Preliminary thoughts on proxy delegation with Pablo Montagnes | a16z crypto research talks

Transcript

all right great we're going to get started we're super excited to have our I believe our last official talk of uh on governance for governance week we have uh Pablo montanis from Emer University it's a professor in the political science department in the quantitative Theory and methods group or Department I think I have the right Department uh and he's going to talk about proxy voting and delegation Pablo we're really excited to have you take it away thank you thank you and thank you for having me um you know I'm a bit of an outsider to some of the work here uh but I've been listening and talking and reading this week and before and I try to think of like you know where some things I've been thinking about in other domains might might be somewhat applicable or or interesting and um and kind of identifying problems in in web 3

that are that are of a governance concerns and and Andy's talk earlier in the week kind of like Illustrated like one one big one is this this problem of low turnout and the concerns I think within the projects are around not just the fact that turnout's low and it's in and of itself a bad thing but because low turnout leads to potentially other uh low behavior in other ways like participation in projects broadly speaking and if we could maybe encourage engagement through through voting that that might increase engagement in other parts but there's other kind of reasons you want turnout to be at least not super low which is that it may be a protection against capture so if turnout's really really low then kind of adversarial proposals can be made and if people aren't paying attention voted on

and and changes can be made that that are that are adversarial and undesirable and then there could be sort of kind concentrated interests uh and people might not believe in the in the project if if power is concentrated too tightly into into one group and so having broad turnout might affect all of these things in in desirable ways so there's there's reasons to believe that like turnout might be useful the informational kind of reasons to have high turnout could be more complicated but that could be another kind of justification for having having higher turnout so those are those are concerns and another concern that comes with this is like just having higher turnout isn't necessarily good if you just end up having a bunch of people kind of vote uninformative vote randomly or or vote in ways that that don't reflect their their private information

they might not even spend the time to acquire that information so these seem like two problems of governance and a a possible solution is is to is to reward for this sort of this behavior and that that Andy discussed and I think what was interesting there is this sort of retroactive reward suggest that there's some Nuance in the way that that the projects are thinking about this which is they don't want to provide like super high incentives for one particular Behavior because that's what they'll get you you'll hope for a you'll pay for a and get a and you just might if you just pay for people to vote you might just get lots of voting but it may be uninformed and and and and get there might be other trade-offs to that so this idea of having kind of weaker incentives is one potential way to to

change Behavior Uh but another is to is to have delegation where where people are are delegating their votes to others and and I know in Andy's project those things are a little bit mixed because you have to delegate in order to self vote and so it's hard to distinguish like delegation where you then Vote or delegating to someone else but just the idea of delegating your vote to another party that is going to take an interest in use those votes is is is potentially very promising because you could delegate and both get better quality and higher quantity voting if those delegates uh pay attention and have lots and lots of votes to vote that gives them more incentive to become informed and vote uh or they might just be more intrinsically motivated interested in the project and and vote in a more informative way so what I'm going to

focus on is this this idea of Delegation and kind of the questions here are you know is is the choice or the calculus of of deciding to delegate a vote different than what we normally think of as like political choices around voting so just in a direct democracy sense voting between two policies or from an election of politician is there something different about delegation relative those those behaviors and do other domains of Delegation and voting provide insights that might be useful as we think about how to design delegation schemes within projects so uh you know the these are like a series of some sense thoughts and insights that that we that are maybe more well known within political science and political economy that that some of us are in this room might already know but just kind of putting a little bit more structure and

thinking through this and how it's been done in other domains so what are those other domains so you know in web 3 votes are tied to tokens but they could also be potentially tied to things like personhood and so you know Andy's written a little bit about this idea that you could even have bicameralism in in in web 3 projects because you could have votes that are tied to to an asset ownership or votes that are tied to to Identity as opposed to to any particular thing um but academic departments and Partnerships voting is tied to employment right so you have to have a status as an employee to vote in professional organizations you have to be a member uh one that I think is actually somewhat closely related to this is Credit Unions partly because I've been speaking to people who are dealing with this problem of like Credit

Union management where in credit unions your vote to control the organization is tied to like being an account holder which is somewhat similar to being a member of a project and then kind of the big one is is corporations where votes are tied the shares and there's the possibility of even having multiclass shares so there's there shares that that have like extra voting rights or or exclusively have voting rights and insures that have lower voting rights or no voting rights and so there there you can have different dimensions um and there's there there's there's I think a lot of parallels here uh in terms of the institutional solutions that people have looked at so in corporate finance the the the of institutional solution at least in the in the the short run although was we'll see I think firms are trying to get out of this is that the

the asset manager that hold the shares on behalf of of of investors vote the shares and so the big three Vanguard uh Black Rock and and State Street hold a fairly large fraction of like the the retail and institutional investment under management so they have about 21 billion Bill a trillion trillion with a t assets under management that's not all Equity so that includes like bonds and other other parts of portfolio but they're the the really big players and they're the largest uh individual shareholders for most of the kind of publicly traded companies not exclusively some sign or hathway or another company is but they have a lot of influence potentially over corporate governance because they control the votes of so many people um so as a just kind of a scale effect like the the

market cap of the S&P is 38 trillion these AR this a bit of an apples to oranges comparison because those those include non-equity Holdings as well but the scale of the Holdings of these big three are are kind of meaningful in a governance sense in terms of the concentration um now there are as we'll see tons and tons of votes that happen over corporate policy and so this other Institution developed of advisory firms that essentially research the proposals that are made to companies every year and come up with like a research report that they report to the firms but more importantly like a recommendation that the how how the firm should vote now a lot of these votes are are what I call non-consequential votes so like there's a statutory requirement every year to for example um appoint the accounting firm that's a bit of a proforma vote it

happens every time there's not a lot of like variation on the recommendation but there are other kind of standard vot votes that for which there's disagreement uh among um shareholders and that the the position taken by ISS and glass lewiis these advisory firms is really really important in some like indirect sense ISS and glass Lewis are like the delegates in this in this setting like what they say really does influence an enormous amount of the voting that goes on in in the world so as a result there's lots and lots of voting because all these shares that are held in uh primarily in index funds are are voted on a pretty regular basis so the Voting is is is r turnout rates are in principle very high uh because they're being automatically aggregated and voted by these these asset managers

but there's not a lot of variation uh in in the votes um none of the votes are are are essentially ever close um the degree to which they're like not in the 90 plus percentile like range is like often taken as a signal that something's wrong in a company so like a classic vote that we'll talk about later is a what is a a an advisory a non-binding vote on pay and that's often used as like a signal of happiness with corporate management to vote no on this non-consequential vote purely as a signal but that's one of the few votes where there's like not always you know 90 plus agreement on the okom and it's usually like even higher than that but so this is the kind of the current almost the status quo it's changing kind of as we speak and one of the reasons is is that firms want to get

out of the the asset managers want to get out of the business of voting um now part of the reason they want to get out out of this is because there's been some blowback around ESG or environment social and governance like this movement to have uh companies take more Progressive positions across a whole range of policy domains I'll show you an example of one where they're they're often not very clearly I would say not in the interest of the firm itself and so we almost might think of some of these proposals is like adversarial proposals in the way that we might worry about them in a project where activists have made a proposal to a company that's clearly not in the company's best interest but there's been some of them have like signaling value and and are relatively Progressive in certain

policies and black rock in particular took like a a relatively public position that they were going to be in favor or of and proposed that they suggested that they would vote their shares in favor of them particularly around environmental policy and there's been some blowback and in including investigations by attorney generals at various States and and major State Pension funds withdrawing their assets or threatening to and some have from from Black Rock And so there's like a financial consequence to them being as actively involved then there's also this kind of worry about the concentration of power in the firms and so they have so much voting power they'd like to devolve some of that voting power so they're not subject to maybe more regulatory scrutiny and then there's this kind of over Reliance on these two major advisory firms and so there's not a lot

of variation in the voting power so it's like even further concentrated beyond the fact that it's owned by a few investors because they're relying on the exact same advice so um one proposed solution was essentially just to devolve the the votes right back to the shareholders and say okay you shareholders we're no longer going to vote your votes that will essentially be abstention unless you actively choose the vote and the problem with that is there just an enormous number uh of votes that people would have so I don't know if any of you ever get these like proxy statements in your mail if you own you know I've I've inherited some mutual funds that are run by an uncle in in Milwaukee and so they're not managed by these big big big firms and we get these enormous number of proxies it's just junk mail right no one actively

participates in these sort of opt-in proxy statement votes and so the speculation is we know that people don't do it right now if we if we just started sending them more mail the speculation is there would just be tons and tons of of of of abstention now it's not clear from like a from a corporate governance perspective that like low exension that high rates of exension would necessarily be bad because one thing that would do is it would make it actually easier to have what are called proxy fights so when active investors want to in like replace a CEO or threaten to replace a CEO or leadership of a company one thing they often do is they propose a new slate of of uh of board members and there was very hard to get those board members elected but if turnout rates

were really really low it'd be much easier for an activist investor to be able to for example Place new board members on the R so is that clear in this setting that low exstension would necessarily be good but it's it's something that that people are worried about uh and it might lead to just kind of very uninformed voting like if I was presented with thousands of choices uh I wouldn't do anything now every every statement has at least these kind of three statutory proposals but you know I've looked at the most of the largest market cap companies and just gone through all of these these proxy statements and they you know Amazon had 16 I think Eli Lily had even more than that like there there there are a lot of these proposals you or I could read them and I think come up with a pretty

sophisticated Judgment of whether or not they were good most of them are bad but but some of them are good like it's not like simply voting no on every shareable proposal is what I would suggest can ask I have a couple questions here I'm not clear yet I I don't I feel like you haven't defined the problem that corporate governance is trying to solve and I'm having trouble therefore comparing this to all three governance and getting I'm not seeing the connections yet yeah so I'm so one that's so so I think the this is just the kind of the default thing that they're doing and what they're going to move to is something like delegation so they're going to start managing a delegation and the problem that is being what what is the goal of voting in corporate governance and is it the same as voting in web 3 or is it different

it's I think it's a mix actually so I think one thing that's big a big distinction in corporate governance is they have this thing called a board that is this intermediary between shareholders as a as a boss right of the CEO but the shareholder proposals are often like an end round on what the company would do independently of through through the the normal hierarchy so like the the shareholder there's two types of shareholder proposals in this regard one is something like do this action as a company and we're going to force your hand to take this action so I think that's closest to like a web 3 proposal which is it's a it's a it's a a require on the behavior of the organization so that would be like a change to the code for example the other set are and I think these are where they

actually there the ones that you might actually want to vote for are about restructuring the Constitution or the governance of of the firm itself and so those are those would also appear in web 3 as kind of like kind of meta discussions like we're going to change the way we make decisions as as a project and so these those governance proposals are like that they're like constitutional reform the other ones are direct actions that the project would take and both both appear in proposals but I think what's different is that there is this intermediate well there's this hierarchical structure of the CEO with a full company structure and a board that oversees it but in spirit I think that there are these two types of proposals that you do see in web 3 like change change in practice and change of of of constitution that's

super helpful on like the connections of how they work but do you think the goal is this can you just say a little bit about what do you think is the O overarching goal of corporate governance that has Justified this history of voting and do you think it's the same as in what three or is it different okay so I think the goal is to maximize shareholder value uh whether or not it's it's achieved that I think like I think there's a question about whether or not this particularly this sort of intermediate goal where there's a bunch of institutional hold shareholders that appoint board members and if those board members incentives are aligned enough to actually achieve that is a is a question of Finance so I think that's like like those entire fields that investigate that um my guess is that it's it's a sec

it's not the best possible ins tion like I think one thing that's like interesting about web 3 and that's like you know I think I meant to say this the beginning like what creates like an interest on my part is like technologically like many more solutions are feasible at this point right like the the independent board with elections and an annual meeting and mail out ballots has been around for a long long time and it was technologically what was feasible there may be kind of institutions of like more regular voting uh that that are more feasible now with technology so this is like a second best institution given the technological like physical technological constraints of the era I think and I think there's a there's a sense in which it's not necessarily a super functional although as we were discussing the other day like

you see this sort of board management type hierarchy emerge in other things other than just corporations so so it seems like I just want to make sure I'm understanding where we're heading but it seems like you your position is like there's some overlap in the goal of governance for the two and so we can learn yeah organizational performance yeah so here shareholder like value and then project the pro what the project value is I think is an important question about what type of Delegation model you have in mind right some projects will have like a a profit motive and some some projects may have a more civil Civic like minded goal so like one set of differences that different governance mechanisms are possible in web 3 but another possibility is that the for some projects the goal is also different yeah

that's right yeah yeah so think this this is what closer to what I would call a common value although you'll see I think the proposals themselves are exist in a policy space that I wouldn't call common value um partly because there's activists who have goals Beyond firm firm profit maximization which which I'm calling adversarial right in this sense because I think the the understanding as a shareholder is that this is a a for-profit a profit making firm and like I buy a share in that to engender like to enjoy those those those profits but there's activists who say well we care about things other than the profit of the firm another kind of proposal they've had in this this realm was what was like a survey and predict type approach where they were going to survey shareholders and then figure out what

their preferences would be in for various proposals that come to mind and vote in the shareholders interest this is like a very centralized approach though because it requires the firm to be the kind of the trans or it requires the asset manager to be the translator of these like survey responses to actual choices over policy and there's questions about whether or not people even have like coherent views that are predictable across these domains the agendas change over time and so you'd have to be kind of surveying voters or surveying sh shareholders on a regular basis to find out what their actual interest and Views were um and that's also kind of subject to kind of manipulation of proposals like if you could imagine like a machine learning version of this where we've like learned your your your behavior enough that we just automatically vote you then

adversarial proposals could be made that that essentially are that that that that could manipulate the kind of the trained model and so I think there's lots of reasons not to do this some of are like technological and adversarial but some of them are just like the firm is still keeping their hand involved and for policy reasons they want to get their hand out of out of the out of the system so what they what they've going to land on is some form of Delegation and from their perspective from from the perspective of these previous criticisms I think something that's nice here is that you have these delegates who could adapt as the policy questions that are presented in in proxy statements change they just have views on those and so the the delegates can just view vote the way that they would it's less centralization

there could potentially be less controlled or not controlled by the firm in principle um they can appeal to to voters through brands or so shareholders through Brands which may be helpful because how do I know who to delegate to you'll see that the the delegation pools that have emerged have something like Brands but you can imagine a fuller Market where things like Greenpeace has a brand or the Democratic party has a brand and they say we're going to vote according to our principles and shareholders say I know approximately what the Greenpeace brand represents and so delegating my vote to them might make sense um and they could in principle also do independent research not not relying on ISS in glass Lewis what we'll see is the sort of allegation that's been proposed and that's being implemented isn't quite this ideal um but it invites questions

like how to structure like who to invite for example as delegates and also invites the question of like how are actually people going to select delegates in these settings and so I'll eventually get to that so a fun example that of of Delegation informally is uh in a lot of state legislators including Federal Congress there's there's um you can just vote electronically and uh and a lot of state legislators for a project we were doing try on something else we were interested in like how they vote it turns out that like for a non-trivial number of votes there's actually this sort of informal delegation which is you tell your officemate how to vote and people caucus and sit with people that have similar ideologies to them and so you being absent for vote is in some delegating your vote to whoever actually showed up in the showed up and so here

are pictures of of Texas legislators voting the electronically for for their neighbors which is essentially the what what I have in mind when I think about delegation okay so how did um Black Rock in Institute this so the first thing that they've done is they' they've rolled out what they're going to call vote choice to uh institutional investors so their their total Equity pool is is about 4.5 trillion in in in the index fund Equity about 21 2.1 trillion of that is is eligible in the sense that it's held by institutions although they're going to roll this program out to everybody and of this you know $2 trillion do in in eligible Equity about a quarter of it is has already opted into this vote Choice system and there still continues to be

relatively meaningful flows about 10% have flown in the last last year uh or last quarter no last year I think that is um and what this system does is it gives the them like choice about how they would like their votes to be to be recorded so that the kind of the default right now is actually option three they've delegated their votes to Black Rock black rock takes an information from its advisers and has has a voting Rule and policy that they vote but they're going to also allow like essentially the Devolution this is to institutional investors though this is to people like Calpers that have like massive amounts of shares and really might care about the corporate governance not to you and I um and the so that's that's one option is essentially devolve the power and let people choose um the default and then here is I think what

the interesting one is that they're going to introduce a set of slates or policies now these are like delegates but they're not exactly what we're going to think about as web 3 delegates because they're not individual entities but instead they're kind of code books but they're approximating something like a delegate pool and you can delegate to a particular way of voting uh that's going to for your shares or you could do this sort of fourth thing which is essentially a combination you could opt in by topic which is a little ambiguous or by firm and say for this particular firm I'm actually going to vote my shares in a particular way because I really care about this particular part of my portfolio U or you could say a topic area now the topic area again revolves a little centralization because someone has to Define that topic area

it's not always ambiguous but there's still potentially a decision to be made and so black Rock's going to decide what those topic areas and where the it's F this is super interesting I'm curious like what do you think are the most logical parallels in web 3 like is this something in exchange would implement or is it something that a I think a project could a project could you could opt in and say what I'm going to do is I'm going to delegate my vote to one of to a a slate there there could be a slate of candidates before you and then potentially and so I think this how we organize those slates and how that information is presented to token holders is I think like the key there uhhuh yeah yeah like the defaults seem really important the defaults seem important and like what if it what well

I'll get to this later but like the type of like environment it is might tell us like which information we do or don't want to present the voters uh or to token holders yeah I don't think I understand what two is so I'm gonna I'll show you some examples of these slates in just a second yeah but you can think of these as like Po platforms that by com uh by political parties in the space of corporate governance yeah is the idea that you delegate once indefinitely Or you delegate vote you want sorry once indefinitely yeah and I think this sort of like whe whether or not it's permanent or it's there's an expiring term these are the sort of design considerations that we'd want to think about do we want this to be a one-time action or or repet like something you could revoke is there any idea of this

this like liquid democracy type concept that people talk about in the web three space where like I can delegate but then I can override on specific votes if I yeah that's right so you could that's kind of what four is right option four is like you you can you can essentially override on any uh on any any vote yeah great so on two maybe I don't understand what a policy is yeah so I'll give you some examples that I'm it's not a specific proposal no it's so these are the these are the mission statements for for four the PO for four these policies okay so these policies these are not actual delegates right these are policies these are code books in the same way that when ISS makes a recommendation to a to to an

asset manager on how to vote they have like a long set of rules and like for example one of the rules would be something like the following we believe that like being on a corporate board is is intense time intensive and we don't want people to serve on too many boards so we're going to vote down anybody who's on more than five boards and we'll we we'll recommend to vote against them and so they have like a an like an algorithm that they essentially that they go through now some of these are ambiguous and so there's there's research involved and there's a there's a there's a decision maker and ISS and blast Lewis have their two versions they both for example have what they're calling a a Taft heartly uh uh code book and so this code book says here's the mission statement worker owner view of

long-term corporate values based on the American fed AFL CIO proxy voting guide so this is like the big like this is like the union position and they've they've partnered with aflci to help create a code book on how they would vote in various situations so it's not there's no one decision maker here in princip there's some bureaucrat or like employee at ISS who is in some sense have to make some judgment calls along the way but the identity of who that person is isn't well known so a policy here is like an ideology it's like an ideology but but but it has to be a complete contract right and like like it's it's a code book and there's some ambiguity so it's not really a complete contract yeah yeah but but but but I think what's what's different and importantly different from

like how would ideally be made if this was given to if this was literally the person who was resolving the ambiguity was the president of the AFL C I would have a lot of confidence that the The View these views would be I would know that person's Viewpoint or have a prior about that person's Viewpoint and it wouldn't be surprising how they vote it but the how this is actually implemented in the real world is there's some employee at ISS who's going to make a decision okay and yep how much overlap is there between ISS and glass Lewis's um like slate for the same like guidelines for the for the ones that they have in common a fair amount yeah yeah the fair amount but but that that's like a potential source of like if they disagree they have the same underlying

mission statement in codebook more I think I haven't looked at codebooks to confirm that they're the exact same but that could be like oh we could identify the ambiguous cases if ISS and glas leis ever voted differently for example and is this how black rocks actually Implement actually implementing currently with institutional investors so I could give all my shares to the ISS Taft Harley program yeah or the Catholic policy so so here's where like so I thought these were so first of all ta heartley is like there's something I'm not fully understanding here because T heartley is like an anti- unionist Bill uh and so I but I think I I I haven't confirmed this but my sense is that within the labor movement like it's it's like a it's a a shorthand for like the

the suppression of unions and so this is like a like an ironic title or something but so I could give all of my voting power to that for and it would would be comprehensive would cover all votes all like thousands of votes a year but would there would be votes that don't fall into these issue areas and what I have they have positions on they they have positions on all the issues compreh comprehensive set it and forget it y com yeah yeah and this is the sense in which I think these are like Brands so like this this to me feels like less of a brand this and this feel like more of a brand right like the Catholic church and it's the only one there isn't a Pentecostal one there isn't uh like a you know like but there there is a Catholic position that on these things

and you'll see that they vote slightly differently than than other people um do they campaign or like it's just there it's just a radio button you select or yeah there just a radio button selector now that's where and this is where I think they their mission statements are observable by the viewers there's more information they can see as well they can see some they can you can access the code book as as a as a potential delegator but you could also see their their mission statement and their views on position by position yeah who's choosing what to offer what slates to offer Black Rock so this is the sense in which I don't think this True full delegation right because it's they' it's centralized they've announced this set of of policies that they've chosen

essentially and they Cho like they chose Catholic why they choose Catholic and not Baptist like what's going on yeah I I don't know so so the accusation is that a lot of this is window dressing because a lot of the concern especially from the attorney Attorneys General yes um is that black rock is voting two left right now you'll see empirically except for this one these are all actually what I would call more to the left of of Black Rock And so there's there's a there's a sense in which it's um it's a little window dressing so Bard aligned so in the empirical corporate governance literature the way they me like the the the the standard way they measure like

um a voting record on on proxy statements is do you vote v v vot or lined or not because the that's the thing that's empirically very easy to see as I'll show you in a second um so yeah so this is what I would call the closest thing to the right policy conservative policy or like if there was a spectrum this is this is one poll of that spectrum of voting there are I think seven for last Lewis and seven for ISS yeah including the the default Black Rock on it so I'll show you one so they're instructing what's going on is blackb says we want a Catholic policy and then they go to ISS and they say we want you to put together a Catholic policy or ISS had already well am I suspect it's the it's the the former

because but there's a Catholic policy at both glass Lewis and at ISS so there's two separate Catholic policy code books it's it's bizarre but it is not that ISS is coming to them and saying hey we think there might be interest in a uh whatever Scientology uh slate and we're going to put one together is that okay that's not what I don't think so I don't think so and I like I don't think there is not free entry into this market right so in particular it's like like ISS and glass Lewis are still the monop are still the duopoly of advice in this world I would love for there to be free entry I would love for us to start a firm that says here are the like the you know the smart positions that are like

we're not going to throw the baby out with the bath water we're mostly going to vote border line but like the occasional good policy that's not an option in this world as far as no it's not not as far as I know like it's not an option and I've looked and does that mean that I s and glass are getting compensated in some sense just by like the general provision of the service and there's no like if more people opt into this category that so if I was going to structure like the market from denovo I would love a market where you could as a firm enter with a with a thing and then get a micro payment like a you know for uh for vote for your for every vote you cast I think that would be a much more interesting thing now there's economies

the scale here right so so the the ISS reviews every proxy statement I've reviewed 20 of them or 30 of them but like not written a report for every vote they write a like a detailed report partly for regulatory reasons right like it gives the the smaller mutual funds that own these shares a um a defense that they're acting within the fiduciary duty by voting these reports and so this paper trail of like research it serves like a regulatory role uh whether or not you could do that like in a more like less labor intensive way and enter that I think that would be much closer well let me say closer in spirit to what I think is what will happen in web 3 or

could happen in web 3 but also like I think a more interesting Market to design well one of the things that's interesting web 3 is a lot of that not all of them but like in some of the Dallas with serious amounts of Delegation the delegates get compensation as a function of the amount delegated yes and I would love for there to be something like that right like this would create this would create like a real appeal to have a brand and and and and and a knowledge yeah okay so let me show you that there um so they're administered by SS and glass Lewis again um then they provide like as you can go as deep as or as little as you want you could read the mission statements right or you can start going deeper and deeper and reading their like announce positions on things like board

Independence or you can go all the way to the code book okay um yeah so that and and so the the code books are some of it's very uncontroversial some of it's very easy and what I would call complete contract and some of it there's ambiguity um so one of these like this is my favorite one this is from coch this is one of the very first ones I looked at but there are a couple things I really love about it so the first is like there's these are the three standard proposals nice inviting pastel colors right and then like the nuded Grays vote against these these like adversarial shareholder proposals um soorry what is this these are so these are the these are the this is like the the the Forum so to speak of like a web three where people are discussing policies these come through what's

called a schedule 14a the company releases these are the things by Coca-Cola Yeah by by then submitted to the SEC and this is like document where where ISS will then evaluate whether or not it wants to support or not support so there's all sorts of supporting documents I'll show you a very small snippet of what this sort of debate but there's like an actual debate that occurs within these reports where they're arguing for their positions okay so these are the three standard election of of of the board so the governance institution that that serves this sort of advisory non-binding vote on an executive pay they justify there's pages and pages of justification for the executive pay and then there sort of ratification of account okay this is like this is like the I don't know the vote for the dog catcher like

it's on there but it's not like a a particularly controversial thing and then these are these are like I think much more controversial um and I'll argue are kind of adversarial I'll go through one example in just a second so again here's like nice pastel colors vote for this and then there like it's like a it's like a an attack ad like then it goes to black and white and it's like don't vote for this these are like these are bad things okay so here's an example of one of these proposals shareholders asked the board of Coca-Cola to commission and disclose a report on the external Public Health costs created by the company's food and beverage businesses in the manner in which such costs affected Diversified shareholders whose ability so it's like tell us why you're bad and like publicly make this report about like like it's

just not something that's in the best interest of coke shareholders but then they try to make this argument that it's in the best interest of shareholders because they they're broadly held and that the the cost of C's of high sugar sodas is so great the externality is so great that it hurts the entire net worth of the US sh like stockk work that's essentially the argument they're trying to make which is like it's in the best interest of coke shareholders for Coke to not exist because it's it's like a net social loss and that's like that's what they want Koch to say so that's like the argument that they're they're trying to have this comp so I would call this an adversarial um adversarial position but what's nice is that there's like a whole little debate that occurs and the what is very surprising to me

and whe there's actual like one of the governance questions that gets raised a lot is what are the barriers to entry for making these proposals but the barriers to entry are relatively low and so here's when these things talking about the race The Thirst for for liquid candy right so I would really call this like adversarial and then Coke management gets to make a gets to make a response and they don't they're not held to like you know good causal standards and so they can present graphs like this that show look sweeteners are going down obesity is going up therefore you know and maybe they're right actually you know like like the the funny thing is like maybe like the sugar content of soda isn't like so important I don't know um but they they get the and so there's a rebuttal that are there and I

think this is like if if you could imagine web 3 to debate over a proposal having like both sides kind of arguing through things this sort of information provision is actually quite nice and useful and this is the sort of thing that ISS would use to make decisions okay so here is the S of diversity so 1 2 3 four five six seven eight so there's eight the border line so it's I think it's about seven each including the kind of what they're calling the Black Rock basis which takes in these reports from ISS and and glass Lewis and adopts the Black Rock thing so the thing to notice is um like there's something like an an alignment that they' that they've created here left the right right so this is like the most liberal measured by how often the recommendation agrees with the company's

recommendation so the company's recommendation is easy to see on the report it's it's against or for okay and so the measure of here is like more red disagree with the company recommendation more and more um so two things I think that to note is that there seems to be like this as defined by agreement this clear dimension of ideology but there's some second dimension potentially that's that that we could even see a little bit from this disagreement and it's things like board opposition so Black Rock I I think part of what they're trying to show here it's like hey we've been accused of being very left in our in our positions on all of these areas on on ES and G but look we're actually the most Bor aligned of all the policies

in this slate of possible policies so this may be part of how they've chosen the various things they chose the Catholics and not the Pentecostals because the Pentecostals are really rightwing in their views or something this makes them look like the most conservative of the options of course the real conservative one in this space is is border linen yeah and just to clarify in this setting there's no partial delegation you can't split your shares between slaves so no you can't you can't split your shares but you can recall your vote you could revoke the permission but you can't split your shares and then I think this is an open question is would you ever want to split your shares like if one is actually better for you what what benefit is there to fractional uh to fractional delegation because fractional delegation is like one of the first things I

thought of is you know so as I've been thinking about like applying this to the web 3 I'm like oh there's everything's possible let's just start thinking about all the possibilities and fractional delegation was one I thought about but it doesn't really make sense either the Del one delegate's better for you or not the times in which You' be indifferent and want to fractionally delegate don't make sense what might make sense and I'll I'll briefly talk about is delegating to what I call a caucus of delegates where they use an aggregation Rule and then you use that the aggregated decision from that caucus to make a decision that might be a way to fine tune policy but fractional delegation doesn't f fine-tune policy I think one justification in web 3 for fractional delegation is like if you're a very large token holder bad you just

want there to be a diffusion of power and you kind of want it to be heterogeneous or something that's right so I I'll say just just a hard cap on on how many T get someone could get as a solution to that so like you could allow people to naturally do it but if the thing you're actually care about is is concentrated power than just putting a cap on how many now you don't want to cap how many tokens someone might own or how many much voting power they might acrew naturally but you might put a cap on how much they could be delegated to okay and then there's some there's you know there's a so this is by a paper by Bolton and Howard rosenfall uh where they essentially apply W nominee to a bunch of uh institutions so this is a way of what what political science would

call ideological scaling I I think I would just probably call it like a vote scaling and then it's a kind of a factor analysis see how many dimensions there are whether or not there are two or Dimensions or not is is I think not as important but the see that there's like there's I would call meaningful variation in the voting policies of various organizations that vote their shares regular basis so we've got Calpers which is the largest US pension fund and the largest US pension fund in terms of equity holding uh cal sturs um and Vanguard Black Rock and then you've like just as an outlier the Colorado uh fire and police pension fund so there's lots of smaller Pension funds out there that have that actively vote not every pension fund actively votes there some of them just just delegate to their

asset managers what what what this picture is trying to illustrate is that here's glass Lewis and here is ISS and there appears to be a lot of variation in like their voting behavior along this Dimension so they're both very aligned here and then there's some sense that there's a second dimension and this is the the how often they vote essentially on pay for advisory votes on pay glass Lewis is a little less board Affiliated on this Dimension so we can't know what these dimensions are but the the the the strongly held like kind of belief is that this Dimension is voting on um pay pay approval and then this is everything else yeah so what's the scaling of this draft like I I don't have a good sense

of like is negative one to one like a large difference or is like a 3% you can't really say you can't really say I would just take out ordinal like kind of information from this yeah yeah yeah this this gets you know in political science is a lot of like fights about what how to interpret these things in this setting I would even be more cautious but that I think the thing that to take away is that there's potentially two Dimensions or more than one dimension and that there there's there's variation empirical variation in how these various organizations wrote their shares it's a PCA or it's something like that what they first do is they they write like they they kind of structurally try to estimate like a a parameter for each firm as their what they call their ideal point and then you you can run it with one dimension and

run it with another and then look to see which kind of fits the data best is essentially the process there's a lot of work in polical science that like develops this structural models for these and then they always end up correlating with the PCA like 999 yeah yeah yeah yeah so this is more this is these are like but at least the structural models are themselves ludicrous yes to to like their defense like when they were doing this in the early 80s like they are way out on the like the frontier of like actually doing a structural model like whether or not you think that you know um quadratic loss perfectly describes the utility functions of these organizations like yeah I don't but but they may okay um so going forward they treat and are going to offer similar products

Vanguard is actually kind of ahead of the curve and offering this to retail investors in the UK and black Rock's going to start to enter to to to to roll this out to to retail investors uh generally speaking so the kind of the rest of that Equity Circle so you know I don't think this is exactly there there's there's still very centralized features of this right like the selection of what what I'm going to call the delegates here was really just codebooks that um Black Rock had um an service provider write them right like it provides choice but it's not the sort of choice that I would call like delegate choice and even though they have these sort of Brands like there's still like there's ambiguity in these these these codebooks and it's not clear

like that there's like an ideological person or a person with a position who can resolve that ambiguity right which is like one of the reasons we might want like like in thinking from the bureaucratic like politics literature you appoint a bureaucrat with a particular policy issue to resolve those sort of delegated decisions here it's very hard to know what the kind of the the ideological commitment of of to the code book there is it see like unless I misunderstanding it seems like there's a big problem where like I choose to delegate to the Taft tartle thing or something because I care a lot about these labor issues yeah but then like 80% of the time they're voting on things that aren't relevant that's right that's right I can't really know how they're going to vote on those things yeah what so you could read the policy statements

if I told you it was aflcio like us as a sophisticated institutional investor I think you would know the AFL C is going to be you know on like some of these are some of these are they're often about gender or um race or environment like those are the the kind of the big pillars of the ESG that sometimes like the activists aren't totally like orthogonal to their attacks so like coch gets one on health uh Amazon gets one on providing web services to the government like there there is a targeting sometimes of these another extremely common one that that that lots of firms get is lobbying disclosure um so there's so it's not hard for the code book writers I think to anticipate where what what things

look like whether or not they're in the spirit of it I I I don't think you would be surprised by the aflci ones I have much less of a prior of what the Catholic position on term like term of service for a governor is or like auditor approval yeah yeah so yeah I so yeah these weren't these wouldn't have been the brands I would have picked right I would have picked organizations with identifiable ideologies to the public as like the kind of the things that I would have and I would have not written a code book I would have put them in charge and then resolve the ambiguity and I would have added the micro payments I think that's the sort of flavor of where I would like things to go so slates are it's not it's it's like decentralized a little bit but not

really because the slates are chosen the the the biggest decentralization though is a sort of proposal position within within um and I think this is like an area where like where there I think there could be active debate within web 3 of like how many proposals you want want because of the kind of choice fatigue that that induces in people um from the informational perspective I think it's actually quite good there's these are like better than the average like debate that you read online um and the policy space appears to be at least a little bit multi-dimensional um so for the web 3 setting you know can token holders become delegates and anyone become a delegate is a free entry in the delegation into the role of of taking tokens is like I think an a question do they have platforms they might have

reputations within a Project based on Behavior other than voting that that's identifiable or behavior off you know off platform and so there may be brands or reputations that are developed that might be useful do they want to span those reputations across multiple projects for example right so the the the these these voting policies are like delegates across multiple projects right like tath heartley policy is voting on Apple it's voting on Amazon it's voting on Kroger well not Kroger Kroger is priv health I believe but it's voting on you know General Motors it's voting across all these different organizational policies so could there be delegates that vote across multiple projects I think and develop Brands and reputations there are yeah okay so that I think that's like developing that reputation

as a as like could be very useful because you can get sort of multimarket contact out of it so I think one possible learning here i' be curious to hear a little bit more about how black rock is doing it is like one of the big challenges in the with delegation I've observed is like if you go to like Unis swap has built this kind of nice delegation front end and optimism has one too but maker has one but like when you go to them it's just kind of like a tile of like a lot of add like long address strings yes and it's not the UI experience isn't clearly helping I don't know how to do it right but like there's something nice about that there's a limited number of options and it's very clear what they are that I think is missing in some of the web three

delegation stuff right now I mean I think one again the the current application is institutional investors and I think for the those like the brands are somewhat relevant right if I say triple bottom line to an Institutional Investor that's like that's a that's they can identify that pretty quickly uh project by project I think that's harder that those I don't know like to the people to the participants those Brands might be very easy to translate and and describe but for for an outsider it's hard for me to understand them and is the problem is it is it is the problem with these interfaces that you just can't because of the way the platform is built you just can't provide the this kind of branding information or they're not in partially the free entry is I mean in sort of in a good way lots of

people have entered to be delegates in some of these things but then that causes a problem to the voter of like how do I choose there's like information but are they stating platforms or S sometimes yeah not always it it varies project to project but typically they offer some kind of written statement sometimes it's just a description of like here's how committed I am to the community yeah and then you can even filter by like you know who has the most people delegated to them so there can be a lot of Hing yeah so this is this I'm going to come to this I think like like there's a tension right between if you provide a little bit of information then you could now we'll come back to the hering in just a second because it's not clear to me that hurting is is as is bad

in this situation in the way that we think of it normally being bad am I right that think in in the corporate setting that shareholders are Mo you mentioned earlier mostly endorsing board decisions right it's very less than 90% empirically is already so so mostly it's it's signaling preferences to the board and to the and to the management and then it's you can think of it as preventing off equilibrium path Behavior like doing a really bad merger that would be against the interests of shareholders but that mostly the shareholders are delegating in the traditional sense of letting the board and really the management run the organization and that that to me seems like the biggest

question about the parallel between the corporate model and the shareholder capitalism model and the the web free model is is are the token holders genuinely delegating to a management and a board you know some something like that that gets to then run the project yes in the best interest of token holders with token holders as a constraint on off- path crazy behavior yeah or is it some something different because there's no such thing as a board of directors there's no such thing as management everything's decentralized but then you get chaos and 17,000 proposals so so two things so I think from the empirical perspective you're exactly right that the vast majority support management positions and that the that like a sub 90 vote is taken as a signal and the pivotality of that vote

doesn't matter for the most part that said that's a bit of an equilibrium phenomena in the sense that like there are never close votes because all the Voting is in this sort of held by like techn is technocratic advised by two firms in the world in which like a large like I don't anticipate this happening but in a world in which either there's a lot more exstension or there's a lot more activist kind of controlled voting through for example the T heartley profile then we might get closer to the the two things might happen we might actually get closer to like pivotal events but in the interm I don't know how much information is being conveyed to the firms like if they like let's say like oh we got you know 20% voted against our advisory pay vote that's bad normally but in a world in which 20% of

the votes were delegated to tat heartley we might just expect that as like Pro all the time and so the signal value is a little bit harder for them to know because they have to know who's actually voting the shares in order to interpret that signal so this this reform in the short run if this information of what fractions are assigned to these various delegates policies isn't known by the C by the by the firms it could create some weird signaling problems um you know where they where they're over where they where there's ambiguity essentially um so you know I think the board structure is like that's very very different like some the some of these proposals are like immediately actionable right and like and can be written as a smart contract and like actually implement it so this that's unlike almost any of these things none

of the um none of the non-government like right a report things have ever pass to my knowledge so I'm trying to think conceptually about what's going on here a little bit and I guess like a question like so the board are supposed to be the delegates already Yes yes yeah this is like two this is like like a two-step kind of Delegation so we're adding another layer of Delegation well Black Rock but yes yeah yeah um and are we going to need another one like what is yeah so so the part of this is but but but part of this is like originally right like pre- Asset Management right like two things were true that that that there were a lot

more individuals actually voting their shares and that there was a wider variety of Institutions that were making these decisions and this institution like force of ISS and glass Lewis hadn't like so like over time there's been more and more centralization of like kind had a voting behavior so you want to say this is a solution to a political problem for Black Rock It has nothing to do with in some sense underlying fundamentals I no I I don't know I don't know like in 1920 like what there was still this sort of proxy vote with a a set of Governors but these proxy votes might have been were those votes were more distributed at least back then and therefore what therefore there was like there there could be more information aggregation for example about whether or not someone was going there's no information

aggregation going on I don't I mean there's a there's a profession called stock broker that like you know used to like like investigate and give recommendations for for shares and like they had some information about like the performance of the company and they could be happy or not happy with it like there's zero information aggregation was valuable to the board and the CEO as qua information relative to to about a moral hazard problem or something or a moral hazard problem it could be yeah so this much easier for the for the for the the board to be captured in environment when they're elected all the time but if there was like it was easy like so one thing that like I suggested earlier is that if turnout was much much lower proxy fights would be easier right proxy fights are very hard and never actually

like really like they're very very off path because they're complicated and expensive but if turnouts really really low then they become much easier and so that sort of like disciplining of the the CEO becomes easier so in this current environment there's super super high turnout and very high voting rates like and and nowhere close to pivotal voting because and so this might actually be useful in the sense that it it gets those gets those uh um gets us closer to pivotal events it makes proxy fighting easier if ta Harley's voting 30% of the votes so from a corporate governance perspective it's plausible to me that this could improve things for for that reason alone so I think like a big

distinction is is you know whether or not it's like if you ask me corporate governance is that a common value or private value setting it's like well it like shareholders announc that they have this um preference for higher share for higher share prices that's why they buy shares but then you get these sort of adversarial like small holders that are doing and so it's not clear to me that this is like necessarily a vertical environment but that's kind of the classic setting of of a jury or maybe the the federal um open markets committee is is another example although there's like empirical evidence that there's maybe two principles there um but in but or is it a private value setting where people might disagree about the about the right choice and I think like depending on the setting like it could be one of either one there

could be kind of ideological distinction like we want we have various preferences for for redistribution in society and that may just be something that's deeply held as a preference for people but sometimes you can have like horizontal disagreement where people actually kind of agree on the objective but they just disagree on how the world works and in principle there's some amount of information you could provide these groups that that they would agree with each other but like an example that I think of a lot is like between yimes and left nimes they both say they want more affordable housing they seem to have the same overall goal of like more access to housing but they just vastly disagree about which policies could achieve that they have the same objective in principle you could like run enough rcts where you could convince them that one of them is right and the other is wrong

and that they should both do the same thing but like you know that there's not enough information in the world to do that so there there could be different sources of kind of horizontal differentiation so so here's a kind of a a classic problem from from from like what I call normal strategic voting which is there's a a voter between a left and a right choice and they want to vote for the policy that's closest to them when there's two choices they could vote what we would call sincerely just vote for the thing that's closest to them or strategically and with two policy choices those are equivalent right just vote for the for the for the candidate that's closest to you but if you introduce a third candidate then there is a possibility that what we would call the Strategic like choice and the the sincere choice would be

different so I've driven written this to the the sincere choice of the voter is closer to the Centrist but this voter has to decide like which of these choices is going to win potentially and if there's like a nonviable Centrist then sincerely voting for that person isn't isn't in your best Like Instrumental or strategic goals at least if you're what you're concerned about is who wins the the election because it that might be a quote unquote wasted vote right so that could happen with like a third party in the center or it could happen with Ralph nater in Florida but there could be the potential for a wasted a wasted vote when there's three choices but that's not necessarily true when there's delegation right my delegate here the important part is that the the winner depends not just on my own action right but on the actions of

like the of the entire voting population with delegation there isn't this sort of like notion of like a wasted vote is is is much less pronounced now there's this Downstream effect then well how is my delegate going to behave but so we want to have a we want to have a criteria by which we might think about what's a good or bad delegate but this notion of kind of strategic interactions at least in terms of who actually gets to be a delegate is iner now there may be Downstream strategic interactions that I'm that that that will punt on for now but this sort of classic one is isn't there so we don't have to worry about viability or spoiler candidates uh at least when we're allocating now it could be that it depends on the number of votes right or it could be that other

issues arise Downstream between like the set of delegates might inally affect what proposals get made for example but like on the immediate like political behavior of voting or assigning a vote to a delegate that that's something we don't have to worry about um so what information should we provide right I think this is like to to the kind of earlier points like in a common value setting which is like to know who's highly qualified right if it's if and and highly qualified might be evidenced by like past participation or expertise or knowledge about the platform that someone could signal and present in their um in in their little bio you know like a faculty running for the faculty Senate one way you could signal like knowledge is say like mention all the disciplines right you can like like like the scientist that actually mentions

that they like would be interested in the views of humanists might like appeal to humanists who say who a scientist knows that we exist thank you you know so there may be ways like simple ways of signaling some sort of like um knowledge so through a resume other aspects of behavior or there could be something like a party affiliation some sort of like I also belong to this organization and the views of that are well known or endorsements by others okay so there could be like literal endorsement statements that are written but a form of endorsement is is is the kind of the the number of delegated votes that you have so imagine You observe this sort of menu of three possible delegates then you might add you know okay well now who would you vote for if you had this additional information this is some

evidence that Ethan's a better choice but if you start to see that he has like thousands more delegates than than you might start Dev V for of course what I'm describing is kind of the beginning of like a hurting behavior and so we might take um they could be uncertain they see they have a signal about which they have a choice between one or two delegates that they could allegate to they have prior belief about which is best they receive some informative signal that a is better than b or vice versa it's informative um they observe the past Cho choices or at least a tally of past choices what could happen is you could end up in what all like kind of classic hurting problem so uh if I observe if the first two are voting informatively but vote for a now when I'm the third

choice I've seen two informative signals as evidenced by the votes for a I may get a signal for a as well but get a signal for B in either case like kind of the two signals outweigh is my independent private signal and so herds could develop normally we think of these sort of herds as as as as bad because they're over a single decision what does herting mean in this scenario it means that you're endowing um one particular delegate with lots of tokens it may not be the best choice that's the sense in which it may be bad because you're not getting necessarily the most informed but by giving them lots of token you might ously induce them to become more informed and so in the way that like we worry about hurting as bad BEC it's not necessarily as as bad here we're giving

up potentially a little bit of expertise but we're creating a lot of incentive by hurting does Black Rock so I have a couple questions so one is in web 3 what I've observed so far at least is it does tend to be the delegates don't seem to differentiate themselves that much on what we might call like ideology mostly tend to be like how Earnest or hardworking or expert they are yeah and you get to observe as elizza was saying like how many people have delegated so that that to me is good like like yeah that creates other incentives like it creates incentives to to like have other people like encourage early delegation to delegate like to create accounts and delegate yourself but it also creates this opportunity you know so I tried to

look at this in the house like there are lots of like low information votes do you want to create her it also creates an opportunity for like early movers to create herds potentially informatively especially like a very self- like a sorry very someone with like strong beliefs in the project might say I know herds are going to develop I'm going to rush to create one on the right delegate right which is not the sort of thing that occurs in a normal herting model so the two things that seem different in the Black Rock case is they seem to be intentionally because of the problem they're trying to solve I guess they are different the delegates are differentiated by I don't know if ideology is the right way something yeah and as far as I understand it they're not providing any running on the size of

the no which could also have these like Downstream signaling problems but yes now what I will say is they they are picking ideologically diverse platforms and maybe for those political reasons but the previous Empirical research suggest that there is ideology is a strong word to put on it but there is like different firms are like cpers is voting predictively different than um like a a a non-union Le investment fund yeah an interesting question for web 3 is like whether as the voting systems mature they'll become more conflictual that's right that's so exactly so this sort of how like yes exactly so this might evolve over time I don't know if I say I say this later but like you know we might have a lot of common value now but as the pro project o ofies at the

very end as you're making this permanent decision it might become much more private value the thing that I that I that like the Temptation I had throughout this as I started thinking through this is like the write more and more complex Like rules and and like I think we want to like the the kind of the pure behavioral aspect of of the political Behavior we want to I think there's like a caution against this sort of complexity it's like one of the kind of the things I the temptation to write the more complicated thing or to have the complicated rule when there's like limited information and turnouts already so low then it seems like there's already enough what I would call kind of informational barriers to entry and so making it more complex a decision I think is is not good but if it's going

to be a limited amount of information then inducing the the choice between like inducing bandwagons or having no information or the sort of the the underlying policy the conflict really then matters um and um yeah so endorsements um and a little bit of concentration may be good here right because like it provides incentives uh to actually become informed um and so I think that's like like a kind of a missing piece that there's delegation is both to the more informed person but can endogenously create more informed people by having delegation but I think since I'm out of time I I'll end there but thank you for all the questions I have a question sort of for the for you Pablo but also for the room which is if you have a web three project that let's say the goal

really is profit maximization and I get that you in in non web3 land right there's for-profit companies there's nonprofit companies there's BC Corps let let's let's compare the for-profit shareholder capitalism model to a web 3 project that is trying to maximize the profits of the project for its token holders I'm curious what you see is if you have a if you or others in the room have a prediction for where the web 3 um shareholder rights model will converge what what what they will do uh let me think I to even ask the I'm just trying to get like for that specif for that special case what what do you

what do you expect as the right governance model do you do you see mistakes being made from having kind of too little author my I would so my personal view is like in a setting like that I think centralizing a little bit of a little hierarchy is actually good um now so that that's my general like we were having earlier discussion like boards seem to be this thing that develops across a bunch of domains nonprofit and otherwise right and now what's interesting is that there like how those boards are formed and elected are they self- forming are they self-replacing versus are the elected but the the elected board provides in principle a lot of shareholder rights right because there's this opportunity to to replace the board um and just the threat of that replacement is often

enough right like that's like the corporate finance view I think or at least like the The Leverage biod that the proxy fight kind of view of and are there are are there examples to date of web 3 governance again focusing on a on a for-profit web 3 Venture where the the flexibility of the web 3 governance has genuinely accomplished something that hasn't been accomplishable in the the shareholder rights model like like are there are there forgive my ignorance but are there kind of fun really creative Innovative examples of the use of that governance I think the delegation I think like the the actual like the the retail level like the individual level delegation where where it's easily revoked I think that's that's this black Ro's in principle

going to introduce that but I don't think it's going to be particularly like actively used and I think there's at least some evidence at least empirically that people are doing it so that seems distinct one thing people say I I don't I'm not an expert on this other people we could say more about but I think there's like a very different goal of like I want to create a protocol that's that no one that no one is in charge of and that can't be changed and then I want to like figure out how to govern it in such a way that it works but can't be altered and and if you can do that so it's kind of a very different goal because that may not be a business and it may not be intended to necessarily make money then regular for-profit publicly traded companies

could build companies and clients that plug into that protocol and are governed through normal shareholder governance does that makes sense so it's like one explanation of the web3 space is like there's a very different governance goal so the governance goal is not shareholder profits or or token holder profits generally speaking so you can imagine it's like you want to have a bunch of people write code together and like create an effective protocol and you don't want anyone to take that over and be in charge of and co-opt it um and if you can do that successfully then any company that wants can then start a normal company on top of that um and so that and then that could be governed through normal shareholder governance I think that's closer inp to

kind of Ethan's idea too that governance can provide like a um a barrier to like being take like a commitment device of sorts yeah yeah exactly yeah exactly yeah it goes back to Ethan it's like the idea that it would be great if people could build apps on top of something that is later going to you know increase the takeway and like classic standard setting bodies are are kind of somewhat related like ISO or like Bluetooth right where there's there like there is some compromise that's being made across disparate interests and then sometimes they break and someone forms their own standard and then you get fire wire you know um so there are these you know and those are like the most Salient standards but there's lots of like smaller standards in the iso world that are super economically

relevant just that aren't consumer products yeah I think it's important to note that I don't think there's anyone maybe in like 2020 people said some silly things about the governance but I think today you you won't find anyone saying like I literally think we could like design build and ship a better smartphone by having everyone vote on like how to do that no no one's really making that claim I think they're just making the claim like it is possible to have like an open- Source protocol that no one's in charge of and it requires getting governance to work you know sufficiently to make Collective decis decisions about how to change that protocol or if it does get some kind of Revenue in like how you allocate it yeah the the open source protocol example

strikes me is really compelling yeah and are there examples of of more uh more profit oriented I guess Enterprise like how does openc work for I guess that's more of a regular company yeah exactly it's not it's not in the web 3 space but it's not yeah that's I think that's kind of an interesting counter example as far as I understand it I'm sure it was more like it's I think it's essentially a traditional company that then plugs into an exch it's a traditional exchange it has a right so the assets that they sort of you know um they're a market for self- customed assets that are stored on the blockchain but the company itself is more traditional yeah I would also say that ens might be

a thought as a profit maximizing company ethereum name service like you can pay to book a name like instead of a ugly looking ethereum address to have a nice looking like eric. eth or something and that map that is mapped to an ethereum address and um they have a really Vivid um Dow and there are lots of delegations like few years ago when the Dow started there were lots of people campaigning like delegate your enss tokens to me prior to that there was a huge airdrop so I think um that's might be also a good example thank you Val thank you thank

you so [Applause] much