Gregory di prisco

Protocols vs. Governance with Gregory Di Prisco

For the final episode of 2022, Tim is joined by Gregory Di Prisco, the former Head of Business Development at MakerDAO, one of the oldest, most innovative and biggest DeFi projects, with roots that go back to BitShares. Greg is a man of many talents and a particular passion for protocols.

On the show, Tim and Greg discuss the ins and outs of MakerDAO, how DAOs can lead to dysfunctionality, and an innovative way to tackle apathy amongst DAO voters.

To find out how Grindery is building a Swiss army knife for existing DAO frameworks, head to

Previous guests include: Griff Green of Giveth, Yalor Mewn of MetaCartel, Daniel Ospina of RnDAO, Alexander Salnikov of Rarible, Gregory Di Prisco formerly of MakerDAO, Will Papper or Syndicate, Novell Loh and Amy Soon of Blu3 DAO, and Christina Garnett of Hubspot,

Check out the three most downloaded episodes:



Tim - 00:00:00: Hey, Greg. Thanks for joining. Where are you?

Greg - 00:00:02: I live in Connecticut, so just outside of New York City, but not in New York.

Tim - 00:00:07: All right. You're working from home like everyone these days, or where are you?

Greg - 00:00:12: Yes, I have my home office, which doubles over as my daughter's playroom.

Tim - 00:00:17: Okay.

Greg - 00:00:18: I share this space with a lot of toys.

Tim - 00:00:20: Yeah, I shared the space with a bunch of skis. We're currently in Austria, and we were in Brazil before and just arrived, so it's still, like, full of bags. And the ski equipment arrived yesterday and the bindings for the snowboards were missing for the kids, but all good. So obviously you have worn a very diverse set of hats, as a founder, a partner, an employee. You were in a position of business development for MakerDAO, where obviously the first question is, like, how does a DAO actually have employees and job titles? And was this actually a contract? But we're going to get to that. I would just love to hear from you in a minute or two a bit of your background and how you got involved in Web3 to get started.

Greg - 00:01:14: So I got interested in crypto back in 2010. I was a senior in college, and I was very philosophically aligned with bitcoin. I couldn't tell you how the technology worked. I just knew that the US. Dollar was going to collapse, and I wanted Bitcoin, so I got involved. Back then, there really wasn't much to get involved in. That meant you went and you bought a few bitcoins, but I kind of forgot about it from there. I actually lost those bitcoins because they were on my college issued laptop, and I'm pretty sure I gave it back to the college. Yeah, no rags to riches story there. But I then became a futures trader. So I was a business major. I studied economics, and I went on to Wall Street after college. I was trading commodity futures primarily, and during that time, I was keeping tabs on the crypto spaces. I always thought it was very interesting, and I guess something maybe people don't remember about this time period was it was a very historically low volatility period of time, so no market was moving. And that means as a trader, you have about 85% of your day to surf the Internet because you can't do anything. So I was just on these crypto forums all day while I was at my trading job. And I had gotten into another community in 2013 called BitShares. I think it could have been 2014. I don't quote me at the dates anymore because they're all blur now, but BitShares was kind of the predecessor to Ethereum and it was kind of like I think Vitalik calls it like a Swiss Army knife compared to ethereum's, total general purpose nature where it had a few different applications, but it really showcased the ability of blockchain to be technology outside of just bitcoin. And I really fell in love with that. I think the thing that made me get it, so to speak, was that they had a platform called Bit Assets, and on Bit Assets there was something called Bit USD, which is actually the predecessor currency to die, but they also had Bit oil and all this other stuff. And I was a commodities trader, so I was like, okay, I can actually understand this. Here I am paying the CME a dollar 50 every time I make a trade per lot, whereas on Bit Assets, I don't pay anything. It's basically free. Maybe I pay the network fee. And of course, that spurred a very long and painful journey where I realized that, oh, the problem with Bit Assets is it has no liquidity. So even though it's free to trade, I can't actually trade meaningfully on the platform. So I feel like those issues are just getting fixed today. But anyway, I read the Ethereum white paper. At that time, I thought it was gibberish. So I put it down, I forgot about it. And then about a year later, when Ethereum launched their main net, I started playing around with it, and I was like, oh, now I understand what this thing does. And part of what got me to understand what it did were some of the early applications that were building on it, like Augur and Maker. And little did I know these were kinda, just landing pages at this point. They weren't built yet. I was very used to the way that I usually serves technology, which is fully baked, whereas in crypto you see the announcement, and then we got to wait four years and then you get the product. So at that point, I was like, okay, we need to get into Ethereum. So I went to my boss at the time, and his name is Joe. I said, Joe, we have to buy ETH. So we bought some ETH, and it immediately went up a little bit, and that got him interested. So he's like, all right, how do we do more in this space? So we decided in 2015 that we were going to launch an ETF that would track the price of Ethereum. We did this because it looked like the Winklevoss twins were about to get approved on their Bitcoin ETF. And we weren't crazy. The reason we thought that is that they filed something called a 19 B Four application. And everybody knows that you either don't file that or you know you're getting approved. Turns out they didn't know either, but they got rejected. We filed our paperwork in June of 2016. We got rejected and we were back at square one. So we said, all right, there's still a lot to do here. Why don't we start a fund? There was all these, ERC-20 tokens coming out. Maker and Auger were kind of gaining some steam, and we're like, all right, we're going to start a fund that invests in ERC-20 Tokens because we can't find a single other VC fund that's able to do that. So we launched distributed capital. We spent most of early or late 2016 fundraising and then by early 2017, we were deploying and we pitched ourselves as a fund that was going to buy ERC-20 Tokens. But there were only five ERC-20 Tokens. We bought the five and then we bought some east and we waited. And it turns out that was actually pretty lucky because when there's a shortage of something that people want, they buy more of it. So there was a huge bubble, as you know, and fast forward to the end of 2017, we had seen returns that we were never going to be able to reproduce for our investors. So we decided to buy out our LP's and just turned into a personal holding vehicle and we took our carry and MKR because by this point we were getting very close with the Maker team. Ruined. The founder of Maker DAOhad personally contracted us to do some contracting work and we helped them set up what became the Maker Foundation. So we were already kind of involved with the team. We were really, truly in love with the vision and we wanted to help them build. We were sick of being passive investors. We wanted to get active in the space. So in December of 2017, I joined the newly formed Maker Foundation as their head of business development. And then a couple of months later, my business partner would come on as their head of trading and markets. And we had a third partner at the fund at that time who subsequently left, but he was the general counsel. So we kind of we kind of came in as like the full package for the business component of the Maker Foundation to compliment the developers that they'd already hired.

Tim - 00:07:04 Let me rewind when you started, you said I was really interested in crypto, basically Bitcoin 2010 because you thought or knew the US dollar is going to collapse.

Greg - 00:07:18: I thought I clearly, clearly didn't know.

Tim - 00:07:22: So what were you thinking? So what was your perspective rewinding now over ten years? How did you look at crypto bitcoin specifically back then? And you know, how does it compare how you look at it today?

Greg - 00:07:39: That's actually interesting because my thesis has remained remarkably consistent even from that. Like, I still think bitcoin is exactly what I thought it was twelve years ago. Keep in mind I was an economics major. I had just come off studying in Europe. I went to Milan at the University of Bocconi for a semester and I took classes with a bunch of I actually took some graduate classes while I was there too, with some of like one of the professors was an ex-SEC guy. So I was really getting into the whole economic theory and very interested in it. And I just keep in mind this was the middle of the financial crisis as well. So banks are failing, investment banks are failing, everything's failing. And what's happening, the government's buying all the debt. So I'm like, that can't be sustainable. And I still don't think it's sustainable. I still think that the way that we treat base money, which I guess like, to the average person, most people don't even know the distinction between base money and bank deposits. But the way we treat base money today is not sustainable.

Tim - 00:08:42: What is base money?

Greg - 00:08:44: So base money is what everything else is, I guess what the word suggests based off of so back in the gold standard, the central banks would hold gold or the banks would hold gold and then they would mint depository certificates off of those based on the credit expansion and contraction at the commercial banks. And by the way, Maker is basically a commercial bank on the blockchain. This is why I understood it where a lot of other people didn't because I was already coming into it with this lens of, okay, I get how money is produced in the economy. I want to change that because I don't like the way it's getting produced in the economy. So base money maker, interestingly enough, doesn't have base money because it references the dollar price. But all money needs to reference some unit of account, right? So one point it was gold. Now it's dollars. But only the fed can produce base money and they can only produce base money by going out into the market and buying assets. So the commercial banks, they produce the money supply that you interact with. But then the banks themselves have their own balances at the Federal Reserve and that’s based on it.

Tim - 00:09:41: Very good. And that obviously this with the connection to maker Dow. So you already said this, but like calling Maker DAO like the central bank of Ethereum, so to speak, or for crypto, where did you first hear about it? Like, you didn't hear about it until the team back then approached you to subcontract, like they came out of nowhere or you had already known the project and what did it actually look like when you joined? How many people were there? What was the structure like? Was it, I'm particularly interested in how this organization as a Dow evolved from the early days and what stages it went through. And so what stage was it in when you got there or when you got in touch?

Greg - 00:10:30: Yeah, so I think I mentioned I was in the BitShares community before that. So I was in those forums. I was chatting with people and a lot of the people, DAI is the successor to Bit USD. Bit USD had a very similar structure to DAI . It was just on BitShares instead of Ethereum. And Maker DAO actually started on BitShares . Not many people know that it migrated over to Ethereum early in its existence because Ethereum didn't exist yet. It couldn't exist in that area. The way I recently got involved though, was Rune, the founder of Maker DAO. He was very active on Reddit and Maker DAO had a Reddit. And like I said, I was surfing the Internet on these crypto forums all day. So I was just messaging back and forth with Rune on Reddit, asking Garry's questions because he had posted the idea for what he called the e-dollar at the time. And I recognized once that the project started to take off a little bit, I recognized some of the names from the BitShares community, and I'm like, all right, this thing is real. These are real devs that are working on this. The way that it started was that Maker truly began as a DAO. So there was a chat on Rocket Chat. I don't know if you've ever used that. It's like an open source chat platform. And there was a forum, I don't even know what happened, but the Maker Token came into existence somehow. And every time anybody wanted to submit the pull request to the protocol, or not really a pull request, but do development work for the protocol, they would request MKR and then everybody would vote on it. And we soon realized that you can't build a DAO with a DAO. It's actually a really bad construct for building something. So that's why in 2017 when we joined, we helped them set up these centralized entities that will become the Maker Foundation. But note, there is no longer a Maker Foundation. I don't work there anymore because it doesn't exist. So what we did was we built this organization, we built the protocol, and then we destroyed it.

Tim - 00:12:27: So at this times where you're saying this is like pre Maker Foundation, how many people were involved in what was the volume like? How many proposals was it? How many different people would propose? How many people would vote? How many people are we talking about in these early days?

Greg - 00:12:47: Not many. I mean, there were probably ten people actively contributing to the protocol, and there was a lot of proposals because that's the only way people got paid. But I never got paid. I was never that involved. I had a full time job and I didn't know how to code, so there really wasn't any use for me.

Tim - 00:13:03: And where did that money come back already in your this is already coming from? So it was already operational at that point. Where did the money come from in those days when you said people were getting paid?

Greg - 00:13:16: People got paid in MKR. That's how they wanted to take their payments. They said, I'm building this protocol, I want to have the economic upside, so just pay me in MKR.

Tim - 00:13:24: All right. Okay, good. So that's why I wanted to make sure so basically the token was there and then people would use the token for voting and on the proposals and people would get paid in MKR. Okay, very clear. There was ten people actively working. So I get an idea of the site and then you guys, the two, three of you kind of like came over and then you just said a DAO is a really bad idea for building a DAO. It's a really bad way. What do you actually mean by that?

Greg - 00:13:53: Well, they're a really bad way to do a lot of things. I hate to burst your bubble, but yeah, like we were trying to actively build a protocol. Software development requires incredible synchronization and resources. Just the whole apparatus around it, right? And DAOs, especially back then, were not in and even now are not in a form to achieve that. Like, we have not mastered decentralized coordination enough to produce a complex piece of software like Maker DAO, with the decentralized organization, you needed the centralized organization to produce the decentralized organization that can then run the software.

Tim - 00:14:30: So what you're basically saying just to clarify this and see the vision that this community and DAO structures you said can produce software. Right. What comes into my mind first is thinking, well, to get entire open source community produces software that way would you be able to clarify or go further onto his comment? Is this a thing about actually being able to do it? Is it about the quality of the code? Is it of the speed? Is it the productivity level? What is it that you saw in those days? What's not working? What factor, what didn't work specifically?

Greg - 00:15:14: Well, it's not just those days. It's today too. DAOs are just not good at things. The DAO we have today at Maker can barely run the system we have. And that's a generous interpretation. Governance across the spaces doesn't work great.

Tim - 00:15:32: I love that discussion. So and, and looking this at the small scale because, you know, many years later, you know, we are stuff has developed and you're saying it's still not working. And I would, you know, tend to agree on many of that, on how you look at it. I'm just curious that even in this small group, what did you see in the dynamics of this organization that didn't allow it to produce valuable outcomes? Why would it not work? What are the dynamics, the human dynamics that don't lead to productive outcomes?

Greg - 00:16:04: I mean, I guess in a word, politics. Right. Everybody has a different vision for what they're building. And when there's governance and there's no hierarchy, everybody has the express ability to enact that vision. Frankly, it's just all over the place until you insert some sort of centralization or hierarchy in order to push things forward in the right direction or the wrong direction.

Tim - 00:16:28: Right. So you guys basically teamed up, you joined the team and he proposed to set up the foundation, which had a.

Greg - 00:16:36: More proposed no, we got hired to do that.

Tim - 00:16:42: All right.

Greg - 00:16:43: So we got hired to set up entities and stuff because it was actually like, I'm making it sound much more sophisticated than it was. It was like, hey, Maker doesn't have a bank account, we need a bank account. Well, you can't get a bank account without an entity. So we set up the entities and we got in the bank account.

Tim - 00:16:56: And the mission or objective of the entity then was to further develop the protocol and make that basically do software development as a foundation was that it.

Greg - 00:17:07: Was to pay people so you could actually hire more developers because you're in a very short list of people that are willing to work just for MKR.

Tim - 00:17:15: Okay, good. So you set that up and then where did the initial then the money came from? That's why I asked earlier. Right, so people getting paid in MKR, then you're setting up the foundation because you need a bank account. You need to pay people. You realize that paying people money and putting them on a specific objective, they are willing to work towards the objective if you pay them with it. The money doesn't come from in those early days.

Greg - 00:17:40: So that's when the VC sales started. So the first VC sale was to Polychain. I think they bought Maker at a 50% discount at $4 a token. All right, they did. Okay.

Tim - 00:17:55: Basically then they got some funding. With that, you started selling and then you started hiring. And at that point, like early 2018, how many people were involved in the software development? Like, how many people how big was the team that was actually then developing?

Greg - 00:18:09: I really don't remember. I mean, I think the total team, if you include some of the other support staff and business people that we brought on, was probably approaching 30 at that point. So it grew very fast. And then in the next two years, it grew to over 100. So it really went quickly in the foundation.

Tim - 00:18:28: Okay, and then the foundation at one point you said was shut down again, is that correct?

Greg - 00:18:34: Yes, it was a process. But basically from spring of 2021 till summer, we spent that time dismantling the Maker Foundation. It no longer exists in any form.

Tim - 00:18:45: Why did you dismantle it? Or why did you think at that point it was not needed and it was built? The protocol was built sufficiently so it could be passed to the DAO or I'm guessing here.

Greg - 00:18:56: Well, because Maker was always supposed to be a DAO, it was never supposed to lean on this centralized entity. The centralized entity was there as a temporary crutch to get the software built. Once the software was built, it was actually detracting from progress because a DAO needs to be decentralized. If it's not decentralized, then we're just running another bank, right?

Tim - 00:19:14: Who came up with that idea? Who said at some point, hey, we need this foundation, this is not working? Who actually went like, hello, let's change.

Greg - 00:19:22: This probably Rune, but I think it was a collective realization. I think everybody that was working on it was like just how can we keep moving forward without some sort of entity with bank accounts, with staff. I think one thing people underestimate is just how complex the task was. So Maker DAO was the first to do a lot of the things that it did. Maker DAO built the first decentralized exchange. Maker DAO pioneered or at least Daphub which was the contracting entity that was building Maker DAO. They pioneered a lot of the concepts and solidity that we still use today. So there was huge complexity and experimentation.

Tim - 00:19:58: So now that we talked about the structure, let's talk about the vision and mission. So where did make a dial start, where did it go and where is it going? Do you feel this is still on the same line? As I said, I really enjoyed your reading through the Maker drama that you posted on your Twitter with your multiple threats. I enjoyed this very much and by reading that, I got a somewhat good insight in a few minutes on what is actually happening and I think you did a good job in labeling the different groups and trying to explain to an outsider what is actually happening. Do you feel that maybe run us through the story, like with what idea did it start and where did it go over the time you're there and where do you see it going today? And how strong is the connection to the original ideas?

Because again when reading through your threats it seems like there's very very different ideas today of what Maker DAO is and especially what it should be.

Greg - 00:21:07: Yeah, that was going to be my counter so whose ideas? Because as I mentioned, makers started as a DAO and really everybody involved had a completely different vision of where it would end up and that's also when you have that situation, things don't go anywhere.

Tim - 00:21:19: So how do you feel that phrasing is different? Where did the majority take it? So where was it going in its principal direction when you joined in 2017 and then over this years and where is it going now? So do you think you can make, you know, somewhat sense out of the vision of looking at it through the eyes of like, you know, this is how it has been steered as a majority?

Greg - 00:21:44: So I think back then it was actually nobody wanted to say what their vision was, everyone just agreed on one thing, it had to get built. We can figure out what it does after it gets built, but if we start disagreeing now on what it should be, it's never going to happen. So back then there was no vision, it was just build the protocol and.

Tim - 00:22:03: What was the definition of the protocol to launch the DAI? That was basically it or what was.

Greg - 00:22:10: Technically speaking it's a very simple protocol. You have collateral goes in, the governance apparatus, picks different parameters associated with the collateral, and DAI comes out. Now, of course, that is the most loaded comment in the world, because there's so many different things that go into those governance parameters that level. It seems very simple.

Tim - 00:22:32: So everyone agreed on that. The basic idea of the protocol is right, but people had already very different visions of what it could be used for and where the organization would steer in terms of what and where do you take something like this? How do you steer, really, a protocol into different directions? You give it different usage. What's the political interest, so to speak, in it?


Greg - 00:22:58: Well, from a product perspective, everybody agreed on one thing that DAI should be a decentralized, stablecoin. Now, here's your first disagreement. What's the stablecoin today we say it's the dollar, right? When I first started at Maker, it wasn't pegged to the dollar, it was pegged to the SDR. And I don't know if you're familiar with that. The SDR is like the IMF’s internal unit of account that absolutely nobody uses.

Tim - 00:23:24: We all know it. Right?

Greg - 00:23:27: We did some analysis and realized that relative to goods and services, the SDR is even less stable than the dollar. So that truly made no sense. It was just a meme. So we got rid of that. We made it pegged to the dollar. I would say half the team didn't like that. They wanted it to be like its own thing.

Tim - 00:23:46: What would it mean to be its own thing? Like, what was the other alternative?

Greg - 00:23:49: Do you know what RAI is?

Tim - 00:23:52: Yes, but maybe explain it briefly.

Greg - 00:23:54: So, RAI is a competing stablecoin from the Reflexer Protocol. It was the same co-founder of Maker DAO, Nikolai Mushegian. He's recently deceased, but he came up with the original design for Maker Dow, and he was also involved with Bit USD, and his vision was always that it should not be pegged to a fiat currency. Because if you peg it to a fiat currency, you're going to rely on the collateral of the fiat world. And he's 100% correct about that or was 100% correct about that. Problem is, if you don't peg it to a fiat currency, nobody's going to use it, because then is that even a stablecoin if it's not stable relative to the goods and services that you're consuming?

Tim - 00:24:34: Relatively.

Greg - 00:24:37: Okay, there's the first disagreement.

Tim - 00:24:40: So go again into the difference if everyone else is listening, the difference between DAI and RAI.

Greg - 00:24:46: So RAI has negative interest rates. That's what you can boil it down to. In DAI, the worst thing that someone could do is give you a 0% interest rate in RAI, they can actually start to take from your balance. So this is kind of what central banks were experimenting with in Europe over the last decade. In Japan, where every depositor actually starts paying the bank for keeping their money there because they want you to get rid of the currency. So rye has a similar mechanism in Maker. It's called the TRSM. I think it might be called the same thing in reflexer. But basically when there's too much demand for the RAI coin, it starts to actually eat away users balances. 

Tim - 00:25:26: Got you. So we talked about 2017, you know, launch of the DAI and you know, as you said, you know, half whatever, half the community said, hey, let's pack it to the US dollar. And the other one half was somewhat against it. Right. And you know, when you joined, as you said, you know, there's ten people actively working. Then you brought in the foundation was set up and the team group raised some money. It was like 100 people in there from those days. From ten people to foundation with 100 people with this operating. Where's Maker DAO today? So somebody that is not familiar, what does the organization look like or the community look like today? In terms of size, in terms of people? Give us an insight.

Greg - 00:26:12: I don't think anyone really knows. And that's the beauty of it. It's an actual DAO. So there is a thing called core units. These are contractors that the protocol can vote to pay directly from the protocol. So there's no longer a centralized entity anywhere. But there's actually a series of entities that pitch the DAO to provide services to it and those are called core units. But the community is easily several thousand people.

Tim - 00:26:36: What are the most important core units today?

Greg - 00:26:39: There's two that are like, you know, just mechanically speaking, more critical than everything else. And that is protocol engineering. They write and maintain the smart contracts and Oracles, they write and maintain the price feeds. And then from there you have risk core units which are basically helping the maker holders decide on what the parameters should be or whether they should on-board different collateral. And then you have more growth focused ones like the growth core unit or marketing and stuff like that.

Tim - 00:27:11: Is it functional? Is it working? Because going back to my function.

Greg - 00:27:16: Nothing's blown up yet.

Tim - 00:27:19: Exactly, so nothing has blown up yet. But I'm kind of interested in, again, insight into your brain when you look at you have a good view yet this privilege to see this in organizations. So you saw the early days of the DAOs, you saw a lack of productivity, you saw the ability, this opportunity to collaborate, to set up the foundation. The organization gave it the direction, raised some money, it build up the protocol further. Right. And you said earlier, yeah, DAOs at that point were very dysfunctional and actually they're still today. Do you think that something that make a DAO could be run in any other way that is not a DAO? Is there a better organizational form or structure to achieve what it's doing? Or is it, as he. Said it was always meant to be a DAO, that the only way it can work is in the current structure. And now it comes to the division, what is functional?

Greg - 00:28:19: Right.

Tim - 00:28:19: It hasn't blown up. People are concerned about it. But is it going to stay? Like, what's your opinion? What do you see?

Greg - 00:28:27: I'm going to nitpick your question. So one, yes, it has to be a DAO. If Maker is not decentralized, then it probably won't exist. But what is a DAO? We kind of just hand waved away this term. Right? It's a decentralized organization. What the hell is that? A famous DAO that I know of is the U.S. Government. That's a good DAO. Functional? No?

Tim - 00:28:53: Yeah.

Greg - 00:28:53: Okay. Would you want the U.S. Government running your local bank?

Tim - 00:28:58: No, they only run the central bank.

Greg - 00:29:00: Exactly. Which is ironically what we were trying to get away from this whole time. Right.

Tim - 00:29:06: So what is the DAO under the definition of maker DAO right now?

Greg - 00:29:12: Maker Dow's definition is simple majority token voting. So there's a token MKR and the majority of the votes can pick whatever happens, it can arbitrarily change code in the protocol.

Tim - 00:29:23: You laid this out again in your Maker drama like Tweet series and dynamics of majority voting. What does it produce in terms of, as you pointed to that as well, like politics within the organization. I guess when you have an organization, as you define it as a DAO, in this case as majority token voting, what actually comes out in terms of dynamics and politics? Does it reflect the politics that we see in the US. Do you see things like increased polarization under certain conditions? What is the same and what is different that you see in it's? Kind of like a microverse. I'm always looking at the different stories of the DAOs and when I've talked to people, try to see how do you look at the world through the lens of a dow, of a specific DAO and how much does it reflect on our dynamics of the rest of the society?

Greg - 00:30:22: I'm sure you've studied money in politics, right? Where do all the problems in politics come from? Maker has the same problem. There's money in politics. So there is benefit to yourself to control these votes and to have a place in the organization. And because of that there's always going to be vicious politics. And I personally don't see how that's going to work in the long run. And I think that I'm kind of on the same page with Rune here. I don't fully understand his new plan. He calls it the end game. But he's right about one thing. He realized that we need to reduce the amount of scope of the core governance mechanism and somehow push that all to the extremities that needs to be externalized. And then the core just makes very simple decisions. But I'll take it a step further. I think that the reason Maker DAO is dysfunctional is because it combines two things that should never be combined. On one hand, it's funding. Funding is its own apparatus and you want every stakeholder to have a very detailed look and say into that mechanism. The other hand is permissioning. This is the binary outcome of whether something happens or it doesn't. That can only be handled by majorities. So when you try to put everything into one voting mechanism, both funding and permissioning, you get a disaster, you get Congress. I think that if Maker is going to succeed, it needs to figure out how to reliably separate those two functions.

Tim - 00:31:51: So in other words, become more sophisticated in its organizational construct.

Greg - 00:31:59: No, not sophisticated. It needs to become dumber, it needs to simplify. It's too complex. There's too many different things that can happen. 

Tim - 00:32:05: Because it all relies on the same voting mechanism.

Greg - 00:32:09: Yeah. And I think this is some debt from the early days where, like I said, a lot of getting the protocol built was delaying the vision, right? Saying we'll figure that out, then governance will figure that out and everything just became a hand wave for governance and here we are. Now we have governance and we don't like it.

Tim - 00:32:28: As an analogy, I talked with one of the Rarible founders the other day and because the start is different, right? You start with you create a company, you get funding, create a DAO from the company. Instead of starting the DAO, then creating a more traditional organization. And what struck me in that conversation was they created a DAO and then they kind of went into a direction where they left it to self governance. Okay. In many ways. And a lot of the things that you're saying remind me of what I heard there, which is all sorts of stuff gets proposed and all sorts of stuff gets approved, right. Based on whatever the freedom to do proposed, whatever it is you want to propose. And as long as somebody else is supporting it, it actually kind of moves forward. And there's a kind of fraction in the organization through that. There's lack of focus on achieving anything. And they kind of like then basically the funds went out and they didn't fund it again. And then they set up a new one and they started with the vision and the mission. So they start very narrowly in what the DAO is here to achieve and basically saying if anything you propose or you want to do needs to fit in, that vision has to be aligned with that.

Greg - 00:34:00: If there is no but, who's the arbiter of that?

Tim - 00:34:03: Right? So can that work?

Greg - 00:34:06: Because Maker seemingly had a unified vision. It's only once you actually start testing it and get into the gray zones that you know that you need to clarify. And without a centralized source to clarify, you will devolve into politics.

Tim - 00:34:19: So is it unavoidable? Is it actually bad, it's bad?

Greg - 00:34:23: Oh, yes, that's unambiguous. It's bad.

Tim - 00:34:28: I'm always wondering, and I would tend to agree with it in general, like politics are always associated with something bad, right? It has a bad connotation to it and has a bad flavor to it. But isn't politics, in the end, fundamentally human living? Like, is that actually avoidable?

Greg - 00:34:51: It's avoidable if you don't give it space to occur. I think it's like saying, Is mold unavoidable? If you leave water out, it's not. But if you limit the governance space to where there really can't be anyone that benefits, let's actually take a moment to define politics. Politics occur when there's something that an actor can benefit from by engaging in it. So politics are where the individual actor put their own self interest over the group. And you want to limit the ability to do that because it will happen if you can do it.

Tim - 00:35:28: Is it possible to actually limit debts?

Greg - 00:35:32: I think so. I think that if you separate because and this is where funding and permissioning are different with permissioning, that's a binary outcome. Everybody knows that the majority is going to rule there. There's really only you can lobby, whatever, it's not going to matter because once you're permissioned, funding should be a different process because you can get permission to get zero funding. So funding needs to be where every stakeholder has their own pro rata share, in my opinion. I think that if you have 100 stakeholders and they all have different proportions, a funding decision should not be based off of whether the majority of the people want to fund it. It should be based off of whether it can gather enough of the individual stakeholders to support it based on their pro rata share of the fundraiser.

Tim - 00:36:13: Do me a favor for all of us that are not involved in this on a daily basis, run through an example what that actually means.

Greg - 00:36:20: Yeah. So this is an excuse for me to plug one of my new projects called Ajna. So we've actually spent the last year and a half building a completely permissionless lending market. So you can think of it like Compound or Aave had a baby with Uniswap. You can create any arbitrary pairing of assets, you can even use NFTs as collateral. The key is that there's no governance. So we completely removed the idea that anything needs to be permissioned in the protocol. But we do have a token and there is an ecosystem. And what that token does is it decides how a treasury gets allocated. So it's a strictly funding based arrangement. And the way that we've organized this, we call it grant coordination. The way we've organized this grant coordination is that every quarter a fixed percent of the treasury is going to be distributed. There is first a choice round, a selection round, where the top ten proposals based on state get through and every Ajna token holder can participate. So if the top ten proposals make it to the next stage, then we use those same set of token holders to quadratically vote their pro rata share of the budget onto each proposal. And you can vote up for up to ten proposals. And if you vote for all ten, they'll be allocated more money than if you just vote for one. So we think we've designed a very clever game to get people to support a wide breadth of proposals and made sure that they can never allocate more than their own share of the budget to the proposal.

Tim - 00:37:51: Got you. I can see from that what you're very passionate about is thinking about new voting mechanisms, right?

Greg - 00:37:59: Yes, that is my strange hobby.

Tim - 00:38:03: All right. And how far do you see that from obviously what you've seen in Maker DAO and in your own project now, which clearly reflects, you know, the way you talk about it. You can actually see, you know, there's, you know, learning and frustration or from frustration to find better ways of doing things right, like better voting mechanisms to avoid politics and how you define it. What do you think is the most innovative and interesting thing that's happening in the space there right now? What is the most cutting edge? Maybe not cutting edge, but what are the most disruptive ideas in that space that might be still untested, but what are you seeing on the horizon?

Greg - 00:38:53: Well, look, I'm not going to pretend that I spend my days now scouring the DAO forums to see different experimental governance structures, but I am designing them. So I just described one to you. That's the Ajna Grant coordination. I have another one that I've designed for permissioning and this I plan to use in another project that's helping Maker DAO onboard rearworld assets, hopefully, and also building out. It's still in stealth mode, but I'll tell you more later. But basically the way it's called a SPOG. So a simple participation optimized governance protocol. And what it does is it treats governance more like an organism than as a government. And what that means is that it only optimizes for one thing. So when you look at an organism, organisms only optimized for one thing, reproduction. This only optimizes for participation of the voters. So what that means in practice is that it has binary votes, majority roles, but anyone who doesn't vote has their tokens taken away from them and auctioned off to the highest bidder. So in effect, it can never die. So I think that's a pretty cool new design that I plan to implement in a protocol which is we're going to have a governance mechanism that cannot die. It doesn't matter what you do to it, it will always find somebody to govern it. And my bet is that a big problem we have with DAos today is apathy. And if you got rid of the inactivity of voters, you would actually produce better outcomes than we are today. I don't know if you'll produce the best outcomes, but you'll produce better outcomes. And if only 5% of the token holders are voting.

Tim - 00:40:32: As you described, again going back to maker Dow, and you being very passionate about voting and voting mechanisms, could or should central banks work with this voting mechanisms? Do you think they could or should?

Greg - 00:40:47: Central banks shouldn't exist at all. No, they don't serve a purpose. They're there to finance the government.

Tim - 00:40:54: Okay, good. So get rid of them and replace them by the Maker DAOs with better voting structures.

Greg - 00:41:01: Well, I mean, that's clearly a leap in the future. But even right now we don't need a central bank in our current model. Like you can just use the commercial banks and the existing capital regulations that they have. The central bank just prints money to finance the US government. You could just put the money supply, the base money on an algorithm that says increase 2% every year and you would have a more stable money supply than whatever the Fed's done for the last twelve years.

Tim - 00:41:27: Very good point. And how do you see, again, given all the discussion about politics and voting, what opportunities do you actually see for, you know, Web3 blockchain technology and specifically when we look at voting to change voting and politics at large?

Greg - 00:41:48: Well, I think the best way to change it is to minimize it. You know, but I don't know the answer to your question because what you're describing is the end state. We are, we are at the very beginning of this journey. Like we need to experiment and we need to start out with much simpler problems before we try to solve the hardest one, which is generalized governance.

Tim - 00:42:07: My wife would always wholeheartedly agree with that, with getting rid of governance and politics as much as possible, obviously with propagation of Web3 and blockchain technology. And you saying DAOs are in many ways were dysfunctional. They are dysfunctional. But there are better ways of doing that, right? Like there's better ways of organizing better ways of voting as getting rid of politics. That there is no need of central banks. How real do you think is the risk that what we are all building together in towards this new future that we believe in will ultimately again be owned by governments and central banks?

Greg - 00:42:58: Well, if you keep building DAOs, there's a very good chance they have a central bank. They can print money to buy the governance tokens.

Tim - 00:43:07: Right?

Greg - 00:43:08: So I think that this entire concept of deferring something to governance as a centralized entity is problematic. I think that if crypto wants to really thrive, it needs to move away from platforms, which is what it's been building. And back to protocols, bitcoin is a protocol. Bitcoin takes a set of rules and says anybody can join and you're all your own actor. There's no centralized governance and you can fork in whichever way you want. The problem with something like Maker DAO is that it can't do that because it has to make subjective decisions. So, yes, there's a necessary evil for some governance there, but we need to minimize it down to the true necessity and get rid of all the bells and whistles, because these protocols need to actually be protocols. What we've been describing are just platforms. Anything that has a centralized decision making process, whether that process itself is decentralized or not, that's a platform. A protocol is just a set of rules that anybody can join and follow.

Tim - 00:44:05: In short, less governance, more protocol. Is that it?

Greg - 00:44:10: Yes, because a lot of people will defer the hard questions to governance. That's what we did. Unfortunately, there was a lot of hard questions about how do you achieve this in a decentralized way and not a lot of time. So those rules didn't get hard coded into protocol. But if you look at something like Uniswap, which I happen to think is like the perfect gap that has no governance, anyone can use the Uniswap protocol and everyone knows what they're doing and what they're getting, because the contracts are immutable and the rules never change. And that's really what the world needs. It needs to replace institutions with protocols. Because if we replace institutions with platforms, we're just deferring to a new institution. Even the Maker holders like myself, we just represent a new institution. A protocol wouldn't have those votes. A protocol would just say, here's the rules, everybody follow them. And if you don't like the rules, you can change them by forking.

About the Show

Decentralized autonomous organizations, or DAOs, are all the rage. We’re seeing explosive growth in this sector as people experiment with building companies on top of tokens and smart contracts. If you want to get a better understanding of why this is happening, listen to the people that work, build and invest in them: the members.

Join me on my personal journey of discovery, a series of talks with the Web3 builders about DAOs, Life and everything else.

Graham Spencer

How people share their availability and generate stronger commitments via token staking

Spencer is a product manager for DAOhaus, and a RaidGuild contributor. During his Web3 travels, he's noticed that there are usually 2 kinds of people in DAOs - those that dip their finger in multiple projects, and those who focus on one project only. Now, he's championing incentive based mechanisms that make people share their availability and generate stronger commitments via token staking. That, and he thinks that DAOs can be an answer to climate change.