Governing for good

Innovation and governance. Aren’t those opposites? One focuses on change, while the other seeks to control. One looks forward, while the other starts from looking back.

It’s a view all too common in our industry. And a caricature that I don’t subscribe to. Because when we look at why some systems endure and others do not—despite brilliant technology—governance often proves to be a key differentiator.

By governance, I mean the framework through which organisations make decisions, balance competing interests and ensure commitments are fulfilled. In my last article, I argued that trust is essential to the future financial system. I believe that governance and trust are codependent: trust depends on confidence that commitments will be honoured, while governance is a key mechanism that ensures those commitments are credible and have authority.

Modern finance is built on communities of institutions working together through shared infrastructure. Participants may compete with one another, but they also rely on common rules, standards and networks that allow the system to function efficiently at scale.

As the industry adopts tokenisation and develops new forms of financial infrastructure, an important question follows: if governance has been critical to the success of today’s networks, what role will in play in the networks of the future?

Much of the debate around tokenisation focuses on technology, interoperability and scalability. Yet governance may ultimately matter at least as much. In their 2024 working paper, Awrey, Macey and Zhang argue that successful payment networks must balance three objectives: stability, access and investment. Critically they identify governance, rather than technology as the most difficult challenge in maintaining that balance.

That observation resonated with me. Technology can process transactions differently, enable new forms of ownership and reshape how value moves. But technology in itself, without a design overlayed, does not resolve competing interests or create trust between participants. Communities still need ways of making decisions together.

Alongside the question of what technologies future networks will use, how they will govern themselves is of equal importance.

The paradox of decentralisation

One of the original promises of blockchain was to reduce reliance on central authorities. By enabling coordination between participants who did not necessarily know or trust one another, the technology appeared to offer an alternative to traditional intermediaries. As I argued in the previous article, blockchain technology can enable a greater role for trust based on verifiability.

Viewed through that lens, governance might seem less important. Yet as blockchain has matured and institutional adoption has accelerated, the opposite has happened. Governance questions have moved back to the centre.

This should not surprise us. The challenge facing any network is not simply processing transactions, it is balancing competing priorities.

This is where the framework proposed by Awrey, Macey and Zhang becomes useful. Networks must continually balance stability, access and investment. Too much emphasis on stability can limit participation and innovation. Too much emphasis on access can undermine resilience. Too little investment can leave a network unable to evolve with market needs.

These are governance challenges, which cannot be solved by technology alone. That is why many leading tokenisation initiatives are focusing on governance design. Across the ecosystem, we see foundations, member-led councils, governance boards and other collaborative structures created to balance the interests of increasingly diverse participants - but what’s striking is how familiar much of this feels.

Long before tokenisation entered the industry vocabulary, financial networks were wrestling with many of the same questions. How should participants be represented? How should decisions be made? How can networks invest for the long term while serving today's members? How do you maintain trust when stakeholders have different interests?

Industry networks and financial market infrastructures have spent decades navigating these trade-offs. Their experience suggests that governance is not a constraint on scale. More often, it is a prerequisite for it.

Perhaps that is the real lesson. The most successful innovations are rarely those that eliminate governance. They are the ones that create better ways of governing complexity. This is where the technology can indeed play a crucial role: from an agreed governance design, it can be used to apply and operationalise the framework.

Judge governance by its outcomes

If there is one lesson from the evolution of financial networks, it is that no single governance model guarantees success.

Different networks have adopted different ownership structures, decision-making processes and operating models. Some are member-owned, some are shareholder-owned, others are foundation-based. Some are highly centralised, while others distribute authority more broadly. Yet successful networks often share some common characteristics.

The first is representation. Participants need confidence that their interests are understood and considered. Good governance creates mechanisms through which diverse voices can contribute whilst avoiding decision-making paralysis.

The second is accountability. Regardless of how authority is distributed, there must be clarity about who is responsible for which decisions and outcomes. Governance works best when responsibilities are clear, oversight is effective and commitments are consistently honoured.

The third is sustainable investment. Networks must serve their communities today while continuing to invest in resilience, capability and future innovation. Governance that focuses solely on immediate needs rarely succeeds over time.

Together, these characteristics point to a broader principle: governance should be judged by its outcomes, not its structure – nor indeed the length of its annual report.

Does it help balance competing interests? Does it support stability whilst expanding access? Does it create confidence that the network can continue to invest and evolve? Most importantly, does it build trust?

That question will become increasingly important as tokenisation, programmability and other technologies reshape financial services.

Far from constraining innovation, governance is often what allows innovation to be built on shared foundations. It gives participants the confidence to invest, collaborate and embrace change.

The technologies underpinning the financial system will continue to evolve. Governance models will evolve too. But the fundamental challenge will remain the same: bringing diverse communities together around shared rules and standards, shared responsibilities and shared goals.

The future financial system may be built on new technologies. Its success, however, will still depend on our ability to govern together - and build the trust that is essential for success.