Robert Leshner and Jesse Walden: Deep Dive on Decentralization

Transcript

[Music] thank you [Music] hi everyone I'm Jesse I'm the program manager for crypto startup school and prior I was on the investment team at Andrews and Horowitz prior to that I was also a founder of a project in the space called media chain um and today I'm going to talk about Progressive decentralization and give a playbook for building crypto applications now before we dive in to this Playbook why are we even talking about

decentralization and why is it so important for crypto apps decentralization is important because it's a way to build trust the internet is based on open decentralized protocols like IMAP pop and IP and many and these form the basis of the internet services that we use today on top of these neutral protocols entrepreneurs have built some of the most valuable companies in the world these companies are valuable because they extend the functionality of the bare internet protocols and give us rich experiences like search email and social media but today we know that these types of internet companies follow a predictable pattern when internet platforms start

out they do everything they can to recruit users developers and businesses to join the platform because each of these community members forms the basis of a multi-sided network effect that makes the platform more valuable and defensible yet as we know as platforms grow they move up this adoption curve and they follow a predictable pattern where they slowly start to change their behavior instead of cooperating with their communities they start to extract value from them for example many web 2 platforms used to have Rich developer ecosystems I think at one point Twitter had more traffic going through third-party clients than through their own official app

um but in order to capture more of the value Twitter changed rules and in handicapped the API and centralize the client Spotify and countless other platforms have done the same thing so for users and developers this is a bait and switch these rich ecosystems that were started out Cooperative ended up getting killed off and The Innovation emerging from them was stifled in contrast crypto networks offer a new model for building internet platforms unlike corporate own networks crypto networks Aspire towards being decentralized and what I mean by that is that they strive to be Community owned and operated but that sounds kind of crazy how's that even possible

um well here it's important to understand that crypto tokens are an exciting new innovation in that they enable value to flow at the cost of information that's pretty much zero marginal cost and that means it's now possible it's financially reward independent users all over the world for their contributions to a network and the result is that crypto networks can have a more Cooperative economic model instead of having to extract value or value from users in order to return that value to shareholders well-designed crypto Network routes value directly to those who contributed and that in turn means that crypto networks can be much like earlier internet protocols in that they can grow

to much larger scales of adoption while enabling sort of unabated and Innovative ecosystems on top so that's why decentralization is so important and um now I'm going to talk about sort of how building in crypto is actually different from traditional platforms so in order to explore that we should probably start with things that are the same because there is a lot that that is the same in traditional startups and crypto startups you need product leadership you need rapid iteration and a managed to go to market but this is where the differences start to come to the fore because in crypto you also need to consider how the

product can successfully run in a community-owned and operated manner so that's tricky because Community ownership is often at odds with these other three things product leadership rapid iteration and manage to go to market require a core team so how do crypto Founders resolve this tension and that's that's where the Playbook comes in so to help Founders think through this I'm going to run through this three-step process that hopefully serves as a guide for how to run the a process of progressive decentralization and taking a step-by-step approach allows teams to focus on the right thing at the right time and also positive path towards Regulatory Compliance and so before I jump in I want to note

that you know crypto is still operating in a pretty uncertain regulatory environment and so the final stages of this Playbook are really only pointing towards potential Solutions rather than identifying proven winning strategies but you can think of this as a possible path forward all right so let's start with an overview so I believe that a successful crypto project will need to execute three objectives in this sequential order the first should be obvious which is building a product that people want without a product that people want you don't have much so objective two is building a community around that product

and then finally the thing that's new and exciting about crypto is giving ownership of the product to the community so let's start with the first um the earliest stage of building a crypto application is all about finding product Market fit and as I mentioned earlier this requires a lot of the same ingredients as a normal startup you need a great team you need lean development you need tight execution and quick learning and again all of this is in service of product Market fit it's and here it's important to avoid designed by Community or can or the community great product needs opinionated leadership to do all these things to hire a great team to to you

know execute quickly and so in practice this could mean having admin privileges on an application that uses smart contracts for example that would allow the team to affect upgrades or shut down the application quickly as needed and and in turn iterate rapidly so at this stage there should be no pretense of decentralization since a core team is driving all product Decisions by necessity and accordingly launching a token at this stage probably isn't advisable because the product is dependent on the core team's efforts and dependence on the efforts of others is one way you might fail the Howie test which is an SEC regulatory framework that you're

going to hear a lot about in the coming weeks and you don't want to fail that Howie test because thinking about Securities regulation is a huge distraction from product Market fit so the idea of a core team controlling all the aspects of a project may sound weird because we're talking about decentralization and it's likely to ruffle the feathers of some of the people in the early crypto Community who hold decentralization you know to to uh to in in high regard but if users are complaining about the control you've got that's actually a good problem to have because it means that someone cares about what you've built so that said it's it's pretty important to communicate about control where it

exists because if you're faking decentralization that's a quick way to undermine trust with their users whereas transparency about control is a better way to build it so at early signs of product traction which could include a growing user base developer ecosystem or some Network effects starting to take shape it's time to start devoting more Cycles um from thinking about product to thinking about how to how to engender Harmony between the core product team and uh and the community and that's what objective two is all about so this is going to look different for different types of communities but a lot of the products building in the crypto space are are Developer facing

so for developer facing products Community Building might involve investing more heavily in the best practices for running open source communities which can include good documentation you know building a developer evangelism program or issuing bounties and grants and other incentives for third-party development and going even further it could make sense to start thinking about how to eliminate dependency on the core team in order to build more trust with the community and so limiting control over the product is one way that you can start to invite Community participation for example compound who we're going to hear from later made a change to their smart contracts

that delayed upgrades for 48 hours which allowed time for the community to sort of review the upgrades and respond so relinquishing some control comes with this opportunity to invite Community participation but as you go about engaging community members it's important to revisit their incentives and ask the question why will community members contribute to the product in the first place so last week you heard from Ali about business models for crypto projects and hopefully you recall from that presentation that the business model for crypto is actually somewhat similar to the business model of web 2 platforms crypto applications are multi-sided marketplaces and like web 2 platforms their defensibility comes from Network

effects those Network effects create switching costs which allow for the possibility of charging a fee so long as the fee that's charged is less than the cost of switching to a new platform this model is sustainable and so the concept of charging a fee for a service of course is nothing new but as we touched on earlier what's new in crypto is who benefits from that feeds fee stream so because crypto tokens reduce the distribution cost of moving value to the cost of moving bits it's now possible to distribute economic value directly to community community members to incentivize their contributions that being said may not make sense to start charging a fee right at the outset

of the project and it almost certainly doesn't make sense just to start Distributing fees but right at the outset either because that has the potential to trip regulatory wires so what is important is to think about how to design an effective incentive and token distribution plan and um part of that needs to mean conceiving of a distribution of incentives that's both fair and effective fair in that it rewards past participation and effective in that it will sustainably reward ongoing contribution from community members in the future in 2017 we saw a wave of icos which is one way to distribute value selling

tokens to a community but I think since then we've learned that the Ico model is somewhat sub-optimal in that Ico is invited sort of unengaged communities of speculators and a ton of regulatory screening that distracts from finding product Market fit so crypto applications that focus on product Market fit have an opportunity to do better than icos did because they can distribute tokens to an already active user base and to start teams might do this by testing an initial distribution of tokens with a managed group of community members a number of layer one blockchains have done this by running testnet programs where independent community members can register to run node

those test Network participants are promised tokens from a future distribution but only after they've demonstrated their ability to run the network so a permission group can be an effective way to demonstrate that a network can operate in a truly Community owned and operated fashion and once you've got a sustainable Network operating a service it's time to start thinking about how to scale this distribution of incentives to a wider group of active participants that might contribute to the network in the future and The Wider Community to boot that might join even later on so an effective distribution should of course consider the core team that built the product as well as the users that make it useful and some common questions

to think through here are what percentage of tokens should be allocated to the initial team versus how will you you know reward different types of contributors to the product or service in the future and and one important one is how will technology leadership be rewarded going forward and getting this right is hard and I don't know that any single project has figured it out perfectly yet but starting to model this out is really important at the stage where you're where you're thinking about building a community because communicating about incentives and and the roadmap for Community ownership in the future is a powerful way to invite Community participation and once you've got a model in mind it's it's time to move to the last and final objective

which is all about actually Distributing ownership to the community now I keep coming back to this idea that crypto tokens are a new instrument for Distributing value including a fee stream to a community of stakeholders and what I mean by this is I mean actually giving that Community tokens so in practice how do you actually do this um I like to call this this stage exiting to the community because I think one way you might do it is by actually air dropping tokens to users based on the plan that you mapped out in the previous step so imagine there's a smart contract that mints and distribute tokens per the schedule the distribution schedule

defined prior at the moment that that smart contract is triggered and those tokens are minted and distributed a number of exciting things will happen number one core team will have ceded control of the application from the the company to the community so the product is now governed and owned by its users and that of course mitigates the risk of the platform changing against the rules against the wishes of the community the community can now sort of make changes to the product that they agree on and hopefully another thing that will have happened is that the company will have found a sustainable business model by having retained enough tokens to benefit from the fee stream of this

product and its growth in the future and similarly community members who are now part owners of the product will also start to be rewarded economically for their contributions and and hopefully they will see increasing returns to scale as the Cooperative economics of the service allow for continued growth and finally because the product is no longer dependent on the core team it's possible that the token may not be considered a security which eliminates some of the regulatory overhead that comes with SEC Securities regulation so the spirit of this objective is really all about marking a specific moment when you call this smart contract where a crypto product completes its Journey from a traditional Product

Company to a sustainable community-owned and operated Network um now a reminder if you've if you're a crypto founder and you're ready to exit to the community that means you've done objectives one two and are on number three so you found you've built a product that people want built a robust Community around that product and figured out a way to incentivize Community participation on an ongoing basis such that you can turn over ownership to the community and I think right now we haven't seen a crypto application execute on all three of these yet but there are a few that are well on their way and one of those

is compound which is why I want to invite um Robert leschner the founder and CEO to help us think through how they've been approaching Progressive decentralization in real time and so for those that don't already know compound is a money market for borrowing and lending crypto assets and it runs as a smart contract on ethereum the company was founded in 2018 and they've been executing a progressive decentralization plan ever since so with that I'm gonna invite Robert to join me here on the zoom and we're going to sort of have a little chat about what their Journey has been like and afterwards we're going to open it up to questions from you guys Robert are you out there yes I am hey Jessie okay okay nice

awesome thanks for joining us first of all um from looks like from the compound office which is great yep and so I guess let's let's start let's start from the top um first I I briefly introduced compound but maybe we can just start with your you know quick summary what what is compound so compound is a market for interest rates on crypto assets it lives as a smart contract on ethereum and for a number of supported ethereum assets our protocol has created interest rates that an application or a user or any ethereum address can earn uh if they have the assets applied to the protocol or that an application or user can pay to borrow

an asset from the protocol okay got it that's great that that's a much much better explanation than the one I gave um so also I wanna I'm curious I'm sure a lot of folks are curious what were you doing before crypto like how did you get into all this so before this I went down the traditional Silicon Valley um founder and product manager track so I founded um two software companies prior to this um built teams built products brought them to Market and I also worked in a large tech company as a product lead um going through like a large software development cycle building hardware and software

Okay cool so so I imagine a lot of that experience was useful in in an applicable it's a compound people but I think there's a lot of um similarities between developing a product for crypto and developing a product that's traditional software um it's more similar than it is dissimilar in a lot of ways okay cool I mean yeah I agree as as you probably just heard in my presentation I think you know Finding product Market fit is still the very obvious number one objective for all founders in crypto just like traditional startups so I'm not I'm curious I'm I'm what what did compound look like at the row it is as you guys were striving to

find product Market fit so most people don't know this but there's actually been three versions of compound that we've built over time and the goal has always been to find product Market fit to iterate to incorporate feedback from users in the community and into a cycle of building a better product um the cycle for us really has been one of three phases in the first phase we had version zero which was an unreleased product that was really for our team our friends and a very small number of people to privately test and sandbox the core idea behind compound we could create interest rates for cryptocurrencies it was clunky it was difficult it was ugly

um but it helped us get the principles into the hands of a very small user base we then use that to build and launch the first mainnet version of compounds which we launched in August of 2018 and from there there's nothing that gives you data and education and product feedback like being live in the market and then we use the opportunity to be live um starting in 2018 to learn as much as we could before building and releasing what we consider to be the final version of compound that incorporates all of the lessons learned from having the first product live in the market we made a number of incredibly large changes based on

um user and developer feedback um including tokenizing balances which is now C tokens including having risk parameters that are set for each asset and um streamlining the code base to make it simpler for developers to use and so for us our vision has always been the same from day one we're going to create interest rates for crypto assets and we followed a very traditional product cycle to find and refine the product until we've achieved the semblance of product Market fit cool so it sounds like when you started out you guys you know kind of built full stack you built the original protocol you were the first consumers of that protocol building your own user interface and then you started to open it up to you know what you learn from

you know building full stack and then you start to focus on the developer Community can you talk a little bit about um you know this this sort of second phase of developer community building and what that looked like so most people won't remember this but you know we've always envisioned compound as a protocol that developers could build that you could launch applications with interest rates built on top of compound and this has always been the idea that we've been pursuing but the very first version of compound didn't see developers building on top of it um what we did is we actually built the first interface on top of compound version one in order to prove that we could um to dog food the process of

building on top of the protocol and to create a very basic interface to help bootstrap liquidity because the basic idea is until there's usage other developers don't want to plug in the same thing happened as we launched uh the second version of compound but this time we had the advantage of um knowing what the underlying system should be to make it easier for developers to build on and so when we launched compound version two we had adaptive experience so that we could launch with a number of Partners from the moment that we put it on testnet we actually worked side by side with a number of different teams preparing to go live for when we finally launched the production protocol and so when we launched we actually did so with a couple of core Developers that had been building with us the

entire time cool okay so very much the case that you guys sort of you you found product Market fit by dog fooding and building a product yourselves bootstrap some liquidity in your Marketplace and then shifted gears to to you know focus on the developer Community can can you talk a little bit about today what that looks like like how do you how do you work with the developer community and what's the relationship between the company and the community so this goes to phase two of decentralization building a community we view developers as the users of contact as the community of content and at this point a hundred percent of our effort is focused on enabling developers to build on top of content for us that means thinking about the product as being

holistic and everything that developers need so we spent a lot of time doing things that most people find boring like working on documentation working on you know um guides working on content working on um things that really make the entire product experience when the user is another developer and so it starts off with thinking about what is the product that you're offering for us that's a protocol and the ability to build on it so we spend a lot of time on docs we also spend a lot of time building a community of developers um and we do this in a few ways so one is we get everyone into one place um you'll notice that when we talk about you know how to interact with compound we always say join us in Discord um it's a chat server that we've really tried to

focus on developers and creating an environment where everyone can ask questions can compare notes can share code can collaborate can trade ideas and to build collectively um and it's extremely active we probably have one of the most active discords in crypto um and it's been a way to bring everyone into one place um to enhance what everyone's already doing and lastly we try to celebrate and Market um what our users built you know our home page of compound is just a list of the products built on content um you know we think that the most important thing we can do is enable other developers to succeed for themselves to go through the cycle of finding product Market fit to building a

community to decentralizing on their own and that means doing everything we can to empower them it means you know helping them think about product development means helping them think about fundraising and it really means leveraging our expertise and giving that as much as we can to other teams that's great so earlier in the talk I was I you know or at the very beginning I talked about why Community ownership is so important for compound or for crypto at large but also for compound so um I guess I want to hear from your perspective you know you've been very vocal about um about the goal of turning you know ownership over to the community members so so why is that important for compound so for us we believe that having a

decentralized protocol does two things very powerful one is that it allows the protocol to live forever right now you know our team is necessary to maintain the protocol but if we can distribute the responsibility and the ownership of the protocol to a wide audience there's the expectation that it can run forever um I like to say that you know if Bitcoin was run by the Bitcoin Corporation nobody would trust it or use it it's the fact that it's not run by any one company that you expect that it's going to be there next year next decade Next Century and we want to put compound into the same position you know that's the biggest Advantage especially if you're building a developer-centric product and something that you want developers to build on they want to know that it's going to be there they want to

know that the rules aren't going to change because you know I wake up one morning and feel like it and they want to know that it has a sense of permit and so that's the first major advantage of decentralization the second and I think this gets talked about a lot less frequently is that it enables a wider audience to upgrade and to contribute to the protocol right now you know we're a small team based in California um there's only so much that we can do to upgrade the protocol but if you can open up to the entire community of Open Source developers to enable them to contribute changes upgrades and improvements then the speed at which compound advances can accelerate on its own so we see that as one of like the biggest

um things that's going to change is that the pace of evolution is going to accelerate once we decentralize got it okay that that's awesome yeah so um I guess another another thing I want to touch on is you know right now you're in the middle of this process right you're you're sort of you've got the community going you're trying to figure out how to turn ownership over to them I'm wondering like has there been attention there like how do you talk about um this plan with the community members how do you keep everyone sort of rowing in the same direction that's a great question so since day one we've always communicated that the goal eventually was to decentralize the protocol and you know when you're you know Day Zero just launching nobody really takes you at your work because

you haven't proven anything yet everyone says oh of course you're planning to decentralize but it's been like us pounding the drums about this for two years consistently and we've taken a number of steps along the way um such as you know restricting our ability to make certain changes to the protocol um creating a significant number of pages around transparency of governance certainly show people how the protocol operates we're now going through what I consider to be the final three changes um as we start to hand it off and this really is you know step three that Jesse was talking about before which is the decentralization process compound has a three-phase decentralization um and right now we're starting to talk about it heavily so phase one is the company that built the protocol the team

that built the protocol is still generally responsible for making changes but they're done in the open they're done transparently they're done with some limitations to slow us down and they're done in a way that brings you know people into the process you know even when we're the ones shipping the code we still try to incorporate the community's involvement voting for what they'd like to see even if they're not doing it with a token or they don't truly you know have the ability to make the change on their own next we're going to move to a Sandbox decentralization where we're going to be testing on chain mechanisms of decentralization where it won't be just our company it'll be sort of this middle step where we can test the end goal platform of decentralization but with a

limited number of stakeholders really it's our team and our company in a slightly wider group of people that are going to be able to test the governance mechanisms before they're rolled out to the entire community of users and ethereum and so then lastly once we've been able to like ensure that everything's operating smoothly that there's a huge amount of transparency about how compound governance works and we think that the variables and parameters that we've set are the right ones then we're going to take the final step which is handing it off entirely to the community to run from there on and by the time we do that we're going to have a lot of confidence that this governance mechanisms that we built that are very customized and calibrated to compounds work and then from there

we'll have achieved complete decentralization yeah and that that Maps perfectly to the the sort of you know three-step plan or the token the distribution plan that I talked about where you start with sort of a permission group um and then you move out to sort of a more uh a group of active participants in the protocol and and from there you can imagine going even further to potentially all the sort of users that come down down the pike in the future um yeah that's awesome um so it's it's pretty exciting because I think you guys are literally like a couple weeks away from from uh doing the first permission distribution right yeah I think by the time this talk goes live uh we're gonna have achieved the first um major upgrade to the protocol okay

that's that's incredible um all right so another question is you know I think you're you're sort of out in front of of you know in terms of projects that are executing this and there's also been I think a lot to learn from you know other other teams in the space um that got started maybe you you know 2017 a little bit earlier where this you know Playbook wasn't quite clear so I'm wondering if um if you had some advice for Founders what would you tell them to avoid like how do you how do you not get stuck executing this Playbook so there's really two things that I think Founders can do to execute this Playbook one is to have a extreme laser focus and Tunnel Vision on the goal that

you're working towards um I've seen a lot of teams and a lot of Founders try to do too many things um and try to spread themselves in many different areas you know at compound we always had a very specific vision of what we're trying to create and we started off very simple we started off very rough and over time we've kept focused on improving that one simple thing that we're trying to do the second is to to um leverage the sort of decentralization Playbook to start from a position of extreme efficiency prove Out product Market fit while you're still efficient while you're still making all the decisions yourself and then eventually using decentralization and using the super powers of blockchain for what they're best at making a system that's

unkillable that'll Run Forever that's transparent that's frictionless and that's open but not starting um I think it's very easy to get caught up into it backwards where you try to start with decentralization and then design something that has product market share I don't think any product that's been successful has ever been designed by committee what has ever been really truly designed in a completely decentralized fashion um there is a wisdom to the crowds but you know the crowds need um very specific tools to be able to express their views and so I think that you know the real you know success that we've had has really just come from being very focused on Bill doing one thing extremely well and iterating on both the product as well as the amount

of decentralization up until the point that we can step back that it runs without us and that ideally it runs forever yeah I think I think that's really great advice basically stay focused don't do these things in the wrong order you know and and um and iterate your way towards Community ownership um well yeah so so thank you so much for you know bringing to life all the ideas that I discussed in the presentation I guess you know is there anything else you want to leave students with anything that where they can learn more um about what you're up to so we're one of the first teams to go through this entire decentralization process but we're not going to be relaxed um there's probably you know thousands of teams that hopefully you

know learn from what we're doing learn from what other teams are doing and you know don't have to reinvent the wheel um we're doing a lot of work right now as we think about governance and governance mechanics and how we're building the compound governance token that we hope can be recycled by other teams so I would encourage people to go check out um the announcements that we've done around governance look at the code look at how we're implementing on-chain voting um and look at how we're incorporating into the protocol and we'd love if other teams can use that as just a starting block for their own efforts later but I would say you know until there's a community that is excited and ready to take over governance you know don't try to implement it too soon yeah that's that's great advice okay awesome so with

that I think let's let's open it up to questions so it looks like we've got um a bunch of questions from the slack so the first one is from ghee and I'm I'm just reading this one out loud it's I think it's for me Jesse you mentioned there there's no gold standard for a project that just found a balance between allocating value to the original development team and distributing tokens to all Network participants once the network is live um can you can you talk through which projects occupy different parts of that spectrum and what the trade-offs from each choice are yeah um so so I guess one one thing I'll say here is that I think a lot of a lot of projects that

um I I touched on this earlier but a lot of projects that got started in 2017 they you know they ran icos and so essentially in my playbook they started backwards they they started with decentralization first and they tried to get that decentralization by literally selling it uh selling ownership to the to the community and I think crowdfunding is you know it's a cool idea and it's exciting but when you're doing it in this sort of speculative Mania it sort of invites the wrong crowd and so I'd say that's like you know that's on the wrong end of the spectrum um and what we've learned since from you know projects like like compound is that it's much more effective if you're out there with a product first and people can wrap their heads around why this thing is useful why they might want to build on top of it and what it means to

actually own a piece of it and and sort of the value of that in the future so you know of course you know Robert's here because we think compound is on is on the very much on the right end of this this spectrum and so you know if I had to assign a gold standard I'd say you know compound is it today and like Robert said hopefully there's many more to come so so hopefully that answers that question um next one's from Paul and this one's is sort of when exiting to the community will the community be expected to purchase tokens at that time like in an IPO perhaps Beyond any tokens they've already earned that's that's an interesting question I guess maybe Robert I'll turn that one over to you and maybe you can again like touch on

exactly how tokens are going to get distributed in in um in compound so we haven't um released the exact mechanisms that we're going to use yet um but I will say this now this can be you know uh exclusive to crypto startup school you can be the first to hear exactly how it's going to work um so no no one's going to be buying tokens what we're going to do is um distribute tokens for free to the users of the compound protocol over time um you know right now the primary users of the protocol are other applications what we're looking to see is you know for the applications and users that know the protocol best to wind up receiving for free ownership and governance rights in the protocol itself and so the idea

is you know we're not using this to raise funds um we've relied on Venture funding years ago to be able to build the protocol you know we don't view tokens when built correctly as fundraising mechanisms um they're used to align incentives and to decentralize governance and to create a stronger better protocol and so for us there's not going to be any sale of tokens um they're going to be distributed for free to the users cool yeah I think I'd add to that that I think um you know one of the benefits of of running the Playbook is that you have the active user base to sort of gauge and and um and and let those sort of analytics there inform what the distribution should look like right so you actually have some data to go on in terms of

determining what an a fair and effective distribution might be and that that I think is really important an advantage that you know compound has that that Ico projects didn't um so okay next one's from Sarah for Robert um what kind of use of research around borrowers have you discovered are are they um mostly Traders trying to short currencies what other applications are there for borrowing that you've seen so that's a great question um and the longer you're live in the market the more you learn about your users and you know it helps you think about the use cases so we've seen three primary use cases and these all surprised us um you know it's funny because when we launched compound originally we didn't even launch with a stable coin who would

have thought that stable coins were the primary use case um the three use cases that we see one are Traders and speculators so they're typically interacting with borrowing assets um for leverage or to hedge a portfolio so they're either borrowing stable coins in order to buy more crypto assets they like or they're borrowing crypto assets um they might borrow ether um to sell it as a hedge against other assets they may hold Traders are of dominant use case the second one we've seen is um we've seen miners actually borrowing um stable coins to finance their own operations and to smooth out um you know the cost structure that they

have so they don't have to sell in certain market conditions you know they can basically you know plan their financing more seamlessly the third that we've seen are we've actually seen some teams um borrowing stable coins to actually do International Global payroll without having to figure out how to manage a treasury um you know there's a lot of teams out there with large amounts of crypto that are just borrowing stable coins so they don't have to think about you know how do they manage a treasury sell crypto pay people do all these things they just say oh that's complicated we're going to put crypto and compound take stable coins out and pay our developers um so we've seen a couple different use cases and I actually think the number of use cases are actually going to increase

as more applications get built so as there's more stable coins in different currencies as other blockchains start to get bridged into compound um and ethereum for that matter I think you're going to see more borrowing use cases um that just aren't available yet like being able to settle transactions in different currencies internationally being able to settle OTC trades and you know different assets um seamlessly I think the use cases go up over time not them yeah totally and that that's pretty much aligned with your sort of reason for decentralizing in the first place right which is if the community owns this thing and they can trust it um they can continue to build you know all kinds of use cases on top of it without fear that the rules are going to

change on them and as a result you just get you know way more use cases than you you imagine that the outset exactly cool all right so next one is from Mark um besides building Community how do you think compound came to dominate this Market looking at loan scan you can see a number of platforms using compound under the hood what pitfalls did you avoid in order to get there it's a great question so we've always focused um almost entirely more so than you know anyone would think reasonable on security and safety we move extremely slowly um in the sort of development cycles that we have and everything that we do internally in the company is always you

know about asking questions about how do we de-risk how do we do this safer how do we think about every possible Edge case and you know the thing that I like to communicate to developers is that we spend an exorbitant amount of time thinking through what could go wrong because you know developers are trusting the code in a lot of ways they're trusting us um and so the thing I think that we've really excelled at um in you know rising up the ranks is getting other teams to be able to build an application on compounds know how it works know that they can you know trust the process that we've used and know that it's okay for them to build on top of it um and a lot of the volume at this point you know comes from other interfaces you know huge amount of compounds numbers

you know come from applications and tools that other teams have built not us and that ethos goes into how we think about the future just trying to create like fertile ground for other teams yeah yeah I think I think one thing you guys have done super well is is basically run a great developer evangelism program and there's like you touched on a number of facets of it and we're actually um I think in a few weeks we're going to hear from um Tom Preston Warner founder of GitHub and he's going to talk about developer evangelism but this is like this is like a well understood sort of go to market strategy for developer facing products and I think you guys are you know executing from that Playbook quite a bit right yeah thank you yeah we you know we

think you know crypto is great and blockchains are great I mean the thing that got me excited in the first place was that you could program one right ethereum was in my mind like the killer developer platform for us you know I I was enamored and just you know impressed wildly with you know vitalik and all the work he's done ethereum had a developer first approach as well you know and we're just one more stack on top of another developer first product and you know we're taking that ethos that people can build on top of compound but you know we're not the first ones to do this extremely well in this space of crypto I think you know the best um delivery of a develop developer-led ecosystem really is ethereum um I think ethereum has just knocked the

cover off the ball and done a better job of this than anything else and so you know we're not writing this you know approach from scratch you know we're learning from the best yeah that's awesome Okay cool so next one from Abhishek do you find some jurisdictions to be more friendly in terms of regulation for decentralizing a product and um and feeling comfortable that is compliant with Securities and financial regulation and is the US one of those so I can only really speak to the US because we're located here in the U.S um I would say that you know within the US it's probably harder than many other jurisdictions but it's not impossible um you know the regulatory landscape in this country is people just want you to

build things that you know protect your users that are safe that you're playing by the rules which have already been written and they're not there to stifle Innovation they're not they're there to help you know create the safe environment for Innovation to grow um you know everything that we've done so far you know has been within the context of regulations that exist you know some in some ways would be great if there was no regulations because we could just go Hog Wild you know but I actually like um the ecosystem that exists here because the Playbook that we're following the sort of decentralization Playbook works here it's you know build something that works that people want that you don't have to do a public token sale for you

don't have to do a you know violate Securities laws to finance you know you can use Venture Capital financing to build a product that's not controversial at all then to build a community that works great within the existing regulatory structure and then finally once you can you know have an asset you're decentralizing it you know in order to strengthen the underlying system you're not doing it to raise money you're doing it to make what you've already built safer and better and you know I actually think you know this this Playbook here uh can operate extremely successfully here and in any country around the world um I think a lot of other strategies and approaches won't work here I think the

era of the wild Ico is over for a reason there was a lot of you know bad behavior there um I think we've done a great job as a society in a country of cracking down on some of the worst behavior that I think a lot of us you know Grimace when we remember from 2017. and so I think it is a conservative and cautious approach but it allows you know good teams with good products to excel wildly and I think that's the goal totally and one one thing I'd add there is like in 2017 you know there was a lot of Bad actors as you mentioned and you know certainly there was there was a lot of greed involved in in people looking to to sort of get rich quick from the bubble but I do think that something what something else important was

expressed during the Ico boom which is that people want to own a part of the platforms and services that they use every day and here's this Technology Innovation that allowed them to do it um and what what you're doing today has the same result right like users of the protocol will own a piece of it it's just you're you're doing it in a way that sort of eliminates all the Bad actors from from the equation and that's that's I think you know that's great yeah I mean what's great about this sort of you know um increasing decentralization approach is you know you don't have speculation on the success of the project until it's already successful um and that changes everything you know

when there was teams that were raising you know Capital using tokens you know before a project existed of course it was going to be speculative of course it'd be Mania and Booms and busts because there's nothing there um and so I think that you know being able to exit the community at the very end is the final step will reduce a huge amount of speculation and create much more stable and responsible assets that the community can use right okay so one next one is also from Paul if you were to start compound from scratch day would you consider using a token or affiliate fees to incentivize third-party front ends or third-party smart contracts building on top of it from day one

it's a great question um I I think that's really interesting is that you know post decentralization once the community and a much wider audience are the ones managing compounds if that's the best approach if that's what you know creates the largest outcome then the token holders can vote for that um but those decisions you don't have to make you know day one um I've really enjoyed not having a token um and not having any commercial interactions with the developers on top of the protocol and also it's been freeing in a lot of ways to enable us to just do one thing really well and that's focus on building the underlying

protocol um so I actually don't think I would you know have a token or affiliate fees going back I think post decentralization as people see how we distribute tokens to users and how we can allow developers in the applications in the front ends built on top of compounds to participate in governance and to you know be able to upgrade the protocol I think people are going to say wow that's a great way for that you know the front end the applications can have a say and be involved and have a stake in the game yep okay next next question is from Rochelle can you talk about the modernization model for the core team after ownership of compound is turned over to the community so that's a great as well so at compound

it kind of goes to some of the things Jesse said earlier you know we're focused first on decentralizing the protocol um our company is a business model you know hasn't looked too far beyond building something that's widely adopted widely used beloved and can grow to be really really big because until something is really big you know there's no sense trying to monetize it um so I think over time our company might develop alternative revenue streams similar to how red hat you know built an amazing business off of Linux um where we can build an amazing business on top of the compound protocol still in support of other developers and still in support of other teams um and helping the entire world build on top of compact

right makes sense okay so next one is also from Sarah um what are your thoughts on undercollateralized loans and the risk associated with that another great question so you know Define general still are an extremely early stage um one of the reasons why DFI works so well and so efficiently is everything is contained on the ethereum blockchain um you know right now if you look at a lot of the projects that are starting to work it's because all of the data all of the value and all of the state is sort of in one place um and so it can operate very quickly you know compound doesn't need to know who you are um it treats everybody the same it just says how much collateral do you have to be able to borrow that's it

um I think one of the things that's difficult about under collateralized loans is if you look to traditional Finance um it requires really a sense of identity that right now is not contained on the blockchain very well so either you have to build a sense of a credit score within this bubble of ethereum for it to work or you have to be able to import it from outside of ethereum which doesn't work very well yet or you have to find some completely new approach to doesn't rely on the traditional ways of doing under collateralized loans um I think it will absolutely happen I'm a you know huge believer that someone's going to solve this I don't know if they're going to solve it next week but I know it's going to be solved right and maybe maybe it could be solved

on top of a compound right and it could be solved on top of contact you know the future's bright if you're working on something let me know right Okay cool so next one from from Blake for Robert um when the protocol becomes more owned and operated by the community and they start actually contributing code and such what is the Spectrum or distinctions between compound employees and simply highly engaged community members when users be rewarded for code contributions or more um or would be more that community members with lots of the network token have a high amount of say on upgrades and features so here's the cool part um the employees are just individuals will each have you know our own you know um tokens our own personalities our own

you know individual ethereum addresses um you know there's going to be a lot of cool things you're going to see about compound governance um people are gonna be able to voluntarily identify who they are there's going to be a leaderboard of all the different contributors uh to the protocol we hope to see crypto politicians emerge you know who are responsible for just contributing code and ideas um but you know you're not going to see compound the corporation or the company involved in governance um there'll be you know a lot of people participating and our employees will just be as individuals not as the company and so everyone is going to be free to contribute code to compound anyone can receive the sort of

um strength and support from the network that they need to propose changes that the rest of the protocol can vote on and we'll see the answer is it's an unknown it's going to be a lot of fun to watch this unfold you know governance that we're building is designed to be upgradable by governance and so there might be changes but it's going to be a lot of fun and I'm really excited for members of the community to be extremely active I'm excited for applications built on top of compound to be active um a great example is like if you're a developer at an application that's built on top of compound today like instead app or Dharma or linen or any applications built on top of compounds and you would like to see a change even if it's as simple as reducing the gas of

the protocol to make it more cost effective to interact with the protocol you're going to have the opportunity to propose those changes and so I think it's going to bring a ton of people into the process it's going to be a lot of fun and you know just like many things in crypto it's Uncharted Territory okay so next one from Paul how um how important have C tokens been for compounds continued success I think they've been um very important for one reason and the reason is it's enabled developers to more easily build products on top of content um you know it makes it easier I think in some ways to understand what's happening um you could do a lot of the same

functionality before c tokens as you can with C tokens but really they're just programmable compound balances you know maybe maybe could you just explain what they are sorry I should have preface with that but for those that don't know what what are C tokens and then why are they a big part of the success yeah it's a great great point so within the compound protocol every balance of a user is represented as a seater so it's just an accounting object that tracks how much of an asset you've supplied to the protocol but it allows developers to do really cool things and to basically do magic tricks um with compound the protocol it allows developers building applications on top

of compound to program C tokens to send them to receive them it allows people to transfer a balance to an address they control like a cold storage address and retrieve it later it enables people to use the underlying protocol in whatever ways that you can imagine um because you can move your balance anywhere you can move your balance outside of compound you know you can move your balance to another application that combines them in interesting ways and so we think C tokens have been extremely important just because it's teed up the creativity of developers to think about what can they build on compound and manipulate the balances of users inside the protocol more easily and you know for us that's been like a really nice advancement so yeah just all part of the developer evangelism

Playbook and making it a nice experience for them yeah it's why we designed them um because developers before we had them said oh it's really hard to program a balanced inside content why can't I you know figure out a way to manipulate the balance you know inside the protocol yep totally okay great so next one is from Nori um did you see any issues with collateralized loans on compound during the past few days where you know for folks who are watching this later we just saw the you know a huge drop in in the cryptocurrency markets alongside the main financial markets so Nordy's saying I I heard that maker Dow had some issues what about compound yeah so for anyone who has been paying close attention yesterday crypto prices

dropped by about 40 percent it was basically the worst sell-off in one day in history it had been alongside um massive declines in uh Global Financial markets you know it was the worst day since Black Monday 1987. um compound performed phenomenally there was no issues with under collateralized loans uh on the platform you know one is we were lucky um but two is we benefited from the fact that compound is not yet massive um you know we spent a lot of time thinking about Market risk we actually recently commissioned a paper by a team called Gauntlet to actually analyze the conditions of the compound protocol how liquidation Works in different settings

um you know price declines order books slippage time delays all these things and it's really interesting if you Google um compound Market risk assessment Gauntlet you'll probably get there if you go to our website you can find it but we spent a lot of time looking at the market parameters and what that would mean for the health of the protocol and the positions in it um we actually didn't anticipate a day where prices moved down 40 or more um you know because the worst day in history was like 25 you know in either the clients but compound held up phenomenal I'd like to think we're lucky um you know if compound were 10 times the size you know there might have been significantly more issues but you know even on the worst day in history um the

protocol that we've built performed phenomenal um there were other issues elsewhere in the ecosystem I think it's a great learning um opportunity and moment for every project every founder every developer to see what's working and what's not working because the goal is to build things that work you know over the next 100 years and there's going to be hiccups along the way you know certain projects will always have a stumble here or there but it's really about how does the entire Community an ecosystem learn from it fix it and become stronger and so you know it was definitely a wild day yesterday there were definitely some problems but this is not the beginning of D5 this is probably the beginning right okay cool so next one from from meta

could you explain your relationship with companies like Dharma and how they've evolved as in going from previously competitive um to then Dharma building on top of compound what what type of support do you give these companies in your ecosystem yeah that's a great question so we like to give every company that's building on top of compound a huge amount of support really it's access to our team access to our knowledge we like to help you know celebrate the teams building on top of compounds you know we're just trying to build neutral infrastructure that everyone feels comfortable building on top of you know it doesn't matter if someone was previously building their own product you know we want them to enjoy you know working with us and building on top of the protocol that we built

um you know huge fans of them huge fans of a lot every team that's building on top of compound you know I don't think there's any like you know you know secret sauce or hidden things here it's just you know I think teams try to find you know the best way to achieve a goal and for some teams the best way to achieve a goal of an extremely simple wallet that anyone in the world can use to earn an interest rate and send and receive money between Fiat and crypto you know compact as a piece of its you know toolkit right okay so last one finally um so the this one's sort of on on hiring and sort of how you build out the team at

compound what what is Staffing and marketing look like for compound so I'll start with marketing marketing is zero uh I'm the only person within compound that you could really even consider a marketing employee um we have zero members of our team focused on marketing at this point um but in terms of Staffing you know I think this is actually one of the most important things um for a crypto company because if you have a great team you'll go extremely far and I think if you have you know a team that doesn't work well together you'll go less far than a traditional software because building on top of a block five times harder than building a traditional web stack problems

um so we spend a lot of time as a team thinking about hiring what we've done is we've set an extremely high bar and we try to put a lot of effort into meeting that bar bringing people onto the team we're still mostly Engineers um at the end of the day um and you know we're very cautious You Know You're Building Financial software you're building software that moves money you have to be extremely cautious and you have to make sure that the people that join your team have the ability to build software that moves money responsible and safely and so for us you know the question I always ask in my interviews is whether or not I can get to the point of trusting someone to build Financial software and you know it's a very

different process than hiring for you know your standard mobile app um where you know you can look for different characteristics you know a compound we're always looking for extremely quality people that we trust to build software that moves money awesome okay well thank you for answering all these questions and and for being here again to sort of like elucidate in real time how to run this this Playbook um that's that's all the questions we've got for now so I think with that we can we can give you a virtual Round of Applause for being here um and uh and yeah thanks thanks so much go build great products awesome thank

you all right thanks Robert foreign [Music] right now