Correlation between Terra's governance voting and 'skin in the game'
What is governance voting?
In the spirit of decentralization, whenever there is a change to be implemented, it has to agreed upon by the community. There has been talks on different ways to gauge people’s consensus but using an on-chain voting mechanism is by far the most common method in the blockchain community.
Anyone can lock up tokens to come up with a proposal while the community would weigh in and vote on these proposals to be passed or rejected.
In this article, I would like to explore the relation between voting activity with how much ‘skin in the game’ one has in the protocol. To have a lot of ‘skin in the game’ in Terra is defined here as having a lot of Luna staked.
Overview Metrics of Governance activity on Terra station
There is about 1.7million address on Terra with a non-zero balance. However, only 8534 addresses have participated in governance so far.
On the bright side, out of these addresses who have voted, the average voter has voted in 3 proposals out of the 47 proposals in total. Another thing to note here is that not all voters have access to all 47 proposals as voters would not have access to proposals that were live before they got into Terra.
While the overall interest in voting among all addresses is low, the interest among current voters is substantial.
Number of voters
Next, let’s look at the number of voters based on how many proposals they have voted on.
We see that a large majority of voters fall in the first two categories of voted once and voted between 2 to 5 times. These two buckets actually make up 90% of all voters.
On the other end of the graph, we see 5 voters have voted in more than 40 proposals. These voters must have been in Terra since the very beginning.
Correlation between number of votes and skin in the game
Earlier we defined having a lot of skin in the game as having a lot of Luna staked. This is because naturally as stakers of a blockchain, you would want the blockchain to succeed as staking usually implies long term hodl-ing. As such, it makes sense for people who have a lot of Luna staked to also want to participate in a lot of the proposals to ensure the blockchain moves in a positive direction.
Because 90% of voters belong in the first or second category, we can make the dichotomy here: Category 1 which consists of voters who voted 1 - 5 times and Category 2 consisting of voters who voted 6 or more times.
I then compared the average amount of Luna staked for these 2 categories. Here’s what I found:
People who have voted between 1 - 5 times have on average, 10 times less Luna staked as compared to people who have voted 6 or more times.
This shows clear direct correlation between having a lot of ‘skin in the game’ with interest in governance voting. Another explanation to this could be Terra validators who have been in Terra from the start would have substantial amount of Luna staked and would have had access to vote in most of the proposals. This would bump up the average amount of Luna staked significantly. Nonetheless, this still supports the direct correlation.
For fun, I also wanted to see how much balance in USD for these categories excluding Luna and this is what I found:
Voters who voted for 6 or more proposals have 10 times more balance (in USD) on their wallet as compared to voters who voted 1 - 5 times.
This alludes to the question - why does it seem like whales have voted on more proposals than retail traders? I think this is simply because those who have stuck around in Terra long enough to vote on more than 6 proposals have made significant money and thus have more balance on wallets, and have more Luna staked.
Apart from Terra’s governance, I wanted to see and compare if we see the same trends in Anchor’s governance.
Overview metrics of Anchor’s Governance Activity
But first, an overview of the activities. We see a similar average number of votes per voter. Terra’s governance average vote is 3 while Anchor spots 2 votes per voter.
The main difference between Anchor’s governance and Terra’s is the number of proposals. There is only 5 proposals so far on Anchor as compared to 47 on Terra.
Number of Voters in Anchor’s Governance
I first looked at the number of voters grouped by the number of proposals they have participated in.
There is a total of 2546 voters who have voted on Anchor’s governance. Out of this total, 86% make up the first 2 categories of voted in 1 or 2 proposals - which is very similar to the voting activity in Terra’s governance.
Next, I cross checked these voters with how much skin in the game they had. Since this was for Anchor, I looked at how much net ANC did they stake in governance.
For the second time, people who have voted number amount of times had less ‘skin in the game’. In this case, voters who voted on 3 or more proposals have more than 3 times amount of ANC staked in governance as compared to those who only voted for 1 or 2 proposals.
Since Anchor was only launched in March 2021, there were more people who had access to vote on all 5 proposals on Anchor as compared to having access to all 47 proposals on Terra.
This would make the argument of being early to the protocol/blockchain somewhat irrelevant in this case since Anchor only launched not too long ago. Many people had access to the same number of proposals but the ones who voted many times were still the ones who had more staked asset.
Conclusion: Having skin in the game does lead to higher governance voting participation.
In Terra’s proposals, we saw that 90% of voters fall in the category of voted 1 - 5 times. However, the 10% of voters that voted more than 6 times have 10 times more Luna staked and also 10 times more balance on wallet.
We see similar trends when we looked at voting participation in Anchor’s governance. Voters who voted in 3 - 5 proposals had 3 times the amount of ANC staked in governance as compared to voters who only voted in 1- 2 proposals.
Both of these insights point to a clear conclusion that having skin in the game does have high correlation with high governance voting participation.