"DeFi 2.0: Community Owned & Meme Based" - Camila Russo

our next talk is uh from camila rousseau um whose talk is titled defy 2.0 community owned and meme based um camilla is a journalist and an author she's the founder of the defiant a a great source that i read all the time and the author of the infinii machine which is the first book about the history of ethereum um so we'll welcome camila up to the stage and i'll let you take over here in a second awesome hello hey and before we get started camila i want to make sure i can extract this promise from you in the sequel to infinite machine um will ethonline be featured maybe in an early chapter oh my god i mean i will do anything to get a sequel out there and that's a really small phrase to pay i would love that all right i will look forward to it i'll pre-order as soon as i can uh and i'll let you take it from here thank you all right um hi everyone i'm camilla um yeah the founder of the defiant a content platform focusing on decentralized finance and author of the infinite machine the book on the history of ethereum that's right behind me hopefully everyone can um can has been able to check it out um and yeah i will be talking about defy or the shift that's happened in d5 this year um sharing my presentation all right so um defy 2.0 community owned and meme based so so okay there was a major shift in tifa this year and excuse my dog conga she likes to participate um so i'm sure you you all have seen the explosion that has happened in defy in 2020 um but you know it's been more than just reckless speculation buying defy tokens there's been a more foundational shift in decentralized finance and i will try to make sense of it in this presentation so um there are a few things that are going out of fashion and a few things that are going in um things that you know used to be kind of the standard and pretty well accepted like having a known team with a track record building in crypto or in the ethereum community are not as important as they once were having security audits and extensive testing well before it wasn't done 100 of the time it it was kind of um a requirement or or really kind of appreciated when they were done especially by kind of the big projects in this space um before having venture capital funding was becoming really commonplace especially after icos kind of uh ended because of you know the regulatory clampdown so vcs kind of came in to replace them um also um tokenless projects were held in really high regard because i think it was like because of the ico hangover nobody people didn't trust tokens as much anymore so projects like unisop which launched without a token were seen as okay these guys are in it for the right reasons like they're not in it to sell a token and then cash out and make a quick buck um really you know before uh it was more common to have concentrated ownership because of these reasons that i i said before you know vc funding what was um more common a an established team uh working on a project for uh for a long time these things led to allocations for it teams foundations vcs um so concentrated ownership was also more common in pre-2020 um and then initial exchange offerings and centralized exchange listings uh were also more common in the second half of of 2020 these things started to change so instead of unknown team we had more and more anonymous founders and and uh and team members um a great example of course is sushi swap with nomi chef um you know he or she is a character from um from a game nobody knows who they are and that was completely fine um and people poured hundreds of millions of dollars into the project without knowing who the founder was now it's fine to launch a product project um or i mean it's it's never fine but i guess the token holders on the the community are are aren't afraid of of getting behind projects that haven't been through audit and security tests and this kind of testing prod testing production meme has really taken a hold of of the device space um well before there were there were vc rounds now it's no no pre-sale um and then a big theme obviously is token incentives so the token rewards for putting liquidity in in projects um and you know this this is obviously known as yield farming which has become hugely popular in in defy and and driven uh a lot of the the value that's that's coming to the space this year um 100 community-owned tokens versus a concentrated ownership in in teams and and investors and instead of initial exchange offerings there are initial dex offerings where d5 projects list their tokens directly on decentralized exchanges like unisop and balancer and then the final last important element that is in in d5 2.0 is social virality or memes and we get a lot of kind of projects that are basically you know an emoji dot finance and it that will attract uh tons of money um so um here are examples of kind of the what what used what was more common in the past these were d5 giants pre-2020 um i i lost the unisop logo there but unisop you know used to have no token they had centralized government they raised millions of dollars from vcs and the team were you know are known and had a track record of building in the space in in makerdale while decent governance is decentralized maker foundation did control key pieces of governance the foundation and vcs own a huge chunk of the maker token they've raised many millions of dollars from vcs and again there are known team and track record so er with this year i think these two projects are a a great way to show how this paradigm has has changed so with the previous examples you know unisov and maker those uh kind of um foundational projects in in d5 they've also changed this year you know unisop now has a token and maker is further decentralizing governance they want to um dissolve the foundation at some point um but these projects really kind of have changed the narrative and changed the paradigm um urine finance um was the first project in d5 to launch a hundred percent community-owned token that that means that at at launch you know there was no investor and and no uh kind of entity or or team that had a pre-allocation of the token and it became 100 owned by users of of the platform and this really kind of inspired the the community and kind of raise the bar so that all of the d5 projects that launched aft after this um i i guess had to consider whether their token would be a hundred percent community owned and and it has become something that the defect community and uh investors and traders are coming to expect if it's not 100 community owned at least it it has to be you know there has to be um a small percentage allocated to previous investors and and the team um for both you know there was decentralized governance from from the start token incentives became um a key er with uh with yearn uh uh users were incentivized with tokens for putting liquidity in in the protocol and in wi-fi liquidity pools and with yam finance this was taken to the extreme because the the ui was basically made to yield farm um i mean it remains to be seen what uh token holders will do with with the the yam treasury and maybe you know the team will serve another purpose but it started out as a project that was basically made to to yield farm um andre kranje of urine finance basically invent invented this test and prod meme and yam finance also um launched without an audit the the big kind of um change that young finance made in in d5 was that it was the first of these meme focus coins um like suddenly when after the yam finance launch this kind of sweet potato emoji was everywhere on on twitter and it just kind of made it clear how important it is to have this kind of virality in a project uh something that's really easy to communicate to copy and paste um everyone has an emoji on on their at their fingertips basically um so these two projects set kind of like a template for what d5 would look like for the rest of the year i mean they came out in between august july and august um and and from then on we've seen a real kind of explosion in similar with similar projects and launching so to backtrack a little bit on how we got here um icos were the first defy use case and there we we saw kind of the extreme at the extremes that people can go with with speculation maker dao launched kind of uh is starting as the first kind of founding a project for for d5 in 2018 compound and synthetics launched and if i continue to grow in 2019 the space kind of lost that fear of decentralized autonomous organizations that ethereum lithium community had since the dow hack in 2019 with molok dao and and other doubts that came after it that kind of fear and stigma was shed um and then this year you know i think synthetics had token rewards earlier but compounds token rewards with its comp token really supercharged token rewards um because of how quickly the comp token surged and because of the way that the rewards were structured people saw huge returns in a really short amount of time and so because of that success and and the liquidity that it drew um every other project wanted to create something something similar um so so with that the next big milestone as i said was wi-fi then came yam and then came all the explosion of d5 you know forks and uh yield farming and meme mean coins and all of that so that's um pretty much you know how we get pasta tokens hot dog tokens kimchi sushi sashimi and you know cream a fork a fork of compound swerve a fork of a curve and all this explosion with really kind of i'd say irresponsible is claiming a million percent yields and people just diving in um um it's i also wanted to point out you know other fundraising alternatives are gaining traction and it's not all about these kind of crazy uh token projects and with uh for for a non-profit dials grants with a git coin and and this really cool experiment with fair launch capital which is kind of a no strings attached um a kind of loan for a project to fund and be able to have an audit at launch um so after all this kind of crazy explosion uh of innovation of 100 community-owned tokens no no pre-sale uh no audits and um decentralized governance at the start what are kind of the takeaways so um obviously you know i think it's important to highlight the the risks that have come from from this huge kind of yield farming mania and i think for now like one of the important dangers is having um misaligned incentives and so an important kind of a good example of of what can happen with this uh was with sushi swap with um the founder chef nomi kind of running off with sushi tokens i mean he did return them but you know it it tells you what can happen when you you're not incentivizing founders and teams to stick around and build for the long term i am an obvious uh risk for when when you have this sort of speculation and anonymous founders and launching with no audits is that you're going to get um scams and and hackers attracted to to these projects um i guess you know a very recent one which just shows you how how crazy the space has become is the example of eminence where uh it's a project that um the urine founder andre kranje was working on and it hadn't even been announced or released but you know somebody saw uh this twitter profile andre had retweeted um a tweet from the the eminence twitter and just just with that the hacker kind of found the the contract for for the project after people had already minted eminence coins and again this was a project that was wasn't announced and and somebody like the hacker found it and stole the money so it's it's this level of craziness that people are just willing to throw their their um money and crypto at whatever uh comes out with kind of a yield farming and mean coins and especially if there's like a celebrity defy founder like like andre attached um another danger of decentralized uh governance is a governance capture which you know i think i think decentralized governance will be better than um than you know the way things work with where we're just you know there's one company making the decisions for for for the protocol but there's still the risk that one one person or or a small group of people can buy up all the tokens and and just you know vote in in in in a way that favors them it's it's really hard to um to kind of prevent that and and then you know like we saw with icos when there's a bunch of money coming in when they're scams and hacks when people are losing money and their service that regulators will will come in and put a stop to all this craziness but um you know for every risk there's a way to see that as an opportunity so where you know there is a risk of of having misaligned incentives and founders running of the with the money or simply not not delivering there's also the opportunity of coming up with better architecture for for these d5 protocols you know figuring out a way of maybe having um a vesting schedule for for founders um having some kind of salary having a percentage of coins minted go to people working on on the on the project there are different models for this but i'm sure that you know after what we've seen so far people will start to make make these changes so that building in the space becomes more sustainable with the scans and hacks i think it becomes more and more urgent to make sure that audits are affordable so whenever you you speak with um these founders that launch without audits the first thing they'll say is you know of course i i don't want to put my users in danger but i don't have that money to spend on audit so what like what am i supposed to do like stop building stop innovating and i don't think anyone wants that in this space so there's a big chance of um you know having a white hat hackers having grants having um some maybe um i don't know some some some genius developer take advantage of this lack of auditors and and just offer their services a little bit cheaper than kind of the the big security firms um and also market-based protection so something like nexus mutual or options contracts with open all of these should become more widespread and stronger and then with a governance capture um i guess like obviously the opportunity with decentralized governance is having greater uh democratization of um of decision making of of the protocols um and and there are different kind of um measures that you you can take to make sure that your your project doesn't get uh owned by by whales and then lastly i think and and i think a good example of this is what happened with bit bit mix yesterday um there's a risk of regulatory scrutiny but because of that i think the pressure is on to make sure that the space that defy is actually decentralized so that there's actually a regulatory shield for for d5 projects um the more the more that this that defy lifts up to what it's supposed to be which is owned by its users and um and non-custodial so that protocols aren't actually touching users money they're not touching users data and they're controlled by by their users the the lower the risk that it can become censored and um and taken down like what what's happened to to bitmex so um i think you know all this craziness you know it's bound to to bring um yes scams hacks but it's also bringing a lot of innovation um capital attention to the space so i'm sure um d5 will come out stronger from from this craziness and we'll look back and say uh you know and and take away um really um great lessons from this um but you know will will make will make the replacement of traditional finance a lot faster um so yeah that was uh defy 2.0 um yeah please subscribe to the defiant uh and yeah follow on twitter and yeah i don't know if there's any questions or if there's time for questions great yeah we actually do a couple questions uh if you've got a few minutes to stick around um great um so one question in full disclosure is the question from me but you know one kind of thing you mentioned a couple times is you know anonymity of founders and both the the benefits and risks of that um and one thing that people in the ethereum has been working on for a while are you know credible decentralized reputation systems and i wonder if you could comment on you know how um how or whether you know good reputation systems could help alleviate some of the problems you discuss and you know how those two areas of applications might evolve alongside one another i think that's a great point because um and it also kind of um touches on the regulatory risk right because so you want to be able to trust the the people behind the protocol that you're putting your your money in but it is at the same time founders want to protect themselves from uh potential regulatory scrutiny so how to kind of balance those two things and i think a great way to do that would be to have some sort of reputation system where you don't have to know the the person's name but you can have some sort of unchain um record you know where you can have some score or some um trustless way of verifying that okay this person has been building on in this space for for for a long time um they've been paying their uh their cdps they have a good track record um with their trades or whatever you know it is that you'd want to check um so a question from the chat um so it's obviously been a an interesting and sometimes crazy year for not only the world but for d5 too and i wonder what what event in the theory marine d5 specifically surprised you the most um i mean i think like this yield farming craziness i never saw it coming um like i think kind of a a good sign of that was that i i remember the day that the compound uh you know the company released its token and you know we all knew about this in kind of the defined contributor chad and and you know i assigned kind of topics to write and i had assigned the like compound comp token as like a really small blurb like i didn't see that it would make huge news i was like okay so they're releasing their token it's a governance token like it doesn't do much um like it's not supposed to be traded right away so i don't know like i didn't i really didn't think it would be a big deal but obviously the thing kind of exploded and and it went up like 10 times i guess in value in one day and and and doing tons of liquidity um so yeah i definitely didn't see a yield farming uh craziness coming like um it just like showed how powerful token incentives are and i think you know like i said that's an opportunity to be harnessed and um i don't think you know defy is using them in the right way right now um like i think a lot of the rewards are are placed in such way that it's you know very short-term rewards and and aren't kind of built to incentivize a more sustainable uh and like long-term building of the product but i think you know that'll start to to change and i think it's a good lesson to learn that wow these things really drive a lot of activity and liquidity great well thank you so much camila for joining us that's all the time we've got we're going to call our next speakers but really appreciate you taking the time uh everybody shared with the defiant uh go read this book it's great thanks so much thanks very much