The Future of DAO Governance with Nicolas Biagosch of Q Protocol

Transcript

I find it silly to believe that the actors in that system should reside somewhere in the nation state it is Bonkers I don't want to see that I'm here to prevent that from happening because you can never code the world it's just simply impossible code is Law and on the back is beyond so we go beyond code is law this is why I feel very strongly about defi it's the killer application and it's going nowhere [Music] I'm here with Nikolas bagos who's the

co-initiator at the Q protocol Q is a really interesting idea that I think a lot of people don't talk about in the space like we talk a lot about Defi and other products that try to revolutionize Finance but you know governance is an interest in interesting and important aspect of blockchains and coming from the cosmos side of course like people are familiar with the idea of governance but also its problems and so uh Q is building a really interesting system for resolving some of the issues with governance notably uh the dispute resolution side of governance and so I'll be talking to Nicholas today uh about q and um how it resolves some of these issues Nicholas thanks for joining

me thanks for having me I'm really excited to be here you have a legal background um and you spent some time also leading uh companies I think you were a Telco Executive before uh tell me a little bit more about your background and how you decided to you know Focus your time on solving governance in blockchains sure so uh my background is Law and and business I was trained as a lawyer in Germany and the United States um um I was trained for business at London Business School and uh in in life um so I I started with uh first business in um the web one craze in the late 90s

um I was in San Francisco at the at the time I then went into telecoms um after that web one bottle bubble hat burst and I had to lick my wounds a little bit so um was on the board of big Telo company doing a lot of M m&a and regulation um other things then I was a CEO of a mobile company uh for a couple of years and when that was sold to telica I set up shop with my then CFO Martin who's today the other co-initiator of c and uh we did a couple of things in web 2 and then web 3 um starting around like 2016 early

2016 and um so I always had this this background of doing innovation in business I never really worked as an attorney on the on the edge of business and law and governance and and legal stuff Martin's background is full-blown finance and um so I always had to do a lot uh always had a lot to do with with governance and uh in in web 3 we we came to realize being early in or having been early investors in in maker amongst other things how important governance really is also for the um for the decentralized space so when when I

discovered Bitcoin I was uh for me it was such a revelation it was like the missing piece I got into web one in the first place before this promise of decentralizing information and democratizing the space and and then this whole thing turned into a couple of big monopolies U mostly us-based which I didn't like very much to see and uh and one of the reasons was because there was no way to really monetize it uh natively and then Bitcoin came along and I was like bang this is it uh now we can this was kind of the missing piece and then um starting in investment in

maker we realized a couple of things one was um well everything that you can code is amazing and should be coded but um not very many questions in life and business are binary um most questions over way over 90% are discretionary um they require some kind of interpretation they're nondeterministic so what do you do with those and we've seen it with like uh with blocksize Wars that was a governance war and that was a the the resolution was like uh the the biggest voice W essentially so it was a

big shouting match we've seen it with uh uh the original ethereum Dow hack that was a governance uh decision where the ethereum community and nobody really knew who that was at the time decided to sacrifice one proposition transaction security over the second proposition um smart contract capability you know and rolled back the chain thereby you know um so that was governance and maker we saw like we were totally fascinated by defi stillar well we saw at least two problems one was um if the community is supposed to do all of the decision making most of the system critical

questions in defi and other businesses require some kind of expertise and the crowd or the community is very very bad at these kind of decisions so yeah you know it's like yeah I think I I agree on that last part and I think that you know we've seen this in Cosmos tons of times right with governance proposals becoming very politically charged and I think that if you take social media and onchain governance uh and and sort of crowd governance and you put those those three things together you you get this decision-making process that ultimately is about who is you know who's the loudest uh who can be the most obnoxious rather than like sound decision-making

and I think a lot of people observing uh the crypto space or even in the crypto space recognize this but there seems to be and just kind of come back to your initial point this uh this idea this sort of religious idea with crypto that all governance decisions must be binary and and there is no discretionary uh aspect but all the I mean there is discretionary aspects right and they happen on social media and they happen in governance forms and they happen in conversation but that the final decision- making uh coming on chain has to be like a binary um or you know executable by code and you know I think we have like thousands of years of maybe not thousands but like 2,000 years of

governance decisions in society democracy Etc that didn't operate under this uh under this scope but all of a sudden you know with blockchains we have this idea that everything do you know where that comes from in in crypto like this this this concept that all decisions must be sort of executed by the code like this governance by code idea yeah so I I mean I have um I I think what one of the reasons is because the the Space is really um heavily Tech driven you know it's like blockchain was is a technology although it's not only like code It's a combination of of economics and uh and technology and and so forth so um but a a lot of the um space has this

this um Tech driven mindset of we need to think about the world and the future of the world today and we need to find like the place where we want to go to and then because only then you can code it you know like I mean there there's this um this thing called called incomplete contracts theorem which um some guy called hard uh got a Nobel Prize for where he mathematically proved that it is impossible to comprehend all future stages of the world and that's why every contract and a code is contract I mean that's why we s call it smart contracts will always be

incomplete because you can never code the world it's just simply impossible for and and and that is just a mathematical reason why you can't do it and then there are many others because like how would you code emotions and that forth I have another um view on that um people who who come from that background they don't like politics they don't like this this interaction with people this um this situation where not everything has a yes or no answer you know where the the answer is it depends like our lives the consequence I find it interesting to think about the consequence of if we were able to um code

everything what what would that uh end up to that would be a totalitarian nightmare essentially you know it would be it would be horrible because everything would be planned and there there would be no free will no nothing and uh so I I don't like that idea at all um I do like the idea to code whatever we can code and I hope that we will be able and I'm absolutely convinced we will be able to code more and more more and take out uh insufficiencies and risk and and such but but everything else it's impossible um and that's the other thing you know it's like we we said like as

long as you as you don't have an alternative for the um solution of a shouting game to be the only governance or um dispute resolution mechanism in a in a blockchain scenario um we're limited to below 10% of of the capabilities and of the opportunities C can you point to some some practical cases where Dow governance has catastrophically failed I'm thinking you know there's this this Uki da case that I'm I'm not super familiar with but I think I think you are and then there's obviously like the Aragon thing that happened like late last year um wondering if if you have

like if those are relevant examples in your view and if you have others in mind yeah so I I have a little bit of a a party trick where um I I challenged the crowd to throw like any hack or disaster or failure in the last two years at me and I will explain how it's been a governance uh hack in in whatever sort so like Aragon is an obvious one what's the problem with with Aragon and that's a fundamental structural problem in in the whole Space the idea is um to to protect a value let's say like a Aragon treasury or the tvl of a uh defi system

or whatever a value let's say of a 100 by a token that's worth only 15 you know market cap 15 that's an obvious attack Vector I mean Martin my my co-initiator has written about that in our white white paper in 2019 vitalik has talked about this with respect to maker in 22 uh at length so it's it's a widely known factor and it's nowhere else ever in history has that it would be like trusting the ma the eyes of your your bank manager to not run with the money instead of like the the system behind it you know it's but everybody still believes like yeah we we need to solve is alone like

fragmentation is is another big problem of that um so that was the Aragon uh case they if you look into the um uh into their block post why they uh decided to dissolve their their foundation and then like leave the decentralized space is a they they said like we couldn't set up a system including human judgment I mean that's what we're doing at Q with the including the and and all of these things B um transaction costs so they they they couldn't do onchain voting which I think is Paramount um snapshot is great but it it's a it's a Crux it's a it's a tool

it's not what it should like voting should be on chain and then the third thing was exactly that they were missing an external credibly neutral security anchor for their Treasury and governance so that's one Uka another Super interesting one so um the the Uka case every like what the takeaway for many people is like there was a California judge who decided that all Dows are going to be um everybody's a uh responsible for for everyone in the um in in the Dow so the unlimited liability yeah the unlimited liability um and part of that and the if you look into that

and if you have a little bit of a legal background what happened is the following so a California judge the first question I judge always asks is do I assume jurisdiction over this case do I take this case so here in the absence of any kind of contract rules whatever this like description of what that Dow actually is he that judge resided to say like well um that's a California resident who's suing so I have to um assume jurisdiction so what what we do like for for the Q da and what we offer to others is like a contract which

we call Constitution you could call it whatever which is a private contract amongst all members of the Dow so there you have something where a judge would look into and say like what am I dealing with here and that contract would say like we are the Dow and blond like this is how we do things and another thing um our constitution includes and others could include as well is an integration with the IC so that's that concept is coming from the um from like international trade or I was in telecoms international roaming so you have international parties that can agree on the terms of the trade like American Chinese can agree on the terms of the trade but they can never really agree on the

jurisdiction they the Chinese won't go into the us or otherwise for to beef out their their disput so they came up with this idea of private arbitration they they and the ICC and some others like the IC being the biggest one they are being recognized by all relevant courts around the world so that judge in the US would have said had he seen a contract or like a constitution including the ICC for a dispute resolution mechanism guys I'm not assuming jurisdiction you know it's like go beef it out before the IC and then you can come back and I will um happily enforce arbitral Award of the ICC because that's what then uh nation

state or local courts do so that's what happened it's not that the the that judge had a was on a mission to determine all uh Dows being whatever you know and the other thing what happens is like if they don't have any you know know uh they they have to tap into their toolbox they have to use the tools given to them by the law and the Dow wasn't anything he knew but a private contract including the ICC that would have been something that that that guy would have known so so essentially in this case the the what what takes place is that because the Dow because there is no

contract there is no binding agreement between the Dow members the the judge uh presiding over a dispute you know looks at what he has in front of him and says okay there's no contract and then defaults back uh to a standard partnership I guess it is in in uh in the law right and the standard partnership is sort of defined in the law as having like these characteristics and where you every person has unlimited liability and then the other thing is that anytime there's like a member of the Dow who is a resident of a country or or or a state or any jurisdiction that person immediately comes um the the the judge can then claim jurisdiction over that so basically what you're saying here is

that with with Q well one there's a contract and so it it we can Define the terms of the of the contract and also the jurisdiction in which disputes would be resolved so for instance in this case private arbitration and then the jurisdiction also falls on whatever arbitrary body is defined in the contract yes and and the the beauty of of private arbitration is that you have a lot of options that you can choose from so you can choose uh the law applicable to the proceedings you can choose the law applicable to the to a substance uh subject matter to the substance of the case you could even CH choose for the contract a to be the law and nothing else which we did for for Q

because we um we believe that we had to be neutral as neutral as possible so we are independent of any nation state or country or whatever and and the partnership in the law is kind of like a catchall clause it's like a fallback you know if it's not this if it's not that well then it's got to be something so it's got so it's a partnership you know but had it been a like a contract like a private CRI I mean this happens and had I mean this is so customary in like International Trade um as I said like in telecoms global roaming agreements it's the same thing it's it's nothing really new you know it's like blockchain it's a good combination of things that are

tried and tested yeah and I mean blockchains being inherently you know Global Systems it it makes sense for blockchains you know perhaps to adapt and adopt uh their contractual or sort of like legal structur is something that's been tried and tested in uh international business and sort of international Commerce for you know decades let's let's come back to the Constitution in a few minutes I'd like to you because we've talked a lot about the context here but what is Q what is it exactly like who is it for and um at the end of the day like what problem does it solve for um for the people using it yeah so Q is a decentralized comprehensive governance framework for

web web 3 that means we provide um all three elements of governance in an integrated way so governance requires always at least three elements rule setting enforcement and dispute resolution if you just have one or two of those it's it's not governance it's a part of governance but it's not governance so you need all three of them and they need to be integrated they need to work together in an integrated way so if you look at binary questions smart contracts there are beautiful governance systems because the code is the rule you

know that's the rule it's transparent it's open it's clear then the enforcement is automatic and there are never any disputes because it's just yes or no you know but as soon that's convenient yeah that's very convenient but it it's it's very limited as we've seen with the block size uh Wars with the ethereum original Dow Haack with all the problems in defi with like tiny things like you could have like a beautifully decentralized code base but then the code needs an upgrade and you end up with three out of five guys with admin keys and that's where regulation comes into place because regulation says like well I don't care about the technology you can't fool me

I'm looking at the whole thing and if I see three guys with admin Keys those guys are going to grab period regulation is very pragmatic that way um and um so that's what we're doing we're providing these three elements in a framework so you can set your rules either in code or human language combine that with the human written contract we provide uh an enforcement mechanism that is able to enforce not only code but also human written language that can assume some some uh scope of discretion or or discretionary decision- making if you wish for them to do so and uh um then

there's on the uh dispute resolution we've integrated with the ICC and they are willing and able to see any kind of dispute that arises within the Q system or if an application using the governance uh chooses to to opt in the into the the ICC as well um it's an open system so anybody can build on it um so Dow tooling can build on it um even like other dis Ute resolution mechanism so claros um is a great dispute resolution for a specific part of dispute resolution and a specific case so that could be combined um and it's for anyone

in web3 anybody who wants to have a truly decentralized autonomous organization or partly you know it's like you could also have uh what we call Hybrid models you know where you combine centralized and decentralized decision making would you say that Q enables blockchain governance to step outside the confines of binary decisions yes so our like if you've ever seen uh me in in my swag uh it says like code is like here like cod is Law and then it's and on the back is beyond so we go beyond cod's law okay we we like cod's law it's not that we don't like but we need to go beyond it so we

we provide this as a think about it uh maybe uh or another way to think about it is the following like um Cosmos uh ethereum others are providing shared transaction security right we provide shared governance security and that way not only are you able to have an incredibly neutral external security anchor for your governance but also you are able to combine deterministic decisionmaking transaction based decisionmaking with non-deterministic uh decision making

which essentially opens up the decentralized world for pretty much all relevant business models I mean there's a reason why we have not seen more innovation in in defi there's a reason why we've not seen more traditional businesses and companies tapping into blockchain the reason is governance they don't understand the governance they can't go fully decentralized their business models are way too complex for for them to be binary um so that's that's how we see ourselves as a like adding that that that part to the to the space and another way to put this maybe a little bit factious but like Q enables

blockchains to rely at the end of the day have to blockchains can fall back on the guy with the gun right like enforcement is at the end of the day is like a guy with a gun uh you know sort of with the like enforcing state state violence on Monopoly on violence yeah yeah it's an interesting I've never thought about it like that right but it's interesting because like enforcement is was and is one of our absolute main focuses in the intro you said this dispute resolution that too but those are others doing it um as part of the system like the ICC like Claris like you know enforcement is is

something that we're really really concentrating and focusing on because we've seen other attempts like EOS had a a constitution I think they were the first ones with a constitution but there was no enforcement and um and the outcome was um remarkable to say the least so it's like you need enforcement without enforcement there's nothing I mean you look at arbitrum you know I I really admire what these guys are are doing or at Anan Lea you know it's like Anan is even like a always the better case like slashing you know um no slashing no Ian Lea ultimately yeah if

we don't if we don't find a way to enforce into the assets then the staking is worth nothing the the risk or the the security doesn't come from the fact that assets had been staked security comes from the fact that there's an effective enforcement mechanism yeah but like enforcement by slashing I think like I think it works in some um it works for some use cases but I I don't think that at scale it's a a very Capital efficient means of enforcement because like if all contracts were just enforced by uh some kind of financial penalty where you had to put up capital in order to enter any sort of agreement you know we

we'd be in a very like capital and efficient world where you would have like all this money basically locked up for uh you know for the possibility of an enforcement of a governance decision um I want to talk about the the Constitution a little bit more so tell us about like what is the Q Constitution what form does it take like I mean I read it on the website I think it's it's pretty cool that like there's the Constitution there you can read it um but how does it actually create a binding agreement when participants are using Q to enter some sort of you know agreement yeah so the Q Constitution is uh the the rules that govern U the Q protocol and um in in in at times really

meticulous detail it lays out things like fundamentals like um maximum number of tokens how uh the governance Works um like like all all kinds of things that are relevant so we switch from code is law to law is law like Constitution is law so the in Q the technology is following the Constitution we would have to change the Constitution first in order to change the technology the beauty of that however is that the the system has a very rigid transparent um um way process to um change uh the uh the technology and

cater towards Innovation so like we did last year we did a the first constitution rule-based hard Fork probably in history so it's very clearly laid out and and that way we can always determine what is the correct version of Q same with contracts like smart contracts um it defines the stakeholders and their rights there are tables in there for voting like for example the the Q token holders are the ultimate owners and bearers of risk of that system and they're the ultimate decision makers for for changes to the Constitution like fundamental changes so they need like a super majority and and

then they have Del ated some of their powers to Independent bodies which is a very smart uh move um because they understood that a they are not the experts on any everything so they there are expert panels uh in in Q and as as a function you can use that and set up your your expert panel uh to facilitate uh non-deterministic decision making there are oversight uh mechanisms and panels like for example the root noes and that is that is solving in the Constitution the Constitution is a private contract between all members and stakeholders of

the system so if you become a root note you have to sign the Constitution and as always in life this is not bullet bulletproof so you will find a um jurisdiction in the world where you probably somebody would say like this is not a valid legal contract on the basis of my n National laws for whatever reason you know um but it is it is it is very clear it is um optional so it's you can opt in or not so it's a private

contract one thing I wanted to ask you is the you know the binding nature of these contracts like I've I've sold company shares in Germany for example and found out that you know nothing is binding unless it's like signed on paper in front of a notary you know like uh uh somewhere in a Frankfurt Tower and so there are these sort of particularities about certain jurisdictions and what constitutes a legal binding agreement how broad uh how broadly does the Constitution cover uh National jurisdictions you know individual you know legal particularities I'd say the the way we've dealt with that is that you will not find any obligations of of Q token holders in the Constitution that

are uh uh that could be widely regarded as consumer like under consumer protection laws because that would then prevent The Binding U nature U you will not find that you will find a lot of uh inter professional or company related uh dealings like with root notes or with validators or others so that's one way we've dealt with that for this to be widely regarded a valid uh contract Then There are rules um that are widely regarded for international contracts that are independent of uh nation state contractual law uh the unid Droid rules

and so forth so we've try to observe those there will never be like a a perfect solution because and and it's very obvious I mean think about taxes you know it's it's different everywhere the way I I look at this is the following if we believe that there's going to be a decentralized or at least digital global economy that is continues growing like we see it today in the internet and and then in in in our crypto space or web 3 space if we believe that's going to continue then I find it silly to believe that the actors in that

system should reside somewhere in the nation state it is Bonkers excuse me but it's it's it's it's it's really silly because like the answer to the question where will always be wrong you know why Switzerland why China why the us so we will need an alternative for those who act and move in that space who don't have any national relationship or don't have people on the ground only there or have to deal with with other companies on the ground somewhere otherwise the question

is well do we otherwise I believe what will happen is the following this beautiful idea of decentralized blockchains and decentralized infrastructure will essentially be very very centralized because it will be pulled back into um uh Regional nation state legal systems and and that's it that will be it you know then it's just a little more um efficient technical infrastructure that's what a lot of the tra traditional Finance industry would love to see by the way for blockchain to be a horribly boring settlement layer for trafi I

don't want to see that I I'm here to prevent that from happening that's um yeah let's talk about the different stakeholders here um who are the different participants of the Q blockchain and what are their roles yeah so uh essentially there are there are four main main uh stakeholders we have built this as a layer one not because we want to be layer one um we are implementing cross chain governance at the moment so this is available to anyone in web 3 we did however build it as a layer one because that's the only way that you can establish the required governance security you couldn't do that

on a layer two or especially not on an application and we wanted to be neutral so that's why we build it as a one but given cross chain capabilities it's it's available to anyone so we have it's an evm compatible uh dpos system so we have validators state-ofthe-art nothing really fancy there um then those validators and that there it gets a little more interesting um are overseen by a second set of full nodes that are very independent in that they're everything is different for those they don't um validate any blocks and transactions and

so forth which we call Root nodes and their job is to oversee the validators and and other stakeholders in the system on the basis of the Q Constitution and they can also do that for other applications so the the root nodes is the second uh biggest uh stakeholders then there are expert panels so you as I said you can and choose to use one of the existing expert panels or choose to set up your own expert panels and um you can subject those experts panels to the oversight of the root nodes you can give those expert panel rules within which in order to define the scope of discretion within

which they can then decide and so forth and then ultimate the the Q token holders which um is is is the community everybody who owns uh Q tokens and um they they are probably by the end of the day the most important because they ultimately own the system they make sure it's the centralized and they they have to take the the the decisions on everything they're very important part in the in the governance how do the token holders how do they have such an important role because when when I was reading the paper and everything it felt to me like this could have been built as

a proof of authority chain sort of a you know with a set of validators that were handpicked and you know professional like I I don't immediately see the need to have an external community of token holders um what's the I guess like it comes down to the utility of the token maybe yeah so the the idea behind it is that if you interact with Q if you use the governance uh of Q you um do that by way of the Q token and you pay governance fees for that and you do the voting and so forth so everybody using Q um be will become a q token holder and part of the community and you we thought

about like um about this like a country you know it's like a society you know you you have a a society comes together that those are the uh applications who decide to use the same shared governance infrastructure and security and they must be the ultimate owners of that system so it's like the people of a country own should own the country and they should then be able to decide well we're going to build roads we're going to have a legal system we're going to do this and that but they should be the ones to decide how that should ultimately be because it needs to be designed to their needs and not

anybody else's so that's why they need to be such an important part of the decision making ultimately and then there there could be also like others who are using these systems which would be then not the the the the project themselves but the the users so I'm going into a country like France and I want to use the infrastructure of France because I love the country and I love what's offered in France if I do this regularly I might want to have a say in this you know and not just be a visitor and that's the idea how we thought about this and why we believe that the the Q token holders are ultimately so important um because it's not like a

random Community it is it is the ones using the governance it's the ones using the applications that are uh offering their services but anyone can buy the Q token on the market right I mean yes at this moment I mean we're we're about to list the token publicly at this moment the the token is is available but not on the open market but you could do that as well of course yeah okay and it's important to further the centralize the the system you need and and that's also like you you might have seen we have a function the Q ID yeah uh holders so that is a uh a function where um we are implementing a corrective mechanism like

one person one vote as a corrective mechanism for one token one vote which It ultimately could lead to plutocracy and and like all of these things that come with that one voting scheme so it it resembles a lot these ideas of having a society and then those acting in the society and being interested and part of that Society should have a say in that okay and maybe would just zoom into the difference between the validators and the root noes I guess the validators are running the blockchain like producing blocks how are they different from the root nodes in their particular role in the yeah so um first of all validators can be anonymous they uh can buy

themselves into the uh the relevant set it's in fully open system they're not selected by anyone root nodes have to be known by name and and place of of residence they are voted into the system by the coken holders they cannot buy themselves they will still have to put down stake they um then validators receive rewards depending on the amount of stakes just standard root nodes will always receive the same rewards so rewards will be cut equally between the root nodes so there can never be an overweight of one root node the the stake might be very different for for

various reasons we can go into but they will always have one root note one vote and have not a a bigger they they can also be slashed uh just like validators but um they they don't have any other interest than observing the rules of the Q Constitution and that is um that is secured by by four layers um in order to make this this panel atmost independent and and um and decentralized so the first layer is root nodes must be dispersed over over territory or regions

so we have root nodes in all six continents so that for example if the US shuts down all things of blockchain you know Q will still survive because we have root nodes in in all continents and all kind of jurisdictions second layer would be um the the segment um they work in so we we make sure like or there is a rule where a root node has to add to the uh Independence of the panel by being in different segments so we have lawyers we have Academia out of MIT New York Stern to lose School of Economics famous one then we have Deutsche Telecom being a

root Noe so corporates so there you have another uh disc the third um layer is that none of them for none of them being a root node is is their main job so they not only risk being slashed but they also risk their main job like Deutsche Telecom if they um to something wrong as a root not they can be sued U before the the ICC and then this could be enforced on the ground in Bon in the headquarters of doia Telecom in in Germany so or for a professor or legal Personnel so there these these different

layers and then um that ensure that they're independent in themselves and especially very independent from the Valas incentive mechanisms influence and everything is it like a two-tier governance system where you have kind of like an upper housee and a laowa house is that like a good way to maybe look at it definitely so the um distribution of powers was one very important aspect when setting up this so you can Define I'm I'm I'm taking the the perspective of somebody integrating with q and defining their own governance you can Define all kinds of levels so if you set up your Dow you could have sub Dows with

certain um decision making power powers and those can be overseen by others and then there could be an external oversight which would then be root nodes like like a referee or like the police you know like you give them the rules and they execute or enforce these rules no matter what you know you you kick somebody in the head on the on the pitch you go back and leave the pitch you know because that's not what we do and somebody else gets to kick a penalty you know stuff like that and um yeah that's definitely one way to think about it okay and what what's the role of expert panels because you mentioned those earlier and I want to yeah so expert panels I mean we've talked about this

earlier how the crowd is really bad at taking decisions that require some sort of expertise like like for a um health insurance the crowd could not decide whether a tooth had to be pulled right yeah or or stuff like that and um so that's what you need expert panels for um so you can have like we have a decentralized uh like a maker di clone essentially on the chain and they have an expert panel and their job is to determine um collateralization or over collateralization ratios risk parameters um questions like what's an eligible

asset to to be um um borrow against stuff like that things that that the crowd is really bad at making um you can define those expert decisions to be binding you can Define the scope of discretion for those or you could Define those expert to uh just to prepare a discussion or because sometimes very small things can can uh have a profound impact so if you look into decision making in big corporations for example the um one of the elements that um differen good versus not so good decision making is the preparation of

his decision did I look into all the relevant aspects which the crowd is really bad at because they come up with like all kinds of aspects 90 plus per are not relevant and should not be regarded in a decision did I look at um Alternatives because you all can only have a decision if you do have an alternative many are not even discussing alternative it is that like the crowd is mostly discussing tiny nitty-gritty things but not even thinking about like is this the only way to go or could they be in better alternative which and and so forth so that's what expert panels are for or can be used for okay so if we summarize here like the Q token holders are electing

the root nodes the root nodes are monitoring the validators the validators are are securing the chain and sort of executing on the Constitution you know coming back to this wisdom of the crowd idea you know if we if if Q token holders are electing root nodes what what makes them what gives them competence to elect root nodes isn't isn't there sort of a contradictory issue here where we acknowledge that you know that the crowd is not always best at making decisions what if they're electing like bad root notes so um the the crowd that that is a um decision that I think the crowd is actually good at you know what defines neutral and and then come up with rules

that they it's like that as I said there's a there's an algorithm defining how a root note would add to the Integrity of of the root node panel and the independence of of the root node panel so that the crowd can do they can look at like can we see an address is that like a couple of facts and um well do we already have a root note in that jurisdiction that's an easy decision to make for the crowd do we um believe that a professor has a certain Independence over like somebody who has a business interest which is also fine but then they would have to come up with more stake for example I mean we also have investors in in the Q as root noes so

they have they they're they're obviously biased but that's not a problem if it's transparent and you cater to that so they had to uh put up a lot more State than others like a professor out of MIT that can lose everything that I mean for for them um reputation is everything you know and not money yeah so I think that is actually a decision that the crowd is pretty good at making you know because it doesn't require like like uh domain expertise so let's talk about like a practical uh case here like let's say let's say we had a dow that was using q that had adopted Q's Constitution and uh

governance system enforcement Etc now there's a decision that is put forth for vote now that decision between the Dow token holders comes to a dispute um that then goes to an arbitration court and the arbitration Court makes a decision which then has to be enforced can you walk us through like the different sort of steps to get between each of these steps how do how how does that work and at which point do I guess like if you're coming from a blockchain governance perspective where like things are voted on and then executed like what are the mechanisms that stop the automatic execution say of transfer of funds for there to be you know a potential like

dispute if someone is not agreeing with the decision of governance or something like that yes okay so uh let's say the scenario is to following you had a dow um you have an an expert panel or some kind of decision within the Dow and um that decision did require some kind of interpretation so you set a scope of discretion by way of rules and then um what could happen and there are many ways but like one way we've implemented with with um some Partners is is where you you take an optimistic approach and say like well we trust the the decision of that the Dao until it's being

contested uh with by a DI member so once that happens then this decision is sent to uh the the Q governance system in this case could be the root nodes and they are then looking at the decision they are looking at whether decision had been made according to the rules you know like um majority requirements and so forth preventing that you kind of sneak in a big decision as a small decision which is like one of the the like big problem um if you don't have enforcement then they can look at whether had the have they decided within the the the scope of discretion like

have they observed those rules and if they find well everything's been fine then they would uh um then then they would enforce the the transaction or the other way around if the root notes found um for for the for the decision not to be um having to be made in like within the system rules then they just then they can veto that transaction and send it back and then the decision would have to be made again so vetoing could be one element to do that um you could also another way could be to have a second opinion so you that decision would then go to an independent expert panel that

sits on Q and they could e either have a second opinion enabling a second thought or a second uh voting or be be um binding you know it's like we we leave it to an external uh there are all kinds of ways to do this but we Q would then step in and and prevent harm from happening before the fact which is important in uh on on blockchain because you can't run after your money really right yeah um so then what you could then have as a second step is then this decision could be contested um or that would be a second different scenario so you have a

decision somebody contest that takes it to dispute resolution dispute resolution renders an arbitral award and now the root notes come into place because they're able they they function as a as an Oracle in that situation so so they are able to take this arbitral award this real world event and they are able to then enforce it onchain so they can act as a credibly neutral Oracle for these offchain events that's how they could come in um treasury decisions or like like say a very simple one that applies to a lot of applications in Defi and and others l2s big big challenge in

l2s um system contract upgrades so you might have a decision of the the community but um then you have three guys with admin Keys who have to execute that and deploy that uh on chain and there you have the the weakest link in the chain of decentralization and the root notes could be those we we do this for for Q all the time so last year we have done 47 contract upgrades without any admin Keys fully decentralized um we received a regulatory clearance two years ago in Germany and and and lonstein and that was their very last question how like do

you have any admin keys in your system and only when we could show them how we do these things without any admin keys in a fully decentralized way that's when we received regulatory clearance so that's what we could do um could be another like code upgrades without any admin Keys you know um so so how do applications or Dows or or even chains like in the case of a cosmos chain how would they utilize Q would they have to build their Dow on Q or can Q sort of sit as a side car to a chain or an existing Dow uh in order to benefit from you know all the things that it provides both is possible so you can either like build your full Dow on Q and then bridge for execution to another chain or into

the the um the application but you could also just use certain aspects like for example this code upgrading you can build your Dow on another chain you can have all of the internal Dow U mechanisms on another chain but then only use that one feature where you use Q as the external governance security anchor and just bridge over 2 Q for this one feature and then back for ex um enforcement so there there are variants uh uh of how to do that how we um like in in real life there are two ways of integrating we have standard um three standard products

at the moment which is uh treasury oversight code upgrades without admin keys and expert decision um oversight which I I explained you can um have a proposal on chain put down and and or put forth all of the relevant um info that we need and then the Q the Q token holders will make a decision whether to integrate with you so that's a standard process or many times we still do bespoke integration especially with bigger ones and and the Leer one layer two or layer one would definitely be his bespoke integration in the case of let's say like um I'm just thinking here like

in the case of a cosmos chain let's say you had a cosmos chain that wanted to Outsource parts of its governance to yeah uh if the execution is done on the chain and I guess this also would apply to an L2 Maybe not maybe not an ethereum contract because here as long as it's like if it's application specific and you have your own set of validators I think this would apply but basically like a decision could be made on Q and then it it has to send like the decision has to be settled on the Chain um at that point the like potentially the validators of that chain could collude to uh to to not execute the decision or like how does that how

does q would Q even work in that in that case like how does it enforce things happening on another sediment layer so on the uh on on that level most probably like um with some chains that would require an integration with q and the chain so the chain would like like we have I mean we have uh the governance on top of of a of a dpos chain and the integration is such that uh for example root nodes are able to um take out Rogue validators from consensus in order to remain leak the Integrity of the the chain you know yeah

so but that's on the Q chain that's on the qchain so and integration with Q depending on how deep you want to go that could be one way to do that uh for example by or by way of slashing so um a layer one uh could integrate with q for the slashing so we do uh non-deterministic slashing just did another one uh a couple of of of days ago which which is not only much fairer to the validators but um is is much more sustainable yeah like we talked about like uh efficiency um okay capital efficency so staking and and slashing could be used

you always need this external governance security anchor and you always need the ability to do non-deterministic things and and then you can integrate like on on many on many levels for for applications where this has not happened then then we would plug into what's ever happening on the on the application okay taking a step back here and looking at the bigger picture you know there's there's all sorts of narratives I think that are prevailing in the space right now there's this idea of network states which I think this kind of fits nicely into there's also a really big topic which is AI and people are discussing and concerned about how we will govern

AI um and prevent sort of Doom stay scenarios that people tend to be worried about how does q fit into all these ideas and how can Q benefit um in a a future where you increasingly things are governed online and not necessarily in s of like the physical meat space um contracts may be concluded purely on an onchain basis and not necessarily in physical jurisdictions Network States is is a super interesting one because a a second um background to Q was at the time when we started with a concept we were working with a couple of really early Bitcoin investors on um a free state concept and um and uh so I was

writing oh I think I know who that is um I was writing a constitution and we were uh so the the concept the early concepts of Q were were designing a governance system for that and then you know at some point we said like well this could be good for everyone and for all kinds of applications so that's when we kind of spun it out and that's where we received our um initial seed seed funding and that's how like one of the the reasons we do c because that nation state or like Network state today you wouldn't call it Network State Free State uh principle was was behind that and and of course I mean with everything that is a

network state or close to you will need some kind of integrated comprehensive governance framework because you want to have it independent of other nation states so that's another fundamental concept that not many have understood everything nation state based is region based all the laws everything is only because there is a region with people and they Define what they want to do if you have a world or a an economy or ecosystem what whatnot that is independent of region you can think got

completely new ways of Designing and laws you know it's like uh and and also uh ecosystems and interactions you don't have to have like one country there's right now A a um discussion that's worrying me a lot um around Dows which comes out of this this initiative in Wyoming with this new Doom framework and it's not that I don't like the the idea the framework what I uh really worry about is this discussion where where there's a voice saying like well we need to put all of these Dows into this framework which is is really dangerous I believe because it's essentially saying

like let's um americanize all Dows you know it's designed in order to you know what was put forth as the as the reasons you know is like we need to have a legal jurisdiction uh we talked about this before uh for something that's really decentralized no Maybe not maybe yes for certain things but as a as a basis no we don't then it's important to pay taxes well that might be the case in the United States but I know a little bit about taxes in Germany and Europe those are very different concepts so I don't agree with the the US tax system

at all it's it's American imperialism which I don't agree with as a principle in itself not only because it's America I love America I live there I have my best friends are Americans but I don't agree with that and then there's a whole world of discussion around like taxation you know it's like if I use a decentralized system and I pay governance fees and and transaction fees I'm paying taxes essentially why do I have to pay taxes in in the US for everything else again there's no double tax treaty um and and like all of these kind of things and then at the end of the day I don't like the idea to have a decentralized world reside in Wyoming

all of it that doesn't make sense right that is a a really worrying discussion I I see at the at the moment coming back to network states where I believe Network States need to be independent and there are all kinds of different ways we can define the laws of a network States state because the the uh initial foundations will be interest rather than region it could be whatever but not region so we will have to come up with a lot more sophisticated novel ideas to do that the other way is AI I I really see um a very strong case for for

decentralized AI I mean the this discussion um around like open an i AI That's apparently not that open anymore and then um um Elon Musk um who's a big proponent of open systems at least that's what what he's saying and uh open sourcing uh his XI uh startup uh and and so forth so so if we will want to have if we want to have a decentralized AI space if we believe there's benefit to having AI decentralized which I definitely do we

will have to have a decentralized governance for that yeah um and in very simple terms we will have to have a mechanism to define the scope of discretion within which the AI can play freely we will have to have a mechanism to Define how that scope of discretion can change if certain external factors appear or or the AI evolves or whatever and we will have to have an ultimate human back stop and especially the last one has to be decentralized I would not want to see this in the hands of a person a group of people a government or any kind of

institution I will want to have that as de centralized as as we could possibly dream it up but still involving humans because you cannot code you cannot code governance of that sophistication it's simply impossible so I very strongly as you as you as you can hear I have a very strong position on we do need decentralized AI why why do I feel strongly about the decentralized space as such or decentralization decentralization is not a benefit or Merit in itself you know it serves a purpose and for me the purpose is freedom it's very simple so Freedom means to have a

choice so far we did not have a choice to Design Systems businesses Society in any other way than in a in a centralized way we couldn't so blockchain and crypto has given us an alter alternative and that's how I look at it it's all about Alternatives that's why we need a truly decentralized space this is why I feel very strongly about defi I'm very frustrated with defi at the moment you know it's it's the killer application and it's going nowhere and I know I will provoke a lot of eyebrows um raised but I really see it that way um

why do you think it's it's going nowhere have have we seen any relevant um Innovation after this crazy amazing first wave of innovation of defi I me you're talking about like the you know the Innovation that are decentralized lending markets and decentralized exchanges yeah so like all of the really big def or like Finance uh schemes like pensions or or Insurance those are the big this is the big game yeah this is the real stuff so um no nothing I mean literally no movement at all there is a lot of reflexive demand in in it and

there not so much organic demand it's all like like in it in itself and and the reason is because it cannot evolve in a more substantial or or sophisticated way it's very centralized at times which is scary to to people so that's why a lot of people are not starting to use it and especially not bigger institutions you know which we would definitely need and could have and um so that's one then um as I we've talked about this at length like um binary decision making is simply not good enough it's not it's not enough so

we as long as we stick to that we will not see any Innovation and then if you if you still believe that a governance token within the system can can protect the system come on I mean we know where these governance tokens came from or originally there's no other place in the world where that works you know the the governance is always smaller or of lesser value than the actual business otherwise the business can never grow you know if the governance always has to be more valuable than the actual business in order to protect it the business cannot grow it's it's very obvious yeah this comes back to what I was saying earlier

about the stake necessary I think like what I think what Q yeah I I think what Q enables is it enables governance not to be tied to market cap it enables governance not to be tied to the economics of a protocol and um and and that's essentially like how governance has existed and uh and and functioned in companies for forever right like the the but but that requires a shift I think in the way a lot of people think about governance and crypto which is the enforcement is not economic the enforcement is well at the end of the day the enforcement is violence right so like I think that that's a well it it's it's

violence in a sense that and it's I don't mean this in a pejorative sense at the end of the day the the enforcement comes you know from the guy with the gun right who will ultimately en Force when a legal jurisdiction makes an enforcement I mean that's the basis for sort of legal enforcement right you always at the at the end you always have someone who's gonna like what you call it yeah grab your wrist and like force you yeah on a on a football pitch could be a referee that's the corre right and so I think that in the in the blockchain world that's um that's a concept that is frowned upon by a lot of folks for ideological reasons philosophical reasons what have you right there's like this libertarian route in crypto that I

think like bleeds into a lot of the philosophies and ideas about how protocol should be run and I think that the libertarian philosophy in crypto does also you know um Empower this idea that things should be governed on chain with binary decisions because by doing that you remove the violence aspect so I think I I think that's where that comes from but it's necessary if you want to have a functioning system that isn't Reliant solely on economics solely on financial uh on the financial strength of a blockchain for instance in the case of Aragon right where the governance token is worth less than the thing that it's actually governing and that's something I think about a lot um we've gone super long here we've gone way over time but I think this is a super

fascinating conversation we could go on for hours but yeah thank you so much for coming on the podcast and where can people go to learn more about q and potentially even get involved you know run a rout node run a validator start building a dow on the system q.org uh that's easy that's where you find us um and from there you can find hq. q.org which is the D app and from there you can look at the actual online governance you can participate in governance um and um you can get a couple of Q tokens from the from the facet and to really start playing around you can participate in in all kinds of

incentives that that we're running at the moment or uh look out for for the Q token to be available on on bigger exchanges sometime in the future great Nicholas thank you so much hey thank you so much it was a pleasure being there um and thanks for the awesome questions I really really enjoy the thank you my pleasure cheers have a good one bye-bye