Solving the Governance Problem: Better Tools and the Will to Use Them

Jessica Smith of Aragon and nanu of stable lab not in order I tried to get it in order um please excuse me for having my phone out um I tried writing down questions then the pages it just got very disorganized so first off um I I I think we're going to start um with a very simple question that I have for all of you um and then we can get into more of a conversation I hope but in addition to Telling Me Maybe briefly um what you do what your organization does um we're going to start down the line with Ben maybe you can tell me your definition as brief as you can make it of what a DA actually is a decentralized autonomous organization what is that sure yeah so my name is Ben D Francesco I uh work at scop lift we a Dev agency that's primarily focused on uh governance engineering so you know building the software and tools that enable dowo governance to function um I think really fundamentally what a DA is is a uh it's for lack of a better word a competitor to like traditional company formation um so it's a way to have digitally native internet native um firms and organizations um that are basically where the jurisdiction is on chain so to speak and I think that enables a whole bunch of new kinds of stuff and we're just the very early stages of scratching the surface of what that looks like and you know that's why I'm personally excited about D awesome Jessica so ripping off this what is it now um so we have I think the definition we're working with which is maybe simplistic is that a do organizations a group of agents that are coordinating to achieve um some kind of goal uh that is facilitated by smart contracts on a public blockchain and so essentially I think if you want to make it a little bit more pragmatic it's you need to have some kind of asset that you're governing on chain whether that's a protocols Mark contracts tokens Etc um and you need to have membership on chain so either you're holding a token you're a token holder or you're whitelisting addresses and then your membership um makes proposals to do certain actions with those assets and that's kind of a breakdown and you hopefully want to do that in a way where you're preserving or protecting the the values of the public blockchain that you're building on so that's where the decentralization comes in the trustless comes in the transparency um the verifiability of of transactions Etc um you know we're building the organizations on a blockchain like ethereum um for a reason so I think Dows are a way to extend those properties and extend the the value of the chain you're building on thank you so much I'm nma I'm from stable lab we are a governance firm we do everything from service provisioning um framework design we also run a couple nodes across different networks which allows us to have good stake in the governance that we participate in um my my definition of what a dow is um they're internet communities with very large treasuries and lots of drama I'm just kidding but um they are actually blockchain enabled tools for social coordination um is I think the most simple definition I can give and it's extremely layered of course as we can see and of course as my fellow panelists um expanded upon hey guys I'm Tekken selimi I'm the founder of a fund called Dow five uh we've been around for about 2 years we're a little bit unique in that we're actually just a traditional Venture fund right now there's nothing that's Dow like about us but in the future we plan to convert the general partner entity the actual investment manager of the funds into a dow what that means I don't exactly know yet but um the main principle is that governance and and financial Stakes will be given to all the portfolio founders of our Fund in terms of the question what is a da um it's an interesting question because you ask five people you can get like six different answers but to me I I subscribe to a broader idea of what a dow can be and that's mostly any set of stakeholders that are unified by a token which has governance as a main feature of the token so a dow could do one thing very specifically today but the the governance should be robust enough that stakeholders can vote and and change the Mandate of what the Dow does change the Mandate of what the token is and like the economics of it um we're still in the early days of this so it's going to be a fun problem to ideate on in the future awesome maybe to to kind of switch gears a little bit no we were talking backstage about Dow tooling um you um work a lot with Dow tooling as a contributor to a lot of protocols I wonder if you can talk a little bit about the state of those tools and maybe if you can you know try to help our audience understand what these tools are that I'm talking about of course um I could speak from a delegate perspective so I contribute to a couple ethereum Dows um Lio Dow liquid staking um I also contribute to Safe da and starnet um and I think the state of Dow tooling is very robust um but unfortunately there isn't quite enough connectivity across these tools um we have snapshot of course which is like core infrastructure of the network allows token holders to participate in decision- making each of these Dows um I like to think about snapshot as like a small tool that's like an add-on to what is already happening in different Dows and then we have onchain um governance modules like Aon for example which I participate with um on Li o da um and then we have tally which probably is my favorite like onchain TurnKey solution for managing Dows where you can do everything from setting up the Dow to Distributing tokens getting delegates in there um managing the treasury as well um and yeah I think the state of Dow tooling is currently serves what governance is right now but I like to think a lot about the future future proof like governance and thinking about governance experiments um and I tend to think that what we currently have still has quite a bit of a way to go um in the way that it serves different forms of contributors um people with various sort of like um tolerance for governance um different altitudes of decision making within the Dows um of course Dows are not monolithic and I think that the tools that we use should be able to reflect like the sort of like vastness and and and what we could really do with Dows and that's just like a simple snapshot but there's there's so much more happening in in the realm of Dow tooling that I think we can all speak to and Ben and Jessica you work with build tools I wonder feel free to chime in throughout this whole thing I wonder if either of you have thoughts on kind of where things can go um and where things are yeah we were just chatting about this actually walking up um on stage uh from Aragon's perspective uh Aragon was deployed the first Dow framework in 2017 um and Dows have evolved a lot since then I think we've learned a lot as an IND industry since um and I feel in terms of the current state of Dow tooling um one of the challenges that we have or the kind of corner we need to turn um is bringing more customization and granularity to what a dow can do um particularly on chain so making it easier um for Dows for different kinds of dows managing different kinds of assets like protocols Market contracts different types of treasuries to be able to have governance models that meet their their unique needs a lot better um so we re architected our Tech stock and actually launched a new tech stock last year this time at East Denver um our protocol the new version of our protocol is called Aragon OSX and what that enables um Dev to do is to uh build custom plugins so basically you have a vault that holds whatever asset you're governing and then the governance logic of your Dow lives in a plugin so this makes it easier for do to customize their governance models but not only that where the power truly is in that what we hope to see next is that um protocols and projects come up with these custom or unique governance models things like dual governance multi-body governance cross chain um governance and create these new models that then other Dows can easily replicate so they'll be e easily able to grab that open source plugin plug it into their Dow and even change their governance model over time so you can stay in your dowo you can use your current governance model and upgrade to a new one so you're seeing oh this Project's doing something interesting I want to use that plugin and just making that process easier um where you know growing these these Network effects and this ecosystem we can all benefit from what we're learning but Ben can talk I'm sure a lot more on like the customization work that that this entails and um it is a a heavy LIF yeah so I totally agree that uh like I think a modular or extensible plug plug-in based architecture is definitely the direction that we want to be moving in I think when you think of I think one of the challenges that we've seen seen with Dows is there was this kind of initial wave of incite excitement about them and a lot of dows launched and um the clock speed of innovation has been a little slower than I would like to see because I think what happens is the Dows get a little conservative once they're live and on chain right once these contracts are managing you know um in some cases billions of dollars worth of assets um managing the protocol which can have billions of dollars worth of assets locked in it they're hesitant to change these for contracts because if they make a mistake then there could be loss of funds or worse that you know comes along with that right so um but what that does is it slows down the pace of innovation so now we only get new experiments when new Dows launch or when a dow is sort of uh you know brave enough so to speak to go through the process of a big upgrade of their governance contracts and so I think having a more extensible plug-in modular based uh approach is going to allow the the clock speed to move a lot faster and so we're working more in the government Governor ecosystem but trying to extend and expand um the surface area of the governor contracts to enable that same sort of of model I think another aspect Beyond just like the plug-in kind of uh aspect or the module based system is also the permissionless aspect of it is really important right so wherever a dow can give its members give like the you know broad public the ability to create things that plug into the Dow in some way um without you know compromising the core security of the Dow itself that is really powerful in and of itself because now that experimentation like people can just try things out and that allows um you know things to move a lot faster so that's the architecture that we're trying to push the ecosystem toward as well not because we think we have an exact idea of where Dows should go but because we want to enable the the experimentation that will allow us to figure that out over time so um for the remainder of the panel we've got like 18 minutes left I think we've had a good overview of what a is kind of what the state of tooling is um if that's a correct um grammatical um whatever um construction Tekken um I I want to talk about what you're thinking about with regards to what powers should token holders have in this sort of a system that you're ideating you said that a dow is just token holders you know having control over a system yeah it's a great question um so I will say I'll caveat everything I'm about to say with the fact that we're very early in figuring out what our token model is going to look like what type of Dow Dow 5 will ultimately be but I think um some of our Inspirations were largely for instance nouns Dow where the governance tokens themselves were nfts there's this like automated auction every 24 hours there isn't a sense that you're just pouring money into this black pit or this uh team against you that uh is raising money by selling these but rather every dollar that's contributed to this system forms a treasury that goes into investing and theoretically the value of that just attributes back to the nft holders that's a big inspiration and uh the other Common Thread that I'm trying to establish before converting into a dow is just kind of a shared culture I think culture is one of the important underlying elements or like the foundational pieces that keep people engaged and feel like everyone's on the same team ultimately by owning tokens we've seen a lot of instances in the early Dow experiments where you kind of have this Dynamic of retail versus whales and there's this like negative sentiment by individual holders against the big VCS that own a lot of the governance tokens or the founding team there there's this like sentiment that their voice and governance doesn't matter but I think theoretically if you can just align people with a common set of goals and a common values uh you solve a lot of those problems over time bit of an uh vague answer but those are some of the things we're thinking about I mean so so again to get a little more specific to Noma I know you've all done some work I I at least know with like I feel like with Unis swap you had done some things around I don't know if it was you personally but you kind of um spearheaded a proposal to make it so that smaller delegates had more power within the voting system um can you talk about what motivated that and how you know did it work and how can you move that to other Dows that kind of a model right absolutely I think one issue across like all Dows and all governance systems not just like Dows in general is participation um and that is like something that has emerged as one of the pain points in decentralized autonomous organizations and I think delegation came up as one of of the more viable Solutions so delegation is like a form of liquid democracy where token holders are able to delegate voting power to people who might be better equipped have more time to participate in governance um and we're always looking for ways to make delegation more effective less sticky um and just like welcome New Perspectives and new contributors into governance um with the Unis swap um proposal specifically which is still sort of like in the temp well it's past the temp check base and it's good to see that the community is supportive of that motion um we really wanted to make sure that there were there was enough voting power for underrepresented delegates who um have expressed the will to participate in Unis swap governance to have that power to like influence decisions um more specifically I um work in the Lido Dow um Lio is like core infrastructure on the ethereum network and um we see that a lot of onchain motions fail in Lio because they just don't hit Quorum and that's like a symptom of course of low participation and so this idea came that um why don't we like you know move the Lio governance module to a whole other platform my personal favorite sorry for the bias tally um and it turned out that token holders just did not have appetite for that type of migration and so we had to work with the current um Lio like governance module which is situated on a very old version of Aragon and unfortunately the Lio token does not have governance interfaces so we're currently in the space where we are exploring a few different workarounds with the compound Governor Bravo contract um and the token manager to see how we can enable um onchain delegation um just to inspire more participation and make sure that like we're able to like um B that innovate more rapidly take on more governance experiments like Lio is thinking about dual governance which essentially would allow State holders um veto onchain motions um and I would really love to see like examples like that taken and applied across different Dows to just help them innovate a bit faster move forward a bit faster and like of course like meet the needs of the community in a in a more sustainable way if I can jump in here quick yes Lio is governed um with Aragon smart contracts um an earlier version of of Aragon OS and what you're speaking to is precisely um the problem that we've been working on solving in this re architecture and like what Ben was mentioning when you're governing that amount of assets you kind of you can end up getting locked into um your governance models and things change fast and things move fast so we saw this problem um with these Dows that have been deployed on Aragon and on this um infrastructure that might need to evolve their governance over time and um you know we we were quite close with the team at at Li as well and Li's pushing some ideas um in in terms of you know optimistic dual governance for instance which inspired us building this plugin um to to bring these new governance models to life because it is important for these Dows and even the Dows that have like very high security needs um to be able to evolve their governance over time um so that is you know the problem statement basically and the challenge um that we've focused on on solving with this new architecture of our of our Tech maybe oh Ben go ahead well I was just going to jump in and say like adding on to what Nomo was discussing in terms of you know delegation um of you know token voting weight is aimed at solving this problem of you know should every single token holder be kind of voting on and you know do they have the expertise and the knowledge and the time to be intimately involved with every detailed decision that the Dow needs to make and so delegation helps address that problem um I think professionalizing delegation in the way that that you guys are Noma also helps to do that but then I think there's a further question of like do the delegate do do delegates need to be voting on every intricate detailed decision as well and so I think one of the things we're starting to see emerge is this idea of kind of roles and permissions within the Dow enforced onchain with smart contracts where you can delegate different um not just voting weight but delegate responsibilities to different entities and those entities can kind of serve as the principal agent you know aimed at you know solving a specific problem managing a specific um resource on chain but uh ultimately their uh their privileges roll back up to the the delegates and the token holders and so the delegates can serve more as almost like a board of director style role where their responsibility is sort of making sure that the various entities that have been given the Privileges within the system are doing their job and evaluating if it's being executed on well and if it's not then those um responsibilities can be revoked and transferred onto another entity and so that's like a very basic you know kind of thing within like companies say for example like having hierarchical responsibilities and roles um but it's something that we're just starting to figure out in the kind of Dow onchain context and so that's where I think like we're in the early Innings the the iteration needs to occur but the the tooling is getting better really fast for solving problems like this so um Jessica I know Aragon um you know has its own Dow and you've had your own experiments um you know with token based governance and there was like this controversy last year where you know token holders voted to make it to enable Redemption so that you had this over 100 million worth of you know um cryptocurrency in a treasury token holders voted to you know make redemptions possible so they could get a share of that Treasury and then the Aragon you know um Association the the the team itself eventually after 12 months of not allowing redemptions made the central decision to allow a part of the treasury to be redeemed but not the remainder of the treasury and there remains a bunch of controversy around the unredeemed token so there's still token sitting here that people have not redeemed themselves over $50 million worth at you know my last checking and people are concerned that Aragon might take those tokens for themselves for the team and I'm curious first off like what are you going to do about those tokens then we can talk about what this means from a governance standpoint yeah um I'm just have to lay the fox a little B the fox set to to give folks more context um but Aragon had an Ico in 2017 um and raised uh $20 million an e at the time in order to advance this mission in order to build Dow tooling and over time there were a lot of changes in the Aragon project um turnover in the team changes in the technology advancing different products Etc and um Aragon building to Dow tooling was always committed um to moving you know into a dow so there are a lot of different experiments that happened over time um for instance Aragon launched the first grant program after ethereum then there were different kind of ways to decentralize the teams decentralize the contributions had a community dat that was kind of optimistic based and then token holders voted to move in the full Treasury and the full project into a delegate based voting D um and what happened at that time is that the incentives of token holders that you know for a token that was launched more than five years prior hadn't really followed the ecosystem due to all the changes that happened over time changes in product changes in the the teams changes in the culture so those in those interests and those incentives are very hard to uh to align and essentially different groups that had the token had different agendas and incentives so when the treasury started getting moved on chain there's a certain group of token holders who bought up the Aragon token um that were advocating for certain Financial measures to be taken um in order to um make they're like activist investors risk value rfv Raiders exactly and what happens when you know you're in a dow and you have a legal rapper for instance and that you're in a jurisdiction that's you know pros and cons that's a whole other panel and itself or multiple ones um but your hands are a little tied in terms of what you can so you're saying it would have been impossible for you to open up Redemption so basically the token holders voted to you know open up redemptions for this full Treasury and it was regulatory reasons that you had to reserve some of that treasury for yourselves no no sorry so token holders um voted to move into a delegate D then token vs bought up tokens to advocate for different measures there's a range of measures like buy box um liquidating the entire treasury this kind of thing so there was um token holders were just kind of advocating in the form Etc um is the Aragon Association that decided in order to resolve this kind of underlying tension and conflict that had been in the project it's the Aragon it's the association that um decided to do the Redemption initiative so the Redemption initiative was was a proactive initiative to return the majority of the treasury to token holders for a Redemption period of one year um and that was done in a way that also enables the mission of the project to continue so who makes that decision is the real question like in a dow sorry to single you out but I think this is really interesting like it you you mentioned the association did decide to keep some of that currency and there's more than $50 million still outstanding that people haven't redeemed that right now is still kind of sitting there that might you know I don't know what's going to happen and I'm asking you but who makes the decision on what to do with those things if not the token holders that voted to open up redemptions entirely yeah so the stakeholders of the association that were in the association made the decision um to move to move this treasury into the red who the stakeholders of the association like the board of the association and so I guess the question becomes what is a DA like is a DA the association is a DA token holders because we were talking about not again like this is seems aggressive but it is like this is at the core of many Dows it's you know it's a hard question because you know people you know do you do you want a legal rapper you know is is a question that's often um used like in Dows you know do you have a legal rapper and having a legal rapper of a nonprofit associ a that's based in a country which is which is Switzerland you do have certain obligations so an association has a mission and has a purpose and the board of that Association is bound to that mission or bound to that purpose so you can't do you know whatever you want and it's a really great tension and um that that you rais you know this tension that that um comes up with the interests of stakeholders or token holders and the legal obligations you might have you know having these kinds of legal entities that's the solution that this Association came to to was to send the majority of the treasury um as much as could be sent to the Redemption contract at the end of the one-year period to clarify this Association has dissolved all the Legacy stakeholders have removed themselves from the project sent the treasury well some of them have kept their money in because they want to wait and see how the rest of this is resolved how the rest of the treasury is dealt with um and there are some folks who you know we don't know what's going on with their tokens but they've just kept them there because they're from you know they might be lost they might be you know have used like a legacy version of the yeah absolutely so um we're doing everything that we can and the project is doing everything that we can for token holders to be aware that this Redemption period is over um but essentially it's a new board of stakeholders that will be industry stakeholders that that need this technology to work that are that are building on Aron have built on Aron that's the the stakeholders you know projects like Lio that should have a voice about how the the direction of this in the infrastructure and where it should go so it's going to be a new board of stakeholders that are external to the project um that's going to be set up and that board will decide how to advance the mission um with the funds that that will potentially remain at the end of the you can't tell us what's going to happen and I'm sorry we're going to move past this but you can't tell us what's going to happen with those you know more than $50 million in that treasure I can't tell you and none of the Aragon core teams like none of my team one either had significant um voting power or token power in this and none of us were either part of the association we were just heads down building and we were committed to shipping this Tech stock you know building Aragon oax and moving it Forward um and we also will not be you know we're the Redemption contract or what is left is not coming to this team this team's building this Tech stock it will be a new board of external stakeholder that will decide how the mission continues and if it's with this Tech stack the mission is to advance Dow technology and DOW tooling and Aragon has done this since 2017 and yes it's had ups and downs and yes it's had turn a full turnover in the team it's had a full turnover in the tech stock and a full turnover in the structure um but this is hard I you know figuring out like dowo governance and the governance of projects is hard and we're just going to take the next best step in terms of making the project as resilient as we can and continuing to build this infrastructure you were about to yeah well I mean zooming out from the specifics of the Aragon situation if I could I mean I think what you're bringing up is like uh one of the big open questions um around Dows and maybe even crypto more broadly which is like you know as I alluded to earlier one of the reasons to prefer or like a DA is that your your jurisdiction in a sense kind of moves onchain but of course people that participate in these Dows still live in various different legal jurisdictions have their own have the laws of those jurisdictions that they have to follow if you have uh other legal entities that are you know related to or involved in the Dow members of those of those uh entities have fiduciary responsibilities and other things that they have to follow and so what does the interface look like between you know the rules that are encoded in smart contracts on chain and you know these various legal uh and social rules that we have in the real world um and that's a huge unresolved tension um in Dows and really the whole crypto space uh again a whole different panel that we could have a a very long conversation on but I think it's um it's really interesting and one of the things that very much has to be figured out over time so who ultimately should decide um this is for maybe Noma or Tekken um you know should decide how much stakeholders in a dow are compensated that's a big question I mean some of our sponsors here are dealing with that question is it team is it the Dow itself should they vote on these payroll decisions which is a hard thing to you know do dayto day how do you make those decisions um I will say incentives and like balancing incentives is an existential problem in Dows um to an extent I think with early Dows and sort of the the notion of progressive decentralization it's easy to sort of impose these incentive structures um without much Community input but I think as a dow grows and scales and there are more um participants and contributors with context we can actually decentralize the decision- making around like how much contributors should be paid how they should be incentivized whether it should be monetary Rewards or reputational rewards and things like that and I'm happy that that is actually something that we are progressing um through in like Dow governance of course we have like shining examples with like makeer da and their delegation like system and delegate incentives um and less like shining examples but I think in in in all in all I think the ideal version of this would be for the da itself the community um and everyone would stake to be able to decide like how much people get incentivized and what that actually looks like we got 24 seconds T any thoughts on you've said most of it but I'll just um add I agree that I think token holders should ultimately vote on economic decisions of those tokens we saw this a lot in defy 1.0 the launch of compound uh for a long time there were no economics attributing to those tokens but you eventually when you feel comfortable with how decentralized the network is that there's some uh like that governance decisions actually accurately represent the wants and needs of token holders you vote to turn on economics we also saw this recently with Unis swap I believe in that model most uh fundamentally all right thank you Tekken thank you so much to all of our panelists I think we had a fun spicy panel I hope you enjoyed and we glad you stuck around and yeah thanks enjoy the rest of the [Applause] conference thanks you guys that was really great it's uh gave some insight