Podcast Summary
Understanding the Interconnected Role of Governance and Capital in Crypto Network Management: Joel Monegro of Placeholder VC explains how governance and capital are interconnected in crypto network management, with governance tokens representing the power to dictate and capital representing the power to direct. This perspective offers a high-level, long-term view on the role of coordination technologies in shaping humanity's trajectory.
According to Joel Monegro of Placeholder VC, who was featured on the Bankless podcast, governance and capital are two sides of the same coin in the world of crypto network management. Monegro's perspective offers a high-level, long-term view on how coordination technologies, specifically governance and capital coordination, will shape humanity's trajectory. The podcast explores the definition and significance of terms like capital and governance, and how they are interconnected in the crypto space. Monegro's appearance on the podcast was inspired by a desire to articulate the value of governance and debunk simplistic explanations of governance tokens. He emphasized that capital is a form of power and as a capital owner, one can direct power and route it as desired. The value of governance tokens lies in their ability to dictate power around the world, regardless of whether or not fees actually make it into the hands of token owners. This perspective offers a macro view of crypto network governance and its connection to human governance throughout history. The podcast is a must-listen for those interested in the philosophy, anthropology, and societal impact of crypto technologies.
Exploring the Role of Dharma and Balancer in Retail Investment in DeFi: Dharma and Balancer are centralized platforms that bring retail investors into DeFi, offering bank account transfers and access to multiple tokens through automated market makers, representing the future of coordination technologies and changing the structure of markets and societies.
Dharma, a smart contract platform, is a key tool for bringing retail investors into decentralized finance (DeFi) by enabling direct transfers from bank accounts and easy access to legitimate capital assets. The excitement around retail investment in crypto is growing, and Dharma provides a centralized platform experience while maintaining the benefits of decentralization. Balancer, a DeFi sponsor of the podcast, is another important tool for accessing the full power of multiple tokens within a single automated market maker, unlocking new possibilities for asset management and decentralized exchange. Both Dharma and Balancer represent the future of coordination technologies, as described in Yuval Harari's book "Sapiens," which highlights humanity's ability to coordinate socially as our greatest strength. These technologies are part of the broader trend of crypto changing the structure of markets and potentially even how societies organize. Joel Minegro, a partner at Placeholder Ventures, joins the podcast to discuss these ideas in more depth.
Understanding Governance in Decentralized Systems: Governance is the process of making decisions and distributing resources among groups, from simple to complex systems. In decentralized systems, governance is closely related to managing economic resources using consensus mechanisms, and understanding this relationship is crucial for navigating decentralized finance and governance.
Governance is the process of making decisions and determining structures for resource distribution among groups of people, whether it's in a small social setting or large economic systems. It has existed throughout human history, from simple consensus among friends to complex systems like nations and international organizations. The ability to scale governance is what sets humans apart, and writing has been a dominant technology for defining and enforcing governance rules. In the context of cryptocurrencies and decentralized systems, governance is closely related to the management of economic resources. These systems can be seen as tools for coordinating and governing capital, and the consensus mechanisms they use are a new development parallel to the ancient technology of writing. In essence, governance and capital are intertwined, and understanding this relationship is crucial for navigating the complex world of decentralized finance and governance.
Capital goes beyond financial assets and includes forms of power and control: Capital encompasses various forms of influence and power beyond financial assets, such as political and social capital.
Capital, as we commonly understand it, is much more complex and multifaceted than the traditional definition suggests. Capital goes beyond physical possessions or financial assets, and includes forms of power and control over economic resources, such as political capital and social capital. These forms of capital are not easily quantifiable or tradable, but they represent significant influence and governance within their respective spheres. The relationship between capital and governance is intimate, and understanding capital as control and governance as control can provide valuable insights into the functioning of decentralized systems. The invisibility of many forms of capital in modern society is partly due to the lack of financial markets and assets associated with them. However, recognizing capital as a natural social phenomenon that includes various forms of influence and power can help broaden our perspective on the concept.
Creating Markets for Intangible Assets with Blockchain: Blockchain reduces the cost of creating instruments for various forms of capital, enabling the development of markets and more efficient utilization of intangible assets like political or social capital.
Capital comes in various forms, and the behavior and value of each form are defined by the instruments associated with them. Traditionally, instruments have been defined through writing, such as contracts. These instruments make capital observable, measurable, and tradable, leading to the creation of financial markets. However, many forms of capital, like political or social capital, lack instruments and therefore lack markets, making it difficult to accurately price and value them. Blockchain technology offers a solution by significantly reducing the cost of creating instruments for various forms of capital, opening up opportunities for the development of markets and more efficient utilization of these intangible assets.
Understanding Influence Capital and its Importance: Influence capital, the ability to impact the world, can't be fully measured until it's spent. Tech like crypto networks enable precise definition, instantiation, and exchange of this capital, leading to new markets and wealth creation.
The discussion emphasizes the importance of expanding our understanding of capital beyond traditional definitions, such as net worth, to include an individual's ability to influence the world. This concept, known as "influence capital," is something that can't be fully measured until it's expended. The use of technology, such as crypto networks, allows for the precise definition and instantiation of this capital in the form of assets. This unlocks wealth by enabling the exchange and creation of markets around new forms of capital. Legal agreements, or consensus mechanisms and technologies, have historically allowed for the transfer of power and control over systems, and the use of blockchain technology takes this a step further by making influence tradable and distributing power more efficiently. In essence, the instrumentation of capital through technology allows for the discovery and distribution of dormant value in the world, leading to increased wealth and progress in society.
The use of crypto networks for asset settlement presents an alternative to traditional reliance on physical force: Crypto networks offer a settlement layer outside of traditional court systems and nation states, potentially reducing the need for force and violence, and the importance of inclusive governance and partnerships with trusted entities like Gemini and Uniswap in the crypto space.
The creation of assets and their settlement are closely linked to language and code, as well as the physical power of nation states. However, the use of crypto networks for asset settlement presents an alternative to the traditional reliance on physical force. The discussion also touched upon the complexities of governance token value capture and the importance of designing inclusive governance systems that can adapt and serve future generations. The use of language and code in creating digital contracts offers an alternative settlement layer outside of traditional court systems and nation states, potentially reducing the need for force and violence. This shift could have significant implications for the future evolution of governance and the unbundling of government functions. Additionally, the podcast highlighted the importance of sponsors like Gemini and Uniswap in the crypto space. Gemini, a trusted cryptocurrency exchange, offers a secure and insured platform for buying and holding crypto assets. Uniswap, an autonomous asset exchange infrastructure, provides a new paradigm for asset exchange and offers grants for labor to contribute to its decentralized autonomous organization (DAO). These partnerships and the larger crypto ecosystem are crucial for building the future of decentralized finance and onboarding more users into the space.
Implementation of blockchain in commerce reduces costs and increases efficiency: Blockchain technology in commerce enables contract enforcement without courts or state, reducing costs and increasing efficiency, while also expanding global reach and reducing the role of the state.
The implementation of blockchain technology in commercial activities has the potential to significantly reduce costs, increase efficiency, and expand the reach of capitalism on a global scale. By enabling the enforcement of contracts without the need for expensive courts or the state, the activation energy for launching new projects or tokens is lowered. This not only makes commerce faster and more accessible, but also reduces the role and importance of the state. Furthermore, the removal of jurisdictional boundaries allows for easier distribution of capital and commerce on a global scale, which was previously difficult and expensive due to the design of traditional instruments of capital within the framework of industrial capitalism. Ultimately, this technology has the potential to help scale capitalism in a way that was previously impossible.
Revolutionizing consensus and agreement without violence: Crypto networks reduce the need for military and physical power by collapsing costs of instrumentation, settlement, and distribution, enabling efficient capital distribution and creation of new forms of capital.
Crypto networks and their underlying technologies like Ethereum and Bitcoin are revolutionizing the way we create, distribute, and maintain consensus on capital. By collapsing the costs of instrumentation, settlement, and distribution, these networks are making the world a less violent place by reducing the need for military and physical power. Additionally, they enable the creation and distribution of new forms of capital that were previously impossible with industrial-era instruments. This trend towards less violence and more efficient capital distribution is part of a larger historical trend towards socioeconomic revolutions driven by new technologies. In essence, crypto networks are the latest tool in humanity's toolbox for creating consensus and agreement without the need for violence.
New frontier in governance with Bitcoin and cryptocurrencies: Cryptocurrencies offer new forms of decentralized and automated governance, but it's important to remember that governance is still present and the outcome depends on how these tools are used.
While Bitcoin and other cryptocurrencies represent a new form of distributed power and control, they also embody a new form of governance, albeit an automated and decentralized one. This "ungovernance" is a new frontier in the evolution of governance systems, allowing for more efficient and automated decision-making through code. However, it's important to remember that governance is still present, even if it's embedded in the code and rules of the system. The new tools and technologies offered by cryptocurrencies provide the potential for new and innovative governance systems, but the outcome depends on how these tools are used. The comparison can be drawn to previous technological advances, such as the creation of the constitution, which allowed for the scaling of a new form of society. Ultimately, the potential of cryptocurrencies lies in their ability to create new and more effective governance systems, but it's up to us to unlock that potential.
Decentralized vs Traditional Governance: A Complex Mix: Decentralized governance in crypto combines old and new systems, with unique aspects like open processes and innovative governance structures, such as 'rage quit' in DAOs.
While decentralized governance in crypto may appear similar to traditional corporate governance, it's a complex mix of both new and old systems. DAOs, for instance, can be thought of as digital organizations with varying degrees of decentralization. Some may have core developers making most decisions, while others may allow for more public involvement. The comparison to traditional organizations is not perfect, however, as there are unique aspects to decentralized governance, such as open processes and the potential for innovative governance structures. For example, the concept of "rage quit" in the MolochDAO allows for individuals to take a share of assets and leave an organization at will, which is not common in traditional organizations. However, implementing such a concept in a traditional company contract would be challenging due to the complexities of asset distribution and consensus-building. Overall, the first generation of decentralized governance systems may mimic what we know, but future innovations could lead to vastly new and unique systems.
Decentralized systems enable easy exiting and forking for greater control and autonomy: Decentralized finance platforms like Ethereum allow individuals to easily exit and migrate capital to more agreeable systems, while the ability to fork creates competition and empowers choice based on personal beliefs.
The ease of exiting a system, be it a video game or a financial contract, is a powerful mechanism that puts control in the hands of individuals rather than governing bodies. Traditional systems, such as nation-states, impose high exit taxes, acting as an anti-rage quit mechanism. In contrast, on Ethereum and other decentralized finance (DeFi) platforms, exiting and migrating capital to more agreeable systems is simple and quick. Furthermore, the ability to fork, or create a copy of a blockchain or protocol, is unique to the digital world and allows for the creation of parallel systems that cater to different values and preferences. This fosters competition and empowers individuals to choose which system aligns best with their beliefs. The concept of forking is not possible in the physical world and was unheard of during the industrial revolution era. Overall, these innovations enable individuals to have greater control and autonomy in their interactions with various systems, acting as a check on heavy-handed governance.
Governance tokens in DeFi systems represent control or power and their value grows with the system's value: Governance tokens in DeFi systems have speculative value tied to the potential growth of the underlying system, shifting away from traditional profit-based valuation models.
The value of governance tokens in DeFi systems is tied to the underlying value of the system itself. As the value of the system grows, so does the value of governance tokens. This is because governance represents control or power within the system, and a more valuable system equates to more valuable control or power. The pricing of governance tokens is often speculative, similar to investing in the shares of a young startup. The value is not necessarily tied to current profits or dividends, but rather a belief in the potential growth of the underlying system. This is a shift from traditional financial models, where the value of shares is primarily based on profit distribution. In the future, new crypto instruments may emerge that are not tied to profitability, and this could challenge traditional valuation models.
Control and governance in decentralized systems: Control and governance in decentralized systems, like Amazon or cryptocurrency protocols, can grant significant economic power to holders of a large stake. The value of tokens, which grant governance rights, can increase significantly as the network grows in importance and transaction volume.
The value of control and governance in decentralized systems, such as Amazon or cryptocurrency protocols, can be just as valuable as the financial returns they generate. The speaker argues that ownership of a significant stake in these systems grants the holder a level of control and influence that can translate into significant economic power. This was exemplified in the case of the 0x protocol, where the value of the ZRX token, which granted governance rights, increased significantly as the protocol grew in importance and transaction volume. The speaker also noted that this shift towards valuing control and governance is a relatively recent development in financial markets and that it's becoming increasingly important to consider when evaluating investments in decentralized networks. The debate between buying the equity of the company or the token of the decentralized network was a common one during that era, but the speaker argues that both forms of equity should be considered together and that holding tokens in decentralized networks can be a valuable investment strategy.
Incentives and Motivations in Decentralized Finance: Decentralized finance systems have contrasting incentives for different stakeholders, leading to potential conflicts over resource distribution. UNI token holders and liquidity providers may have opposing views on taxing fee income, highlighting the importance of governance in managing resources.
In decentralized finance systems like Uniswap, different stakeholders, such as liquidity providers and token holders, may have contrasting incentives and motivations regarding how economic resources are distributed. An example of this is a proposal to tax fee income from liquidity providers and redistribute it to token holders. While UNI token holders may favor this proposal, LPs, who stand to lose half of their profits, may vote against it. The value of preventing such taxes is captured in the UNI token, and the magnitude of the incentive to acquire and hold UNI is proportional to the fees. Ultimately, control over economic resources and their distribution is a crucial aspect of governance in both traditional companies and decentralized finance networks. Although crypto networks may seem to have a flatter topology compared to traditional systems, humans' inherent differences in incentives may still lead to disorder and chaos over time.
Challenges of Effective Governance in DeFi and Crypto: Ensuring effective and inclusive governance in DeFi and crypto requires addressing the needs of diverse users, minimizing discord, and adapting to the openness and anonymity of the systems. Advances in governance technology offer hope for easier coordination and reducing disagreement, but achieving consensus remains difficult.
Ensuring effective and inclusive governance in decentralized finance (DeFi) apps and crypto networks is a complex challenge, as it requires addressing the needs of current and future users while minimizing discord and conflict. Unlike traditional organizations, the identities of those casting votes in DeFi governance are often anonymous and may change over time. This openness brings both efficiencies and inefficicies, as it allows for specialized governance systems for each market or subsector, but also means that voters may not fully understand the implications of their decisions on all aspects of the system. The speaker expresses optimism that advances in governance technology will make it easier to coordinate and reduce the space for disagreement, but acknowledges that achieving consensus and making everyone happy is generally difficult. The role of consensus protocols is to help people pre-agree to disagree on certain issues, as in the case of elections in traditional societies. Overall, the shift towards more specific and open governance systems in crypto could lead to greater specialization and efficiency, but also poses unique challenges that must be addressed.
The future of digital governance and capitalism: While digital governance and capitalism offer opportunities for open access to self-sovereign money systems, it's important to acknowledge the uncertainty of the future and allow the next generations to lead in solving emerging challenges.
While the current trajectory of digital governance and capitalism presents concerns such as extreme wealth and power concentration, it also offers opportunities for open access to self-sovereign money systems. However, it's important to acknowledge that the future is uncertain and that new generations may face challenges that we can't yet anticipate. Generational theory suggests that there's a pattern to how different groups of people think about the world, and we may reach the limits of this technology just as we're finding the limits of industrial capitalism. The key is for us to be open to the next generations taking the reins and solving the problems that will emerge. Additionally, the lack of intergenerational wealth transfer and control of institutions may contribute to the strife felt among young people today. Ultimately, it's crucial for us to be open to change and allow the next generations to lead.
Blockchain and crypto networks can lead to more inclusive wealth distribution: The use of blockchain technology and crypto networks can disrupt traditional economic systems, making it cheaper to leave governance systems, increasing competition, and distributing power more effectively among a larger group, leading to more inclusive wealth distribution and alleviating the pain of lack of representation for younger generations.
The use of blockchain technology and crypto networks has the potential to disrupt traditional economic systems and change cultural and psychological dispositions towards wealth distribution and inclusivity. This disintermediation of relationships through technology can lead to more inclusive wealth distribution events and postpone the problem of wealth concentration for longer periods. The transition to digital space makes it cheaper to leave governance systems and increases competition, leading to more inclusive systems that align with the needs of participants. Additionally, the ability to distribute power more effectively among a larger group of people through the distribution of political capital can facilitate a smoother transition to the next generations and alleviate some of the pain felt in the lack of representation for younger generations.
A generational shift driven by new technologies like crypto: The emergence of new technologies, such as crypto, is leading to a generational shift that will likely take several decades to fully unfold. This transformation represents a rejection of existing power structures and a call for new ones that better reflect the values and beliefs of the current generation.
We are in the midst of a significant generational shift in society, which will likely take several decades to fully play out. This transformation is being driven in part by the emergence of new technologies, such as crypto, which have the potential to disrupt existing power structures and institutions. While some may embrace this change, others may resist it. Regardless, it is important to recognize that this process of change is slow and will likely take several generations to fully unfold. In the meantime, it is crucial to continue exploring and understanding the implications of these new technologies and the values they embody. As Joel Monegro noted during the discussion, this shift could be compared to the generational change that occurred during the 1770s, when people began to challenge the existing power structures of their time. Similarly, today's crypto movement represents a rejection of the existing institutions and a call for new ones that better reflect the values and beliefs of the current generation. So, while the full impact of this transformation may not be realized for many years to come, it is an exciting and important time to be a part of the conversation. To learn more about this topic, be sure to check out Joel's written work at placeholder.vc and the book "Generations" that he mentioned during the podcast. And remember, as always, crypto is risky, so proceed with caution and stay informed.
