Editing Judicial governance proposal (section)

== Mechanism design ==
A judicial governance proposal is a proposal to [[Judicial governance#Forum revaluation|revaluate the Forum]], that is, to change the fundamental REP distribution in the DAO. In the following example proposals, we make some assumptions about the particular culture of an example DAO for the purposes of illustration. These assumptions are not required and will change depending on the purpose of the particular DAO.

First we assume the DAO enforces a <math display="inline">10%</math> global tax on all new REP value minted in the DAO. This number is not necessary for any particular DAO and the percentage is arbitrarily chosen for the purposes of illustration. By a <math display="inline">10%</math> tax, we mean that whenever new fees enter the system the amount of new REP minted is <math display="inline">1.10*fee</math>. In this case, <math display="inline">1.10</math> is the minting ratio and the extra <math display="inline">10%</math> is the [[Forum reference mechanisms#Governance tax|governance tax]]. We call it a tax, because if the newly minted tokens are not burned (see below) then they dilute the power of previous REP tokens, so that all members are affected, since their REP salary is diluted.

By fiat, the DAO requires that every new [[work smart contract]] (WSC) post which earns fees and REP must donate <math display="inline">10%</math> of the new REP to give power to posts dictated by the governance process. Governance posts are called proposals. New posts automatically reference approved proposals because the [[Front-end software|UI]] automates the process of fulfilling proposals. Posts which do not follow reference protocol are downvoted automatically in the [[Validation Pool]].

The governance process is as follows. A proposal is submitted. If accepted the proposal becomes a promise. Future work posts donate their <math display="inline">10%</math> REP to fill all promises. When a promise is filled it becomes a fulfilled promise.

In greater detail: A ''proposal'' is a post submitted to the Validation Pool for gREP owners to consider. A proposal typically has 0 value at initiation and will only gain REP value after subsequent references give it power. A proposal references other posts, donating and/or leaching, which entail a suggestion for redistribution of REP. In other words, a proposal has a set of references and number called its full potential. The ''full potential'' is the value it proposes to eventually receive by future work posts. The full potential and the references determine the actual value of REP redistribution of a proposal.

If the proposal is accepted by the DAO through a [[Validation Pool]], then it becomes a ''promise''. That is, a promise is a validated post in the Forum which has a set of references and a specified full potential. Typically a promise starts with 0 value, then subsequent work posts donate REP value to it until it reaches value equal to its full potential. Then the promise becomes a ''fulfilled promise''. Before a promise is fulfilled, it is an ''unfulfilled promise''.

The current WSC is continually updated to hold the set of unfulfilled promises. The worker UI parses the difference between the sets of fulfilled and unfulfilled promises. If there are no outstanding unfilled promises, then the UI automatically donates the <math display="inline">10%</math> governance tax from the work post to the incinerator.
===Governance tax===
The parameter <math>p=10%</math> in the above example is the ''governance tax''. From the DGF model, the parameter <math>p</math> is included in the minting ratio <math>m</math>. It can be chosen by the DAO to be any number <math>0\leq p< \infty</math>.

The governance tax is particularly equitable, since every worker pays precisely the same amount, relatively. Since every WSC donates the same <math display="inline">10%</math> to governance references, then the remaining REP every worker receives from a WSC has the same value by the [[wikipedia:Quantity_theory_of_money|quantity theory of money]] in economics. To illustrate this point, notice that if every members' REP holdings were arbitrarily doubled, then the salary each member receives would be unaffected.

The REP salary is unaffected by the <math display="inline">10%</math> of REP tax whenever it is incinerated, because there is no actual loss in REP salary, because everyone has the same governance tax for every WSC.

Similarly if governance equally redistributes REP within the Forum – meaning the amount leached from posts is equal to the amount donated to posts – then any member whose posts are not affected will not have any change in their REP salary.

The only time general REP salary is affected by the governance tax is when the reference donation and leaching is not equal. When donation is larger than leaching, then the REP salary of other members is decreased, since the total REP is increased, diluting the power of REP. When leaching is larger than donation, then the REP salary of other members is increased, since the total REP is decreased, which concentrates the power of REP. Therefore the effect on the salary is bound by the size of <math display="inline">p</math> and is typically much smaller. It is worth reiterating: ''governance tax REP sent to the incinerator is good for every member of the DAO.''

So a tax of <math display="inline">p=10%</math> does not affect the value of REP unless it is used to donate to new posts in excess of leaching, which should only be done to redress past mistakes.

==== Fairness ====
Regardless of the change in REP total, the tax affects every REP token equally, since the tax dilutes REP universally. Since every WSC post is required to donate at least <math display="inline">p=10%</math> of its REP to governance, then that REP is available for revaluing the WDAG in response to governance proposals that the DAO approves, as long as the DAO is actually earning revenue.

==== Governance agility vs stability ====
Finally, the <math display="inline">p=10%</math> parameter is arbitrary. Governance can decide to make <math display="inline">p=1%</math> if the DAO wishes governance to move slower, or <math display="inline">p=200%</math> if it desires faster governmental responses. A smaller number gives greater stability and less responsive regulation. A larger choice destabilizes the DAO and is a threat to security, but also makes the DAO more nimble and responsive to changes in the market and makes policing more effecting.