Full-Spectrum Rule Enforcement: The 10x Unlock From DAOs | Spencer Graham - Hats Protocol

and we're back welcome eth Denver to the try stage it's Friday the day is nearing an end and uh got my next speaker coming up I seem to have forgotten my hat although my next guest Spencer from hats protocol definitely has a so everybody please give a warm welcome to Spencer from hats it you got it all right hello everybody thank you for coming I know there's a ton going on right now so it means a lot to me that you're all here uh my name is Spencer Graham I am a co-founder and protocol lead at hats protocol and today I'm going to talk about shockingly Dows um and what I'm going to focus on primarily is what I've been more recently calling uh full spectrum rule enforcement and why that is critical to enabling Dows to fulfill their promise of becoming the best organizations that have ever existed I think Dows will win because they are able to enforce their rules with both what I'm calling constraint base enforcement and accountability based enforcement and we'll get into that in a little bit but first we're going to take a very very brief tour through a framework that I developed over the last few years uh that comes from an article that I wrote just a couple years ago that has informed a lot of the ways that I think about Dows and governance and how we should go about making them better and that framework is called anti- capture and anti- capture begins with uh first principles and those first principles are resources really everything that you can think about is a resource in some way some of those resources are private and what I mean by that is those resources are uh held or controlled or or owned by a single individual person but other resources are shared which means they are held or controlled or owned by more than one person two people three people 10 people 10,000 people 7 billion people as many as you can imagine can share a resource and that distinction between private and shared resources is critical for our Point uh today resources though are only only valuable they're only useful if you use them they're only important they're only valuable if you can take actions with or on them and this is really the core of anti- capture it focuses on actions and the different phases of how actions are taken by either individual people or groups of people and there's a lot more detail in the framework um but for the purposes of today what's important is that uh there the different phases have different uh vulnerabilities to uh what I've been calling capture or there's and there's also a trade-off between the ability to uh uh resist capture and actually execute actions and it's the execution phase of actions that is really critical to ensuring strong uh security and uh strong properties of those resources uh if you if you're interested in seeing more about uh anti capture on the framework this QR code will take you to that article and I encourage you to to take a look at that resources brings us to organizations especially shared resources so my claim which might be a little bit um a little bit uh surprising is that really this is all an organization is an organ ganization is a network of Agents a group of people with some kind of collective or shared goals and with resources that they share and that the organization takes actions on or with those shared resources in order to achieve those goals in some sense this describes every organization across all time forever uh but it's it's a it's a it's a simple idea but I think it captures the essence of what organizations are and this is also what we call governance which is the process of taking Collective action on or with shared resources to achieve common goals governance has two primary objectives in an organization governance is attempting to um use its shared resources as effectively and efficiently as possible in order to achieve its goals goals and we can call this Effectiveness broadly um it also is trying to make sure that those shared resources are only used for achieving the organization's shared goals that they are not captured and repurposed for some other uh some other objectives or for some other uh entities and that we call capture resistance and there's a fundamental tradeoff between Effectiveness and capture resistance at least to date across all time in history there has been and that is back to actions the only way to use resources is to execute actions with them but in the process of executing actions you put those resources you make those resources vulnerable to capture so how do we be effective do things we want to do achieve the goals we want to achieve while making sure that the resources don't get diverted to some other purpose that they don't get captured so how do organizations do this I contend or I'm I'm sort of introducing a a a narrow definition of the concept of rules which means or and the definition of rules is that they are the means by which organizations resist capture they are the processes the guidelines the rules that organizations put into place to prevent capture of their resources while those resources are being used while actions are being taken with their resources so any good lawyer will tell you that in uh rules are only are are good aren't good for anything they're only rules if they can be enforced how can rules be enforced I think that there are two primary buckets or types of of ways to enforce rules one way which is on the left of this spectrum is what I've been calling constraints constraints are by their nature preventative they are like physics constraint rules are unbreakable you cannot break the laws of physics you cannot for all you might want to you cannot break those rules recently we've been able to introduce new types of constraints with cryptography and more recently with cryp cryptoeconomics via blockchain in smart contracts new types of physics that allow us to say to make unbreakable rules with respect to our organization shared resources on the other side of the spectrum we have what I've been calling roughly accountability accountability based enforcement or accountability based rules are retroactive by Nature they are incentives they are penalties they are punishments but they also rely on multiple layers of accountability if you reach all the way down if you peel back all the layers of the accountability onion what you primarily get at the end of the day is the state Monopoly on violence this is how organizations across all of history until Dows operated and this is a real big constraint that makes organiz all these organizations fundamentally um capturable by external actors like governments they are susceptible to uh or they are dependent upon government for their own operations which is creates vulnerability but it also creates a lot of inefficiency it's very expensive but on the other hand accountability based enforcement of rules is very flexible it allows the the the people that are operating within the bounds of those rules to exercise their own judgment about what Falls within those rules which allows them to explore what they need to do and the actions they need to take in order to effectively uh achieve their organization's goals constraints however are are not very flexible again like any uh lawyer will tell you every contract is incomplete it is impossible to delineate all of the actions that we want to allow an agent or a person to take on behalf of an organization that is going to actually be effective that is going to that are going to be in the realm of things that need to happen so on one side side of the spectrum we have constraints and another accountability so let let's move into a slightly different formulation here let's return to this tradeoff between capture resistance which is on the y- axis here and Effectiveness which is on the x-axis and if we if we model these two um these two objectives in this way we can borrow a tool from economics called the production possibility front here which allows us to describe and Define and and and diagram the tradeoffs between uh optimizing for one versus the other or maybe a balance of those two so here we can visualize the trade-offs between optimizing for capture resistance and optimizing for Effectiveness and we get this curve that represents the the frontier of what we can do the frontier of how good how effective how productive how valuable how impactful organizations can be this is is what I think traditional companies look like they are pretty effective generally they've done a lot of good things but they really sacrifice or they don't well less sacrific more like they are not capable even of imagining what capture resistance is they've never lived in a world where that was possible because they only are dealing with accountability based uh rule enforcement this is what I think Dows look like today or over the last five or or six years in their for for their full existence they have introduced this powerful idea of constraint-based rule enforcement and that pushes up the frontier on the capture resistance axis Dows can now relative to traditional organizations be much more capture resistant for the same level of Effectiveness up to a point you can see the curve of of for for Dows falls short of the level of Effectiveness that traditional companies are able to access and this is is because they only have been able to rely on constraint-based rule enforcement they cannot have the flexibility the Judgment of they they cannot enable the Judgment of their individual members to act on their behalf because they literally cannot give them the the flexibility and the extra space in which to operate they are they are uh constrained to constraints what would it look like if we could remove that constraint constraint what would it look like if we could extend the frontier of the effectiveness AIS what could Dows look like today and into the future I think they could look like this I think they they could be the most effective organizations that ever existed so how can we do that how can we make that happen that brings us to what I've been working on with a bunch of amazing people for the last couple years which is called hat protocol hat protocol or one way to think about it is that it brings accountability based enforcement back into the picture for organizations back into the picture for Dows and it does this by using smart contracts to establish constraint-based rules to manage accountability based enforcement of organizations's rules it extends the frontier on the account accountability access so how do we do this how does hatch protocol do this hats protocol is called hats protocol because it enables the creation of and management of onchain roles or what we call hats this is a little bit of a preview of what hats protocol looks like if we visualize it we have a bunch of roles that at first blush look like a strict hierarchy but if we think about these as roles and not the actual people in the organization we can understand that these These are the relationships between the roles between the work that needs to be done between the actions that need to be taken to achieve the organization's goals and we can embed a bunch of things into these roles including authorities and responsibilities and we can uh we can also identify who has these roles and we can manage who has these roles and what is not pictured here is that we can also attach and program accountability criteria directly into the rol themselves and that includes things like um uh token Holdings or reputation or elections or perhaps most importantly staking staking to get a role is maybe the ultimate accountability mechanism because you can be slashed if you don't follow the rules it gives you the flexibility to operate within um a space that the Dow creates for you and do take the actions with the Dow shared resources that you think you need to take in order to achieve best achieve the organization's goals and it still gives the organization the ability to slash you to penalize you to punish you for breaking those rules if it judges that you've gone aai that you've gone Mia that you've gone Rogue so back to this concept of roles hats are programmable onchain roles we think they are the atomic unit of organizational structure they are also a pure abstraction their power comes their great power comes from the fact that they are almost nothing um in in a sense we practice this this concept and we espouse this concept of roles not souls or what we we really say which is hats not heads we abstract away the wearers from the the hats we excuse me we extract away the heads from the hats which allows us to do amazing thing with the with the roles themselves and as I talked about roles are really bundles of a bunch of different things they are bundles of UH responsibilities such as the role's purpose its tasks and other rules that have established lished for the role there are also bundles of powers of authorities of of of permissions like the ability to spend money or access a communication Channel or or broadcast on behalf of the organization crucially like I mentioned there are also bundles of accountabilities that we can program in as well as qualification and granting criteria and revocation criteria and they have programmable and composable interfaces for everything that I just described so let's take a a closer look at those Powers at those permissions and authorities like I said before permissions and authorities really are the ability to execute actions with or on the shared resources of an organization these are typically delegated by the organization to the individual and this represents both an opportunity to do great things but also a risk of capture and so we really need strong rules to in or strong strong rules to make sure that we don't uh that we aren't risking capture too much so we can have either have constraint enforced authorities or accountability enforced in authorities so for example on the constraint side maybe you can only transfer up to two eth because the smart contract says that that's the case or you can only set a protocol parameter within a specified range of values or you cannot access telegram unless you are in the working group that the that the telegram is for on the accountability side these are things like soft powers like a working group facilitator or maybe the the right to to cast on farter but make sure that you don't cast bad things we can't actually uh prevent you from casting bad things but what we can do is we can penalize you if you do so that's the accountability enforcement taking a step back the key Point here is that almost all organizations have authorities or powers or permissions that are really important to achieving their goals that cut across many different domains across onchain and offchain and are enforced by necessarily enforced by both constraints and differentially accountability and so it's crucial that a roles system for an organization in order to enable this full spectrum of rule enforcement the roles need to cover the entire organization they need to exp extend across the entire entire domain of the organization across multiple domains of permissions and powers and authorities and this is why hats as a pure extraction is so important it enables those rules to cover all of those responsibilities and powers in the organization which means that programmable accountability can be applied everywhere it's needed in addition to all the constraint-based rules that are so important for Dows as well so this is why I increasingly believe that the best organizations wear hats thank you for coming it's been a pleasure speaking here and um here are a couple ways that you can find both me on on on Twitter and farcaster as well as uh Hat's protocol on Twitter and [Applause] farcaster that