Timocratic Governance

Discussion

Reilly Smethurst et al. :

"We ... claim that DeFi’s governance is timocratic. This reflects the fact that DeFi’s elites are not simply wealthy; they are sometimes “shadowy” and unidentified as well.

Timocracy is a type of stakeholder governance that dates back to the Solonian Constitution from the sixth century BC. It involves both producers (developers) and property owners (token-holders) that pursue a mixture of particular interests and common interests. Timocracy’s main risk is effectively the same as the risk identified by Warwick: if a timocracy degenerates, then it becomes an oligarchy (or a plutocracy).

As discussed in Plato’s Republic [545a–550c], a timocracy is a conflicted mix of community-oriented virtues and private wealth accumulation. Timocracy’s emblematic rulers hide their wealth in “treasuries and strongrooms”, which implies that timocratic power is crypto- (‘concealed or secret’). “Victory and honour”, in a timocratic regime, are obtained via calculated risks and courageous conquests, not via harmonious rationality or dialectical reason. Timocratic rulers accumulate wealth in subtle ways that are odds with the commons, and they “run away from the law like children running away from their father”. Socrates’ contemporary Sparta is an example of a timocratic regime, and it enjoys an eponymous relationship with Synthetix’s Spartan Council. Incidentally, Lycurgus of Sparta first implemented a separated powers model, which Synthetix and Yearn Finance later adopted.

A timocracy degenerates into an oligarchy when its constitution is rewritten to explicitly reserve power for the wealthy, and when contracts are created to purposefully exacerbate the division between a wealthy class and a poor class. Although our nine DeFi cases are tacitly governed by wealthy, above-average token-holders (whales), average and below-average token-holders (minnows) are allowed to participate in the governance procedures. The minnows’ participation is not as effective as the whales’ participation; but it is not strictly precluded. Furthermore, developments like Synthetix’s quadratic voting are intended to stop the inequality gap from widening.

To reiterate, DeFi’s governance is timocratic. DeFi’s timocratic rulers – the unregistered, above-average token-holders – accumulate more power over time by purchasing even more tokens. The concentration of power is gradual, subtle, and putatively neutral, because crypto-asset marketplaces are open to all. DeFi’s timocratic governance could degenerate and become oligarchic if above-average token-holders vote for so-called improvement proposals that significantly diminish the power of average and below-average token-holders, or if they vote for changes that make it more difficult for newcomers to acquire and exercise voting rights [42; 550d–551b]. Such actions would further strengthen the “old guard”."

(https://www.sciencedirect.com/science/article/pii/S0160791X23000568?via%3Dihub)

More information

* Decentralised Finance’s timocratic governance: The distribution and exercise of tokenised voting rights. By Tom Barbereau, Reilly Smethurst et al. Technology in Society, Volume 73, May 2023, 102251

URL = https://www.sciencedirect.com/science/article/pii/S0160791X23000568?via%3Dihub