Scaling Breakthroughs and a Thriving Culture: Here’s What I Learned About the State of Web3 at ETHDenver
David Liebowitz came back from ETHDenver with some scintillating insights on the state of Web3.
By: DeFi DaveDeFi Essay
Coming back after a year hiatus, tens of thousands of experienced builders and curious beginners alike descended upon ETH Denver. The conference came at a crucial turning point for the industry as a whole.
It was earlier this month that the likes of Coinbase and FTX bought Super Bowl commercials and The New York Times and Business Insider reported on the exodus of talent to Crypto/Web3 companies from Silicon Valley. There’s no doubt that crypto and Web3 have captured the imagination of ordinary people and that has inspired many to wait hours outside confabs like ETH Denver in the brisk mile-high air to get a taste of the action.
Coming into the event, I was excited to see all my friends once again whom I’d met on the conference circuit. I’ve only been part of the circuit since BTC Miami in early June 2021 and since then have had the privilege to meet some of the smartest, most talented, and driven individuals I’ve ever come across. As the circuit progressed over the next eight months, I met individuals that considered themselves more a part of Web3 than crypto, a sign of how much the wider community is segmenting even in these early stages of adoption.
Crypto is often associated with finance and the technical aspects of blockchain which was the topic of discourse for over the past decade. Web3 on the other hand refers to the “social layer” of crypto that is more accessible to the masses and has only become a common term over the past half year or so.
The fact that we are using these terms to describe two different parts of the ecosystem is a testament to the overall growth of the space. I spoke to one individual who told me that it would not be surprising if in five years time there would be an Ethereum event with over 100,000 attendees,.
The need for a scaling solution cannot come soon enough. Scaling needs to be viewed in two ways: technically and socially. At the moment, Ethereum is scaling technically through rollups, while socially DAOs have started to pop up every day, allowing Web3 natives to find their squads to traverse the metaverse with.
Crypto is often associated with finance and the technical aspects of blockchain. Web3 refers to the ‘social layer’ of crypto that is more accessible to the masses.
On the technical side, Ethereum is scaling through the use of rollups. Rollups are the Layer 2 of Ethereum; Chains that perform transactions outside the Ethereum mainnet but post the data there later. Essentially, rollups have the ability to aggregate thousands of transactions, batch them together, and post them on the main Ethereum chain, benefitting from its security while outsourcing the executions. That approach is orders of magnitude cheaper and more efficient compared to transacting on Ethereum mainnet’s Layer 1.
One of the most innovative projects pushing rollups forward is StarkWare, which is utilizing zero-knowledge cryptography in its implementation of rollups and uses STARK proofs to verify and batch thousands of transactions together on the Ethereum mainnet. StarkWare was out in full-force at ETH Denver, which hosted 101s and best practices seminars throughout the week.
As a non-technical person and someone who regularly “larps as a dev” when I do business development activities in crypto, I’ve long been amused by StarkWare. With the amount of funding and brainpower behind their project, I could not help but think that once upon a time the government would have funded such efforts. When it comes to zero-knowledge proofs, I cannot comprehend the nitty-gritty details under the hood. But what I do understand is that by using cutting edge mathematics StarkWare is accomplishing feats once thought impossible or only possible years from now.
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What makes StarkWare unique as a rollup is its use of a new Turing-complete programming language, called Cairo, that will be used for the coming release of their general-purpose computation L2, Starknet. While Solidity has established itself as the standard for EVM over the past five years, that has not discouraged the StarkWare team from pushing forward with their advocacy of Cairo to developers.
In fact, their ecosystem lead Louis Guthmann commented that the growth of development interest in Cairo is growing organically and that builders like it. The StarkNet Discord has more than 25,000 members and shows little sign of stopping. A number of projects such as Argent, ZigZag Exchange, zkLend, and more have committed significant resources to building on the rollup. Furthermore, important ecosystem pieces have been coming together for StakeNet such as standardized contracts from OpenZeppelin and the development of auditing services to name a few. In their most recent blog post, StarkNet stated it established usability years before it was thought possible, and are now optimizing performance before moving on to the final piece with complete decentralization.
Months before attending ETH Denver, my curiosity about StarkWare led me to the Bankless interview of core members Uri Kolodny and Eli Ben-Sasson. They commented on the success of StarkEx, which is the app-chain version of StarkNet that launched in June 2020. At the time of recording, the DYDX StarkEx chain alone had more transactions than all of mainnet and was not even at full-capacity.
I often wonder if increased capacity for throughput would be a catalyst for explosive growth the same way Ronin was for Axies; growth exploded from 47,000 users to nearly 2M,according to Jiho at MCON. If combined with the right incentives as we saw with nine-figure growth programs like those championed by sidechains like Fantom and Avalanche, StarkNet could catapult Ethereum to the next level.
Yet, StarkNet has yet to confirm if or when a token will be released, and how long performance optimization testing and decentralization will take to complete. Even though L2s and sidechains are battling for mind and market share, the majority of the action, especially on the social side, still takes place on mainnet.
Workshops galore. Credit: Aragon’s Blog
One of the foundations of the social layer of Ethereum and the greater portion of Web3 are DAOs. DAOs are uniquely crypto-native entities where individuals can coordinate with each other on how to collectively structure their organization and direct its funds. Since its inception, the mindset of crypto was mechanical in nature, with the maxim “Code is Law” a rallying cry for developers and zealots who envision an automated world free of human error.
Yet as idealized as that sounds, reality is quite different. Take for instance the infamous 2016 DAO hack which resulted in the hard fork between Ethereum and Ethereum Classic. In order for the hard fork to happen, a social consensus had to be reached between miners, exchanges, and node operators. The fork did not come without controversy but in the end worked out as not only the chain survived but has thrived and sparked an entire ecosystem of financial, social, and cultural applications.
More importantly, the DAO hack response showed us that finality in blockchains beyond code is law, a social consensus on how things ought to be. A year after The DAO hack, Parity’s wallet faced a fatal bug that blocked over 500,000 ETH from being accessed permanently. Although there were calls to hard fork, the community ultimately denied the proposal. The community’s denial of Parity’s request for a hard fork makes it next to impossible that a hard fork will happen again and that the actions taken in response to The DAO hack was an anomaly that required a radical response in order to maintain the integrity of the chain in its nascent early days. The discourse and actions that were taken in both situations serve as a precursor for both the struggles and triumphs subsequent DAOs will face in the present day.
DAOs are the natural expression of human coordination that enforces structure through cryptography. Yet as many have learned, especially through the DAO hack, there is much that happens off-chain.
It’s clear to me that DAOs are laying the social foundation of Web3. This is first and foremost composed of people with their own preconceived tendencies and biases, and unlike smart contracts, people do not automatically execute based on certain conditions. DAOs and their culture cannot be coded, but carefully cultivated over time. DAOs are the natural expression of human coordination that enforces structure through cryptography. Yet as many have learned, especially through the DAO hack, there is much that happens off-chain.
One person who studied how coordination happens within systems was Diamond DAO contributor Christian Lemp. In his talk at ETHDenver on the complexity and simplicity of organizational dynamics, Lemp explored how people interact in organizations and provided a proper framework to view organizations as a whole. The framework he proposes is an Agent-Based Model that analyzes the micro and macro environments of an organization. The micro environment is made up of individual agents who have their own preferences and have limited knowledge of other agents in the group while the macro environment sets the stage for the entire system. From this framework, we can begin to understand the coordination failures that play out as an organization increases in size (such as proposals not reaching quorum) and more importantly prepare how to deal with them.
Joseph Delong, the former Sushi CTO and now head of Astaria, shared his thoughts about coordination failures at DAOs. Delong is someone who is all too familiar with the struggles DAOs face. His talk was aptly named “A Case For Hierarchies in DAOs”, and he takes a pragmatic approach to DAO operation. During the presentation, Delong proposed that DAOs would function most effectively if they were made up of legal entities that interact within an organizational structure. These entities could act as protective legal “wrappers” that protect people from potential problems regarding liability. In addition, they can be thought of as parts of the “back-end” that deals with gridlock that exists in the traditional world while the “front-end” is how the DAO presents itself.
Delong praised Uniswap’s approach. The entity Uniswap Labs deploys code and the wider community actively manages it after release. Delong does acknowledge there are exceptions to the rule but for the most part he believes that flat organizations are not capable of consistently shipping products or dealing with liabilities in the same way as hierarchies do.
There was other points of view. I spoke with Red Foreman, community manager from Harvest Finance,which is a yield aggregator that has been around since DeFi Summer in 2020. Red says Harvest is a flat organization and is 95% decentralized. Initiatives are guided by project managers who act as ‘nodes’ in the DAO that communicate with each other and direct contributors in their given area. Contributors are rewarded points which are then converted to compensation.
One thing that Delong and Red did agree on is that constant voting or decision by committee is a disaster and should be avoided and for different reasons. Red says that just because a DAO has voting that doesn’t mean that a DAO is decentralized. If whales collude on every vote, is it truly a DAO or just a DAO in name only? That’s Red’s question. In terms of shipping products, Delong states that decisions by committee results in an inferior product due to poor communication of design and engineering tradeoffs that result in consulting too large groups of people.
Whether it’s constant voting or decisions by committee, they are both prone to popularity contests and personally remind me of the democracies of ancient Greece. The citizens of democracies did not have the proper tools or media to disseminate information and were susceptible to the charisma of talented orators who would seek emotionally-charged, and potentially bad, outcomes. (Exhibit A: The recall of Athenian general Alcibiades from Sicily during the Peloponnesian War, a disastrous decision that paved the way for an eventual Spartan victory.)
Whatever the case may be, DAOs are relearning just how inefficient and uncertain voting can be in the management of an organization. Delong also brought up the delicate balance DAOs face between public and private information. All DAOs teeter between transparency and opaqueness. On one hand, transparency helps hold people and actions accountable. Discussions about important manners happen in public on social media and in forums. Anyone can go into a Github or check a smart contract on Etherscan to see what a DAO is building and has deployed. Yet, at what point does hyper-transparency become more of a hindrance than a benefit?
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In their presentation at the conference, Silke Elrifai and Fatemeh Fannizadeh presented the idea of dark governance and what private DAOs would look like. In a world of private DAOs, someone with a pseudonymity acts as an important deterrence from being ostracized by the state or canceled by mobs. Expressing an opinion freely without fear of retribution increases the quality of the discussion.
If people are afraid to say what they think on a given subject within a DAO, it leads to mediocrity and conformity and a monoculture of ideas from self-censorship. Participating in a DAO in private, whether it be in discussions, voting, or donations, would protect participants at an individual level. Secret ballots are an indelible component of the democratic systems in many nations because it prevents voters from being intimidated or even blackmailed. A DAO may have secrets that would give competitors an outside advantage.
Just look at what happened with ConstitutionDAO a few months ago. It made an incredible effort in DAO onboarding and execution yet failed in its mission to acquire an official copy of the U.S. Constitution at auction because the amount of donations it received was listed publicly. It was like playing poker with your cards face up. It couldn’t have been easier forKen Griffin, the billionaire hedge fund chieftain, to amass the necessary capital to win the auction.
Even though ConstitutionDAO failed, it rallied a large group of people in a short-amount of time to accomplish a single mission. But what if ConstitutionDAO did win? Would the enthusiasm for ConstitutionDAO remain? How would ConstitutionDAO retain the same level of participation from when it started?
These are issues that James Waugh and his fellow Fire Eyes ?_? DAO friends have thought about. Waugh is a self-described crypto-native and has been involved in Ethereum his entire professional career since it started five years ago. In its early days, the group attempted to work closely with banks but its efforts gradually led them over to ETHLend which would later become Aave. From there, Fire Eyes pioneered a playbook for DAO participation which would come in handy as they played a vital role in the launches of ENS, Gitcoin, and SuperRare as well as play a consistent active role in a number of projects across Web3.
All these governance participation initiatives and organizational structural debates are the beginnings of what DAOs could ultimately become.
From their contributions, Fire Eyes has garnered a considerable amount of tokens and governance power and have reached a point where there are too many projects for them to participate in effectively. They realize they need to delegate their participation efforts to the right people who share their values and structure it in a way that is truly impactful.
In order to do this, Wildfire DAO was created and announced at ETHDenver by Waugh as a way to recruit more governance stewards to some of Web3’s largest projects. Their goal is to continue cultivating a culture of good vibes that Fire Eyes started and to do this they will be physically onboarding participants into Wildfire in a web3-native manner. Those accepted in Wildfire will be placed into “squads” that are categorized into four areas including DeFi, Public Goods, Creator Economy, and Infrastructure & Tooling.
Members of Wildfire are expected to actively participate in discussions, phone calls, proposal formation, etc. By organizing their efforts into squads, Wildfire avoids the formation of governance silos that exist within protocols and sees the forest through the trees by acting as a diplomatic meta-governance layer between them. Over time, Wildfire aims to build up a workforce that helps projects design governance architecture, tokenomics and construct a system that properly aligns incentives for each protocol.
What WildFire aims to do is to scale their governance efforts by cultivating a community of governance stewards in a Web3 native manner. Over time, the group plans to scale up their workforce and help projects design governance architecture, tokenomics and construct a system that properly aligns incentives for each protocol. At first, Wildfire will have a $200,000 grants program distributed over the next two months to spark initial participation. In the future as Wildfire proves its worth as a valuable governance partner, they plan to apply for grants from the protocols they participate in.
As the meta-governance efforts of Wildfire continue to be formed, questions remain on how policy will be formed or what happens if there are disagreements between the OG Fire Eyes members and squads or within squads themselves. Waugh responded by saying he expects conflicts over direction to occur and encourages those who are in the minority to form their own meta-governance DAOs. This coming class meta-governance DAOs are essentially the first Web3 native advocacy groups that acts as a liaison between communities, protocols, and individual users.
The ultimate end goal of Wildfire is to have more humans genuinely care about governance and come up with cool ideas in the process. Waugh hopes that meta-governance structures can act as a funnel to source and reward those ideas properly.
All these governance participation initiatives and organizational structural debates are the beginnings of what DAOs could ultimately become. If DAOs want to reach their true ‘final form’, then having the ability to keep necessary secrets is essential. In their discussion, Qiao Wang and Corbin Page agreed that the largest addressable market for DAOs are nation-states.
My experience at ETHDenver was only a tiny sliver, a tip of the iceberg, of all the knowledge that was shared during the course of the conference. Even with the amount of attendees this year, I was happy that the sample of people I interacted with from the conference to the events afterwards had deep insight into a wide array of areas including infrastructure, DeFi, social organization, and more. Sleep was a stranger as I took advantage of the evening festivities every day of the week.
One of my favorite events that took place was not on the standard ETHDenver itinerary, but was actually a concert of one of my favorite underground dubstep artists: smith. Denver is commonly referred to as the Bass Capital and I was not going to let the opportunity to see a show of someone I’ve been listening to for years pass me by. It was a refreshing change of pace not to be inundated with questions of “what do you do” or “let me tell you about the next big thing I’m working on ” and just vibe to some good music with the homie Clor. Being in conference mode puts many, including myself, into tunnel vision mode and sometimes it’s not only nice, but necessary, to step out of the box and take in the culture of the city that you are in.
By the end of ETHDenver,my brain was operating at 20% capacity. To be honest, I wasn’t sure if I was even going to finish the article but was fortunate to have the encouragement of my friends in the industry to help me push through (huge shout out to the wonderful women at YAP Global). My takeaways from the weekend is that there is still plenty of growing pains DAOs will need to go through to reach their full potential.
It will take time, but I think DAOs becoming commonplace is inevitable. Also, the conference has scaled its culture of cooperation and good vibes. A large part has to do with the organizers themselves and their speakers and sponsors. As the event grows in the coming years, I hope it maintains this quality. Furthermore, there is still plenty of room for innovation, especially as L2s like StarkNet roll out, creating new opportunities for builders that were once thought impossible.
Until we meet again, Denver. I hope to remember to mint a bufficorn next time!
David Liebowitz is a contributing writer to The Defiant.