ZKPodcast: CowSwap & DAO Tech with Gnosis’s Martin Köppelmann

Transcript

[Music] welcome to xero knowledge i'm your host anna rose in this podcast we will be exploring the latest in zero knowledge research and the decentralized web as well as new paradigms that promise to change the way we interact and transact online [Music] this week tarou and i talk with martin koppelmann ceo of gnosis we start off talking about prediction markets where the project actually started from and how as a project they've moved away from that we then cover the new cow swap decks

the success of the gnosis safe it's used as the foundation of a new generation of daos and safe snap a way to automatically execute governance proposals on snapshot in d5 governance now before we start in i just want to share a message to all the folks listening who might be thinking of jumping into the space if you're looking for new opportunities to work at top zk focused companies we have now a jobs board on the website i'm adding a link to this in the show notes it's a simple list of current open positions at some of the best companies in the space and if you do apply please mention that you found out about it through us i also want to thank this week's sponsor leased authority

leased authority a leader in the security of distributed systems has created private storage which is a private secure and end-to-end encrypted storage solution privacy is at the core of leased authority's work and private storage was created using privacy and security by design principles and includes features like end-to-end encryption zero-knowledge access passes and a countless authorization this ensures users have greater autonomy and assurance that their data is protected private storage cannot see user data when it's been stored on their grid it's built on a commitment to transparency and open source technology by the least authority team by using technology that is publicly reviewable they allow the users to know

exactly what happens to their data visit private.storage and register to be notified once the service has launched this is a one-time notification email and not a mailing list so the addresses will be deleted after the notification email is distributed so thank you once again leased authority for supporting the show now here is our interview with martin [Music] so today tarou and i are talking with martin kuppelman the ceo of gnosis welcome to the show martin yeah thank you thank you for having me now we have already had frederica your business partner and partner on the show in the past and she gave a rundown of like the origin story of gnosis

how you guys got started and what had happened up to that point but that episode was like two years ago so i'm very curious to hear like what's new with gnosis what have you been up to since then yeah a bunch of things so yeah i think we really morphed into this broader ethereum infrastructure company so we started focusing on predicting market but started just so early in with within ethereum that a lot of pieces that were required to build things were missing and that's why we essentially moved one layer down this deck and built infrastructure like wallet like the nozzle safe like yeah exchanges modules for dowels and various elements i think i actually

spoke with frederica about this idea of like gnosis having so many very like some very very used projects some very very cutting edge ideas and and sort of like pieces of code or like products basically released into the wild and i had asked her like is it a dev shop are you like doing lots of things and at the time she she actually said something along the lines of like our current focus is on focus and i think it was that idea of like you expand out with ideas and then you have to like narrow down into like very specific ideas would you say right now are you at a phase where you are like more outward like trying to experiment a lot or are you actually focusing in on like a few specific projects no we have finally definitely focusing

on the things that turned out to work and there are mainly the wallet uh the noises safe and exchanges or what we call gnosis protocol and yeah surprisingly other things that well we initially put a lot of focus on on for example prediction markets we to some extent have put to the site currently because we really focus on the things that are simply working so what has changed for you on the prediction market front yeah a handful of things so i mean first of all to build prediction markets it was always necessary to have um well some underlying mechanism so obviously to have a prediction market you have to have a market so so dex was always required

of course other projects are and have been building taxes or actually the tax base is in insanely competitive but still when we started there there was no deck so we naturally needed to build dexes but that being said we still feel building the prediction market as application on ethereum right now uh is probably not a good idea because well transaction fees are one aspect currently simple trade can cost 100 yeah on main net and that already kills a lot of a lot of use cases yeah especially when it's prediction market it's not even like a trade necessarily it's a bet yeah so it's very clear that the size of the bed would need to be

well quite large to justify a hundred dollar transaction fee and and again kind of that that already kills a lot of uh use cases so of course you could move to layer two but we have well we decided for now to to do more foundational stuff like again the nose safe or our work on texas on on l1 to room this is a question i'm going to throw to you what's your what are your thoughts on prediction markets have did you follow that space yeah i mean i think probably in a similar vein i i really thought they would be the killer application a long time ago but i think over time it's just proven that they need much more care and love than a lot of other applications and i think we're just not

at the point where that will happen but you know does this feel like you know web van in 1999 like that later became you know like someone else 20 years later figured out how to do it for sure what is webvan sorry so webvan is like doordash or ubereats or whatever but this was like pre in the first dotcom bubble and it just didn't work okay they literally were the same thing but they needed the mobile web and inter cell phones to make it work makes sense uh and so i i kind of feel like you know to martin's point the infrastructure is still just not at the level and we don't know what the cell phone is for prediction markets but it's clear there's something that's like that

i i don't think anyone can tell you exactly what the thing that's missing is because there's just so many things you know that need to get built um but yeah i i kind of feel similarly although i i think these like semi-centralized alternatives which might have legal issues over time will be a crutch until we build in good enough infrastructure is that the general feeling in that kind of part of the ecosystem like there was other prediction market projects out there have they like have a lot of them moved away from those original models yeah i would say they are still kind of well always new players coming and and trying and well that's obviously a good thing but i i have also become more skeptical

about other aspects yeah prediction markets are one one big problem or challenge at least is is the zero-sum nature with the token system uh kind of you have this well none there are some games where everyone goes into a token everyone gets rich kind of or well ideally value is created and and so on with prediction markets fundamentally you have markets that are zero zero-sum markets where someone needs to lose and the question is who's losing and and well the promise was always well you have information and you kind of use this information and you make money but you can only make money if someone else is losing there are some answers to that and kind of well you have

political betting where it's quite clear and we saw in the last election that there was probably a decent amount of irrationality involved which is in a way good for prediction markets because it answers the question who's losing it gives in a way it funds those who well potentially provides valuable information but in other markets when you ask when will these two launch then the question is who is uh who who will be losing who's who's the fish uh to finance the kind of revealing this useful information and then some answers might be or like what people try this someone is willing to pay for this information

but that's not easy so i mean who's who's paying a hundred thousand dollars to kind of to get this information when and when then it's public so yeah no those are just a few thoughts that's interesting did you feel like in that election example i felt like that was one of the times where i saw the topic come up again in a big way you know i think people tweeting like look look they're predicting it correct while the results were still being counted even though you know kind of predicted in a wonky way at the time it was also swinging wildly back and forth depending on like what a newscast had said but yeah what did you make of that experience like watching that in action was it was it sort of promising for the concept in the future like maybe once the

tooling is there yeah well i mean i i would say it definitely was a moment where where actually some market activity happened well and then definitely the the surprising thing was how long after even the election happened well the odds for kind of trump still being elected or still whatever winning where at the surprising 10 15 sometimes even up to 20 percent and i think to some extent that can be explained by inefficiencies uh of of of the market setup so you would need to lock your capital uh specifically if a market is denominated in stable coin then you might get best case

you might get a payout of of 20 in a time frame of a few months when at the same time defy craziness is happening and and you can kind of get 50 yield without any risk uh why would you take the 20 uh with risk yeah hmm the an interesting fact that at least just and this is purely anecdotally is that people i know who were professional sort of like sports gamblers who are you know in some ways the ideal customer for a prediction market most of them just trade crypto now instead of sports better right yeah like like when the market dies when the bull market dies and we go back to a

bear market i'm sure they'll go back to sports betting but a lot of sports bettors especially in the pandemics just kind of were like well i need to find a new thing and you know i i think that prediction markets unfortunately have sort of the return structure of sports betting and less of the return structure of like these bull and bear cycles and crypto yeah yeah i would also yeah yeah i mean same thing so in a specifically in a bull market when opportunity is so large everywhere else then yeah sports betting or prediction markets are actually quite a tight business and you might extract a few percent on on something uh if you do it well but with a lot of work

yeah exactly it's a lot of work and it's not that appealing if if there are other opportunities uh better opportunities so i wanna i think most of this interview we're actually gonna be talking about some kind of newer ideas that have come out of the gnosis team cow swap safe snap um but before we do that i actually wanted to throw back to an episode we did pretty recently where tarun had mentioned that you potentially were at least part of the group that came up with the initial amm model and since we have you on the show i thought maybe we could talk a little bit about like what was that like what what time frame are we talking and how were these how are these ideas first developing yeah i mean as i said earlier for prediction markets

to work you need to have markets so we actually started to work on prediction markets and therefore markets even before ethereum launched and we wanted to be ready at launch and actually wow two weeks after ethereum launch we had uh first market uh running was back then well thousand ethan funding that wasn't a lot of money back then but yeah anyhow and and from very early on we used in the prediction market world automated market maker uh and in the in the prediction market world the market maker that's quite famous is this lmsr market maker invented by robin henson so we we were coming from from that world or we well that was kind of the standard for

predicting markets back then and then there was this movement and we're talking about yeah 2015 2016 uh to say okay well we might use automated market makers also outside of prediction markets and i think yeah there are many many people involved in kind of very open exchange of ideas i mean i think that's really one of the core things that makes ethereum so great in my view this this open marketplace of ideas sharing ideas all over the place so yeah discussion happened on on reddit and on forums and really different people who were involved but yeah at some point well we wrote a blog post describing how to build index on ethereum that was early 2017 and

there we concretely proposed this uh this formula it's a simple uh xy equals k formula um well that then became very famous through uh through uni swap but at that time like it did you realize kind of what this was or was it just yeah sure and was it was it fully developed or like what had to happen since then well i mean we had we had code for this so we had a well we had we implemented that actually but yeah i think it was probably too early at those days there were more more urging problems to be solved um and yeah i think in in the end uni swap

definitely did well with super nice and super clean uh implementation of that definitely also a cleaner and better execution of it and then uh rightfully uh became this famous exchange for this yeah i i have to say you know like it's more amazing to me that kind of these discussions on reddit posts in 2015 like even before kind like around the can you stop trading incident i remember there were a lot of reddit posts between you and vitalik and a few other people that were really kind of more or less pantomiming like hey like is there some invariant formulation we don't need this we don't need all the properties of an lmsr it's overkill

and i think it's just kind of interesting how the set of reddit posts is kind of more powerful than like 20 years of academic research in this stuff because most people in academia were focused on this concept of high dimensional markets because it's kind of sexier but in reality how many people are really trading thousand asset portfolios for another thousand asset portfolio very few right and i think like that was kind of the academics definitely lost they got caught in kind of like the thing that sounded sexy versus the thing that would be useful and i i thought that this this scenario is one of the more interesting stories that i hope society at large one day kind of appreciates but obviously i think maybe it might be

our little world but i think it's very it's a very cool instance of like everyone kind of like believing the academics version of the world is just like the prime of fascia true or something and somehow like no it just turned out that like you know market forces created something a little bit better which is cool i i don't know to me that that that that somehow that the narrative of this is is very you know unique in that way yeah although one reason we actually um kind of dropped this effort was our probably back at the time uh overestimation of the problem of mev so of yeah minor extractable value

well obviously for the last two or three years that hasn't been a big topic but now well it finally hit reality and so yeah i would say we spent the time well already in anticipation of this problem and hopefully uh have now solutions that that contribute to this problem well i think that's a great place to kind of dive into how gnosis is thinking about mev both from the stance of an exchange but also from the stance of things like clash bots maybe we can start with the etymology of cow swap because i think um you know starting with the the name might get us into how that's related to mev right right

exactly so coming from what we see right now is that if you place uh your order against a market maker or basically you're sending your order your transaction to minor miners will extract value from you so basically you are sending handing them over a transaction and they will use that against you and they very explicitly do that they well are very public about it that they will for example sandwich your transaction so you send your transaction trying to buy a token they will write before this transaction gets into the block buy the token just before you move the price up then let you buy at a higher price and immediately after your transaction was mined

well they they will sell it the token again and really just extract this profit and and that is yeah that's a problem i would say in in multiple dimensions so of course first of all it's not great for the trader but it is actually in my view a deeper problem it even challenges the concept of decentralization because what we are seeing now is kind of the next step that to some extent users are starting or some protocols are starting to defend by for example not sending their transactions at all to the public mempool but instead just just doing it privately and kind of having private arrangement with miners which kind of threatens the concept of yeah

censorship resistance and and permissionless blockchain but maybe one step back what what kind of our high level our attempt or approach is to say well instead of sending your transaction to the miner and who already signaled that they will not treat it well for you as a user we basically ask users in in cow swap or in gnosis protocol that's the underlying protocol car swap is the product uh on top of it to send their transactions as yeah so-called meta transactions or a specific order format and that cannot directly be used by the miner so the miner cannot just take this transaction and then try

to extract value from it but instead we have this layer in between which we call solvers and the solvers they try to execute the transactions or the orders on behalf of the user but the big difference is that they are bonded and they are governed so the idea is if they they need to kind of give this promise that they will yeah execute the orders in some sense of fairness for the user or in some form of favoring the user's interest and if they don't do that they get slashed or simply the users would stop sending the transactions uh to them but high level the the ideas don't

put it gives the transaction to the miner uh give it to someone who cares about your interest but what does that intermediate agent look like you sort of said it's built on the gnosis protocol so is it the gnosis protocol that's doing that somehow yeah so i mean high level it's you can say as you would broadcast your ethereum transaction to network you can instead broadcast your order to this solver network and the solvers they can like like miners pick up those transactions and try to include them but they are restricted in some forms so they they cannot do arbitrary stuff they for example there are some basic guarantees of fairness that we can guarantee through the

contract so for example if there are two trades on the same token in the same block on ethereum today very likely those two traders would get a different price in the nose protocol it's guaranteed by the contract that two trades was trading on the same token in the same block needs to get the same price so there are some levels some requirements guaranteed and then there are additional requirements that are just softly guaranteed so the idea is well let's say there's uni swap and there's balancer in there there are different places of liquidity sushi swap then the soft promise is you should execute it wherever the trader gets the best price and that is something we

cannot fully enforce by the protocol because that would increase gas costs enormously but that is something we can enforce on the governance layer so if a solver consistently doesn't act in the best interest of the user they can get slashed and that's then would be done by a governance layer in this model is there an amm kind of going back to that topic or is like i'm trying to i'm trying to map what you're saying and then also bring it back to that so there is the whole uh current ethereum deck space space with with uni swap with balance service with sushi swapping kind of all those amms currently well ethereum trading is dominated by amms but the solver is kind of

the solver layer is in between the amm and and the mining pool so yeah the solvers kind of decide how to ideally execute a bunch of transactions against amms and there is also this uh where where cow swap comes from and the idea of cows coincidence of ones okay so let's say you have two traders one selling token a and the other buying token a then if they would execute today their transactions directly on ethereum kind of the first transaction would hit the automated market maker would get a specific price then probably some sandwiching would happen but well let's put that aside but then the second transaction would hit

the automated market maker and and get a yeah again a different price and then they would both pay fees in our model they are kind of executed in a badge or basically each each block is is one batch and we try to execute all trades happening in one block or in one batch yeah at the same time so those two trades can already be matched against each other and only and they will will probably not be exactly matchable so they will probably not exactly have the same size but so only the remaining part then needs to be traded against the automated market maker so well we save the user already fees from the automated market maker and we

give those those fairness guarantees that they get the same price can you say the acronym again for cow it was a coincidence coincidence of wants okay yeah so two people kind of by coincidence someone wants to trade and trade in that direction and someone wants to trade in the direct question about the naming did it have anything to do with there being a cow emoji as an evil no for sure i mean we in in the uh design or obviously we play with this cow meme and um yeah people seem to like that i think uh one thing that's that's important to remember is there has been no

decentralized exchange that has been successful without actually being an emoji already my i guess other than balancer i don't really know what the emoji is for balancer they could have the balance isn't there yeah i think you're right there is like there is but like like if you think about unislop and sushi swap like the single emoji meme was like one of the driving characteristics of both of those launches so in this case though cow swap it's you just described it it sits between the user and the amm is it taking a fee of its own yeah so it is and one part is is extremely natural because on on car swap as a user you don't

pay the ethereum gas fee well usually if you trade on other market makers you pay the simple transaction fee and here you just sign this order that basically gives the solvers the allowance to take your tokens and give you other tokens but eventually the solver will need to execute the transaction and therefore pay the pay the guess fee so how we do that is that part of the order is a fee that you then can already pay with the token well either you're you're you're selling or you you you want to buy and that would go to the protocol what would you call this is this a dap that lives on top of other dapps so we we

see it to some extent as a as a meta dex yeah probably uh probably middleware um kauswap kauswap itself of course is a product um but ideally will not be the only product and actually we are doing this together with balancer we are using their new kind of vault contract to help some some guest optimizations um to some extent you can use internal balances or save some some guess on erc20 token transfers if you specifically if you do dispatch settlement and you settle a bunch of trades but long story short also the balancer interface will soon kind of route their

trades or trades coming from that interface should be routed through this balance analysis protocol where again then on the middle layer the solver sid that kind of collect all those orders and try to figure out what's the optimal way to take all this trading volume and distribute it and execute it at fair prices against all the on-chain liquidity again coming from balancer coming from sushis for uni swap and so on interesting so in this case what you described is like the benefits to using this it's reduced mev and reduced cost do you see this project then also kind of coming into competition with the l2s like it's not

an l2 but like is it solving the same similar problem to what they're solving yeah it's it's to some extent i mean of course they can be taxes completely separate on l2s but as soon as they want to tap into the l1 liquidity it can actually be very useful because we have this concept of batch settlements uh so we have a list of i don't know 15 trades that might happen on yeah kind of on a higher level and and then they are just settled in in one larger transactions against the l1 on chain liquidity cool yeah i guess maybe how how did you end up kind of deciding on the balance or

vault and balance or working with them versus kind of integrating your existing kind of setup and then also a little bit about kind of like maybe a slight deviation but not a super deviation is talking about gnosis auction and the that version of the world because i think the dual to kind of the cow swap is is these otc large size transactions are allowing dows to kind of sell their treasuries more efficiently and and i think it it's interesting to understand how you thought about building both of those projects at the same time because one is very left brain one's very right brain right in some weird way right so maybe first answering the the partnership with balancer yeah i would

say those things are perfectly complementary balancer is developing in a direction they are trying to address the the problems of automated market makers in a different way so there's this problem of capital inefficiency and uni swap is solving it currently or trying to solve it with uniswep version 3 by something i would say that brings it closer back to an order book mechanism in a very elegant way but balancer is kind of i would say going into their direction of still trying to keep this very retail friendliness so that someone is who has no id

not too much idea about market making can still kind of put their capital in there and hopefully get get a good return and the ways uh how they achieve that and how they improve kind of the market maker experience or the the amm experience is dynamic fees so that someone else is being able to to set the fees for those who provide the liquidity and this concept of yeah managed pools or pool manager asset manager that the assets that sit in the market maker or in the amm can still be used somewhere else so i think the bottom line is unisport potentially wants to even reduce tvl and say okay we can with with less

tvl still have a good good amount of trading volume uh well balancer really tries to say okay what what can we do with as much capital as possible and how can we use it as good as possible and and therefore i would say it makes a lot of sense to say well we built this layer on top of balancer where trading kind of to some extent can already be netted or can already be matched against each other but then uh we can match it against this large pool also i have to say the protocol is is slightly preferring balancer or there's slight gas optimizations for balancer but it's possible to settle against any any unchained liquidity so it's not uh not just bound to balancer

if if we think about the the cal swap it's really focused on small size traders right because if you're trading large enough size mev probably doesn't matter that much to you to be honest i mean it does a little bit but it's not why i mean why why would it well it's not the doesn't matter it's just that like you know i feel like people are computing this as percentage of trading size and like there are certainly times right in duress where it will be large when you're large size but when the chain is kind of like a median gas price it's not yeah i i would i would to some extent i mean from the meme and so on we definitely targeted with cow swap in the beginning like small small traders but i would actually

argue as a small trader the only thing you should right now care about is gas costs because i mean yes to something i mean it's insane that sometimes people pay 10 or even more of the traded value in gas costs then you really don't have to care about mev because that there we are talking about maybe at max one percent so if you're wasting ten percent you don't need to care about one percent but for large trades um this is one percent that that can be a lot and there the gas costs then play less of a role so i i would definitely say and we have seen over you know a million dollar plus trades on cowswap and we definitely want to see more of those so we are uh still targeting yeah that market for

sure for sure i wasn't necessarily saying that i i that like it's impossible i i guess you know the notion of what large and small is changes over time too i was just thinking about gnosis auction as more you know an interesting mechanism for dows that will have to sell very large size potentially and so i i guess at least to me they kind of seem like opposite products servicing the opposite sides of the market even though small might not mean your mom buying whatever the new dog coin is so maybe actually yeah it would be great if you talked about the gnosis option like describe what what the genesis is what it is how you guys got there right so gnosis auction is a fairly

straightforward auction protocol where you can anyone can at any time set up auction and simply define a bunch of tokens they want to sell and of course they need to specify for what they want to sell it and then over specified period of time could be days could be 15 minutes bidders can submit their bids at different prices and once the auction clears or basically once the time ends it's actually possible to do on-chain the calculation of this one single clearing price so you have all the bids and it will yeah calculate the exact uh bid that is required to clear basically to sell all

uh all the tokens and it will be then executed at this price and the one thing where that became most used is idos so the idea of your completely new project the token is not yet traded on the market on any market and you kind of want to have an initial price finding mechanism or well trading mechanism for for the token and then yeah this auction mechanism is straightforward uh way to do it and yeah combats a lot of the problems or the the mev problem gets much worse if you're still in price finding mode so if the price might within minutes uh go up by 10 or 5x from from starting price well then

the mev problem on automated market makers is really really getting severe so that is nose's auction and it can definitely all also be used for larger trades in general so we have seen this use case more and more that dows uh sit on well million dollar uh treasuries and as a dao they want to well to sell let's say 1 million worth of 5 million worth of easter let's say for for stable coin and it's not so easy for them to do that so of course they could try to trade on let's say uni swap but that would first cause more slippage than than necessary and also um yeah

again you have this problem of mev and specifically you have the problem that you need to initiate the trade probably with a long well there needs to be a proposal and then there needs to be voting and eventually the transaction is executed so at the time you initiate it you don't know what the price will be so it's hard to do it so yeah here gnosis auction has become an option and the way we are thinking about it in kind of relationship to nozzle protocol is that eventually we would we are going to merge those things so how that would look like is that but you can optionally have this option and and have the bidding going on but the final clearing

or once the time is over then you still have um the solver that yeah will do the the remaining settlement against on-chain liquidity and it's required to to serve all the bids first but if there's uh something remaining or kind of there's better price right now on chain available then kind of some of the bits it can use this settlement against on-chain liquidity so are those two things being used in tandem or is it more theoretically they could be used so right now they are still separate yeah okay so this is like an idea then yeah well i think a natural a natural transition is basically talking about how like hey

we've seen some dows use gnosis auction and how does kind of that interact with kind of a lot of the governance tools um you guys are working on i think especially in the vacuum left by aragon it's kind of it seems like there's a two horse race of uh a very different philosophies of compound governance forks and gnosis and so yeah it'd be interesting to think about how you know you you guys have the suite of products that in theory actually could all be tied together so you know where do you see that going and also how do you guys think through governance right so the background of our kind of governance activities was the very simple fact that

we developed knows the safe coming back from our own needs so really kind of long long time ago we well we did an ico and back in the days there wasn't even a multi-stick available that could hold tokens so well we developed one and it became the kind of standard for for for teams to manage funds and kind of out of that effort as an also safe developed the nozzle safe is simple smart contract or multi-sig wallet that allows you to set permissions of kind of who can access the funds under which rules the simplest rules are simple yeah let's say two out of uh n out of m signatures that are required to move the funds but you can set more and more

complex rules kind of say under this conditions or some out of this group and some out of this group and whatever you can really try to define rules for yeah who's allowed to do when what transaction and what we have seen is that yeah more and more teams or slash dows are using it or that that became basically the standard solution for for teams to manage the funds they put them in a safe and the step we then have been doing or the second product that emerged was this idea of yeah snapshot voting or off chain voting so on-chain voting is simply very complicated and well frankly very expensive so an ethereum transaction can easily cost

fifty dollars hundred dollars and i mean who who would want to pay a hundred dollars just to submit the vote and i mean even if let's say you are just one out of ten thousand token holders i mean you would certainly not pay a hundred dollar to kind of for your small vote so what became really the standard was this concept of uh off chain voting that you just sign a message with your wallet that contains a token and there you you can verify that well you have the token and so on but that unfortunately is all off chain and cannot be easily verified on chain so that's the bridge we were trying to build with uh with safe snap so you just mentioned snapshot let's define what snapshot is and then how that relates to

safe snaps yeah exactly yeah so so snapshot is this governance tool that allows very easy for for communities to say okay we have a token and you can within minutes spin up a simple voting system where someone can make well any anyone can make a proposal and the token holders vote but all of that is done off chain but yeah it provides tools to read the balances on chain and that's also where the name snapshot comes from so you define a specific block where snapshot is taken so on this block you say okay we had 5 000 token holders and token holder 1 had this balance and token holder 2 at this balance and kind of those are your voting rights and kind of all of that

logic that's what what snapshot provides who put that together is that a product that you built or is that some someone else's no that that that is that is something that came out of balancer so balancer used that for their own governance but at some point decided okay this is a useful tool uh in general and then kind of the team's specific team spun out and um is in general providing this this tooling and i think currently definitely the majority of of dows uh probably a few hundred well i mean maybe active maybe like 50 but it's it's heavily used yeah by many dollars this is still off chain voting though so this is this is you say it's a snapshot that gives

you the value of i guess each user's voting rights but then where where are they actually voting are they just like if it's not on chain how how can you not like couldn't you just sort of fake it yes and no so when you vote what you're doing is you are actually using your your account to provide signature uh and therefore that is not fakeable so that that can be verified there are problems around censorship so it's not clear that you need to trust kind of their their server that your vote is actually um they could censor votes basically yeah i see so there is that a bit of like a

weak point of snapshot oh for sure for sure and that's definitely something they they want to address uh there are various solutions to that the easiest one is to head to take your favorite side chain or l2 or whatever and and publish publish the the votes there yeah so let's move on to safe snap this is the project that interacts is this also something that lives on top of snapshot exactly so so current or the previously the status was very often not kind of it's a very very common setup for daos effectively have this snapshot voting where decisions are made but then still just have a multi-sig so i don't know five members from the community effectively

control the funds and control some sometimes even just kind of rights in the protocol so rights to upgrade rights to set fees right to make changes so the idea is well the voting is happening and then you hope that the the multi-stick holders or they promise that they will do what the voting says of course that's not necessarily what we want or kind of of course ideally we would want to make the voting directly enforceable and that is what what safesnap tries to do so what we are saying is okay you have your safe anyhow that that kind of has this right or what that might have the funds or might have the right to do some change

and we built this tool that really tries to connect those two things tightly so the first thing that is required is that when you write a proposal you not just write a text saying well we should set the fee to uh something but in addition you need to provide actual byte code or a specific ethereum transaction so you say that's a proposal and basically that is what we want to see and this transaction could be well changing a fee parameter that could be making a payout out of the treasury to to someone that could whatever it can can be anything it can be setting an ens record to another content hash so that that's the first step

um to kind of be more specific to be machine readable kind of make a machine readable proposal the second step is after the voting has happened then you somehow need to have a mechanism to decide or to let the ethereum blockchain know this is voting kind of was it successful or you know and there we are using an oracle solution and that's another project we are building on top which is called realities and the very simple concept here is that it is a staking game so someone is making the claim saying kind of well that vote happened and it happened in favor of of the proposal the proposal

was accepted and this vote had this specific uh payload and and you're basically making this claim and you're staking a small amount of let's say ether behind it let's say half an ether and if no one challenges that fine then after a timeout period of let's say 24 hours it passes and the proposal can be executed if someone is challenging it then yeah it has this escalation game where you need to to double the amount uh and you could kind of challenge against it and then again if it runs out of time 24 hours well then then it's um rejected and actually the the one who first did the potentially malicious claim uh they will lose their easter

yeah and then you kind of have the staking game there are a few parameters how you can set up the staking game one is just using ether and kind of relying on the idea that the majority of ease holders might be be honest um if you don't want to do that you can also use the token for for the staking game and then you you kind of basically say well we anyhow assume that the majority of token holders can do whatever they want so then we can also use that security in the stacking game i see now where the link is to dowse how it provides a structure to execute sort of those those choices that are made whereas

kind of i kind of want to go back to snapshot if it's happening off chain is it just sort of like after the vote would happen a new smart contract would be deployed to do it or that like something would be triggered in a smart contract by some central entity like i'm trying to figure out this this uh comparison a little bit more clearly yeah so usually the the idea is that there is already an uh safe or already a contract that holds let's say whatever the dow represents so that that contract can have some power in other contracts or hold some assets so that is not safe and that already exists and then the proposal is just a transaction that is being executed from that from that safe but and but going back to what it was

without safe snap that's what i'm trying to compare like oh well it was exactly the same in that sense the only difference was without safe snap you just had to rely on the on the safe owners on the kind of like the the three out of four signers to actually do this proposal with safe snap you don't need to have those um like three four authorities actually there's a middle ground that we even currently recommend the middle ground would be to still have those signers as a backstop so it can be executed completely automatically through the safe snap mechanism but they could still have some vital rights but eventually you can get rid of them and then you have the safe that doesn't

have any owners or the only owners is this complicated governance mechanism with the oracle that kind of says well that was voted on but the safesnap does not help in the creation of the governance proposals in any way does it right no exactly so the whole process of how you create the proposal or i mean well to some extent we have a small plug-in that allows you to define an ethereum transaction so a target and a payload okay but but the whole process of how you make the proposal and how you come to agreement about the proposal that is in principle agnostic so well we have built it around this snapshot tool

but actually it's already being used for other mechanisms so there for example daos on on xdi let's say colony and well other frameworks so you could also say well the decision is happening there through that framework or whatever rules you want to have but eventually it's executed the same way through this oracle mechanism that then would not ask did the snaps uh the snapshot vote happened but did this dow decision happened on xdi or on polygon or where wherever and yeah it's basically just a way to execute this decision that was somewhere objectively made somewhere else when i first read about this

i thought for a moment it was related to what gauntlet is building what tyrone is working on with the kind of coming up with these governance proposals but turn to you like for your tool does it have to be on chain governance to be able to do it or are you also helping to like determine proposals for off chain or for something like snapshot uh yeah so actually i mean we're we're using we kind of definitely work with protocols that are are using things like snapshot for uh adjusting parameters i think the interesting thing that we're starting to see is really that there's this kind of like fast path and slow path in governance of like really big changes will take a whole vote like a full like executing the bytecode vote

and then really small changes might not like up to some bounds be allowed to be voted on by like a smaller subset or like a sub group of people but yeah i i basically think that either way regardless of whether you do kind of slow governance or fast governance there's still kind of this sense in which you you both need you need some sense of what recommendations look like as well as like a way for people to really kind of have tools for generating proposals because at the end of the day right like one of the reasons safe snap has a huge advantage over say compound governance on from a ux standpoint it's just way easier to make a proposal

right like the proposed function in compound actually really does require you to understand what bytecode you're sending like quite intimately um whereas i i do think in in kind of a snapshot type of thing you could you can deal with slightly more qualitative votes yeah i mean that that is i mean that's an ongoing discussion for for well the safe in in general even if in a simple multisig if you want to do more complex or many d5 interactions for example require like three four transactions and if you do that uh with your with your hardware wallet that's not too bad but if that always requires kind of a round of

well people in different time zones and kind of they need to sign that gets complicated so you want to have a way to bundle uh or to kind of have a have something that's meaningful on a human understandable kind of on a proposal level and not on the bytecode level and and and try to define that fairly easy and one thing we are working on um for the safe is that you will be just be able to simulate transactions or kind of use normal depths in a in a simulated environment and kind of say i want to do this and then i want to do that and basically then all those transactions are recorded and out of those uh proposal or the byte code to execute all those steps

is is created yeah you kind of mentioned a few projects that are using snapshot and then some are not using it and they're doing more like this on chain although i guess it's on chain on their own dap chain i'm trying to picture what like the alternative is to some of those examples and maybe you can give actual project examples because i'm not as familiar with with the landscape of d5 dows as both of you are no i mean for example there's the compound uh governance framework so there are for and also maker so there are some governance frameworks where voting and the execution is happening on chain first of all it's great because that that really is the ultimate level of guarantees or decentralization but of

course it comes at very very high costs so the participation yeah just the voting again can easily cost 50 to 100 and that's why more and more projects are using at least hybrid approaches or yeah this is um complete of chain voting got it so where is safe snap at is this already rolled out yeah where what stage is it right so it is rolled out and we have um a few dowels using it it's still clearly in the space where somewhat still complicated to use as tyrone hinted at kind of creating this despite code for for the proposal right now the tooling is not as good

that it would be easy for everyone to uh create a proposal um so that is definitely the most pressing thing that needs to be improved i guess i think the the interesting thing that we've learned is you know 2017 had this whole meme well maybe not totally just a meme but it happened of like hey do tons of on-chain governance maybe do futarki maybe you know like there's kind of this like pie and future key would basically be a prediction market on governance votes and we kind of had this like very like um amorphous kind of like hey here's some idea but here's no technical spec for it or implementation details so that's the exercise to the reader and

you know three or four years later we're like we actually have instead of having kind of uh you know hey there's a one-size-fits-all slayer governance model we actually have this like hierarchical model of like different fits for different types of needs and i think that's inevitably what you know inevitably we're going to have this like hydra of different options for different people but um i think it's kind of cool that we've evolved from trying to like have this like theory of everything for governance to like hey well maybe just use the right tool for the current your current scenario and i think d5 kind of forced that into the this space i think like layer ones

are inherently conservative and like won't do big changes and i think to some extent that's why things like governance in like tezos right has had extremely few changes it's a extremely hard to correctly do b it's hard to convince anyone to even vote because there's a high fraction of non-active asset holders and c it's like there are day-to-day changes you do want to make frequently and i think only in d5 is their clear monetary incentive to changing things where people are willing to go and like build kind of this infrastructure and and i at least that's i i think it's interesting to see like compound governance and sort of the safe snap version of the

world as like two kind of non-competing things because they they both serve a very clear purpose for different use cases and i think that's the thing i'm always left struck by on in non-ethereum layer ones is that like somehow there's just too many things left to governance and that just is really hard to do like i don't know i mean anna you you've dealt with a lot of these like hard forks in other layer ones like think about how hard it is have i dealt with the hard forks or well i also trust this service upgrade sorry yeah yeah yes um yeah actually i mean i recently with the zero knowledge validator we had uh

we went for um a hub proposal on the cosmos hub and it was fascinating it's that's on chain governance it's voting by the people and validators it was amazing because this is a proposal for events we're doing four events with a ckv on the cosmos ecosystem and um to try to explain what an event cost to every single voter there was very challenging um and maybe that said something about like marketing costs not going through a hub or like a funding like that but yes i i think my experience so far with on-chain governance is the systems aren't quite in place to make that efficient and

to make most efficient use of those funds because not everyone who's voting has domain expertise and i think that that's maybe where d5 wins because it's it's a very narrow level of expertise needed in order to to do that type of governance right like you're not talking about funding the marketing you're not talking about like the larger funding vision you're talking about one very narrow thing where there could be a lot of people with that expertise but but but even in device so we probably the most complex safe whatever setup is from the urine team already there they are working on a setup with seven different um

yeah kind of safes basically that would have different authorities about different things so already there you well then have this separation of if it's a proposal concerning funding external efforts it would go through different um pipelines yeah i think the main thing to to understand is that to your point very scoped easy to understand and well like scoped in terms of both the actual thing that's being voted on and the framework to understand why anyone should care is very important to governance and i think that's where the like layer one like hey we're gonna like upgrade the whole network and force everyone to change all their node code and yeah we want to do it next week

attitude is like very hard to reconcile versus like hey we want to change the interest rate here's why like the current thing is wrong is much more palatable and i think it's it's kind of interesting to see that you know in 2017 we have like all these people being like ethereum governance sucks which on the all core dev side you could argue it does but maybe but it's kind of interesting to see like the flip the flipping of uh you know the actual governance innovation seems to be in eath land versus off east which is like you know if you were in 2017 you would have been like saying the opposite thing if you watched icos right like it was like everyone was like we're gonna build better governance into our thing and i i don't think there's a good example outside of

d5 of like governance actually being kind of effective in a decentralized manner which is funny right like you didn't like you just it's just hard to have predicted that four years ago you know it's when notice i seo there was a different universe right like everyone was just like huge vision but like no technical details and you know four years later we're like okay these are the things that work and these are things that don't and it's it's cool to see that you know it's not necessarily one size fits all but we found a nice equilibrium the pleaser dow that we talked about two episodes ago is that using any of these things by the way we're actually using compound governance for the token i'm officially as a us citizen not on the multisig i just happen to accidentally own any uh some of the

initial mint to the tokens but we do use gnosis for the multisection got it all of our bids are done by nozzle safe it's just just for minting we had a compound governance contract but it's definitely i think the id the idea of building these tools where i think it's going to be way more useful in spite of the fact that i'm i'm the first person to tell you i think d5 is awesome and i love it but i actually think it's going to be way more useful for these like art dao type things or like collective ownership of some data in some weird way than it is for defy but the problem is those people don't want to do any programming so like we have to get to the point that you can like they can do that on their

own without needing to like understand very low level details about the assets they hold and stuff and so like i think that that that's like the end game is like okay if please or dow didn't have a bunch of developers in it i don't think it would it would have been much harder right but it's pretty easy because of that and so i think who is the ideal consumer seems to be like people who want to have these collective ownership groups but are not technical and like that's the next you know the next million users or whatever but wasn't that i mean that was what those original dao projects were meant to do right they were supposed to create the ux of daos so that anyone could do it would you say that like we're back to square

one we have to rebuild on top of the new learnings or can we use some of that stuff you when you say old taos you mean like aragon i i honestly just think like the lightweightness of gnosis is actually the the key to it it's just like less effort aragon just like you have to learn their whole vernacular and like be ingratiated into their the occult in some ways to use it yeah i i would say i mean fundamentally it's just very hard problems so it will just yeah take take more time so the the safe is is the kind of minimum form of governance i mean the the simplest form is well you have a multisig you have

i don't know five five key holders and if three of them agree well then you can do something in a way that that's at least starting point and then the whole topic around how you describe a transaction how you make sure that the transaction does what it what it says to do well that that is simply a hard problem we are trying uh to tackle um and then kind of on top of that yeah you have the additional hard problem that we won't tackle and that others hopefully will tackle if say you have a thousand people and somehow they together need to come to an agreement and what is this process [Music] but yeah i think the the really cool thing about ethereum

is the the composability so yeah as tyrone mentioned like already today uh nososafe can be combined with well snapshot with a compound actually also with aragon so aragon daos could exist on layer 2 and kind of the decision that's being made there is then executed from the safe on on layer 1. so yeah there's almost in infinite ways to combine uh combined things so i want to bring it back to the sort of point we made right at the beginning this idea of gnosis gnosis is focus on focus so we've heard now kind of the gnosis safe which is i guess it's the most is it the most used kind of like the largest success

from your stack of products yeah probably it currently holds almost 30 billion worth of assets wild it's done well so from there you've built like you're building sort of the the dow front i don't know if like does the cow swap still relate to that part of the stack as well yeah yes and no so so i would say the two big focuses for nozzles are currently the wallet also safe and gnosis protocol exchange mechanisms there are of course connections so ideally if you have your funds in the nosestar or specifically teams or also individuals well you want to trade and

we definitely want to or we already have the tool too and for safe app we have this concept of apps within the safe you can start the gnosis auction so there is some overlap but i would still say those two projects are somewhat separate yeah cool so i want to say thank you so much for coming on the show and sharing with us this update about gnosis and about these kind of exciting new developments that have happened in the last two years yeah i think thanks for having me it was a pleasure to be here cool thanks again tyrone thanks and i want to say thank you to the podcast producer andre to the podcast editor henrik and to our listeners thanks for listening