"Fair Launch is a New Way for Founders to Express Themselves:" Gavin McDermott of IDEO CoLab

Hello Defiers! In this week’s interview, I spoke with Gavin McDermott. He's an investor at IDEO CoLab Ventures, the venture arm of design firm IDEO, and he’s one of the creators of Fair Launch Capital. While the name might suggest otherwise, Fair Launch Capital isn’t an investment firm, or at least it’s not a traditional investment firm. Instead, it gives startups no-strings-attached funding so that they can afford security audits and launch their projects in a safe way. They’re asked to consider paying it forward by returning at least the same amount they got but ideally more, to fund the next project.

The idea came after the team saw that many founders in crypto were feeling forced to either sell tokens before their platform launched or raise venture capital as one option to pay for audits, or release their projects without the proper security checks. Gavin is hoping fair launch capital provides a viable alternative to venture capital, even if it does end up disrupting his fund's own business model. Since the group unveiled this new funding mechanism late August, the term “fair launch” has taken a life of its own, becoming a gold standard for any new DeFi venture.

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🙌 Together with Zerion, a simple interface to access and use decentralized finance, Perpetual Protocol, which provides decentralized perpetual contracts for any asset, and HackAtom V, a two-week virtual hackathon organized by Cosmos.

Gavin McDermott: Long time ago, I was in finance, and I was looking for a way to improve just the general system state, so when Bitcoin happened, that made a lot of sense. Ended up moving to San Francisco in 2012, it’s where I met Mike Belshe and I was the first engineer hire there, so I ended up going to BitGo with Mike and the team for a few years. As Ethereum and things were kind of happening, IDEO — it's one of the world's best design firms, let's put it like that. After having seen what amazing engineers can do with design, I thought it'd be a great place to go see what the world's best designers could bring into crypto. I've been there since and it's provided really fruitful soil for exploring that.

“After having seen what amazing engineers can do without design, I thought it'd be a great place to go see what the world's best designers could bring into crypto.”

Camila Russo: Oh, that's interesting that you got into crypto from kind of a design perspective.

GM: I love the engineering side of things, but engineering is only part of the equation. You understand this as well with the way you write and the way you story-tell, you need storytelling and narrative and design to be able to bring these abstruse things into the public domain so that more people can use them. Without that, it just kind of ends up as this esoteric thing that you just talk about, and very few people use.

CR: From when have you been investing in IDEO?

GM: We started the fund a little over two years ago, and we're IDEO’s first venture fund in this space. We started investing… it was kind of a side effect, we've always been really hands-on builders and that's kind of where we all come from. We had this lab where we got really hands-on in the early days. I mean, we knew the team at OpenZeppelin, before it was OpenZeppelin and back when they were at Streamium, so we're working with them, we'd worked on the first version of Augur’s interface with Joey and their first team.

Hands-On Investing

Basically, throughout the years, we've been working with these really amazing founders and projects, and a lot of the times they'd asked us to write checks, and we didn't have any capability of doing that. The fund was kind of a side effect of all the hands-on work we've been doing, because, effectively that was our talent was bringing design into the space. So being able to speak both design and engineering, it was like, well, we've got a real ability to get involved early and not just write a check. That was kind of the thesis behind the fund was, let's add a lot more than just money, because if capital is a commodity, we need to be able to do a lot more. Again, IDEO was a really great ground for that.

CR: Oh, that's interesting. So what you do is you help out projects with their different design decisions, and I guess, how you help them actually build the product and also invest in these projects as well?

GM: We've been extremely hands-on. We've been heavily involved in the economic design side. We did a lot of interesting things, we did some projects like Futureswap kind of earlier in the year. Then on like the product design, and in the hands-on brand design, narrative and storytelling like we were talking about, we've got the world's best people involved at IDEO, and to bring them to bear with some of the projects that we work on is a lot of fun. That's kind of the blend that we have. Is like I said, I think capital is kind of a commodity, and so we're looking at how do we do more for these teams, because we all love this space. We're kind of talking about, like Fair Launch Capital and some of the things that we believe in, we just need to bring a little bit more than speculation.

CR: At BitGo, you started out in the Bitcoin side of things, but the investments that you've mentioned are more on Ethereum. How does that work at IDEO? Is it coincidence or have you focused on Ethereum? Or is that thought out decision?

BTC vs ETH

GM: Strong belief in both, we’re invested in both. I believe that both are crucial for the way this movement is going, and they both have completely different roles to play. I believe in both. Let's all put it that way.

But Ethereum is where we've tended to go and where we have seen a little bit more fast-paced in terms of what we can do and how we can iterate on evolving things. Because there has been just a little bit more activity there, so that's where we found ourselves being a little bit more hands-on today.

CR: Makes sense. That brings us to DeFi because obviously, that's the sector that has seen so much activity on Ethereum recently, and the sector that compelled you, I guess to create this Fair Launch Capital idea. What was happening in DeFi that kind of compelled you to create this? If you can explain what Fair Launch Capital is?

Games of Human Coordination

GM: What's been happening in DeFi, I think is just amazing, in terms of the quality of people, and the quality of ideas, and there's plenty of noise. You're always going to find a lot of BS wherever something interesting is happening, so being able to parse that. But underneath when you kind of get down under the noise, there's a lot of primitives and behaviors and possibility that is starting to emerge that you have to pay attention to it and it was like that. Yeah, it's absurdly interesting.

A lot of the mechanics that are developing are enabling behaviors for coordination, and new types of collective coordination that we didn't have two years ago. It sparked with honestly, Synthetix, the incentivized pool on Uniswap and seeing how you could coordinate behaviors to support that underlying protocol in a different domain. That was like one of the first fire starter moment.

We've been watching all these mechanisms evolve over the last period of time, and with every little step, you wind up with these new possibilities for human coordination. That's honestly what it is. For me, these are games of human coordination, and so through that lens, you can kind of set aside a lot of the noise and start understanding what do we really have here.

“… these are games of human coordination, and so through that lens, you can kind of set aside a lot of the noise and start understanding what do we really have here.”

Then what emerged from that, when we saw when YFI hit the scene, kind of made me pause, and just kind of take a look at what had happened and what we’re starting to form on the side. Let's just like put a pin in that and say, that's one data point on the landscape.

Fair Launch

Another data point, I've been in conversations with founders, there's one guy was talking to in particular, and I was asking, really, why you're raising money? What are you raising funds for? The answer was, well, to get an audit and to take care of some of these basic things.

We got to talking like, well, if there's a place you could go that can take care of that first audit and things like that, would you pursue a launch with similar principles to just a type of —let's say, Fair Launch because we're still learning what that is and what it means and how to do those things like the economic tools, the mechanisms, those are still being created, like in the vault that's being written right now. But anyway, so it was like, would you pursue a Fair Launch if that was the case? His answer was, well, that'd be great. There's just now here to do that right now.

That was like the fire starter of okay, so it's like, for every founder that wants to go raise traditional capital, there's, I'm guessing a handful of founders that would be interested in pursuing a different model. That's not saying that unequivocally a Fair Launch or the Fair Launch dynamics are better than going and raising VC funding or anything like that. I think there's room for both, but it is optionality and it is a new design surface that we have to work with, speaking of design.

As soon as we ran that by a few founders of like, if we just had this as a potential, what would you do with it? There was a lot of resonance and I listen to resonance. It's the nature of things. When something resonates, there's usually a connection, and there was a lot of connection. So that's how we got to talking with Reuben and Joe about okay, what do we need to actually make this thing a reality?

That was the fire starter for it. But that's also like, all that was birthed from all the collective movement and churning within DeFi and the behaviors that enabled governance and all the behaviors that are starting to emerge. So again, this stuff just wasn't possible 18 months ago based on how communities coalesced at that point in time, but today, we have kind of a confluence of factors that makes it possible.

Image source: www.fairlaunch.capital

CR: So can you go deeper into what those factors are that led to this moment?

Rise in Protocols and Governance

GM: Let's start with just engaged community and quick coordination and decision making. The ability for people to just make decisions on-chain and evolve that into a protocol quickly, and the speed of that iteration loop just keeps increasing. The loop keeps getting tighter and tighter. We've got a really solid foundation of people who were active governors, I would say, at this point in time, it's not giant, but it's larger than it was by it's an order of magnitude than it was last year at this point in time.

We've got domains for dialogue on Twitter and other places where pseudonymous, anonymous, or fully named people get involved in public conversations about what decisions are coming up. The number of protocols, so that's the first one, and I think that's been enabled by kind of the second piece, which is just the number of protocols which require public coordination and decision making has been exploding.

I wrote about this a little bit in the early part of the year, but some of the teams we've been working with when you had Futureswap, and Compound, those were kind of the first on the scene governance tokens, just like pure governance. Then you had Balancer on heels, and it just kind of went nuts. There is this unstated mandate out that we need public governance. Those two things have kind of created the conditions for better or worse where we are right now. Those are like two driving factors, even though there's a whole lot of things behind that too, in terms of the engineering and things like that.

CR: That's such an interesting change in DeFi. Last year, the best projects were considered the ones who hadn't issued any tokens and were funded by traditional funding mechanisms as a reaction to ICOs, but that narrative has changed. Where do you think that's coming from?

Change of Season

GM: That's a good question. Let's put it this way. I think there's seasonality with everything, and in crypto, everything has a season. I’m not saying that, well, actually, I'll just leave it with that. Things tend to have a blow in, it's like the ICO had a season, then there was a push against that.

However, it's like if we get out of the mentality of seasonality, and we just think about what are options and offer optionality, and Alan Kay had a really nice thing, nobody talks about a pencil being high technology, because an infant could pick it up and just like scribble, but anybody can use that to express themselves. I really believe in the idea of reducing the barriers between a person and their expression.

“Nobody talks about a pencil being high technology, because an infant could pick it up and just like scribble, but anybody can use that to express themselves. I really believe in the idea of reducing the barriers between a person and their expression.”

In order to get something into the world, that's all we're talking about in terms of shipping a thing. So if that requires capital, and you have to go through an ICO or traditional raise, those are the mechanisms you had. All we're talking about with Fair Launch is another way of enabling founders to express themselves. For me, it's all about optionality and giving founders and creators new options of expression so that they can be a little bit less constrained in what their possible and potential paths are, because a lot of times, what you want to do doesn't necessarily follow the rules, or the rails that have been set.

It's not very often that we get new potentials that allow an entire generation of people to do the thing that they wanted to do in a new way. That's one of the neat things about our domain, is that crypto tends to play in that space just on a very natural basis, and a lot of new things keep emerging from it that are fundamentally new. That's it, so all these things have their seasons. But also, I don't think every one of these things is a fad, I think there are some times and very occasionally we get these markers on the landscape of what crypto is that are just like a beacon of how things will likely be.

“All we're talking about with Fair Launch is another way of enabling founders to express themselves (…) It's not very often that we get new potentials that allow an entire generation of people to do the thing that they wanted to do in a new way.”

CR: Do you think this way of raising capital can be just a new way going forward in general of fundraising?

Venture Capital Killer

GM: I do. As I said earlier, if it's a replacement for venture capital, you always need good people around the table. Here's the thing, YFI happened a few months ago, Fair Launch Capital happened about a month ago, and our child was born somewhere in between there, so it's been kind of a blur. The thing about the speed of all of this is that it doesn't obviate anything, but it's a better option if that's the path you want to take, if that makes sense.

It's not objectively better on all these things, it just depends on the dynamics you want to have as a founder. So if I want to have a certain type of community dynamic, and if I want X, Y, and Z, then I would probably choose this. However, if it's a larger, like multi-year, huge, heavy infrastructure build, maybe a Fair Launch is not the best setup for that. Right now, those long duration, long runway to public launch might not be the best setup for this yet.

A lot of the conversation early on has been that, forking a protocol and distributing tokens is a fair launch. Well, that's great, but it's not the best way to necessarily do that. What we've got to do is evolve these mechanisms so that we can understand what a fair launch can be, and so that founders and teams that want to pursue that, they know what they have to work with. Right now, none of that none of the community behaviors and norms have been established. So the risks are really high. We don't know what a fair launch can be, because it's just the early days, we just know, we have hints of what the possibility are.

“A lot of the conversation early on has been that, forking a protocol and distributing tokens is a fair launch. Well, that's great, but it's not the best way to necessarily do that.”

CR: At this starting point, what does the Fair Launch plan currently look like? What does it actually do? What are the steps that the teams take?

Credit Delegation Vault

GM: We just selected the first project, that's Marqet and that's with Simone and Emilio Bonassi, they've been super active in the community, they've been involved in the Synthetix community, they have been amazing people. So that's the first project that we ended up selecting.

We've been designing, so Stani from Aave and the team, they've been absurdly helpful. So Stani and Andre, and Kain, they've got involved really early, and were extremely supportive, and so we've ended up building out this custom vault that allows for the project team —and we're still designing it right now— but effectively, people will be able to deposit any A token [Aave’s interest-generating token] as collateral into the vault, and then we'll allow the Marqet team to draw from that, and then they just pay that back over time. So it's basically a credit delegation vault with a few custom levers on it. That's how we're designing it right now.

“People will be able to deposit any A token as collateral into the vault, and then we'll allow the Marqet team to draw from that, and then they just pay that back over time. So it's basically a credit delegation vault.”

It's using some of the infrastructure that exists in the current ecosystem working with the teams that are actually pushing the edges of that. We've got economic designers around us that are just superb, and that are also involved. Then on the project side, we went through a selection process and Joe and Reuben were great about this. But we had a lot of conversations with Emiliano and Simone about how to actually do this and what the risks were because it's a risk for them to pursue this also. What if the community doesn't act in their best interest and actually grant them something meaningful?

Talking through what the risks are for founders, as well as what the risks are just kind of from a project standpoint, that was a big part of this. So the process right now has been extremely hands-on, and also very organic, and also really supportive from the community side.

The people we've been talking about since the early days when it was first an idea I remember talking to you, so we've got 25-30 people who are really hands-on and really supportive that we can take things and bounce them off of. The idea is, let's do this first project right and if we get this first one right, and we figure out some of the behaviors, and we create a few economic tools in terms of contracts and vaults and things like that, then we've got a first template, then we can then take that and go forward. But I think where we are right now is we've got a lot of learning ahead of us. I'm hoping to see a lot of founders where this model makes sense, pick up the ball and run with it, and then we get to do some economic design with them on kind of the leading edge of what these models are.

CR: How it works is that investors in Fair Launch Capital will put in this vault a number of A tokens, these are Aave tokens which earn interest, they'll place these A tokens inside of a vault, and this vault will be kind of like a credit line for projects, and they'll be able to draw on the funds in this vault. How does that withdrawal process work? Like you said, does it depend on certain milestones or is it like every period of time they're able to withdraw?

GM: Right now I think that will be different for every project. So that can be milestone- based, it can be time-based, and right now, we don't have anything set in code yet with them. But I think we're going to see there'll be variations for different projects. I think like the spirit of a fair launch is what will be uniform, but the recipes or the playbooks for how you go about doing that, those need to be designed. The things that shake out of all the possibilities they've got to be tested, they've got to be explored through projects using them. That's kind of what we're in the middle of doing right now.

That's also why we kind of kept the experiment right now to just one protocol. Let's see how this one works with the delegated credit vault and the people involved, and let's see how this first launch goes and then we can kind of see if we can do more.

CR: Have you discussed the terms with which they would pay back these funds?

Terms and Conditions

GM: The terms are pretty straightforward. At least right now, it's basically pay it back within the first year. You can pay it back, but we're asking to possibly pay back, maybe double so we can then go do two projects. That's not mandated by any means, but it is a request, and then we could see if we could go multiply that and do a couple more projects. So that's it.

Right now, we're keeping it, I think, pretty simple just to see if we can, because we've got to really prove out here are the community behaviors. The biggest risk is for founders right now, and will they be compensated? How do we design the compensation mechanisms for them. Those are some of the big unknowns is, I don't think that founders should step into a fair launch with the risk over their head of not receiving compensation for the amount of work they've put in. I think that's a false dichotomy that kind of exists right now, just because the norms haven't been set. Our job with this one is, let's establish a few norms and data points that we can point to how these things work, or hopefully not how it doesn't work.

“I don't think that founders should step into a fair launch with the risk over their head of not receiving compensation for the amount of work they've put in. I think that's a false dichotomy that exists right now.”

CR: What happens is that the interest that in projects or at least this project pays over their loan becomes kind of extra capital that the fund gets to continue funding other projects going forward?

GM: Hopefully, and I mean, on top of that, though, if let's say Marqet does exceptionally well, and it just goes through the roof, maybe they'd be interested in paying back double so that we could go do another project and it wouldn't be too big of a hit to their treasury to do so. So that's the other side of it. It's like maybe if the first one is successful, great, then we've got maybe a little bit more wiggle room. If it's a little bit tighter, then we'll just do one, and there's no expectation of that.

CR: What do the investors in this get out of this? Because if all the money's getting continuously kind of reinvested in other projects, where is the investor exit?

Pay-it-Forward Grant

GM: Right now, nobody's really an investor. The way we've approached this first one is just, if you put your money in as one of the first people funding these grants, don't expect to get this money back was kind of how we approached it. We're going to use this as a pay-it-forward grant, and if everything goes well, we can pay it forward, but let's just assume you're not going to get this money back. So it's not necessarily as an investment right now, it's more of just like I said, no strings attached grant for these projects that they can pay forward, or the community can pay forward.

On the investment side, the way to get involved is literally to just get involved, and that's probably where I think that you're going to have a lot of interest in this economy that starts to bloom, if it happens, is the way to participate is literally through having your capital ready and in the form it needs to be in order to participate when the network goes live.

In the case of Marqet, what you want to have is you want to be a member of the Synthetix community, and also the Aave community, and so you can be participating from day zero without necessarily having to change the structure of what you have on hand. That's where it pays to be hands-on and close to these things and supporting them, so that way you can be able to move nimbly enough for this project, and on day zero, you're ready to go participating with everybody else.

As an investor, you're incentivized to participate. But for the people that are effectively funding these first audits, it's not really an investment, it's more just a grant, and let's see if we can catalyze more of these projects. Because what could happen here and I would love to see this happen is, what happens if you have 20 to 30 projects that are the right dynamic for a fair launch, and a handful of them do exceptionally, then well, then you have a network that starts to kind of grow of fair launch projects that have a different dynamic, different community.

A lot about them is different from the traditional venture-backed network. As a result, we're going to see how those dynamics play out in time and over the next 18 months, and that to me, is extremely interesting. What are the things that seem nuanced today that are actually magnified in the next market? Or the things that we don't know that we just kind of assume. It's really creating the conditions for a lot of live experiments to sit here and grow, and that's what a lot of these first people are who are involved. They want to see this experiment, and so let's create those conditions, and so they're helping us create the conditions.

CR: What I think investors will get out of this is just being close to these projects, and by supporting them, if these projects do well, then they'll do well too. Because they were kind of in from the very early days but by just like using the protocol providing liquidity or whatever it may be.

Symbiotic, Not Parasitic

GM: I'd augment that with one thing too. It's like, the way that Emiliano and Simone have designed Marqet is that these fair launches need to go beyond liquidity mining really quickly, because let's get beyond the first generation bootstrapping mechanisms. What they're doing with their launch is actually use Synthetix and Aave for what they're meant to be used for. It's a really symbiotic bootstrapping mechanism in order to bootstrap Marqet into existence. It's not parasitic at all when you consider how it's working.

What we need to see are, again, the development of these bootstrapping mechanisms so that because what it does is it actually makes your investment in Aave or Synthetix, it supports both of those in addition to making this new thing possible. As an investor, I'd be looking for those types of projects which actually support the, let's call them like the Layer ones, like the foundation level projects that made that possible, right, Synthetix and Aave and then you have Marqet on top of that. Understanding both of those dynamics, I think is extremely useful. It's evolving those mechanisms so that the way that you actually bootstrap your fair launch protocol into existence is symbiotic as opposed to, like I said, parasitic.

“(fair launch) is evolving those mechanisms so that the way that you actually bootstrap your fair launch protocol into existence is symbiotic as opposed to parasitic.”

CR: Would you describe some of the yield farming projects right now as parasitic?

GM: I think you've got a lot of noise. I'll walk carefully on that one, so yes, I would. I'm also okay with it. You're going to see everything. In order for people to learn the lessons, they have to see what they shouldn't do. It’s like, you're not going to stop anything in this ecosystem, so experimentation is what is I think the nature of this place.

I love embracing that, and just saying, okay, so if we can do anything, then expect anything. That's where you get all the forks, all the derivations that are slight tweaks, and the duration, the speed, the siphoning of liquidity, all these things happen extremely fast, but in that speed, we get a lot of learning. The price you pay for a lot of that learning is a whole lot of BS, and a whole lot of noise. But the upside of that is, occasionally you get these new primitives, and when you're paying attention, you take those things out, and you say, that's the diamond in the rough and now let's refine this. Hopefully, that's what we're doing with fair launch as an experiment. Is this one of those primitives that we can take and really refine, and let that become a tool for a new generation of network creation?

CR: I'm interested to hear more about how you think this new mechanism can help bootstrap projects and move beyond this, yield farming way of adding liquidity. Because yield farming has been extremely effective in driving short term liquidity, but we've seen there are different degrees of success in keeping that liquidity once the rewards run out. What are your thoughts on kind of how the space can move forward? How does fair lunch play a part in that?

The Unforkable Thing

GM: There's a lot of conversation around what is the “unforkable” thing, right? Because if you would ask a lot of people at the beginning of the year, and they'd say, oh, it's liquidity, and the wars around liquidity are going to be a thing. But you watch liquidity, it's as fickle as anything else.

To a certain point, I mean, but all that said, I don't think there's necessarily a solid answer, because all the things that have staying power, and have stuck, are like complex organisms, and so we could try to make a matrix of attributes and say, okay, these have a strong community, they have a strong brand, they have economics going for them. I think there's probably some blend of brand and economics and community and the economic distribution. There's probably a set of attributes which are uniform across these things, but I don't think we have like, the playbook for what these all look like necessarily yet.

“(The ‘unforkable thing’ is) probably some blend of brand and economics and community and economic distribution (…) But we don’t have the playbook for what that looks like yet.”

But maybe another way to approach the answer is, what might create the best conditions or the most likely conditions for something that is less likely to be so fickle? In that case, it's like, let's assume that most people are profit-seeking, that's great, but then what are you looking to create? In a long term protocol, do people want to stay involved because they believe that's where the profit will be long term? Along the way, are they capable of seeing the upside as that's happening?

Let's put it this way. In the case of a lot of the yield farming protocols, the long term upside and longevity of just leaving your money there, it doesn't exist, and so of course, you're going to have money flowing from point A to point B to point C to point D. Whereas if you're building something that has a really strong community dynamic, and the roadmap and the vision for what it can be and what it's going to become are there, like Synthetix did a great job of that, here's what this ecology is going to become and we've got all these mechanisms to make this possible.

The thing that Fair Launch kind of adds into that pot of recipes or attributes is just a different economic distribution at the beginning, and a different incentive model and engagement model for the community. Because typically, what you have is this ownership that skews heavily in favor of whoever the early investors were. I'm not saying that's bad. That's one of the misconceptions of a lot of this is like, it's saying that that's somehow wrong or whatever, and that's not the case. This is just saying, this is a different dynamic.

“Fair Launch adds into that pot of recipes or attributes is just a different economic distribution at the beginning, and a different incentive model and engagement model for the community.”

If the community is scared off by a large investor overhang that's just waiting to hit the market, what this does is this just gives the founder or the founding team a different arrow in their quiver to use when they want to actually go design what they're wanting to build. That to me is, that's what it's about. It's like, as we're looking to create things that have long term staying power, and things that have engaged communities, or not just engaged, but really functional communities that are capable of making decisions that are good for the protocol in the community in the long term, we have yet to see that still in a really big way.

This phase in the ecosystem to me feels like we're learning what the tools are and how to use them and so that's kind of what fair launch is just adding. Is a different way of distributing and creating the economics so that you don't have the same overhang and worry on the community side. That slight tweak in dynamics, I think, is going to have massive impact. We've already seen it, I think a little bit just in terms of the resonance with the idea of fair launches, even though, the term fair launch has been thrown around a lot, like, it's been used a lot. But the idea of what it can be in terms of equalizing the distribution, we have yet to see how that all works.

CR: The main practical result of applying this new fundraising mechanism is reducing the risk that the token distribution is skewed towards a few large holders and instead, have it be more decentralized or more distributed among the larger number of holders. What do you think can be the effects of having a more decentralized distribution of tokens? In this space, we kind of assume that's a good thing, but why exactly is it desirable?

Building Healthier Communities

GM: There's a whole lot of reasons I could probably dive into. Number one is let's say, creating a community is a really hard thing to do. It's just everybody talks about community, but people are either really hands-on, and love what you're doing, or they’re not and it's really apparent when it's either-or.

Creating a community in itself is a hard enough endeavor. If you're trying to do that with economics that are skewed from the beginning, and here's the thing, the market is becoming smarter. People are more aware of that dynamic. When you're trying to create a community and things are out of balance, it's like you're working against two forces.

“When you're trying to create a community and things are out of balance, you're working against two forces.”

But if you can kind of take that do a little Judo with it, use that same momentum, and do something a little bit differently, then what you end up doing is you take one of the hardest problems, and you actually make it one of your biggest strengths. Community is one of the hard things to fork, I would say, but it's also one of the hard things to define. That's what makes it kind of this fuzzy thing and conversation. But it's impossible to miss when you're part of one that is coherent and functioning well, and so that's like, what this sets the conditions for.

It creates the conditions for a healthier community from the beginning that has certain attributes. You might say that really savvy folks actually show up in these things, and the investors that are participating in other networks will actually show up and buy into these communities.

Another one for founders is just, I think, it's a really powerful thing to be able to have the option to bring your idea to market in a very different way. Rather than going around and having to hop on the road and talk to everybody, if you have a way to take care of some of the upfront costs of audits and you have the ability to build a really coherent community and the way you can actually target that is to get a lot better with our distribution mechanisms. So the ability to target a certain type of trader or whatever it is, I think those tools are going to come along. As a founder, I'm just able to express myself much faster and reach to people without as many boundaries. Those are really compelling as creators and designers.

CR: Speaking of founders, I just wanted to start wrapping up with this important issue of how to correctly incentivize teams building these projects. I think you've alluded to this. But I think it's been a problem making sure that incentives are aligned between the users and the team. I think what happened with SushiSwap and Chef Nomi leaving was an example of how not to do things, how are you thinking about this problem?

New Norms for Founders

GM: Through a handful of possibilities. I don't know if there's one answer to that question. I honestly think it's going to be different for different protocols. I know that sounds like a fuzzy answer. But I think what we're going to end up with is just best practices, and so best practices and community norms need to be established. We don't have any of those.

Maybe with this first project that we're doing, one of the first votes that's put forth is actually should grant the team have some meaningful percentage of ownership in the network. And like, right now, that's a risk. So rather than saying that, it needs to be this one mechanism, or it's this one way, and this is how we do it, what I'm hoping that we get to and what we're designing for actively are just new norms, so that founders can rely on the norms and behaviors and that way, when the norm or the behavior is violated, the community can choose to do that, but that's a sign of, it’s probably going to be an anemic community where the founders will leave things, like that.

That way, when you violate some of those things that actually have created really healthy protocols, ecosystems and communities, it's a sign, it's a red flag. So right now, we have no markers to point that out. We know that it'd be great to when the founding team chooses to do something like this, they get something up front, and they also get these milestones. And I think there's going to be a lot of recipes for that, but really, what underlies the creation of those recipes, and the creation of those playbooks are just the behaviors and norms, and that's what we need to establish.

I think the one thing is the establishing of those norms, we just don't have that, which is why the fair launch or things that are fair launches are perceived to be higher risk at this point in time, because they are, because we still got to prove these things out. But let's say 12 months from now, let's say, there's 20 founders who have done this, then we've got a new set of norms, and then it's much less risky for the next 20 to go and do something like this.

CR: It's something that we'll start seeing with more experience in this space. Right now, everything is so new that we're just laying the groundwork of how everything works. I wanted to touch on what IDEO is looking at and kind of what in interesting trends you're seeing, but we've kind of eaten up the whole hour with fair launch capital.

But still I wanted to just touch on a little bit of on that, what are you looking at with IDEO in terms of maybe things that you're hoping to see get built in the next year or things that you're looking to invest in right now?

DeFi Residency

GM: There's a spectrum right now that we're operating on and both things are kind of hitting their stride. So I'll start at one end of it. Which is we really quietly started a DeFi residency middle of this year, like April, I think, is when we kind of started putting things together, reached out to some teams and their feedback, so we've got the first group of founders going through that and it's really great. We've got the focus on a slew of things from effectively their first liquidity and security audit.

We've got the guys from OpenZeppelin, and we've got just amazing people helping to create a program that's focused around the idiosyncrasies and the challenges of building really solid products in DeFi. And that spans from the security audit side to liquidity to launching to what happens when there are bugs and things like that. We've got a great group there. We've got kind of this rolling format, it's flexible, and so we've had teams come in and go through and we're getting a good sense of what that is.

That's one of the things that we've been really tasked with figuring out as doing IDEO and crypto is how to bring what IDEO is in terms of its design capability to bear in crypto. And this program has kind of given us a really tactical hands-on way to do a lot more of that with a lot more teams. And so we've been really hands-on in the DeFi space for a long time, and this has been just the latest incarnation of that for us. That's been really exciting.

We've got a handful of teams in there right now, the first team from fair launch capital, they're actually joining the residency, so they're part of that now. So we're kind of blending a lot of these experiments with the fair launch and the residency together. And that's great. Across the spectrum there, between Joe, Ian and Tara, and myself, we're all really hands-on learners, and so that's a really good playground.

On the other side of that spectrum, this is the first time this year where some of the investments we've made are at stages where we have a really a global network. So IDEO is one of the world's top design firms, it's got offices around the world, and so we've got this just really large network of Fortune 500, as well as just large customers.

A lot of these customers that we've done R&D work with, or we've just got good connections with, we've been able to connect some of our early stage portfolio companies who are now at that place into that network. That was kind of one of the other sides of why do something at IDEO is, how do you bring that network to bear here when it's ready. We're just starting to get into that kind of interface between those things, and that's been really great.

Those are two different points on the on the scale, but where we've been really getting a lot of heat. But in terms of, I'll speak personally where a lot of our excitement is on some of these early stage experiments. We've been experimenting a lot with personal tokens, and Ian's been writing a lot about those. So between that space, and a lot of the DeFi stuff, we've got a lot of really great experiments that are going on. That's where my excitement lies.

What I'm really hoping and also, another personal thing is like, what I'm hoping that we can do is if we can create the conditions for the next 50 fair launch projects, that's something that I think we as a group would like to like help make possible, because again, you get this new possibility of an ecosystem with different dynamics, and so that's one thing. We're really well set up to experiment, even to the point of interrupting our own business model, and so that's what we're doing.

The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.

About the founder: I’m Camila Russo, author of The Infinite Machine, the first book on the history of Ethereum. I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.