The Mechanism Institute w Ori Shimony on Allo Capital Podcast

Transcript

There's not going to be one capital allocation mechanism that works for everything. We're more inventing like a tool box. Just like when you want to fix a problem in your house, you don't say like, "Oh, I'm a screwdriver, Maxi. I have to use this one tool." You say, "No, I'm going to use like pliers or screwdrivers or a saw depending on what my problems are." And I think that like there's going to be like a dozen. Yeah. I don't think we're converging anytime soon or maybe ever towards best solutions. It's kind of like trying to engineer a thing that I wished existed when I was starting Gitcoin and I was just stumbling around in the dark alone like building crowdfunding tech. Yeah. I think the biggest learning I've had especially from building DOR over the years was starting and there's this like urge amongst you know mechanism nerds to

fix all the world's problems. There has to be one core interesting thing to set something apart and make it, you know, succeed, but there shouldn't be multiple really interesting things. And this is another problem is like projects that try to innovate on like multiple different vectors at once. I think that that's a great point. Um, innovating where your core strength is and hopefully that's a high leverage point that the market cares about. What I'm trying to do with Alo. Capital is create a selling point or like an attractor for the best builders. And I think that like my ideal case is that if you're a builder that's building one of these systems, we can accelerate you with intelligence, distribution for your mechanism, capital, and like networking

with the other people that are in the scene. And so I think that we're creating like an attractor at like the economic and social and technological level that allows people to just move faster by virtue of being a member of the network. And welcome to the Alo. Capitalap podcast powered by the Green Pill Network. If you're just joining us, this season we are summoning Alo. Capitalap, a new spinout from Gitcoin that is designed to build the capital allocation layer of the tokenized internet. I think there's big upside here. Capital allocation is a multi- trillion dollar design space and VCs, governments, NOS's, and Dows all have to allocate capital to survive and thrive.

But it's also a place where we can start small. Every time you spend money, you are allocating capital. We are threading a through line partnering with builders, researchers and funders to figure out what onchain capital allocation will look like, building it onchain and then iterating from there. If you want to learn more, you can visit our website at alo.c capital where you can download the aloe books for free, play with some of our DAPs, join the telegram or participate in the DAO. All right, my guest today is Ory Shimoney. Ory leads the mechanism institute which is a research hub advancing on mechanisms to improve human institutions. He's also a research fellow at the Ethereum Foundation exploring underexplored onchain use cases. Previously, he co-founded DORG, the first service DAO and legally wrapped DAO and co-authored

the DAO model law which is now enacted in multiple jurisdictions. I've been an admirer of AI from afar for many years. I think that the mechanism institute is a really great mapping of all of the different capital allocation or governance mechanisms that are possible on chain. And so it's been a real delight to get to know AI over the last quarter or two and explore the synergies between onchain capital allocation, my work, and his work at Mechanism Institute. And I think that we're kind of independently converging on some similar ideas, which is always fun when that happens. And so, uh, in this episode, we kind of play jazz on top of his work on the Mechanism Institute and then inject a little bit of Alo Capital and then swirl it around. And I think

it's a really fun conversation to listen to if you're a impact nerd or a mechanism nerd or someone who just wants to understand where this space is going. So without further ado, I think you are going to enjoy this episode with AI. [Music] Hey Ory, how's it going? Going well. How about you? Pretty good. Glad to have you here. I think that we've been discussing mechanisms over the last couple months together and excited to foreground that discussion in front of people who've

been following Alo Alo Capital. So why don't you tee us off with an introduction of yourself and then also would love to hear about Mechanism Institute. Sure. So, I've been researching onchain mechanisms as long as I've been working. I got started trying to build Dows on Bitcoin in 2015. And then shortly after Ethereum launched, I got into Solidity, realized it was a far more efficient way to build unstoppable systems than building different networks on top of Bitcoin. and quickly got into the DAO space and basically worked on Dows for several years. I started DORG in 2018 with some other developers. So we were this

onchain services DAO still runs today. And through that process, I also had to figure out a lot of the non-technical sides of of having mechanisms uh interface with the real world. And so we actually were the first in the US to legally incorporate our DAO. So we worked with lawyers to like figure out how to do that and then various other things over the years of uh tracking reputation you know incentivizing good quality work uh sales recruitment marketing all the kind of different things that go into running an organization and trying to do as much as possible on chain transparently. And so yeah, in that process, I learned a lot about legal sides of of crypto and participated in some efforts to make

Dows more legible to the legal system. And fast forward to today, I'm I'm now generally focused on mechanisms, not just Dows. I've also worked on, you know, public goods funding mechanisms like Dow Drops. And now I'm hanging out with the Aloe crew and working on different allocation mechanisms. And basically this culminated in me creating this library of onchain primitives that helped to kind of conceptualize the full design space. So that's what the mechanism institute is all about is helping people understand this wide design space of onchain mechanisms understanding that um they can help with a variety of things. It can help with allocation with governance with rewards and penalties. And at the same time, I'm also a research fellow at the Ethereum

Foundation where I'm helping explore kind of the under attended to use cases that Ethereum can enable in the long term beyond the kind of current focus of the ecosystem on these like highly financial games. Yeah, I remember the uh well two two areas where I think things overlap for us and that I'm just excited to talk about is when I found out about Dow drops which was uh Dior's I think retroactive funding round. I was just really exciting and I think I did an episode with Magenta and someone else from Dior but I can't remember. Yeah, that's right. Yeah. Um and just really great to see the plurality of providers of of of retrofunding and then also uh I've got mechanism.institute institute

your website up and it's just a beautifully well-curated registry of all the different mechanisms out there and I'm wondering if you want to tell us about about either of those experiments. Dow drops was definitely a fun experiment that was written when retroactive funding became a topic where with optimisms round one I think around 2022 and then shortly after we did Dow drops which tried to make it like stupid simple for people to nominate one another and then be eligible for funding because a big you know complaint with public goods is the kind of administrative steps to to apply. Yeah.

So we made some clever kind of like design tweaks there. And yeah, with mechanism institute, it kind of got started at Zuzalu 2023 where I was presenting and running workshops on mechanisms and just realized that people all had a different let's say siloed understanding of mechanisms. You have like the governance nerds, you have like the public goods nerds, uh you have the DeFi heads, you have all these different, you know, groups. And obviously, they'd all see smart contracts as this powerful tool for unbreakable agreements that can compose with one another that are transparently executing. But I realized there wasn't like a really robust mapping of the design space. And so it started with an

air table database that I you know made public and then gradually we made improvements over time as people really found it useful and would ask more questions. Um we yeah we basically improved the ontology the the taxonomy of mechanisms added more descriptions to each of them examples and then also have done other kind of like research efforts with other orgs like Gitcoin and like the Zuzalu hackathons that we participated in over the years. um basically to yeah to bring the whole mechanism the onchain mechanism space into one um unified kind of ontology and so we can get more into that as we go but I think basic basically the exciting

part for me is that onchain mechanisms are a new design space that is powerful and we've only started to like shine the flashlight around in the dark cave and started to like understand little bits and pieces but we don't have like a systematic understanding in the same way that maybe architects do, right? Architecture has hundreds, if not thousands of years of of practice behind it and principles and schools of thought, uh, textbooks. You know, we're not really there yet with the digital realm of designing digital structures.

Only recently do we get this superpower of immutability that actually lets us build digital spaces, digital structures that have longevity that don't just turn off the moment a company goes out of business. This is quite new. Well, I'm wondering if if we could talk about the why before we we talk more about the mechanisms themselves. So, like why does this space animate you so much? Why does it give you so much energy? How how come it seems like it feels alive for you? Could you could you say why it feels so important? Yeah, that's a great question. I think I always had a frustration with the templates that were handed down to us of how we could do things. Here's um you know, here's a university, here's a labor union, here's a political party,

here's a corporation, here's a nonprofit. We have these kind of rigid templates for coordinating activity and they're pretty good for, you know, the most part, but they also have these like huge failure modes and high friction and high bureaucracy needed to make them work. And ultimately, a lot of them rely on the state. They're very like embedded into the legal kind of uh ontology. They're they're embedded into the enforcement of the state at the end of the day to enforce the contracts that underpin those agreements. And why I get animated about onchain mechanisms is because they open up they blast open that design space. So instead of having

like a dozen or so very popular templates, we now have full programmability. So we can we can coord we can coordinate for different kinds of things that have fallen through the cracks of those templates of which I don't have to go through the list. We all know there's many problems in our world, many market failures, many governance failures. And so I think the exciting part about onchain mechanisms is it let it just kind of opens Pandora's box to get creative about how to structure the way that we execute different kinds of agreements together. And we can do so without the heavy um bureaucratic expensive kind of state edifice as the enforcement mechanism. Instead, we have

the lighterw weight consensus engine of blockchains. I remember saying in the Aloe books when I when I first wrote them last year that the old ways of allocating capital are inefficient, bloated with administrative overhead and not democratized. And now, because we have global, transparent, incorruptible, programmable money, we can program our values into our money. We can build networks that are more democratic, efficient, effective at allocating capital. And I'm definitely feeling like, you know, like we're we're grasping the same elephant uh in in how we're deciding how we're describing this design space. It it feels like the opportunity to fund public goods without the state in the most reductionist form.

Like it's just a really big design space because trillions of dollars go through the state and there are trillions of dollars worth of public goods and it's not really being effectively spent. So that's what animates me uh about this about this design space and it's it's cool to that multiple people have sort of like independently discovered the power of this and now there it feels like there's a ground swell of enthusiasm. I mean maybe I'm just hanging out with mechanism nerds but yeah do you want to riff on that at all? Yeah. No, I I definitely agree and I think it kind of dovetales nicely with what's going on in the non-crypto world.

Do you have like Doge and a lot of excitement around cutting government waste and a lot of uh controversy, let's say, excitement and uh fear, uncertainty, doubt. And so, but I think that generally there's this recognition that the way that things have been done just don't make sense anymore or they've gotten bloated and um corrupted beyond repair. And so I think it's great that there's efforts to reform from the inside how those things work. But yeah, then there's those of us that realize that you can actually just think in terms of um build it entirely a new and then run experiments, have it be volunteeristic and over time that can spread and have a network effect and

then um eat the cake of the current incumbent kind of structure for public goods funding and other kinds of coordination governance fundraising etc. Yeah, it feels like we're building a parallel society upon which some of the load that's been borne by the state over the last couple years, well, couple centuries could be uh could be transferred over. And I think that one way that I sort of frame it is like a forth turning thing like the institutions that were built four generations ago around World War II are starting to collapse or atrophy and now we have the internet age. So, we're moving from the industrial age to the internet age. But I also have a lot of trepidation when I think about this because when I think about how existential the systems that we take for granted on are like air traffic control.

Like I I don't know that web 3 systems are ready for uh controlling our nuclear devices and like I I I think that it's it's a little bit of a lar right now to say that we're building a parallel society that can replace existing institutions and we only are starting to like lay down the scaffolding for how some of most basic systems could be moved over not not even starting to even think about the most existential systems that we've probably all taken for granted. So, what's your response to that? If you're enjoying this episode, please check out the remainder of the episode on the feed hosted at aloe.cap. You must be a capital patron NFT holder to hear the rest of the episode. Alo. Capitalap patron NFTs give

you access to the aluminatal evolution novel capital allocation intelligence and research like this episode, like this podcast, and also research reports that we are publishing at Alo. and early access to builds and other innovations in the Aloe community. Thanks for listening. If you want to hear the rest of the episode, check it out at aloe.c capital. Peace and love. [Music] [Music]