Fireside Chat with Declan Fox (Cosensys), Rob Dawson (Cosensys) and Jill Malandrino at ETHConf

[applause] All right. Thank you everyone for joining us uh for our panel discussion today which is one that I'm particularly excited about as we're going to lean heavily into the governance theme considering that technical capabilities and throughputs and scale and architecture have really dominated the conversations in um a lot of conferences such as this and I think to build around and think about governance really is a key turning point um that sticks out to me as we think about the evolution of this industry And Declan, I I think it's important that we recognize that governance really is becoming a big part of the institutional adoption conversation now.

Yeah, definitely. I think I think we, you know, we have open- source software today and, you know, open source software has been great. It's, you know, part of the foundation for many amazing technology companies. But open source is not enough, right? We need neutral governance if we're to see these technologies adopted because financial institutions or any enterprise, they're looking to take a decadesl long bet.

They don't want that technology being swept from underneath their feet, right? So, you can almost think of it as like a building. You know, open source allows you to open a door and peek inside. You can inspect the code. You can fork it.

You can modify it. But without neutral governance, then the house could just be completely demolished and taken away. So, I think that's the real key thing. And again it's not really an ide ideology it's more like a procurement decision right it's just practical like you know good sense decision-m from in particular enterprises but also any sort of entrepreneurs looking to build you know decades long business

so Rob what's to be gained if you were to adopt this type of governance model

I mean it's it's awesome it's weird for me to be as a technologist to be thinking and be excited about governance like it just feels like it's a a boring thing that should just be be solved but it is it is important it is that I think that mix It starts with thinking about what's the right open source model for the software. What's the right sort of license that that that backs it and then it's so much more than that. It's the making sure to what Declan was saying that the foundation's right that you can trust that this software is going to be around for decades and decades. And I think that's been the key for for us. And we've seen in in Bessu, we've seen uh through through the years that this has been the reason why uh large institutions have chosen Bessu.

Uh even without deliberate marketing to say go go choose Bessu as your client. They've gone for the the fact that it's Apache2 based and then that it's uh hosted by the the Linux Foundation through the LFDT. So it's been great.

So let's talk about that a little bit more. Basil's role in institutional adoption and the role that open governance has played in the evolution of it.

Yeah. And so I think that getting that mix of uh input from those from those entities to be able to help drive some of their features on the road map has been really valuable and then just that that knowledge that it is it is sitting in that that sort of governance framework has been really valuable for them I believe as well.

And also the same with you as well if you can explain the role. Yeah, I I think maybe just like so on on Bessu, right? Like Bessu is like the institutional Ethereum client, you know, it runs like 15% of Ethereum mainet today, but it runs something like 80 90% of all blocks on like enterprise blockchains, right? This is the institutional like client. And I think the reason for that is because of the neutral governance, right?

Every single client is open source. There's only one that's actually being adopted, right? like any person here you know who works for a bank or a financial institution or financial market infrastructure company is probably using or has heard of Basu right um and I think what we've been doing with um with linear technology which you've also now sort of donated or you know given to the Linux foundation is the same bet that was made with Bezu on sort of layer 1 where we're seeing a lot of adoption with financial institutions we're now making the same bet but on a layer two as well

yeah and that's a whole thing it's a matter of getting the buyin from those existing institutions and also being able to integrate this type of governance framework with what they already have existing. Right? So getting that buyin is going to be key to it. So the question is can institutions trust this type of governance model behind the infrastructure

and and yes we've been seeing that uh over over the past eight years and that that has worked out really well for for BESU and I guess the adoption of that and then being able to see that it is being used and and bringing value to those institutions as well.

Yeah. Yeah. Yeah, I think they absolutely can because you Linux Foundation is a well-known trusted brand. Um, again the whole purpose is it doesn't put the sort of uh the core software even if it is open source into one single control of a company which again is again like about you know de-risking you know and they basically are just derisking their procurement. So I think we've seen that through the success of Bezoo and just overall the many different projects are actually sitting with Linux Foundation and LFTT that yes they do trust this.

Rob, would you say that we've reached a point where governance quality matters just as much as the technical quality behind these projects?

Yes. Um I think that we're definitely again seeing that uh adoption of BESU I think is coming from that governance that is is there and that trust in in governance is is really important for for us and been the thing that's been very successful for us and I can see when we have the conversations with institutions about why why Bessu or what is what are some of the decisions that you're making with this it is that governance there the no one it's almost like that old adage that no one gets fired for choosing IBM it's It's no one gets fired for choosing something that's hosted by the Linux Foundation is kind of the the spot that we're starting to see now.

Well, it's interesting Declan because you have impact of organizations within this ecosystem governing together and I always find that interesting when you have competitors and you know colleagues come together and really um in the absence of traditional regulatory framework come together and put a governance structure around this ecosystem. How does that work? What does it mean when you see competitors and ecosystems um governing together? Yeah, I think it all comes down to having you know a mindset of abundance right everyone here like this industry is still very early and the only reason you do governance or standards is to grow the pie and obviously it's beneficial for everyone even if there is you know overlapping customers so you could consider them being competitors for people to come together to define standards to govern those as well because ultimately people need to feel like they've got skin in the game they're able to influence it uh that's not just the builders but also the people who are actually using the technology should also be involved D in governance where appropriate and I think that just gives you know everything when it comes to adoption of technology and open source technology the sort of right ingredients to create like a community around it that is able to sort of lobby together build the right solutions for customers but also you know make sure things are done in a compliant way they're done in the feasible way and so I think governance needs to encompass all of those attributes if it's to be successful

I'd also argue that it is a component of scalability as well right and that's going to be your competitive advantage if you are governing along with the industry Yeah, that's right. And I think the the it's interesting when you think about the scalability. It's the scalability of number of entities they're able to work with and use the use the software I think is is where it starts to come in and starts to be really valuable. And then being able to think about I guess you think about the interop and and those sorts of aspects which are are again really important. I think the governance uh and influence of that to help produce standards uh is another piece that fits into the pie as well.

Are there some barriers that are challenges or what are the challenges that you're hearing from the industry as it relates to governance? How should um you know the ecosystem be thinking about it as it evangelizes adoption?

So I think there's probably the the two sides to it that that sit in there. I think for the the I guess the engineers or the developers of of the software, I think there is a little bit of friction that comes in from from being a part of some some sort of governance around what they're doing. And I don't think it's a huge amount and there's good value out of it. So it's it's worth doing. But that it is one of the friction points that's there of of thinking about okay we can't just necessarily do everything the way that we want.

We got to think about those people that are that are working with the software and that are our partners in the governance. And then I think on the the other the other side it can sometimes be hard to to think about different clients who might be competitors uh how they work together in the governance sort of side of things as well. on being able to to have these people that are they're just the users of the software, but they compete against each other when they're not using the software. How do they how do they think about uh sort of working together and making sure that they're they're doing stuff in a way that's that's uh that doesn't break down any rules around what they're doing.

And Declan, my follow on to that is how do you maintain innovation velocity once stewardship really becomes part of the community?

Yeah, it's a great question. I think you know it's important for the the maintainers and contributors to continue to innovate because otherwise obviously the technology just becomes redundant. I think how do you do that? I think it's not an easy answer. I think it's about you know those people and who are sort of leading the projects.

You know usually have a sort of project lead. They need to actually gather you know again have good product practices right? to go out and talk to customers, make sure they're talking to regulators, understand the requirements, and then in a sort of almost a decentralized way, which is obviously always a little bit more difficult than a sort of, you know, single project just deciding what needs to be done is actually then get that sort of rough consensus around this is going to be a good feature for the project uh and then obviously integrate it into the into the processes. And I think that's where it's important to have good structure and organizations that are really, you know, well experienced like Linux Foundation when it comes to building open source software. The the interesting thing with with with links a little bit then is with the governance that's there it is can also help uh give that those better product practices because you are talking to those people who are helping to govern the the roadmap for the software it's it gives that more broad broad sense of inputs into that that process.

I just want to talk about this concept of crops, right, which is the EF mandate. So censorship resistant, open source, private and secure. How there are some trade-offs there. There are some tensions with that acronym. How do you address that?

How do you balance those principles?

Yeah, I think um yeah, you're right. There's trade-offs in there. And I think you have to understand that the technology can be used by different people for different use cases and not everyone's going to want the same um properties. So with for example just taking the Linux stack that we contributed to the LFDT you can get all those things right it's open source you can include privacy it's secure uh it can be censorship resistant as well now does everyone who wants to apply that technology to their own business use case want all of those things maybe not and but at least they have the choice and flexibility you know to use it how they see fit I think in terms of the actual you know governance and open source piece itself like that obviously is very well mapped onto the onto the crops mandate right like Open source obviously is a natural one I think in terms of security as well. You can see how having you know an open system uh is going to increase the amount of eyes that you have on the on the code for you to make the system more secure.

So we've seen this with our own technology where you know if you have a um everything open then people can actually go in they can contribute they can patch bugs you know this has been happening across the industry now so I think it is it is actually quite crops aligned from that perspective

and then I think it's it's super interesting to think about how much of that crops mandate ties back to what the institutions have been caring about and wanting to see more and more both on the the mainet and then on their private permission chains as well. But that that those ideas of privacy and security in particular have always been such the the key blockers almost to to adoption and widespread adoption of of blockchain. So it's exciting to see that those uh elements that are important for institutions are coming across onto the mainet and and sort of broader uh Ethereum ecosystem as well.

But how is that how is that technically being addressed though? Right? When you have privacy on chain and open source from a technical perspective, how is that being addressed? That would be my first question if I was looking to adopt.

Yeah. So there's privacy is an interesting term because there's different flavors of it. But what we're seeing resonate with the market today and you have different like customers. But let's just take financial institutions. They're very happy to have a sort of, you know, blockchain, right?

They can control and they can get verifiable privacy through things like zero knowledge proofs and through better access control systems. The part that makes it interesting is actually they can still get interoperability. So they they're using open source technology but the way they're configuring the system is it's still you know confidential is probably the better term but then through technology like zero knowledge proof they're able to interoperate and you know interact with counterparties without revealing you know sensitive information still

and I to you for you to follow up on this as well but Rob when we think about tokenization as an example and scaling up with with this and having um you know common standards and neutral governance and so forth do we run the risk of basically digitizing fragment mentation.

So definitely I think that that that's there. I think that the the push towards open standards I think is going to be a key part of it and I think leaning into those governance sort of spots uh around how do we think about how do we think about building out those standards in a way that that works well and then again meets those requirements of of the entities that that want to work with it. So it's almost like a governance piece that ties back into how do you create those those standards and frameworks that you're going to use to to build on and build on top of. And I think that's going to be a key part and doing that with an with a with a key like I'm a I'm an Ethereum maxi at heart and and want to see Ethereum everywhere but but also and conscious that uh it's probably not going to be the one chain to to solve all all the problems. And so I think that people will will deploy to other chains as well.

So it's thinking about those standards being done in a way that's interoperable and and having it work across different chains is is going to be really important. And I think again coming back to the LFDT, I think that they they have that sort of community and forum for being able to help create those standards and those interop places that uh does it in a way that helps take into all the different I guess competitors at at a chain level to be able to work together and have that fleshed out.

I think it's a good point that um Rob makes as it relates to not having a one-sizefits-all solution type of chain, right? Right? Because you do have to think about redundancy and not running into I mean you know the whole ethos behind web 3 is to avoid what we've seen in web 2 where there's just a handful of owners that are you know that powerful within the ecosystem. So you want to make sure that you know you're not married to just one type of chain but again you also don't want to operate in silos or be fragmented. How how are you thinking about that Declan?

Yeah. So I think insuffability is one of the key sort of remaining pillars for for crypto as an industry to to solve and blockchains. Uh I think it's very likely that you're going to see you know constellation of of blockchains right because people want to have that flexibility that control. Um they want to be able to leverage public blockchains like Ethereum and Salana but they also want to be able to bring their assets onchain or their clients assets onchain but then they don't want to you know keep within their own four walls right they want to get outside. So until recently, there's not been a real way for them to do that without trade-offs, right?

If you if you want to interoperate, you have to leverage third parties. That can introduce latency risk, security risk, which we've seen a lot recently. You're just adding more intermediaries basically. And it's only now possible again with, you know, zero knowledge proof. So you're able to have your cake and eat it, right?

You're able to have your own local blockchain, bring your assets on chain, bring your client's assets on chain, but then you're able to now talk to counterparties through verifiable uh privacy with zero knowledge proofs and and all that needs is a sort of common shared layer in order to post the commitments and things. But that basically is a solution or technical architecture that is now starting to roll out. We've been doing a lot of work at consensus to kind of help you know get this out into the public. Um then you're going to be able to have interoperability atomically. So you get non-repudiation guarantees which is very important for finance in particular.

And so you'll be able to sort of do things you can imagine use cases like crosschain DVP right where you're trying to swap a you know you're trying to swap a security or something for some cash and access for a custodian. You can now do that using blockchain. Uh and yeah this wasn't possible literally like just a year ago. So these things are only unrolling now. takes a little bit of time for people to on board but once they do then we'll see the sort of true I think uh endgame for what blockchain architecture looks like and it's very much like the internet where you've got your sort of local websites and use HTTPS to securely and privately interact with one another.

Yeah, it seems like security and privacy. Certainly security for sure Rob has become a critical part of the conversation because you know in development it was more of the the technology that kind of was at the forefront and now you know the more that it scales the more it expands and you're working with um DTCC and consensus and linear and so forth. These are these are you know established ecosystems. It has to be secure. You know to Declan's point the vulnerabilities and some of those gaps have been exposed.

Yeah that's right. And so I think the the pieces of of the the ZK technologies that uh that Declan's been talking about are the pieces to help bring that security and and safety there from a technology standpoint. And then thinking about the the pieces that start to be there around communication around different organizations. How do we think about these standards and how do we think about the application of these pieces? Starts to be the governance kind of piece that that ties it together and makes it so that there's that mix of great technology that we're building on as well as the the governance to help make it make it real and and really being applied to the world.

What about challenges Declan with existing or institutional legacy infrastructure and the integration of all of this?

Yeah, it's a good question. So, you know, a lot of uh like let's just take finance, right? So a lot of enterprise blockchains have been around for a number of years back from sort of 2018 2019. You know a lot of these companies are actually running Bezu as well. You know local private instances.

Uh I would say the problem today is that they've gone through years of like diligence and compliance teams, procurement processes. Now they want to be able to take the next step which is you know talking interoperating uh without having to replplatform, right? because they don't have to go through another procurement process with another vendor who maybe also may not be around in you know 3 to 5 years from now. So again it's like what am I going to choose? How do I basically upgrade my existing system with a foundation that I know is going to be around here in 10 years?

And this is where like the neutral governance and and open source software not only being easy for their existing teams to upgrade to, which is what we've done with the Bezu where you can upgrade to to a Linu Bezu chain which gives you the interoperability that I mentioned and that will all be available and it will be also be hosted by Linux Foundation. So you know that this is going to be around for a very long time and and again multiple teams have already started to you know look at contributing as well. So there's not a single you know source of of dependency risk there.

I mean Rob also the challenges and this isn't specific to the digital asset industry but the pace at which technology is evolving right I mean if you're still trying to figure out your tech stack from 2018 2019 a lot's happened in between.

Yeah and it's interesting thinking about the I guess the coupling to Ethereum sort of side of that. And so it's a network that it's still being supported. It's been running continuously up for more than 10 years. Like it that's that's amazing uh to to think about that with the the upgrades that have happened to Ethereum. The the move from proof of work to proof of stake has just sort of seen those really big seismic changes have happened in this technology stack over the that that 10-year period, but it's still been continued to to work and keeps on keeps on working.

And I think that's that's a part of the thinking around I guess this this kind of uh technology stack the the Bessu sort of linear direction is you start to see those pieces that are tied to that Ethereum mainet being able to see how they're going to continue for that long long period of time.

Right. So that's obvious next question Declan, right? What's next? Do you continue to build on the underlying ethos? Is there any really is there a reason to reinvent the wheel at this point?

Um I I think what's next is just continuing on the march, right? We've been on this journey for a long time of progressive decentralization. I think leveraging neutral governance is just another step on that journey. Um I think you know maybe like when we look at the bigger picture right for all of this to work there needs to be a common shared layer and I always ask people like what what is it you're actually looking for in terms of a common shared layer and it's that sort of 100% availability and sort of finality guarantees right that non-repudiation and that is what Ethereum offers. So I think we made this long-term bet about building on a platform like Ethereum or a network like Ethereum that is able to continue to offer properties that make everything else avail like um actually appealing to customers.

So I think what's next is just continuing on that journey educating trying to onboard people because if you look at the number of assets on chain today in terms of you know broadly it it's a drop in the ocean compared to what is available to be tokenized and come on chain. I think everyone's sort of sold now on the idea of tokenization. There's still a long way to get there. Not just through, you know, regulation, but also just through, you know, there's all the the nuances of actually being company like being a, you know, a provider to go into a company and get their internal systems connected to these blockchains. All this stuff is still very very complex.

Yeah, I think it's a great point that Declan makes, Robin, you and I were talking about this behind the scenes in terms of it's no longer us versus them. It's more of a progression of this integration and really thinking about user experience and kind of removing that ethos of it's either one or the other because I think it's firmly established at this point that it's going to be more of an integration.

Yeah, definitely. And I think it it's all about the the working together and how do you make sure that uh we're helping to bring around this this change that the technology can bring and how do we do that as a as a group and work well together to to do it. and even things like the crops mandate. How do we how do we work together to to actually realize the the ideals and things that are happening in that that sort of mandate?

How does that work as it relates to the mandate and you're thinking about a neutral governance structure? Does someone introduce an idea? How is this is this voted on that this is the right next step to take? What does that look like um in practice? So I think uh I guess on the on the Ethereum side that we see it's people bring in the the proposals and then people work it out and start to start to I guess deliver the the working software to to be there and it starts to be very similar on the Vessue sort of side of things that it's very much about bringing forward these proposals.

the core developers of of Vesu can review can understand how this might fit into the road map but it starts to be the shipping working code is is kind of that that that at the end of the day where the where the mandate starts to come out and be realized

I mean this might sound a little bit elementary but is are people largely in agreement but or or where would where would the um tension be? Yeah. Well, it all comes down to rough consensus, right? And there is a lot of tension in these processes, whether it's, you know, Ethereum or whether it's even just any sort of coordination mechanism. Uh because you've always and actually it's good to have tension because that means that you've got competing ideas and people are thinking about it.

If everyone just, you know, hums along to the same ideas, you've probably got too much, you know, people aren't actually willing to sort of share their opinions, which is which isn't good for the product, isn't good for the customer. Um, so I think ultimately like it is doable. Could you give us a high level overview of some discussions that are taking place now in terms of the next steps for governance? either one of you. Um I think for for governance like how do we I think it comes down to one of your early questions is like how how do we still like on board a lot of projects and ideas whilst keeping the velocity like what I'm actually seeing now is that loads of uh companies projects developers are looking to contribute projects to these neutral foundations whether it's the LFTT whether it's the EF you know whether it's just like all of these other sort of uh institutions that are popping up and the problem there is like actually comes down how quickly can you review them, you know, or like how how can you make sure there's a community that's gathered around it that's going to continue to maintain and contribute.

So, you do have to some extent be a little bit selective. And I I think the next step is about trying to make sure you get enough like significant projects, you know, that are looked over in the right sort of frameworks, but not overloading it too much so you get fragmentation of contributions and attention.

Yeah, Rob. And I think it's also then helping to to ensure that the best products and projects that are open- source are brought into the governance sort of frameworks. So there's a bunch of uh organizations that are talking to the Linux Foundation in particular around uh their their software and helping them move and take the step from saying it's it's ours to let's let's bring it out into the open and get that that open- source software that was ours out into the open and being governed well. which is interesting because we kick this off with the question essentially what comes first the chicken or the egg is it about the technology is it about the governance and I think that really shows the maturation that is taking place in in this space that governance security privacy isn't you know it's a it's a forethought it's not something that um is an afterthought so in the last couple of minutes here um Rob and then Declan if you could follow up any final thoughts that we need to walk away from or with

so I think I think that governance is is really essential to the the long-term success and adoption of software by institutions. I think that it really is a a key foundation to what Declan was saying at at the beginning. And so I think we've seen that in Bessu and seen that that is a a real reality that uh the adoption of Bessu has been because [snorts] of of it being a part of the LFDT and the the mix of that and I think the the license have really been huge contributors to the the adoption of this software. And so it is what what we're saying here is is backed with the the data to to support it.

Yeah. I think when we look at where the world is going over the next few years, there is this sort of holy trinity, right? You have decentralized trust which is blockchains. You have decentralized identity which is you know happening a lot more recently and obviously decentralized AI. And I think we have to think about you know these technologies are going to be so impactful for civilization.

How do we make sure they're managed in a way that remains neutral when it comes to governance of these technologies?

I mean, that's a great point that you bring up and I know AI inserts itself into every conversation, but now there's also trying to understand the role of how you're governing NHI non-human identities or agents and that if you're working, you know, with with multiple blockchains as an example, your governance structure could look a certain way for AI agents and another one could have a different type of governance structure for the AI agents. I mean, is that something that keeps you up at night? Because I mean, you know, managing human identities is challenging enough. Now you have NHI thrown in there.

Well, it almost starts to resemble a little bit like civilization, right? Where you have like states or nations. You can almost sometimes think of blockchains as like nation states. And so agents very similar to humans in like the physical world may choose or may not be able to access certain ones depending on the principles depending on like the gatekeeping. Um, so I think you start to see this world of like machine to machine happening on blockchain the same way we see as humanto human interaction happening in the physical world today.

Yeah. And I think like when we start to think about that machine to machine, I think I think there's a huge place for for blockchain to sit in there for for helping to manage those identities, helping to have registries, there's the 804 sort of ERC sort of standard to help help sort of do some of that work. But I think that's going to be a really key part of that infrastructure to help make that all work. We will end it on a positive note. Thank you both for your contributions and thanks for having us here today.

Thank you.

Thank you. [applause]