Panel 7 - Overcoming Challenges in Stablecoin Governance

all right thanks everyone for joining I know it's been a long day so thanks everyone for coming down joined by a great panel today um uh as the MC uh introduced so I'm housan I work at chainn Labs head of derivatives there um maybe to kick things off we can start by just going along the panel and everyone introducing themselves uh what protocol you're working at and what role uh I'm the ecosystem lead over at Aragon so we we build Dow infrastructure hence relevant topic for us hey guys uh Gabriel um from mental Network we are a ethereum layer 2 optimistic rollup um hypers scalable and uh Dow govern hey y'all I'm Bogdan from mentol Labs we are a stable token protocol on top of the cell blockchain and I'm the CTO and co-founder perfect many thanks so the topic for today's uh panel is overcoming challenges for stable coin governance maybe to kick things off um I'd love to start off with um which components of a stable coins uh like mechanism do you think it's most critical to remain decentralized um I think from from my perspective um like we we had a lot of of of panels today here and I would say like the risk profile specifically the fragmentation of it right so we have ideas of like reward assets and like different typ of collateral and there is an Associated risk profile and also return profile that that relates to that so the ability to um isolate those and have a UniFi liquidity is is uh something that should be decentralized yeah cuz funny enough that's also where decentralization decentralization tends to appear because you have assets that require you to have more centralization in your protocol right but I think some place that's for me personally non-negotiable is the censorship resistance aspect of it like I'm not a fan of adding blacklists your smart contracts like I'd rather look to things more like the associative sets and privacy pools and things like that to disen toize Bad actors or like limit them but have a censorship resistant stable token yeah I think also to add on to that it's mainly around like the PEC stability mechanism as well like the risk parameters uh with regard to like um maybe like the fees and uh balancing like the uh incentives for both like the voters and as well as the token holders so yeah there's like two different models like one's a single token dual token and yeah I think having this as a decentralized and transparent uh uh governance is really key to aligning incentives we both token holders that want to uh receive fees from the protocol as well as uh token holders who want um stability of the protocol I think that's very important just just fall on on that like I think that's one of the reasons why uh we are specifically excited about like stable coin governance over argon CU because that's a use case where like you actually uh need like really need onchain coordination because you have Myriad of different stakeholders and like the incentives and the the risk reward profiles that they strive for are different um so yeah it's it's not just about like oh yeah how do we manage a grants program it's about like actually running the protocol and evolving it in such a way that you know everyone can benefit from it yes so I think you both rais some really interesting points there so like some protocols um take the approach that they want to actually disentangle uh like governance and utility benefits because they have some members like of the Dow who are like more focused in uh providing or like participating in governance decisions and some who are just there for like I don't know collecting like apy right so um what are maybe some trade-offs um between like a dual token model where you separate those benefits of utility and governance um and what and like why might you go for a like a single token model where those two things are conflated yeah I feel like one way to look at it is that if you have a separate model then you're trying to price the governance tokens just in terms of governance and this in times of instability can cause your system to be more like like security um like be able to be taken over right because the governance token loses in value whether if you have them both then your utility kind of sets a lower bound to yeah how that token can be priced and can help with security mhm yeah I think also to add on to that it's mainly around like the onboarding of like new collateral assets right so even though like we have assets that can yield very high returns but the risk profile as you mentioned is very different for each asset so being aligned with uh the stability of the protocol um really falls down to like what kind of collateral you have how secure this collateral is there risk of uh deeg of any of these assets so yeah what do you mean you U ility is there a token with utility no I mean like that that thing aside I think you know from from the coordination side of things um like someone who's collecting fees is a stakeholder and one of the one of the the things that we've seen in the space uh so for example you know like we l is the biggest user of our infrastructure and like we are very like closely looking at this the Dual governance model that they want to introduce and like part of that is that you end up in a situ situation where the main provider of financial Capital which is the the the eat stakers might be what might not overlap with the the holders of the ldo token and you know then you need to like introduce another mechanics so I think having just the utility token or like like being a sizable and important stakeholder without having governance power doesn't really work yeah and I think like you were touching on it but the users of the stable token users will always be kind of under represented in governance in a lot of these systems I think I think they will kind of be represented by intermediaries like maybe wallets or other like um players that kind of act as a node aggregator between them and the stable token platform but them in itself as end users will always be a bit under represented I think yeah and we we saw that a lot in you know back in 2017 when Bitcoin forked and forks are a form of governance we we're not experimenting enough with but when when when Bitcoin before like the user was represented by basically the large exchanges and vendors that were on ramps for those users I think you mentioned just before like some different solutions maybe for like I know it's a subjective term but the idea of like naive uh like token holders to basically make sure that um like like those tokens are being allocated towards uh governance decisions I mean we see many different models of this right um whether it be delegating votes to people who you consider like experts right um are there any kind of unique approaches to this that have caught your eye that you think have been especially effective yeah I think I really like how makeer does it I think they have designed a very cohesive experience for both like the the governance users and um I I think it's like able being able to delegate your votes to a someone who is more sophisticated and educated in a topic I think that's very powerful in terms of um getting more people to vote essentially because like in in my time in doing research we we found that a lot of dows actually have really really low uh user participation um within the range of like 5% and makeer DOW it's around like 10 to 12% which is actually one of the leading um dos and um yeah I think it's more of how we can improve like the user experience for um higher participation uh to reduce the number of Hoops that users have to jump through uh just so that they can participate in governance decisions that may affect their um token price or the protocol that they are most like beled to yeah I I mean maker is the what like like make maker was incepted as an idea before for the etherum network went life so they're the oldest da as such in existence um and I I think one of the really cool elements because you mentioned delegates like one of the really cool elements there is the auto UND delegation which basically means you you you you would never be grandfathered in into being a delegate in perpetuity um so that creates some need for accountability towards the token holders that delegate to you but another element which I think is the reason why um maker enjoys higher participation is uh they are actually a sustainable down as in like they have Revenue that is higher than their burn rate uh so there is there is some you know going concern value in that Dow a and and B like like you're actually voting on parameters that relate to the protocol right it's not like it it again it's not just like a uh a grants fund right I I think like a lot of the the you know rollups that are now shaping up as Dows like they would see participation increase once control of the sequencers gets transferred towards like a governance model but at the moment it's like here's some money to play with and and pretend to be not pretend but like here's some money to play that with yeah very interesting I think um one other thing I wanted to ask were um so I think we already uncovered uh maybe some incentive schemes have worked particularly well to increase engagement especially with makers you mentioned um what are the main tradeoffs that exist between uh sorry next one uh with the emergence of rwa backed stable coins um and I you mentioned this earlier right how do you manage the tension between censorship resistance and compliance like I know you mentioned like isolated like like yeah I mean looking at what maker is doing right with like having a subow structure where you have different isolation of centralization basically in your whole infrastructure is kind of like the way to go you always have to interact with these elements like I don't know be it open Eden for t- bills or other sort of like Securities it's impossible to really remove this without like also incurring a lot of other risks like there are decentralized versions of these um like financial instruments coming but they tend to always have a catch to them you know like either it's uh a form of like lending Market that then gives you the yield of the t- Bild but then you're like exposing yourself to liquidity issues or blah blah blah but like if you want to really have that risk profile you need to be centralized to some extent you're always going to have to play this game I think at this point everyone's just trying to push the boundaries right because at the end of the day we don't know what the Regulators will do and I think it's also beneficial that we work together with The Regulators to sort of figure out a framework uh for what's right what's wrong what can we do what can't we do and yeah I think like for us we've been working with Ando Finance to um onboard usdy into into mantle and we there's a lot of comparisons being made between like other uh other back stable coins and we we find that Ono's method of doing it is is pretty robust and I think like it's more of um how best can we work together The Regulators to figure out something that is beneficial for uh everyone like both the um users as well as from the RIS profile standpoint as well yeah and u i chatted a bit with Cassidy from Cent fut and like they're one of the projects that has dealt with RW for the longest time um and I mean ultimately to touch RWS you need a legal wrapper and then that in itself of already means that no matter how much governance you introduce like there is someone who's responsible for those assets in meid space and they are conduit of of you know enacting or executing whatever actions you you vote for so knowing and and and recognizing that limitation is essential for us to be able to have a more honest conversation around like okay like this structure intrinsically because of the way that in or the need to interact with meatspace cannot be meeting our decentralization ideals and R had like a very good uh contrast of like what is practical and useful for people versus what is the idealistic version of how things should work and and you know like we we should be more objective about this and that's why I I actually love this conference cuz like people here have a very sober view of that balance in trade-offs I also think it should be really made clear to like the users especially like what uh risk does this stable coin actually have because like we say rwa back stable coins but each one is essentially very different like some are backed by uh short-term T bills ey shares or um yeah there there's different designs but underly the underlying asset is uh could be the same might be the same but is actually pretty different so I think like educating the users on the differences between all these uh RW back stable coins as to what the collateral is I think is very important as well yeah and on that I think I always like to talk about this like we call usdc a Fiat based stable token but it's actually a credit backed stable token in reality like we saw that when the bank with the bank crisis happened and then like we saw usdc get a 10% haircut for a bit and then then come back and it's funny yeah and I think it's interesting to build things more composable on top of these different risk profiles like in Mento we have usdc in their Reserve we have D in their Reserve we have Bitcoin we have ether we're looking at more real world assets like carbon credits and also real estate and we're trying to build this more Diversified risk profile for the ultimate stable token how can um folks who are participating in those protocols gain more like like I think both yourself and gab just call us out um gain more transparency especially for stable coins that are backed by rwas right I mean I think some people ultimately think and speculate about what is backing but they don't fully know so like how can you enable like greater transparency I just being I guess being able to inform the users well on all socials uh and like just having like a disclaimer as to what is actually backing this asset I think um often times that we see in D5 a lot of the protocols uh especially like dexes if let's say like the rwa is like permissionless and it's tradeable it's like a wrapper right I think that there should be um more ways that we can display like okay this is the risk profile for this asset this is a risk profile this asset you should know what you're investing in um or what you're trading or yeah more more about education I think there's something to be added here like you know transparency in of itself is nice but it doesn't really tell the story like we have a lot of data on chain like but are people looking at it right I think there's something to be said about having a counterparty that has skin in the game with you that kind of is incentivized to also keep you accountable like ask the right questions highlight the right information but also it's not on the same side at the table as you are I think that's something that we see in the space a bit but we need more of I I that's a brilliant point cuz cuz in the we we we've had this like oh it's so transparent it's on chain and it's like like it's it's the opposite of transparent it's obscurify by noise right like like the ability to surface relevant information is important and just by dumping everything on chain that doesn't solve the problem it makes it worse um thank you uh yeah one one of the one of the ways that uh we think about things uh related to increasing transparency uh and accountability to a certain extent is just you know you need more granularity uh yesterday uh MOS from polygon was giving this example of you know within within the cosmos ecosystem you have like the most important technical upgrade of the protocol uh and someone asking for $3,000 to create YouTube videos like those two decisions are decided by the exact same stakeholders and they go through the same process and we cannot ask from people to like be up to speed in detail on every every topic that pertains to a certain stable coin right like we we want granularity on the decision-making side what where we want you know to to avoid granularity is on the liquidity side right so you have to have this like ideally unified liquidity at the top but when it comes to decisions and like maintaining relevant context you want to allow people to specialize you talked about people having skin in the game uh who are invest in actually bringing transparency who are like who are the some of these stakeholders like like yeah what are some examples so I don't know this is just off the top of my head but let's say um you have d as a stable token right and then you have a money market like compound or have a build on top of it right I think a and compound are there incentivized to make sure that D is being maintained how it should be right and you and you get these sort of relationships that get built and those are think are important because yeah if we just are transparent about like this is my report but there's nobody really looking at what's happening behind it then yeah so you think it should be driven by like composable products who are like or adapts that that are basically building upon or interacting with um and then should that like with the idea of like like audit like third party Auditors or anything like that um like like provides greater transparency like is it necessary for that information to also be on chain uh sorry what do you mean that information to be on you mentioned for example like uh like an audit of records that show like I have this amount of money in a bank account or I like actually have access to these like um like these assets of chain through this brokerage or something like that those sorts of reports we H we have uh thirdparty Auditors and and these sort of reports in in meatspace and you know we we all live through I mean some of here people here are young but we we've lived through the 2007 situation where you know something rated Triple A anded up being junk so I I mean without without like skin in the game without actual economic uh downside for the person or the entity that issues this audit like it it's it's it's a piece of paper it's a rubber stamp it's it's useless yeah sorry this is exactly what I was getting at I mean like does that actually like that some people call that more transparency like is is that helpful or is it is it not actually seeing as additional transparency if you think the water is corruptible or yeah I I I think I think like this is the principal agent situation right like I think ideally we should make sure that people that have decision-making power are principles we should try to you know blockchains dis dis intermediation uh it's I think this is a level that we haven't explored enough yet which is just make sure everybody's a principle MH I wanted to come back to a comment gab may just before like specifically about like usdy so I wanted to kind of move the conversation to um when governance moves cross chain right like what are some of the implications for like how that can affect uh governance so like like with like Ono for example I I think the issue comes when you bring a a token off to different chains right because each chain ideally should be a isolated Market to some sense because like if let's say we can mint a lot of uh usdy or any rwa stable coin and there's like some exploit that allows a a user or a hacker to Min a lot more of these stable coins and then Bridge it back to a different chain and then like basically wipe all the liquidity pools on on like say mantle or or ethereum I think yeah it's difficult to say because like um yeah sorry what was the I suppose the like I can rephrase the question is like have you seen any effective like cross-chain governance mechanisms for like stable coin protocols um and like if so like what do you think uh has made those governance systems effective I think one way to do it is sort of to isolate the minting and burning mechanism mechanism right so you're not actually Bridging the token over but you're minting it on that chain and you're burning it on that chain to then move it to a different chain so not exactly bridging over to a different chain and wrapping that token again and again like through like a canonical Bridge or something yeah and I think angle euro is a good example of this like they have their buy and sell module on ethereum and the CDP module as well but on other chains that they go to they just deployed the CDP module to make it simpler so that burning and minting happen isolated cuz if not it's not just about governance but you need to really think about where your collateral lives and how you bridge that and if you for example I don't know Bridge have like wrapped versions of collateral and other chains then you kind of go down this weird Rabbit Hole you actually need to go through Sexes if you really want to bridge collateral effectively right and there's yeah and also I think governance cross chain becomes a bit of a technical nightmare when you want people to actually understand what's happening and then you also wrap that into a secondary transaction that executes in a different context is like just even as a developer like I have to like really struggle to understand curves governance proposal sometime I guess as a more end user that's just just doesn't happen yeah yeah I think uh I mean some some some of us suffer to you know trying to like Bridge uh usdc back from Harmony after the the bridge hack and was it was a fun experience like what is it three cents to the dollar or so so I I I think like there is definitely something around like segregation of of of the liquidity and like the the burn and mint on different chains and like having you know the native token there uh like or minting the stable coin as a native token on each chain instead of just U uh a representation uh and then on just on like the protocal governance side uh we are working with with ler zero Irene is going to speak on the next panel uh on like enabling to have this like consistent process flow of controlling implementations across chain through like one unified process and having stakeholders across chains participate in you know like a consistent flow uh so that you know you mitigate opportunities for exploiting because you know like the multisig that deploys the decision on arbitrum is faster than the one that deploys on Mano and like someone can ARB that uh and exploit your system in some way shape or form whereas like now that you know and ccip that AA is using is like another another way of approaching and and so solving for the same problem like ensuring that you can pass and execute instructions consistently across multiple EVMS so I think you've like rightly called out bridging is like one friction or limitation to like crushing governance what are some other frictions that you've observed that limit uh like governance participation I mean I think we still don't have really good uis for governance to be fair like um especially for more complex governance like we have tally that's kind of encompasses all the one token one vote but if we look like V models that's still mostly snapshot and multisig which is yeah it's 2023 come on man um yeah and of course we have like curves initial implementation of governance which is just yeah H it's uh Cur is build on AR by the way oh yeah that's true just a plug um but yeah I I agree and like part part of the reason why we're not seeing more complex governance emerge on chain is cost right like like like trying to compute uh like ve based governance on CH like I'm not I'm not going to pay like $150 just to vote that that's absurd like unless you have a really substantial stack in a project right so part of the reason why we created this multi-chain governance model is you know we we we uh take token balances across EVMS we we execute the actual vote on ZK sync and then we bring that uh sorry we we we the vote takes place on ziki Singh and then we bring down the instructions and execution uh so we're working towards bringing that flexible granular governance experience on chain so that you can you know not rely on multisig all the time that's amazing yeah I think to your point about granularity is that sometimes a lot of the stakeholders that have skin in the game like liquidity providers they are unable to vote most of the time and they are the ones that are holding most of the liquidity and allowing people to trade back and forth so I think one thing that is sort of interesting I find is like the fra model it's kind of the the fractional voting model allowing LPS to vote allowing people who have um pretty much stake in the game to essentially vote with their state positions liquidity positions and yeah yeah yeah like like like what one of the one of the challenges that we've had uh which hopefully granularity will resolve is you know we have this concept of community or token holders and I mean in in in in MEP space we call those stakeholders because they're like distinct groups that have a distinct relationship with the protocol and and when we talk about stakeholder diversity in our space it it it's not about demographic belonging right it's about like how are you interacting with the protocol uh so for example like the graph has this this schema where you know depending on your role you have a different multiplier on your token balance right so to make sure that people that have different roles and fulfill different functions uh have like an accurate representation I agree yeah and a bit tangential to this but I really like the bamal model of the op governance as well this idea of having a toen room and the citizenship room and actually trying to do the one person one vote thing I think that's really cool and I would like to see more innovation in that space like we do have quadratic voting now on gitcoin for the grants but like seeing more of that go to governance normally as well would be cool yeah like I mean one one of the the things that that you mentioned about like like LPS and and stakeholders like one of the reasons why delegation is so dominant as the governance for it's not only because you know individual voters that that uh you know cannot maintain cidence and blah blah blah like they can delegate to someone who who can like that's one part of it but it's it's the one that we talk more about like the the the actual bigger driver is that large token holders like funds they keep their bag in a code wallet and they cannot vote so that's why you need delegation and that's why that's why Protocols are like pushing more and more to like have delegation in there it's it's not necessarily like the first thing that we focus a lot on it's also the second one yeah and the C Network at least having a different voting address than your holding address was one of the first thing implemented cuz yeah it was a clear need for that yeah it's an actual pain point it's not about ideology it's like there is a16s that cannot vote because you don't have delegation and and you know their their tokens are really custodian so I think we've covered some of the frictions some of the limitations some of the key innovations that we're seeing that are driving more active engagement Maybe as a lot last question before we get a Q&A um like what is what do you think the end game looks like for stable coin governance oh that's that's a tough one uh I I I honestly don't know I think like and I shouldn't right if we if we know what the end game would look like we would have it uh I think we've suffered a lot from people that think that they know what it looks like and don't adjust course along the way uh but also I think that we are thankfully seeing more and more experimentation uh you know we see an entire new segment of stable Co cones emerging that are backed by by by st e um so yeah I'm I'm excited to see what it is and hopefully will help uh these teams experiment yeah I think on the the governance side that we don't really know the end game but I guess there's a lot to improve on to begin with like uiux getting more voter participation getting more people delegate their votes to someone who knows how to vote or has the knowledge to vote so I think it's like just clearing this low low hanging fruits right I honestly just want people to get enough utility from them and so that they're actually excited about participating governance I would like to see that idea and of course more onchain governance for sure um okay I think we're coming up on time uh based on the clock maybe we can go to to the floor there any questions that we have for the for this great panel on um stable coin governance no all right well thank you um to this great panel really appreciate it and thanks all for yeah thanks then thank you lot thank you