Evolving Governance: The Rise Of Hybrid Models In Decentralized Networks
In Brief
Blockchain governance is shifting toward hybrid models to meet growing institutional and regulatory demands.
When we think about blockchain governance, we typically envision it in the context of DAOs enabling onchain voting that enable token-holders to have a say on key protocol decisions such as upgrades or integrations. While this model is a mainstay of blockchain governance, the term itself has much broader applications, ranging from dictating network consensus models to describing the ability of communities to work together to achieve shared objections.
While onchain governance systems have evolved greatly over the years, their primary objective has remained unchanged: to make shared decisions on decentralized networks that have no leaders. While “perfect governance,” just like “the perfectly fair token launch” has yet to be achieved, blockchain protocols have settled upon working models that get the job done. And just as well, since the need for effective onchain governance to guide the rapidly expanding omnichain landscape has never been greater.
With the passage of the GENIUS Act driving international discussions around stablecoin regulation, robust governance structures are more vital than ever. As decentralized networks grow in complexity and influence, the limitations of token-based governance models – one vote per token owned – have been exposed. In their place, the industry is gravitating towards hybrid governance models that aim to strike a balance between decentralization and dynamism; between crypto ethos and real-world practicality – as the following examples show.
The Evolution of Onchain Governance
Blockchain governance is older than you might think. Despite lacking a formal framework for this purpose or even using the term “governance,” Bitcoin got the job done through a system of implicit governance. But with the emergence of smart contract chains, and with it a proliferation of web3 protocols, governance evolved to a more formal system rooted in the “one-token, one-vote” principle.
It’s been a cornerstone of DAOs and blockchain protocols ever since, despite its glaring shortcomings. Unfortunately, wealth concentration among large token holders – whales – tends to skew decision-making, ensuring that ordinary users have little say in the outcome of proposals. As a result, the industry has been gradually turning to governance models that balance decentralization with a more formal structure to ensure outcomes can actually be actioned. For this reason, the model that’s coming into play for many web3 projects is a system of hybrid governance, which they’re implementing in a number of interesting ways.
Governance Goes Hybrid
Hybrid governance models combine the ethos of decentralization with structured mechanisms to mitigate the issues with traditional DAO-based systems. Orbs’ Guardian model exemplifies this approach. Its Layer 3 blockchain employs a delegated proof-of-stake (DPoS) system where Guardians – elected nodes – are responsible for securing the network and ensuring its integrity.
Guardians stake tokens and are incentivized to act honestly and maximize uptime. Unlike purely token-based systems, Guardians are vetted for technical expertise and reliability, adding a layer of accountability. Aside from their daily duties of validating transactions and maintaining network stability, they also participate in governance decisions, ensuring that the network’s direction is steered by those with strong incentives to see it thrive. This model reduces the risk of malicious actors and enhances security by decentralizing power among trusted entities.
Ethereum Layer 2 Optimism takes a different hybrid approach with its bicameral governance system, comprising the Token House and the Citizens’ House. The Token House operates on traditional token-based voting, allowing OP token holders to propose and vote on protocol upgrades. The Citizens’ House, introduced in 2024, grants veto power over Token House decisions to a select group of “citizens” chosen for their contributions to the ecosystem.
This structure mirrors a legislative checks-and-balances system, preventing whale dominance and ensuring decisions align with the broader community’s interests. Through effectively blending token-based democracy with a meritocratic oversight layer, Optimism enhances decision-making efficiency while maintaining decentralization.
Another novel implementation of hybrid governance can be seen with dYdX, which leverages delegated staking within its proof-of-stake framework to streamline governance. In dYdX’s system, token holders can delegate their staking power to validators who secure the network and participate in governance. This model reduces the burden on individual token holders, many of whom lack the time or expertise to vote on every proposal.
Validators, incentivized by staking rewards, are motivated to act in the network’s best interest, improving accountability. Delegated staking also enhances scalability by concentrating decision-making among active participants, allowing dYdX to implement upgrades swiftly without sacrificing decentralization.
Why Onchain Governance Matters
Up until now, onchain governance has mostly been used to determine fairly routine project decisions. Which liquidity pools to add; which protocol to upgrade; whether to adjust tokenomics; which EIP to implement. This is important but hardly critical stuff. However, the onchain landscape is changing. More institutions and enterprises are arriving in serious numbers, while rising stablecoin adoption is seeing blockchain payments permeate real-world applications.
As a result, future governance decisions won’t just be about trivial matters. They’ll concern the management of billions of dollars of assets and will involve decision-making that impacts operations, not just onchain, but in traditional finance too. For this reason, web3 companies need governance that is nimble, that is accountable, and that is capable of achieving equitable and ultimately profitable outcomes – all while supporting long-term growth.
It’s a lot to ask of any governance system, particularly the “one-token, one-vote” model that characterized the first wave of DAO-based systems. While this system still has applications in certain DeFi spheres, it appears destined to be largely supplanted by hybrid models. By delegating responsibilities to capable actors whose incentives are aligned, these systems avoid the gridlock common in purely token-based governance.
As the crypto industry matures and regulatory scrutiny intensifies, hybrid models provide a flexible framework to balance decentralization with the practical needs of governance. Not everyone needs to participate in governance for it to be deemed sufficiently decentralized. And, just as importantly, not everyone wants to participate in governance. For those who do, and who have a vested interest in seeing the project in question succeed, hybrid governance is the obvious solution.
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About The Author
Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
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Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
