"The World is Crying for the Tech We're Building But We're Nowhere Near Ready:" Aragon's Luis Cuende
Hello Defiers! This week’s interview is with Aragon co-founder Luis Cuende. Aragon is a platform for users to create their own decentralized autonomous organizations, or DAOs. Cuende started this project in 2016, at a time when most had given up on these o...
Hello Defiers! This week’s interview is with Aragon co-founder Luis Cuende. Aragon is a platform for users to create their own decentralized autonomous organizations, or DAOs. Cuende started this project in 2016, at a time when most had given up on these organizations after the crash of what’s likely the most well-known DAO so far, called The DAO. The DAO was meant to be a decentralized venture fund, but it was hacked after raising over $100 million, leading to the split of Ethereum into Ethereum Classic. But Cuende pushed through with the project with the firm belief the current governance system is broken and people need tools to build their own transparent and decentralized organizations.
The space has recovered and in the past year, thousands of DAOs holding millions of dollars have flourished. The dream of more fair and open organizations, which anyone can access and create, is back at a time when the world seems to really need them. People are losing trust in institutions and crypto can provide an alternative.
But Cuende says he’s saddened to discover the space is nowhere near ready. From serving as a vehicle to help those in need amid the current turmoil, to helping solve Aragon’s own legal troubles, a lot more work lies ahead. Cuende also talks about the different steps Aragon is taking to get there.
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Luis Cuende: I come from a humble family in Spain. I got into crypto in 2011. Back then it was just Bitcoin, not crypto really, but I saw this very liberating tool that could actually free people from financial slavery. I think financial slavery is a very powerful kind of slavery that we are living in today. And people like my parents who have been working their whole life for banks and that just didn't really seem right.
I didn't quite understand how Bitcoin could free them at first. I think I was 15 when I got into it, but now more and more I'm realizing that these tools are actually way more powerful than I thought they would be.
My background was in the open source community. I got started with my own open source project when I was 12 years old in the Linux movement. And yeah, open source, open money, it really made sense to me.
Camila Russo: Oh, that's so interesting that your parents were working in banks. In what capacity were they working?
“I saw [Bitcoin] as a very liberating tool that could actually free people from financial slavery. I think financial slavery is a very powerful kind of slavery that we are living in today.”
LC: They were not working in banks. They were enslaved by banks. That that is the way to put it. A lot of families, especially in Spain, after the financial crisis, people were just working to pay their mortgages. Because you have basically this very, very clear peak in the real estate industry that the banks actually caused in 2008. Banks in Spain were issuing debt for everyone and everyone would purchase like three, four flats because they thought they could make money that way. And then banks basically stopped that and crashed the price of the market drastically. Basically one year to the next one, thousands of families were basically enslaved for debts that they could never ever pay in like 40, 60, 80 years. Something inside me told me that is inherently wrong and there is technology that can free the world from banks and from these powers.
Image source: Medium
CR: That's, that's so powerful that you were able to see, you know, from your own parents and experience how irresponsible management from banks can really crush a person's life or make them so dependent on a mortgage or an outstanding debt balance. And so you got into open source protocols from a very early age at 12. So how did that develop and then how did that lead to Aragon?
LC: Yeah, I was very bored at school because it's a bunch of things that you have to memorize and I didn't really see the like the meaning out of it. And I got into open source because I felt it was like this incredible, very powerful way that you can create code and you could basically create new stuff that people all over the world can use with almost no investment. You have a laptop and that's it. And for me coming from a humble family, that was mind blowing. It was like, I don't need money to explore my hobby. I can just have a laptop and then grab code that other people have done. And then, you know, if I'm successful, maybe I can contribute back one day and let other people that were in my position also use this code and enhance it. It was kind of mind blowing for me.
“I got into open source because I felt it was like this incredible, very powerful way that you can create code and you could basically create new stuff that people all over the world can use with almost no investment. You have a laptop and that's it.”
CR: It is pretty incredible. What did you start building?
LC: I've been always very obsessed with taking complex products and making them easier. And so Linux is this great operating system that is fully open source. But it never really had a splash in desktop users. So I took the most well-known Linux distribution Ubuntu and I made a bunch of UX tweaks to make it very easy. My threshold was, can my mom use this? And at some point my mom was able to use it.
After a few years, the Linux user experience has enhanced so much that my work wasn't really needed anymore because Canonical and other players have done an outstanding job in making it easier. Free software was a big part of my life and I used to love that people could use an operating system without having to own the latest machine, the latest Mac, the latest Windows computer, which usually cost a lot of money.
CR: Great. And then, so that's open source and you got interested in Bitcoin pretty early as well. I've talked with many people who started obviously in crypto through Bitcoin because that's all there was. But then when they started building their dapps on Bitcoin, they found all these difficulties in doing so. Did you experienced something similar and how was your road into working with smart contracts.
Holy Grail is Governance
LC: Yeah. Bitcoin is great, but it's extremely limited. So the first startup that I worked on was a time-stamping service. I've been always very interested in the non-financial utility of all of this because Bitcoin as money sounded really great, but then I discovered, or I found out that you can time-stamp stuff with it, because like you have this blockchain and you have proof that something existed at a given point in time and therefore you can use it for money and you can use it to embed that data hash.
So I worked on a startup called Stamper that I co-founded to tackle that specific problem of how can you prove that something existed, some file existed, at any point in time. And we launched the service in 2014 or 2015. And it was really exciting to me to see those non-financial applications.
The next thing was DAOs. For me what Bitcoin did for money, DAOs do for governance, and DAOs do for human organization. And that's what’s really exciting to me. I think financial applications are really great, but for me the Holy Grail is how can we translate this into people organizing better and having more freedom to organize.
“Financial applications are really great, but for me the Holy Grail is how can we translate this into people organizing better and having more freedom to organize.”
CR: So I'm guessing your first contact with DAOs was The DAO? In 2016 most people listening will know about this big project, the biggest so far in Ethereum at that time, which wanted to make a decentralized venture fund. It really blew up and then it was hacked and then it resulted in this split of Ethereum into Ethereum and Ethereum Classic and the rest is history. What was your initial experience with DAOs and The DAO? What did you first think when you came across this project? What kind of involvement did you have there?
LC: Yeah, when I saw The DAO, I thought this is really cool, but there are so many reasons why this cannot work. Which, I still think that about a bunch of things that we're building in this space because there is an inherent risk with anything. But I thought it was very cool and I was very sad to see that it blew up because when it blew up, people thought, because of the name The DAO, people thought that all DAOs were inherently bad. And so it took a few years to actually make people change their minds.
We actually started Aragon in November, 2016, a few months after The DAO hack. That was probably the worst time to start something like that. One big trigger was Donald Trump winning the elections in America which made us realize we need a global reset. We need new governance tools. This is not working out.
“ We need a global reset. We need new governance tools. This is not working out.”
CR: So to make a DAO project right after The DAO blew up must have taken a lot of courage and a really strong belief that this would work out because at the time, like you said, people had really kind of given up on that dream of decentralized organizations or at least many had in the Ethereum community and in the crypto community.
It's interesting you said Trump winning the election was a big trigger. And you said that to you the most interesting use case for smart contracts and blockchain is governance. So can you dig into that. What was driving you to build Aragon at that time, an especially difficult time to work on a DAO project?
LC: So the funny thing is that my cofounder Jorge and I we were working on a different startup that then pivoted into Aragon. We were working on this platform to end with patent trolls. Patent trolls are these entities that purchase patents, they file them and then they exploit them against normal retail people or business owners. So one example is there is a patent for a printer, that a patent troll owns, not a legit company, but a patent troll. And then they call a bunch of small businesses and they say, hey, I have this patent either you pay me or I will sue you. And they don't do anything else. And they make millions of dollars a year. And so we were really frustrated with that problem. And then we tried to like tackle it in different ways.
Fixing the System
Ultimately we found out that the best way was probably to do some kind of on-chain insurance, so that startups can buy insurance against patent trolls, but then we thought, wow, starting an insurance company is crazy. We were like 20, 21, 22 and we looked at the requirements and we were like, there's no way on earth that we can create an insurance company. What did we do? We thought, well, we can build this on Ethereum. And we actually started building that first prototype.
But then we also realized that the core problem that we were trying to solve of patent trolls was actually not a problem we could solve because the government, the US government is so corrupt that they have the perverse incentives to keep this patent trolls alive. They don't want to change the patent law. And so we thought the problem is actually the law. The problem is how crooked the system is. And so let's apply this technology, let's apply Ethereum and smart contracts, to actually provide governance tools for people to fix the system.
“Let's apply this technology, let's apply Ethereum and smart contracts, to actually provide governance tools for people to fix the system.”
CR: So wow you were going after a huge problem, you had an issue with like the US legal system itself, and so your way to tackle this was let's build a separate system to let people self organize. Is that kind of the right way to look at it?
LC: Yeah, basically. We saw that it was impossible to win the game based on the rules. So you've got to create your own rules.
CR: This seems obviously super subversive. You're actually calling for people to kind of ignore their local legislations and build on their own terms. Is that right? How feasible is it for this to gain mainstream adoption?
LC: If you asked me in 2016, 2017 I would say, yeah, all the way, this is going to happen and people are going to rebel. I think now that will happen just in a very different timescale. Now I have changed my mind in a lot of small things that we can do to actually get this to the mainstream and a bunch of those things actually go with getting regulation to be better for the things we're building. Making sure that people have the legal comfort to interact in a DAO without them getting prosecuted and stuff like that. So you have to take compromises.
“Now I have changed my mind in a lot of small things that we can do to actually get this to the mainstream and a bunch of those things actually go with getting regulation to be better for the things we're building.”
But the long, long vision is obviously to create a decentralized jurisdiction and for people to be able to opt into it and just giving freedom to people and commoditizing a bunch of services that the nation state monopolizes today.
CR: Oh, that's really interesting to see how you've kind of evolved in your view and maybe not so much your view, but the right road to get there. Can you go into that, what exactly has changed in the roadmap to mainstream adoption for DAOs and how to bridge that gap between regulations and decentralized organizations?
LC: One very interesting point that we have been thinking a lot about is DAOs have to be truly decentralized for them to even go mainstream and be legal. Because if DAOs are not decentralized, meaning that they have actual leadership and they are dependent on that leadership, then you have a bunch of considerations, for example, like the whole SEC, is a token a security, concern, and obviously you don't want people to go to jail because of interacting with DAOs, that is extremely important.
And so therefore DAOs need to be decentralized and they need to be decentralized more in the social side —they need to not have leadership— more than on the technical side. For example, we spent a bunch of time making the frontend for Aragon truly decentralized. If you go to the app right now, it runs on IPFS. There is no server at all. And so that is great, but we didn't spend that much time thinking about the social implications. And so that has been quite a learning for us. And right now we're focusing much more on that. How can we actually make these vehicles decentralized and not just a club. Because a bunch of DAOs they are clubs and that is a great step forward. But if we really want to make DAOs happen, they need to be decentralized and autonomous.
“DAOs have to be truly decentralized for them to even go mainstream and be legal (…) DAOs need to be decentralized and they need to be decentralized more in the social side —they need to not have leadership— more than on the technical side.”
CR: Okay. So does that mean, for example, not having a management structure. You and Jorge are clearly cofounders of this, does that pose like a legal risks to you? And would you do things differently in the future? Would you look to step down from any sort of control of Aragon?
Tension With Legal Entity
LC: Yeah, I mean, right now the cofounders we both sit on the board of the Association. The Aragon Association is the entity that manages the treasury raised on the token sale, and basically funds the project. If we had a DAO back in the day, we would have just created a DAO because it is a pain in the ass to decentralized a legal entity. Now that we are in this position, it is a very tricky position to be in because on one hand you have stakeholders, which are in this case, Aragon Network token holders, which they want control, they want to exercise that voice. On the other hand, you have the Aragon Association, which is a Swiss legal entity that has fiduciary responsibility to invest funds that were raised in the token sale towards making Aragon happen.
And so that means, for example, that we have this process in which ANT holders could signal their intent about the treasury allocations. But for example, if ANT holders signal, hey, you guys should give a million dollars to ISIS, to go to a crazy example, we just couldn't do that because if we did that, the liability is not on ANT holders, it's on the board members, which are Jorge and me. We would basically end up in jail. There's this very hard tension between having a centralized legal entity and a decentralized community. I am looking forward to that day in which we just have a decentralized community and then maybe the legal entity takes care of very specific things like trademarks.
“There's this very hard tension between having a centralized legal entity and a decentralized community.”
I wrote this blog posts in 2017 and 2018 about how you can decentralize a legal entity step by step. First you start with community signaling and then you can throw in an actual pool of funds that they can manage. And then you can throw even like social media accounts that the DAO can control, it's a bit sci-fi, but it can be done. And then you can somehow give the DAO a legal status and transfer trademarks to them. But this is a very long process. We're still working on it.
Image source: Aragon.org
CR: I think that's interesting for people who are building dapps and their own Ethereum or blockchain-based teams and want do it in a decentralized way and minimize legal risk as much as possible, what should they do? It seems like you're calling for an end to the Swiss foundation, because that tension is too much between the DAO and the foundation, and it is pretty hard to manage.
But can you actually have a successful project without some sort of hierarchy, some sort of leader driving the vision, driving the team? It seems pretty impossible to me. Like it just can't be this amorphous group voting with tokens all the time. Or maybe that's suitable for like a very narrow set of organizations?
LC: This is pretty experimental so there are a lot of risks involved. The example that I'm most excited about is actually Bitcoin. Bitcoin has proven to be leaderless for over a decade and it's been working out incredibly well. And I think we need to replicate more models like that. I think for some projects, they might need a leader and that's it. But for some others you can encode the rules and incentives in such a way that the DAO itself is the one that incentivizes people to continue working on the vision.
So the one interesting thing that we're working on right now is the concept of Aragon Agreements and the Aragon Court. Aragon Agreements is the tight integration of Aragon Court into Aragon DAOs. And the idea is that you can have these manifesto-driven organizations in which apart from smart contract code, you can write a manifesto, you can write a set of bylaws in plain English, and then you can have all the actions be disputed if they don't adhere to the manifesto.
“You can have these manifesto-driven organizations in which apart from smart contract code, you can write a manifesto, you can write a set of bylaws in plain English”
So basically what you can do here is you can have DAOs that have a much more clear mission, more than just things that are in the code, which sometimes may fail or sometimes may not encapsulate the kind of subjective mission. And I think that allows for DAOs to be much more subtle and much more humane in a way, because you can really encapsulate the vision and make it last years.
CR: That sounds like a good solution to have something to compliment the smart contract and the code that's written. What do you think of projects like OpenLaw trying to upload actual legal contracts into smart contracts, do you think that's also a good solution?
LC: Yeah, I think it's very cool. I think smart contracts are great, but I'm not a smart contracts maximalist by any means. I think that blockchains are a very slow computer. The more things we don’t put on them the better. Then we can have run into some issues, for example, do we end up recreating the whole legal system by doing this? Well, we don't know, and there's no way to tell until we actually try, but I think having these more subjective, subtle agreements apart from a smart contract is a very good way to give DAOs a bunch of abilities that they don't have right now.
“ I'm not a smart contracts maximalist by any means. I think that blockchains are a very slow computer. The more things we don’t put on them the better.”
CR: So we talked about your idealism in starting Aragon in 2016. I think today is also a really interesting time around the concept of decentralization and having this parallel financial system and parallel governance because of the turmoil that the world is in. On one hand with the coronavirus highlighting how, much control central banks and financial institutions and governments have over people. And in the U S recently with the riots also highlighting how broken the system is in some ways. So it does seem like there's this kind of new wave of adoption for crypto waiting to happen with all of these catalysts for it.
Are you seeing increased interest from people building DAOs? Has this changed your views at all, made you more bullish or what do you think the impact will be looking at the recent context.
LC: I think all of the events that are going on right now in the world are very much a cry for help for the technology that we're building and for DAOs especially. The thing that saddens me is that I think we are nowhere ready.
“All of the events that are going on right now in the world are very much a cry for help for the technology that we're building and for DAOs especially. The thing that saddens me is that I think we are nowhere ready. “
I was working on this project called HealthDAO, which basically is a way for local health squads to form and help people in need and vulnerable groups in coronavirus. And my idea was to use crypto and use DAOs to actually bring this to people in the streets that are needing this. For example, we partnered up with a homeless person in Madrid who has a big following of homeless people and tried to fundraise around the world to get these people some help, now that the world is kind of apocalyptic. And I wrote this post in my blog about all the problems that we went through. User experience problems, regulatory problems, stuff like Ethereum gas. And it was really saddening. We've been building so much for ourselves in our own community that we have forgotten the focus on the things that's really matter.
CR: That's a powerful statement. What do you think are the main things missing for DAOs and dapps to be useful to actual people outside of this like tiny bubble?
LC: We need to start focusing on them. Right now we're building for our fellow crypto natives, but if you walk any user through the flow of simply donating, the on-ramp, interacting with Ethereum, with gas and stuff like that, you figure out that this is not made for normal humans. And so I think that we need to really focus on it.
And also I think wanting to prioritize more of the social applications versus financial applications. I love DeFi and I think Ethereum is gravitating towards that path, but I think we also need a hub for more social interactions that are, inherently cheap. Incentives are very different, right? Like right now, in Ethereum regarding gas prices, if you are interacting with DeFi, I think it's still probably good for you because DeFi deals with money so you can make more money than your gas fees. But right now, just donating to someone, to a homeless person in need, 10 bucks and paying out of those 10 bucks in gas fees is not something viable. So I think we need this more social approach. We normally think about finance, that is great, but I think we need to think more about the social approach.
CR: Yeah, no, that's a great point. I mean on gas fees, fees for sending tokens, they're still a couple of cents, right. Do you think for simple applications like donating, you you think that's still high.
LC: Yeah, definitely. Because you don't just need to donate. For example, when I was architecting the whole flow of donation, I thought, well, people need ETH in order to interact with the networks. And so the way to purchase ETH is through a payment provider, then providers have their own fees and they're pretty high in crypto. They can go up to like 5% with like $20 minimum deposit, which is crazy. But then apart from that, once you have ETH you don't want people to donate ETH to some DAO or someone else, because it fluctuates a lot. You want them to donate in a stablecoin. And so what do you do? You try for them to swap that ETH that they got for Dai, but you cannot just give them Dai right. They need ETH to actually send the money. So they need to swap that and swapping that is probably like four or five bucks on Uniswap or any other exchange. So, yeah, it is not that simple. If you really think about it, step by step, it is a very complex process.
CR: That's true. So ideally you'd want something where you can easily go from euros or dollars to donating Dai without all the steps in between of buying ETH then exchanging ETH for Dai, paying all the gas fees in between, and then donating Dai. It has to be a lot more streamlined.
LC: Yeah. And there are a bunch of very unsexy problems. Like, you know, on-ramps are a very unsexy problem, right? Because you have to go through a bunch of regulatory approvals and get your company to have like partnership with a bank probably. But it's so important. Right now, crypto on-ramps really suck. It's very hard to onboard people into this if they have to like spend five bucks and 50 minutes to just get onboarded. We need to lower the barriers. Open finance and open money, it's great if it's inclusive and people can use it. If they cannot use it, then we are building an oligarchy again.
“ We need to lower the barriers. Open finance and open money, it's great if it's inclusive and people can use it. If they cannot use it, then we are building an oligarchy again.”
CR: That's true. Is it possible that we're in the early stages and that's why it's very niche and being used by speculative traders and more experienced traders and it will lead to something that's more inclusive or do you think we're simply not on that path?
LC: I think right now we just don't care about mainstream so much and mainstream adoption. We are like, they're supposed to be getting into our sect and they will learn everything by getting into our sect, instead of thinking, hey, listen, let's not make this a sect and let's try to onboard people. I think that's really the mindset. I think we need more designers, we need more communicators, we need more people like that, and people who are simplifiers and not complexi-fires. I saw someone tweet about that and I completely agree. We need to simplifiers right now.
“Right now we just don't care about mainstream so much and mainstream adoption (..) We need to simplifiers right now.”
CR: Yeah. No, totally agree as well. Trying to do a little bit on that with The Defiant, simplifying some of the stuff that happens every day. With Aragon, are you changing the way things work following that? Making things simple? Because I think DAOs are really kind of deep, inspiring concepts, but I think it's hard for the normal person to get it, like, why do we need this? How does it work? How can I use it? How can you bridge that communication gap with a normal, non-crypto person about DAOs?
LC: Yeah. So we were trying to set up this page called What's a DAO because it seems like a very trivial question, but actually there is not a single resource that we can use for that. So if you go to Aragon.org/DAO we put together this beautiful page, that narrates why they are important. But I think more than that, the most important thing is to tell success stories that people get instantly when you talk about that. And so I think we need to get out there, we need to figure out who are the people that need this the most, and we just need to make it work for them. And once there is a huge movement that uses DAOs to empower it or even a small use cases, we just need to show them.
CR: Yeah, I think that's a great point. So on that, who are these people, what is the one use case that you'd focus on?
LC: That is a very good question. And we're figuring that out. I think internet communities or sub-communities, like Reddit now has a couple of subreddits that have tokens. And actually that was born out of an experiment that a community member did in DAO-ifying the r/ethtrader subreddit that has been a DAO for a year or so. So those community points or tokens are super interesting and a DAO is the next step after you have these tokens.
I think also social movements. Right now there are a lot of places in the world where the nation state is failing and DAOs as a way for people to pull resources and provide a safety net for each other, which could be a great killer app. Also, UBI. Instead of waiting for the nation state to provide that we can have a small circles of UBI. So all these things are super interesting, but they require that we cross the chasm and we get people using these tools in the same way that they use Facebook, Twitter, Instagram.
CR: And in the end for DAOs to work you need the token to participate. I think that's the key to any DAO right. So we still need to solve that onboarding problem that you were talking about as a first step before people can even think about joining these decentralized organizations and UBI and more complex issues.
So shifting topics a bit, I definitely wanted to talk about this recent controversy that Aragon had with one of its grant winners Autark, because more than the controversy itself, I think it's interesting to talk about the questions it raised. I think one of the questions was why the need to solve this problem in a physical court when the whole point of Aragon was to build a decentralized governance and voting system. I'd love to hear from you the thought process and the kind of the steps that led to that outcome.
LC: Yeah, definitely. Setting aside the legal part, which was, we were threatened for months in the meatspace and so when that happens, you have to defend yourself in the meatspace and claim jurisdiction. But those details apart. the interesting part about the court right now is that it can enable DAOs to do a bunch of things that they couldn't do before using Aragon Agreements.
You can define in your Aragon agreement 51% attacks will not be tolerated or, or stuff like, before sending out a payment we need an invoice or you can even do like content moderation. These are not simple use cases, but they are nowhere near replacing a full fledged court. And also the way it works is Aragon Court is fully limited liability in the sense that parties must agree before on what are the stakes, what are their bonds. And then basically there's an oracle which is Aragon Court, which decides which party wins that bond basically. So it is a subjective oracle at the end of the day.
And right now it is very early days. It will work for content moderation. It will work for curating lists. Actually, the only thing that Aragon Court has done until now is curating a list. That has been the only precedence campaign because we're still running a precedence campaign on it to test the waters, so it's still extremely early, and it's not even the main focus. It doesn't want to replace a full-fledged court, not yet, and probably not in the next following years.
CR: Okay. So Aragon Court is too early, but still, couldn't, you have had ANT holders vote on the resolution of this problem with Autark? And I guess I should give a little bit of context for listeners. So Aragon has, or had, a grants program and one of the winners of those grants, Autark, had some deliverables, projects it had to deliver, Aragon said it wasn't meeting those deliverables, so it stopped paying out the grant. Autark then threatened to sue in the U S and so before they could sue, Aragon sued them in Switzerland to prevent the legal problem going outside of their own jurisdiction.
And so, the fact that Aragon was taking this problem with one of their grant winners to the meatspace as it's called to mean physical courts, drove a little bit of controversy in this space. And so it's interesting, on one hand, saying that Aragon Courts, the mechanism itself isn't as developed yet to handle those issues. But what about just the main voting mechanism with ANT token holders, which is the mechanism most DAOs are using now just have token holders vote on a certain outcome.
LC: Yeah, definitely. I mean there is still the legal part. Once they threatened in the meat space, you have to defend on the meat space, but even with that, we offered that option. They didn't take it, but I actually agreed with them because we wanted it to be private. You have this thing where, as a manager and as a founder, you always have this thing in mind, which is praise in public, criticize in private, and you do that with employees and team members always. And if you take that philosophy to everything in life you know, we wanted them to be able to fundraise, we wanted them to be able to move on. And the last thing you want is this negative feedback in public.
But that's a very interesting point about DAOs. Will we be able as humans and as persons to disregard that completely and give feedback in public because in some DAOs you may actually need it. In this case, it wasn't about DAOs, it was full legal entities, but in DAOs there's no other way, right. There is no meatspace. So that's going to be an interesting challenge for sure.
CR: Yeah. It's about the question of taking everything in a company and making it public because of the nature of how these things work. They're supposed to be transparent, the vote is transparent, the way you voted will be there forever for people to check. So it does kind of change the paradigm on how our organizations should work. So I guess, in this case you felt that this conflict just couldn't be solved on chain.
LC: More than that, I think back in the day it was like, if we go public, then it's just going to be really bad for them reputation wise. And since this is a conflict between two legal entities then it makes sense to settle it amicably. But that is kind of the tension, right, that people are confused about. In this case there were two legal entities, there was not really any kind of DAO in the middle. And that's because we are at the end of the day in this kind of middle, weird spot where a bunch of things are not DAOs yet. Then you have to use the meatspace for a lot of things. I really don't like the meat space. I really don't like bureaucracy. I like DAOs. And we cannot get there fast enough.
“We are at the end of the day in this kind of middle, weird spot where a bunch of things are not DAOs yet. Then you have to use the meatspace for a lot of things. I really don't like the meat space. I really don't like bureaucracy. I like DAOs. And we cannot get there fast enough.”
CR: It goes back to what we were talking about before, this tension that still exists between DAOs and having legal entities and how to break that. So this is one example of why it's difficult to have those two things. If there's a legal entity suing your legal entity, how to take that to a DAO.
LC: Yeah, this opens a bunch of fascinating questions around what will DAOs do around this kind of issues if they cannot resort to privacy in the meat space.
CR: I don't know if any of the privacy solutions that are being developed right now apply to any of these issues. Private transactions with Tornado.Cash, I don't know if it could be applied to token votes.
LC: It's really hard right now. As far as I understand and I'm by no means an expert in zkSnarks or anything like that, but what I understand is that right now you cannot really do fully off-chain, private votes. You have to choose between basically doing on-chain and very high cost or doing off-chain, Layer 2, but without that privacy. And so, yeah, I think the technology is not there yet.
Year of the DAO
CR: I wanted to talk about the growth of DAOs in the past year or so. We talked about the bad word that they had gained after The DAO, but I think that page has been fully turned by now with MolochDAO, VentureDAO, TheLao, there's been a bunch of interesting projects using decentralized organizations. And you've been there from the very beginning. So how have you seen that grow? What are some of the most interesting projects around? And after all this do you think people have really lost that fear around DAOs?
LC: People have totally lost that fear. The interesting thing about the crypto space is that people have bad memory, so no one remembers four years ago. Four years ago is kind of like, Dinosaurs running the earth for a lot of people. So that has a positive side. And yeah, there are a lot of cool things happening right now in The DAO realm. There is PieDAO, which is a great financial derivative. There's dxDAO, which is another DAO that's creating financial DeFi products in a decentralized manner. So tons of interesting stuff.
And it's been really great to see that 2020 is really the year of the DAO. At least the year of the DAO for the crypto space. I don't think there's a year of the DAO for the mainstream at all. I think that will be like maybe 2023 or something like that, 2024, but we're getting closer and that's super exciting.
CR: What about growth on Aragon itself? Can you you give me some of the numbers, like how many DAOs have been created from a year ago? What has growth been like?
LC: Yeah, it has been very, very good. Right now we have 1,400 DAOs created. Not a lot of them are active. I would say maybe 10% of them are active, but then you have around, I think, 6 to 7 k memberships, people who are members of these DAOs. And then one interesting number that has multiplied by like 20 since last year is the assets under management in these DAOs. Right now it's about $12 million. If you also count the economies that are run on them, for example, like Melon Protocol or Decentraland are powered by Aragon. I think Synthetix is gonna announce that soon that it's using Aragon, I think I read that in your newsletter. And if you count all of that, then it's probably going to be like in the hundreds of millions very, very soon. It’s mind blowing to me.
“We have 1,400 DAOs created (..) And then one interesting number that has multiplied by like 20 since last year is the assets under management in these DAOs. Right now it's about $12 million (…) If you also count the economies that are run on them (…) it's probably going to be like in the hundreds of millions very, very soon.”
CR: What about data on participation, what percentage of DAO members are actually voting and participating on governance?
LC: Since the Aragon framework is pretty flexible, meaning that people can basically do whatever they want, we don't have statistics that are so specific. I actually think that voting right now is very clunky. So I would expect numbers to be very low. That's one thing that we need to work on. We need to make voting as easy as liking something on Facebook.
CR: Yeah, that'd be awesome. That brings me to the next question I wanted to ask, which is going forward for Aragon, what are the main things that you're excited to be working and that you hope to deliver soon?
LC: The next thing is called Aragon Connect. It is the number one feature users and developers have requested, and that is completely customizing the front end for their DAO. That is going to be out very, very soon. So basically you will be able to create whatever interactions you want. Because right now Aragon is probably the most flexible DAO framework. You can plug and play pieces basically like Legos. If DeFi is money Legos, Aragon is like governance Legos. But that has been really hard to put under a generic user experience because it's so hard to make generic products work. And so with Aragon Connect people and developers are able to create a much more tailored user experiences. That will be way better.
The other thing is Aragon Agreements. So DAOs will be able to set their manifesto or vision and then have their votes be disputed if they don't adhere to that manifesto or vision. So that brings them more power that we have in human language to specify more subtle things.
And also there is Aragon Chain which is going to be a blockchain that is tailored towards these social DAO interactions, making them super fast and cheap. So we will have Ethereum for things like higher security and maybe things that are more interpretable and Aragon Chain for things that have lower stakes and need fast and cheap execution.
“Aragon Chain is going to be a blockchain that is tailored towards these social DAO interactions.”
CR: Will this chain be on a Layer 2 chain on Ethereum or is it a completely separate network?
LC: It is a Cosmos SDK Chain that will have a bridge to Ethereum.
CR: When is the launch expected?
LC: That is a good question. So I'm not working on it personally, ChainSafe is the team that is working on it. They expect to release a testnet extremely soon. They are nailing down the final details for a testnet. So after testnet a mainnet comes.
CR: Does it work with staking, will people stake ANT?
LC: Yeah. Proof of stake. We are looking at derivative or linked assets to ANT because ANT is a store of value for the Aragon economy, and then we have ANJ, which is a work token that jurors need to get in order to work on Aragon court. And then we will have ARA, which is the token that validators will need to validate Aragon Chain. So that way we can isolate crypto economic incentives, because having one token for one chain and arbitration system probably doesn't work very well for crypto-economic incentives. And then they all tie back to ANT via a bonding curve.
CR: Wow. That sounds really complicated. I don't know if there's another team that's tried three different tokens for a blockchain.
LC: Yeah. It is fairly complicated. It is one of these things that I want to simplify. The way to simplify it is just like, there is ANT and then you can access linked services by exchanging in for another token. That's like the TLDR explanation for it.
CR: That's exciting. Will be interesting to see. And so what things will you look to do on Aragon chain versus on Ethereum?
LC: For example if you want to set up a group of friends to pull some funds and like do stuff together, but you don't need to access DeFi, and you don't need extremely high security because you're putting in hundred bucks then that's the thing that Aragon Chain would really excel at because we are going to make it very, very easy for people to interact DAOs and very cheap compared to Ethereum. Because when you have a chain you can customize the opcodes, which can make it cheaper for certain activities to happen and discourage other activities. Ethereum has to be very neutral, Aragon Chain doesn't have to be that neutral. We can say, DAOs are the main thing here. We're going to prioritize them and if you run a Ponzi scheme, maybe it's not going to be that well suited for it.
CR: Okay. Interesting. So people will be able to choose whether they'll build their DAO on Ethereum or on Aragon Chain depending on the needs that they have?
CR: Okay cool. And so where does the staking come in? Is it like when you build a DAO you need to stake ANT to fund it?
LC: Not really. We're looking at DAOs as a common good. So like the DAO infrastructure that we've been working on for the last four years is all open source and doesn't need any token at all. It's completely agnostic.
But then the Aragon network provides services like dispute resolution, which is Aragon Agreements, Aragon Chain, and then DAOs need a subscription to, for example, the Aragon Court to use Aragon Agreements, or they need to pay fees in Aragon Chain to actually use the chain. So we're looking at it that way. The more adoption there is, the more we can offer our services to these DAOs. And therefore, if they use the services, they're going to be better off because they’ll be able to do more things and cheaper and faster, and then that results in better services. And as well more, the adoption. But the TLDR, if you just want to create a DAO, no token needed.
CR: Okay, interesting. But then you need to pay fees to be on either Aragon Chain or Ethereum and that will incentivize people to be staking ANT on Aragon Chain as well.
LC: Basically, if you want to use Aragon Chain, you will have to be some fees. If you want to use Aragon Court you will have to pay some fees. And for all of that, the expectation is that more ANT will get locked up.
CR: Right. And then on your roadmap, you were talking about in the future dissolving your legal entity, the foundation, is that like a near term thing? Or in what timeframe were you thinking.
LC: Yeah. I mean, if you asked me a couple of years ago, I would tell you in a matter of months, if you ask me now, it's probably a bit more. When you discover more and more things and you get less naive. You discover that things are not that simple. So I think the very, very first thing is just to deploy the Aragon network DAO which will happen probably this year and then get that going. And so that will have a clean pool of capital that it can deploy and eventually make the ecosystem sustainable. And then after that the association will way less needed.
Right now when people think of Aragon they think about Aragon and the Association by default. My idea is that from that point on the DAO will be the canonical thing people think about. And the Association will be this supplementary entity that helps, but is not fundamental. And then over time we just have to make it less needed until I can fire myself, that is my litmus test. I need to be able to fire myself.
CR: That's another example of why DAOs are so different, like what founder is looking to fire themselves.
LC: Yeah. Well Satoshi did that and it's been working out pretty well. So yeah. It's very different to traditional startups.
CR: Yeah. So crazy. Last question, I always ask about the big picture view that people have in their mind when they're building things. So for you and DAOs and decentralized organizations what is this big picture, longterm view that you're working towards?
LC: I love the idea of these entities to be able to be autonomous and basically motivate a bunch of people to work around a certain idea without necessarily having leaders or having anything that could be corrupted. And I think that is a very powerful force in the world. And also I look forward to having these DAOs that are manifesto-based because a bunch of things, if you look at companies, they corrupt over time and they completely forget about what they were doing in the beginning. If they can encode these rules very clearly since the beginning, I think we might fix some of these structural problems that drive corruption.
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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.
About the founder: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). 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.