The evolution of Governance for DeFi DAO's

Transcript

[Music] [Applause] [Music] Okay. Yeah. Okay. Now, now we are we are finally ready. Sorry for the the short delay. There was a couple of technical problems. Um, yeah. My name is Gustav Aronto. I'm the co-founder and CEO at at Stable Lab. And today I'll talk a little bit about uh the evolution of governance specifically for DeFi Dows uh that we we have seen in in the recent years. Um I'm the co-founder of stable lab. Uh we are a professional governance organization.

Um we specialize in in governance participation. Um right now we work uh with over 20 protocols. uh the places where we we are present are uh some of them at least are what you can see here in the screen. Uh we are delegates and active participants in most of the major D5 projects. We also work with some of the the bigger L2s. Um we also sit on various councils and committees. Uh we're also governance facilitators for example in Uler. Uh so we have a a pretty broad access to the current high level uh like DeFi DAO ecosystem um as well as some of the L2s. Um but kind of like being present in these protocols we

we have a couple of uh firsthand takeaways and experiences I'll I'll be diving a little bit more into today. So really appreciate you all coming and and again apologies for for the delay. Um so first off um where where is governance really today? Um since the start of the bare market we've actually seen a pretty big increase in the the focus of decentralized governance. I think one of the the main things that kind of like uh came over from the bull market was uh that a lot of the Dows they had taken on pretty big spending budgets. I think maker is a pretty notorious example here. All of a sudden you had to take hard decisions right? you had to cut cost uh you had to you know downsize

what you were doing inside the DAO as many centralized companies were doing as well. The biggest difference of course with with Dows what all of this was happening in an in an open space um and this really kind of like heightened the focus on Dows. I think there's other reasons as well. We've seen uh kind like an increased regulatory pressure as well which you know some protocols are trying to speed up their decentralization a bit or at least have a bigger focus on it um because of this as well. So today we see there's like over 20 DOS with uh over 500 million in CVL that are progressively trying to decentralize. We have four Dows with over $1 billion in treasuries and this is current numbers.

So we we still see a lot of uh capital inside kind of like what can be spent on not just governance but as a Dow's budget in total. Uh but of course as a DAO has a big budget they need to create frameworks and processes of how to actually be able to allocate this. Uh we see over 30 Dows today with $50 million plus in treasuries. Um and the spending just in the first half of 2023 uh we see like the top three D5 protocols spending an average and $1.2 $2 million of on on specifically governance. Uh so we see like even though you know a lot of the market is down we actually see like a pretty big increase in growth in the specific governance vertical of the space. Uh I think another thing we've also seen is that you know like a lot of

the L2s that are coming in in contrast to the the L1s are actually deciding to opt in for kind of like early stage protocol governance as they as they launch. So the current landscape right now is that like the most activity is happening within DeFi. Um we see some activity within the NFT and the gaming space. I personally believe that this is a a vertical we will see grow a lot. Um I've been involved in especially like the gaming community since the the early days of of web 3 gaming. Um, and it kind of feels like they're like a couple of years behind DeFi. If you look at kind of like where the the the growth trajectories took off, it was around two years after after DeFi really kicked

off. Um, so like NFTs and gaming is something I definitely believe we'll see like a lot more in. Right now, I would say there's like only like a couple like Alvium and also Apecoin uh that that has like a pretty big focus there. um L1's we still see very low kind of like uh like governance maturity within the the the blockchain or like the L1 space whereas we actually see seen like the L2s taking like a much more like aggressive approach with both you know teams such as like optimism arbitum and also starknet really pushing kind of like governance frameworks from almost from the get-go right um they want to establish processes they want to build out these um especially like grants

programs where they're trying to allocate their resources. Um, but still, yeah, the majority of of the governance activity is happening within uh the the DeFi vertical of the of the space. Um, one of the main problems is is voter apathy. Um, I think like the most like successful model we've seen is kind of like the the rise of the delegates. Um if you guys just go like a couple of years back, the only protocol that really had any like measurable success around like you know delegates participating uh was probably Maker. Uh but today we see like almost every single project that actually has like I wouldn't say a thriving governance

ecosystem but at least like a more like welloiled or like more ambitious governance ecosystem. Um has delegates. uh we see like really big impact if you look at like the beginning of like the governance of these projects and then until like they actually have like a well functioning delegate system. I think to to give like two examples we have like for example Mark Cellar who previously worked under the AVA foundation moved out and started the AV China initiative. um since uh he started the the amount of proposals has increased around 10fold uh for a um you can then you know argue whether it's good to just have more and more

proposals coming in um you of course want to make sure it's the right proposals but it is like the increased level of like uh activity and also like the ability to actually execute on that activity is definitely like a quite positive metric. We've also seen 1 in for example where when when we started there where there was like really no delegate activity uh they've had around like two proposals in in the kind of like the the month uh the quarter prior to to us joining and now a place like Arvis it's around 15 to 20 propo proposals per quarter. Uh so like getting like delegates and especially you know kind of like what the delegate in in tiles is like to get actually like a committed governance participant. Um if you're just relying on like community participation, it's really really

difficult to get kind of like committed people. Um then there's also another thing which is you know I've mentioned this before in previous talks but there's really like no correlation between people who holds the token and people who want to do governance. So really kind of like whenever we look at like governance systems you kind like have to make the assumption that like people who hold your token they do not want to participate. That's like pretty pretty kind like clearly clearly proven now. Uh this is also like one of the reasons why we see like less than 10% of the circulating supply actually voting.

Uh of that 10% that actually votes. Um it's typically majority is coming from delegates and sometimes team members. Um but but really like you know you and especially also like if you uh we talked with some of the the earlier projects like starting out this journey and they also had this perception that like oh like our investors like our VCs will participate like they will not like none of the VCs really participates. Uh on very rare occasions they do. Uh but you really want to have like committed like governance participation then you should look like elsewhere. Um another thing which also this has kind like rise in in like the the delegate part of the space has has created is the um like the the establishment of professional delegate

organizations you know which we also are ourselves um we also see some of the others like GFX flip side Lama um where you basically have teams where rather than just being like an individual you bring together a team who has like a different skill set who can really like contribute on like a much broader angle of the DAO um and can like tries to create at least a business around it. Um, and this is all kind like resulted like a pretty big like activity increase across the board. So kind like the the rise of like governance participation like prior to kind like the bare market kicking off and like the rise of these like especially like professional delegate organizations in contrast to today has also increased uh many fold.

Um another thing that we have experienced a lot uh inside the Dows is kind of like another one of these uh yeah you can call them trilmas um where basically um we see like there's like a really big difference between what the contributors of the DA wants. So this is often like the delegates the governance participants uh people often who are like appointed by the foundation to run or like at least like try to grow the the governance operations. Then there's what the foundation wants and then there's what the community wants. So especially like between like the foundation and the DAO contributors we often see like a lot of friction. There's kind of like you know where the foundations want to take

the project and then there's where like the DAO actually thinks it should be taken. Um also about like what the the the DA contributors thinks that they the scope for what they should be paying for for example. Um so we sometimes see you know kind of like proposals coming from the foundation um or from teams that are very aligned with the foundation coming in and like the DA contributors being like you know what is this really and like should we really be paying for this? Uh there was also the pretty uh yeah I would say like famous example that happened with with arbitrum foundation where they kind of like had um already taken a really big budget uh where the DAO was like when it came like hey like is this really uh what we should be paying for. Uh so kind of like

the assumption from the foundation is often that like the DAO treasury is something that they quite easily can like access and distribute to what they want. uh but especially once you start having a little bit more activity and the DAO creating like its own culture and understanding of what they should be doing um this this friction can kind of like arise. Then you have the community. The community often displays itself as like you know someone just coming in and making like a single forum post or like a single like sharp comment about something that is being proposed in there. Uh so it's like a little bit more sporadic. It's not like a constant friction, but it happens like a little bit more sporadic where again there's kind of like often like a lack of alignment between like what the community, you know, might want to like

have from the DAO compared to what the DAO itself thinks that it should be be be pushing. Um, we're doing right now quite a lot of work around DAO constitutions and scoping. Um, I think this is like one of the key elements that we have been lacking um before and also like what I believe kind of like in the end ended up triggering the maker endame plan. Uh the maker endame plan was basically uh this kind of like very big change to to maker. I'll go a little bit more into it later as well but basically know when like maker didn't have a scope before right maker just said we're DAO and everything is possible you can basically do everything you want. Um this resulted in too much stuff happening. Uh this created like a lot of operational friction. uh you know even if you on board something which you

know seemingly seem you know seemless seeminglessly uh is kind like some loweffort activity for the DAO um it's still new stuff you need to vote on it's new stuff you need to pay attention to it it's focus that is taking away from the core contributors uh so like right now we're really making like a bigger push for trying to create more like structured and and clear understandings of what the actual scope for the dows are so we can you know kind like make sure that you're like have an understanding that like you know this is what we will be paying for this is what we're responsible for. So anything that kind like falls outside of that scope we actually don't want to be governing that. Um you can say a little bit the same with like you know politics. It's not like the government

should be uh governing everything right. If you make a comparison to Maker, you could also say that like, you know, us governing things such as throwing parties or, you know, creating swags for conferences is maybe something that should fall outside of the scope of what the DAO should actually be paying for, right? And also governing. Um, another thing we've seen a lot uh is that there's some of these like more like formal standards that are starting to uh materialize within the protocols um kind of through this like gradual decentralization journey. A lot of people are taking like a more like structured like centralized approach in the beginning where you use a lot of like councils, committees and working groups to execute like certain actions.

Um, I think also like with the council and committee model, it kind of like goes back to what I mentioned before is that like you're basically creating this like not just in some cases like has a small compensation, but you're creating this kind of like social responsibility for the people joining a council, right? Like compared to if you just hold a token, you don't feel a lot of responsibility necessarily for like participating in things or voting. Even if you're just like a normal delegate, I would say like not a recognized delegate, you still don't have this kind of like social contract of you actually taking on the responsibility. But you know, if you join a council or if you join a committee, then all of a sudden you yourself has accepted the responsibility of what it is that you're supposed to do. So we've seen like yeah

like the counciling committee structures be something that like the Dows are like trying to implement to really be able to facilitate this kind of like um like stronger commitment to actually executing and doing the work for the Dows. Um then the next point is kind of like this step above just normal delegates but which is you know recognized delegates. Um again here we see a a pretty big difference between people who are just a delegate and the people who are recognized delegate. It might seem like a a very small change, you know, almost just like a small formality that, you know, you have to make an application and you have to get voted in, but again, it creates this kind of like strong social contract that you've actually accepted the full

responsibility of what it means to be a delegate. So, compared to, you know, I think we we saw like some of the the L2s, they kind of used this, you know, claim your adrop, you have to do a force delegation. It was very popular for like a lot of people to say, "Oh, I'm I'm a delegate now." Um but like afterwards you kind of got stuck in this situation that these a lot of these people you know maybe in the moment thought oh well it's pretty cool to kind of like get like a lot of people to delegate the adrop to me but then when it actually came to like executing the work um I wouldn't say everyone there's definitely some who stepped up uh but there's there's definitely like a a pretty big lag between like what you want people to actually achieve with

being a delegate and then to what we saw some of these individuals actually be doing. Um we're also seeing a pretty big increase in governance compensation. Um you know I think for like a long time the Dows were very happy to spend a lot of money on getting the best talent within all the fields of the Dow. So you wanted the best tech people, you wanted the best PD people, marketing, you wanted to do big campaigns, you want to give grants to smart teams. But then when it came to governance which is you know arguably one of like the the cornerstones of actually being able to facilitate any of this uh compensation was lacking for like a long time. Uh this is something that's changing now.

Um and I think also like over time we will see that you know the the top protocols that really wants the best talent within governance as well they will be able to attract the best delegates the best you know people who sit on various committees councils the specialists from the ones who you know arguably you know is like lacking a little bit on the compensation. So similar to how we have kind of like this like market for for general talent within the web3 space you know where companies and dows are poaching the best talent from each other we'll be seeing the same on the on the governance side. Um then there's also this kind of like whole problem about like you know what if we do like a lot of things that you know doesn't work. Um this is something we don't really we

haven't really seen it that much yet. I think uh you know something I'm really excited about. But I'm also mentioning this in a later slide about the things I'm looking forward to. Uh is basically like we're seeing like now maker going through this endgame plan basically saying okay all the stuff we did before didn't work so let's try something completely new. Uh so it's like it will be like the first time where we see a major uh protocol. Um you can argue whether is a mature DAO or governance system or not. uh but like let's just for for the the sake of this conversation say that they are one of the more mature um they're kind of like revamping the entire governance system from scratch. Uh so this is something that you know I I also speculate that we will see like more in the future

basically like Dows ending up in a situation where they can like have trapped themselves in an an like dow operational model that simply doesn't work and therefore have to do things completely over. Um some of the main problems uh we have uh I talked a little bit about like the the triangle before. So there's like the alignment between the different stakeholders inside the DOM. Uh there's the participation aspect, the voter apathy. Uh again um how to actually get dedicated people to participate. Um and like of course like you know in some of the systems we are we are maybe you know like five or six dedicated participants.

Clearly not enough. Uh so again you also want to make kind of like over time at least make sure that you have more than just like a handful of people participating. Then there's the the resource allocation for the DAO. Uh I think this is right now one of the the main things that we're dealing with. We see a lot of the DAO is kind like building the entire like like governance model around uh grants allocation and treasury management. Um so how to actually like make sure that you get like the the right resources inside the DAO uh you could say to execute what it is you want. Uh then there's like the clarity what is it that you actually should be doing the direction where is it you want to be going towards uh is another thing we want to try to work with this in in

what I also mentioned with the constitutional work. Uh but like most of the Dows today they they maybe start out you know thinking oh like we we want to go towards decentralization right but like what does that even look like? I don't really believe that a lot of us know this right now. Um and uh of course this is also tied to kind like my last point which is success right have you really seen any like protocol governance being wildly successful? Uh for me personally I think like one of the places where I see um maybe like the the the kind like most well functioning governance at least with the scope of it is a place like curve you know where you have like just pure economic mechanisms driving the governance there's no real

need for like discussions there's no real need for like a lot of topics uh to be debated or people to be executing things. you're basically just like having people uh you know using their curve voting power or in other cases selling it to other people to basically uh you know move the emissions around. So I guess like at that in a in a place like curve you know we're kind like removing the human element from it which might be why it works uh a little bit better. Um then we've seen like a lot of teams kind like trying to solve governance as a technical problem.

There's so much DAO tooling being built, so many different things out there that can give you insights or help you vote or you can set up a DAO in two transactions and all of this stuff. Uh what most of them are lacking is just that like governance is not a technical problem. Uh it's an organizational problem, it's an operational problem. So to really solve kind of like governance today, we need a much bigger focus on the operations. Um we cannot continue to think we can just throw more technology at it and then it will kind of like solve itself over time. this will just not happen. Um so okay some of the things for for like the the the younger protocols um there's kind of like this like idea you know

like build it and you know they will come like this will just like not happen. You really need to be very proactive in getting governance participants. You need to talk with your community. You need to talk with people you want to have coming in. you need to create this kind of like relationship with them where they actually will be uh dedicated, right? So, this is a lot about being proactive. Um, not saying that you should steer the entire process, but you should really try to to kind of like get get the the right people coming in. You also need to be very realistic about like where you are. I think like a lot of projects and Dows, you know, they kind of like, you know, overshoot a little bit their their capabilities or, you know, like uh what they're able to do. Uh so yeah like be

like very realistic about it. Uh and then the participants they really matter a lot. Um and then yeah you know like the the DAO you want and the DO you'll get is often very very two different things. Um so it's also not something that you can just kind of like initiate. You need to like constantly uh work on actually setting setting it up. Um yeah I I have very little time left. So I'm just quickly going to go through like the last like two slides. Some of the things I'm excited about the maker endgame plan. I'm also really excited about some of these newer projects that are taking like a more like governance agnostic approach like ANA is a is a novel DeFi setup borrowing a lending market. Uh no governance no oracles. Uh so there you can create governance

mechanisms around other things. U but you can kind of like have a protocol that uh works with like a governance mineralization. And then we also just see a lot of growth around Dows moving towards decentralization. Uh so like in the coming years we'll really see like so many advancements and so many uh good things happening uh within the DA space. Um yeah so if you want to get in touch with us uh our website is here my email is here Twitter um we are actually right now looking for new delegates to join our our delegate team. So if you want to come in and join the market leader within uh the active governance participation feel free to reach out to us. Um and yeah thank you so much for joining today.

[Applause] One question. No time. Yeah. Sorry. Uh because of the small delay, we have no time for questions. Yeah. But you can always catch [Music]