The story of how ShapeShift DAO Shifted

Hey, thanks for coming here. Uh, my name is Josh and uh, well, thank you. And, uh, I'm going to be talking about some lessons that we learned at Shape Shift Dow about Dows and budgets and exactly how we spent money and how we cut spending in a DAO. Much different than when you do it in a centralized organization. And I want to thank all the uh, ETH Denver stewards and everything.

This venue is awesome. give for those who came in previous years. I think we're really in for an upgrade from the uh the sports castle, although it had its own special kind of mystique. I think this is going to be really great this year. Can you all hear me?

All right. All good there. Okay, cool. So, all right. Uh let's get going here.

First is why am I telling this story? And I'm just going to So, um, yeah, I've been in, uh, the tech startup scene here in Boulder, Denver for quite a while. I've had multiple leadership roles in tech startups. Started in ShapeShift and became the director of engineering there from 2018 to 2021. We were a centralized company.

For those who have been around in crypto for a while, we have this really awesome minim min minimally custodial exchange where you just input your address, send some Ethereum, get some Bitcoin out and um and we then transitioned into a DAO in 2021. I'll we'll go through into a little bit more detail on that. And then in the DAO, I was the first engineering workstream leader. A little bit more on exactly what is a workstream leader also. And um now since I left the uh engineering workstream leader currently I'm on the shape shift job tokconomics committee and I'm also a leadership coach and I have lots of clients in crypto web 3 startups and quite a few that are working in Dows.

So uh I'm really happy to be sharing some of this information and detail with you. So last year at ETH Denver I gave a talk called DAO collaboration and at that talk I put up this statement that it's the collaborative power of individuals as equals that sets Dows apart. So this was back in March right same time last year in 2022. Although we were beyond the all-time highs of crypto things were still riding pretty high. Uh who was here at ETH Denver last year?

Just a quick show of hands. Okay, actually there's a lot of people who weren't. That's awesome. And I guess we're expecting lots more people this year. So last year for those who were here, you know, the energy was still really high on crypto.

Even though the down trend had already started, it didn't quite feel like it yet. We didn't have the US collapse or any of the things that happened this year that really kind of set crypto back a little bit. So this was easier to be in a DAO and having this kind of individuals as equals when things were great. So I'm going to circle back to this at the end and we'll see how we fared with this through the uh hard times when the going got rough. Okay.

So collaborative power of individuals is equal. So I would argue that if you want to know where power is in an organization, you need to follow the money and see where the money trail goes. So let's take a little timeline um trek travel through Shape Shift Dow's history uh talking about how we spent money and then how we started needing to cut from that. So, we're going to start with the timeline here. And in July of 2021, this is when ShapeShift DAO formed.

The uh the centralized organization was going to totally disband, lay off all employees. Well, we did do that and we formed this DAO and we transferred a lot of Fox tokens into the DAO treasury. So, that's what ShapeShift DAO had to use to fund its operations was a whole bunch of Fox tokens. no US dollars, no stable coins, just Fox tokens. And people started um signing up or volunteering and coming around to spend some of these Fox tokens to contribute to the Dow and keep our mission going.

So let's look a little bit at how did this spending happen and to be able to look at how the spending happened in the DAO. I want to look at compare that to how spending happens in a centralized organization. So in a centralized organization you have a bank account and that bank account is usually gated by a board of directors who grants a lot of power traditionally to a CEO and that CEO then creates a hierarchical structure underneath them that then spends the resources of the company mostly money that's in the bank account to be able to execute on its mission. Right? And then there's a whole budget process where the CEO gets input, creates a budget, submits it to the board, gets it approved, and then money can flow.

So compare this now to a DAO where there is no bank account in a DAO, right? What we have in a decentralized organization is a DAO treasury. And the DAO treasury then or around the DAO treasury are a bunch of governance token holders. In Shape Shift's case, this was the Fox token, right? Anyone who held at least one Fox token was a governance token holder.

And any token holder can submit a proposal to the DAO to be able to spend money from it. And through a governance process, that proposal goes to vote. And if it's so if it's passed, if more people say yes than no and there's a quorum of enough voters, then that money is then allocated to the person who submitted that proposal to spend it as they uh as they said they would. So right in a centralized organization, oh sorry, the um anybody can spend these funds, can submit a proposal. That's an important aspect, right?

not a CEO submitting a budget to a board. Anybody can submit a proposal to the DAO to go to vote. So in a traditional centralized organization, you can see the money and the power flows down through the organization whereas in a decentralized organization, you create more of a circle of individuals as equals. And one thing that's really relevant to this story is I'm seeing that the gray is not really showing up very well on the screen. Okay, that's good for me to know.

Um, one thing that's really relevant for this story is what it turns out that the people who are submitting most of the proposals and certainly the highest dollar value of proposals are workstream leaders. So what exactly is a workstream leader? I mentioned that I was the engineering workstream leader for a while there. So for that we're just going to look really quickly at the shape shift DAO structure. So what we learned as we became a DAO is that even a decentralized organization needs some structure to be able to operate effectively.

It's not just total anarchy and chaos. And frankly, when Shape Shift Dow first formed, that's kind of what we thought and that's what we had a lot of anarchy and chaos and just didn't really get anything done. So, we developed this structure and the structure basically was we created a bunch of work streams and a workstream was created by submitting a proposal that includes a budget and for to be able to hire contributors in that workstream. And so this is where workstream leaders formed is they were the ones who submitted the budget and then on a on a monthly pay cycle all the funds went to them and they were entrusted to be able to they were entrusted to then send the funds to the contributors of their workstream. And you can see you know it's kind of the workstreams were a little bit analogous to a a typical company department.

I was the director of engineering at centralized shape shift. I was the first engineering workstream leader, right? There's a definitely a an analogy there. So now back to our timeline where we have uh we're in July, we have Fox in the Treasury, people start submitting proposals to spend Fox. Um a couple work streams get created.

Our moderation workstream is the first one to get created, then our product workstream. And we started to realize, right, we're paying people in Fox, but people have bills to pay. So, they're taking the Fox and they're selling it immediately through Uniswap or any of those other u decentralized exchanges that have a Fox liquidity pool. So, in November, we formed via another proposal and a vote the Treasury Management and Diversification Committee. So, what exactly is that?

Well, it's that we lovingly refer to it as the TMDC. And this was a couple aspects, but one of the large mandates of the TMDC was to acrue stable coins in our treasury so we could pay people in USDC and prevent a lot of open market selling of Fox. Uh, and we did a lot of other things as well that I'm not going to go into and happy to talk about that at some other time. Okay, so now we're um back to Oh, that's right. How did we do that?

How did the TMDC get turn into stable coins? Largely, it was through a a number of these different bond protocols. some really innovative DeFi protocols on this screen here that Shape Shift Dow used specifically to be able to get some USDC into our treasury. And then um the other thing was RARI loans. We you we put up a lot of Fox collateral, borrowed USDC off of that.

and a little bit more on things to watch out for when you borrow from algorithmic lending protocols, particularly when markets get bad, can get kind of rough. All right, back to our timeline then. And um All right, so as we go through, I want us now start to show how much USDC we have in our treasury, right? Which is the amount of money that we can spend. And also you can I'm going to track our monthly expenses here so you can watch how this kind of played out with some data as well.

So in January we start to really um thanks to one of our DAO contributors who kept a really great record of things, this data was pretty readily available starting in January of last year. And you can see we have a little bit in the treasury. We're spending quite a large amount of money and um and this whole time we're running some of these bonds to be able to continue to fund operations and acrew more USDC in the Treasury. February, we're spending more. March, right?

This is again, if you think about the market, things were still feeling really good. March is when ETH Denver was last year. So, uh, people are really getting along. Spending is easy. Proposals are being submitted.

People saying, "Yeah, let's spend money there. Spend money there." Typical kind of heyday type spending. April. And then we get to May and right just to give some context on what was going on with the markets now at this time right in in April we had another kind of going back towards our highs and um so we're still spending a lot of money but May is when that TerraUS collapses and you can see the markets the Fox token price which depends on how much USDC we can get because we're using the Fox token to be able to acrue USDC and the NET.

The general markets are all on their way for some serious decline here. So, um, back to our timeline and I'm going to put the Fox token price down there just so you can kind of watch that as we're going along as well. So May, right, I talked about the TerraUS collapse which really hit things hard and started and most people I think would say that's really when everyone the bare market really started and we knew that we were going to be in for some another crypto winter not knowing how long but still it was a challenge and this also happened to be the height of the spending of shape shift DAO um that big number 814 14K included some back pay. So it's not quite that we spent that much uh in that month in that month if you were on an acrruel basis but the cash left the treasury that much in that month. So as a result of this spending so much and seeing this market downturn we started to have a lot of discussions in the community.

But what was here's what was interesting. A centralized organization would have some meetings, some people would be invited to some meetings and not others. And there would be like, you know, all kinds of just stuff mostly at the top going on around budget cuts. In a DAO, these conversations were happening everywhere. They're happening on weekly governance calls in in our forum text channels on Discord and voice channels and text uh one-on-one conversations, team meetings, like it was all over the place.

It was really interesting to see how how this happened. and also that it was a lot harder to come to consensus on how to stop spending money than it was on how to come to consensus on how to spend more money. So yeah, it got it got a little tricky in here and in June uh workstream leaders started making some budget cuts. Um some other things happened. The security work stream we started ended.

So we cut some spending by completely cutting out a whole work stream. Uh we started talking about do we not need dedicated support. We passed a proposal so that people could get paid in partial Fox. You could choose part of your salary in USDC and part of it in Fox. And we had this nice uh initiative where we offered boosted Fox.

So if you locked your Fox in a hedgy contract for 3 months, six months or nine months, you would get an extra bonus on top to be able to save some of the stable coins in the treasury. That was another method that we used. And then um workstream leaders were making cuts in their workstream budgets. So this got really interesting as well. And I want to talk a little bit about this about how did the workstream budget cuts go.

So we had workstream leaders and you can see these workstream leaders are pretty central and key throughout this this whole process here. So workstream leaders were having discussions with other workstream leaders. I talked about all these community discussions going on and you know looking at the world and market conditions. They would then as a workstream leader ultimately make a deci make a decision to cut a contributor or a set of contributors or however that might be tell them basically you are now laid off I'm not going to pay you from the workstream budget anymore and then after that fact they would include that reduction in cost in the next budget cycle. So, we were in at this point a threemonth budget cycle, right?

Budgets were submitted for renewal every three months, might have been four. But some of these cuts were being all these cuts were being made before the next budget was being submitted to the uh community to vote, right? And um so this was all going along until we had this very interesting case where on the engineering workstream this happened. Uh the workstream leader made some decisions just like all the other workstream leaders or most of them had done. Had some calls with some of the contributors and said I'm not going to be able to pay you anymore.

And those engineering contributors actually said, "You don't have the authority to fire me. I'm going to keep working for the Dow and keep getting paid." And it was everyone was like, "Huh?" Like, I mean, could you imagine that happening in a centralized company? It's impossible.

So, it started this whole series of debates, right? had talked about how we had a lot of conversations um in all these different channels and so and a bunch of us including me looked back through all of our previous governance proposals our governance process and indeed there was nothing the the budgets that workstream leaders were getting passed submitting and were getting voted for were for specific periods of time a specific amount of money to hire a specific amount of people and there was nothing that granted workstream leaders the authority to change that budget allocation mid cycle right before another budget was passed. So uh it basically everyone determined the the workstream contributors are right. They're going to continue to get paid. They're going to continue to work.

The workstream leader does not have the authority to fire them in the middle of a cycle. So what happened then is when you get into July, we have a couple things. First is we decided we needed a more explicit definition of the authority of a workstream leader. And that included the ability for that leader to make budget changes mid cycle at least reduction. They couldn't spend more.

They only had a it was like a ceiling of approval but there was no floor for what they had to spend. And along with that oh you can see a whole bunch of uh work streams cut their budgets reduced expenses in in these couple months here. And you can see that our uh the numbers here start to go down right how much we're spending. And as we go along right through August we're spending less. uh September, right?

The market's still doing bad. You can see our Fox token price is continuing to drop and we're but we're doing a good job starting to control these costs. We have some community members who are uh arguing against this that's saying that we're you know if we thin ourselves out too much we're not going to have anything left. And we had some really, I think, some really good discussions all the way through uh this whole process as we continued to go along and spend less and less money through the fall and then we get to December and we have our our DAO retreat, right? So, uh some of the workstream leaders, anyone was invited to it.

I think we had most of the workstream leaders quite a few contributors. I think maybe 22 25 people or something were there. it was in golden and um so and these questions come up again with hey look at the markets and the other thing that I want to point out here too is look at our um US Treasury numbers how it starts to dwindle here right it starts getting less and less so there's concern about how much money we have in the treasury how much money we're spending every month typical startup questions what's our runway uh how are we going to get more revenue so that we can start making up for this difference in what we're spending and what we're earning every month. Really valid, useful questions about how we're going to overcome this and some people arguing for further we have to spend less further reductions. One of the things that I want to point out here too is that you can see the the numbers uh the way that they change even though we're continuing to sell bonds to be able to acrue USDC.

I mentioned this RARI loan before. Just a little side note, these um algorithmic lending protocols when the market goes down and people funders start pulling their money out of the supply side of the loan. What happened was that the interest rate was a formula that wound up going up and up and up because people who were supplying for the loan were pulling the supply out. And we had points where we were paying 120% 130% interest on like a million dollar loan. It was looking really bad to be able to stay in that.

So we had to dedicate a lot of resources to closing that position, paying off that loan completely and that's another factor into why we started acrewing less into the treasury. So all these factors together just brought a lot of concern to the Dow retreat in December. And then in January, we had another series of workstream leaders who decided I think we need to cut more, spend less, and made more budget cuts from there. We're in the next budget cycle, made more reductions in their budgets. So we have probably at least half the amount of people working at Shape Shift Dow now than we did at ETH Denver last year.

We're spending, you can see this, quite a bit less, at least half of what we've been spending every month. And the other thing that was interesting note here too is in January we decided to end the support work stream. If you remember, I mentioned back in June is when that discussion first started. Do we need a dedicated support team? I would in my own personal opinion in retrospect I think that if we were a centralized company I think that support would have ended back in June or July as a dedicated function probably saving us a fair amount.

I mean, not like a gamechanging amount, but I think that's one place where we saw this consensus to be able to or you know, we need more input and discussions before we cut spending that impacted us in a negative way as opposed to being in a centralized organization. I'm sure there's probably some people who would disagree, but that's I think is an interesting note of how long it took for that to happen. So, uh, then we continue, right? We're almost at present day. You can see our spending reduces even further.

And at March, we don't know where we're going to be at, but we're somewhere around the like $220,000 a month now spend rate. So that's kind of like a little history about how Shape Shift started, how we started spending money, the market conditions, things that changed, and how we started not spending as much money. So some of the lessons that we learned from some lessons that I could say I learned that I've talked to others and uh you know, I'm curious and I know I think is that Willie out there? Hey Willie. All right.

So, um, and I think we have a couple other people here from Shape Shift DAO. So, one of the lessons we learned is be clear about your governance process, right? This whole issue of like what were the workstream leaders authority and responsibility was really caused a lot of caused a lot of conflict. Right? Those discussions to be able to resolve what happened in in that episode were re not fun.

really not fun. Um, at the same time, you're not going to be able to figure out too much ahead of time. So, make sure you are you are keeping a an open community that can talk. I mean, one thing that I think was good is we talked openly about a lot of stuff. And I think that that is how one of the reasons we got through it.

And it's there weren't there were messes, right? There was cleanup to do. But by having an open and transparent communication among people, I think it it really helped and not trying to figure everything out upfront. Harder, I've mentioned this before, harder to come to consensus around cutting costs than spending money. I'm sure if anybody lives with any kind of personal budget, has a partner or anything like that, right?

It's it's great to talk about what you're going to spend money on and when you start talking about what are you going to stop spending money on it's a lot harder conversation. I think that really was true for a DAO as well. So yeah, I'm curious out of this story if there's I'm just uh just like getting towards the end here. If there's any anyone else notices anything a lesson that you can glean from this or any questions that you might have, I'd love to uh hear that and I'll open that up in in one second. Back to this the collaborative power of individuals as equals sets Dells apart.

So I think the one question and this was uh really raised by a lot of people in our DAO community is do the workstream leaders have too much power right is it not equal is it not individuals as equal enough because the workstream leaders have too much power and authority we as a community decided to give them more authority on the budget but there were definitely a dissenting opinion that that should not happen. And so I think that's kind of an open question to that we need to consider. All right. So while we I see if there's anything else that anybody out in the audience has to say or questions, I'm going to leave these things up. App.

shapeshift.com is an awesome app. It's a great interface, web interface where you can connect multiple wallets, uh, MetaMask, XDI, Ledger through MetaMask, a Shape Shift native wallet. We support multiple chains. We got, uh, Ethereum, Bitcoin, Cosmos, Avalanche.

I mean, we're really rocking on the multi-chain, multi-wallet, and then multi-protocol support, right? where you can interface with multiple DeFi protocols all in one interface, one wallet. It's really it's really an amazing product. Um we're one of our newest integrations is with uh Thor Chain Savers. So for like I think one of the coolest things on here if you have Ethereum and you're wondering you want to earn some yield with your Ethereum natively on the Ethereum chain using Thor Chain Savers through the Shape Shift interface.

I'm currently earning over 5% on the Ethereum that I have deposited in there. So, and then leadership coach.io, that's me. You click that barcode. There's buttons all over the place to schedule 30 minutes.

If anybody wants to chat one-on-one about this or anything around organizational leadership, engineering leadership, I'd welcome that. All right, Willie, would you add anything to to this? And if there's any questions from the audience, whoever has a question, we have time until 4:30. So, feel welcome to come on up. Hey there, GM Josh.

GM everybody. Um Josh, I thought you really nailed it and it's it was really cool to speak transparently about what was like some really really challenging discussions for the community. Those those discussions are hard enough like one-on-one, but having them in public as a community is really challenging. Um, so I think a lot of Dows kind of learned similar experiences during this bare market where especially during the bull it was like very easy to spend like you said almost every proposal was getting approved and then during the bear we pretty quickly had to figure out how to cut cost or otherwise we we'd be out of runway stable coin runway now. So props to everyone that participated in those difficult discussions and yeah I guess one thing that I want to add that popped up when you were talking um was around how do the workstream leaders have too much authority and um yeah I think one thing that's important to keep in mind is that ultimately the community is on top so even in shape shift DAO and workstream leaders are delegated authority by the community the community also has the ability to revoke that authority um So ultimately, yeah, the DAO, some people I've heard the myth that like Dows must be flat.

You can't have any kind of hierarchy in your DAO or that's that's not a DAO whatsoever. And I always think ultimately Dows can be designed however the community wants, right? They can be um completely flat if that's what the community wants. Or if the community wanted to put a a CEO on top and give them all the power, like the community could do that, but as long as the community is still on top and has the ability to revoke that authority, it's it's still a Dow. Um, so yeah, that's all I really wanted to add there.

Yeah, thanks man. Yeah, about what being delegated by the community? Oh, the work stream. Oh yes, good question. Yes.

So the question is a good question. The workstream leaders, how long do they have that authority for? Um, thank you for asking that question. It's for the same amount of time is the budget cycle. So we're we're currently working in four month budget cycles.

So if you if you vote for a certain proposal, that proposal like in in was from March 1st to March, April, May, June to July 1st, right? It's to elect the workstream leader for those four months and to give them the budget that's being requested in that proposal for those four months. Is that clear? Thank you for the question. Yes.

Thank you. Um, have you added any uh additional uh voting procedures or contingencies for uh emergency situations? Have we added uh any voting procedures for contingencies and emergency situations? No, we uh we have not. Thank you for helping with the mic there.

We we have not. Um so and the what what we have what we think covers it is the fact that the workstream leaders while they have power over those budgets can make very quick that's one of the reasons why the community the people in the community that did vote for that did was so that we could respond rapidly in those kind of situations but we do our governance process is it's drawn out right it takes multiple weeks for a proposal to go through ideiation go to vote have the voting period. Uh so it's something to think about. If there was a vote that was needed to enact something really quickly, what would that be like? How would we do that?

It's a it's a good point that we have not covered except for giving the workstream leaders this immediate action authority. Thanks for the question. Just just curious if uh can talk about the the types of things that you prioritize when you go through that process. The the question is like what type integration wise functionality whatever like the types of things that you prioritize in terms of what you're work on. So okay so the how do we prioritize the work um that is that's a so when the product are in the same is it the same exact cycle as the budget cycle we actually have a a road map that gets proposed and is voted on by the community as far as like what features will be the next priorities that the both the product team and the engineering that the community wants the product team and the engineering team to work on.

Now that process is very driven by the product team with a lot of collaboration from the engineering team. So there's there's and usually that goes to vote to the community and there may be some discussion and there's some input beforehand and maybe some small adjustments are made but once it goes to vote it's it's pretty well generally accepted. So I would say that the product team and the engineering team they're getting feedback from a lot of other people in the DAO and I think they're doing a good job of driving a collaborative discussions such that by the time it gets submitted to the community to vote there's pretty widespread support for that as it is. Um, and then as far as like priorities for each workstream, again here the workstream leaders have this autonomy that if for tooling and that stuff, if it's within their budget, they've got the authority and they set their like priorities for how their individual work stream does work. The how the work for the product and what we're going to release out to the world is ultimately voted on by the community.

Does that answer your question? Thank you. Uh how's like the layoff going? Like how did you handle it? It's like are they like stick around to be part of community?

Are they pay out and so on? Good good question. Good question here. Uh like how did the layoffs how did the layoffs go right when people were let go? Uh we saw a mix.

um most people understood the and because there was so much conversation about budget cuts throughout the whole community that when individuals were let go, they pretty much understood and knew that it was possible. So that was a nice thing. It wasn't just didn't it didn't just come out of the blue. Um some people still were surprised um even though there was a lot of other outside information to tell them that it it might happen and some of them stuck around for a while just as community. We did offer severance.

I remember the first times we were doing this we're like well we're a DAO people know we have no like official employee policy. Do we offer severance? I'm really glad that we made it a a policy that we offered severance to contributors who were let go. So they I think they were treated pretty well in regards to like how centralized companies treat people when they get laid off. And I think and then some of them stuck around and participated in the community for a little bit afterwards.

Most of them actually have wound up wind up just moving on completely and being peripherally involved. Thank you for the question. Hey Josh, thanks for the presentation here. Um, philosophically speaking, right, like the way you guys approach the Dow is a way that a Dow can be structured, right? Do you think the Nash equilibrium of Dows is essentially um a democracy or or government, a democratic government where they have elected officials to make certain decisions, right?

like how do you differentiate I guess a DAO from a government aside from like national boundaries and or um you know regional boundaries. Yeah, that's a good good question, right? Because it's voting um and Willie pointed this out that right different areing it differently um how they're working. I do know of some Dows that have a CEO, right? um the matter of like how decentralized are you, how autonomous are you, what is your organization structure is I mean we're just in this really nent experimental period figuring this out.

What's the like I don't know that there's an ultimate structure. I think that depending on the mission of the DAO will depend on what is the best structure. How much power should individuals have? Should it be more democratic like where every dollar spent is voted on and not just um given a one person is given approval to then spend from. I think all of that can uh really change.

But I do think that voting is a key part of a DAO that that aspect is there. And what I think is really interesting that you talk about are we just is it like a government? The thing that I think really changes the like moves it away from a government is the fact that the voting and the economics are tied together through the governance token. Now there's some Dows I know that have actually created two tokens. One is a governance token and the other is the economic the token that then drives or is a part of the economic engine.

So that's I guess you you maybe you remove yourself from that but like a shapeshift DAO and many Dows your voting power is also the same driver of the economic engine that the DAO is creating. So what is that going to do to governments? I don't know. Thank you for the question. Anybody else?

I really I think these are awesome questions. Oh, over here. Hi. Yeah, thank you. Um, just out of curiosity, what were the existing revenues?

Why were they insufficient? And then, um, you know, part of that part of the question is like, you know, you can cut costs, but there's also like raising costs. So, what was like the revenue side and why was that insufficient? Yeah, it's a good question. Our revenue was not very much.

Uh, our largest revenue stream was actually from our validators. We ran a couple validators in the Cosmos ecosystem and I think at the height they were bringing in over $100,000 a month in in in commission from the staking but with the charts aren't up there but all of all the you know every token including the Cosmos ecosystem tokens all like you know price just dropped so we it the revenue dropped quite a bit and um we also get revenue through affiliate fees through some of the protocols that you can interface with and all of that use went down. So everything was driven inside of crypto and so we yeah it all dropped and did you have another question? Okay, thank you. All right.

Well, if there's no other questions, then I'll say thank you everybody for checking this out. And uh, as I said, follow up with me at any point if you want. And I hope you have a great conference. [Applause]