ENS Governance Case Study

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Introduction

Domains for Web3. That’s the mission of ENS, or Ethereum Name Service. Instead of sharing your long, hardly readable and memorable Ethereum address, ENS enables you to wrap your wallet address into a human-readable word. This can be your name or the name of a brand. In this way, ENS functions similarly to traditional domain name services, where the string of numbers making up an IP address is represented by a human-readable website name that people can easily remember.  

There are already plenty of excellent articles on how ENS works, both from the technical and business perspective. In this article, we want to focus on how the ENS DAO is governed. What the building blocks and processes are, the different stakeholders as well as peeking into the legal setup of the DAO.

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Legal Setup

The significance of a legal entity for a DAO is often underestimated. People frequently believe the naive understanding that DAOs or blockchain-based protocols don’t need a legal entity because financial authorities couldn’t do anything against the cash flows due to the decentralized nature of its underlying technology. It's crucial to understand why the addition of a legal entity holds such importance. Essential reasons include:

• The absence of a legal entity means that individual participants could be personally liable for any actions undertaken by the DAO as a collective entity.
• In the absence of a legal entity, participants within the DAO might face liability for a portion of the DAO's earnings, even if they don’t have access to these funds.
• Having a legal entity enables the DAO to engage in contracts with other real-world entities and facilitates the holding of assets, including intellectual property rights, among other capabilities. This legal standing empowers the DAO to operate effectively within the broader legal and economic framework.

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ENS decided to set up a Cayman Islands Foundation and the DAO essentially instructs the directors to act on behalf of the Foundation. This can vary from signing contracts to engaging a company for a service the DAO requires. Everyone holding ENS tokens can participate in the voting process and can submit proposals. Your participation can be direct or indirect by delegating your tokens, or better said voting rights, to a delegate. The below-linked resource on the ENS Governance page explains the delegation and voting process in detail.  

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Source: https://docs.ens.domains/v/governance/the-ens-foundation  

Governance Building Blocks

The following are the main tools that the ENS DAO uses to propose, discuss and vote on proposals:

• Discourse Forum: Used for conducting a temperature check for proposals and discussions around it, as well as for working group discussions. The temperature check is important to determine the importance of the proposal to other DAO members. The discussions surrounding proposals also help the creator to refine and improve the proposal.
• SnapShot: Used for voting on off-chain proposals. In ENS’ jargon, such proposals are either Social Proposals or Constitutional Proposals. Social Proposals are proposals for Events, Hackathons, etc., as well as for the creation or dissolution of working groups. Constitutional Proposals are for proposing changes to ENS’ constitution.  
• Tally: Used for voting on proposals requiring on-chain action, such as transfers and interactions with smart contracts. Such proposals are called Executable Proposals.  
• Sybil: Another governance interface for users to cast their votes.

Sources:  

https://docs.ens.domains/v/governance/#context-for-governance  

https://docs.ens.domains/v/governance/stewards/active-working-group-rules#working-groups-rules  

Governance Process

Phase 1: Temperature Check on Discourse

The main goal of this step is to see if there's enough interest and support to consider making the proposed changes to the status quo. It helps understanding if there's enough willingness within the community to explore potential changes before moving forward.

Phase 2: Draft Proposal on GitHub

In Phase 2 a Draft Proposal is created on GitHub. The main objective is to start a structured conversation surrounding the proposal. It's important to engage your network during this phase, seeking their support and input to refine the proposal.

Delegates play a crucial role in providing valuable feedback and addressing any questions that arise. For Executable Proposals, it's important to clearly outline the actions and steps the proposal intends to take.

When dealing with Constitutional Proposals, the draft should include a marked-up version of the constitution, clearly indicating the specific changes proposed. This thorough approach ensures a comprehensive understanding of the changes being proposed within the constitutional framework.

Phase 3: Voting on the Proposal

Once your proposal is tagged as "Ready to Review" on GitHub, a contributor will proceed to upload and schedule it for voting on SnapShot. Social- and Constitutional Proposals won't necessitate further steps once the SnapShot proposal is approved. However, for Executable Proposals, an additional on-chain voting process is mandatory. To facilitate this, either you or a delegate endorsing your proposal must have 100k ENS delegated to their (or your) address.

Voting Rights and Delegation

All ENS token holders have the opportunity to engage in the governance process, with each token carrying one voting right. Alternatively, those holding tokens can opt to delegate their voting rights to trusted delegates if direct participation isn't preferred. This delegation process is facilitated through Tally or Sybil. However, in cases where the delegate has cast a vote, the original voting rights holder retains the ability to vote and can override the delegate's decision.

The responsibility of the delegates is to keep track of all current matters being voted on and discussed.

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Sources:

https://docs.ens.domains/v/governance/process#phase-1-temperature-check-discourse  

https://docs.ens.domains/v/governance/process#phase-2-draft-proposal-github

https://docs.ens.domains/v/governance/process#phase-3-active-proposal-snapshot-governance-portal  

https://docs.ens.domains/v/governance/stewards  

Working Groups and Stewards

Stewards function much like operational department employees in traditional companies, overseeing the operations of their working groups. Their role comes with various responsibilities, including:

• Requesting funds for their working group;
• Establishing or dissolving sub-groups within the working group for specific tasks;
• Managing the funds allocated to their working group, distributing them to contributors or sub-groups as outlined in the ENS DAO constitution;
• Holding the keys to the multi-sig wallet associated with the working group;
• And more...

Each working group is overseen by three stewards, with a limit of two working groups per steward. Steward candidates (nominees) undergo a yearly election through a DAO governance vote in December. Each steward is elected to serve a one-year term. Accountability is maintained through a recall mechanism where stewards can be replaced at any time after a successful Social Proposal.

In recognition of their contributions, stewards receive compensation. This compensation is proposed through a Collective Proposal that includes the fund request for the entire working group.

Source: https://docs.ens.domains/v/governance/stewards/active-working-group-rules#working-groups-rules  

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Conclusion

The ENS Protocol brought substantial value to the Web3 Space by offering user-friendly domains in place of lengthy Ethereum addresses. Similarly, the governance and legal framework surrounding the protocol contribute significantly to its overall value. The presence of a legal entity, the Cayman foundation, shields ENS DAO members from liabilities and grants the DAO the capacity to engage in real-world business activities. While the governance structure might not mirror the innovation seen in its domain solution, it stands as a secure, established, well documented system that's straightforward and accessible for DAO members.

One of its notable features is the ability to delegate voting rights (while still being able to vote yourself). This feature empowers DAO members who might lack technical expertise or time to actively participate in voting on proposals. By delegating their voting rights to a delegate, they ensure their voice is heard through someone who can make informed decisions on their behalf. This inclusive approach enhances participation and decision-making within the DAO.