Learning to love vote markets for what they are

Transcript

[Music] hello everyone uh thank you for showing up on this last day of FCC I know everyone started the conference has been hectic which is a good thing uh today I'm going to talk about vote markets uh and why they're actually a driving force in governance innovation uh it's controversial topic and that's why we love it right so um do I have a oh there's no okay sure first uh a bit of information about myself so you understand that this talk

will of course be biased I'm one of the co-founders of Palin I used to be a banking lawyer went from low to crypto really quickly and we work in our specialized protocol at Palin around governance we believe that governance is one of the most important innovation about crypto and we're going to talk a bit further about this in the next slide and we've been building vote marketplaces and looking into governance infrastructure for the past two and a half years our core and long-term goal is to democratize activism by building a governance engine and the goal of this talk is basically to explain to you what we're trying to build what's this governance engine for the first time okay so let's start a bit by explaining the vision where we're trying to what

we're trying to do uh and why is crypto one of the most interesting governance opportunities we talk a lot about the Levi fan which is basically nation state the global structure that's holding everyone together right it's coordination and crypto is an opportunity to reinvent the social contract without the nation state so it's huge because it means we're Reinventing human coordination it's also very scary so no one will ever agree on anything because it means that we're totally Reinventing the way we're basically interacting with each other so it seems very dangerous and seems very scary what's really cool is that if you like to nerd out around governance it's basically a playground for governance so everyone who is interested in governance is probably going to gravitate around crypto because they

have new opportunities before you needed to like take a PhD have some politics uh find you find you impressive and let you experiment a bit now you can just go like 10 lines of smart contracts and experiment which is a your new coordination idea which is great the second I think is that if you're if you are in crypto you kind of have a duty to experiment but do it in a profitable manner in the way that uh just doing something like for 10 days having people impressed sometimes depositing funds to do it and just disappearing after that it's not a responsible way to build sustainable things and you're not going to be able to do long-term stuff the problem with governance is that it doesn't happen in a day and it probably decades to build something really resilient so you need to actually create

sustainable uh sustainable product in general and that's what we've been trying to do the second thesis and that's probably the most important one for me it's that uh with crypto we're unbundling governance when you look at Innovation it's basically cycles of bending and unbundling which means like where for example having actors that are going to eat all of the market share and then they're slowly going to be disrupted by smaller actors and what we've seen is that over the past two three four thousand years nation states have gobbled all of the responsibility and the needs for coordination of our human society now I think we're in it at an inflection point where we're going to start seeing microservices in D5 and crypto and in general that are going to slowly

unbundle all of these social needs and it's super scary but it also means that we're at uh probably one of the most interesting times for governance after Athens and their governance experimentation 2000 years ago we're already starting to see transparent organization right which is the whole point of Taos we're starting to see automation right and what I feel I find really interesting around gauges and vote markets is basically the fragmentation of this decision making and this is the bidding beginning of the unbundling we're talking about here and the last part as I mentioned before it's about sustainability it's inherently hard to build a governance project and to be able to to do it in a sustainable manner why because when

you're at monetization you add friction when we're at lower than five percent participation in crypto in general and even in stratify or traditional governance we already have trouble with participation how can you expect people to come in and participate if they have to pay for it so it's really hard to find a way to monetize what you're doing and to find a way to sustainably do it the solution in the last bull market was you raise money and then you're like I'm gonna build sometimes get traction and raise again or release a token but you're not making Revenue so you're not finding so the only way you go you're gonna actually scale is through the Nations which is not a sustainable model and that's a big question we've been asking ourselves a family how do you add this monetization layer that's going to

enable you to keep doing the experimentation keep building solidifying the stack over the next years this is extremely complicated especially because for most projects governance is not a priority it's like a secondary or tertiary uh product and you're going to have governance tooling apps that are going to appear we see a lot of them some would potentially be interesting and I can't wait but if you look at everything that's been successful especially in D5 where we have our experience it's only been built by Major Blue Chip protocols that we're doing this on the side for side projects that they needed so Governor Alpha and Bravo is basically compound doing their unchain governance system snapshot was initially a bouncer project etc etc it's always the same thing and that's why I think it's very important

to understand that we have we need large projects that are going to keep experimenting around governance and this is why we build padding and the governance engine so to give you an idea what we just said this is kind of justifies the vote markets right we've already seen people selling voting power in trotify it's kind of a theoretical nightfair nightmare because shareholders are like split in different exchanges custodians Etc so it's super hard to know who has what in real time so most of the time you have double shares that are voted at every at every General Assembly what's extremely interesting is that in crypto we don't just have a global decision making power right you can have utility behind the token for example on curve and on an exponential number of

projects so imagine that you can't just sell like decision making but you can sell specific utility which means you're basically fragmenting the governance token and that's what we try to build with our vote markets the second as I mentioned is that it's a wild west of experimentation no one has an idea where governance will head up we need a lot of new things to appear so there are non-trivial opportunities to build some interesting apps and potentially Primitives and the last probably not the least is that vote markets are provocative because they're scary right you're selling vote governance should not be sold it's an obvious uh explanation we actually talked about publicly Paladin two years ago at FCC and two weeks later on vitalik's block

this post appeared so we talked with him we have no idea if this was a consequence of it but we know it's provocative and we know people think about it a lot and that's good because vote markets are not what people expect them to be and their build on two I'm going to give you a bit of numbers to understand it's not something that's trivial not a small topic uh they've been appearing we were one of the first on ethereum on mainnet in September 2021 but since then the market has grown a lot we of course Are Not Alone on this uh the market was like I think we did around the market did something 150 million dollars of volume last year right now we're a bit lower but in if terms it's actually slightly higher something like 2 million a week

so a bit of above 100 million a year right now there's over 80 plus uh incentive campaigns that are done on vote markets right now literally this week uh by 40 Projects on five protocols so it's something significant it's something that's gonna keep scaling from what we see because there's a lot of new project uh specifically to D5 you can have your own alchemics for example who are adopting this gauge in vote market system and we're seeing new utilities that are yet to be monetized for example which are very heated debates for example eigen layer I'm not gonna get into this today or it's in one hour of extra conversation so why are these projects building on top of gauges why do they want to add it and I think that's a really really important topic it's because it's the

beginning of unbundling of governance as I mentioned before basically projects are starting to realize that you can't just have one governance slap a token on it and have everyone decide on everything it's too much friction almost no one cares you're going to have three people on your form actually participating and it's so inefficient and can be exploited a lot which is why we see what some some of you might know as the RV gang we just come in projects would have a bigger treasury than their market cap and they try to just redeem it it defeats the point of creating permission in the system it's not it's like an online stash of money that you can just come in play the governance politics and live with it that's not the point of crypto so gauges are interesting because there are unbending mechanism which is separating the

emissions could even be the treasury management into a different subsystem of governance specialized for resource education which is going to ask for stakeholders to coordinate and on top of this we started building vote markets why are these vote markets important it's not because it's market economy far from that it's what people expect and that's why it's controversial but the thing is if you design your gauges and your Market correctly it's actually command economics so basically very strict rules around the way these emissions are going to be spent where you're late letting an organic market be built on top of it it's extremely efficient for two reasons one if you code it correctly it's going to have the direct positive impact you

want it to have for example curve uses it to incentivize and attract liquidity it can be much more Technical and much more forward than that right and because it's kind of a free but closed Market it enables or organic activity and growth around it people can build around it people can build stacks like the vote markets which enables a much more uh organic growth around the project and around its actual utility so we're saying that I think the curve gauge is probably the most continuous has the highest participation rate in any governance vote because it's very specific and there's a subset of game that can be played with it and it's still almost always benefit to the actual underlying protocol

that's the virtual Union and the second which is a bit different is because we're splitting the utility you're basically giving a choice for for stakeholders to choose what they're going to participate in and what they're gonna basically instead of abstain for example delegate or sell so you're basically fragmenting the the the decision-making process and I expect project to to split between five or ten different types of utility or type of decision making types in each Taos it's going to get way more complicated than this and we're going to need a lot of infrastructure to do this correctly so this is why it's interesting and very exciting so after seeing all of this uh we're kind of I kind of want to shed a bit of light on our engine of coordination

which we use around our tokenomics and the base idea is use the flywheel of a vote market and of potential future products uh to basically drive more more governance Innovation the idea is pretty simple it's just that you build a protocol that's going to be able to uh make revenue on top of a market utility for example emissions what you're seeing from this is that this fees and we've redistributed around five million dollars I think over the past 12 months are going to be distributed to Governors and these governance are going to be able not only to extrapolate revenue from this so suddenly you're paying stakeholders but they're also going to be able to passively coordinate like anyone who's paying the curve cages for example it

doesn't really realize the coordinating around trying to drive volume uh through curve but that's literally what they're doing and that's what other projects to strive to design as a tokenomics so they're coordinating and the more they're coordinating the more they're creating a higher quality government organization design theoretically either building a more efficient protocol which raises its value or unbending more and more the governing system which enables more designs to be built on top which creates a flywheel where we're seeing more and more efficient projects that are going to Simply keep on scaling and we expect dowels in general and protocols to move from like this very multi-stick type governance into uh something that looks a bit more not only

like gauges but automated systems where people interact without really having to actively vote in the way they think like reading a proposal so they'll basically be enclosed into the choices that put the protocol forward and that's the idea of our new to economics if you want to have a look you can actually scan the QR code and More in general our vision of Paladin and where we want to drive all of this and the idea is that the flywheel is already going live it's already working without any token right now so we're actually adding some emissions potentially soon we need to pass this through governance before which will kick-start an even stronger flywheel so that's our hope some final words just to finish around

this I hope I didn't uh confuse everyone on this uh I don't think vote markets are the finality of anything in governance I think they just should be used as a tool to basically Kickstart a much stronger flywheel around governance participation and simply unbundling of the whole system if you make them the finality which some are actually doing right now it's super dangerous because you're just trying to push a free market onto uh governance and that's not the point there needs to be Direction but if you drive it correctly and if you help project design gauges or new different types of governance systems uh in the right direction I think it's going to be an extremely strong bootstrapping system and the second is that I look forward to

see a lot of people doing experimentation around how we can Unbound on governance because right now we have found a way to split treasury management and resource allocation especially around emissions there's probably a ton of others around governance especially around grants Etc that need to be explored and that need to be found because today it's simply to archaic and too easy to exploit so that's it for me uh thank you I hope I've reconciled everyone with Road markets if you have any questions feel free you can jump into another in our Discord we're always open for discussion and uh and that's it for me thank you there is some question

thank you for the talk if I understand correctly the the flywheel on governance academic governance can be monetized so that the project have funds to um well project that do tools for academic governance funds to maybe then like you you should um develop other tools for better Dao organization but some projects like snapshot on uh so so on how do they want to monetize their product because they are just focusing on the decision making and uh I don't know how they can

monetize that well uh as I mentioned it's harder for Dao tooling to find the right business model which is why we started with vote markets we do have several Crews for governance infrastructure today uh you have several opportunities of course you can come in new projects and ask for Grants it's not really sustainable though you can ask for people to move on chain and take a small feature timely vote or you can simply ask a subscription model to dials that are going to use it right there's tons of different models the question is which one has the less friction and enables you to be the biggest like snapshot today's t-market leader it's not without question but what happens once they start adding that friction system right and I think that's a big

thing we should look out on because it should happen eventually thank you for the talk a simple question uh what's the problem with both markets like what are the risks actually the risk is that if the rules are badly designed and especially for the first one it's likely they can be exploited by creating a negative Loop so for example we actually saw this on dancer for example where they had uh they adapted the video economics and had people who understood the game much better than they did because they played it on curve before who were able to bring in large amounts of capital by a lot of tokens initially and simply create a loop where they could direct drive emissions so

create more and more Loops where they just attracted to a bigger and a bigger share of the protocol so it's not inherently a bad thing but something that they didn't have in mind when they did it when they enabled the system and that's kind of the whole point you have to really design a system that's going to help you to uh to set you have to have an idea of what you're doing the problem that bouncer had is that they have already had too much of the circulating Supply uh live uh compared to curve when they started so basically instead of having curve where you had low Supply and the game was capturing emissions you could actually buy a lot on the market with Bouncer and then you could Farm most of it so there was a flow in the system they found a solution in the end which

is all good but it's interesting to see that a lot of the good systems always have a quickness of course nothing is perfect but once they've been done once they can be exploited because people will look at it try to understand and try to copy which is why copies or Forks hardly work in crypto on the long term simply because people know how flawed the game is and they can just exploit it on the long term foreign yeah I was just wondering like what is what does integration look like for an existing governance token for uh for what you've built so uh for what we

built today we're really specialized around V tokens so the framework that was pioneered by curb which is why I mentioned them a lot initially uh we can explore some more I think the the biggest problem which is true for any doubt Tooling in general is that there's no actual real framework of governance everyone wants to kind of do their own thing nothing is really proven so there's a bit of Governor Alpha there's a lot of snapshot there's a quite a lot of a growing number of V tokens today we're focused on V tokens hopefully we can do something in the in the later future about something a bit more long-term I don't think anyone should have a vote Market I want to be very clear on that you have to place specific rules for example today with an emission system this is where it's the most

relevant I'm extremely interested to see uh this unbending of governance as I mentioned before and newly new utilities to appear and how they're valued we initially started piled in by trying to compound and uni voting power pure governance power and we see we saw that there wasn't that much traction with it people deposited people were ready to sell but not that many people were ready to buy uh I think it's film vote markets enable you to Value the utility or a specific token just through their Governor's power right so it's also a gauging mechanism to understand how efficient you are in this market uh there's a ton of things that are less to explore honestly and we we can't build everything right so we're trying to focus specifically on this but if

projects have questions please feel free to udm me join our Discord ask questions we we want to help cool thank you and last questions hi uh nice talk thanks for that um so do you of course vote markets Dows it makes sense but do you see that there could be an element of using vote markets for more traditional organizations as well or do you only really see it working seamlessly with dials I do when we build Palin uh we're saying we want to experiment in D5 and

eventually be able to offer these Solutions also in track 5 because all basically a lot of problem that we're seeing on governance are not crypto problems their governance and social coordination problems uh there's two problems with more traditional organizations first regulation it's much harder to evolve in public markets for example than in D5 right now and the second is that I don't think we should experiment anything on the social actual social layer like nation states for example I think it's super dangerous and let's experiment in our small bubble eventually we can lose a bit of money which is never advised and we're being super careful but uh it's much better than destabilizer country and put life there is correct we don't have the power to do it and it shouldn't be advised what we're saying is that build markets

already kind of exist passively in in chat Phi in the sense that index funds investment Banks they already sell voting power it's called shares lending it's done another very small part of the supply of these shares simply because you can get shorted with this and you can get wrecked so they're trying to be very careful with it no one talks about it but if you type shares landing on Google you're going to see plenty of interesting documentation around it and the second thing is that it's it's just hard like it's expensive it's a special business activism has been growing a lot we're talking about activism shareholding uh sure um sorry activism shareholder capitalism lately uh it's a trend that's been growing because regulation has also helped shape this I think we're going to

see much more movement around all these shares and our own governance in traditional companies over the next 20 years it's I think it's already doubled over the past two years thank you for the talk thank you all [Music]