DAOs Unmasked: The Hard Truths Behind the Hype by Lefteris Karapetsas | Devcon SEA

[Music] [Music] give a round of applause hey good afternoon everybody um so I guess uh we're here to talk about DS uh this talk is going to be about hard truths it's going to be a bit spicy like the food here and um for those of you who don't know who I am a quick intro I'm Lefteris I've been in ethereum for a bit I worked on solidity compiler in the C++ ethereum um later I created along with kristofh here um the da and helped with a cleanup afterwards um I'm was a Dev lead for the Ryden Network and uh for a long time now I'm the founder of Rodi uh the portfolio management tracking and accounting tool that respects your privacy so let's get some definitions first what is a DA there can be many definitions but um the the main thing is that it's a smart contract uh with a set of rules that governs some kind of um cooperation between uh people trivia in the Thai language da is a star I learned it very recently and um it's also uh a name that was sometimes given to girls um there is nice other definitions like group with a bank account crypto cop I really like the word Financial flash mob because um you know you have a lot of people who gather together and they um just buy the Constitution let's say or attempt to so what is a DA good for um being a smart contract it's auditable it's open source it's transparent and now also um works on the blockchain which is a transparent Ledger and as such um you can see what it does and what it touches it's very easy to use you don't need to set up a company you just press a button and you deploy um a contract an audited contract so you probably use a template you just customize it a bit uh it's also very cheap there is only gas Fe if you have to do a company you have to do notaries uh gas uh like legal Fe there is a lot of work it's accessible to everybody D don't discriminate about jurisdiction about nationality about anything what are the problems there's many problems with Ds coordination is one um regulatory unclarity something that we're going to uh talk a bit about many Dows perform decentralization theater we're going to talk about this quite a bit and there is participation incentives um if many any of you have worked with a Dao or anything uh you will probably notice that after the honeymoon period you tend to lose interest um there's many examples like the da um y pleasure inss Friends with Benefits optimism there's many there is no point talking about them here in this part so let's go to the to the hard truth what are the problems with Dows a very big problem is absence of regulations everything I say is not legal advice I have I I'm not um a lawyer in any way but who is liable for example when th does something think we are talking about liability always who is liable when a DA does something is it the deployer is it the author is it the participants the token holders in the end it may not matter um what many Dows do today and what we did back then in 201 16 is we didn't deploy um uh that original uh Dow we just created the bite the the code and we gave the bite code to the community and they deployed it uh multiple times I don't even remember how many 40 50 and then they were chosen randomly by um um a random function in slack um this was also a way to you know say that it wasn't deployed by a particular company in the end all this kind of stuff don't matter if they actually want to say that a company uh deployed it they just would write it this is from the SEC paper on the Dow and what it says is that on or about April 1926 slockit deployed the Dow code on the ethereum blockchain the completely disregarded um having the deployment uh as as um like a member from the community they just completely disregarded the entire thing so the point here being that doesn't really matter in the end if someone wants to say that you deployed a DA they will just say that you deployed the da uh when you work for a DA and I have done that and I guess many of you actually have worked for a DA you probably have a tax account at some point and they ask you hey so where is the invoice for this payment you like invoice what's that you have issued an invoice right okay you're right optimism but what is optimism where where is it where is the jurisdiction where is it located um is it located in the EU you're also located in the EU so you need to pay vat um there is many many questions and the worst thing is that when they make these questions you're already screwed they can just claim whatever they want if you can't prove it they can claim that you need to R actively give pay VAT on every one of your invoices this has happened to some people so it's actually a really dangerous thing working for a now um participating in a DA there is uh potential legal liabilities this is from uh okida um they basically at some point um wanted them to shut down the C cftc and they gave them a penalty so they found the da is a person and they gave them a penalty of 600 43 [Music] ,000 now who is responsible to pay for this um are the token holders responsible is the governance responsible would they hold the vote to pay this fine there is many questions about who is liable for for for for a dow this talk is about questions not answers I I don't have the answers by the way um taxes everybody loves taxes right especially Dow um Dow operate and many of them make money uh that money is not taxed at all because most Dows don't belong in any jurisdiction they will tell you we're in the ethereum jurisdiction well take tell that to the lawyer um if they are under a jurisdiction they would probably have to do some kind of am and kyc so how do they do that even the question is always which jurisdiction does the Dow fall under because that's where you would see does it need to do ml does it need to pay taxes and so on and so forth um regulations aside which don't have much um answers we can also talk about something really important which is the decentralization theater that many uh Doos do today this is the biggest statement that this um uh talk wants to make is that there are no doubts today almost everything that you call a doubt today is really just not a da um the majority of stuff is just Discord administer organizations you just open a Discord server you deploy a for out of seven multisig and then you deploy a token that is owned by the multisig um now who are the multisig owners uh the signers it's probably you and your friends or you and your four addresses or seven addresses and then after you give it to the community then a day passes or a week or a month and then you rck pull or you just you know you you closed down it you tried it's fine you did your best but you have already sold most of the tokens your community became your exit uh liquidity that's definitely not a dow that's that's a scam there has uh there's many many many scams uh like that out there this is the most obvious noted doubt thing there is other things though something that many companies in this field and many big names are absolutely uh uh doing it's it's horrible what many people do is that they create a product they have a company behind the product then they say we could do better we could actually make a dow and then um we have two Cup tables we have the original investors of the first uh company and then we have also the token holders they're also investors in a sense um you raise double the amount of money because also the people put money into the token so they actually become your exit liquidity slowly you don't need to promise them anything the Dow doesn't promise anything ever but just because of proximity to the original product of proximity to the original um team and original company the token gets value and in many of these cases it gets a lot of value and then both for the founders and for the VC investors um the original company has beautiful exit liquidity through the token um this is something that many uh big names today are doing and I have lost respect for for basically a lot of ogs in the field that are just doing this which is uh you could call it a scam but it's kind of a smart way to scam people it's not a D um I was talking with someone um who was trying to advise me on what to do with Rodi and I had problems like there is always problems about liabilities regulation taxes you know we we're a German company we have to pay a lot of taxes there is legal questions about everything sometimes do we have to kyc our users you know why don't you just solve it easily you just make a dow just make a BVI Foundation everything is easy you just make a dow and then you just sidestep everything so a dow is not a way to sidestep regulations it shouldn't be um another thing that Dows tend to do in order to create the centralization theater is to attract governance participants so they make a token they air drop it they call it air drop responsibility to you and they ask you to become a delegate in the Dow so um you make it look like the delegates are deciding uh you get big names I am actually in some Dows and I have regretted it because I gave legitimacy to Dows uh that do not deserve it in Truth what happens is uh they plan they do everything and what you do is just rubber stamp but by doing the rubber stamping what you end up doing is giving legi see as a big name in the field to something that's actually not a DA so um Dow governance is what uh some Dows use in order to legitimize the project uh and then plutocracy essentially um as token voting goes uh the most of the tokens they have um very very very bad distribution it's either the founder or the investors that hold the majority of the token they they decide what to do then they vote to do it and then um sometimes they hide it by doing the uh friends or employees of the foundation or whatever that have delegated the tokens to and then it's appears as if it's decentralized but in reality if you see where does the token delegation come from it's actually from the founders so we're going to do a few case studies we're going to check it inss maker da and optimism um ens this is the how ens was was uh um split 25% to core contributors 25% as an airdrop to everybody that had an enss name 50% to the Dow treasury itself um then um they made a foundation the it's in the kman islands nonprofit it represents the down in the real world and the directors were actually appointed by governance so there was a governance vote I am a part of the da so I did vote for who is the um uh the head of the foundation the NS Foundation actually tries to solve the problems that I mentioned before which is the liability for the participants um taxation for the da because the da actually makes money like all these ens names that you guys uh uh are are getting part of the fee or all the Fe I don't remember goes to the to the Dow this is the the income and this this is why the foundation exists it it can also enter into contract so if you get a grant you can actually put the ens Foundation as your um uh counterparty and then there is the NS labs this is the main uh company that develops the protocol um and it it has a founding team they have governance they have big names um they have a security Council which is the very very top voter here this is just for um uh to veto against governance attacks the treasur is managed by karpaty everything is executed on chain the governance does own indeed the token it owns it can do things uh on chain so the governance has power in enss unfortunately um while the Dow does have control then who controls the Dow is that still enss Labs has quite a strong presence in the Dow not as bad as other Dows but still if you see like some people here are indeed part of NS labs and some people here if you check the delegations that they have they're actually also by like one or two people from NS down uh in laabs it's kind of a doubt it has issues but it's sufficiently decentralized I would say from the um test cases that I uh case studies that I'm making here it's probably the best so then going to maker Dow um maker Dow it was founded by R Christensen uh in 2015 they created the maker token um we all know it it has it's an amazing defi protocol it has created the the cdps the first uh decentralized stemble coin like Sai known as diet at time then they launched a multic collateral they dissolved the foundation because they said now we decentralized then run came back in 2022 um and then rebranded to Sky and then regretted it it's a bit of a mess right now the allocation of maker though it's bit weird it's like 69.5 to fers project and 15 to the team okay then we have run roone is the founder as I said and he's essential he is basically a guy that does everything the problem as stated in the podcast the Unchained one um can run fix the S state of Dow governance the problem is that there is Dow governance in maker but it's not a dow and it's absolutely not not governance um when you own most of the maker and you delegate it to your friends uh and delegates are paid by how much um they are delegated to then everybody will do what you say at that point it's not really Dow it's basically runes Dow it basically only anons are supposed to be able to delegated to because of fear of safety so the very few big holders which are funds the original investors they do not delegate to anybody because they can't delegate to anons um and then I don't know if you read the forums there is a lot of things I don't want to go into many details but it looks more like a cult than a DA so I would that make a DA is not a da it's probably a cult I I really don't know what it is right now then going to optimism this is another Dow that I'm actually participating actively in and I have kind of regretted it uh Dow launched in April um 2022 they kept a big part like what 20% for retroactive public goods funding this is why I actually went to for the public goods uh they have a partner F fund that's managed by what they created later a foundation and the investors and the team also got a big allocation uh they also created the K allance Foundation it does exactly the same thing as the NS foundation so that it can interact with real world entities but the problem start here that it's towards the evolution of the collective governance I have an issue with this and you will see what it is they had for they had four years mandate but they hope to decentralized before that the hope is is dying so governance the governance of um optimism is like this these are the biggest delegates I'm also there um they have big names uh in delegate it's very very well organized in seasons and they have two um uh bomal governance so basically it's the token house and the citizen house the token house is what is in every single Dow so um the op token it's just plutocracy essentially and then the citizen house the citizen house is that they just choose people from the community they give them um um a budge as they call it and then it's one person one vote uh the citizen house decides for rpdf and has a vetto against um uh the token house if they did some kind of capture unfortunately neither house owns anything the governance is powerless they do nothing it's all just bells and whistles they have the super chain um it's a collective of chains that's building on the obst they have managed to attract very big names uh and the idea is to create an inter ropable um Layer Two um What attracted me to um optimism was the rpdf the idea of um the sequencer Fe being directed towards public goods each super chain actually is supposed to direct a percentage of their fees towards public goods in reality at the moment because the sequencer fees are quite low uh they are still using the 20% allocation of the original token um the problem is that the decision of everything here still lies with the foundation governance doesn't doesn't deal with this like nobody decides apart from the foundation about how this will be done so optimism is the definition of decentralization theater it really is probably what should be in the books about decentralization theater the Dow owes nothing you you have governance that does nothing it's just rubber stamping the foundation says will do this yes or no well I mean they own most of the government as participants so it will always be yes um the struct is suggested by the foundation the rpdf structure is suggested by the foundation the rules how much money will go everything is is managed by the foundation there is a promise for decentralization but it does take forever and at some point you start to wonder like I want to put a snapshot that we voted that we want to have more decentralized and then say okay we'll try and that's it I don't know so optimism is an amazing uh Tech stack I'm a very big fan actually of the tech stack I use all the optimism Chains It's a very well-run business they have attracted the biggest names like Kraken for Inc base for uh coinbase for Bas but it's a company it's a business it's it's a very well-run business it is not a dow so is it is it like is is basically all hope lost should DS not exist well there are some doubts that actually are what I would consider a doubt like the Constitution guys they just wanted to buy the Constitution they just all gathered and said let's buy the Constitution 47 million in eth was raised in a very very short amount of time they still didn't get it they lost to a less amount dollar amount bid but they I think that they didn't have enough uh for all the processing Etc so they said okay we we are we are not going to do this and then they banded then there is y uh Y is is probably my favorite thing that I consider Dow today since 2020 they're still continuing uh defi protocol very smart devs uh the token was uh fairly launched so basically everybody had the same opportunity to get it infamously the founder got zero and he left early and it still continues despite the founder leaving early this this is the true test of the Dow no biking just a nice product and it still exists this is exactly it they just a small team building awesome stuff and uh lastly as a good example is molok Dow a bunch of people said okay let's try to fund ethereum ecosystem it got summoned by Amin on the 14th of February it has given over 1.4 million ecosystem grants maybe more I'm not sure about my numbers here people like flb through blocks and also Rod key um to a uh um Grant from molocow the members coordinate it's all open source uh if you don't like what the molocow wants to give funds at you just can Rage Quit which is basically a mechanism that also kind of came from the original Dow of exiting so yes there is hope and use for Dows it's just not what Dows are trying to do today the take-home methods basically is very very simple a DA is not a company like really just everybody needs to get it into their heads that a Now is really not a company it's not a way to shift liability to the users it is not a way to avoid regulations it's it's not optimism so the decentralization theater please don't do that this is is a disgrace and it's not a way to lure participants with fake promises over whatever you want to say that you're going to do public goods for example with optimism and then basically change your mind six months later and how is a very simple thing it's a quick way to just band together and do something um it you you can coordinate permissionless over a smart contract and build something nice and it doesn't need to last forever you can just make a dow for one small thing we can make a dow for something here in Thailand then disband it when we go back home you don't need to uh keep a dow like a company I guess that's mostly it uh thank you very much guys thank you very much uh it's a very nice talk and it was yeah nice to see a kind of honest exploration of these things um uh yeah I hope people don't think that this is bad or anything I really appreciate seeing these things so that I can actually understand what is going on and what people are actually doing and and seeing how you can build it better either yourself or how they can improve and we have a few questions um some nice ones I'll start with a spicy one because I think you might like it um Willer oh no it's gone I have to uh so um something I didn't mention before but people have been using it you can upvote questions okay and uh so this was one of the ones that was mostly upvoted so why do you think we have not seen anti- plutocratic on Jen governance structures because of C I guess we can't easily find out who is who uh this is exactly what optimism is trying with the citizen house but then you decide who is who by just giving it to people that you know and then that's not really equal um equal opportunity governance so do you think some sort of identity things would help yeah but they have been trying them with gitcoin as as you saw before for so long and it's not easy and so what does the accountability look like in a dow structure how do we create a stronger onchain culture of accountability accountability yeah good question uh well being account able to the Dow would mean say that you get a grant and then you have some milestones and then you you have to get them and then if you don't finish the marones then you just are banned from not only this Dow but from other Dows this is for Grant recipients but accountability in let's say I don't know participation Etc yeah this is a very hard problem to incentivize participation because most of these Dows for example you get all these people to work on a dow and they are um it's just unpaid work for most of them there's a question that kind of touches on this point so you suggested that there's uncertainty about liability for Dow participants however some legal Trends are becoming clear don't you see that there are some obvious uh candidates for accountability candidates for what what I didn't really understand candidates for accountability so I guess yeah like legal things like filing your taxes or oh yeah yeah but this is not really this ability towards the state not accountability to the DA or to the other participants I I when I hear of accountability I just think more of um how you are accountable to the DA as as an organization not to the your jurisdiction or the state uh okay so so what is your opinion for an optimal framework to build a real Dow what is needed for a real Dow well as I said I don't think a dow should be as they are today they should be like a simple thing just pop it up solve a problem disband it or just like y did build an actual product not a DA and then the product just build an actual product other people around the product and then they will just keep building it you can call it a dow you can call it a band of friends doing something I think that the Dow word is completely overused this is also uh a piece of advice that is floating around with people who are thinking about launching tokens for not necessarily governance or whatever but for like protocols and things like that it's also do theoc and make it work and then uh so will there be a time where we will actually think before just doing the next cool thing honestly I think that this also depends a lot on on us the community because everybody seems to approve of this stuff the you know if we don't use those things if we don't approve if we don't go to the big events organized by those people with the lot of money that they get through this decentralization theater then maybe they would think again before trying to do this but if we as a community really just keep approving this they will keep doing it it's really up to us to just say no guys this is this is this is a scum this is actually I don't know if it's legal but it absolutely and certainly is not ethical like it really shouldn't be done this way so I think that's about all the time we have for questions but I think it's a very nice point to end on and I think it's a point that summarizes your talk very well like I think it's super important that you give this talk to call out certain Behavior to say like hey look uh this is the way we should be we should be better U so if we want to build a nice future we should build better and like I think there's lots of Hope for that in the ethereum community I think like lots of people do have good intentions so yes yes absolutely I mean this is why I'm still here yeah exactly