The Messy State of Crypto Governance with Jito Foundation's Nick Almond | The Breakdown

Nick Almond describes crypto governance as being in a messy state across the industry, with the core problem being years of neglect and a lack of care for governance infrastructure. Most DAOs are still running on forked Compound governor contracts dating to around 2019 or 2020, and that infrastructure has not been meaningfully upgraded since.

The de facto power bases in many protocols are multi-sigs operating as M-of-N quorum systems rather than genuine token-weighted voting, and power structures were largely determined by who held tokens on airdrop day. Almond notes he became a reasonably large delegate in several DAOs simply by posting a delegate profile at the right moment, while he has no meaningful say in Arbitrum governance because he missed that window.

Governance tokens are falling out of favor, and declining prices reduce motivation to hold stake or participate in voting. Almond argues governance tokens should carry utility beyond voting, including direct value accrual tied to protocol revenue, because without that, projects resort to sham governance proposals to manufacture token value. He traces the origins of governance utility to Swiss association structures used partly as a regulatory mechanism to launch an investable token, with governance being secondary to that goal.

The Arbitrum Security Council clawed back funds related to a KelpDAO attack, and Almond argues this action revealed that the council holds godlike powers over the ledger including real-time and legacy transactions, which undermines claims of immutability and permissionlessness. The council was originally a latent structure designed for security emergencies but reframed its purpose to intermediate in hacks more broadly. Almond says activating it from latent to active means any party can now approach it requesting transaction reversals, destabilizing the governance equilibrium around permissionlessness. The council subsequently absolved its decision-making responsibility to Arbitrum DAO, which is voting on whether to transfer the clawed-back funds to Aave LLC as a legal counterparty operating under a restraining order requiring court approval before funds can be moved.

Almond frames permissioned blockchains and L2s with security councils as effectively endorsing all transactions by virtue of having the ability to intermediate them. He argues that having the power to reverse transactions but choosing not to use it is almost equivalent to using it because the power itself is acknowledged.

Jito Foundation is developing a framework called pragmatic decentralization, which delegates operational authorities over the protocol to allow active management and iteration while excluding any authorities involving custody of user funds. Token holders retain the ability to claw back all delegated authorities if developers stop shipping or another need arises. Jito uses sub-DAOs with domain-specific focus including a crypto economic sub-DAO, a governance sub-DAO, and a community sub-DAO, and Almond argues the future of DAO governance requires nested substructures with domain specificity rather than monolithic frameworks.

Almond rejects the view that DAOs are holding the space back, framing the issue instead as needing a better balance between product velocity and decentralization. He acknowledges that decentralized governance moves slowly, which is a real competitive disadvantage against faster-moving centralized teams, but argues that making protocol decisions publicly and having delegates review them can produce higher quality decisions and more secure protocols. Teams that concentrate too many authorities on a multi-sig are more vulnerable to hacks.

The defeat of the Solana inflation reduction proposal SIMD-228 by the broader validator set, against the preferences of the foundation and prominent figures, is cited by Almond as genuine evidence that the Solana network is decentralized. He contrasts this with JukeDAO, which pursued maximum retail governance including votes on mobile app caps, resulting in chaos before pulling back from that approach.

Almond argues that governance and decentralization are muscles that must be trained incrementally, and that starting from doing very little and expanding is safer than immediately handing full control to a DAO. Subsidiary structures should be designed to self-destruct rather than become permanent committees, and a bad one can simply be eliminated. He supports meta governance, meaning governance about how governance itself changes over time, as a mechanism for cyclical improvement.

Almond notes that fear of securities classification caused projects to avoid meaningful governance power or dividend-like distributions, limiting exploration of what digital assets could do. He argues digital assets can offer far more nuanced access and risk-shaping mechanisms than traditional stocks, and that tokenized stocks leading to neo-corporate governance on the blockchain would be a disappointing outcome compared to genuinely new crypto asset structures. The clarity act may create positive selective pressure on DAOs by stipulating limits on concentration of control, but Almond expects a persistent mismatch between regulatory definitions of decentralization and how decentralization should actually be implemented in practice.

Almond sees regulatory clarity as long overdue and believes it is a net positive because the average person wants to use tokens without fear of legal trouble, and that new rules could unlock governance structures giving more power to token holders than traditional finance currently allows. He argues TradFi has become a monolith by gradually eroding individual financial freedoms, and that decentralization philosophies developed in crypto could eventually influence how real-world businesses operate more broadly.