<figure class="wp-block-image size-large"><img width="325px" height="183px" srcSet="https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/10/06002410/governance-free-meaning-375x211.webp 375w, https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/10/06002410/governance-free-meaning-662x372.webp 662w, https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/10/06002410/governance-free-meaning-768x432.webp 768w, https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/10/06002410/governance-free-meaning.webp 688w" sizes="(max-width: 425px) 150px, 450px" src="https://ll-blog-dev.s3.ap-southeast-2.amazonaws.com/wp-content/uploads/2023/10/06002410/governance-free-meaning.webp" alt="governance free meaning" class="wp-image-4123"/></figure>“Community-governed” or “community-controlled” sound like positive features for a DeFi protocol.But, they’re actually really dangerous. A true-DeFi protocol should be governance-free.And I will explain exactly why.<h2 class="wp-block-heading tablecontent">Governance in DeFi</h2>Governance gives token holders voting power to steer a DeFi protocol&#x27;s future direction.For example, AAVE token holders can submit and vote on proposals to alter the lending platform. Decentralized Autonomous Organizations (DAOs) like <a href="https://www.thecoinzone.com/stablecoins/dai-of-maker-dao-risks" data-type="URL" data-id="https://www.thecoinzone.com/stablecoins/dai-of-maker-dao-risks" target="_blank" rel="noreferrer noopener">MakerDAO</a> codify governance rules into smart contracts, creating a rule by token-majority over the DAI stablecoin.Although this may sound like a decentralized and democratic process, it can actually turn into tyranny really quickly.<h2 class="wp-block-heading tablecontent">How Governance in DeFi Can Go Wrong</h2>Governance in DeFi can go wrong in one important way.A singular entity, such as a big bank, can buy the majority of a protocols’ tokens and obtain the majority voting share in the DAO. Then, if the protocol contains such code, the majority shareholders can vote to change a protocols’ parameters to profit the centralized entity and harm the masses. A proper analogy for this situation is how the control over the US dollar is held by a select few individuals.These individuals can then variably change the rules of the US dollar via interest rates and supply inflation.This leads to a small minority of wealthy individuals who are in the know to get even wealthier. Meanwhile, the large majority of everyday people are stolen from.For a <a href="https://www.thecoinzone.com/defi/defi-revolution" target="_blank" rel="noreferrer noopener">DeFi</a> protocol to contain similar governance parameters is antithetical to philosophies of DeFi and crypto alike.<h2 class="wp-block-heading tablecontent">Governance-Free Meaning in DeFi</h2>A governance-free DeFi protocol has no oversight or controlling entity. It is entirely decentralized with no group able to modify rules or parameters. A true DeFi protocol has no <a href="https://www.thecoinzone.com/security/admin-keys" data-type="URL" data-id="https://www.thecoinzone.com/security/admin-keys" target="_blank" rel="noreferrer noopener">admin keys</a> nor a decentralized autonomous organization (DAO).A governance-free protocol side steps many issues that could arise due to having a governance-structure:<ol><li>No changing of protocol parameters (<a href="https://www.thecoinzone.com/tradfi/what-is-collateral-ratio" target="_blank" rel="noreferrer noopener">collateral ratios</a>, borrowing and redemption fees, pool sharing, permissionless, censorship/blacklisting of wallet addresses, oracle providers, etc)</li><li>No reliance on a centralized third-party</li><li>No risk of protocol capture by an entity who can purchase majority share</li></ol><h2 class="wp-block-heading tablecontent">Why Liquid Loans is Governance-Free</h2><a href="https://www.thecoinzone.com/blockchain/explained-liquid-loans-defi-protocol-on-pulsechain" data-type="URL" data-id="https://www.thecoinzone.com/blockchain/explained-liquid-loans-defi-protocol-on-pulsechain" target="_blank" rel="noreferrer noopener">Liquid Loans</a> is a fully-decentralized finished product with no admin keys or DAOs. As a result, the parameters of the protocol are governance-free and cannot be changed. This means that these features will remain the same as long as the Liquid Loans code is online:<ol><li>Permissionless usage of the protocol</li><li>110% minimum collateral ratio</li><li>Variable borrowing and redemption fees based upon TCR</li><li><a href="https://www.fetchoracle.com/" target="_blank" rel="noreferrer noopener">Fetch</a> as the Primary Oracle Provider</li><li>Instant USDL redemptions</li><li>No blacklisting or censorship of addresses or tokens</li><li>Completely community-owned and enjoyed!</li></ol>The governance-free nature of the <a href="https://www.thecoinzone.com/liquidloans/what-you-can-do-with-liquid-loans" data-type="URL" data-id="https://www.thecoinzone.com/liquidloans/what-you-can-do-with-liquid-loans" target="_blank" rel="noreferrer noopener">Liquid Loans protocol</a> ensures a truly-decentralized lending, staking, and decentralized stablecoin-generating platform for all!

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<figure class="wp-block-image size-large"><img width="325px" height="183px" srcset="https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/10/06002410/governance-free-meaning-375x211.webp 375w, https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/10/06002410/governance-free-meaning-662x372.webp 662w, https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/10/06002410/governance-free-meaning-768x432.webp 768w, https://d2ly46a6b1u3g6.cloudfront.net/wp-content/uploads/2023/10/06002410/governance-free-meaning.webp 688w" sizes="(max-width: 425px) 150px, 450px" src="https://ll-blog-dev.s3.ap-southeast-2.amazonaws.com/wp-content/uploads/2023/10/06002410/governance-free-meaning.webp" alt="governance free meaning" class="wp-image-4123"/></figure>



“Community-governed” or “community-controlled” sound like positive features for a DeFi protocol.



But, they’re actually really dangerous.&nbsp;



A true-DeFi protocol should be governance-free.



And I will explain exactly why.



<h2 class="wp-block-heading tablecontent">Governance in DeFi</h2>



Governance gives token holders voting power to steer a DeFi protocol's future direction.



For example, AAVE token holders can submit and vote on proposals to alter the lending platform.&nbsp;



Decentralized Autonomous Organizations (DAOs) like <a href="https://www.thecoinzone.com/stablecoins/dai-of-maker-dao-risks" data-type="URL" data-id="https://www.thecoinzone.com/stablecoins/dai-of-maker-dao-risks" target="_blank" rel="noreferrer noopener">MakerDAO</a> codify governance rules into smart contracts, creating a rule by token-majority over the DAI stablecoin.



Although this may sound like a decentralized and democratic process, it can actually turn into tyranny really quickly.



<h2 class="wp-block-heading tablecontent">How Governance in DeFi Can Go Wrong</h2>



Governance in DeFi can go wrong in one important way.



A singular entity, such as a big bank, can buy the majority of a protocols’ tokens and obtain the majority voting share in the DAO.&nbsp;



Then, if the protocol contains such code, the majority shareholders can vote to change a protocols’ parameters to profit the centralized entity and harm the masses.&nbsp;



A proper analogy for this situation is how the control over the US dollar is held by a select few individuals.



These individuals can then variably change the rules of the US dollar via interest rates and supply inflation.



This leads to a small minority of wealthy individuals who are in the know to get even wealthier. Meanwhile, the large majority of everyday people are stolen from.



For a <a href="https://www.thecoinzone.com/defi/defi-revolution" target="_blank" rel="noreferrer noopener">DeFi</a> protocol to contain similar governance parameters is antithetical to philosophies of DeFi and crypto alike.



<h2 class="wp-block-heading tablecontent">Governance-Free Meaning in DeFi</h2>



A governance-free DeFi protocol has no oversight or controlling entity.&nbsp;



It is entirely decentralized with no group able to modify rules or parameters.&nbsp;



A true DeFi protocol has no <a href="https://www.thecoinzone.com/security/admin-keys" data-type="URL" data-id="https://www.thecoinzone.com/security/admin-keys" target="_blank" rel="noreferrer noopener">admin keys</a> nor a decentralized autonomous organization (DAO).



A governance-free protocol side steps many issues that could arise due to having a governance-structure:



<ol>
<li>No changing of protocol parameters (<a href="https://www.thecoinzone.com/tradfi/what-is-collateral-ratio" target="_blank" rel="noreferrer noopener">collateral ratios</a>, borrowing and redemption fees, pool sharing, permissionless, censorship/blacklisting of wallet addresses, oracle providers, etc)</li>



<li>No reliance on a centralized third-party</li>



<li>No risk of protocol capture by an entity who can purchase majority share</li>
</ol>



<h2 class="wp-block-heading tablecontent">Why Liquid Loans is Governance-Free</h2>



<a href="https://www.thecoinzone.com/blockchain/explained-liquid-loans-defi-protocol-on-pulsechain" data-type="URL" data-id="https://www.thecoinzone.com/blockchain/explained-liquid-loans-defi-protocol-on-pulsechain" target="_blank" rel="noreferrer noopener">Liquid Loans</a> is a fully-decentralized finished product with no admin keys or DAOs.&nbsp;



As a result, the parameters of the protocol are governance-free and cannot be changed.&nbsp;



This means that these features will remain the same as long as the Liquid Loans code is online:



<ol>
<li>Permissionless usage of the protocol</li>



<li>110% minimum collateral ratio</li>



<li>Variable borrowing and redemption fees based upon TCR</li>



<li><a href="https://www.fetchoracle.com/" target="_blank" rel="noreferrer noopener">Fetch</a> as the Primary Oracle Provider</li>



<li>Instant USDL redemptions</li>



<li>No blacklisting or censorship of addresses or tokens</li>



<li>Completely community-owned and enjoyed!</li>
</ol>



The governance-free nature of the <a href="https://www.thecoinzone.com/liquidloans/what-you-can-do-with-liquid-loans" data-type="URL" data-id="https://www.thecoinzone.com/liquidloans/what-you-can-do-with-liquid-loans" target="_blank" rel="noreferrer noopener">Liquid Loans protocol</a> ensures a truly-decentralized lending, staking, and decentralized stablecoin-generating platform for all!

The Meaning and Significance of the Term "Governance-Free"

Governace-free has a different meaning from community-owned or community-controlled. Learn exactly what this distinction is and why it is critical.