DAPPCON 2025: Governance is Dead, Long Live Governance! - Juan

Transcript

[Applause] Thank you. Thank you everyone. Yeah, before we start the classic disclaimers, uh my views are my own. So we since uh privacy maker now Sky is not uh it's not a one legal entity. We're we're we don't represent the views. Uh this is of course not financial advice, uh not legal advice and maybe a little bit of uh health advice for those that have been in the space for long enough. Uh this is me before doing uh web 3. I did a bunch of consulting and startups um a lot here in Berlin. So it's why I like this this event so much and and how

I I discovered the the space. Yeah. So let's get into governance design for those a little bit less familiar. But uh in a nutshell, governance design is the process of designing and implementing processes uh structures and systems to basically organize things. So make decisions, allocate resources, super important, and manage conflict. The very basic example I like to give is designing a sandbox and thinking about the trade-offs. So, anytime we're we're thinking about building one of this, it's uh it's very much like should the walls be higher and the sand might not come out, but then it might be either dangerous for the kids or they might not

be able to access it. So, there's always like optimization frontiers, but there's always tradeoffs that uh that we need to think about. And in terms of coordination, this is my this is my favorite slide that I like to to show because I feel that it simplifies everything in a very concise way. So this is what we're coordinating. It's the work which means getting something done as human beings. Uh the workforce is us or I don't know soon agents potentially. And the capital uh doesn't need to be money. It could be anything like you could be helping someone because of reputation or because uh of your love for them or because you want something exchange. So that's a bit uh how I how I try to to think of of

these conflicts. So previously on DVCON I was here a few years ago um and I tried to argue how we should be building Dows in a similar way uh on how we build software. the talk is somewhere buried in in YouTube if you guys care to to go deeper on that. Um but in today's episode there have been some some things happening and I would like to talk on how to how to scale those effectively. Um and there are three things that we've been focusing on uh on Skype maker. One of them is having this uh rule book that's uh very very explicit, very verbose. The second one

is having programmable building blocks and the third one is having decentralized operations. So before we get into those and why we've been trying those I think this is the dream for I don't know potentially any blockchain or any DAO or project is to reach the one billion users of course make it accessible transparent fair and then you have the self sovereignty and the composibility. So with yeah with that in mind if we take a look at today u dows this a bit what they look like um you have some builders or contributors and then you have the users

on the other on the other side. Sometimes there's a lot of overlap um and you have like different types of involvement or engagement and people jumping from from one to the other. But that's that's a bit how how those look like nowadays. And this is the tech stack for for most of them. Uh which is a Discord server, maybe a forum, uh snapshot if there's something to vote on and and some multisig to allocate resources. Um, so that's that's a bit what we're dealing with uh in terms of the the organization.

Maybe this is not the best uh the best slide, but it will make sense later, I promise. But we do have the the the protocol and the governance uh in the center and then you have like a bunch of people working on different things. Uh sometimes it's better structured than than others, but it's all very centralized. there's usually like a foundation or an association that's in charge of providing some direction and then there's some community permeability um to different um degrees of success. Um so what are the scaling challenges that uh we have found? Um well first of all the Danbar number I

think it's uh it's important because the moment you grow I I would say it's above a 100 contributors then people start mistrusting each other you start to get gossip politics and and whatnot. Uh then all those very vibrant forum conversations become just uh people screaming at each other. A lot of uh Anon accounts popping up um having a lot of very interesting opinions. U so it's clearly not new people but they're like hiding themselves um behind a different personality.

Then when you want contributors or anyone to start collaborating, it's not very clear what topic should they should they tackle. It's not very clear what's the direction. Uh the vision is usually not very well established and there's a huge um lack of strategic um direction. Um even knowing if you can work on on a problem is is not particularly easy for for your average contributor. Another of the huge challenges that uh we have uh we have found is like the rise of the bureaucrats which is just a bunch of uh of middle managers that are managing and hiring more people that

hire more people and uh eventually it gets uh it get very tricky to understand where the work is being done and and how um all the way to the point if you if you exaggerate that situation the the DAO starts being managed by the contributors not the token holders. So token holders don't have enough context to actually approve or reject things. Uh contributors have the opportunity to prioritize pet projects. Uh so if I'm for example like a contributor that's um crucial for the for the protocol, then you kind of cannot fire me as a token holder. So I can dedicate most of my time to building the protocol in the way that I want instead of what provides most value.

uh and of course the bureaucrats wants to stay there so they will uh defend their their position at all costs which brings us to the hidden complexity of work. Um, so it's very easy to uh to stall uh work like we need more time. We're testing things. Uh we need to I don't know get another opinion from this. Uh it's very hard to prioritize from the token holder perspective. So yeah, it's like how there's still no really good mechanisms for for token holders uh to to give some some kind of direction.

um something extremely important we we've been focusing a few years I would say now on how to vote and the wisdom of the crowds uh but something we're not considering that we need experts to solve specific problems um so for example if a pilot of a plane started a poll asking which uh runway we should land that would be very very scared of that uh of that flight right uh so I think we have like a similar situation in Dallas where it's like sometimes you need the expert to make the decision. So, you need to empower someone to go and and build that instead of having everything go through through pointless votes. Uh contributors working on the wrong problems. We've seen this for for

a while in several DOS where they're just working and and it's not particularly clear that things are actually evolving. And then you have like the the problem of defining projects in a way that they can be actually tackled, evaluated and and whatnot. Of course, border apathy. This is a favorite. I'm not going to go too much into detail, but uh it's it's quite hard for for for token holders to get all the context.

And I do not think that uh delegation is the the solution to this to this problem. So moving on scaling through through first principles uh this is a bit the things that we've been thinking on and keeping in mind uh in sky uh while we were designing this uh these governance uh tools. The first one we did is decompose the organization. So um this is a bit like cheating right because I when I mentioned the dumbar number what we're doing nowadays with this thing called stars or subdows is that we're breaking apart the problem. Uh so we're saying hey instead of having like one huge

organization now we're going to have multiple very tiny organizations. You can think of the the the two pizza rule from from Amazon, right? Where the team needs to be and you don't need to enforce it, but ideally a team is small enough that they can build their own u project and and take it from there. So that's that's a bit how we how we solve the the organization is like we we cheated and we made a lot of small organizations that they can have their own politics, they can trust each other and they can make sure that their their star or their subdow is um is actually working working forward. Um all the workforce goes to the to the edges and

you just have the the scopes uh for these uh rule books that we're going to be covering later. uh at the at the center at the core simplify and structure the governance layer. This goes against again with the with how the the core should be working. So we we are thinking about having this uh all the rules written out uh and ideally it's in a system that keeps evolving and keeps improving with time. Um then empower strategy and contain politics. That's another first principle that we've been thinking on. Uh and it's actually defined um governance a strategy. So make sure that the strategy is set up in a way that it can be used

by contributors to to grow the whole ecosystem. Um separate politics and and agreeing on the strategy. Again, this happens when you start breaking apart the problem. So if person A wants to work on a problem, person B needs wants to work on another problem, you don't need to fight on which problem is better to solve. You can hopefully try to build both and then either let the market decide or make sure that um that things are are working properly. Um attracting experts again going back to the the pilot analogy, but we do need expertise to solve the the hard problems. So how do you make sure that your DAO is accessible enough for anyone to come and join a problem either as a

star or as an advisor. Um and then yeah enforcing processes is making sure that when you correct something you're actually making sure that the process gets better. So all the time you have to have this uh central uh rule book that you're making better and better so that the whole DAO becomes better. And last uh and I think this is extremely important is to empower the entrepreneurs and and making sure that people want to come build uh within your your DAO your protocol your your ecosystem. So give them enough autonomy uh give them the tools to be innovative and to and to be able to experiment uh

at the scale that's needed so that the whole thing doesn't implode. So a few concrete examples and this is what I promised in the beginning is to show like the governance stack how we're working on that. Then the building blocks is this uh things that we're building for to attract the talent and finally segregate the operations to make sure that things are running smoothly. So starting with the governance stack uh I think this is covering the better access the first the fair rules and the self-improving.

So we have this thing we we call it the atlas but it's it's basically just a bunch of rules. Uh you can think of it like a bit of of a constitution. So there's uh I think there's like 300 400 pages and it's still growing. Um so that might be a little bit uh daunting. Uh the cool thing is that it's written in I think it's JSON but it's data interchange format. So basically it's built for for computers. um uh it's extremely verbose meaning that all the little rules there's examples for things that you can and you cannot do there's different layers and then they're specialized by scope so potentially if you bring an expert on accessibility or an expert in I don't

know protocol security they will be targeting different parts of the atlas and they'll be working on on different uh problems so how do we do that scopes are are a bit like uh areas where you could work to make sure that uh that things are are running properly and then everything should be a framework. So when you think of how to solve a problem, it's not solving the this current problem right now, but it's trying to build rules that will stay there uh for very very uh long time. And of course uh you supercharge it with AI because that's the cool thing to do nowadays and you get better valuations.

But uh no jokes aside uh you you need the AI for for better accessibility. So when you visit a new country you don't read all the laws before visiting right you kind of like understand and you have like I don't know science you have a you can copy how what what what people are doing. So this is a bit the the same thing. It's like am I allowed to build this? Am I allowed to do this? You should have like a a cool accessible way to to making sure that you're respecting the the rules and that you're building things that make sense. With that in mind, um, building blocks.

So, this focus on enable the builder, simplify the tech, and increase the security. We do have the the stars as I was mentioning. Um, the stars again, they are like selfcontained subdows that are doing kind of whatever they want within certain rules. Uh so they are dividing the work streams and again if you think that someone says uh we should I don't know we should build whatever fork or we should go and buy a bunch of treasury bills you don't need to fight for that and and spend months um debating that you can just create two

different stars and you say like guys just go for it. Um and at the at the same time that would scale the whole the whole protocol better. So, Spark is potentially the most famous one. Um, for those that don't know, it's a fork of a um and yeah, I think there are like news coming out this week, but uh there are more stars coming out uh very very soon that we'll be very excited to to announce. Uh what are the star powers? And this is the two things that we've given them to to attract builders. Basically you have the accessibility rewards and you have the allocation system. Um the accessibility reward what gives you it's

uh they give you a commission on all the USDS that has been coming out of the protocol. So you can think of someone that has a lot of connections. They have absolutely no technical background and they they could create a star saying like I'm going to integrate USDS in I don't know all the wallets all the projects in Latin America and I'm just going to get the accessibility rewards. So for any person holding USDS, you would get these accessibility rewards and you would do it through the building blocks uh that I'll explain later how that works. But basically a person would say like I need AB and D and then they would start earning the rewards after doing the the integration.

And the other superpower that uh the stars get are the allocation system which is this uh funds uh to invest on different opportunities such as the the T bill uh market or real world assets or or or anything right Athena more for like there's there's a bunch of opportunities out there. So it's like getting yield uh with this uh it's a bit of of a line of of credit and again the building blocks would work for that. Um so last it's like how do you make sure that the whole thing is is working. You have the segregated operations to reduce misalignment u to allow focus on the strategy and to have these economies of

scale. So point number one is to split the strategy from the operations. Um so the how this works is that the star would say we want to do this and then there's an operation team uh that's a bit more I won't call it centralized but it's it's completely separated um that it's going to be focusing on executing the strategy that the star is setting. So again someone with absolutely no technical background could say like hey I need you guys to deploy this here uh and they would like help you through the whole process the operation teams and finally scale the operations to to enable stars this operation teams is actually deploying the primitives making sure that the capital is moving around

uh how it it's supposed to and that everything works uh according to the to the atlas and the last point is that there's this insurance so they would have like a a boring token that acrews on value and if they do not operate properly then they would get uh slashed. So endgame in a nutshell um the work would come from the stars. They would be setting the strategy and saying what needs to be done. The workforce is the ecosystem actors which is like a service provider. So if a star wants to do a new front end for example they would hire an ecosystem actor to to do that. And finally on the capital you have the tokconomics. Uh so any token coming out would benefit the whole the whole

ecosystem. In terms of the hierarchy, this is a bit again I I don't know if this slide is the best but uh the atlas would be the the rule book that needs to make sense for everyone and to make sure that everyone's doing the the whole same thing. Then you have the core executor agent which is overviewing the operational executor agent. Um so the operation enter agent uh they're executing the strategy of the of the star. Um and they have this insurance that I was talking about. Uh then the core executor agent is overviewing a bunch of operational executor agent. Uh they also have insurance so that they don't uh or that they do their job properly. And and

of course each star would have like the first loss capital. So if they deploy capital in something that's not working, they would be the first one to to lose the capital. So that's why it's important to keep the the incentives align. So yeah, that's the that's the recap the three things that we're doing all in all to to to scale uh this D. And yeah, if you have any questions, let me know and I can I can help you with that. Here we go.

Hey everyone, thank you. Um, regarding the whole subdow thing on our stars, um, I have a uh a sense that it just um pushes the problem one layer deeper. So my question is about what are your guys processes to create new stars and deprecate failing stars? Which problem in particular? Sorry, what which problem do you think that is being pushed in particular? Oh, so the as you said like uh once you reach a Dunmar number people cannot coordinate right and so maker solution is split it up into stars and um they will be able to manage themselves but the problem is who gets to decide which stars are created

and which stars are slashed which is still the same problem. So there's um right now we have this process where we're making sure that everything works very very well um with a lot of coordinated efforts but the the dream or what we're trying to achieve in the future is that if anyone brings in um capital and a team they would be able to get again you need this capital for the first loss. Um, so you could think of you saying like, "Hey, I have this idea." And everyone's like, "That's a really bad idea." And it's like, "Well, here's I don't know 3 million." So you would get like this uh this line of credit where you would be able to deploy capital. U so the executor agent would

be deploying the capital for you and then uh if you lose money, you would lose that that 3 million that you could get from I don't know investors, friends and family, wherever it is. Uh so that's that's a bit how we're we're thinking about making uh like this. You are pushing the problem but you are saying like if you believe that you can make money with this opportunity like then uh go ahead and and do it. Other questions?

I have a question. Uh how about delegation? Can you you you mentioned briefly that you think that delegation is just not a a good solution for governance. Can you speak more on that? I didn't I didn't say exactly that. I'm I'm not against delegates. It's just that it feels that delegates have been undefined by the space for a very very long time and people are expecting different things uh everything from setting the strategy to I don't know auditors. So a delegate and when you ask the delegate like no no we're just voting kind of thing. Uh I think u maker has a huge responsibility for for that. Uh we when

we when we set this up I think we were one of the first to start paying delegates. When we set it up um we we didn't define it and we said like okay delegates will eventually kind of like the market will decide and we'll get the the best. Um but what happened is that some delegate started the forum post and then everyone's like okay that's what a delegate does and now it's like what's happening across the industry just because we didn't define it. Uh and you even have like professional delegation companies um that are doing that across different protocols. Um again I I don't think that my point with the delegates is not that they are useless is that the way they are undefined right now. Uh they are

producing very little value for for what they do. Uh we do have a few ideas but uh but nothing too concrete yet to to be able to share. Maybe I'll come back next year and talk about that. I think it's a good topic. Yeah. Any other questions for Avan? All right. Please give it up for Sky. Thank you.