> ## Documentation Index
> Fetch the complete documentation index at: https://docs.cowboy.lat/llms.txt
> Use this file to discover all available pages before exploring further.

# Tokenomics and Governance

> Token utility, distribution, and protocol upgrade mechanisms

## Status

**Priority:** Medium - Important for long-term sustainability

## Core Questions

### 1. What are the tokenomics details?

### 2. How does the protocol get upgraded?

## Tokenomics

### Token Utility

What does the token do?

| Use Case        | Description                |
| --------------- | -------------------------- |
| Gas fees        | Pay for on-chain execution |
| Runner payments | Pay for off-chain compute  |
| Staking         | Validator/runner security  |
| Governance      | Voting on protocol changes |

### Distribution Questions

| Question            | Consideration                        |
| ------------------- | ------------------------------------ |
| Initial allocation  | Team, investors, community, treasury |
| Emission schedule   | Inflationary, deflationary, fixed    |
| Vesting             | Lock-up periods for insiders         |
| Public distribution | Airdrop, sale, mining/staking        |

### Economic Model

| Aspect            | Options                  |
| ----------------- | ------------------------ |
| Fee burn          | Deflationary pressure    |
| Staking rewards   | Inflation to stakers     |
| Runner incentives | How are runners paid?    |
| Treasury          | Protocol-owned liquidity |

### Open Questions

1. What's the total supply?
2. What percentage goes to team/investors?
3. Is there a fee burn mechanism?
4. How do runner economics integrate with tokenomics?
5. What's the staking APY target?

## Governance

### Upgrade Mechanisms

| Model               | Description                      | Trade-off                        |
| ------------------- | -------------------------------- | -------------------------------- |
| Single client       | One implementation               | Faster iteration, centralization |
| Multi-client        | Multiple implementations         | Resilience, coordination cost    |
| On-chain governance | Token-weighted voting            | Plutocracy risk                  |
| Off-chain signaling | Soft consensus                   | Non-binding                      |
| Timelock            | Delay between vote and execution | Security vs agility              |

### What Gets Governed?

| Category            | Examples                          |
| ------------------- | --------------------------------- |
| Protocol parameters | Block time, gas limits, fees      |
| Runner registry     | Add/remove approved runners       |
| Data sources        | Approved oracles and APIs         |
| Security            | Emergency pauses, slashing params |
| Treasury            | Fund allocation                   |
| Upgrades            | Code changes, migrations          |

### Governance Process

Typical flow:

```
Proposal → Discussion → Vote → Timelock → Execution
```

Open questions:

1. Who can submit proposals?
2. What's the quorum requirement?
3. What's the approval threshold?
4. How long is the voting period?
5. How long is the timelock?
6. Are there emergency procedures?

### Client Diversity

| Approach                | Consideration                             |
| ----------------------- | ----------------------------------------- |
| Single reference client | Simpler, but single point of failure      |
| Multiple clients        | Resilience, but spec ambiguity            |
| Formal specification    | Enables multi-client, expensive to create |

### Upgrade Safety

How to prevent bad upgrades:

| Mechanism      | Purpose                          |
| -------------- | -------------------------------- |
| Timelock       | Time to review and exit          |
| Veto           | Emergency cancellation           |
| Bug bounty     | Find issues before deploy        |
| Staged rollout | Testnet → limited mainnet → full |
| Rollback plan  | What if upgrade breaks things?   |

## Governance Risks

### Plutocracy

Token-weighted voting favors large holders:

* Whales dominate decisions
* Small holders have no voice
* Potential for hostile governance

Mitigations:

* Quadratic voting
* Delegation
* Time-weighted voting
* Conviction voting

### Governance Attacks

| Attack                | Description                          |
| --------------------- | ------------------------------------ |
| Flash loan governance | Borrow tokens, vote, return          |
| Vote buying           | Off-chain payments for votes         |
| Apathy exploitation   | Low turnout enables minority control |
| Malicious proposals   | Proposals that extract value         |

### Regulatory Considerations

Governance tokens may have regulatory implications:

* Securities classification
* DAO liability
* Tax treatment

## Open Sub-Questions

1. Is governance on-chain or off-chain?
2. What's the minimum stake to propose?
3. Are there different proposal types with different thresholds?
4. How is the treasury managed?
5. What's the emergency response process?
6. How do validator and governance incentives align?

## Related Questions

* [L1 vs L2](/open_questions/l1_vs_l2) - Architecture affects upgrade complexity
* [Runner Economics](/open_questions/runner_economics) - Token economics for runners
* [Consensus and Finality](/open_questions/consensus_and_finality) - Validator incentives

## Source

Original questions from advisor notes (Dec 5, 2025)