The current state of Web3, particularly within the communities and organizations that take place in it, is characterized by a lack of transparency as well as legal uncertainty, often hiding a lack of decentralization. 

Maybe counterintuitively, both are coupled tightly together, as a lack of transparency or even a lack of structure itself are challenging the average protocol users as much as they are provoking regulators. With many projects, there is simply no way to understand internal power structures from the outside. Meanwhile, protocol founders frequently rely on ‘social consensus’, which, despite sounding democratic, often equates to mob rule at best or results in an opaque centralized enforcement layer at worst. The reason behind the omnipresence of this dilemma is the nature of human coordination itself. Rarely can decisions be made in a binary fashion; in most cases subjective judgment is required.  

It’s important to stress that concepts like social consensus can be part of a mainstream narrative, without being empirically viable. This is certainly the case in Web3. To name two additional examples in this context which I often come across: there is neither a realistic case for extreme “governance minimization”, since a state of “no governance” simply does not exist; nor is ‘code-is-law’ recognized in a legal setting to circumvent written law. 

As a consequence of these misconceptions, avoiding the formalization of governance neither gets rid of the complexity of coordination and the need for enforceable, non-deterministic rules, nor does it circumvent legal ambiguity and interpretation.  While code-based governance is desirable where it can be implemented, governance through an exclusively code-based system is possible only in exceptional cases. On the other hand, the act of founders choosing an allegedly optimal legal entity structure for their project is no magic pill either. It does not automatically ensure regulatory compliance, especially in cases where contributors are spread over the globe; and it does not necessarily eliminate the liability of project contributors. It certainly does not promote the decentralization of the project. Because legal wrappers are optimized for traditional businesses, not web3 protocols, they often only provide the illusion of safety. And in this illusion, they can do as much harm as they do good. 

Solution for the Q Protocol 

As the foundational layer for Q’s governance, the Q Constitution is set up as a private contract among the participants in the Q network and thereby offers a recognized legal form without the need for an external legal entity. The constitution is thereby blending the benefits of legal recognition often looked for in legal wrappers with the flexibility needed in a decentralized ecosystem.  

A contractual framework has the advantage of being highly adaptable, while not depending on a specific jurisdiction’s legal entity type, which typically comes with many specific requirements and restrictions. Unlike smart contracts, the Q Constitution is human-readable and is agreed upon by stakeholders either explicitly, such as root nodes, or implicitly by QGOV token holders.  

Unlike smart contracts, the Q Constitution allows setting non-deterministic rules and processes. It is amendable, ensuring that the protocol can evolve over time while maintaining a high level of transparency and enforceability both on-chain and off-chain to ensure accountability. 

For those interested in the broader context of the Q Protocol, and how governance structures can be applied to a layer 1 blockchain, the whitepaper and additional resources are available on q.org. 

The Q Constitution 

As explained above, the Q Constitution is a private contract among the participants in the Q network, defining the governance structure and operational rules of Q.  

To ensure transparency, amendability and enforceability, the Q Constitution covers several critical aspects: 

  • Stakeholder Responsibilities: It defines the roles and duties of QGOV token holders, Validator Nodes, Root Nodes and Expert Panel Members. 
  • Voting Processes: It outlines how decisions are made within the network, such as managing important parameters or electing Root Nodes. 
  • Decentralized Enforcement: It establishes an effective mechanism to enforce the rules and processes described in a decentralized, credibly neutral and credibly fair way. 
  • Staking and Slashing Guidelines: It details the processes of how staking is managed on Q, and also describes penalties for malicious behavior and the processes through which penalties are enforced. 
  • Dispute Resolution: It determines and describes the mechanisms for resolving conflicts within the Q Protocol, which is of utmost importance to facilitate non-deterministic rules. 
  • Integrated Applications: It defines governance services available to applications outside of the core Q Protocol.  

The full document can be read.  

Transparency 

Transparency is achieved through the explicit documentation of roles, responsibilities, and processes within the Q Constitution. This clarity ensures that all facets of the Q Protocol are accessible and understandable to all network participants. 

Additionally, governance decisions are executed and recorded on-chain, providing an immutable and accessible record for all participants to verify adherence to the Q Constitution. 

Amendability 

As I often state, it is both empirically as well as mathematically impossible to create a system that can be operated and developed without ever needing to be changed, as was proven by Nobel Laureates Hart and Holmström. This is why the Q Constitution is designed to be amended through a defined process. The change process of Q and the Q Constitution are outlined in the Q Constitution itself and implemented on-chain, ensuring that all amendments are transparent and require consensus within the Community of QGOV token holders. In addition to directional votes and operative governance like Expert Panel membership changes, three different levels of change to the Q Constitution are considered, with the relevant classification and voting parameters being defined in the Q Constitution. 

Detailed Changes involve minor adjustments to the Q Constitution that can be expected to take place relatively often. Therefore, quorum and majority requirements are quite low. 

Basic changes touch on sections of the constitution that only need to be changed occasionally to introduce new concepts or to change existing ones. This is again reflected in the quorum and majority requirements for the required proposals. 

Fundamental changes involve major overhauls of the governance structure, they require extensive discussion within the Q Community and at the time of writing a 50% quorum and a supermajority to pass. 

Enforceability 

Rules without enforcement are only suggestions and create a false sense of security that does more harm than good; much like the ill-fitted legal entities we discussed earlier. Therefore, enforceability is a cornerstone of the Q Constitution, achieved through both on-chain and off-chain mechanisms. While on-chain enforcement includes elements such as slashing, penalizing malicious actors, and the ability to vote out root nodes that fail to comply with the constitution, off-chain enforcement is ensured by the nature of the Q Constitution as a private contract. Being legally binding in the “real world”, private contracts are an established and recognized legal form, commonly used in business. Their legitimacy is recognized by traditional legal systems and they can rely on traditional mechanisms for enforcement of their contents, offering a degree of recognition similar to legal entities but without the same constraints.  

To ensure that even in the case of conflict, disputes are handled fairly, and that the Q governance framework remains robust, the International Chamber of Commerce Court of arbitrations (ICC) currently plays a crucial role in the Q Constitution’s dispute resolution process, with further alternatives for dispute resolution being integrated in the future. Based on the constitution’s rules, the ICC can be called upon as a reliable and recognized mechanism for resolving conflicts across the world, with decisions being accepted as final and arbitral awards being enforceable through basically any traditional legal system. 

Conclusion 

By being set up as a private contract, the Q Constitution stands as a recognized legal form without the need for an external legal entity. It is enforceable and amendable, ensuring transparency and certainty for all stakeholders, including QGOV token holders and projects building on Q. 

By combining the flexibility of a private contract with the security of on-chain enforcement and the reliability of ICC dispute resolution, the Q Constitution stands as one more step towards sophisticated and – more importantly – effective governance solutions for Web3 protocols and organizations.