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Investing in Governance with Jake Brukhman – Ep:05



it's nice to elect the right people but that isn't the way you solve things the way you solve things is by making it politically profitable for the wrong people to do the right things hello and welcome to staked a podcast about crypto governance my name is bidet ho and I am Martin hi Martin I am cold yesterday it is pretty good I think we've been tracking the weather in Oslo for every episode long that's it's back we have regressed a bit it was getting better for a period of time but now it's gotten worse woollen sweater scarves everything even though we're indoors on the Saturday so yes soundly luckily though we did have a pretty interesting guest on yeah Jake Brockman who is the founder and managing director of coin fund which is a new york-based I guess they're sort of like well they were like a mixed institutional investor thing between a VC and a token investor at a hedge fund yeah I think he explains that better himself yes indeed anyway I think is also fair to say this interview took place like one and a half weeks ago yes so we are now recording the intro and outro a little later so we have more information on some of the topics it's just in the episode action right yeah yes so we talked about a bunch things governance how to value governance tokens how they participate as an investor and the protocols that they invest in so it's really interesting stuff yeah so we'll get to that soon enough but first after last week's episode some of the things we covered has actually seen some major developments so one of them this Eragon proposals I don't know if everyone here remembers so maybe we should do a quick brush let's do a rack because I actually hardly remember at this first so ATP 41 or something Eragon was a proposal made for Eragon to diversify into doctors I am talk about token and that's the consequence there's some of the more I would say theory of maximalists led by amin soleimani one of the more interesting characters in the space I would say he made yeah basically which was titled keep Eragon focused on the theory of not Pontiff out and then implied not buying yachts not find out I don't think he would restrict them to develop but just not putting any money in it so develop in time you could argue that's okay anyway so both of these were voted on since we last talked we likely touched upon it in the area actually but I don't think we specifically said much no I don't think so so we'll just do a quick round up here so propose the 41 Aragon portfolio diversification acquisition of dots was rejected and quite since I mean that they cannot participate in polka dot y dots but does that imply they can't you know you'll come to oh I see let's just finish the thing but ninety two point three percent of the voters were against this proposal which is substantial I would say of the voting power hold on hold on point out beware not of the voters the voting power voting power guessing okay go ahead I was just quoting something here and then the second one keep Aragon focused on the theory of not polka dot which was the current proposal it was also rejected okay this time only 69 percent of the voting power rejected it so basically I think they will now not even not buy that now but they right not be restricted to buying doubts or developing or lots or whatever you want but that's in the future so I think basically it was stalemate just a fair I guess so yeah so they can still build using let's say substrate which is the toolkit oh yeah but they could have done that despite forty through passing they just didn't spend any money on it that's how I released okay that's interesting I mean all the ambiguity there is actually a bit just shows the weirdness of having these types of votes yeah how do you get like ninety two percent of the vote sorry voting power and power yeah rejecting the first one and seven what's the test that you would feed them some more correlator than that you would think not this is only one to one or maybe just more correlated and say well isn't there some sort of incident they're also about someone showing up at the very end with a bunch of voting power because I think the voting system on Aragon is not based on this you can see the the balance of the vote as it progresses so you can opportunistically show up you can or you can can okay so they don't have this sort of commit reveal system we're just I think is the normal way to do voting where you sort of you vote but no one knows what you vote it and then after the fact you can sort of prove what you voted basically yeah but you can of course well ideally you would say that was a system in place to stop people from do the sniping is that what is called when you go into like the last final seconds yeah that's what I think that's what happened you typically extend the deadline or something that's like also a standard thing oh I haven't seen that okay yeah well there was at least this that did happen there was a big whale that came in and basically Swit one of these votes in a major way and people were criticizing well he probably didn't sway the first one in the major way considering was 93 two percent well maybe he maybe this block was what made it so skewed sounds well I don't know I mean this is this factual some however you could just see this so I think we should maybe we'll do some research for both game this let's say that but it was one other thing we discussed and that was the mobile tower again I mean Soleimani which is just a very interesting person yeah I'm trying to show him to get him to come on so he is the creator of Malta which was meant as a alternative way of funding a theorem development outside the etherium foundation yep and now they have gotten some more people more they had two point seven thousand twenty seven hundred eath I think and now there's a proposal on board to get four more well holders in a way one of them is italic Burien another is drawn Lubin and both them for one thousand three week and then also consensus and the etherium foundation as an institutional basically if which you would think this gets approved they will go from fund just clarify their 7,000 tokens to six point seven thousand tokens Oh which basically skews the voting power so on is it because you know in this model there's this console I think there a concept of a like a member and you have to accept members and so on is the voting based on like one member one person because effectively when you're adding people your it's like a empty Sybil thing because you you're supposed to like know who it is yeah so you could have one person one vote in the mark now you don't you don't okay so genuine 89% sure because I listen to the door ocean and I think you said something that if you didn't want to lead yeah okay I shouldn't tell you I think a theme for this is gonna be we don't do basic fact checks okay well yes I'm sure enough to go on record if you know yeah yeah so I guess your point is this has now been subverted by the theorem foundation in the consensus I think we poured this because it's a good way of having alternative funding and they can do things that the theorem foundation consensus probably wouldn't or shouldn't do yeah and you would have at least a counter force and someone else to paid for development that someone else didn't prioritize but this way you basically put the power back into the etherion foundation in a major way in my opinion is that because you're anticipating they'll come in and vote against the budget proposals are what I don't know but well obviously it moves can know how this plays out but the theorem foundation will effectively have 1/7 of the voting power and if you include vitalik which I assume with often just by chance what the same way as the theorem foundation then you would get 2/7 and consensus and Lubin I don't know where they stand if they're out costly hi I think they're a bit actually there's some tension there between the foundation and consensus so let's say there is depend I wouldn't be surprised okay but anyway you also have like what a lower level sound condescending I think there's they're not gonna be guests I think there are other members of the etherium Foundation also in the boat are from before but now they get a crazy amount of voting power basically so I think this meaning it's been a lot less a victory on Twitter and everything and although I can understand that they enjoy getting so much more money to use on development I'm not sure this is the best approach well first of all they haven't been admitted to the Dow yet first of all secondly if the major problem with the theorem foundation is that it's slow let's say or bureaucratic or something or it's underfunded yeah which is not sure but then it's still not a problem because the slowness of the theorem foundation doesn't prevent the Maalik now from moving forward yeah with the cache of the theorem if that's the only criticism I think it's a major one that is made but we went through this last week obviously it was like slow to pay only I'm willing to pay but underpaid yeah yeah it's a lot of different criticism but my main thing is that you are concentrating the power which I thought molal did a good way of dispersing so that's where I sure the problem yep a little bit yeah little bit I'm not so pessimistic no I mean I don't think you I'm just saying that it's not obviously we win in my book no that's what I'm saying okay I can live with that so I guess that's a good segue into our guest should we just played a news roll every today we have Jake bruckman founder and managing director of coin fun with us welcome Jake hey guys thanks for having me nice to be here it's great to have you on you recently saw you write about some interesting ideas surrounding crypto governance and how to value governance tokens and sort of looked more deeply into your profile and found that you have a lot of experience when it comes to governance systems n'doul so you seem like a wonderful guest to have on so why don't you just kick us off by briefly describing what coin front is the investment thesis and the investment activities you have had sort of on crypto governance focused crypto networks absolutely thanks again for having me so I'm the founder and managing director of coins when coin fund is one of the first us-based crypto focused funds we came out in 2015 I've actually been looking at Bitcoin since 2011 and today we are eight folks in Brooklyn New York making investments and block so to get a little bit more specific on what that means you know we like to say that coin fund is a full-stack investor meaning invest into the decentralized stack so like you know layer one platforms but also middleware but also on occasion what it makes sense a decentralized application as well as the sort of centralized or more traditional or more compliant rails that get the money into the decentralisation stack so these would be companies like you know issuance platforms maybe exchanges may be folks providing custody and compliance and things like that excellent so maybe you could briefly mention some of the different projects or tokens that you have in your portfolio and fit them into those different categories sure so coin fund is actually quite flexible in a way that it can invest in the following sense it can buy a you know wide range of instruments that allow it to get exposure to decentralize networks so it kind of tries to increase its flexibility in that sense and as a result we hold you know digital assets like crypto currencies or your c20 tokens on one end of the spectrum but and on the other end of the spectrum we might also hold private equity you know very much in a kind of traditional early stage startup investment sort of sense and then somewhere in between we might be doing you know some kind of note or convertible note or maybe a saft or maybe equity that converts the tokens later and then more interestingly and more recently we've been engaged in active network participation as an investor so that means we actually deploy nodes we do staking on certain networks we might actually run a quantitative algorithm on a network a nerdtour or an alpha recently been doing some work in protocol arbitrage and that represents our the gamut of things that we can invest into so on the private equity side like for instance we're very traditional investors and coin lists in Masari as well as more recently and in crypto kitty's round led by Ben rock on the digital asset side we have a bunch of stuff sort of they're starting with a little bit of Bitcoin ether that's not not our core focus and the fund to hold that but more looking at interesting token we think our long-term viable opportunities so you see staking I mean it's natural to think that those systems have some ties to governing so maybe you can tell me which ones you're currently actively staking yeah certainly so I would say that we probably have spent the most time with the live peer network are you guys familiar with life here yeah yes for anyone who might not be familiar life peer is a decentralized network for video streaming and encoding the team is based here in New York they've done some very pioneering work at a couple of points in the life cycle of live peer so one is for example they ran something called a Merkel mine and a Merkel mine is essentially a decentralized airdrop implemented in smart contracts so miners these software miners can come in and essentially redeem live care token and then when they do that life hears okay goes into the addresses of people who were holding a certain amount of ether in a certain block rate in that sense it's a traditional airdrop but it's not traditional because it's not the company distributing the tokens is the miners in a very very decentralized way we didn't invest in live pure as a kind of early stage you know VC like investor what we instead did we kind of followed the project we talked about the team I've known them since even before their white paper when they you know came out into production and when they instrumented this Merkel mine we actually became the largest Merkel miner on that crypto economic mechanism and as a result today we are we're pretty significant like stake holders and in the network we run a transcoder node in order to help the network kind of bootstrap and give it some some supply-side services and life curves doing some very exciting things with like micro payments and actually launching into more or less kind of their you know fully implemented network later this year interesting so all these activities that are associated with staking in life peer specifically they seem to be examples of what has been called I don't know if you coined this but generalized mining which is this you know more broader scope of activities which can earn you tokens in the given network for providing some sort of service how I mean our primary interest is of course governance so life peer as I understand it while it has staking in a variety of ways doesn't really have any governance functionalities that accurate well know every Network has governance functionality and in some sense even if it's not a formal process so for example you know if the live pier team didn't or tried to do something that let's say people who are running the transcoders really didn't like their you can think of a few things that might be in that category you know they could potentially form their network so there is always at least this kind of informal governance structure just like you have in Bitcoin just like you have an ax proof-of-work network you know in general but I think over time the intention there is to become more and more sort of formalized and in terms of government it's not clear of live peers on the on chain governments side of the debate or the off chain governance side of the debate and we can chat about that but even today there's a sense of on chain governance and live peer in the sense that users or as per token holders more accurately can vote for which transcoders are going to be in the top 25 slots on the network so to summarise even though there isn't a big formal decentralized on chain long term sort of governance process without a doubt a governance process exists and is in play and live period and just to clarify what you said there because the way I interpret it was you said if the core developers of thought live pure project shift code that people didn't accept people could choose not to run it and in that sense that's sort of a governance mechanism that's what you mean you don't mean that but I guess this the initial point that you may that there are different varieties of governance you have the Bitcoin type of governance you have this delegated staking in live peer type of governance or forking type of governance if you will it leads us naturally to the question we have of as an investor how do you think about when there is an absolute need for governance and in a formalized sense and when there shouldn't be a foreign wise governance systems do you think there are protocols that should have no formalized governance at all yeah that's okay well I'm gonna just be like very upfront with you I actually don't know the answer that question I like you and watch the blockchain and decentralisation space address precisely that question through practice and through experiments and people have made different cases people say you know no guys like these are valuable public goods I finally people have you know in our industry I think have come around to a good characterization of what public blockchain networks are and these are public goods these are institutions that are meant to serve the public interest and as such they need governance you know one thing that we can be sure of they need governance we need to be able to know how to make protocol upgrades how do we make funding decisions you know and everything else that that folds into sort of a the process of governance of a publicly intended good now whether that governance should be formal should be informal should be unchanged to be off chain whether it should happen you know every corner every day every minute those are all open questions and I have to be honest and if you guys think about it right as humans we actually have like very little experience with governance systems humans have organized into hierarchies for you know for a long time but formal governments have not existed that long and when you look at formal governance and even if you look at like corporations like as governance systems you're talking about a couple hundred years of humans basically living with this technology and what we are now in is that we can learn the same about governance systems themselves much faster because they are now software and we can iterate them at the speed of software under a software development lifecycle and so that's a really exciting part yes sorry you were saying first that like we don't have that much experience with governance for Humanity right but we have had the source of governance all the time it's just been tribal or dictatorships or something and you can argue some of the projects today are well Bitcoin is I would say tribal and Bitcoin sv is for example dictatorial so I mean we are living through the same exact structure so I think it's a little bit to say that we don't first now have the opportunity to learn what works and what doesn't work it seems a little while it's sort of like in a broader sense right like how long do you guys think humans have been around on the planet I mean like I don't know exactly I don't think anyone knows that but if you ask Richard Dawkins you know he'll say something like 300,000 to 500,000 years like in our in our present form so out of that five hundred thousand years how many of those years that we actually have you know the modern notion of a government at most a few thousand right and then you have to go back to like Sumerian hieroglyphs and things like that right I'm just making the point that formally we actually have like as humanity we have very very little time with these government systems and when we have lived with these governance systems before they take a really long time to study and iterate and evolve right you can only elect the president in the u.s. once every four years like that's the speed of iteration you know over performers let's say in our governance system but in in software and in the networks that you pointed out that process happens like you know in hyperspeed yeah I certainly would attest that but maybe you could help us come up with an example maybe a specific project maybe like live payer what would be the case whether it's true or not in a separate question won't be the case for not having any procedure for coming up with how to change the rules or coming up with how to fund things or how to control shared assets I think it's there should at least be a in principle case for why you don't want to be formalized to see what I mean yes I do but when you say formalize do you mean like just formalized in any sense or do you mean formalized on chaining so that's a very important distinction I don't think I change I mean you could imagine a weird construct where a company had like a binding legal document in a jurisdiction to do update through some sort of Route behavior in a smart contract under certain circumstances I think that is actually no less formalized they would have other properties but there's like a well-understood process for what does and does not change it and who can't change it but if you think about the Bitcoin model which sounds like the live peer model basically it's that there's a core team of developers that maybe they have some market power initially because they have the know-how they have the reputation and their shipping code and you have this dispersed group of operators and token holders who if they didn't like what was happening would have to in a coordinated way not do the upgrade or do the upgrade of something that live pier doesn't want a ship to see what I mean it's it sort of seems like it's yeah yeah yeah I have some thoughts on that you know basically like if we put on our experiment or hat on then I would say yeah there's a non zero case for non formal governments we should try systems where we don't have formal governance in the course of experimenting with systems you know that have governance and maybe that's a model that is are also acceptable and maybe even optimal for some systems now I would venture to say like this is my intuition is that when you have any network and when you have humans whether on Shane or off chain or using a legal their jurisdiction or however or no jurisdiction at all right if you have humans then they will inevitably organize into some kind of power structure so the real question is do you want that power structure to be like publicly known and maybe even formalized in some jurisdictional sense or in some block chain on chain enabled way and the answer is I don't think we know and or maybe different problems require different solutions interesting there just to pick up on what you said you're saying about being publicly no and maybe there's a case for actually having an unknown or unidentifiable trust it's set of authorities that do have disproportionate power it's just no one really knows that they're there or exactly what they can or can't do that could be a feature not a bug if you read lands and fears post from November of 2018 where he responds to Fredersen he actually states in the post he's like well aetherium has an informal governance process and guys like it's actually not documented like there is one and it exists but no one has bothered to document the reality of the power structures that it actually entails and so that's true you know according to the head I would say that's that's then true in theory him today and he's willing to die on that to elaborate remember I'm a slightly broader philosophical disagreement I think with the Bitcoin folks about you know what should and should not be on chain but it's a related all right so moving us along that's obviously something you have to consider as an investor or another thing you have to consider is how to understand the value that's captured in these tokens that may be involved in some sort of governance function and an equipped own network and I think you've you've written some some pretty new ideas around this so maybe you could share that framework with us and try to apply it to some reasonably well-known governance system like the Aragon system or or whatever you think is most applicable maybe let me give you like a little bit of context right so we in the blockchain space as investors and researchers and observers we're constantly you know trying to solve the problem like how do we evaluate tokens and we now have a history of this right we have my cryptocurrencies we sort of figured out everybody tried a bunch of like you know valuation models based on miners blah blah blah then you you know in 2017 utility tokens were the thing and people tried to evaluate utility tokens with you know equations of exchange like MV equals P Q blah blah blah we've now evolved in our thinking and I think in the present moment the two kind of token models that people really like and think have fundamental value and to me that says that they think that they actually can come up with models that accurately predict prices of these things there's two types of tokens right now that people like and those tokens are staking tokens like we talked about in live peer and proof of stake networks like cosmos and tezo's polka dot etc and the other is governance tokens where you're using tokens to vote and actually a lot of the time tokens share the fact that they belong to those two categories at the same time but the research that I published recently was around governance tokens and more specifically it was around governance tokens in systems that have one token one vote these systems are under a lot of scrutiny right now people are kind of like researching try to wrap their minds around it is this a good system does it result in a plutocracy where a few people holding a lot of tokens sort of make all the decisions for the network like an aristocracy but in that context I've been looking for models that are quantitative I'm a very like quantitative mathematical guy I want to see models for valuation actually predicting prices in the market and so far I have never seen a single model ever in blockchain that has done that everything is just trades speculatively but I have hope and so the research that I published was around like thinking about how do you value this sort of stake in a governance network versus that stake in the governance network and there was also actually kind of surprising and so what I said was I want to define this metric like first of all you have some network where you know you're participating in a one token one vote governance process you have let's say a hundred units and I have like 50 units and I want to ask the question in what percentage of scenarios are we gonna be the difference is our stake gonna be the difference between the vote passing or not passing now if you find that that number is zero then what you have found is that this token even though it gives you voting rights is completely futile you will never impact the governance process it's essentially a wasted vote luckily in the system today it seems like if you have 0.1 and most of these governance tokens you have more than enough to change there well I would disagree actually the results are very surprising I'll give you a quick example suppose there's three of us right suppose you guys have 100 voting units each and I have one in this system I will be exactly as powerful as both of you but in in theory but in practice I'm saying that if you look at the Aragon a maker doll voter turnout and the initial one for Els and so many examples the actual turnout shows that if you have like less than 1% you can probably steamroll every vote that is at this point right well so when I think what these early experiments show is that well first of all one thing that we already knew about voting systems which is like it's very hard to get people to care and come out to vote so that's definitely an issue and number two is that in these kind of plutocratic or Plutarch sisto's that one person who has a larger stake can come and as you said steamroller or really just you know be the deciding factor in a vote and in fact you can have a system that is a dictatorship right if I if someone has a sufficient concentration of tokens then they can overturn every possible boat meaning that everybody else is perilous they have zero power in the system and that's a dictatorship can I just clarify it yeah what you're saying there which is the question is with a given distribution of voting power which seems to be to be exaggerated as to the actual protocol itself I mean those are dynamics that are sort of separate but that being granted with a given distribution of voting power if you always can unilaterally change whether something is accepted or rejected if you think in a binary sense then you're said to be decisive and then the token is valuable is that your point and if that's not the case then it's not valuable at all well I I'm just trying to think about a framework of like you know how can I value one governance steak over another steak now if you show me that you know this steak of tokens will kind of decide votes 50% of the time and that steak of tokens will decide votes 25% of the time I now have a quantitative framework to relatively compare how you know powerful these steaks are now if I have a relative framework and I sort of know the valuation of the network as a whole and have another methodology for evaluating the network as a whole then I might be able to reduce that to actually pricing one steak over another now that has a really interesting and weird side effect which is that governance takes they're not like linearly priced you know in most fungible crypto currencies like one unit is one dollar and two units is two dollars and three units is three dollars right it's because there's a unit price but now in this system what I can say is like my one token is just as powerful as your 100 tokens given a certain distribution I might also have a different view and network like why might I care about governance well I might care about governance because I have a business built on this network and this business makes me money and the output of the governance vote matters because it could impact fine my business and so I have a certain subjective view into how much my stake is worth and if you were to come to me at that point where my business is at risk and you tell me hey I'm gonna sell you like a couple of extra tokens and that will give you a little bit more governance power I would actually be willing to pay more to you for those tokens than maybe you know the average market price of the token that's interesting so in this model really thinking of a governance token we are the only capability of role of the token in the protocol is just a vote on the outcomes of how the protocol will evolve or the configuration of the state and the underlying system and the way that leads to cash flows is through some spillover outside of the protocol potentially I'm not saying that's the case all the time but that potentially could be the case that like I said if you're like running a business that depends on the network we would seem you do require that suppose you didn't have that is there any way to think about the value of a governance token we're the only right and in dows is to decide these outcomes and there's no external spillover economy one way or the other can it still be valuable in your framework or in any framework that you're familiar with I don't think these frameworks like make that assumption or that's a required assumption that it needs to be tied to something outside like I think sometimes people want governance because power makes them feel good or influence makes them feel good it highly depends on what the network does if my dow decides what's written above the stage of an ariana grande concert let's say right like that may be valuable for external reasons because it's like advertising right so I will reach a certain number of people if I can get my message into that spot but if it's you know the network might be governing something more innocuous than that it's easy to me to see why you can evaluate something staking based because of the return you're getting basically no staking but it seems to me it's extremely hard to actually put a reliable number on the second half of your evaluation metric there so I'm just gonna try something else so if you have something like D cred which is a fork of Bitcoin which included governance and staking so sure it obviously has section rate that is so much lower and so much less mining if you take it over to electricity costs and all that but how would you evaluate the value proposition D cred versus Bitcoin in the D scenarios that kind of like forking valuation area is very very interesting and and I think probably the really the most recent and obvious and well articulated article that I read on that in recent memory would be filled Vennela right so he's like talking about like zero X and why might someone fork 0 X well because they'll sort of look at the net cost you know if I don't fork then you know it'll cost me this much to my business but if I do fork it will cost me that much to fork and if I like net those together then I'll get sort of like a valuation of how I view like this stake in the governance network so that's like the one quantitative approach that I have seen people talk about this is a network fork you're speaking of because D credits of course is software fork just didn't share do you take cell set or anything but I think you're talking about 14 0 X and 3 in the network or not yeah yeah yeah like in in what Phil would be describing that would be a I guess like a hard fork of the protocol now again that's a protocol that's not a blockchain like D cred so it's it's slightly different in that way but it in principle as it decentralized network it's it's the same but if you take easier exit as an example that's basically as far as I understand it the stateless protocol it's it's just a standard for I may be wrong here so please correct me if I'm wrong but it's just a standard for for message passing and then there's the actual token which may control how some reference contract is upgraded or not that's my understanding of what it does well so I'm not an expert on 0x and also they have been updating kind of the network most recently but the way that it was envisioned in the white paper let's say was that being a 0x token holder you know most immediately would give you governance rights over protocol upgrades and yes you're correct as a protocol for you know decentralized exchange and if you get on this protocol and you're interoperable with you know all the other exchanges that follow this probe so what that you know in principle you know can lead to is sort of better liquidity pools right but in any case in the governance sense 0x would allow you to like or vote in your say and the 0x protocol would allow you to oppose or pass a protocol upgrade and that actually has happened right so 0x launched and then after launch they also upgraded the protocol to support non fungible tokens and that was an actual protocol change right so you can see why over time as our industry and there's the trends of our industry develop you know it's definitely desirable to be able to upgrade these kinds of public protocols no question about that and then how does that decision get made what gets put in what gets taken out that's up to sort of the token holders in models where we're experimenting with on shape governance and probably the biggest such experiment like in the last week even is the Aragon boat that happened last week have you guys been following that yeah yes we have yeah you even have had the podcast about it last week before it happened really yes and we saw you're participating we're gonna ask you about that so why don't you dive into that and explain your participation with this coin fund was to see you personally and and what sort of transpired so I definitely you know I was a kind of back in 2017 I was advisor to the team before they launched you know I still follow the project very very closely so I definitely personally voted in the boat but also it was my job to recommend to coin funds who was also a token holder of an T of how we should go and that's more like a group decision sort of within our organization and it's not like unilaterally like my preference but I definitely provided recommendation now what was the Aragon Network doing during this book well Aragon is making a very bold experiment in on chain governments they're making the call that we can do on chain governance we can manage you know a substantial amount of money and we can manage a substantial organization on chain you know they're making the case that on chain is good and they're I think they're also implicitly making the case that whatever their governance system looks like today their technology stack is flexible enough that it can iterate and become you know learn and become more and more appropriate for the network over time now what what have they done well they're dogfooding their own software right like so every quarter the Aragon network has a token holder vote this is a one token one vote scenario so there's criticisms of that and it's early and it's an experiment and what they vote on is you know by and large funding for different kind of projects in the Aragon ecosystem investments or kind of token holdings or strategies that the network will undergo like for example there was a there's a lot of activity around like in the community around understanding whether Aragon should be buying assets of poccadot given that they're going to be migrating to that network and I think finally they and sometimes whimsically they make kind of cultural pronouncements like for example they established a network holiday that was one boat sort of in the previous quarter you know it ranges from like very serious stuff hey we're investing as a network to kind of like cultural stuff you can take a little deeper dive into the last two volts then because those were the ones who were yes so let's talk about it let's talk about polka dot migration and how aragon released it so there's actually three different boats that were relevant to this question so one boat is given that Aragon is going to be migrating to polka dot does it make sense for the organization to acquire dots which are the asset of the polka dot Network and put those dots in the Treasury essentially as an investment and so that was one book I could ask a question here just a premise there they're gonna be moving to polka dot and that has been decided what does that exactly mean so who's going to be doing what because I know there are multiple teams there's an association which actually has the cash as far as I understand and it sort of listens voluntarily to the outcome of the voting process based on the Aragon token that was sold at some point then when we say it has already been decided that Aragon will move to polka dot do you feel like you understand what that means as separate from the voting that you were then gonna be participating in okay that's a good question and I don't want to speak exactly for the team so I don't want to say like nuanced words like decided yeah if that might not be like fully accurate but my general understanding right is that Aragon team has implemented a system in solidity and that system lives on aetherium today and so mysterium is how they entered the space and this is the technology stack that they have been using now as an investor more broadly I very full well understand that as soon as companies or decentralized applications start coming to market they're gonna find a need for various optimizations they're gonna find the need for scalability they're gonna find a need for increasing the user experience if they're like user facing apps and so every project has to make decisions about their stack and I think projects that are let's call it that maybe they have a doctrine and they say oh we have a dogmatically want to be on Bitcoin where we'd automatically want to be an immaterial well I don't think that they're gonna be as competitive as projects who actually make the most optimal decision which is like hey maybe will migrate to EOS in 2018 because you know this is kind of very scalable right now but ultimately we'll need high decentralization so we're gonna you know migrate to a Bitcoin that we're down the road I'm not shooting that the main thing about polka-dot is the interoperability stuff so that will allow you to access cross-ice and everything it's just I thought I would bring that up as a side note to what you were saying so that's a great point that adds a dimension to the complexity you know of this decision and and it's sort of like everything goes back to like how do you view networks sort of playing out and long term now there are people in our in our industry who think that only one network will win and that would be a Bitcoin and you don't need anything else I think the probability of that is zero then there are people who argue quite effectively that only a few platforms will win and matter and that will be because like security will matter and the security will be pooled and you'll have sort of one to three major networks that will serve the majority of the apps I find that now definitely implausible but I think that apps need optimizations on their base layer so I think the more like the outcome is a world where you have many many more chains and high interoperability and that's actually the bet that polkadot is making and what you're pointing out now what's the role of Aragon in this well Aragon started on the cerium and I think that they are looking around and doing the research and sort of understanding like what is the optimal stack from my software that I'm building when do I have to worry about scalability this polkadot or something other networks solved my scalability problem is it easier to code like is it is there a utility in going to a dedicated network which is a pair of chain on polka and from my perspective as a researcher and also kind of coin fund team's perspective we think application dedicated chains are gonna be super important in the future and so the fact that Aragon is moving to a dedicated chain just in principle we think is the right move now whether going to polka dot we're going to cosmos are going to be Bitcoin is the chain that will make polka dot the most optimized and will give them the most sort of return on investment I think remains to be seen but the idea that an application should be able to optimize its base layer should be able to scale in this way should be able to provide security in this way I think that's a very cogent idea obviously you've had some time to develop these ideas and you have an opinion on the subject but how in your involvement in the actual AGP process and you say that you're participating because you think you have a decisive impact on whether this is going to happen or novice it's costly for you to develop all these ideas and keep track of this or I don't know if there's been discussion upfront and so on is decisive impact in the way you describe prior an important motivator in showing up or are you there to learn or can you say something about that that's a great question I would say mostly the latter actually I you know I mean the network is decentralized and quite frankly relative to the network my voting power at Aragon is quite limited in fact if I were to run my own analysis on my own stake I would assume that I would have like very low decisiveness if not zero decisiveness relative to like that right however it's my goal as a researcher to dog food all the projects that I'm following I'm also doing the same thing for example in the Dow stack Genesis now it just recently got 100 rep there and will be able to participate in future votes and I actually I feel like I'm personally kind of like more conservative than like most people at Aragon and I like one a voice sort of like relatively conservative you know decision making which is like don't invest in crazy risky asset dies or you know I'm not saying about of them but that would be like an example sound like you did that's very interesting because when I think about the traditional investment like certainly as a VC what people say you get paid for as a VC is you get paid for your managerial value add you don't get paid for your money cuz your LPS give you your money so if you're in a competitive ecosystem of VCS you can't get paid for the money so when I think about coin fund what I would have thought was coined fund can get a return on high-quality governance value ad buy participated in these governance project certainly when it's early and therefore generate a return for like your partner's as opposed to the scenario that you're describing which is that actually you I don't actually know if going fund invested it in Aragon now but effectively sounds like you can only hand over the money and then you can't actually impact the course of the project even through the governance system well yeah I mean I think that that is relative to sort of the particular stake that a given participant has you know it's off the top it's hard for me to – no you know what exactly is the impact fulness of coin fund stake or my personal stake like in the vote but again I don't think we're voting because we think like directly voting is going to give us a return or even like through one hop of indirection voting will give us return it's more that we're researching and it's more that we are trying to understand government systems and you know and I tweeted yesterday I think it's like an accelerating time 2019 to be in blockchain because this is the year where we actually are putting on chain experiments in governance into production we are learning from them there's a lot of people writing articles like Reed lad tolik read friend or some you know and many many other folks richard read has great overview of punching punching voting and also challenge the assumptions like challenge everybody right like voting itself is not the only system that humans can use to coordinate decisions there are also things like cooperative games that have been brought up other like like auction type things like there's a lot of stuff that you can do to coordinate humans and we are just at the first day of this experiment there's gonna be a lot of experimentation going on now centrally to that discussion by the way and interestingly there's a lot of folks in blockchain that kind of come with an idealistic view and they say you know like one of the reasons we're here is because we want to destroy all hierarchies and make everything flat but I'm a moderate so I say you know but hold on but like there are occasions and times when hierarchies are useful especially when they have checks and balances and why would you want to limit yourself to only flat systems why wouldn't you want your systems to kind of evolve and optimize for the problems that you're solving I can think of plenty of examples of organizations where it's a terrible idea to have a flat governance give us an example I just got back from Dallas my younger brother Sam he runs a nonprofit choir organization down there and they have a board of directors those directors are super important to their organizations they're professional musicians they've been there for 30 years they know all the people they know all of the you know the churches where these choirs sort of perform right and so in some sense like you want that board to be made up of experts you want that board to have someone senior who can help you make decisions you know what like the tyranny of the majority around an organization like that I think that's true of most nonprofits I think most companies are not democracies I think they're dictatorships and on and on and on and just think of like even some government organizations right like local government libraries I don't know there's plenty of examples where you come up with where you say like it would just not make sense for the town to do Democratic voting on I don't know my sanitation service of the town so one of the things we always give a nosh watchful eye on is how the changing landscape of how securities law treats digital assets impacts how in particular governance focused teams have to design their token spread their token to a broad audience and so on so for you specifically as an investor do you find that you have to keep this in mind when it comes to the long term treatment of a digital asset that has governed capability and that's specifically because governance is tied to you know firm like behavior in some instances which may seem similar to an equity and so there's always this uncertainty about the treatment it may recede and the consequences of that so maybe you could talk a little bit about that and in specific examples you could give would be great sure well I think the short answer is absolutely an investor has to consider what let's say like regulatory classifications of the asset that he's a or she is buying would be or might be long term especially in blockchain where those classifications aren't like yet very mature and change and present risks so one general sense that you might want to know for example that you are that the asset that you're buying is a security or not is that it actually affords you investor protections right so as an investor you might want to know that if you're an issuer who has to provide investor protections you know that's a cost to you so that's a different side of the story the kind of specific way they were reason why you might want to know whether your asset has a particular classification is because a lot of times we're dealing with public block chains and in public block chains you want to give asset to retail users that creates network effects that bootstraps networks there are a lot of like really good reasons to want to do that and if your asset love for example gets classified as a security you might have limitations around who you can give to does that make sense yeah it's actually pretty interesting that you point out that for investors it might actually be an advantage and there's some circumstances to have it classified as surely because you get extra protections but on the other hand it's hard to spread a network so how do you get that balance I guess and what stage in the investment is that relevant so for example during an IC o—- if someone held that now you would know for sure it would be classified as security later am i right or how do you think about that so we're in a very interesting position in blockchain where it's now pretty much the case that the SEC is saying you know not all tokens are necessarily securities some tokens are securities other tokens are not securities and tokens and are securities interestingly over time can become commodities if the network becomes sufficiently decentralized and lose their security status so that's a very interesting state of affairs and I can't name another time when an asset class morphs into another asset class as far as like the law is concerned so that's an interesting state of affairs just for example we know that you imply there dude invested in Aragon and Aragon obviously had an ICO so Aragon might see some trouble coming in later on so how would you rate that risk now when you evaluate the token but considering keeping it all that stuff I think maker is maybe even more interesting because they prop that some would have a different process but the inherent characteristics of maker given certain public statements seems to be that it may always be a security regardless of how its distributed and how it was initially issued didn't to whom yes I follow that side a little bit let's go back to Aragon for a second so with networks where you're not sure of the assets classification but then you think like hey maybe because this entitles you potentially to revenue flows maybe a regulator you know look at this and maybe they would think that it was like more of a security well that presents a risk in the event that that classification sort of impacts the network in a negative way that's not necessarily the case but it's the case for example like oh hey non-accredited users cannot hold this asset well that might be a negative impact for a network where you are expecting a wide you know range of people to be voting all the time you know but now you're saying no no only like a credit of Esther's can vote you know so the risk is that the network can't carry out its vision under a certain like jurisdictional set of regulations and then you have to sort of understand now you guys asked about like the middle ground right what I actually see companies going for right now is a reggae plus classification and what that means is that you are registering this as kind of an exempt security and you're providing sort of disclosures and you're following the kind of SEC recommended but you know compliance regime there but what you win is that you can now sell to accredited investors and you can sell up to a certain point your asset to non-accredited investors it's kind of a compromise between you know totally permissionless digital assets on public networks totally lockdown equity on the other end of the spectrum right so this kind of allows you to reach a broader market of users and be you know very very compliant at the same time block stacker has recently announced that they have applied for a reg a plus we work with a couple companies that will also announce we know that there's a long queue at the sec of reg a plus applications and I think it would be like really an interesting experiment if some of them got approved and we could you know play around with this kind of regime so you sit at a pretty interesting position in the space you probably get to hear news and ideas before everyone else teams come to you for funding and then they work in the dark for a while before they announce them what are you seeing now in terms of new governance systems people are building governance capabilities how they're addressing some of the well known problems like participation rates and collusion and vote-buying and some could you say something about what you've seen that maybe the rest of us haven't seen that's coming down the pipe yeah so I mean I think it all starts with sinking right in philosophy almost like how should these systems be structured that philosophy then informs experiments what kind of experiments we should do and then experiments inform real-world learnings and result in real world systems that work or work better than others so I think we've seen you know there's a there's a bunch of little tensions in governance space so there's one set of folks there saying we need Unchained governance or at least we want to experiment with it and there's another set of folks are saying no no there's like Klayton and batalik and plaid by the way our are in this camp they're like clear advantages to having off chain governance and we shouldn't have purely on chain governance especially for block chain networks but I want to point out that there's also sort of protocol upgrades are not by far the only thing that you can have on chain governance on so one experiment that's going on in space called mullick down this is a dow started by amin Soleimani and the goal is that this is a you know non-profit grant writing organization where the decisions about who gets grants and for what is made by you know the members of this dow and that's a very different problem right than protocol upgrades this is a funding problem this is like an evaluate company's problem this is evaluated people problem and it's also an experiment in some very very liberal on chain governance mechanisms right so people who don't like on chain governance would probably be skeptical of you know of the ability of Molech to write d-x now that's a Dow that controls Dutch X Dutch X is a decentralized exchange created by gnosis and DX Dao is a Dao stack down so gnosis is working in partnership with downstack to create a governance system for this completely decentralized exchange that's also a hugely liberal experiment they're saying like you know we're gonna put this entity on the blockchain and exchange that in some jurisdictions even you know you need registrations for and we're gonna give control of this entity to it an anonymous set of token holders that's a very very liberal sort of thing to do could you briefly unpack just what is actually in this DX town what can you control so you said there's more interesting stuff than protocol I don't know the latest details but in principle you would control for example what are the exchange fees right are they high are they low those exchange fees flow to the Dow and then the down token holders could for example pay those fees to themselves to compensate themselves for being governors of this exchange or for being owners essentially of this exchange so that's what's kind of at stake there Dow stack kind of in general as a platform is currently hosting a number of decentralized on chain governance experience I believe polka dot is looking into Dow stack as their kind of governance platform Edgware is a pair chain of polka dot that's looking into providing identity and governance systems obviously Aragon is in production as a Dao framework for dowse you guys mentioned D Craig D cred has had a long-standing governance process there and we run a D cred voting service provider in partnership with place holder basically on that network and look this is the year where all these experiments are kind of being tried and all this philosophy is being now considered very very deeply whereas in 2016 we sort of know collectively as an industry we put in a smart contract out into the world without thinking too much about the consequences and of course the consequence says we're a spectacular explosion well that dad was hacked so it took a couple years to recover from that and sort of like reimplementation responsibility all right I think that's a fantastic place to end it thank you so much for coming on and sharing your valuable perspective do you want to briefly tell what you're we don't come without a touch with you sure so we have a website at coin fund I oh and a blog blog Bitcoin from that IO if you're visiting New York or coming through we usually have a bunch of events we host the meetup here called rabbit hole talks which has been seeing a lot of demand New York City blockchain Week is coming up in the second week of May so I think we'll see a lot of the blockchain folks in our town very shortly so come chat with us we're gonna have a couple of events and we have a whole blockchain week event calendar that's on Twitter right now yeah so check out our stuff follow us on Twitter and come to our happy hours and meetups awesome thank you so much and take care Jake thank you take care thank you very much all right that's a wrap how do you think that went Martin I think we are still learning how to find like our you know your style yeah but Drake did a good job you did an awesome job yeah you gave us some great contem good stuff to discuss and I'm happy with it maybe we'll have him back some time yeah so where can people find out more about us well they can find out more about see if you can say my Twitter handle and they can find out more about you at BW hm0 yes that is correct okay that's a horrible handle oh I never heard that before yeah and we can find you that they hold it on bender and no there's no dot actually that's my calendar all right well let's her personally really mangle this who would tell them your address as well home address next time okay and you can find out more about what we do at going to twitter at joy stream apps or our website joyce beam dot org hang on

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