Fireside Chat I Camila Russo, The Defiant, and Kartik Talwar, ETHGlobal | Pragma New York 2023

foreign [Music] that we see constantly come up that we know our active problems but not with a lot of good Solutions and to talk about that I want to bring on Kimmy to really go into the article on autopsy as she gave about a couple months ago and we're going to dig into all the things that we think are not really working well in our ecosystem and how we can potentially fix them so without further Ado please welcome her on stage I'm super excited to have you here again you've been part of almost every time we've been in the city and uh been a supporter of what we've done since the beginning yes it's it's been a pleasure you guys are you know one of my my favorites so well thank you and and I love to Define because that's literally how I keep up with what's actually seen in the space um so a lot of what we're going to talk about will likely be controversial from the point of view of just pointing out the obvious uh so I want to set the stage on just making sure this is people know this is happening and what I'll do is I'll kind of mostly have you cover a lot of the things that you talked about but we'll sort of go into depth here so a big piece of what we've seen in this industry the last decade is yes we want decentralization yes we want things to work but at the same time we know that in some cases things are not at the place where they want to be with respect to one-to-one feature parity on how the experience should be to how certain guarantees should be made on how you use a different protocol it's just like a massive dichotomy between what you want and what the reality is and I think that's kind of what you meant to cover with your article so my kind of first question to you is can you just give us a very brief overview of what some of these high-level problems were what you noticed and kind of what made you write that and then we can just list about list out all the the types of theater and the drama we've seen in this space and we'll kind of go deeper into each of them one by one sure so I'll give a context to my motivation and it's so I gave this talk at Etc and Paris calls uh crypto is a theater um and it goes over all the different facades that I see going up and it's you know it's not so much that you know the there were all these promises and we're not there yet because that's understandable it's about putting putting on the show um that's what what it just like started really kind of getting to it because it's it's okay to admit we're not there yet uh but I don't think it's okay to not be transparent about it especially because there's money involved um and you know people are you know trusting uh these uh you know protocols and developers so those risks need to be more more transparent and better known um and so these different um theater performances that I'm seeing are um decentralization theater governance theater Community Theater and defy um musical tears or like two VL musical chairs and I can yeah these are excellent headaches uh I can't wait to get a job at so let's talk about the decentralization theater um how do you define decentralization and kind of where do you think people are so we're not being honest about something being decentralized yeah I mean it it really comes down to um the level of control that projects have over their protocol um and in the end you know obviously the space is very very early and most teams have really almost full control over their protocols uh you know they're it's it's about how a small group of people in one room can unilaterally make upgrades to code uh without their having be any almost input from uh from token holders or or anything else it's um you know this kind of God mode a switch that that protocols have um and this is going on in in most cases um from like adapt levels to layer two levels and and it's it's I mean it's really important there's like you know hundreds of millions of dollars at stake that it can easily you know be put at risk by a very very small group of people and so that's important because one for regulatory reasons uh like that's just like top of mind right now Regulators can easily come and censor or stop a protocol um if it can be easily upgraded by by a small way a few people yeah um and and also just obviously puts user funds at risk so and we've seen many cases where there's some uh you know seed phrase compromise and millions of dollars have lost um so and and thirdly you know if we're here to be the future of Finance the future of the internet which I I do believe is the case um there's no way that institutions you know like the trillions of dollars that flow through the financial system are going to trust these infrastructure when again it can be upgraded by a handful of people there's there's no way we're building the the Future Finance in the right way if this is what's behind it yeah no absolutely do you in this situation consider the the cases where certain people have a a massive amount of tokens and they're still using that to vote for a decision on these dials or is it purely the fact that some people or some Protocols are unilaterally just making decisions without actually obeying how that goes it's it's uh it's like the degree of control via different tools like some of it will be through these uh just like uh upgrade switches some of it will be through governance and some of it will be through it just having a very centralized network with very few validators or very few nodes so yeah there's like different ways of controlling adapt or a protocol understood so obviously that's not a good place to be in if uh your hard-on money can just be put in a different direction or wiped away for from just ample people making decisions on the whim um what is a kind of good way for us to identify these situations like do you have a proposal or a way to understand if something is in that theater category for being decentralized um you know like maybe you can I can go through the other types of theater and then I'm so sure we can go into like this let's talk about governance theater okay so um all right so governance theater is uh is similar but it's it's about how um ineffective government like token based governance is right now effectively what's happening is that governance tokens are basically a proxy for Equity I mean that's what people are really using governance tokens for like if if you're buying a token you're not most of the time nobody's interested in actually governing a protocol they just want to own the token they just want a piece of of the whatever adapter is the token um and the way that we see it objectively is because in the end it's like the teams and maybe the teams and their investors the ones who are participating in governance and driving all decisions um so there there was a study a couple years ago that showed that um one percent of token holders of the major defy applications on more than 50 percent of governance or like delegated governance votes I mean that's one percent that's a massive variance yeah yeah um so obviously you know a token-based governance is not working and and it's creating this horrible system of plutocracy where it's even if it was working um the way it's set up it's it's set up so that effectively you know those who have the most Capital have the bigger say um so you know they're I think you know one token one vote isn't really a good strategy if it's already unfairly distributed yeah exactly so so that's that's kind of this governance theater and um and it's it's a theater because like if you know that you're you're Dev is being run by a small group of people don't put on this show of like going to like snapshot and being like Oh we have a community governance like we'll put up this proposal when you know that you're gonna control it like you have 99 of the votes you're gonna say yes or no so this is this really gets to me it's like just make your decision just run this dab you know like like a startup like you are and when you have like greater distribution in your token then maybe set up an actually centralized governance but don't do it now it's like you're wasting everyone's time in this case uh it's in a governance theater it's better to actually move it back to decentralization theater my whole point is like there's nothing wrong about being centralized at first like yeah you're writing a startup effectively you want to become decentralized you can't do it on day one so just be transferred about it still put up the show if you already know what the outcome is going to be yes don't don't put up the show it's you know um it's offensive for for those watching um and then a community theater it's it's you know this is mostly kind of my criticism of like how the whole nft Space develop which has become so cringe to me it's like this all they talk about community community in the end like there is a very few authentic real nft communities and most of them they're about like creating these like fake exclusive like fake exclusivity Discord is not a community yeah um and you know having like a bunch of people uh saying kind of you know when announcement when partnership when whatever to like have some sort of price movement that's not a community either um and you know what happens is like a lot of like Founders and influencers like to go on about oh like we love the community we love the community but then like they they do a rock pool or like they like abandon the project and you know go on to the the next thing and there's like so many cases of this so I think that's it's it's just like very I don't know immoral to just like play on this um the high lofty goal of having a community and like oh no we're here for the art and no you're here for the money and like you can be just right about it you know um so yeah that's that's my gripe with with nfts and then finally uh d5i musical chairs um in the end like defy it's my thing like I I love it I love the promise of it again like I do think this is a future of Finance um I think this is the way where we can create a more open Global transparent Financial system and by the way for those of you don't know that's that's why it's called the Defiance that's that's the defy um right now unfortunately what's happening is Defy is this um this game of musical chairs where like money is being cycled around the same group of people who are chasing the best yield uh and there's no money there's no new money coming in so you know each protocol is trying to offer you know the best incentive to a fight for the smallish amount of capital that's available um so you know it's it's kind of um a uh disappointing uh state of things but I have like my my caveats with with this part um of like the the facade but to go goes like now that like we've gone over the the theater and there's like there's still like one magic solution I think there's there's a lot to do here um like I think governance is like just like one very hard thing to solve I think there's there needs to be better Design Systems around this and maybe identity is like they keep piece missing but also like not every model will work for every project it's it's going to have to be different to that need of that Community yeah so I think it's like with governance it's like basically we're again like super early there needs to be better systems uh design but like about just like coming with one uh part of the solution because again like it won't be like a magic wand um actually after the HCC talk I started really kind of thinking about all of this and um and about you know like okay I'm I'm like mad that this is happening but I should also be doing something about it um so I I think this is the first timeline publicly speaking uh but I'm putting together something called the defy League and which will consist on a group of Founders and thought leaders researchers in D5 to advocate for transparency that's awesome yeah and we have a data partner here who will help put up a dashboard of metrics to help users just very clearly assess where the risks are so this is just very early stages I've I've just been talking to like the members of this group but we have like some really strong names on board um and they just you know we'll get together and put up this like transparent objective methodology um think of like LTV um but for D5 I do have this like very like easy to scan place and and see kind of okay like where the risks are and what um you know like what level of business the one solution being casual public shaming just just casually publicly shaming some of these protocols for for putting up these no no again like there's like no judgment on like being centralized again like I think that's totally fair but it's just like let's be open about it let's disclose a race and users can make their decision I think it's perfectly fine to use a centralized absolutely I was sorry I was just joking I think the kind of the the outcome that you kind of pointed out from everything you've said and I've already previously talked about is that it should be about the transparency that these things are happening instead of trying to hide it behind uh some some other sort of uh goal um my kind of bigger question is as you were looking into sort of understanding what's going on here um did you kind of get a good idea for why people put up with this type of theater yeah yeah and I think it it's a good reason um you know I don't think anyone is being like intentionally is like deceiving um but to me I don't know I think it's really pretty clear it's um the regulatory risk uh I think that's the main reason why a lot of the design choices in defy happen in the first place so I think like a nons dowels like fee switches uh like all of these things uh like um valueless tokens I mean come on no um all of these things like it's maybe a part of it is like okay you're sorry for a plant but I think in many cases it's because you're you're trying to avoid uh because of lack of clarity you feel like you have to do these things otherwise you may be in trouble yeah exactly so um and again like I think it's it's a valid reason to make these choices um it is scary to be in the US and and be involved in crypto but I think like what's become clear is that um you know like if I'm seeing through all this Gary Garza is seeing through this uh nobody's fooling anyone like I think we have this image of regulators being like like old dudes will have like don't understand they definitely understand what's happening yes they understand like they they've had a long time to figure it out to be knowledgeable they are like already knowledgeable about the space um so I don't think like anyone is fooling regulators and so the point is like if Regulators already know what's going on then you might as well just build the thing that you need to build but then why put on the show if you already know this is uh this is not fooling anybody yeah interesting um do you think that it's just a situation we're in where most of these performances for a lack of a better term fall into that category but some of them are genuinely trying to do the same things to actually get to a real Community like how do you think about sort of them hoping that this is the outcome that they achieve because they have to do it this way versus like just being very referencing Lucas is going to be centralized or these 10 people are very involved and they're putting 40 hours a week so we're going to trust their decision to make any future changes over time and then include more people how much of that do you think is manifestation versus like oh I have to kind of repeat this because somebody else repeated it I mean obviously it's really hard to say the motivations of of most people you know um I think yeah like maybe some some teams are like okay we want to get to this point that uh but now we're not so we'll you know kind of say that we are and because they want to get there and maybe they're not thinking about a regulations but I you know I find that a bit hard to believe like in the end like regulation is this huge booming presence everyone's thinking about it and there's been this consensus that the way to get around regulation is to be uh fully decentralized or like sufficiently decentralized has been kind of what I mean but like the the reality is that there hasn't been any formal guidance saying that that's the case um so we don't know whether there is some degree of decentralization regulators are going to be okay with uh so again like yes I mean it's a very tough spot to be and if you're starting something in and of course you have no idea what can be effectively held against you or yeah yeah no it's it's awful like I think what Regulators are doing in the US is awful I think it's gonna set the us back um I was just you know hearing how token 2049 it feels like a bull market while here it's like maybe yeah we're all scared to leave the house yet yeah um so I think like the shift is already happening towards Asia and it's it's such a huge loss for the us so I think it's it's horrible what's happening here so I don't I think builders in the US shouldn't cave to to Regulators like again like because it's it's useless like they're they're seeing through this so let's just you know build for for users like build stuff that it actually makes sense and not because of what we think that Regulators will and you know be kind of passes some Unwritten rule yeah that we're all worried about um one other kind of unfortunate thing here is that almost all of this or at least the super majority of it affects D5 more than any other community and that's where most of the opportunities are too from how we actually make this more accessible as a technology to hundreds of millions of people if not billions um you already kind of talked about that it effectively is pushing the us back in in this whole race is there any other practical advice that you have for D5 Founders on what they can do and um and kind of how they can make this better uh instead of sort of falling into the Trap of repeating things that they think they have to do versus even if they don't agree with them um no again I think I think it's a building for for the end user I I I'd love to see more um more applications for um maybe for like just like regular uh mainstream you know non-whale person so yeah make something for people who are not wealthy already yeah yeah um but I will come I at least I think there's something missing Assurance is is a big piece that's missing identity is missing so with different I think right now like this kind of a musical chairs criticism um I don't think there's there's much to do about it right now and I think it's uh it's natural for it to be happening um because of of how early the space is uh right now the people who can afford to be playing in defy or using defy it need to be super um uh I need to have a really high risk appetite um because of you know how unproven and proven the spaces so um you know I think this this stage in Defy is where we test things out uh where those who can't take risks are uh where like all these staffs get Battle tested um and then like maybe we we graduate from this phase and the space can mature to allow more Capital to flow in so I think kind of of all my criticisms like Define musical chairs I'm the one that's like okay I'm less I I maybe it helps long term yes yeah um well my kind of final question to you is that um we kind of talked about all the the four categories there what we think is is uh not going well um and interestingly everybody in this room is the audience that ends up being on the other side of of those uh kind of performances is there anything that you would want to encourage them to to do or not to in the future so that we can actually help correct for this sooner than hoping that all these things happen from from top down uh what would you like to kind of have them remember as they kind of take away some key points from from this discussion um so you know as a user uh I think you know doing as much research as you can and and not just like aping in anything with a high yield is really important um and you know I think there's as like a non-technical person uh there's a few things you can do I think um like a very basic one is just very simply going for the protocols and apps that have been around the longest it's just you know and those have been around the longest and haven't been had are probably you know safer those have that have more tvl in them um look for audits but that doesn't that doesn't yeah it requires you to have a certain expertise which is not helpful yeah um and uh and you know if if you are just starting out I think it's just very simply don't put in more than you you can kind of stand to lose I mean I think that's that's the the safest uh way to approach defy right now if if you're not that experienced but I think yeah like doing your own research going for the the the longest standing highest tvl protocols to start um and then as you get more experience maybe start taking on a little bit more risk um and obviously at the defined we are here to provide like all the information news updates on everything that's going on in D5 so subscribing to us help there we go in your research Define so you don't know that something is not um and hopefully you know this initiative uh of the D5 League this dashboard I really hope it it helps and and provides kind of the necessary information and transparency to just you know help users make more informed decisions I can't wait for uh D5 League to be public so thank you so much for telling us about this early and really appreciate this discussion