DappCon 2023: Rethinking Legitimacy, Agency, and Bureaucracy in DAOs - PhilH

Transcript

hi [Music] everyone um for anyone who's been working with Dows the question of their power structure is very much an open one are they decentralized are they decentralized enough should they be more decentralized what does that even mean the question of legitimacy is about the acceptance of an authority and the acceptance of a power structure and with th it depends on the extent and on the way they are decentralized but just behind this

question of legitimacy there's another one tightly related which is the question of efficiency many people criticize Dao as organization oops as organization that are less efficient than traditional business organization they are chaotic they are messy decisions are slow and they go back and forth nobody knows what to do and all that kind of issue that everybody here is probably familiar with so in a sense there is a tension between efficiency and legitimacy legit legitimacy relies on

decentralization but on the other hand this very same decentralization can be a hindrance to efficiency and of course if a dow if if an organization is totally inefficient economically speaking then it loses this its legitimacy right so hi again my name is Phil I'm the governance leader at mongr Dao and today I'm going to walk you through some of the results uh that we've uh uh produced at mro when we've been working on the as we've been working on this uh very same issues and uh uh I'm I'm going to start by making a

comparison between protocols and platforms so I'm talking about web three protocols crypto networks on the one hand and on the other hand web platforms and through this comparison we'll get to the point that I will make a statement that coin voting cannot work I'm not talking about the fact that it's bad or it's plutocratic or that kind of stuff I'm talking about the fact that it doesn't deliver the benefit the upside the outcome that we were expecting when we put it in place in the first time in the in the first place and then I will move to efficiency the efficiency part and I will use the example of grounds to imagine how we can develop more efficiency to that for

those so but let's start with protocols as platforms so there is an obvious uh similarities between the similarity between the two in both case we have some sort of software infrastructure and on top of this software infrastructure we build Goods services that are being exchanges by different parties right so there is the base layer is the infrastructure so it can be a platform or it can be a protocol and a crypto protocol there is another uh similarity another thing in common which is that very often they are double-sided multi-sided or double-sided what does that mean uh this is uh the traditional uh

illustration that comes with platform coming from the Harvard Business Review where you can see the two sides one is the producers the other one is the consumers consumers come to the platform and the marketplace in order to access and to use to rent to buy to to to uh consume a service service of or good that is delivered through the marketplace through the platform and on the other hand you have obviously producers that use the very same platform in order to deliver their goods or services and then you have a third type of stakeholder which is the operator of the platform and in most uh uh most of the times they are also the owner of the platform and as such they get to define the terms of use they

Define who has the right to access as a producer as a consumer what are the ter terms of interaction terms of of Engagement so this is very ubiquitous you can find that in as I was saying web web two uh and Web 2.0 with the platform like YouTube like Amazon before that even Amazon was working on uh sorry Microsoft was working on the very same uh idea of platforms and then you can see something similar with web 3 uh protocols and crypto networks such as Unis swap on the one hand you have liquidity providers on the other hand you have as a consumer uh the defi

Trader the person who wants to do a swap or file con with storage providers and storage users right so this is the very same uh analogy here so what's the problem with that so let's go back a few years uh ago when uh there was uh this famous article that maybe some of you read at the time why decentralization Matters by Chris Dixon and Chris was making the case of something called the platform life cycle so according to this view which is largely inspired by the reality that we can see every day platform go through a life cycle that starts with the necessity for them to attract quickly as fast as possible

actually the critical mass of users on both sides they need consumers and they need producers right if you have Uber with only riders or only drivers it doesn't work you need both at the same time and big numbers of them in order to have the critical mass to kick off the network effect so that uh re requires uh a lot of effort in many compartment of the game like having a slick UI UI or ux and uh also subsidizing in a number of case the service or even offering it for free so that attract quickly a lot of people so you need to mobilize a lot of capital in order to do that quickly you attract

users on the consumer side and you cooperate with vendors with producers on the uh vendor side on the offer side that's fine until there is a certain point that is Rich and this point is when the platform gets to dominate a market or segment or Geo and then things change the relationship change between the platform and the owners and the rest of the network they got to be profitable right they took on a lot of thatb or they raised a lot of money and they need to be profitable that's also their mandatory

uh Duty their fiduciary duty to deliver profit at this point and in order to do that they will move they will change the the the relationship with the stakeholder will change and will mutate so on the consumer side they will move from EXT attracting users to extracting value out of users Cas in point like one among Millions uh Facebook changing the terms of use of WhatsApp in order to access the metadata and sell it to advertisers right this is typically a case of extracting more value once the user have been users have been uh attracted same thing on the producer side with Twitter killing off it's API

there apis in order to kill the software client that made its success in the first place or Amazon competing with the bestselling vendors on its platform on its e-commerce platform and doing the same by the way on AWS so that's a big problem it's a big problem because one could say well it's free competition competition out there and it's okay if they do that if they have this kind of predatory approach then they will be uh weak compared to new entrance that won't do the same game and that will be able to take some market share it's not exactly the way platform Works they are Global as Peter te famously said competition is for

losers once you get to the domination at the global scale then it's super difficult if even possible to actually dislodge and displace the the in comand so we have a problem because this infrastructure is the very basic infrastructure of our Digital Life and to a large extent of our material life as well we entertain ourself through the platform we educate oursel through the platform we socialize we move we you know transport we feed ourself and there's practically no end to the extent of the to the reach of platform today so there's an issue of democracy there's

an issue of control of our of our means uh of living as social uh uh people or as uh individuals and this is why Chris suggests that we can actually solve that by having crypto networks and the idea of crypto networks is that we're going to make everyone owners through a token so at the end of of the day it doesn't matter so much to have this kind of predatory uh Behavior it's not going to appear because everybody will be aligned with the same interest materialized by the same token everybody will be incentivized to the growth of the

network and through the appreciation of the the token that's the vision right and that's the motivation for years later valueless governance token um this is what uh leads me to say that converting cannot work so again uh we know that converting can be used in many ways uh it can be sorry criticized in many ways that it's plutocratic there is the issue of turnout and then so so forth but my point here is that if converting in the first place is if the

those tokens are made in order to align the different stakeholders in a complex organization then it fails why is that because once people get the token there are two possible way of dealing with that take the typical airdrop users of a network will use the token will receive the token the vast majority of people receiving the token will just sell it either on the producer side or the consumer side they just don't care about that they came to consume or to use a useful Service assumably uh and uh that's what they're interested in they will be very happy of

the Christmas present they will sell it and they will move on it's even more the case in the case of The Producers they are building a business their interest is not about investing in another business so you will keep some of them and effectively you will have you will have some people keeping the token but it's very likely that the mindset of the people keeping the token will be the mindset of shareholders of investors they will have the same uh goals than the operators uh in the previous wave of web platforms so what is the real answer in

our opinion is to introduce it's to introduce what we call multi-stakeholder governance and this is something that is not so uh uh spread in crypto but it's very familiar in a political organization and also in some economic forms of organization I'm giving three examples here one are international organizations that are indeed multi-stakeholder uh governed by multiple classes of stakeholders take the w3c for instance the standard bodies that govern the evolution of web standards you have individuals you have firms you have nonprofit you have public uh uh entities and they all work together in order to define the standard of the the the tomorrow's web very

famous and some uh system that everybody knows is be cameralism in modern democracies like in the US in France in the UK here in Germany you have two Chambers two houses and they represent something different for instance in the US or here in Germany there is one Parliament that represent uh the the states or the Lander and another one that represent the people and there is a system of checked balances between the two and two different views of the same system so that it's enriched and it's also it prevents uh minority uh operation and to stay in Germany there

is also this beautiful thing called corporate C core deter determination which means that for mid size and large scale Enterprises you have employees that are part of the board or the board of the companies along with the shareholders so very different model from the compared to the Anglo Saxon model so I'm going to tell you quickly about what we do in mro that is inspired by this type of political system mongr in short uh is a DEX it's a program programmable uh order book Dex meaning that uh when you make an offer on mongroo you post a piece of code of

solidity code and this piece of code is going to be called when a taker takes the offer and uh uh it it is going to be up to this piece of code to to to fetch the asset that is needed in order to settle the transaction so without entering into the details that are not the topic of this call the the idea is that you have a universal Universal uh Dex that can execute any type of strategies so part of the stakeholders will be the developers of the those strategies along with the defi Traders and the third type of stakeholders are the people that build the whole system so our system of multistakeholder

governance relies on three different classes that have each one a third share of the total voting power and for each class they have their own consensus the builders the one who are in charge of building the protocol and building the ecosystem are a small scale group so we can have a type of consensus that is based on a cooperative for instance or a reputational system Cooperative being one person one vote and then you have consumers investors anyone who want to actually be a co-owner of the project and we can use and we will use the token voting system as usual and the third part is the people who are actually or

the entities delivering economic value by building strategies and they are they are the third one so if you think about back to the analogy I was making with Twitter that would be the people building the software client on top of Twitter and it cannot be shut down from the system because they are part of the system at the governance level let me move for the last part of the talk uh to the efficiency subject and I'm going to argue that Grant missed the point I'm not saying that we shouldn't have ground obviously but I'm saying that this emphasize that we have constantly on GRS is uh elated and uh why is that so I go back

to my uh General schema about the platform we have producers generally the grants go grow to the producers we give Grant we allocate resources to people in order for them to build things on top of our infrastructure that's how it's being used by most defy and non defy based uh layers in crypto and we expect them to actually build something useful thanks to this ground so what are we doing again show me the incentive I will show you the outcome we've seen the out the outcome of the incentive that is an airdrop here what is the incent the outcome of a gr program well very likely we'll get two

things one is that we will get some bounty hunters in large number people will come because there is money to be made and they will have a mentality a mindset of gig workers that's natural that's what you offer and then the other thing that you will create is a bureaucracy internally it can be more or less centralized or decentralized but it's still a bureaucracy you got to be as a protocol as a Dao you got to be responsible accountable for the money that is going to be spent so you got to be uh uh serious about how and to who you give money and what they deliver for that money what we think is that we should

move from this type of view of the ecosystem of producers to uh one that is much closer to the one that has been used successfully by traditional web platforms there's a lot to learn about their or from their playbook when Uber uh YouTube Amazon and the likes launch a platform for uh producers they do all kind of thing that rely or that are based around two main concern one making sure that those people will make money so instead of giving them money the idea is that we will attract entrepreneurs that know that with their

effort and creativity they can actually build a longlasting business on top of the infrastructure so for a protocol like us it's relatively easy because with a DEX there are always fees and this is a design decision to redirect fees and part of the fees to the strategies that are successful on the the other book deex and the other concern the other goal is uh to lower the friction for those people to build their stuff on top of the uh protocol and then again we can learn a lot from The Playbook of platform or even traditional platform like the one that have been built by

hire I don't know if some people are familiar here with this gigantic conglom merate doing more than 35 billion in kitchen appliance they have reorganized themselves in 4,000 micro Enterprises like a mesh of Dow and this is something that we can do actually by organizing little structure in the form of dows inside the the ecosystem but I'm over time so I'm going to stay stop here thank you and U I'm here for question thanks any questions hi thanks for the talk that

was super interesting so do I understand you correctly that you're saying that there is no way that the incentives of capital formation can be bundled so to say in the form of a token with the correct incentives for legitimate and proper governance of a protocol or do you still see any way in which a sing single token can represent those two incentive systems in a way that you would find legitimate and that investors would find appealing so to say um well I'm not uh um a never kind of guy so uh always and never that

doesn't work that well for me and uh of course there are all kind of gray zones what I'm seeing and I've seen repeatedly in the space is tokens being repeatedly presented as a way to govern in common collectively some resources and I've seen repeatedly that it's actually not the case because they become an instrument an objective in itself right and this is the main issue and I can take just one quick example Roma who was you you got two french guy talking about governance today but Roma who was just before me uh was telling me that there were more and more of this case of dig I have very present in my in mind this kind of G which was a successful project with the goal of

tokenizing gold but at some point with this their very early and successful Ico they had more in their treasury than the value of their market cap so the token holders who are supposedly also you know supporters of the project suddenly became old shareholder activist and destroyed the Dow in order to re recover the underlying asset and that was the death of dig this is typically the kind of thing that you can address not by removing completely token voting on this kind of instrument which has its role by balancing but by balancing it