The Rise and Fall of Governance

Transcript

[Music] All right. Can you hear me? Okay, that's great. All right. So, as you know, today is like last day and also I'm wearing suits because we have a lot of special guests like yourselves. So, I'm going to make it a little fun because I know that when we talk about governance, we like to talk about drama and that's part is also fun. But today, we're just going to talk about some of the like elements of governance as well as some of the maybe misunderstandings. So let's go straight into it. So when we talk about governance and Dows especially a lot of projects um they come to us and then they talk about like okay we need help with governance and then we realize that a lot of expectation is that they think that

having DA will solve all their problems their coin is down 90% DAO can solve that they're you know the community is not happy DA can solve it I think at this point it might even solve like um you know world peace and everything even like the French waiters might actually you know come in time you know they can solve everything they think but at the same time like we have realized that just because somebody is or that somebody wants to become a DA like doesn't actually mean that those problems will be solved right so not only that the more we talk to the more we realize that although they say they want to be a DAO they actually don't want to move to become a DAO they just want to put the name DAO and then suddenly they think they solves it but especially as table app we have um um

you know work with many different protocols And we have seen that there are more Dows um as time goes, right? So there's not just like DeFi Dows like maker and a but we also see for example social dows as well as like NFT dolls and now there are all kinds of different dows. I even saw Dows for for example finding somebody's cat or dog like we are seeing many many different types of Dows and at this point we don't even know what Dow stand for. I know that some of the people might not know what it stand for but I think the important part is that we're seeing more and more that coming up and that it would be more important to also realize like how to actually have a proper DAO as well as how to help them right.

So there have been several different challenges. So one of the example would be um some of different dows suffering from governance attacks and the funny thing is that we like to mention about some of those like newer Dows but even more mature Dows actually went through some of those attacks. uh one of the example I also give which I didn't point out here will be for example you know for maker DAO there was a proposal where um for some reason um it was passed at the you know last second and then we realized that there's this protocol called the B protocol and then this was a proposal about whether we should have a partnership with B protocol and then they were losing at the poll at the last second literally at the last second suddenly the result changed and then we

are like it's very confusing and And then the B protocol team was like, "Oh, it must mean that the whales really like us at the last second." And smiley face, two of them. And then we have realized our devils were like, "This is super suspicious, right?" And then we have realized that they used the flash loan to borrow MKR from AB and they used that to vote and then, you know, did it. Of course, it was something that we are very shocked by because we only thought that it was possible in theory, but it actually happened, right? So you can like you know thankfully there was no major damage from it but you can imagine that like even for mature protocols such uh risk is there as well and then we also see like like it's not really about right or wrong it's just like questions

that are difficult right like we have seen some of those where the community wants to either you know raise quit or they want to you know start a new project and then the foundation and the team is faced with a difficult challenge like should they respect the decision that was passed through governance or for example in terms of the you know merry circle you know they want they have a investor and they think that they're not providing enough value so they want to refund them like is it even allowable you know because you can imagine that like is smart contract something that's more impactful than legal contract that kind of question right now so for a stable lab we've been working with many different protocols including maker a and uh many others and then not just you know helping as a delegate uh which is a role that you go

and help in the voting we also been on several for different committees as well as helping on um setting up different framework as well. Um but um especially in this talk I'm going to talk about that the more we work with different dows uh there have been also a lot of misunderstandings because um we have to kind of um so um how we approach DA is that um so first we look at some of those successful Dows to look at like um why they are still here right so I think that we have this kind of survivor you know bias where like we like to say Dows are successful but that's because we don't really look at other Dows they already failed we already remember DS that are still here, right? We can study them. But, you know, by doing that, we

are able to see like how were they able to survive. And then the second part we do is that then we look at those styles and then try to find some of the elements like common elements of those styles that are able to make them still survive to today. And the third one is that then we try those ideas and then see whether it actually works, right? To see whether their effectiveness and then so that's why especially at stable lab we talk about theory and practice. So we have different like theories that we learn both through research both from our experience looking at like um what we think is the proper governance or how to help it and then we actually go and then um put into practice right that's that's through um putting into proposals whether that's through voting talking with the team members and others and then we might get

a feedback saying that we're completely wrong and that's fine because that means that we can improve in the future. Um so we have you know voted more than uh 1,300 times and then even now the numbers keep going up because we are working with a lot of different protocols and the governance is non-stop. So we also created u a diometer to help u dows understand better about their dow health. So in terms of governance so we try to go there and then um help them give some you know so it's not necessarily about like how decentralized they are it's more about how mature their dowo is looking at some of dows that been here for quite a long time including maker and a now so now we're going to go into the governance aspect right so we talk about

the first m misunderstanding was that being da can solve all problems now the second misunderstanding is that when people talk about what is proper For governance we like to think about as like ideal DAO is where everybody just come together and then just work together right so there might be team members there will be token holders and there will be people on crypto Twitter you know like even those people are all happy and then they think that this kind of having smooth style is the ideal but actually what we realized is that the reality might be something that's different and then from the crypto twitter they might think that it's just a lot of dramas and something probably new season of Netflix you know that kind of But in reality is that actually having that kind of conflict or having some kind of um those issues actually

means something good or something that's healthy because if you think about for example uh it depends on your country of course but for example let's talk about US right like US politics if you look at those two political parties like are they friends forever no like sometimes they conflict they also have scandals and others we what we see is that for more mature democracies it's pretty common to see such conflicts arise, right? Because they're supposed to represent different interests and different interests are supposed to have some conflicts, right? So, um, in this talk, we're going to talk about three things that we usually say are ideal or good, but actually I'm going to talk about why having too much can be also bad, right? So, if you think about it,

everything in life is about, you know, healthy dose, right? Like for example, I'm a big fan of um, you know, cream brulee. It's really tasty but if I have too much I'm going to be probably overweight and probably directly my co-founder might be a little bit happy about the shares but he won't be happy because I'll be unhealthy right so you know similarly it's about the balance so for those we're going to talk about three so first one is about checks and balances uh we like to talk about the accountability the second one is the participation for example like people go in you know vote more and then also post more things and third one is about transparency now so you can kind of see the overview here but basically Basically having too little of less checks and balances of course lead to abuse of power right and

having too much actually can lead to inefficiency and then for participating if you have too little then there's like not really a you know for example you can imagine that if only one person voted is it really a you know regime vote that kind of question also not enough oversight but having too much also means that you're going to spam and then having a delusion of this attention and transparency if you have probably likelihood of corruption and fraud. If you have too much then you're going to um you know overload uh information for the uh team and then community. Um also after this there will be a section for questions. So if you're brave enough you can ask me questions. I will not judge you. I might do it afterward but you know it's up to you.

All right. So we're going to talk about checks and balances. So checks and balances are kind of simple right? The idea is basically like whether it's a d proposal or others like there's somebody watching over it. So let's say that I make a D proposal to be like hey like my name is two I want to get funded $1 million because I think that I can do it or something right then uh in theory there should be somebody that review the proposal whether that's a community or not and then there should be also a governance process to ensure that um you know those people are you know um let's say the community or others are doing well and then you can imagine at the end of it it'll be up to token holders right even if it's working well token holders are not happy then they should be able

to voice their opinion and the participate. So that's kind of the check and balances that we know and then having too little can lead to a lot of different questions and there can be a lot of good examples and this is so one of the example we know is from harmony right so they did a lot of different grant program and then it's not the grants themselves are bad per se but it's about like there were not really way to check like how the money was spent and then there was a lot also a lot of occupation that how they provide the grants were based on a lot of like um you know personal connections sometimes even in the family connections, right? Um and we also seen that um especially if you look you in the back there have been some of the foundation others they were basically

nearly bankrupt because um some of their found like for example for NM which is more you know popular during like 2017 um so basically their founder took the money and they funded his um um other startup right so you can see that without this checks and balances you might see a lot of this um especi um not really spent well and then this is also true for some other Dows. Um you know so for example we have seen the for unis swap um that's also reason why they create the accountability committee which we are there because the reason is that they you know fund a lot of different projects but there was not uh enough let's oversight as well as like um you know ways to track it. Of course they're now doing much better and then

they also learn from their mistakes just like any other DOS but it's a good example of how checks and balances are needed. And then you also like I also hear a lot of this argument where it's like oh yeah yeah but you can trust the team they don't seem like people who would like just rope pull or run or sometimes I also heard a lot of people this is true tell me that their founder is French therefore they always are good which I'm not sure whether that's true the foot is true but you can imagine that you know like just trusting the founders and the team itself is not sufficient and we have seen that a lot of times like even for large um foundations and large teams that just trusting them to do well is not enough. That's why such are definitely needed. Now, but you can have

a actually opposite side which is having too much checks and balances would seem a little bit um weird, but if you think about it, it also makes sense, right? The idea of checks and balances to ensure that um the process um so there's no let's say um group that gains too much power. But if you have a system where um many different people can basically veto and you know voice their opinion, then it also can cause a problem. So one of the example is um so this is for a previous one. So this is before endgame and then what you kind of realize is that for real world asset to be a collateral what you have to do is that not only you have to go and uh get approved from let's say so first you need to go through collateral on

boarding okay so you have to get green light from there and then you have to go to Oracle and then get the you know price and then approved there and then you have to look at the risk and get approval there and then it would become almost like a collecting Pokemon right and then the funny part is even if you collect all those Pokemon cards you also have to go through other one which was like for real asset they also had to go through you know reward asset team and then not only that you have to also you know go through governance others. So basically what it meant is like even if it's something that was high quality let's say collateral like because you had to you know go through so many process and all of them had to say yes even if you know one group say no

there's not really a good way to resolve that conflict right which is also part of reason why endgame um is here to solve this but you can imagine that this kind of too much checks and balances actually led to this kind of grid luck now another is participation right and then we uh especially a lot of dows want to have more participation And it kind of makes sense right the idea is that basically you want um especially have a lot of different parties to um share their opinions right and then you know it is true like if you look at a lot of different dows like you know for example this is a example from unis swap but this is true for many dows where is like so you can see that only like 6% or 7% of people vote and then you know especially across dows like most of them

are you know below 10%. And then especially for um small hoarders um their participation is u you know even lower because for large part you know because for large let's say hoarders they might delegate their tokens but for small ones they don't even bother delegating which is partly the system right because if you only hold you know little maybe you don't think that your voice matters or you know it's also possible that for um uh especially thousand Ethereum like if you delegate you have to spend more in gas uh which also sometimes happen to us as well, right? So you can see that there's a very u little participation which many are trying to improve and then another one is also on the forums as well. So you can imagine that for a lot of Dows

um you might have somebody that you know the team go there and then you know make a proposal right and then the problem is that a lot of firms are very empty um so even recently for example for unis swap you know they're very baked out and then there are a lot of different proposals to um have unis swab um on their mainet because their you know business um you know license just expired right but the thing is that for those that are very significant usually there's no comment right and And so this can be problematic, right? Because you can imagine that if you post something and there's no feedback then and it goes to voting well um a like because the community or the you know people didn't really you know review it there's not really proper you know kind of oversight

right review and then like even if you know they let's say um there was a voting and then it went through like people might not really understand what they voted on right and then it also becomes a problem even if the proposal failed because you can imagine let's say I'm a team and then I wrote a proposal and Then I posted it. Nobody gave me any comments. And then I go there and then I posted it and then people you know vote against it and it failed. And then I asked the committee like okay the voting failed. Why did it fail? And nobody gives me answer right then this becomes problematic because I don't even know how to improve like the proposal to you know pass the second time. You can imagine it's like for example like you know um let's say my ex-girlfriend or

something like she's mad at you and you know she's mad at you but if you ask her oh you know so why are you mad at me? she's not going to tell you. So, I have to go to Google and search why she's mad at you. I know that some of you guys after this talk is going to give me some dating advice. I do appreciate that. But you can imagine like um it becomes problematic for Dows because then those like especially you're then taking away a lot of the attention and time from the DA right and also people who make proposal. So having this kind of participation are very needed um you know both from governance aspect and also from the especially forum side as well. No, but you can have a very like a lot of people participating as well. Uh, which can happen especially on some of

Dows that just said airdrop and as well as like Dows that are very uh speculative where basically you see on the forum others and people are just asking about airdrop. This happened not just like unis swab and optimism but many others as well basically be like hey I saw that I didn't get the airdrop. I think we should have this like proposal up um or like people might also comment on it right be like hey I don't like this part and then um to be honest like I think the people participating governors are good uh doesn't necessarily mean that their literacy rate or intelligence rate are necessarily high which is fine you know we want diversity but you can imagine that this can be also problematic as well because it's very difficult to know for example whether this proposal is good or not unless you check on it and

then for people they only have 24 hours um so you can imagine that it be can become a problem especially from the team that deals with governance and then this is also happening with you know lido as well. So if you look at the lido airdrop and you might be thinking okay I'm going to go and try to vote on it because I'm going to get airdrop. No then you're going to get your private key stolen because this is actually a scam link. So you might be wondering like okay then how did they like manage to go and post it? Well, because for Lido they want basically they let you know anybody to you know post a proposal to go through the process but that also meant that a lot of people abuse the system by spamming it well because for a snapshot especially you don't have to

pay gas so they spammed it and they pretend to be it's a proper airdrop. So what happens is then that actually the proper let's say proposals that need to be reviewed are in this like hundreds of you know among hundreds of other spams right. So it's very difficult for both the governance and the community to give a proper let's say uh review. Now the team is aware of it. I know they also been thinking about different ways. But I think this is one of those examples where having this kind of too much participation on from u let's say low quality or even like um you know abusive way can really exploit the system and actually undermine it right because you can imagine that if you're let's say governance actor who wants to go and participate in the governance well now then you have to go through hundred of

these proposals to see what is rigid and what is not and that's also why having that kind of framework to potentially filter out some of those might be very needed. Now let's look at transparency right the transparency is almost like for example if you have a food you give a comment right be like hey uh you know like okay I want to say hey but it's like oh sir you know in the waiter or others like this food is like really bad right something like that and you can imagine that if you're in dowo you can be like you know the service or let's say how the team is doing is really really bad but what happens if there's not enough of transparency right then it's really hard to see how the money is spent how it's going and everything right and we saw this especially with um

more centralized companies whether that's FTX or Celsius or others like um you don't know like how it's been spent what's going on behind the scene and this was also true for some of the blockchains right like doan I know that some people think I'm do because but I'm do so no extra zero um so you can imagine that like even for uh let's say u major blockchains this can be a problem so having um no transparency of course is um um you know a big problem as well but you can also have a too much transparency Now this once again might be confusing but let me explain a little bit which is like transparency can actually cause a lot of discontent. So one of the good example is maker dow. So for maker d you can see how everyone is getting paid or underpaid or overpaid

right. So um you can imagine that um so before I say this I want to clarify that I love everyone at maker. Everybody is my friend. Uh I also need to read from my textbook on HR saying that everybody's valuable and you deserve to get paid well. But at the same time you can imagine that if you're a let's say maker and then now before that you couldn't see what others were getting paid but now you can see it and you realize that other team for other regions are getting paid more but you but you know like uh you're also contributing a lot to maker right so what do you expect well you go to you know for and be like hey like you know like we contribute a lot to maker I think that our uh budget should be higher because we we are top talent and

then what happens others look at it and be like hm I mean we're also top talent right so we should also request more. So in that way um so transparency um like unexpectedly you know create this problem where like okay because everybody can see what's happening they also want to be fair but the thing about fairness is it's very subjective um so um it happened that especially for maker uh you know before the endgame there was a period where although maker income was going down the expense was keep going up partly because it was very difficult to cut budgets a and two was that because people also didn't want to cut it based on the you know kind of fairness right because it's really hard to tell let's say somebody be like I'm really sorry

but the because of invisible hand you're actually valued less right like people don't really like that and then um from the HR I must say that yeah that's not true but um especially from the economic perspective it makes sense right like there can be some difference so um and with that the governance itself was not really able to solve it so um that's also why like you can see actually the expense going down before you know as the end game comes because it kind of um um kind of forced the governance to take those steps but you can imagine that having that kind of dramatic transparency can be problem as well. We saw also example from others where like through the onchain let's say um transactions people have a lot of questions right and you can imagine that sometimes it can be good but at the same

time some of it sometimes they might challenge how the team is spending and things like that so you need kind of healthy balance now so in summary we want to talk about that DA is growing but also faces um different challenges and also misunderstandings and then we've been pioneering the DA landscape you know having both theory and practice And then we talk about some of the lessons and misunderstandings about what is perfect and then you know there's no perfect thou um just like how we like to tell our children right uh just about like how to balance the to avoid those extremes. Now, so that's kind of it for my talk. You can feel free to message me um you know, Twitter or email and then um thank you so much, but I'm also going

to take questions because that's the most fun part. All right. So, I see a hands there. Yes. Thank you, D. um how how does stable lab determine what Dows you guys work with and then how do you guys align stable lab with those Dows? Yes, that's a very good question because we do get a lot of requests um for getting help. Um for us what's more important is like whether those dowels are very serious about like um getting improvement in um let's say governance because you can imagine that you can be um let's say governance or let's say protocol that wants to let's say oh they need help with governance but they just

want the governance theater it's not really a interest for us as well as like because that also means that um so even if you have those and practice we cannot really apply it right so I think we value those more and of We have a lot of preference for Dows that already been um around because that means that there also a lot more that we can apply right because you can imagine for newer Dows they also have their own strengths and weakness but for Dows that been also um around there also means that um some of the problems that we saw in other Dows also presented right and then we can go there and the user experience to help them.

Yep. Um so others also resent. Yes. spending something. Yep. Sure. So that's a good question about like spending limited examples as well as whether they work. Um I think that it can work and not because if you think about it actually a lot of committees as well as grants are based on those budgets, right? Like for example, compound grants committee we're on as well like they have a you know limit for for example 800kish right um or for example for maker also try to have a budget only problem that we realize is that especially for more

decentralized DS and more mature Dows um this budget limit becomes like a public good so what I mean is like if you public good it's okay if you slept through ecom 101 I did too but you can imagine that public goods means that a lot of people will try to explode it right because if they're not um in the first one then it might be possible that they might the last one and there's not enough incentive to ensure there's a proper supply and demand and you can imagine that if there's a budget limit if you're a team you try to get the most right so instead of trying to everybody agreed to have a fair budget it becomes the issue of like okay like they want to basically fight for it and then usually uh it becomes very difficult to implement in the first place so I would

say that for single like the division or like domain it can work and we have seen that you know usually it can be especially with accountability or like a reviewer it can work but as a DA as a whole it can be problematic because once again the problem becomes okay a who watches who right everybody's like okay like who watches the watchmen that kind of question and the second one is that um once you have that kind of budget limit then among thous unless you have a kind of entity that can decide on it it becomes a question about like because nobody can make a decision everybody just fight for you know um larger share and it's kind of um both from the governance as well as time and resource it's becomes um hassle as well.

All right. Yes. Question. Yes. Hi. So uh are there any key metrics in order for an organization to be called decentralized and also autonomous? So, and uh if you can refer to some of these metrics and the thresholds. Yes. So, that's a good question. And then there probably isn't like a right answer per se, but you can imagine that um what we mean by decentralized or mature. It's also about like how uh vigilant they are, right? Because you can imagine if you're DAO and then you're just relying on let's say a single person or a single entity probably not the most decentralized one.

But if for example such decisions and others are made by in various groups and also uh work by different domains it probably means that it's more decentralized and then uh I think that that's why like I know that there are some both on Twitter as well as here probably thinking like oh like maker dah is like very centralized but at the same time like if you look at maker one of the good thing about also maker is that maker really respects the decision by the governance right so it's not like okay there's a decision by governance and be Hey, I don't agree with this. I'm gonna just not follow it. Like sometimes, you know, maker has made decisions to basically, for example, lay off half of his people and we follow through it, you know. So, I can say that those will be some of the examples.

All right. So, I think we still have a little bit like maybe one or two more questions. No, no time. Okay. No, never mind. All right. Well, thank you so much for coming and I hope you enjoy. [Music] [Music]