DappCon 2023: From Midgard to Asgard: DAO Commissions as the Rainbow - Andres Geest

Transcript

right good morning everyone Thanks for uh joining me to talk about uh Dow commissions or Dow committees oh and how they can Bridge uh traditional and decentralized governance and before going into uh the specifics of Dow committees um want to take the opportunity to zoom a bit out and talk about Dows in general um Dows are quite complex organizations um they consist of several individual entities that are seemingly sometimes separate from another they um

like like other complex organizations um the rules at the beginning that you set out can have unforeseeable consequences in the future and um that makes it quite hard to foresee and steer down in general um but Dows are meant and they're structured to achieve a purpose um when I did this presentation the this this thing was a gif and it moved it's one of the Strand beasts it's called it's a it's an art movement or an art object by uh a Dutch artist and seemingly all the elements of the Strand Beast are moving forward in the in in the same

direction um the purposes of dows are manifold but uh they're mostly product driven and this is due to the nature of our industry so there's purposes like lending staking naming Services gaming L2 payment um obviously for us it's safe it's uh smart accounts um we absolutely love smart accounts and we're kind of obsessed with them um so the purpose of safe Dow just as an example is establishing smart accounts as the default means for web 3 interactions so how is this purpose achieved um there's usually two things

one is developing the technology the underlying infrastructure the rails of uh the activities that we want to enable and it's building the ecosystem on top the ecosystem consists of users at the end they consist of Builders um of of developers so really trying to get these two things together to achieve the purpose that the Dow set themselves itself but like what is the most efficient way Dow struggle with finding commercially efficient ways to reach the purpose and also legally compliant ways to reach these purposes and unlike with your Ikea manual at the end you can call Ikea if you don't uh know what you're

doing uh at D there is no such thing but you need to think about these things um very much in advance so to reach a purpose um usually there's three elements involved um there's financing somebody has to pay for it has to allocate resources um somebody is giving the vision it's giving instructions way how this purpose can be achieved and uh someone is doing uh the work and actually pushing it forward and if we compare Dows to other organ ganizations very broadly uh we can learn quite a lot of things from it so nation states meaning cities

countries uh governmental agencies uh when it comes to funding they usually fund external parties to do their work um this also has changed over the last decades um more and more activities of nation states are being privatized um if you think about garbage disposal if you think about health uh even some parts of Securities so activities that are very very core actually um to the responsibility of nation states um when it comes to the actual uh work um and the financing it's actually being um it's being involved by external parties um and the nation states instead of directing every single step and like a

very direct way of instructing they rather set operational procedures and rules how this work is being done and how the funds are being allocated if we move to the Spectrum a little bit uh to the side we have fiduciary entities certain foundations that often have uh nonprofit goal um they're also very um similar to nation states in the cent of the even more fund uh external parties the work is mostly outsourced and um also they don't give like direct instructions how the work should be done um but if so at all operation procedures and on the end of the spectrum we have

corporations corporations have to fund their work by themselves they have to find business models to to fund it the work is being done by themselves and uh when it comes to instructions you have a direct chain of commands a direct chain of instructions to to the work that is being done and if we compare that with Dows we have Dows more to the side of nation states and fiduciary entities in Dows there is a clear separation between resource allocation operational procedures on the one side and actually executing the activities on the other side and with operation

procedures in a dow context that can be the rules the ways how how the Dow decides on its decision- making on its governance but can also be the rules of the underlying smart contracts that govern the protocol so there's certain parameters there's certain decisions that uh the Dow can influence um but mostly it's it's it's limited to a certain to to a certain scope um the activities are done by someone else and for this talk I want to talk more about the resource allocation part of it resource allocation in itself is a commercial activity um if you allocate resources to someone and and you expect

an outcome this is always entailed with risks and risk per se is nothing bad it's just something that that uh is in our society um our whole society probably is built around uh risks and people and societies taking these risks and it's good for uh social welfare um because only if you take risks there is um outcomes that that move societ forward um so how do you usually deal with risks um kind of like econ 101 would be well there's a part of risk reduction um meaning how can you actually um reduce the risk uh based on the outcomes but if you reduce your

risks too much it can the commercial activity um the second uh part of it is risk diversification so how do you actually diversify your risk and how do you not put all your eggs in one basket and this part of um putting not your eggs in one basket is something that uh states that that law actually incentivizes and enables so um legal structures came up with something that are not um chips but what they actually came up with is uh legal entities um the the Commerce uh that that that we had over the centuries is is mostly built around um entities

and the value proposition um it all comes down to to three elements and starting with the first ones it's entity shielding so entity shielding is really just another term for not putting all the XS in one basket and uh being able to allocate it into different risk spheres um Andy shielding comes in two ways one is that there is a priority meaning that that the creditors of your business and the creditors of uh your personal sphere there is clear where they can uh go into to to which assets they actually uh can go to so meaning if your creditors from your business uh are only able to go

after the assets of the business in the Dow context this already has become relevant if we look at the idow case uh the cftc is mostly going against the against the um s assets of The Da even though it's not wasn't a legal entity it's seen as a partnership and even there you have the priority between assets of the business and assets of the members involved the second element of entity shielding is liquidity protection so as a society you don't want to incentivize that when members leave an organizations shareholders employees Etc that the whole organization dissolves so there's a strong interest in like going concern

meaning that the organization survives even if individual members um enter or exit that is also something that is a very strong value value proposition of legal entities uh in the Dow context you can also have that different you have something like rage quitting for instance M where you're actually able to exit an organization you're also able to take certain assets with you but usually legal entities you don't have that the assets stay with a legal entity the second one is limiting liability so as said there's a clear differentiation between the creditors of your personal sphere that cannot go against the assets of the business and your creditors of

your business sphere that cannot go against the assets of of of your personal sphere and that is extremely important for diversification of risks if this wasn't the case and uh liability wouldn't be limited but it would also go in your personal sphere you wouldn't be able to finance several Ventures to be involved in several Ventures you would only be able to maybe involved in one and would have to control the directors very very closely so by limiting liability and entity shielding you can actually diversify your risk and be involved in more Ventures and the third element is something that's called Nexus of contracts a company is seen as the value of a company is seen as the contract

that it um Aggregates over time this is something that is built upon uh thoughts from E economists in the 30s like Ronald Co who got a Nobel Prize for looking at transaction costs actually of companies and um thoughts of Jensen and mcklin that said that uh that companies are actually these next of contracts and that's where the value is and if we compare that again to Dows also in Dows we might seemly not have contracts but we have contractual relationships we have the development company that is involved we have um the ecosystem of developers we have uh delegates so we do have bindings towards the core

entity and if the IL legal entity wouldn't be able to to to um to to enable this that would mean that we wouldn't have anything like transferable shares so it's really about reduction of transaction cost and increase of social welfare so legal entities per se are nothing bad it's more the question like which legal entity to choose and um the broad spectrum there's down native entities solely a few with a Wyoming Dow LLC and there's non Dow native entities and uh so there's a variety choose from depending on which jurisdiction but if one really wants to split it up there's fiduciary entities that don't have have shareholders they have beneficiaries and

we have shareholder entities but it all comes down to structuring and within doubt we see the trend and the matter of delegating resarch allocations to lower levels actually and to the to OU spheres of the Dow so we have working groups we have something like grants councils we have even more institutionalized subd Dows sub Orcs so that actually means that uh the people that uh that are consisting these organizations they decide the organization decide about the budget um very often all also with their own multis or sometimes without their own multi with their legal entity without of

their legal entity but it's definitely pushing this towards the outside and taking it away from the Dow core but this comes with its shortcomings um first of all this pushing of responsibilities also comes not only with delegation of tasks but actually with legal responsibility to the outskirts um the members involved have to think now about which legal entity to choose or if they should choose a legal entity and if their actions actually trigger anything so organizations do not that these organizations that have been delegated uh these tasks to they do not profit from the legal entity of The Da and not of the value propositions that we went

through and the risk there there's advantages to seeing it this way but there's also risk that this whole system organism becomes extremely complex uh you can have at one point organizations that are so big and so fragmented that you have a lack how incentives are aligned and that it becomes to a scale that it's not actually um commercially efficient anymore so what we're doing at safe and at safe now we're trying to explore what can we do with our Swiss foundation and how can we involve something called committees as native bodies within the foundation

so what are foundations there's two principles that foundations adhere to it's one clear asset separation uh the assets that are given are endowed for a specific purpose it's very separate from from the it's very separate from the people who set up um the Assets in the first place and it's very hard to change the purpose of the foundation so it's very rigid once putting a purpose into the deed under Swiss Foundation law it's practically impossible to change it um could think about it like it's almost hardcoded into it and that's because there's a thought of that this Foundation lives Eternal it lives longer than the people who have set it up um

and that's why the purpose has to be so well defined and and structured and this is uh as an example the purpose of the safe ecosystem Foundation it's very very detailed in the sense of De veling the technology for the safe ecosystem Foundation uh below you'll see like the ways how this purpose can can be achieved so it's not just like a oneliner but it's it's it's clearly stated what can be done so Swiss foundations are orphan structures meaning they don't have shareholders they don't have members like associations they only have beneficiaries they only have people who should benefit from the resource allocation and that's why it's quite a

fitting legal entities for Dows uh and the way how they allocate resources instead of a board of directors who is very um independent in the decision- making the foundation Council solely implements the execute the purpose they don't have independent decision- making per se and because of the lack of shareholders and the lack of members that could oversee it um the Swiss foundations are actually under National supervision so the national supervisor looks if the resource allocation was uh done in a way that it serves the purpose Dow committees now are are um bodies within the foundation so they're

really integrated into the foundational structure and are not outside of it like how for instance a working group would be or a subow would be um the foundation Council delegates certain tasks certain responsibilities to these Dow committees and at the end it's three parts that consist the Dow Committee of it's Personnel it's a certain mandate how to achieve the purpose of the foundation and it's a budget so within this budget and within this mandate the Dow committee can decide how to allocate it how does it interact with the Dow itself so on the right side you see Dows with their token holders with their

delegates that make certain decisions that decide for instance all also if a dow committee is going to be established um who's going to be the Personnel of the Dow committee uh what it should be doing and they signal towards the foundation Council to establish this Dow committee and then to to set it up with members actually Sol solely of Dow members and then this Dow committee can start actually interacting can start um acting on behalf of the foundation internally and the foundation Council can then go into different contracts with outside parties so the value proposition of committees is pretty strong you have a very good accessibility you have a low barrier of

entry for people who want to act within a DA who want to do work within a DA and want to make decisions within a DA they will not have to think about their own legal entities that they have to set up or if their actions actually uh trigger certain liabilities you profit from the limited liability of the foundation because it's always the found Foundation that acts as a counterpart and the native body is something internal that makes decisions and gives it to the foundation Council and a very strong value propos is that in foundations this is legally recognized so you do have a framework that has already been developed over the last decades for it um it hasn't been used so far yet in in Dows but it's

something that foundations are very familiar with so what we're doing right now is we're talking to the National supervisor and our deed the safe ecosystem Foundation allows for uh these entities and these uh committees to be established um we're we're we're seeing if we can um have them set up solely for instance with Dow members and if you want to keep up uh please scan the code on the left that uh directs to our governance Hub then we're talking more about how the foundation actually interacts with the Dao and the right side you can follow us on Twitter and you can see um the things that are happening within safe da and how we

Implement these Dow committees in the future thank you very [Applause] much thank you Andre uh that was very interesting and for me it was quite interesting to learn about the Committees here uh I just have one question before I give it to the uh audience uh is uh in the uh so with the Committees is this is the committee duration or the me Members within the committee is it time bound or task bound or is it a mix of both it can be both so there are some committees that can be set for a specific purpose this purpose is reach the committee what dis solve

can also be seen for instance for a certain season so you can set it up for a grants Council and if like the wave is over the committee would also dissolve or you can also set it up for ongoing work and ongoing activities so that can be like support for the Dow uh that can be as operations that are being helped on so it's really a whole range it's very flexible what you can do with them great thanks uh so now guys anybody questions for Andre here uh one second hi uh thanks for the talk I was wondering if this is an option also for smaller starting D5 projects uh that don't have that much fun so basically my

question is what does it cost to set up a Swiss Foundation yes that's a good question so setting up a Swiss Foundation uh comes with like Capital requirements it comes with administrative oversight so um the Swiss Foundation model um is something that uh is for more larger projects and where you can afford these transaction costs that are that are coming with that um but it would be interesting to see if something like Dow committees can for instance also be done with like a Cayman Foundation or something that is a bit cheaper to do but um the the the Swiss regulator let's say they give this framework and uh you would have to establish a Swiss Foundation to have

also like the Juris Prudence that comes with it thank you um sadly I was a bit late to your talk so I'm just just wondering uh with regards to governance in safe what are you most excited about for the future yes I think what I'm most excited about is to see actually how the da matures so the da was set up quite early uh we do have a token that is used as a governance token and more and more responsibilities are being handed over to the Dow used by the da and that comes

like with the increased activity of it working on different Milestones actually and people are are quite involved and and uh doing work and voicing their opinions um very exciting will be how product governance at one point might be handed over to the Dow so how will for instance like the protocol something like parameters governed by by the Dows and um yes I think it's very interesting to see how um products and protocols mature and how the Dow matures alongside it we have time for one last question anybody all right uh thank you Andre that was uh very interesting and wish

you a good rest of the day thank you thank you give it up for Andre guys