How to Grow DAOs Organically | Mika Honkasalo, Shreyas Hariharan

Transcript

before we jump into the app quick reminder that nothing on bell curve is financial advice everything is just a meme hope you guys enjoy [Music] shout out to our sponsor Reserve if you don't know Reserve we're going to talk more about them later in the show but Reserve is the easiest way to design deploy and govern stable coins backed by a diverse set of assets with access to defy yield and insurance super interesting very excited to partner with Reserve you'll hear more about them later in the show should we get into it let's get into it let's do it all right see you on the other side welcome to another episode of bell curve I've got shreyas hariharan and Mika honkasalo gentlemen welcome to the show great to be here thank you great to be here guys uh we're missing Jason on this one he

said he was so intimidated by your intellectual prowess and capability he actually couldn't with no uh he woke up with a without his voice so we're gonna do our best to Soldier on without him today um we got a great great episode for everyone uh we've got a lot uh frankly to unpack and I'd love to to get into as much of it as we have time for um Chris I actually want to turn this over to you you you have this great analogy of uh you know kind of kosa's theorem right and kind of this this theory of the firm and how that might translate into the new world of Dao so yeah I saw you gave a talk at Main neck you kind of just unpack um you know your your ideas there yeah for sure so the the basic uh idea that John of course who is an economist

in that in the 1930s um worked on is is the theory of the firm which is he asked this question if why does the firm exist uh why can't um individuals say it Ford Motor Company whether it's the engineers or the uh designers or the um the executives just work as independent Freelancers and why do they have to come together as a farm to sell their services um and the reason is because firms reduce transaction costs and so uh firms actually you know there's a lot of cost in code when individuals sell their services independently in in the free market and uh specifically there's three types of costs uh you know one is uh triangulation which is finding and

measuring the quality of a service uh the second is uh um transfer which is it it costs a lot to bargain and negotiate for a specific service and so if you have an individual every day who is um trying to associate how much they're supposed to get paid and what the contract should be that would be quite costly and lastly trust which is uh the party may not be trustworthy and you know you can have um uh you know usually you have the legal system that uh comes as a you know last uh sort of option a free course but legal system itself is is expensive and so funds really have reduced these transaction costs which is why individuals working firms um and then the internet has helped reduce

um a transaction costs significantly and so uh you know by individuals being able to directly work uh for you know Services uh that other individuals demand um you know it's it's reduced transaction costs free one example would be um Uber where you know drivers are able to you know sell their services and find Riders and of course you have the app that mediates that but that's very addition from having a taxi Medallion that then mediates it um and then same with Airbnb uh same with other like gig economy type freelance or Design Services uh and so this uh you know uh endows are or blockchains are in that you know wave of

helping reduce coordination costs where you have this you have this system you know you you uh you have kind of ethereum let's say that uh Journey has a those prop designation State type properties of contract enforcement that can help you know people from around the world whether it's uh you know from different countries or in some cases synonymous people that you trust each other and then you have um uh these individuals that can you know sell their services directly uh because they have some shared uh you know level of uh sort of contract enforcement or trust that you know mediates that um and yeah my argument is that uh post was that um while transaction costs have

reduced that reaches a point where you know individuals and we're seeing this with contributing to protocols what it is hard for individuals to contribute to credit cards directly because um it uh you know there's a lot of cost involved in coordinating sort of you know sort of different skill sets within smart contract engineering or governance work there's bargaining power and even like passing a governance proposal and so you know there are there are these collectives that come together to even contribute to protocols that you know make make the um the contribution even more uh effective and impactful and so uh the idea is that it's almost like you've had this um unbundling of um of um uh you know labor and then now you're

kind of having a rebound link but that's emerging more slowly uh through Taos and and especially doubts that that contributed credit cards yeah it's funny to to look at Dallas through the lens of Coast right the closest theorem because if you look at a company and the aim of reducing transaction costs you know you look at something like trust like hey you don't you both work here so you trust right uh triangulation right you don't have to go out and find a service like that's uh the guy sitting next to you or the San Francisco officer or whatever so you can see very through you know kind of traditional corporations in America how they've improved you know efficiency through basically just this kind of top-down hierarchical rigid organization maybe the next evolution of that is the internet where you're not all necessarily working for the same

firm but like Uber drivers right as an example of like okay we're both on this app and we don't necessarily need to trust each other I can very easily find you you know when you look at Dows and trails I know you're sort of talking about this specific subset contributor to us in your talk but it was interesting to look at it through this lens because I think in some instances it's almost like we're going one step back right up for a cosis theorem because even if you look at a lot of these styles that are trying to now recruit Services um it's like hey let's just RFP out every single minor service right in some instances and that seems to create a lot of like friction so I guess uh Mika you know maybe as a as a kind of avid Dow contributor maybe you could address

um saw that point how you see all this I do think that like in crypto sometimes there is a thing are we building something new or are we like building existing things over again on the internet then and when it comes to like how to set up working organizations towards like building actually some useful product or service uh I think the Baseline is sort of we do start from a reset in a way and that's where like a lot of this comes from when people are sort of discovering a lot like okay how should we like set set up like this organization and how do we accomplish this goal uh I think in practice like for example I've been like a delegate on maker now and the sort of least impressive part of maker though is probably the doll part in terms of how

well it sort of organizes itself so there is like a lot of skepticism around around that but I I think it's more of a like a process question where we we reset and we get to like try these things in a global and sort of pseudonymous way and and or potentially at least it's up to the market to decide and I and that's sort of what opens up like I think the kind of cool stuff and eventually luckily it's a better outcome but it's just within like working in that environment it just looks a bit more hectic on a day-to-day basis you know a question that I put to you guys is um you know I I sort of it seems to me sometimes I hear doubts get talked about in two different ways right which is one we are going to sort of reinvent the

theory of what the firm should look like right and in general not it obviously differs on a data down type basis but in general we want something that looks less like a hierarchy rigid hierarchical structure we want a flat organization something that looks more like a democratic form of governance internally right where you know uh contributors get more of a voice than necessarily just top down Management on the other hand uh Shreya I was kind of struck by listening to your talk and description of Dazz in a lot of ways it's almost the continuation of many trends that we currently see right like the gig economy uh like first of all like a global uh employee and contributor base right everything kind of takes place online um so I I guess like those aren't necessarily mutually exclusive ideas but in order for let's say like protocol

Dows or contributor Dows as opposed to I guess you call Bitcoin or ethereum Adele but like let's focus specifically on you know hyperstructure protocol type Dows do you think we need to like totally tear everything up at the roots and and reinvent it can governance actually be this governance that we're experimenting with that be an advantage or do you see it kind of as the natural continuation of trends that are already occurring in let's say the tech industry yeah I think there's always a combination of both I think uh the so the unique things that um you know blockchains and crypto enabled one is that you take a simple thing that anyone can create an ethereum address um and anyone can create uh multiple a 7 ethereum addresses that's a very unique

property of of blockchains that we could you could have these you know hundreds of pseudonymous identities each of them could be uh transacting contributing different credit cards engaging with uh different protocols as a user and it's just so different from a drill uh identity in a in a nation state uh where you have one identity linked to one person and so yeah I just picked that as one example of something that is distinct about blockchain so you can you can have um I think you you like many dials need to have more elements of copper governance uh especially things on maybe like in like the the idea of an independent board that review is the competition of a CEO like that's a useful idea um but uh but then you have these unique elements which is anyone can contribute

to a dial uh in some cases you have um several pseudonymous contributors who don't know each other in some cases you don't know you know who they are you can also um uh I think you kind of have to lean into the fact that and that you know the the down-native way of contributing is is different in the sense that there is more churn in the contributors and so you have um someone who contributes for a few months in one protocol you know contributes to another protocol for a few months and so I think um yeah you always want uh combinations about I mean to summarize I would say um you need so let's take Avi as an example so you know obvious uh is a

landing protocol Avi I would say has like maybe one of the more functional like you know D5 hours that that exist today um and uh so there's a there's a chord protocol that is built by Avi companies that is um you know the the liquidity protocol that um all the users use and they'll be built B1 B2 B3 does the major Innovations on you know what the protocol needs uh and then you have this large surface area for governance and for the Dao um and so that surface area includes address parameter updates um asset listings but assets should be listed on Ave uh treasury allocations how the treasury should be allocated um the safety module which is AVI has this Insurance Fund and how the

Insurance Fund needs to be adjusted to reflect the growing needs of the protocol um uh grants and like sort of funding incentives uh for people to you know build on top of Ave and so that these host of functions that the Ave uh sort of companies that the centralized team is not working on that clearly the Dow is is doing and there's some things that can happen in a sub-dial model so like you know uh it's almost like a unit of the Dow and so Abby Grant style functions like that but there's some things that is just much better as a service provider so you have um say uh you know Gauntlet or um or Lama or chaos Labs that that stuff avidao with specific services and it's just way better because they compound uh

you know expertise from working seven dollars to provide Abby with it with a useful tablet so I think you kind of need a combination of different things and and I I think the yeah the unique thing that the Dows enable is that anyone can theoretically contribute um but like like I found out before there are some uh constraints on that like these things that you know anyone can theoretically um say like you know get a government contract or something right but but in reality there's there's a lot of constraints that prevent people from privileging that and we need to ease that that access better but also make sure the the quality of of the work in contributions remain higher it depends a lot I think also on the task at hand that's being performed what kind of Daw structure is good because you think like

ethereum is kind of like this big ship if there would be like sort of real governance decision making in that I don't think that like creates an optimal outcome actually and and like it's better that and also people I think like just generally in an informal way agree what the roadmap should be and let's just work like very uh deliberately toward that now something like Union swap as well it it's just it's like a it's kind of like an order book and you just trade on there and doesn't actually need that much stuff but like the other example explained here I like the maker one you like I would let rather let computers do everything right but as long as they can't like you need a human human kind of doing those parameter updates and that's where you kind of need governance because the task is more

complex than like matching orders in a way like actually setting interest rates and things like that is not like a trivial task even in make or you actually need someone to do it and I think like also an underestimated part is that people do have an opportunity to contribute anonymously or pseudonymously to to like these projects there is like I think a lack of like really really high-end like work always and and if you're able to do that I think you're always able to make your way to like the top of or like to an important place in terms of like working on like all the interest rates or something like that because uh like it's such a such so few people actually do that very well so yeah I think that's uh I really like a pun because ethereum is a great example

of uh yeah you don't need unchain governance for everything ethereum functions uh well and there's governance is basically uh decision making and it's it's almost viewed as like you know Productions and does it's like an extension of social networks Which social networks have people maybe communicate with each other but but the point if if maybe dial governance is that you you combine that communication with um your other coordination and decision making power where where there's the structures that people can make decisions and the structures need not be kind of uh on chain uh governance or token all the voting right they could they could really differ based on what the needs of the protocol are and um uh and yeah and and also even within the

on-chain governance uh um yeah uniswap is is much more a hyper structure that has just uh you know a need for governance for the fee switch and tragic treasury allocation versus AVI has you know a much bigger mandate because of the sort of risk side you know we've talked about that uh this idea you know even in past episodes uh you know with with uh with hasu and Chris in episode one of the Season uh this kind of idea that there are different governance structures that are appropriate for different uh layers let's say of of like how however close I'm a protocol is to kind of let's call it the base infrastructure layer of crypto right so let's say for something like Bitcoin or ethereum like governance because there is some governance right there are eips

right like we implemented eip1559 this year that was very there are changes that are being made there right there's ultimately like to your point there's a road nut that's being aligned on but it's kind of this big it's this big barge right that's very hard to to move uh in One Direction or another and that's probably more of a feature than a bug then you could kind of go one layer up right and then maybe there's something like an Ave or compound or maker those are like very base layer infrastructure things and then you can kind of go all the way up the stack to more consumer facing applications so what are your sort of thoughts on different governance structures that are appropriate do you think it should be kind of you know bigger and more democratic at the base the infrastructure layer so things are

harder to to make quick changes to and maybe more Nimble at the top or how would you think about uh you know prescribing different types of governance to different parts of the stack I like a very like clear separation where if you have things that need to be done that that part I think should be done like by people who are really invested and aligned with the project and if you and then like the base layer infrastructure um like especially over time uh things like Avant maker more and more will reach that kind of ethereum status to me where I just think of them as like kind of like natural monopolies that can form uh very well and that's and they're kind of like like the big energy companies

that are almost nationalized by national States and things like that that to me is an analogy and the way that they sort of the business operates like in some of those cases like at ethereum at end state is kind of like a business that any idiot can in a way operate because just runs and makes money forever it's like digging oil from the ground you know it doesn't like at that point when you reach that sort of real level of maturation I think it looks like that like as a business so in that sense I don't think it needs to be like touched anymore the same way I like the chlorine and protocols don't get to like email doesn't really like get touched in that way so I think like there you really want to over time reach that and then when you're doing something very

specific that's where it helps to be like much more concentrated but also like you can think all the organizations on top of ethereum are kind of like sub-dials of that in a way because they're building using that infrastructure building their own thing utilizing and taking advantage of like ethereumous properties they just like have their own governance model on top and like their own like sort of runtime value extraction but like it's just uh yeah the first like the high they're more consumer facing you are and the more Nimble you have to be the more you are less of a dollar and then over time I think all dials sort of should get dissolved in a way where it's just runs on pure math the whole thing I'm gonna make a maybe a weird analogy here that might be a bit of a reach but but sort

of bear with me um you know one one big topic especially like let's say in the in in the case of something like Lido an advantage that Dao's can do that other it would have been much more difficult to do in the real world is to ossify certain things in code right make it immutable so you can't necessarily change it um if you think about it like if you think about the governance of the United States right what we've basically did we kind of like forked different ideas in the past right there was like the Magna Carta right which was kind of commonwealth law in the UK and the Republican sort of structure back in ancient Rome and we took a bunch of that and we created this thing called the Constitution and then we sort of ossified it we made it like very difficult to change what that ultimately

is right you can do it if you get a super majority we had a Bill of Rights and all that kind of stuff but uh we almost like enshrined this thing right at the beginning of the United States and I'm not sure how familiar you guys are with this kind of idea that ultimately like property law like strong property law enforced by the state is a huge determinant for what ultimately makes something successful or or not um but I kind of believe that right like because build a company in the United States as opposed to other countries because we know that the government isn't necessarily going to come in here and and take it all right there's that there's that kind of certainty so I'd be curious how good of a job you think Dows right now are doing at creating that that same

sense of certainty right there are a couple of examples where that hasn't necessarily been the case but um if you call ethereum a Dao I think they've done a pretty good job of that but I'd be curious about some of the other doubts like how immutable uh that the state that they're creating how do you have well good of a job you think they're doing yeah I think the um that analogy of the of the Constitution uh should maybe apply to the to the blockchain to layer one blockchains um and so I think like ethereum it should be changeable but hard to change like the Constitution and um and and it is in in blockchains though it's easier to change in the sense that um well if you know it may be hard to do

an EIP process but um maybe you could you could Fork it there if you could start your own blockchain now it's hard to get adoption in that case but um it is difficult to start a country with Iran Constitution at the various entries are much harder than um then the barriers are actually to start your own blockchain I think um the now protocols endows that are built on blockchains inherited some of the properties of blockchains but they don't need to resemble the same level of um uh yeah like you know I I had a uh in some cases they could be like unchangeable completely immutable in some cases they can have much more flexibility I think in you know say

Landing credit cards they uh there should be some room for um you know the changing nature of of D5 and markets um versus yeah maybe in amm like um yeah maybe unit swap P4 after you know once if they launch it like that is kind of you know like maybe I don't I don't think so but maybe that maybe that's it and then you just need like minor upgrades on top of it um but maybe that doesn't apply to say Landing credit cards I think um and so it yeah it just depends on what the application is I think um if you if you do stick to a specific um uh if you do stick to remaining relatively immutable but yet it's

possible to change but you're having an opinion like let's say like nouns for example has uh this one auction every day forever and um uh and people bid on that that auction and um you know the um the proceeds go to the treasury and then it's allocated to fund projects that build on ounce that's an opinion like they could maybe have 20 auctions in a day they could they could maybe have one option every month but the protocol has an opinion which is they're doing one option A Day forever and that's what's that's what's said and that's like the social consensus there's a way to change the protocol and you could you could really increase the option speed to decrease it uh let's say there's no demand finance options will they make it one a month um I don't know but like it's um it's

it's more interesting when it's when it's just like sticks to one a day and then maybe you have Forks of nouns that experiment with different option frequencies and so I I think um there is something special to this community building this is almost a little bit like the the autonomous nature of the Dao which is the protocol that does have these rules that um are are opinionated and are specific and you know there's some social consensus that it's going to just run forever um and and you have you it attracts this community of contributors or users uh and builders that uh are attracted that particular Mission um and that that opinion and if people really oppose that you know that instantiation of the protocol you can discuss four kid and have your own experiments uh to me it's very much

dependent on on just the business you're in and like the business your own kind of dictate it's where you can think like maker doll has two ways to go about this uh you can just try to be like super decentralized and try to survive and maybe that's the right way to become like the most important Global infrastructure and an important stable coin but the other one which forces you to take risk and forces you to govern things is if you want to generate yield off chain for example but that does give you like the advantage of capital efficiency being able to put that Capital you make chain into like on-chain vaults that increases your competitiveness so it the good part about forking is exactly you get to like try out every variation of this but it I think it depends on the business you're

in a little bit where it could be where oh we're on the right way to go about maker from now on is to be very very conservative or it could be that right now the best way is to get all the off-chain stuff put the yield sources in and really like push the capital efficiency and make dollar more attractive to hold and that's what wins you the game so I think like it very much depends on just the market forces you in a sense to do different things because maybe we could start to get into some some tangible examples here like moving from the kind of high level theoretical down into what's actually happening on the day-to-day maybe we could actually start with maker because maker in many ways is kind of a Bellwether it's I think the first uh maybe you could call it like

consequential Dao if you don't include something like Bitcoin or ethereum you actually just describe for for listeners who might just kind of know what maker is understand what maker the token is versus die but like you just describe maker as an entity like if you were describing a business like Amazon you say it's a shipper right it provides AWS like these are its customers this is how it makes money can you kind of give us an overview of maker and how it all works and then we can get into the governance yeah I think for uh for the purpose of understanding it like as a business it's very much like a flat organization with like different parts I'm not describing like the old version of maker the new version is sort of more eccentric but uh before that comes let's just talk about how it's been it's like

thought organization with like core units who are often responsible for like a specific thing those core units are made up of like a certain number of people for example engineers and then they have like a facilitator who sort of in a way tries to answer to mkr Tolkien holders so that's one part of the equation the second part is uh you have delegates uh who basically vote uh on everything related to money and our risk is handled within the system so it's about how budgets are allocated how how different risk parameters around debt ceilings are set and then like there are token holders not very many but like token holders who have delegated their tokens to these delegates who then like approve or disprove basically uh how

budgets are allocated and and how risk is managed within the system so that's kind of the the governance structure what what are all of those different pieces trying to achieve right I know at a high level it's kind of the perpetuation of the stablecoin die but what if you sort of went around and pulled all these different stakeholders within the organization what would they say the objective is so that's the funny and sort of worrying part uh and sometimes in maker nowadays which is that people will probably give you different answers to that question uh some people who are much more heavily want a certain type of growth strategy and another one like another so it can be as simple as what should the interest rates be like how competitive should you make them in a bull market to encourage

like Leverage from the system system to all the way to the like the Baseline philosophy of do you have real world assets as collateral or not and like that's that's like a point of friction and actually probably gets you like uh quite a bit of like different answers and ultimately it's like Democratic vault in a way of those people who or those tokens that show up uh via delegates are themselves like the majority always kind of wins so it's like a like a democracy in that way it is kind of like a uh like a slow moving entity in that way where you you get like decisions that are kind of you you tend to get decisions that are kind of conservative and it's good that like for example in the bull market like people didn't take like UST for example as collateral and

things like that so there's been like sensible decision making so I think it is like um there's like some good parts to it but there's also some bad parts to it where also the doll tends to like ossify around like certain people and and in practice you do tend to get like this effect where a few people are very much like sort of the key decision makers in the system and that's not necessarily bad but it's just like a reality as well so I think there's probably like more complexity on the organizational side that's kind of necessary in that way uh relative to like what's actually being done so it is kind of complicated but it is also very cool in a way because you do have like different kinds of people from all sorts of different backgrounds like bringing

new ideas to the table and and they'll still have a good chance of getting implemented they're good so there's a lot of positives as well all right everyone brief break in the show here to talk about our newest sponsor Reserve so you know it's looking pretty bleak out there it's not looking that great but you know what the one thing there's no bear marketing stable coins Stables babies Stables we love those stable Coins app which is why we're excited to partner with Reserve protocol so let's just start with the basics what is reserve it's a self-service platform to build deploy and govern asset-backed stable coins uh which can be integrated with defy or within the real economy so the cool thing about Reserve is basically anyone out there permissionlessly can take any set of erc20 tokens and use them to collateralize their own stable coin so

the long-term goal of the reserve protocol is to create a non-inflationary currency that is stable on a month-to-month basis but also a century to Century basis in the meantime though their open sourcing design decisions for stable coins which is just super super cool I think one of the benefits that you get there is diversification you hear it all the time in finance 101 no such thing as a free lunch except for diversification station that's what you're getting with Reserve protocol yeah I've known the team for a long time I spoke on a panel at SF blockchain week with Nevin uh with Joe Carlson and Alex gladstein really impressive uh growth that they've been able to have so far right the premier stable coin is RSV it is backed by three other Stables it's already used by over half a million people transacting over 300 million

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the very least you should click the link at the bottom of this episode go check out the reserve website see all the cool stuff they're up to most importantly though click this link you got to give Jason me some credit here give us some love baby give us some love all right now back to the show let's get into it there are kind of like three large sets of stakeholders in in maker right they're the core units um then there's also the delegates and then there are kind of token holders right and one of the benefits it's like one of the maybe uh the cons of an organization like that is there's a lot of uh you know friction sometimes and people aren't necessarily aligned on one goal so sometimes it feels like hey we could be sprinting faster here if we all just got on the same page that's what

the goal kind of is at a startup but on the other hand it seems like it functions as the sort of checks and balances type system right where actually moving slower can be a feature not a bug in some instances maybe the case of like not accepting UST as collateral is quite a good one right because I would imagine that would have been very damaging to the maker protocol so maybe like with that particular frame of governance in mind like let's move to another kind of base layer protocol something like uniswap right which my understanding even to swap is there's uniswap Labs which sort of builds consumer-facing products on top of the protocol then there's the recently formed unit swap Foundation which manages updates to the actual protocol so I'd be curious like if you take a look at these two forms of governance like is the governance structure that

maker has necessarily applicable to uniswap is it not mixing would it you know could you not just copy pasta it over to this new protocol and if not why yeah I think um the unit swap yeah how a unit swap is so different is that it's uh it's it the emm's like just by by the nature of what they are like requires um much less governance there's just way less surface area for what token holders and what contributors should do the main yes so right now I have unit swap governance structure like they're just two things that um two main things that governance needs to do but one it it can allocate the treasury so right now it's allocated the treasury to different

initiatives uh to the you know defy education fund that funds that sort of legal and policy initiative so defy uh to Grants programs and then now the unit swap Foundation um and it can sort of allocate the treasury and then two uh there's the the fee switch which is um uh unit swap dial can start earning revenue and maybe once the fees which happens then it results in other questions because you have a bunch of right now the unit swap tragedies just uni tokens but then if there are other assets that go to the inner swap treasury then uh then there's more room for governance because you decide what to do with those assets maybe there's a treasury management question maybe there's a a question of um how do you use those assets in governance of other protocols um but even even in its Max let's say

like there doesn't seem to be as much uh need for for governance and so I think the um the goals of uh um yeah if you're in a slab it should you know it should be to attract uh that if um uh you know developers and intranance to bring liquidity to the protocol um and uh it's interesting because the the labs entity is is sort of building you know products and on uniswap and is no longer kind of you know growing and maintaining the protocol the foundation is is now taking charge of that and so yeah this is a question if there's you know does the foundation just you know do minor upgrades the protocol will the foundation um you know build uh you come up with with sort of new fresh Innovations and

is that the right structure for to incentivize some of the top like sort of smart contract developers to um engineer like you know major Innovations in in the mm model I mean that's yet to be seen but I think the um the the like the basic idea kind of works fine like there's there's always questions that you know uh you know swap governance is um it's kind of it's a little different from maker which is maker there's a lot going on there's a lot of different stakeholders it's quite messy uh unit swap it's more there's not much going on and I think it's a little bit of a function of uh the mm doesn't need like sort of too much yeah I think just what kind of structure I would want actually for unisoft is like the labs

entity and unisoft Labs really has an incentive to grow the protocol just by the virtue of them having a lot of Unity on their balance sheets done and then being like the founders of the project and I do find that the problem with like Grant programs and things like that so far has been that you don't you're not really able to produce those sort of long-term results where someone is really incentivized to build their business on top of unit swap so like the kind of Ideal case you'd want actually is okay someone like taking the unisport protocol really putting a lot of effort into building a new type of business on top of the protocol for example like perpetuals folks or something like that and really making that their own thing and being able to be rewarded in uni in a way for that effort and actually

becoming like a second Labs entity that's on top of the protocol that does as much good for the protocol almost as the labs entity does like if I I think protocols have been sort of poor Arc managing sort of their token table cap table and really incentivizing this kind of action but that that's the kind of thing you'd ideally I think took me like to see because otherwise it's just the lab's entity doing its thing and you know soft token holders thinking whether or not it's okay to turn on the v-switch which is kind of like an uncreative uncreative way but but if you could really have like another like tip of the spear pushing things forward that's that's the kind of outcome you really want and maybe the foundation can do it then actually a good example if it's of

a second Labs entity in Avi uh there's um you know bgd Labs which um is consists of some core members of the of the Audi um original Avi Genesis team including the CTO who you know then left Army companies and is getting funded by the Dow to work in code protocol development it's a he has at least one instance of um you know people who have a lot of contacts in the protocol you know are motivated for it but are getting getting now funded by the by the Dow because um yeah it is a different approach to you know build products on on the protocol versus you know focus on your new protocol animation I have a question about something like that

um so I mean if you think about again maybe to this is oversimplifying it but using the analogy of like a firm or something like that let's say like a firm wants to embark on a new area of business right um like let's say block works you know we've got to use an example you know we we're a media company but now we've got research as well so right now it's like okay we got to figure out in addition to Media how to sell sell research it's a little funny to kind of hear the CT I was like oh I'm going to leave Ave companies and start my own thing that leverages this uh because instead of like in a firm right going back to coast and reducing transaction costs you're like hey it's your job you're already employed here like let's go figure out how to do this there's no

additional cost or friction but now it's like every time there's a new thing someone come disband from The Entity leverage you know what's already been built and be like I want equity in this new thing that I'm building do you kind of see what I from that lens it might actually increase transaction costs I think the yeah the the reason is because um the protocol is different in the sense that it's uh like products and protocols like you know the like building unicever V3 and V4 is different from building a wallet right and so I think um you kind of you you could I like all that's equal uh if there were no regulator hurdles or if there were no other issues like I think the right

structures you have everyone in that same team uh that's both building the the protocol building products and the protocols you're thinking about both uh you know um in the same way you ID don't even have uh Equity you just have everyone has token ownership and there's nothing else there's no um you know one Equity one token uh that leads to you know different incentives um that's I think the ideal case there are a lot of constraints that you know prevent that from happening and so this I think the second approach is does make sense which is you um yeah you have uh people who are funded by uh the Dow to maintain and upgrade the protocol but um they can stay in the in the labs team but uh but if if the labs team is is uh

focusing you know more going forward on uh Building Products um that uh you know that that is kind of you know just just different from um the chord protocol maintenance and development The Core Labs team also has has Equity there's sort of a different uh you know there could be situations where you know the token does well and the equity doesn't do well the equity does well the token doesn't work um and and I I think you you're kind of um you're kind of having a different bet when you're getting funded by the Dow to maintain let's talk a little bit um you know about this idea of uh value creation versus value capture in Dallas I saw it you shared an article the other day

um and I thought it was quite interesting um you know basically you know to summarize for the audience just because you create something of value doesn't necessarily mean you can capture that value right like maybe the most classic example of something like a Wikipedia right I think I use Wikipedia a shocking amount in my day-to-day life actually um I do it on weekends sometimes go down a little Wikipedia rabbit holes and it's like very entertaining for me uh I think Humanity as a whole probably gets an enormous amount of use out of Wikipedia the effect to which that value that Wikipedia has created has been captured by the creators of it is that's where it's a little bit uh thinner um I don't know Chris if you want to maybe take a take a swing at summarizing the the this particular article we'll link to it in the show notes but you

want to take a swing at uh yeah I can uh some of my thoughts I've been thinking about this for some time and then um uh shared a really good post and some of it overlaps but uh with what he shared too I think um the so so firstly like the um uh you know because if the nature of Open Source protocols and the fact that you don't have uh there's a lot of things uh that how companies capture value that is um is driven by the fact that there's either proprietary uh data or there's a proprietary algorithm or there's the other you know the source code is proprietary and um and open source

protocols you know by default you don't have any of that uh and so you know right now the um yeah the main things that have you know include value is that this this the main the main token model that probably that makes sense right now like that clearly works is uh ethereum like I think the um yeah the layer one chains and like the um the proof of stake model like that kind of makes some sense like it's like versus really anything else and like you probably have uh then things like maybe Avi and Mika that fall probably in between but yeah it's it makes more sense than say something like uniswap but it still is not uh like you know proven yet and I

think the um so the few things like one uh is this question of uh Revenue so like let's take uh unit swap right like unit swap is is an open source protocol that has um that you know this is all this oh this is the way that can gonna turn on uh fees and and you know you have the fee switch that can get bring Revenue to the dial you could do that um but in reality uh most of the like a lot of the like you know the revenue could actually come from products built on top of the protocol uh can come from maybe payments from from other flow this is how like you know folks like Robin Hood and other you know ballists and exchanges will make money and so that is a way more sustainable um Revenue

Service than like maybe the feed switch the the you know the fee switch could bring quite a bit of Revenue to the Dow uh and also there's this there's always a sense that you know if if you you can't keep increasing prices because at some point there's um there's the switching costs when you have open source protocols competing with each other is just much lower um and so I think uh there's yeah I I think one idea that uh that I have is like you kind of almost want a a more unique way to capture value to these credit cards and this is like thinking a little bit out of the box here but um but you almost there's a good post by someone from nouns um uh who who talked about

um nfts uh as as Providence rights and so maybe in analogy if you think about unit swap if they let's say didn't have um any erc20 tokens but instead you just had nfts uh that were issued you just had socks or some other NFD collection um or you had continuous auction nfts some some something that that uh that people get on that that had Providence rights over the underlying protocol um that maybe is interesting which is uniswab is a culturally significant protocol and therefore you know people are owning these assets that um that uh you know have this cultural significance and maybe there's demand for that it's an open question as to how many people would demand that like you know whether

that's valuable and all that but that maybe is interesting as well where the open source protocol itself doesn't try to you know capture fees in the in the traditional way but um there's other ways that it can have a set of status and Providence rights and and in other individuals or rich people can maybe have um some ownership over you know funding these these projects um yeah it's a it's a possibility too but yeah by default like the products uh like web 2 products just have a way easier value capture methodology than open source protocols I do think sometimes we may be over overthink the sort of value capture bit in the sense where unisoft token holders like unit holders they're incentives to maximize

profit taking from the system like that's that's what they would ultimately like to do uh but unisoft as a business may be one where the margins are just very small but that's not that different from just how technology improves people's lives you know like your distribution your overall like volume gets higher but you're kind of like your cut gets smaller and the efficiency of your business is like much higher you can think like Unison versus New York Stock Exchange uh like uniform is like the open version that the whole world can use maybe it becomes bigger than the New York Stock Exchange and uh and maybe like the cut you're able to get is not as big as the New York Stock Exchange because of like regulatory reasons because of like forking and competitive

giveness but there is like also some switching cost involved on migrating that liquidity where the liquidity on your swap is not that sensitive to like some fee level and you're able to like get that fee level and that's how it ultimately plays out also like these kinds of businesses it's very hard to know and there's like the I think comes to the nft point in a way what the monetization methods are ultimately and how good or bad they are because um something like Google didn't make money until it made money right and and I think a lot of these businesses kind of could be could be similar where you can intellectualize all you want about what the inner salt fee switch should be but ultimately if the products are just really large a lot of it gets

decentralized over time maybe there is like some amazing value capture there over time and that's how it just plays out but it again I think depends a lot of the business you're in and the switching costs aware like well how like if I put it put the fee up by whatever basis points on unisoft black is the liquid really gone or not and and if it is like the all the uh exchange aggregators will navigate to that but the unit swap front end won't and that has like its own stickiness and a lot of users so I think it's the very like traditional business thinking does apply to like something like the Unison fee switch for example yeah I wonder I mean the limits to which

it probably isn't so black like there are there there aren't an enormous amount of instances of forking really that are like very successful right like if you kind of look I guess Sushi swap is like the big one that is still kind of playing out in in real time and like Lord knows they've gone through their uh you know struggles with leadership and everything over there but uh but it there aren't it doesn't seem like there are that many instances of forking purely with eliminating you know a cost and taking an enormous percentage of the user base and you know when I kind of think back to like an analogy of like I am a customer at Bank of America and Fidelity why because when I was in like high school you know I got dumped into those Bank

institutions and even though Robin Hood had no trading services for a long period of time I would I still kept my stuff on Fidelity why because it was like kind of a pain in the ass to move everything and I just didn't really want to do it so I know if you know if it was a hundred dollars for every trade on Fidelity I probably would have moved that but it's five bucks trade and it was like is it really worth it so I wonder if there's some element of that within crypto as well where there's a sensitivity barrier maybe for four I think that yeah I I do think that's totally a uh like a safety um what's the word for it uh that that you just don't used to unmove things when you're yeah but like yeah you you kind of the B2B question is you don't

get fired for using IBM like I think um there's definitely that on the consumer side which is why trusted brands have a lot of value and uh and you know you don't you don't you know kind based uh blocks and people don't understand I agree with all that um I think that's in the product level though and that's different from the protocol so I think I think you want to own the End customer relationship then you want to have so I do think unit swaps like wallet or or the thing that only and customer relationship totally will have you know if it's good if it's as good as uh as coin-based Fidelity Robinhood whatever like we'll have that trust with consumers and um and and can have um that attention and if it satisfies those those needs of users I agree like

people are not uh you know there's very few people that are super um you know Define native and picky but that's kind of different from the protocol because the protocol almost exists in the in the middle right so I think you it's in this weird point because these these D5 protocols on on the one side you have infrastructure that that's that's really costly uh it's hard to hard to build but once it's built um it can uh it's hard to displace which is something like ethereum on the other side you have things that you know really have the End customer relationship um like the UNICEF Channel and probably using example but yeah like wallets and coinbase and things like that that have the End customer relationship again is hard to displace because you know people don't like to

move and then in the middle you have these protocols and I think the um these protocols have to move to one side of the other to become you know in some cases they have to vertically integrate like dvdx is you know building its own chain or they have to do both you know sort of vertically integrated you know get build a wallet and have the End customer relationship or they have to do both um but the court again we're just talking about core protocol like and and if you separate the protocol from the product like I think that that's where it becomes harder and you need to have like maybe some more thinking on how you actually have um Revenue with with strong retention the data point that really supports this that these protocols can become that kind of infrastructure I think is going to

d5lama.com look at what the top projects are by TBL they're the same ones they always for their maker of a unit swap the curve Lido is the new one because that's like actually new thing that came in the new last cycle and then last cycle we did pump every single incentive you'd imagine into like forking and and subsidizing all the variations and yet you still have this result and you can imagine okay if maker is 10 times bigger obvious 10 times bigger like it gets more difficult to jump it gets more difficult every single like dollar you add to one of these things so that would make me think that okay these do have that opportunity to become like really sticky infrastructure that's actually kind of difficult to display I've got another you know maybe even to dive into

some of the nuance and maybe let's actually use the example of the two protocols that we've been primarily referring to this whole episode which would be maker and uniswap so you know there's actually a great post uh by multi-coin another struggling a little bit recently but they put out some great content um and uh and it was basically this idea that you know protocol like Dow's manage risk uh and the more that you manage risk the more unforkable you ultimately are so like if you take the example of something like uniswap right the competitive advantage that unit swap has is liquidity liquidity begets liquidity right so right now they've got like an enormous amount of market share they have the most liquidity on their Titus Brads Etc But ultimately at the end of the day you could imagine someone else

is going to have the cold start problem of how do we get that liquidity but if someone offers like tighter spreads or uh you know lower fees if we eventually turn on the fees for the unit for unit swap you could imagine you know really mercenary Traders and liquidity providers just you know hopping over there there's like very low switching costs on the other hand trying to Fork something like maker is more difficult particularly if it goes down the route of like real world assets because there's an enormous amount of like very technical like underwriting of risk right that goes on to that goes on in that protocol and you can't if you just Fork it with a different set of code you can't take all the expertise and people that have like built up on the original protocol and just magically make it go

over there so like do you agree with that kind of nuance and do you think that some Protocols are more susceptible to being Fork than others I do agree with that framework that like taking on or just the business is more complex in a way where uh it's not that unit swap token holders are taking full risk of the unit protocol a unified protocol in a way because like if there is some reason why um like the ethusdc pair gets drained for funds with some hack and like unit swap holders are technically liable for that in in like the implicit way even if they're not explicitly so because if either they make those users whole or like somehow they they have to ensure

that the trust in the system doesn't go to zero and people in the future will trade on it and otherwise their token goes to zero right so they you they are always taking the risk it's just that their risk is different from something like maker or the risk is more complex and and uh where you're really yeah you have like lots of these different layers that are sort of like maker for example it's the specifics are interesting I think where um the stablecoin itself is kind of forkable in some ways because uh it's just the denomination of your Leverage and if it's just that it can be replaced because you can just take like another system take out dollar loans against your eth and be fine with that and you have like some cost of capital

competition there but the stuff that isn't forkable uh is if Dai is just integrated everywhere and it it's an actual stable coin that's used for payments and and lots of different things and it has a liquid Market on all of it and it has trading pairs on uniswap that stuff doesn't makes it like less forkable so because it's a more more complex system has all these aspects about it like even unisoft you can think how much is Unison forkable or maybe I should just go after the East usdc Market and only that with incentives because that's the biggest market and I can just try to get that one market away like unisol isn't one thing it's all these different markets right and they all have their different competitive Dynamics so you can even slice that one up like in different ways and try to attack universe and like lots

of interesting ways so yeah I don't know if that answered the question but it was like at least I'm rambling on run it did answer for me um guys I we're starting to wind down here I'd love to kind of get your your thought of like the end game so to speak on doubt and maybe we can ultimately divide that in between like what are some of the improvements that you guys would like to see made let's say over the next like couple years and then maybe we can zoom out like much further down the line um what you think and you know one question that we've been asking a lot on this series is I think if you hear the way community the community aspect of Dallas talked about like one year ago versus today it would be very different uh where one year ago you know there was

an enormous focus on the community and engaging them and it was this big competitive advantage and now I think that maybe some of the shine has come off of the last bull market you know people are kind of more talking a little bit at least in the research of doing the show about like you gotta run every little thing by the community which is is great that's one of the great things about Dallas that so many people can contribute but also like good decision making is often by like putting fewer people in front of making decisions than more it's like I've sat in on a couple of I'm thinking of this Twitter spaces I decided on the other night um you know where I'm just watching this group get roasted uh and basically they want to RFP out every single little decision and I'm just thinking to myself

like man that's pretty tough I don't think that's necessarily the best way to do it so I'd love to know how you think about kind of the pros and cons of you know each of these dials having this super positive and like engaged Community I suppose yeah I think um you you'd want to separate the uh decision making maybe into like three types of decisions like the first is these um extremely big significant decisions like a decision to uh deploy a protocol on another chain a decision to um uh you know to do an upgrade from V you know V2 to V3 a decision to um have some major change to see obvious um safety module to

um yeah to to change the protocol in some significant way to maybe set up a you know a grants program like those type of decisions where you have on-chain governance or something like that um I think then and the Other Extreme you have uh set of decisions that um like Captain allocation decisions that can be much smaller and made much quicker um uh and be made by people with much higher context and so um you know people who can make a decision on you know we should sort of fund this theme and the service provider and it's it's um you know it's not a ginormous amount of the treasury but it's it's within our budget and and you know we have we're like Risk Specialists we have the highest contacts on which risk vendor to choose uh and then and so

that I think should be made by you know sort of either full-time people in the Dao or high context contributors and I think you have the middle which is um yeah something that maybe there'll be a little more Innovation on which don't fall in in both those categories where it doesn't benefit from on-chain governance and also that doesn't benefit from a team of like you know five people just hiding and maybe in some cases that's like light token holder uh involvement maybe like high con like you know you have uh hundreds of thousands of um of higher context like uh contributors these might be voters or others that vote on some of these allocations or um you know nouns has an interesting model called prop house where every

month they um they have a certain amount of eat that's allocated to uh contributors that that put up interesting projects that they want to fund and and um and announce can vote on it so some Innovations in that in that mid space but yeah I think Jenny uh you see either like too much of a bias in in some cases uh to the onshine governance for everything or too much I'm advice uh towards like you know if a few people um are doing everything and I I think you just want to contextualize which decisions need function governance and and which decisions need um uh you know a five-person team kind of uh that has high context working on it the community aspect to me is like both overrated and

underrated I think it's like overrated in the bull market sense of how many people you have on Discord like being excited pumping the project but if you think for example like from maker dog's perspective important part of the community like I think the protocol and token holders there should set risk limits on what uh people can build on top and and let but let those people like colors and that's the real community so centrifuge is like the real important Community for make it up is there like interfacing with the maker dot protocols bringing real world like Finance to it uh and they're like they're an important Community contributor really and you want to give those people a great opportunity to build their business on top of this and you at the protocol level are making

sure that you're taking intelligent risks uh with regards to how much like leeway you give them but that kind of community to me is very important you want to see and I think for example the golf Lantern and llama and others who work on Army that's part of that's the important part of the community because they're like actually really contributing and being in there and making like their business but also like on other for example as a business better so that's the kind of community framing that I like more than than sort of the number of people on Discord anyway maybe like zooming out uh almost like to sort of an annoying degree right like the vast majority of people today are employed by traditional startups or corporations or you know whatever the um you know companies uh you know across

the world you know do you see a future let's say 20 30 50 years from now where it's more split and maybe half people like kind of contribute in a sort of part-time manner to these styles do you think people continue to work in companies but many people contribute to Dallas on the side like how do you think ultimately the balance of of work ends up balancing out here I think the the 40 50 a question and he's had it on set I'd say the um yeah over the next five or ten years um I think I think the um number of people that contribute to protocols and dads will increase quite a bit but I don't think that will compare to you know the number of people working at Google or Facebook um I think the it's it's just much more

so that you'll have um uh people who you'll have many many more people that um Can on a full-time income um contributing the protocols I think the there's especially like a subset of you know highly skilled workers whether on the um sort of uh programming side or the um uh or the rest side of the D5 financial side that will have you know uh doors open up like right now it's it's extremely hard to contributor actually to one of these credit cards but it'll become easier to various other organizations or the structures of these dials that make it easier um and so I think that number will increase it's hard to for what what that number would be because it's kind of

contention on like um uh just you know how many protocols there are and um how big that goes but um yeah I think it will be several type of you know multiples of what it is uh today in the next five or ten years but yeah I also don't think it's yeah the these protocols don't require like um you you kind of have this verification of people at it but you don't have um you don't need like a 5 000 person to have you know full-time uh group well you know working for Unison protocol that's just not how it works it's just much more you have these smaller units of individuals and contributors that can contact team and contribute yourself to a few protocols maybe they focus on

lending credit cards and they have some expertise that yeah he's over maybe they work for satisfied as they work for Dallas um and you'll have like maybe a a bridge too which is you have a little more of the um if the traditional entities as well engaging with doubs and and there's um there's ways that people contribute maybe more indirectly I agree with that a lot maybe my answer is is fun one related to it but I would imagine there are like these stories of I think there's like a 1.1 dude who was uh working on like a very important SSL infrastructure that the whole world used and if that guy hadn't like died well who knows what would have happened I'm not sure if that story is entirely true but directionally those are the kind of cases and you can think how many core

contributors that does Bitcoin have it's like very few but coinbase has a lot right so the business is on top that the build and I think ultimately a lot of these protocols will end up in a similar situation where it's just a one guy saving SSL kind of situation uh but then on top because more and more hopefully if any of this works more and more businesses will interface with blockchain just means that those companies will have a lot of people and but the core protocols themselves don't so maybe that's a fun answer for 20 years from now and yeah you guys find uh it made me think of there's a book uh by Nadia Iqbal called um working in public it's on the maintenance of Open Source software where uh she actually talks

about how different um founders of Open Source uh projects uh said that when the when the project got a lot of attention and everyone wanted to contribute um it was actually it actually was annoying for the for the pandas because uh the the quality of contributions already reduced and they have to now deal with management and maintenance if all these people um and so there's a there's a fine line between what you you want like high quality contributions but you don't necessarily need like a thousand people uh you know trying to um a set of comment on on improvements of years taking contracts something I think it's it's that suitable for certain types of contributions maybe like bug bounties and crypto have that place for like a Marketplace if you know like really any

number of people can come and spot a bug but that's a very organized uh sort of situation where people can get treated for high contact contributions it's just very few people can actually drive you know value to a credit card yeah actually um you know we I mean we found this this was a I actually one of our employees gave me this feedback one time and it was a it was a transformative bit of advice which was we were arguing about something a while ago it's like a design decision or something like that and something was weighing in someone was weighing in that shouldn't have been trying to mediate this uh this disagreement and you know the the advice that was given to me is like well people basically not everyone should weigh in on every decision because that actually makes it much worse right the people

that have expertise on a specific decision they should be given more autonomy and then on the margin you'll make better decisions going forward so I kind of keep that in the back of my my head as well that actually oftentimes if you want good decisions being made as a leader you want to try to find out like who you know who should ultimately have authority and say and how can we actually limit the amount of influence occasionally on decisions and and such but um guys uh we're doing the end of our time here you guys have been super generous I've you know really enjoyed this uh this episode if people want to find out more about like your work or follow you or or whatever like what's the best way to either get in contact or follow you guys uh yeah enjoy the chat uh I'm uh hello and Twitter h e l l o s

h r e y a s and um I'm a co-founder at llama uh so we're at llama on Twitter llama.xyz where you could um follow our book and uh yeah we contribute a lot to protocols in Dallas so yeah if people um have any uh thoughts or questions then some of these ideas would love to chat with them um I'm Hong kasalo on Twitter and I write a mediocre substack as well and uh substack.com so feel free to subscribe and enjoy that it's a good substance you're being modest Mika um all right guys this has been a ton of fun thanks very much to have to do it again sometime soon foreign [Music]