DAPPCON 2019: Reputation & Cross-DAO Collaboration in the dxDAO - Matthew Finestone (Loopring)

Transcript

Thanks okay thank you everybody I came up with a fancy title cuz they asked me to like a month ago and I didn't know what I would talk about but really I'll just be talking about that DX Dao in real practical terms after Matan just kind of delve deep into the higher-level design of competition vers coordination I'll keep it up practical and we'll look at what I would've doubt how this one's been operating so first a little bit of background just so this makes sense so I work with loop ring loop ring is a protocol for building non-custodial high-performance order book based

exchanges I use all those words instead of calling it a Dex protocol because we've come a long way in in the space to just bucket everything as the Dex you know we don't concern ourselves like swaps and stuff we try to build order but based exchanges and I do business stuff for for loop rings so that's the background and just so you can understand a bit of what we do and a tiny little shell here just so this makes sense why we're interested in the DX Dow we've been using snarks for the past year to increase our scalability from an old version of three transactions per second to now 350 in the safest terms or several thousand if we relax some some security guarantees so how does this relate to the DX Dow

and what is it the X Dow so the DX Dow is a next-generation decentralized autonomous organization for community governance of software protocols so it's a Dow for community governance of software protocols it was created by gnosis and dau stack or it was incepted by them and the code has worked on and the whole design using cows tax holographic consensus and and gnosis figuring out the more specifics and most importantly in my opinion the DX Dao now owns and governs the Dutch X protocol and I highlight this this fact because I find this really cool that this

Dow owns a fully working decentralized exchange protocol the docx protocol to my knowledge it's the first Dow that wholly owns a working piece of software such as this it actually transacts economic value so on that note what is the Dutch X it's a Dutch auction trading protocol created by gnosis so you see gnosis had a big part in this and the benefits just very quickly free for you that are familiar with Dutch auction some of the nice properties are its front-running resistant meaning like there's not race conditions where you could get in gasps bidding wars I won't get into this too much because it's a

separate topic but front-running resistant which is big thing for blockchain based exes it could be used as an on chain Oracle for fair price feeds it's good in low liquidity situations including for initial price discovery where a price has not existed yet and what we would call slippage resistant here it's also good because it could be truly decentralized so it could all live on chain and not you know succumb to those front-running challenges that other fully Unchained access app so these are super cool properties some of the potential cons or disadvantages are it's slow by design auctions take time to clear for

everybody so a Dutch auction just to maybe I should explain a bit more the price starts high it keeps going down people bid and eventually when the whole locked that was supposed to be sold when that's bid up at that last marginal price the last person who raised their hands it all clears there so it's slow by design it's meant to take six hours I hear but it could take longer or quicker and it's somewhat complicated for somebody that isn't familiar with trading it's less easy than maybe an order book or it doesn't have to be it could be abstracted but it's a potential disadvantage so why is it so cool this marriage of them now that the DX Dao owns the Dutch Jack's protocol in my opinion it could be or it is the first

real real decks because you remove that control layer that a team a centralized team usually that you know people often just think about the architecture of a Dex what's on chain what's off chain and you know who could censor orders but they forget about the control layer and like the the decision-making power now that the DX Dao really governs at that check so that is that to me that's the most salient point and another really cool thing are legal considerations that tons of Dex's face when you spin up a Dex and you're making money in some jurisdiction you have to you know you have this regulatory burden in which jurisdictions could you operate

could you serve Americans could you could you serve securities by maybe and I'm not saying this the DX Adele does kind of protect us fully but a lot of work went into the structure that legal considerations could be kept at bay also network effects of DX Dow which is a network within itself owning a trading protocol you just by design have a bunch of champions for the exchange right it's like you own it and that's kind of like maybe even a primitive and anything crypto is it like we're all part of the network so we all champion it and we all have vested interest this is like a double case of that we own the Dow the downs that it's that we could really kind of bootstrap

that the community so that's why it's important there's also a few downsides though the biggest one in my opinion is potential like apathy when you have something so decentralized people are like they're looking at that guy and that girl to maybe take the lead it's tough right like people are apathetic or even lazy it's hard to kind of you know inertia is is a thing right in decision-making so that's something that we're seeing lack of action ability or speed of execution you know if we all have to decide on a plan right now it could be a bit more cumbersome than saying you decide and maybe you're like an expert and you know you could just do

the best and a final potential downside is like a suboptimal reputation distribution like who actually has the voting power in the system if it if that initial distribution is out of whack you could have some problems so these are the potential downsides Dow stack and holographic consensus is meant to really you know navigate these concerns but they're they'll persist in in any decentralized system potentially and how that the excel looks to fight that is if the balance the sufficient decentralization with the the provision of meaningful control and the ability to actually make decisions so you want it to be

decentralized but you can't just be you know so slow moving so that's that's what all this tries to entail now all right how the heck does loop ring figure into this as I told you word X protocol and when we saw this happening said Wow community governance of software protocols we work so hard to make things decentralize yet it's still like 20 of us you know mostly sitting in a room in Shanghai making decisions were very cognizant to the fact that eventually we need to let this you know be free the the software protocol has to be you know it has to we have to let it fly and let the community govern it so we thought wow this is amazing someone is doing all

the heavy lifting and we planned for our own Dow to that same effect but no we figured the DX Dow could help cover an hour Dow or vice versa like we could give our stake to our Dow which then controls that the X now so all sorts of cross Dow pollination also on a kind of practical matter we actually had an internal need for the Dutch Jack's that's why I was so interested in it personally years ago or a year ago because there's a little mechanism where within loop ring we actually have to convert a whole grab bag of tokens that are paid in fees to Dex's we had a mechanism that we needed to turn it into LRC and the Dutch X is good for that for like discrete interval

low liquidity conversions right you can't trade like matt coyne for LRC on an order book somewhere there's just no liquidity that Jax is good for that and I thought it was really cool so I kind of just pushed the team hey let's look into this and and we did so initial reputation offering how do we kind seed the votes in this in this community gnosis and Dow stock came up with this mechanism to distribute the initial reputation so there was four let's ignore the 2% storytellers for right now there was for real methods you could lock er C 20 tokens certain ones that were whitelisted you could lock ethan you lock it for a month then you would

get like you're proportional share of reputation you could register m GN m GN very quickly is a token that's earned by people that trade on the Dutch axe you trade on the Dutch X you earn these tokens you see that's the biggest chunk and finally bid gen Dow stacks a native token you could bid for reputation so you see four different methods the design goal for them speaking for them was to kind of get a few disparate groups involved and groups that actually have sorry acquire about four different methods during three days target groups that actually have a technical or legal knowledge and could contribute something and they tried to really kind of optimize for that and the best slide I could think of to show this was this

from the other day and yes it's a slide of a slide but this was the two creators of this at Dow stack the other day and they're showing why each like Avenue for participation was selected so we see registering magnolias that was for fifty percent of the voting power strong Dutch X coupling you want people that understand the debt the DX tiles main asset the Dutch X who are those those are the market makers so you give the power to them and 70 participants came in registering their Magnolia that they're in the Dutch X next locking ERC 20 tokens that's to include projects like loop ring who have their communities who may have an internal need for the Dutch X or or an

eventual need for the DX Dao governance structure but to get other you know it's like let others help you towards your goal and you see 25 different tokens were locked that's how we participated you'll see in a second locking eath was very nice that's for ease of ease-of-use you know presumably a lot of people that care about the stuff have eath let them lock it to reserve their voting power and finally bidding Jen this was to actually fund the Dow so you bid with Dow stacks token for reputation and that's how you run it now the Dow has a starting Treasury of Jen so there you have it why the initial reputation one of the most you know important features how it came about

and here were the stats the most important one is just three hundred ninety nine participants you see that twenty eight were smart contracts using like the gnosis safe just for ease of transferability later and configurability twenty million bucks almost were locked in there but yeah almost four hundred people participated let's look quickly how they did so you see thirty thousand eath were locked up eventually and the number of participants per method you had mainly the e and the token lockers right Magnolia is like it's just it's for the traders on the debt jacks and the Jen bidders were the two lower ones now here's where I'll say okay loop rank participated on the locking of the tokens but remember on day one of thirty

we had no clue how much reputation other people like each track let me just say quickly it's like you compete with other people in that track so for the token reputation distribution how much I stake is measured versus how much other people stake of tokens nothing to do with bidding Jen or bidding ease I earn thirty percent which is allotted to that Avenue I earn it relative to other people in that Avenue so loop ring so I was gonna do it personally then I told you know our founder and CEO hey this is cool let's get involved and he went big okay that's us in pink of course he didn't know what big was beforehand he did it on day one first of all so that was actually a few

million bucks of LRC's so he's a risk taker just to lock that up in a smart contract that could potentially have a bug but you know we didn't know if actually other people would dwarf us and we could have ended up with two percent we had no idea what people would stake it was non-deterministic at the beginning however you see in the ERC twenty staking method we earned forty three percent that is not the whole of four methods though keep in mind so it's really would be thirty times that and this is actually what we ended up with in the tub just slightly off now because a bit more as minted but we ended up with 10 and a half percent of the DX Dowell reputation the biggest chunk and you see the rest how it comes to play greater than 50% you need seven

people own 50% of the vote so you see kind of the four you see how its distributed there we ended up with ten and a half percent so now let's go into what has the DX Dow been up to after this this by the way this happened in June the reputation distribution happened in June what is it DX now been up to so one of the first proposals slashing loop ring reputation all right those son of a guns but actually but really so you see this is a proposal but it was voted down so thanks everybody that voted it down but really this wasn't like an adversarial hey loop ring get out of here it was actually us that said oh we ended up with a lot we want

to flatten this distribution it was actually us that said it's me that put forward our first unofficial proposal because the proposal is a technical thing in downstack where you propose and it becomes actionable and voted upon just in a forum I said hey we want to give away point five percent we either want to donate it or distribute it or auction it sell it for eath let's say which will go into the Treasury so we wanted to do that so that was actually a friendly proposal that someone did that but actually was harder than anticipated and to date we have not given that point five percent and it was harder than anticipated briefly because one little technical thing was we don't know let's say we're to give it to that guy who's a good a nice day contributor I don't know

if he has like four other identities that hold to six and four percent of the Dow and now he actually becomes a bigger shareholder than loop ring right you have this pseudonymity civil attack problem price discovery if we did in fact want to sell it what's a fair price half a percent for one eighth penny like anecdotally when I put that on Twitter a mean from McDowell said I'll buy it for like what price and he was probably kidding anyway but I think there's like technical reasons like how do you actually do it they're all super solvable and somewhat trivial but it's not like just a cell button you have to do it oh yeah what I should say is reputation is not a token it's non-transferable the only way to transfer it is to make a proposal which

would vote upon it and then it would slash me and mint it for somebody else so so that's that's what happened let's just see what else we've been up to in the DX now I say here finding out our culture and molding the reputation distribution here we have Eric a big contributor he says so we had our first weekly call a couple weeks ago and you know we want to reward people so he says to get this culture going let's reward each person that that went on the call with 0.1 percent wrath each and keep in mind if the twelve of us that were on the call if we earned point one percent rep each everybody else gets relatively diluted so actually after he proposed this informally we said you know what

like we don't think that's a good mechanism because maybe it's slightly against the social contract people weren't aware time zones aren't fair and then you could it's kind of game it's game a bowl you'll have people that log on to the weekly call mask they're their computer go on mute and you know buzz off and just earn reputation like that so oh you know we're trying to figure out ways to like hey you're a valuable member of the doubt let's give you reputation and all the while dilute everybody else what else we've been up to very cool claiming E&S domains so sorry one thing first is remember the Dutch axe has potential to be the most decentralized X in my opinion because that governance

layers decentralized we need the ability to put the interfaces for every day users to interact with the Dutch X protocol our main asset we need to put that up on kind of censorship resistant unkillable mediums so we wanted to by ens domains and here we have a little Twitter snippet saying hey we bought DX dot e which we have to navigate in certain ways we also bought and here's an actual proposal we also bought Dutch so now we could spin up an alternative interface to the two that already exists which are essentially you know that are subject to whatever regulatory regime they live in now we could put it on aetherium hosted an IP FS and literally

have an unkillable exchange at the architecture level and at the governance layer so now we own Jax e pretty cool another asset for us and you see nice participation there 25% all votes for what else we've been doing we've been white listing and D white listing tokens I'll go over this quickly like white listing tokens means it's eligible to earn in Magnolia on the when you trade you earn Magnolia so it's kind of like preferred tokens on a service here we accepted or you know we're going to accept there's like some consensus behind white listing hot holla token because we think that they have a good token that lends itself not a good token but that their community wants the Dutch axe and like so we want to get people to come to venues where their community is

like leading the way similarly we D Twila we D whitelisted tokens because we don't want just any random token to be on there we want to kind of control our preferred service so white listing and B white right listening then we're also making good on some of our initial promises remember I showed you at the beginning there was 2% Fordow storytellers of reputation distribution that was like a suggestion hey people that help tell the story of the D X tau let's reward them here we have somebody that said hey I listed a whole bunch of tweets check it out I'm requesting some of that reputation that like we had a social contract around that you'll reward me and indeed we voted we voted for and he's gonna get like point to 9% reputation so you know it's it's just

all such a nice experiment really what else have we been up to we actually had our first in-person meeting two mornings ago so that's really cool too after months of telegram chat and Gao talk forum chat we had our our meeting some of them are in the house right now we even have the most perfect photo bomber ever it's so crazy well yeah yeah well you'll see oh yeah yeah look at his wife or friend is laughing like perfectly right our first in-person meeting we have a potential logo coming out here it is d XD that's up for proposal right now right now

people like it for some reason when when the enosis people spoke about this the other day they said legal disclaimer this is not our official I'm just saying the same thing in case somebody I don't know why but yeah that's it's not mine or they I don't know like legal gray areas we have a bit of money so from that gen auction we have a couple hundred thousand gen which is worth seventeen thousand bucks that is our Treasury and real dollars dollar equivalents we can also fund ourselves by selling more reputation or dxd tokens which we can mint that has some right maybe the dxd gives you preferential treatment on the Dutch Act maybe you

stake it to earn reputation it's up to us it's a green field but we could fund ourselves through a bunch of different ways look this is what making a proposal looks like on the interface the alchemy interface from Dow stack your your title your description and then what you want in reputation Awards or in the potential yes be token or an e let's say you say hey I'm gonna go evangelize the DX with the EPS now on some campus I need to east to drive there and set up a booth etc a big thing is focusing attention that's kind of like what Dow stack really allows for at scale is like okay there's going to be a thousand proposals a week eventually in the DX now how do you kind of put the best ones to the top

that's all you have these boosted proposals and you see there's nothing in pending and there's like regular even below but you see people cared about the DX del branding so they up staked it I won't get into that I'm sorry I don't have time but that's what this all about is like focusing the very scarce resource of attention now a bit back to loop ring what we plan to do with it so leaf the loop ring ecosystem advancement fund that's where we stake those tokens from that is our community fund which is filled with our native token lrc so we said hey we have this right now it's not being used let's stake it and hopefully this will be a very valuable asset for LRC holders who we eventually want to kind of bequeath control to so it's really it's so interesting like Here I

am a loop ringer but I'm doing the work of like the Dutch X which I own or like the community of loop ring owns I mean so it's just really nice like cross-pollination and it's a strong start for our eventual Dow like I can't wait for the day when hey here's the loop ring Dow which now owns the DX Dow stake or conversely the DX Dow governs the loop ring Dow or and potentially a loop ring protocol so that's what we're doing now this is kind of a tangent but I just find it relevant like you might read these days how we've moved from the Information Age to the reputation age it's no coincidence that like the voting power is called reputation in in Dow stack in my opinion information I believe and many believe

will only have value once it's been filtered because of such an abundance of information I can't possibly navigate it all I need to like look to others who navigate it uh who kind of filter it and I say oh it's like you know I don't evaluate every EIP or you know the feasibility of sharding I say oh really smart people in a theorem community like it I'm for it right like that's that that's how a lot of this is working and something that's very interesting this allows for anonymous or pseudonymous participation in the DX Dow only some members large members have stepped forward but they're their face on it but Lou purring because we staked so much they knew it was Lou purring so here we have actually a situation where sure we have some

outsized control right now or a little bit but we're actually very aware of like the social pressures of like acting in the benefit of the Dow we have to kind of you know gain the respect otherwise actually everybody say okay actually loop ring is being and you know not a great steward let's fork it and just well distribute their Dow and I just really like this quote from a psychologist think Phillip Roche I read a while ago but what most clearly sets human beings apart from other species is the internalized gaze of others that permanently haunts us that's a it may be on the morbid side but it means I like you know that is it's kind

of interesting what makes us human beings like when I met up with the DX down for the first time I'm very aware of like okay we have this power but we want to cooperate we want to be loved and we're very aware of that internalized gaze of others now the final thing I'll say here the DX now must define its mission not because that's like a cool thing to say but in the framework of Dow stack predictors the stake Jen are literally predicting what the Dow will vote for and not necessarily what is good for it if like you know it's like several layers of like abstraction if I think that they'll vote for that because that so we actually must have a very well-defined mission so people could properly ups take what we care about if people don't know our intentions it's it's kind of a

useless framework the success of the Dow at scale comes down to us having a reputation among predictors the global networks of gemst acres that they know what we care about so they could feed us what's important and finally the exhale call-to-action auction haha figure out how to fund this thing sustainably which we do have several informal proposals and potentially some some real proposals coming up selling reputations selling dxd figure out how to drive checks volumes the DX Davos greatest asset and to me the only Dow owned protocol right now how do we drive checks volumes those are actually very tightly coupled if we drive Dutch checks volumes we could the

DX now could earn fees from those Dutch checks volumes and then we don't have to sell a token perhaps we're just earning fees we're gonna be a money making Dow but how do we actually drive Dutch checks volumes just a little technical note here or practical note we say okay where do people really want the Dutch acts and remember its slippage resistant so for super deep popular liquid pairs like eat die if someone wants to sell 10 million of that the Dutch Jack's is a good venue to do that on an order book or uni swap you can't really escape the slippage on the other extreme you have super niche new venue lists tokens maybe their regulatory gray area so a centralized exchange won't list it or maybe

there's just not a lot of community power some random token if I issue a token but I have a nice group of followers I could list it on the Dutch X which is list which has an interface on ipfs and the NS and so kind of those are the way I see it the two big extremes of where the Dutch X could find market fit and finally like all dows need a meme and my proposal as you alluded to is I want this guy to be to be the face thank you that was very interesting so as soon as the DAGs actually can a trade

prodigal actually you need to create liquidity for each pair so do you have some model to interact like with for example with other dowse that can provide liquidity state liquidity in your pairs and actually be incentivized with with the fees like a be a market maker for for your protocol right yeah that's like one of the most important questions one of the largest reputation holders or a few them are people that were the largest market makers in that vote staking period so they know the technicalities of why it was market maker friendly why it wasn't so we're really actually looking to this

reputation holder saying what could we do to attract market makers but yes that's exactly what we want to do that's actually with the Magnolia token that nosis implemented is meant for when you trade a lot in the Dutch X you earn this mg n if you have mg n you don't have to give as much as a liquidity contribution to the next auction it's not a fee there's no value actually being extracted when a normal trader trades on the Dutch X there's a point five percent liquidity contribution fee that's kind of getting seeding the net next auction if a very active market maker has a lot of mgn they don't have to give that liquidity contribution so there already are in place some mechanics to incentivize market makers but we

actually want to take we want the the DX Dow to earn fees of the Dutch X you want to change that parameter make maybe a point one percent trading fee to come to the DX Dow so we could have market makers own the Dutch X and the DX Dow and earn those fees the most and I'm if you're a market if you have ideas about that then I'm deaf were definitely keen how many Dutch chicks are predation holders are in here yeah a lot yeah oh so there's a couple of guys at the back so I'm doing like a decentralized hackathon and einem and I'm thinking of requesting the DA cheques to fund some of the decentralized Agathon that's happening later this week Eddie Berlin so now it's

like 2,000 maybe $4,000 and this could tie in very well to I guess your marketing efforts and trying to get people to know about the big sow and trade on to the Excel