🔹 Security and Risks

 🔹 Security and Risks in Tezos' On-Chain Governance

While Tezos’ on-chain governance provides a structured, transparent, and automated path for upgrading the protocol, it introduces unique security implications and risks that are important to understand:


🛡️ Security Strengths

Formal Verification


Smart contracts can be written in Michelson, a language designed for formal verification.


This helps developers mathematically prove the correctness of their code—critical for high-stakes applications like DeFi or digital identity.


Self-Amending Protocol


Reduces reliance on manual upgrades, lowering the risk of implementation bugs or human error during hard forks.


Automatic adoption of vetted upgrades creates consistency and continuity.


Sandboxed Testing


Proposed upgrades are deployed to a temporary testnet fork before reaching mainnet.


Ensures that bugs or regressions are caught before going live.


Transparent Governance Process


Every step of the upgrade is publicly auditable on-chain, reducing the risk of hidden agendas or opaque decisions.


⚠️ Key Risks and Vulnerabilities

Centralization of Voting Power


Large staking entities (exchanges or baking services) may dominate votes, diluting decentralization.


Delegated tokens give them significant sway without requiring active participation from individual holders.


Voter Apathy


Many token holders don’t vote directly or stay informed, leaving decisions to a small subset of the network.


This can enable proposals to pass without wide consensus or scrutiny.


Malicious Proposals


If a malicious or flawed proposal passes due to insufficient review or voter understanding, it could compromise network security.


Tezos has safeguards like the testnet phase, but these aren’t foolproof.


Economic Attacks on Governance


Actors with large XTZ holdings could bribe bakers or accumulate voting power over time to pass self-serving proposals (e.g., increasing their own rewards).


Upgrade Complexity & Bugs


As with any evolving protocol, code complexity increases over time.


Even formally verified components can interact in unpredictable ways when integrated.


🔐 Mitigation Strategies

Enhanced Voter Education: Encourage transparent, third-party analysis of proposals.


Decentralized Delegation Tools: Support for tools that make it easier to delegate to bakers with proven track records of responsible voting.


Proposal Auditing: Formal third-party or community-led audits before promotion votes.


Multi-phase Voting Process: The multiple stages (proposal, exploration, testing, promotion) help prevent rushed or poorly reviewed upgrades.


✅ Summary

Aspect Strengths Risks

Upgrade Mechanism Smooth, no hard forks Complex upgrades could hide bugs or risks

Voting Transparent, on-chain Apathy & centralization of power

Security Practices Formal verification, testnet evaluations Potential bugs in unverified components

Governance Participation Open to all XTZ holders Economic manipulation or malicious coordination

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