcoming Snapshot vote.

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Snapshot vote started

We’re starting the Simple On-chain Delegation Snapshot, active till Thu, 21 Mar 2024 16:00:00 GMT . Please don’t forget to cast your vote!

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Glad to see this proposal moving forward!

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As an organization actively engaged in multiple DAOs with diverse governance systems, we firmly believe that implementing on-chain delegation is a key step towards driving increased engagement and participation.

This proposal is 100% aligned with Hasu’s proposed goals for Lido and will definitely encourage more stakeholders to actively participate but will also open doors for new and diverse actors to join the governance process as we’ve witnessed in other ecosystems, contributing to the long-term growth of the protocol.

Moreso, we endorse this proposal because it represents a kickstart for shaping a robust governance delegates framework, the right pathway towards enabling new checks and balances instances, and facilitating more decentralized but still efficient decision-making.

Enthusiastic about what comes next!

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I’m not sure that it makes sense for CEXes as it because you can’t delegate a part of your balance here, only the whole balance at once.

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Will voting power delegated through Snapshot carry over to the on-chain Aragon platform?

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No, the delegations on Snapshot and Aragon are independent of each other, as Snapshot voting is off-chain and Aragon is on-chain.
When the on-chan delegation is launched, you’ll need to assign the delegation separately from Snapshot delegation

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Direct voting of Snapshot is off-chain, but delegation of governance voting power on Snapshot is on-chain. The current registry of delegated LDO voting power from Snapshot exists on-chain and should be able to be easily mapped to another on-chain delegation registry. Hoping this is considered since a primary motivation for this proposal is to reduce security & operational burden on holders.

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To be clear, both can exist. First check if delegation exists on Aragon registry. If not, then check if delegation exists on Snapshot registry. This would be a nice convenience, especially for security-minded folk, or for holders who use more advanced custody solutions

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Oh wow, didn’t know it’s onchain (which is still pretty surprising given the snapshot delegation doesn’t require the transaction). That said, I don’t think it’s a good idea to have open dependency on something that far outside of DAO’s control in voting contour.

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For the sake of maintaining a balanced and effective governance structure, it’s important to minimise the possibilities that may lead to over-empowerment of any single agent. In this regard, we propose establishing a maximum delegation threshold per wallet i.e. a cap in terms of the amount received by way of delegation, which would be lower than the minimum quorum required for passing a governance proposal. Any wallets which already have sufficient tokens beyond the quorum required would therefore be ineligible for delegation.

We also have a query regarding the third point of the ‘Projects objective’ section. It is mentioned that one of the aims of this proposal is to welcome those willing to participate in the Lido DAO when the DAO determines an open delegation mechanism with ‘a list of delegates’. We would appreciate it if you could provide more details on how this list will be implemented and if there are any restrictions on who can be part of it. Thanks!

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For the sake of maintaining a balanced and effective governance structure, it’s important to minimise the possibilities that may lead to over-empowerment of any single agent. In this regard, we propose establishing a maximum delegation threshold per wallet i.e. a cap in terms of the amount received by way of delegation, which would be lower than the minimum quorum required for passing a governance proposal. Any wallets which already have sufficient tokens beyond the quorum required would therefore be ineligible for delegation.

Such restrictions are easily bypassed by owning two, three, or more wallets. I don’t think such a measure really protects governance from anything.

As of now, such a proposal does not exist. It is mentioned precisely because on-chain delegation opens the possibility for public delegation and a delegation framework. Once on-chain delegation goes live, contributors going to come up with proposal to the forum outlining what the delegation framework might look like. However, its final form and whether it will be accepted depend on community discussion and DAO vote.

Personally, I don’t think there will be any restrictions on becoming a public delegate in Lido DAO. I would not suggest introducing additional barriers.

5 Likes