III. Governance

The M^0 protocol uses an on-chain governance mechanism called a Two Token Governor (TTG) to manage its various inputs. With TTG, holders of the voting tokens are penalized for failing to vote.

There are two utility tokens used in the M^0 TTG: POWER and ZERO.

POWER is used to vote on active proposals and can be considered the primary management token of the mechanism. POWER holders will earn ZERO in exchange for their direct participation in governance. If a POWER holder delegates their balance to an address that is not also the holder of the tokens, it is this address which receives the ZERO rewards. ZERO holders are comparatively (to POWER holders) passive in the voting process and only vote on important changes. ZERO holders at any time may Reset (see: III.II.II.III ZERO Threshold Proposals) the POWER token supply to themselves.

The goal of the TTG mechanism is to ensure credible neutrality of governance. In any system there are two extremes that must be avoided: capture and fraud. In one case, the system is captured by actors whose primary interest is not in efficient protocol operation and it ceases to function in a way where all users are treated the same. In the other, the protocol ceases to function for anyone except the fraudulent actor. It is this dichotomy that is at the heart of the two token design. POWER holders are treated as a managerial class that is able to earn compensation through continued benevolent participation. This continued benevolence is judged by the ZERO holders who can always strip the POWER holders of their management rights, and thus their ability to earn future ownership in the protocol. If the composition and decisions of POWER holders trend towards either extreme, it is in the interest of ZERO holders to call Reset in order to restore balance.

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