6. Funding DAOS with SuperPACs - Lisbon 2022

was incredible I don't know who did it if it was Evan Ben Matt uh to put us on just after Kathy because uh we love the idea of resilient democracies and I think there's so much that we could say um based on that talk I would love to spend the first five minutes just answering some of his questions but um we are running out of time already so um the title of our talk is funding DS with super packs um who knows what a super pack is yeah I think it's a it's like a uniquely American thing um so I'll definitely explain it you can just ignore it for now um normally this is a video so there's some nice animations so I normally like to leave this up for a while but there's none today so I'm going to just move on um there we are um who are we so myself and Alex who's sitting there in the front row uh are the uh founders of butter as we said we do dow finance and governance we've built a whole bunch of stuff as we've been kind of iterating in this space um and uh we ended up iterating toward something we think is pretty cool so we're going to try and explain that today um so uh we're at funding the commons what does that mean it means funding public goods and public goods are you know non-excludable non-rivalrous um we decided to try and take up the challenge of funding Dows and public goods now you could say that Dows already have a bunch of funding right that's not that's not really a problem but I guess we're always looking for better ways to fund these types of organizations and um we've kind of like taken this entire presentation broking it down into like a set of challenges um and what I'd invite you to do is just kind of think through each of these challenges just like compounding on top of one another try and get get us to a solution so um with that in mind we're going to start with the state of play so um we want to fund D in public goods a great place to start is how do we fund public goods today and maybe let's just ignore crypto for a while Let's ignore web 3 um and let's think about like what the state of players and we think about that in terms of who is the main organization or like group of people funding public goods today governments nation states um lots of the public goods infrastructure that we all rely on is funded and developed and built and maintained by these organizations and this was mentioned in the last talk as well um and uh we know that sometimes these organizations fail um and fail quite spectacularly uh this is a map of the world if uh that wasn't obvious uh we have uh like a bunch of different nations and uh and obviously the dots are trying to approximate where the cities are but over time we've seen Nations come and go and and fail and what where I thought would be a great place to start was to really think about why they fail and what tends to create failure modes in nation states there's a great book I read called why Nations fail um I forget the the author's names right now but the the kind of overarching premise of the book um is that Nations tend to fail when one group within a set of people ends up getting all the power um and really Nations succeed or they keep going when there's a broad diffusion of governance rights or voting rights across a population uh one of the things that's always credited with successful um Nations is a broad and um inclusive um spread of governance rights across a nation that means like everyone across Society is represented and we like to call this like democracy um we also have this with property rights as well if we give property rights to everybody um people tend to do well and it's really really important and it's important um it's one of those things that uh similar to to to crypto when when it's working you kind of don't see it but you only really notice it when it stops working um and I think loads of dows run in this model today and loads of Nations do as well and one of the I saw an article recently about hati and um us and the author was basically asking at what point do we say that he is a failed State um it's basically now run effectively run by by a very small group of people um to the point where pretty much nobody can can pursue their own ambition or pursue their own their own aims and this is again why Nations tend to fail the the synthesis of the of the thesis there is that Nations fail when uh a group one group is able to create extractive political institutions which are then able to create extractive Economic Institutions what does that mean you able to create things that are owned and controlled by one group and pull resources out of from the rest of the group and then you use you use Economic Institutions to do that and you again you see this again and again and again and this tends to always lead to a failure this is compound governance leaderboard uh it's 10.68% of all votes are owned by one organization poly um then you have Bane you have andreon you have kind of the same companies these are these companies are incredible by the way they're funding so many so much of the development in the space this is not a talk saying these guys are the bad guys just that we are creating systems where the main goal of these organizations is to extract Revenue right extractive political institutions and they do that really by capturing these extractive or creating extractive Economic Institutions um so we have a small group of wealthy organizations this group is effectively building this model we're building this model in crypto today this is ethereum uh as you can see from the I think that's when it was actually launched you can see that there's a concentration a slow concentration of ownership into the top 1% of addresses I think it's like it's basically ticked up the entire time it looked like it went down in like 20 21 um but really it's just ticked up the whole time um and and the way I like to think about this is um as an organization grows um and it needs to actually fund itself it needs to actually sell more of its resources and if its resources are tokens then actually it's is more likely to sell larger and larger resources to a smaller and smaller pool of people who can afford it and so we tend to see this in most tokens this is Lido does the same thing um I could have made this deck way longer by adding more and more slides like this but they kind of looks the same like for most of these and and it makes sense right this is what corporations look like um and so we just see this over and over again so um Dow governance tokens F and BTC BTC has the same concentration you have to just pay more on glass node to get that and I I wasn't willing to do that um over 90% of the voting power or sorry of the tokens are held by 1% of the addresses but F and BTC do not have voting rights is this is I think it's again it's underappreciated how important this is FN BTC are the two largest um blockchain networks in existence and um their tokens do not have voting rights not explicitly they don't have voting rights um but Dow governance tokens do uh I would like to suggest that that has something to do with their success um but also if you you know you you kind of read anything that vtic is wrting he written he's very against um token vot token voting systems and I think for good reason um plutocracy we we we've spoken about this before like this is just governance by the wealthy um and again you could say that corporations have this intrinsic value they are governed by the wealthy um but to the point from the last talk I think um if you think about a a blockchain system a blockchain system is kind of is scoped like if you think about ethereum it's scoped you can obviously vote in any way you want but within the confines of ethereum you can't vote on ethereum to change like I don't know like the weather patterns in Eastern Africa like there it's obviously scope to something very specific which is which is a really nice property in in crypto networks um but here we we kind of end up having these systems that are end up being plutocratic so what does that mean like lots of people say like vnet doesn't matter if you have plutocratic systems especially as it relates to public goods I would disagree um so here we have two examples of plutar Open Source software um open source software is an example of a public good it is non-excludable it is non-rivalrous anybody can go and use the code tomorrow no one can stop me and if I use it it doesn't stop anybody else from using it um Google is the main perpetrator here they have a significant amount of cash and they use it to Will build public goods to destroy their competition the first example is kubernetes um AWS was obviously building a huge business huge business um providing software for for developers that they could just you know uh use as a service um Google said I would love some of that I'm going to try and get entry into that market it built kubernetes kuet kubernetes is open source con containerization software containerization is is a um it's a way of basically running applic I'm just explaining for everybody in the way of running applications um in a kind of a generic way so you can run anything uh on top of any um any kind of hardware and uh Google decided to build kubernetes and deploy it as open source so anybody can use it this is a direct competition to aws's business and you could say that's great really it was great for the ecosystem everybody loved it that's incredible um but the strategy is that you destroy someone's business over here by reducing the cost to do some service you can compete them out of the market meanwhile you build an entire new Moote over here which is exactly what uh uh uh Google did and Google have successfully forced their way into the into the cloud business and and obviously Google cloud is now one of the biggest alongside AWS and um and a the other time that they did this was with Android most people think that Android is a direct competitor to iOS which it is and it only has that position because Google pre iOS decided to buy Android as an is an open source platform um and uh use it to keep when windows out of mobile market uh which they did very successfully we do not use Windows phones now Windows never had a chance in Mobile so yes open source software can be used if it's captured by the elites and captured by the wealthy it can be used to devastating effect before I kind of move on to like really what we're um what we're working on I thought it was also worth just touching on um uh the corporate side of governance like corporate governance obviously is a thing and corporate governance is where lots of the lessons that we're kind of perpetrating or rebuilding in crypto have come from uh this is Apple's list of largest shareholders they don't have an ether scan so I'm using uh finance finance. Yahoo um and this is um the list of top holders you see Vanguard there have 8 8% uh Black Rock bu haway State Street you see uh um Morgan Stanley's in there Bank of America and what's funny is when I looked at this I was like oh this is great I can just like change a few words on my slide and say you know a small group of wealthy organizations hold the power to determine most votes in many of the largest corporations rather than dows um and then I went and did Amazon and it was like the exact same group it's Vanguard it's Black Rock State Street which is incredible actually was it was quite surprising to me but this is probably how most of our like big public corporations look and the idea of going public as an organization is you get to some point where um you believe that this organization now determines so much of the value flow in an economy that the public should own it and so it starts to touch on some of the same principles that we're trying to build in crypto I thought it was interesting um and um but again that's like that's just like parking that first issue so the challenge is we want to fund, on public goods we've seen that there are models to do that um and we have a uh we have governance tokens that allow us to fund, and public goods um so the challenge to the Second Challenge is we want to actually do this like mechan we want this mechanism to work right we're funding Dows and public goods but we recognize the risk of plutocracy so can we fund, public goods without increasing like pretty much linearly the risk of plutocracy and as we saw it's not necessarily completely linear yes I think we can do this so I'm going to now talk about like some funding mechanisms and by the way because we've we've explained this to a few people and um sometimes people say it's quite confusing so I'm going to use like multiple examples along the way um and hopefully it does help you to build a picture and and obviously we we'll have questions at the end so um should exchanges vote and I'm I'm giving you this just like a frame of reference and and the I'm going to give you here I want you to just retain it in your head as we go through because it's really important so um this is the distribution of ownership of sushi um and the black quadrant is uh binance binance is a centralized exchange they do not technically own any of the tokens but they um they are stored there so they're like my tokens I don't use binance but they're like my tokens or your tokens oh my tokens or your tokens and um what's interesting is those are governance rights there's 8% of the entire entire voting population of of sushi is sitting in an exchange and I like I think there's there's two really interesting things here one is um what's stopping binance from voting I think there's some normative IDE ideas there about like why they don't vote um but this is true of coinbase of FTX of huobi of oket all of them they are holding some percentage of the of the total votes and they don't vote because people just think it would be weird if they voted but let's say that someone put through a um a proposal in sushi tomorrow which said uh we should D list from binance like d binance can do the calculation they can see exactly how much revenue they would lose and they could vote no they Pro considering that most votes tend to have about 20% of the total tokens they could just basically just nullify that proposal every single time so this is what I mean there's like a discretion discretion that we're just kind of relying on and again we we we love these um these U models today but we haven't seen them operating in Failure mode they aren't necessarily very resilient so uh something to bear in mind the second thing is I just want to now talk technically about the pattern here which is if we use anything in crypto where we deposit our tokens into a contract the owner of that contract inherits the properties of the token so so binance has the the governance rights purely because people have deposited tokens in their contracts right so tokens in a contract owner is now able to vote and that's important for what we're going to talk about later so now I'm going to build up the the model so we're starting with like our player one like to think about this in games I don't know if anybody's read infinite and finite games I think it's a great book but um this idea of like a player this this player in the game is a dow so Dows produce public goods Dows also have a um have a have a treasury and they need to continually fund their operations so um we obviously want to increase funding for dows dows obviously when as they get larger they only have a certain a small pool of people that can fund them they tend to be wealthy they tend to be the elites so we have our first player in in our in our mechanism the Dow the second is what we're calling a liquidity provider but just think about this as someone who wants to to vote or buy tokens um they tend to be small if they were to go buy tokens on the market and try and vote in a dow they would be so small as to be rendered like useless a great example of this is the recent Sushi head chef vote and if anybody saw that that was a vote which had I think 300 um votes on it uh it was to put in basically a new CEO of sushi um the V vote was swung in the last day by two votes that came in at the last minute one vote came from an existing holder it was about $5 million worth of sushi the other $5 million was purchased about 15 days before the vote um and it came out later on that was purchased by a new investor so you can think about the actual attack there it's someone who wants to be the new head chef new new CEO you go you find a new investor you ask him to buy the tokens you ask him to vote for you you're the CEO um so just again thinking about some of these attacks um on on Dow governance um but think about this this this person they just have have some tokens they do want to vote they do want exposure in the D but they can't necessarily get it um and player three this is just the contract this is just this kind of like inner thing that sits in the middle and it's going to help us as we as we kind of like build out so think about us being butter we're building the funding contract so um in my other version of this this was moving and it was it was very distracting so I'm glad it's not moving today um the idea here is that um if you think about the uh the the side on the left that represents these investors these like liquidity providers people who want to buy tokens if you think about the side on the right that represents our Dow our Dow wants financing and the mechanism is fairly simple it starts with us butter putting up a contract on ethereum and saying hey we want to buy tokens and let's say the Dow is Sushi we want to buy some sushi tokens um then anybody who wants to get voting power in the Dow can say well I like butter I'm going to put some tokens into the contract and once we build up enough let's say we build up $2 million worth of stable to stable coins the Dow can then deposit governance tokens into the contract take the liquidity out they can though fund their operations that's great and then on the other side we have the um the investor or the liquidity provider and we just say to them hey well we're going to keep these governance tokens in the contract and we're going to Mint some other tokens for you to hold on to and they represent kind of like your claim on whatever's in the contract so and again this is the exact same pattern I mentioned before with binance holding the tokens we're just the the owner of the contract so now butter have the governance rights in sushi um we have funded the Dow and what we we love about this is we can start funding Dows really just by like amassing lots and lots and lots of governance rights and lots of liquidity for Dows the benefit for the Dow is they in we increase the amount of liquidity that's available for them especially as they need to sell larger and larger chunks of governance tokens and we've also improved the outcomes for the investors because they get exposure typically we can buy in bulks we're buying in discounts so we have some nice properties in this system but again all we've solved is our funding problem but one of the benefits of that is we've allowed we've allowed a we've created a model where we've separated voting rights and economic rights on the one side we now have the Voting Rights we can have as many people fund the contract as possible without increasing the risk of centralization because we have the um the voting rights as butter as one organization but we can keep adding more and more and more and more people on on the side so we can keep um increasing economic rights by decoupling them it means you can scale um you can scale um funding infinitely you can keep adding more and more liquidity to Dows you can keep funding Dows so we've kind of tackled our Second Challenge which we think is is great um and I just wanted to kind of explain that we we kind of have something similar already in uh in corporate governance which is this idea of a preferred share um common share typically has voting rights and also has dividends you're getting paid out a preferred share typically has voting uh no voting rights and it has uh fixed dividends so it has like a similar similar properties and DOW and DOW sorry corporations use this to finance uh types of projects that maybe they wouldn't fund with Equity or or normal shares there are some challenges um and we'll kind of just keep compiling these and come back to them but one of the really interesting Parts is like why would anybody do this when they could just go buy normal tokens and we can come back to that at the end um and we're just going to keep adding to this so the last challenge is um we've now got a model where we can fund hour and public goods by selling governance tokens we can then separate the governance tokens from the economic rights so that we Sorry govern sorry we can fund uh Dows and public goods we can do that without increasing the risk of plutocracy by separating economic rights from um from voting rights and now we think we can get an even better outcome by doing the same but increasing inclusion and plurality and what I mean by that is that in our as we said at the very beginning we want to create a world where there are loads and we have full representation of all people ideologies um like um uh Representatives people who want to who have like very different ideas from the people who are the elites or the people who have Capital we want to have make sure they're all represented within this governance structure and so to do that we need to increase inclusion it's not enough just to have people who have money to be able to vote so uh that's where the Super PAC idea comes in so um to explain super Pacs in the in the US they have an idea of a political action committee it's just a group of people who get together to fund a candidate they have some very specific interest and they say we want to fund candidate X so they give them money um after a while people said that that kind of campaign Finance was potentially bad so we should limit them so they had a a top limit so packs have a limit I think it's like $10,000 that they can give to any candidate super packs have no limit but they have no limit in that they can't give the the money directly to the candidate so what they can do is they can spend on anything else um and it and sometimes this is used to some some pretty devastating effects but but what it does allow people to do is allows people to like build like they bet to push their preferences into the market they get to like fund the candidate like kind of indirectly which is quite nice as long as they're not giving the cash to the the actual candidate one of the ways that I've tried to explain this which has helped some people is to think about this in terms of um music which is the previous um previous project that I built we were tokenizing IP um and in the music industry we managed to get better outcomes in music I.E better music because at one time in in history you had to be an incredible singer and an incredible songwriter to produce a good song and then over time we saw people specializing in both we saw people who had like who were great songwriters and people who are great singers like most people think their favorite singers are writing their songs they're absolutely not there are some incredible songwriters behind them um and um I always think about Bowie love Bowie and this might insult some people just he doesn't have the best voice in the world but he wrote some of the most incredible songs in the world and you see lots of music from that time having the same property so I think specialization tends to produce better outcomes and the same idea here is like if you think about Dows and delegation we we obviously do this in in our representative democracies we have people that we pick to vote for us they tell us their preferences we vote them in and this is a great property Some Ds have delegation um delegation important some have this model some do not um we think this is a really really nice property and we think that we could bring it to all Dows just by having this model where we store governance tokens in a contract and then me a separate token for the for the for the for the voters so to speak um and what's nice about this is you know before you just get whales and very like uncoordinated groups of smaller voters um and then after that you get whales and you get these very coordinated groups who represent in like a very specific interest and a good example of this is um at the moment you may have a whale who represents a significant amount of voting power in and they basically dominate all votes in the future what you're likely to see is people who represent groups maybe outside the Dow today if you want to get some voting power in a dow you typically have to go into the da buy the tokens convince the people inside the da that you're a good voter and you have to play by their rules with this model you can get outside interest you think that it's important to drive a down in a certain way and a good example of that could be someone like um protocol Labs it could be uh like the network funding group where it feels like it needs to have a specific um set of influence around a set of ideas and maybe they're building a contract to try and get those ideas funded people believe in that they fund um protocol Labs protocol Labs then gets all this voting power in the Dow and that is great it produces great outcomes and I think it's it's a really good idea for building these like pluralistic integrated inclusive systems of voting in in Dows and um and in uh in crypto networks so uh what are the challenges so one of the things that we'll uh do in in the workshop that we plan to later is talk about some of these challenges but there are uh there are a few um I think one of the most problematic is the idea that if you have a system whereby someone can buy votes effectively um that eventually ends up being captured by the wealthy anyway um and what you've seen in super Pacs is this model I think the original Super packs effectively functioned kind of like unions um but over time they've just ended up representing like the people who own Chick-fil-A in the US the people who represent the car manufacturers and so on and this kind of capture is is is terrifying and it can actually lead to very very bad outcomes so something we want to definitely work on um and um as a conclusion um again our challenges were to Number One Fund Dows and public goods number two to do that while reducing or not increasing plutocracy number three to do that while actually increasing inclusion and plurality and we believe C Pacs actually allow us to do that because it increases the amount of available funding for Dows um each funding contract offers deep in instant liquidity and it allows us to create markets that incentivizes new constituencies to form and one thing I'd just like to add is if you think about the role of butter we're the people putting that contract up right we're saying you should F we should go fund and invest in this Dow imagine anybody could do that anybody with any ideas as I said Pros schol Labs could do it what we expect this will do is it will create markets in delegates markets in candidates markets in ideas that will continually push and improve and kind of using competition and markets to improve the outcomes we get from policies so we think that it's actually a great way just to improve th in general and to make our democracies or our crypto democracies much much more resilient um so yeah this is uh this is uh butter and this is the uh the kind of idea of of funding dials with super packs as I said before we are uh we're running a workshop uh afterwards and um if you want to find out more about us please go to our Twitter it's buty money and there you can find our GitHub link which links to the spec and implementation um as I said I'm Vaughn and I've got four minutes left so any [Applause] questions um I I really like your idea of of splitting up uh sort of governance rights it does seem to be be an issue uh uh that things can turn into to to plutocracies and it doesn't necessarily uh followed that you should get voting rights if you want a share of the profit um that there was one thing it's just it's a slightly technical thing I'd wonder if you'd heard about the regulations around um uh Collective uh investment schemes because my understanding is is one of the reasons why people uh give voting rights to Dows is because it sidesteps the collective investment scheme uh regulation um it's just something you might want to look at because people they say we're doing it because we want uh everything to be Democratic but in fact you're a collective investment scheme is heavily regulated and if you're not you don't have to bother with all that and that's the real reason slightly dark reason why a lot of people set up uh investment schemes as Dows uh because of the the regulation issue so yeah just a tip maybe look at it just to make sure you're clear on that one yeah no I I I completely agreee I think um anybody who's building in the space has to definitely spend time with their lawyer and include them in the in the in the design process but I think I think I think the governance token model is also a direct result of of Regulation um because it kind of diffuses the ownership and and hopefully means there's no blame um but I think the model that we have because it builds on top of a pattern we already see which is that you have a contract with governance tokens you meant a derivative token and people just own the token we're not actually implementing a a separate um investment scheme so I think it should be like yeah I mean not a lawyer yeah yeah yeah thank you hi hi um so on the blockchain uh when there is like a vote on a proposal like everybody can see if it passes or not but if we're looking at the Politics as you've been suggesting it's very important to what degree 76% 33 44 and people cannot see that immediately from the blockchain so we need like analytics companies to tell us actually what the vote was right okay and all these analytical companies they are using their own like centralized sort of infrastructure okay did you have any thoughts about that if the analytics companies so like e confusion around votes in the future I mean I think that blockchains actually just solve this because they you can you can always verify the information if it's from onchain state I think where you don't have that is like centralized companies like say snapshot so if they're actually just like storing the data off chain then potentially um but I I don't necessarily see that as a problem just because of just because it's it's supposed to be publicly verifiable and you're supposed to have a onchain history so I don't think that's a big problem in in like voting in general ows okay thank you everybody for appreciate the [Applause] time