Lessons learned from 3 years spent in L2 DAOs - what worked, what didn't, how to evolve.

Transcript

Hello everyone. So, my name is Chris and I would like to talk about DAOs today. And to set the stage, let me tell you some things about me. So, this is me and it's not an AI. I actually do dress like this from time to time. Uh and I've been involved in communities and like governance for more than 20 years now, almost 25. In the early days, I was involved with projects like Linux PL, which was a Polish Linux distribution in the '90s and Debian. And that's where I learned like for the first time I experienced decentralized coordination on building something with people who I've never met, who I never

met in person. Then I was involved in those like political activist communities like I Internet Society Poland, where we were fighting against software patents in in Europe. In the early 2000s, there was this initiative to introduce software patents in Poland, same as in same as in US. And we fought against it. We were organizing conferences in in different different cities in Europe. We had Richard Stallman actually talking in Polish Parliament and explaining why this is a super bad idea. My friend was actually camping in a tent in Brussels in front of the European Parliament

until So, he was camping there until they listened to him and listened what he has to say about why this is such a bad idea and we won. We are We don't have software patents in in Europe. So, it was worth fighting for. And there are like other initiatives that I was involved with, Wolne Lektury, which is like the biggest public domain library that I helped co-found like 20 years ago. I'm still involved with them. And copy camp, which was a copyright copyright conference that where we were explaining how copyright actually works.

Then I was involved in totally random things with police headquarters. We were organizing school kids communities where you know, we had this mission of explaining to school kids that alcohol and drugs are bad for them and that police is their friend, not their enemy, which is like a hopeless mission. However, in in the peak we had like 150,000 kids involved in tens of communities spread across the country. On the final finale of our program we had 10,000 kids in Polish national stadium celebrating this.

Then I was involved in the crypto policy workshops with the government. That's where I learned how the sausage is made, how politics actually work. And we also we were able to push for some things. Like for example, interesting fact about Poland is that in Poland we have a law that allows you to have tokenized equity where where the token is equity. It's not a derivative. It is actually an equity and that's possible in Poland since 2019. And then at that time more or less I was interested in DAOs. Like actually the DAO was the project that got me interested in crypto. That was the the the the the thing that made me, okay, this is something interesting. This is actually something I want to be working

on. Then there was Moloch DAO, Maker DAO, there was Olympus DAO. So I never was involved directly in that, but I was super interested. So when L2Beat approached me like four years four four plus years ago and asked if I want to join them to help them with governance in the L2 DAOs where where where L2Beat started being being active on, I was I immediately accepted. Like I was super excited about it. And at AltoBeat, oh, sorry about this. At AltoBeat, we were we are and we were top delegates in many L2 DAOs. Arbitrum, Optimism StarkNet zkSync Scroll all of them. So, I was able to experience first hand how

we how we went from 2023, which in my opinion was the peak governance um in L2s, where we were Arbitrum DAO was founded, where um Optimism was uh distributing hundreds of millions of dollars in RPGF and creating this bicameral governance systems. And how we ended up today, where DAOs are being shut down or silent or dead or inactive and and not doing much. So, how did we get there?

But, first, we need to ask a question, why? Why do we even have governance in L2 DAOs in the first place? And some part of this of of the answer to this question is this. Uh DAOs were established and governance was was uh introduced because of the hostility from American government, especially this guy, uh where companies that were producing those systems didn't want to be exposed, didn't want to be directly involved um in uh in managing those systems to not be liable, but also to be able to sell token. So, one of the

reasons, like the most naive reason of why do we have uh governance, is basically for the token utility. Like, if you have a token and it does it it's not security, you don't want it to be security, you need to give it a utility. Governance is a good utility, but it's only part of the answer. If you stop here, you you will not understand why are we doing this. Because actually governance has a has a proper utility. For example, system upgrades. Shelby was speaking sometime ago about how governance is involved in system upgrades in in the case of Arbitrum is a good example where governance actually approves upgrades in in the system. Optimism as well. Another

thing that governance can do is treasury allocation. If those systems are making money, we have to have some way of deciding how this money is being allocated and spent. This is something that that Brett was explaining a couple of minutes before that those systems are making money and we need a a way to decide of how do you want to allocate this money and governance could be could could be useful that. Oversight also is a good example. In Arbitrum case, for example, governance can technically replace directors for Arbitrum Foundation.

Governance can can actually execute oversight over the institutions that are building this ecosystem. And last thing that is not very popular, but I believe that it's it's a huge opportunity is upside effects from upside from the network effects in the in the system. If you are building on top of some system, for example, if you are software integrator that is integrating SAP into companies, you don't get the upside. Like you get the project that you were paid for to integrate the system, but all the upside from from from this integration stays with SAP.

With crypto, actually with tokens and token governance, we can create mechanisms in which people who are building on top of this ecosystem, people who are implementing this technology, who are bringing users, who are bringing utility can actually get an upside from the fact that that those systems are successful. And and there is more of the things that we could use governance for. But the issue is something that we did not account for enough when we were starting those governance systems is that governance is hard.

And what is actually governance? Most people when they think about governance, especially Dow governance, they think that governance is voting, right? Like delegates vote from time to time, they they, you know, so they read a proposal and they decide whether they want to accept it or not. But this is like only very small part of the story because like where is this proposal coming from in the first place? Like who who is making this proposal? So first someone need to have an idea or identify the need in the system to have the proposal in the first place. And if they do, then they have to somehow build consensus for this proposal. Like if you just ask people, "Hey, do you

like it?" and never explained it to them, most likely those proposals will fail. This is something that that many people learn the hard way that that you have to build consensus for the proposal. But before like, in order to be able to build a consensus for the proposal, first you need to do that solution exploration. Like probably the first your first idea, your first uh thought of how to solve this need or this idea would not be the thing that everybody would agree on. It won't be the thing that that that will gather that will get this consensus. So just here in order to have something to vote on, you need to do all of this. But obviously, governance doesn't end on voting because we we vote on something,

but then the job starts, right? We accepted something and then something has to be done. And we need to somehow arrive at the proposal completion and make sure that somebody actually delivered on what what was accepted. While this is happening, we need to monitor the the the the the thing that is being worked on. We need to adjust more often than not the proposal based on what we've learned down the road. Like we sometimes have to pivot a bit.

And then ideally after the proposal is finished, we need to learn some lessons. We need to figure out, okay, what what actually what what did we plan for? What did we end up with? And how can we do it better next time? Because obviously this process you see that this is already a lot of work, but this is just one proposal. And you know, for any idea we have several proposals. Like in order to do something we usually need to do several proposals. And if the system had like if you want to have governance that actually is heading somewhere, it would be great if those proposals were aligned to some, you

know, some consistent strategy or vision that they don't, you know, they don't reject each other. And this is like one stream of things that one strategy that we're executing, but usually, you know, throughout the years things change. We need we we approach things differently. It would be great if those things that we are doing are actually heading towards some North Star and overarching goal. And you might think that this is a lot of work. And you would be correct. This is a ton of work. Like this is, you know, um so so it's not just voting, not just clicking in the interface whether I accept something or not. This is a ton of work that somebody needs to be doing.

We'll get to it, but at this point remember that this voting that we started with, that everybody associates with governance, is just a small one step, in my opinion, optional step. Actually, in Optimism, Optimism moved from from active voting to optimistic voting, where proposals are being accepted unless vetoed. So, voting is actually not essential. So, what is essential is who says? What do we even vote for, right? Like, who actually makes all this job to to figure out like what needs to be decided on and how do we identify it? And as an anecdote of how those things can go

wrong, I will show you this is the Unfortunately, this is a serious question that was recently proposed by by by the president of Poland for national referendum, and I will read it. Do you support the implementation of the EU's climate policy, which has led to increase in the cost of living for citizens, as well as in energy prices and the cost of doing business and farming? So, this is unfortunately a serious question that has been proposed by the president for the national referendum. And of course, this is used as a political tool, like this is used for the political battle.

So, how do we how do we decide in the governance who gets to ask those questions? And in the very early days of governance, it used to be delegates, simply random people who happened to become delegates for one reason or another, they were trying to figure out out by themselves. But in almost every governance systems, we have at least three different entities. We have like entities like bodies. We have delegates, but we also have labs, the company, the people who actually build the system, and we usually have foundation, some kind of a foundation that, you know, is overseeing the system, maintaining it. And the important thing is that these guys like these two bodies

are people who are actually working full-time on this. So, it would make sense for governance to actually at least take into consideration what what they have to say. And I'm guilty as as you see in this picture, I'm guilty in promoting this idea that we should let these people, you know, do some work. We should let them help us steer the governance. We we shouldn't be afraid of of them because they actually are the ones who care deeply about those ecosystems. They are not an enemy that we should fight against. These are people who should we should align with.

And this is actually something that was, you know, was executed, was experimented on. This is something from Optimism where Optimism created those different bodies. This is actually a very small fragment of the bigger picture, bigger diagram of Optimism design governance design. Well, big kudos to Optimism and Justine because like they did amazing work experimenting with this different systems and different frameworks. Uh this is ZkSync. Shelby sometime ago was was talking about like how there are those different governance bodies in

in ZkSync, but even on the on the upper level, there are like two different two different entities in ZkSync that are running this this whole thing. There is the ZkSync Foundation, which is a boring entity that nobody knows of. And they are doing the boring stuff. They are doing the deals with the service providers. They are like actually running the system. And then we have ZkSync Association, which is the governance body. They are running the ZkSync nation, Zk nation. They are running governance forum. They Shelby is working in ZkSync Association. So, she they are doing all this community stuff and they are not, you know, not crossing each

other very much. And this is also something that Arbitrum, you know, approached a year ago. So, Arbitrum also figured out, okay, we we need this this this additional system where we have a organization that is working on governance, that is is doing the work. And we had this proposal for OpCo. OpCo is a second foundation as in Asimov like second foundation that is correcting the course of the original foundation. And for the second foundation we created an OAT as Brick mentioned in his in his talk. It's an oversight committee that is governing the

second foundation that makes sure that it actually works for governance. And for this OAT we elected most competent people that that are you know, that that that were able to run this. And like I still believe that these are the most competent people that that that were able to do this. I voted for all three of them and it started really well. Like it started really well and it was elected in May, if I remember correctly, last year, May or or or June. And in July they started working and on the report in the DAO forum they announced that yes, like we are doing we are working in the DAO. We in this TMC proposal that Brick was talking about

they are approving or denying allocations. And also for the Entropic's proposal they are responsible for figuring out the deal with the DAO that will govern the 10 million ARP tokens that are set aside for the OAT as a for the for the bonus for Entropic. And 10 million ARP tokens was $3 million at the time, around 3 to 4 million dollars. And it was it was reasonable, right? Like we had this entity with elected individuals that were super com- competent to do this work.

What could go wrong? So, I checked recently. This is the update for May this year, 10 years 10 months later and they are still, you know, working on this TMC proposal approving and denying allocations, and they are still working on entropy proposal to work exclusively for the DAO to allocate 10 million up tokens. Um and when I see it and and and this is it, like there is no more in this in this part, like this is exactly the same. And what it reminds me of, I don't know if you watched Seinfeld, like in Seinfeld there was this scene where he went to the car rental company because he

reserved a car there, and they didn't have the car. And he said, like you see, you know how to take a reservation, but you just don't know how to hold a reservation. And the same applied there. In my opinion, this OAT they they they knew how to declare responsibility for certain things, but they failed to actually take the responsibility for doing those things for the DAO. They failed to fulfill this responsibility because like with with with this second point about negotiating $3 million bonus for entropy in the in this arrangement, nothing happened. No no signal no no communication was made for those 10

months. And it's not that nobody asked them about it. Like this this irritating guy actually was, you know, he was pinging them, "Hey, like it's been 3 months already since you declared that you will do it, and there is still no communication. What's happening?" And unfortunately, this is the last post in this thread. So, nobody replied to that. And I don't blame just the O E T that they didn't reply for that. I actually blame the delegates. Why does nobody care? Why does nobody in the DAO care how $3 million are being allocated to the strategically important initiative in the DAO that is actually responsible

for the success of this ecosystem? Why does nobody care? Like basically, this is the reaction that that we have. And I would say that the worst thing for governance that can happen for governance is not somebody doing something wrong. The worst thing is indifference. The worst thing is if nobody cares because then everything turns into the question like, should we continue doing what was what what what has worked well so far or should we jeopardize everything by rejecting the proposal? This is what proposals actually turn into. There is no voting against because there is no alternatives. Nobody cares. Nobody thinks about it. Nobody questions

things. Nobody discusses things. This is an issue. This is an issue that we need to solve in DAO governance because what is the value of a governance token if there's no real governance? If the governance is just, you know, ratifying, okay, everything is fine and just, you know, voting on stuff but without actually without questioning things, without proposing alternatives, without even checking without even keeping organizations that were set to do stuff accountable for doing the stuff?

Then how can we expect the token to be worth something if it's a governance token without a governance? And I believe I've known for saying for a couple of years now that governance is actually the most important thing we are trying to figure out in decentralized systems. Because what is the centralized for if we don't know how to organize the decentralized systems, how to how to make decisions. And I would like to leave with some signal of hope. I because I think this is all solvable. I think that Arbitrum will get it. Arbitrum will solve it. All the other systems will also get to it at some some sometime one one time or another. We will get there, but we need to solve for those issue. We need to

design governance as part of the organization structure. Not something aside, not something extra, not something that is, you know, just being there doing its own stuff. It's part of the organization. We need to establish expectations. What do we expect delegates to do? Like if delegates are not pinging organizations, are not keeping them accountable, it's their failure. We should We should blame them. We should call them out. We should design processes for governance sustainability. Those things could be handled if we knew that if if we had a process that if nothing is happening, this is what is expected to happen. And I'm not an if I'm pointing out or calling somebody out. I'm just doing my job, but this needs to be designed, otherwise it's not being being done. And

we need to treat governance seriously, otherwise we won't have serious governance. And this is my message. This is my slogan. DAOs are not dead. And by the way, if you know what the slogan references, you should probably get a colonoscopy. Thank you very much. This is what I had to had to say.