DappCon 2023: Gauges as a resource allocation mechanism - Romain Figuereo

Transcript

hello everyone uh I hope you're not too hot today I'll try to make this talk a brief of fresh air at least I'll try my best So today we're going to talk about gauges and about re resource allocation in governance particularly in crypto uh we're going to try to go like from what is this basic concept and try to understand how to apply it in crypto it's going to mainly have an impact on both governance topics and toomics and the idea is to uh show and understand how this mechanism works and how we can strive to basically push it further uh and enable real Dows real autonomous systems okay sure so first who am I so you understand a bit where is this coming from I'm one of the co-founders

of Palin we've been building this project for close to three years I used to be a banking lawyer before this and I'm what you call a governance maximalist which means I believe that um the biggest Innovation that we're seeing in crypto is actually through coordination and its replacement by smart contracts and Automation in general so what is Palin Palin right now is a vote Marketplace for governance tokens and we are paradoxically building this to democratize activism our goal is to basically find governance create governance engines to power more more participation and more coordination in the ecosystem in general because we're convinced that this is how crypto as a movement is going to succeed on the long term okay so now that we've done through

the easy part let's start with the hard topic with g ages in general and resource allocation so first what is resource allocation it's interesting because when you actually look at it from an academic academic point of view there's three different um sectors where you're going to hear about resource allocation the first one is economics which is the one we're going to focus on but you'll also hear about it in project management and Computer Sciences and it kind of has the same definition it's just that all of these different subjects see resources as a different topic and as a different actual concrete thing so what is resource allocation it's basically identifying what has value what are these resources and how do you uh allocate them optimally between the different stakeholders in

order to maximize the positive outcome of your project or of you in general when you want to impress people you say you're trying to find the most parito efficient outcome but it's basically the same thing in more complex language right so now that we understand resource allocation I want to basically look at what are resources in crypto and how can we allocate them to understand what we're doing today and how we could do it better probably tomorrow uh today in crypto I've personally identified five type of resources some of you might disagree and think one can stick with the other or there's more of them but I found five type of resources in crypto the first one is what we call protocol ownership

everyone when they talk to you about uh valueless governance tokens it's this it's the decision making power where is this going to lead to could have value sure can use it as a resource the second one is assets under management you are a large protocol you manage a lot of assets this can be leveraged one way or another in order to make your protocol more efficient one example of this is maker right maker uses part of their deposits invest reinvest them in t builds because of that they make most of their revenue and they're a cash machine today and another example is treasury assets you are a very wealthy protocol you can reinvest it into your ecosystem to stronger the example here for example is gnosis

right uh a fourth one is revenue streams you are making a lot of money fur protocol so these Revenue stream can be used as a resource to do something you could for example do depth financing or you can do plenty of other thing look at what a is doing they're making roughly 60 million a year and they can use this in different manners and the fifth one which is a bit more unconventional but I still think it has a lot of value is what I classified as information so information is not just technical expertise it can be oracles so actual data it can be network if you know the right people and all of these have value and you as a protocol when you're building your protocol your job is going to think okay I am creating or I am managing all of these different

resources where should I put them and how in order to optimize not just the efficiency of the protocol but its value for stakeholders so how do I put people around the project that are going want to want to build around it okay now we have this F resources now what happens with them once you have them if you look at crypto in general and Dows there's four kind of ways that people management the first one is core team you trust someone he basically owns the project and he's going to allocate the the team is going to allocate the resources as as they fit see fit so it's a good model but it's not new it's called a company then you have two more decentralized committees um this is a bit more decentralized people can be

elected but it's much more chaotic and uh we're seeing very serious um limits to this model simply because usually you have to get the people to participate and it's hard to basically have people rotating every year it's much closer actually to what we see nation states doing in politics when they're managing when you're managing a whole country you're going to see the government that is basically going to have like these committees admittedly they're not decentralized that are going to manage certain topics right the third one which is kind of honestly more utopic is thous in the sense unchain governance okay you have an Unchained Governor you're using Aragon you're using Governor Alpha people are going to start voting with it uh it's very chaotic because you have

low participation rate and on top of that you're going to have some large stakeholders who acquire a significant amount of tokens and it can quickly become a plutocracy and the problem with this is that when you look at large organization like maker a Unis swap they're directing everything they're doing risk management they're doing treasure management they're doing almost HR Integrations the stakeholders decide on everything and that can be a problem and this is why uh today I wanted to SP to focus on this last topic which is gauges why and how I'll come to it very quickly but the idea of allocation resources is what tokenomics is all about today in the end a token only serves to allocate resources and to

enable people to to manage manage where these will go at some point and if you look any successful today they at least control one of the five um can I go back yes one of the five resources that I've identified before the more of them the better honestly so okay now we've talked about these four I'm going to focus on the fourth one because a lot of people already talked about the tree the tree before so I'm here to sh you the fourth one and understand why it's a very interesting mechanism I'm not here to show you it's a superior mechanism because that's not true for a lot of use cases and every Dow is going to have different use cases and needs so first let's talk about why it's a problem in general to use governance the third one which is the most used as an allocation

mechanism the first thing is plutocracy yeah because token voting someone can buy the token and he can control the supply this is a good and bad thing at the same time because the person has to buy the token first so he creates price pressure creates value for your protocol but then he has the power to destroy value so the question is you need to align him in order to limit this that's only the first pro first problem because there are other problems that are done uh that appear with pure onchain governance the second one which I mentioned just before is the fact that people can easily um create conflict of interest simply because there is little Silo today in crypto most of the delegates do not declare conflict of

interest so you never know if they invested into an order project if they co-founded it if they have friends over there which create risk and the third one uh which is kind of even more tragic is simply that governance is very chaotic and very inefficient so there's this kind of paradox when small projects uh need to be very dynamic in order to Pivot pivot and evolve but they have the bureaucracy and the slowness of dows and the truth that we're starting to realize today is that you actually need to be a large and successful project to run an efficient Dow because you need the funds to sustain that system but to have these funds you need to build a successful protocol so you're kind of stuck in between when you're looking at these so what you want to do as a build in general is you're you're going to want

to avoid all of these politics at the beginning simply because they're going to drain a lot of your time uh that you would need to actually build a successful project that doesn't mean that you shouldn't be decentralized or not listening to token holders or stakeholders in general right what it means is that there are much more efficient ways to do so and one of these personally for me is what we call gauges that was introduced by curve so what are gauges and why are they're interesting they're very different uh choice at the end of the spectrum because they're predetermined what most projects do today when they do it for example with emissions is that they decide on a specific rule so a specific amount they're going to emit for example every week and what they're doing with this is that they're saying okay if we do it

this way it's going to be trustless because we're going to put everything on Smart contracts and the smart contracts are going to manage everything so there's one vote for example that decides how much and where the gauges are going to direct and that's it it's basically just a trustless distribution mechanism where it becomes interesting is that it's Market driven so in economics you kind of have two allocation physics uh fees sorry uh one of them is around command economics and the other is about Market driven economics so you choose whether One Core entity is going to decide where this allocation go or if the market is going to choose here with grages if you have for example V tokens or lock tokens that are controlling these it's purely Market driven but you're asking all the

stakeholders to align by locking their token for multiple years so you you are Market driven but aligned with most of the users and that's the whole point the whole point is to create a system of allocation that is decentralized trustless but also Market driven in the interest of the project so the idea is how do you create an e and flow that's going to go in the direction of growing your protocol and that's why gauges are interesting mechanism for because they ask much less work on St put in place they work by themselves and uh they're much more efficient at creating a community and enabling bu people to build on top of you now why are they important there's something that's uh very dear to me uh to explore on this it's what we call the

unbundling of governance uh one big mistake we've all done over the past 10 years a bit less while working around decentralized governance is we think that we should have one governance to manage everything or we're going to put 10 committees with 10 PE 11 people in each committee that's very limited in term both of resources human resources and in term of time and efficiency right so what's really cool about gauges is you can focus for example on one specific type of resource allocation or multiple and just P this in a trustless manner and separate this so for example if you're Landing protocol you can have uh a risk management committee or risk management subow and at the same time you could have gauges that are going to manage your Revenue sharing system or

they're going to manage how you do emissions and the interesting is that you're basically unbundling all the different systems of governance you have and separating them into different mod that can be much more efficiently managed so that's very important now to understand something we're seeing Rising a lot that can seem dangerous and that's part of what we're building at Palin and why we're building it is that we're realizing that command economics do not work in crypto and especially in defi today why because there is a lack of skilled participants lack of delegates there is a lack of Interest amongst most most stakeholders there is a lack of alignment between with most stakeholders and projects so the problem with command economics right now may it be onchain

governance or committies especially in this market we can see it is that they're very inefficient and they're very slow and sometime they're totally inactive so the difference is that if you're going to go into free market uh system for example like gauges what you create is organic activity if the prices goes too low you're going to have people who are going to come in understand the net value of the system and come into it and that's why we're saying that most of the projects that actually have gauges have a much more uh steadfast approach to the way uh they handle the bare Market that's the first part the second part is that about growth once it's trustless and permissionless it means that it's much hard easier to build on top of it and the problem of governance is that it's unpredictable right gauges

are the opposite you know the rules you know how they're going to play over the next years so it's much easier to build on top of it because it's very predictable and predictability has a lot of value and that's something we don't talk enough about so basically once you're building V markets which we are doing today you're creating exponential utility for the underlying because you're Trad traducing one resource into Financial value so non-aligned stakeholders instead of actually destroying value in the project can just opt out and create and sell the value to people who actually create the value because they see the interest in doing so and this is something we've been doing for the past over a year we've redistributed roughly $6 million to different stakeholders so it's something where we've seen a lot of success and we've slowly become more and more

aligned with more most of the projects that we work with on this to the point that today I think we have at pal we have something like three Integrations on on three projects on top of which were integrated and we have 21 Integrations coming over the past the next few months so it's some it's a choice of system allocation system where we're seeing a lot of success and where we expect a lot more simply because uh trustless allocation mechanism are much more uh cyer punk in general and much more efficient than what we're seeing today when where there's a lot of people who are going to uh try to push the governance forward but they're not going to agree and they're always going to have various interest that are going to make the protocol much less trustless

than it actually is in its original state okay so one last thing on this uh we have an asset that we're trying to deploy on top of all of this system and the idea is that we're trying to create a global allocation booster the idea is that all of the projects were trying to test this system they can basically integrate on top of our Marketplace and what we'll do is that we'll distribute part of our revenue and our own resources to basically align more Stak holders and get more people in this kind of system and the more we have this Su the more we have this fly will going on the more we hope that projects will integrate this simply because we're seeing a net benefit into the effective growth of these projects okay I have a bit more time so

if you have questions after this but really some final wordss in general about gauges um so the two things first one is that what I said is not about governance and it's as a final solution there is no solution the solution for your own project is that you're going to have to understand what the resources are and you're going to have to find how to allocate optimally so to who do you want to give it to in which manner if you can find a trustless model I highly advise that you actually implement it simply because it will be much more efficient and you'll be able to focus on your work which is your actual protocol sometimes your token is your is is a protocol for yourself but it's very rarely the actual core feis and a lot of people who have released token realize

really quickly that it's a Time sync and it's not their core work um when you release governance try to unbundle it uh that's very important simply because it's going to be much more efficient um what we realize very quickly is that there are very different thematics and having one or two or three or four large delegates does not make your governance efficient because the delegate might be an expert in one topic but he's not going to know risk management and treasury allocation and HR and etc etc these are very different topics there is a reason why people have specific jobs with specific specialty and it's very complicated because people slowly get into power it can be difficult to unravel especially as you build a a decentralized project because

as a founding team you don't own 90% of the project you slowly get diluted which is the whole point but uh that means you lose control and unbundling governance and allocating the right mechanism and the right people for each of these specific types is extremely important for the durability of your project last but not least um gauges but I call them trust loss allocation system are one of the most powerful driving force of network effects what does it mean and we've seen this with the success of curve despite all the the the complications they've seen over the P last the past months uh there's an extreme resilience not only of the protocol itself but also of the community that's built around it because

a lot of people were incentivized to build on top of it and for the project to succeed now that is what everyone wants to build in crypto A Primitive they want to build something that uh that is deeply integrated and that can actually work on a very fundamental level and gauges are a way for projects to basically enable this that's it thank you very much uh if you have questions uh please go ahead and if you're interested in exploring we I put a QR code so you can just join our community there's a question thank you thanks a lot really interesting can you please dive a little bit deeper into the use cases concrete use cases of Gadget what do you think sort of issues could be solved on chain

through this mechanisms so I really simplified it when I called resource allocation but for me the the five things that can be soled with these are basically uh I would say more around um it's not assets it's uh what's used under the assets of management so basically where which strategies or what are you going to do with treasury that can be done uh how are you going to distribute treasury assets if you ever do um around Revenue sharing and revenue streams where are they going to go and uh around information so that's something a bit more interesting and and uh deep that hasn't been done a lot there was a post I think it was actually written by vitalic on the unop forums roughly two

years ago where he offered that the uni token should become an oracle token so the idea was uh unop has a specific bandwidth of of time weighted oracles they can distribute and the more a uni was taked into one uh LP gauge pair basically um the more uh recent and U recurrent the the Oracle would be refreshed was never done I think that's a real shame but it would have value because it means you would basically pay Unis swap holders to get a strong Oracle through their Unis swap uh L people so you have an incentive in having deep liquidity on Unis Swap and you have an incentive in using this as your Oracle there's a ton

of very creative things that haven't been done but when you're building your protocol the assets that are going to be deposited and what you do with them can mean that you're basically creating a resource in one way or another for example as I mentioned before maker and what they're doing with Str builds you have what I just talked about with Unis Swap and dlps but the more you dive into it the more you realize that you can do something for example if you have a locker that's having governance assets what's done with the the actual governance of these assets you can have what they call Meta governance index tried this a few years ago too it's a lot about creativity and about finding uh what you're going to do with the with the resources that you're basically creating in your protocol thank you we have

more yeah I was just wondering how ages are different from the Alo protocol by gitcoin from from Bitcoin uh gitcoin Alo protocol Alo protocol is a permissionless way of Distributing funds and they focus a lot on like allocations I was just wondering what is the distinction between Alo protocol created by gitcoin versus gauges and what you've made so uh I am not extremely familiar I've heard about Al protocol I don't know exactly how they work to my knowledge allow protocol is basically quadratic uh uh quadratic funding and distribution right it's like it's it's one of the payout strategies they you

can you can like kind of decide whether it'll be just a simple pass through Grant whether it'll be one person one vote quadratic but it's like just a way to allocate resources and money in a permissionless manner so here gauges I'm using I'm inspiring R from what curve has built because uh I believe that having stakeholders align on the long term actually makes them much more sense ible participants so if you have Alignment Plus delegation you get into an interesting thing uh I do not think that both of these are for the same thing our protocol seems really efficient around grants uh maybe potentially funding uh what I'm talking about here is not could work but uh I don't know I have to compare on paper but uh here it's more for internal

assets that projects already have uh maybe our protocol could be tweaked and used for gauges it's good we need permissionless Frameworks to do so uh we we've tried to recode a big what has been done before to offer it to other projects uh anyone is free if they want we can share the access to to the githubsign workk for these uh just not today because we really had the beginning of exploring how to trustless allocate resources any more questions thank [Music] you