We are excited to share that we led Q’s recent $12m funding round, which has recently launched their mainnet.
Q is building a unique L1 protocol with a clear governance process, security that is based on several layers of diverse node operators and its constitution as well as legal enforceability and dispute resolution for applications building on top.
The team is guided by the insight that sustainably successful companies as well as nations have good governance. Also blockchains and the economic and social activity in the metaverse will depend on such. As people shift attention, time and value from the physical realm to the metaverse, the question of governance will become more pressing. Projects with sound governance will win over competitors which lack governance. Its open-source architecture allows other metaverse projects to integrate with Q, thereby boosting user trust and project value.
Issues with L1 governance
L1 governance is often ill-defined and non-formalized, which creates uncertainty over the intent and outcomes of governance initiatives, which prevents traditional players from building on chains.
Implicit power structures
Powerful stakeholders such as exchanges and large stablecoins can have significant leeway in defining which version will be the “official” version in case of forks (see e.g. on the unforkability of Ethereum).
Lack of sustainable economic security guarantees
The market capitalizations of application specific tokens could outgrow the L1 tokens, if there is no direct enough value capture mechanism that lets the L1 benefit from application layer growth. As a result, economic attacks on L1 governance could become feasible in order to exploit application level mechanisms. While chains such as Ethereum currently boast immense market capitalizations, due to monetary premia as well as significant fee revenues (due to constrained block space and thus high gas fees), it is not guaranteed that this will persist.
Governance in the metaverse
It is becoming increasingly apparent that people will spend large amounts of time in the metaverse which will also increasingly merge with regular reality. While there is debate about its exact definition (maybe it’s just the internet), it is likely that a global network of spatially organized, predominantly 3D content will be available to all without restriction, for use in all human endeavors — a new and profoundly transformational medium, enabled by major innovations in hardware, human-computer interface, network infrastructure, creator tools and digital economies.
Especially when thinking about games and virtual worlds it should become clear that people will more and more be able to choose which governance framework they want to operate in, independent of geographical location.
While many aspects will be governed deterministically (e.g. did a player score a goal?) users will also need a governance system that defines and enforces agreed-upon rules that are not only deterministic but take into account qualitative judgements in cases such as discrimination or hate speech.
Complete vs. incomplete contracts & residual governance
Institutional economics finds that in many instances it is impossible to write complete contracts that cover all future possible states of the world. To cover these unknowns, there need to be residual governance rights, which is a premier reason why firms exist and not all economic activity is organized through market interactions among peers. While it is probably increasingly possible to write complete contracts through sophisticated software libraries or elegant designs (see e.g. Liquity), many governance settings will still require ambiguous interpretation of contracts, dispute resolution as well as residual governance rights and in many cases qualitative limitations of such (e.g. minority shareholder protections).
Potential Use-cases and Applications
The Q constitution and its ability to act as an official document used in real world arbitration makes Q a suitable platform to deploy applications which require:
- Interacting with or bridging to the real world (financial and legal system), where code-is-law approach is not applicable and more flexibility/interpretation is required. This includes tokenization of off-chain assets such as real estate or loans with real-world legal entities & enforceable claims in case of default.
- Long-term oriented use-cases (e.g. insurance) which are too dependent on long-term predictability in their design to sustain the common L1 governance volatility and uncertainty.
- Governance-heavy decision-making for protocols like e.g. treasury management, where a legal back-stop might be required.
- Handling of hacks and exploits as well as addressing protocol changes/hot-fixes that might be sped up via the governance process on the L1 level.
Integrated applications can extend the scope of the Q Constitution to cover the applications as well which would allow for dapps to have a tailored governance allowing to create applications like a no-MEV DEX, where a certain governance feature or attribute is only applied to a certain protocol.
Some ideas of crypto-native use-cases which might make more sense on Q as opposed to existing L1s:
- Non-MEV DEX — not allowing monopolistic MEV extraction on the level of constitution (if extracted, should be democratized)
- A toolkit/framework for DAO creation with a legal backstop — ability to do dispute resolution in a real court
- Tokenization of real world assets with an option to subsequently use them as collateral to mint the native collateralized stablecoin QUSD. Additional feature might be the ability to bridge these assets to Ethereum to integrate in e.g. Maker
- DAO bond issuance
Enter Q’s governance framework
Q represents a L1 blockchain protocol that specifically provides a solution for complex as well as ambiguous governance requirements and economic scalability while building on proven technical standards (e.g. Ethereum Virtual Machine — EVM).
The Q team understands blockchains essentially as a social technology. They aim to foster the adoption of decentralized systems by creating a universal governance framework that combines the benefits of a public, permissionless and decentralized ledger with governance concepts that have proven themselves in other established legal and social systems.
As defined in the paper on the state of blockchain governance, one can separate between 1.) governance of the infrastructure and 2.) by the infrastructure in the context of blockchain protocols. Q mainly tackles these two major issues in a distinct way: 1.) They clearly define the intent and values of Q as well as L1 governance processes with checks and balances to reduce uncertainty regarding changes and upgrades of the infrastructure as well as the constitution itself. 2a.) Validator nodes that operate the blockchain are kept in check by root nodes which are kept in check by each other and the constitution 2b.) applications either build on Q in a permissionless fashion with pure code-based governance (based on the EVM) or they can integrate deeply with Q by amending the constitution, in order to apply legally enforceable governance and dispute resolution services to their use-case.
Public L1 blockchains are supposed to be maximally resilient infrastructure in order to represent highly reliable institutions for governing economic and social activity. The resilience of the infrastructure is usually heavily dependent on the types of consensus and incentive mechanisms employed. In the case of proof of stake, nodes usually run client software that implement the protocol specification that include aspects such as slashing for mis-behavior including more severe punishment for executing invalid state transitions or less severe punishment for going off-line which is important to incentivize actors operating the network according to the intended standard. Protocols are trust-minimized and usually define certain assumptions regarding the amount of malicious actors as part of the whole set of nodes (e.g. ⅔+1 honest and reliable participants in BFT). Decentralization serves the purpose to decrease the likelihood that such assumptions are broken, since it becomes increasingly harder for individuals or sets of individuals to start coordinated attacks in case of malicious intent, the more actors are participating in general. In addition, a network also becomes more resilient against non-malicious failures such as natural catastrophes, the more distributed it is.
Q employs a novel approach as to how it creates robustness and resilience beyond technical means, through a multi-layered consensus and governance model.
Generally, Q token holders have the power to elect root nodes & stake on validators as well as to change the constitution (with supermajority requirements). The constitution defines the basic principles, the rights and responsibilities of different node types, penalties for misbehaviors, arbitration processes as well as processes and requirements to alter the constitution itself.
As such, the constitution itself defines a protocol that governs network behavior (governance by the infrastructure), while the amendment process can be viewed as governance of the infrastructure.