Introduction

Governance in Avalanche Layer 1 networks center around two fundamental concepts: token-based voting and permissioning through precompiles. These mechanisms empower the community to manage critical aspects of network functionality and access control. This chapter explores various governance models within the Avalanche ecosystem, including Decentralized Autonomous Organizations (DAOs), quadratic voting, and real-world governance use cases.

Key Aspects of Governance in Avalanche

Token-Based Voting

Token holders of a Layer 1 can play a pivotal role in the governance of the network. They have the authority to vote on proposals that can affect both technical parameters and broader policy decisions. This system ensures that individuals with a stake in the network have a direct influence over its future development.

Permissioning Through Precompiles

Governance on Avalanche L1 networks also involves managing precompiles, specifically precompiles with the AllowList interface. Precompiles are specialized smart contracts that provide functionalities not available through standard contracts. The AllowList interface is a part of multiple precompiles and can govern who can deploy contracts or send transactions on the network among other functionality. Through governance, the community can vote to add or remove addresses from the AllowList, controlling who has permission to perform specific actions on the network.

Examples of Governance Use Cases for an Avalanche L1

1. AllowList Precompile Governance

   • Adding or Removing Addresses

   A common governance activity involves proposals to modify the AllowList for a specific precompile (ie NativeTokenMinter). These proposals may focus on adding or removing addresses, thereby determining who is authorized to interact with the precompile, for example deploying contracts or sending transactions on specific L1s. Token holders can vote on these proposals to ensure that only trusted entities are granted these permissions.

2. DAOs and L1 Governance

   • Decentralized Autonomous Organizations (DAOs)

   In the Avalanche ecosystem, DAOs can govern specific L1s by making critical decisions on upgrades, permissioning, and operational rules. These organizations typically use token-based voting to reach consensus and effectively manage their resources.

3. Quadratic Voting

   • Promoting Fair Decision-Making

   Quadratic voting could be employed in a Layer 1's governance to promote more democratic decision-making. This method allocates voting power more equitably among participants, allowing for nuanced decisions. It helps balance the influence between larger and smaller token holders, ensuring that the governance process is fair and representative.

Importance of Governance in Avalanche L1 Tokenomics

Permission and Access Control
Governance over precompiles with the AllowList interface is crucial for decentralizing control over key network functions. It ensures that only community-approved entities can access sensitive parts of the network, enhancing security and trust.

Balancing Influence
Mechanisms such as quadratic voting help balance power between large and small token holders. This leads to fairer decision-making processes and fosters a more inclusive community.

Community-Driven Development
Token-based governance empowers the community to propose and vote on changes that directly influence the network’s future. This includes decisions related to L1 management, technical upgrades, and the addition or removal of participants.

In the following sections, we will delve deeper into these governance models and examine how they function in practice within Avalanche L1 networks.