The Breakdown - The Emergence of DAOs With Santiago Santos

Episode Date: December 26, 2021

This episode is sponsored by NYDIG. On this episode of “The Breakdown’s” “End of Year Extravaganza,” NLW is joined by Santaigo Santos. Santiago is a crypto investor, thinker and podcast. He built one of the first funds in DeFi, was early into NFTs and is heavily involved in the DAO space.  Find our guest on Twitter: @santiagoroel Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Join the discussion: https://discord.gg/VrKRrfKCz8   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW NYDIG, the institutional-grade platform for bitcoin, is making it possible for thousands of banks who have trusted relationships with hundreds of millions of customers, to offer Bitcoin. Learn more at NYDIG.com/NLW. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our holiday theme music is “Spike The Eggnog” by Two Dudes. The music you heard today behind our sponsor is “Dark Crazed Cap” by Isaac Joel. Image credit: Alexi Rosenfeld/Getty Images Entertainment, modified by CoinDesk.

Bitcoin and similar Ethereum smart companies allows you to move money at the speed of information. And Dow's really are the continuation of that and coordinate human capital in a very interesting way. We might not get it right this cycle because this coordination problem. And I think we're still figuring that out in this chaotic world of open source networks and protocols in Dow's. But it is super interesting how quickly people, not just crypto-native people, have come on, like Constitution Dow. was early glimpses of where you could go. Welcome back to The Breakdown with me, NLW. It's a daily podcast on Macro, Bitcoin,

and the Big Picture Power Shifts remaking our world. The Breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, December 26th. I hope you had a great Christmas. Today we are joined on this Breakdown End of Year extravaganza episode by Santiago Santos.

Santiago is a multi-threat crypto industry player. He has been an investor at firms like Parify, he's involved with numerous Dow's, and he's recently joined as the host of the Empire with Jason Yanowitz over at Blockworks. San Diego has a ton of really interesting thoughts around a variety of different parts

of the crypto industry and is extremely eloquent in articulating how he sees the world. In this episode, we dig deep into a variety of topics, including especially Daos and how we'll look back on the Dow projects of 2021 and what they might mean going forward. Without any further ado, let's dive in.

All right, Santiago, welcome to the breakdown. It's great to have you here, sir. Yeah, it's great to be here. Thanks for having me on. We've been chat about having this conversation for a while, and like I was saying before, I actually love these end-of-year interviews, I think, are the most fun. I love the context to look back at a year,

to look forward at a different year. And so let's dive right in with, with just an easy, simple little question. What was the single biggest crypto story, crypto event or crypto trend shaping 2021? I think the biggest story definitely was El Salvador, just adopting Bitcoin and illegal, you know, a fee a tender. I think it was explosive. And while El Salvador is a small country, I think it really, we're entering this kind of geopolitical game theory phase of crypto where governments start adopting it. And I think it's really, really powerful. and people are dismissing El Salvador because it's a small country and whatnot.

But I think it's set the stage for certainly next year and going forward for more countries to adopt it. What are your guesses? And this is obviously super hard to tell because I don't think anyone had El Salvador adopting it on their bingo card for this year. But do you see this happening as other small nations say, hey, we could do that too? Do you see it more as there's big politics involved? Obviously, we just saw that Myanmar, the official government, switched over to, the Chinese Yuan. And so the sort of shadow government is now accepting tether as their main currency. How do you see this playing out? It's a good question. Like I've talked to, I'm from Mexico,

I grew up there. I've talked to the central bank fee times. It is in their mind. I think there's a lot of political risk of doing it. Obviously, Elseverro has gotten a lot of pressure from the, you know, the IMF, the World Bank. But I do think that countries in Latin America, for instance, that are behold into U.S. policy and the dollar might want to consider holding Bitcoin. So I potentially, I mean, there's rumors of like, Paraguay or some like Uruguay or Mexico going next. So I think it's going to be more of that. There's certainly a possibility that like the digital yuan becomes more of a medium of exchange and sort of like the oil market or some of these corridors. So like especially with a belt and road initiative.

But I still think Bitcoin is probably going to be the one that become as opposed to tether or some like central bank digital currency. Yeah, I think I think it's interesting. I mean, obviously the dollarization via USD-denominated stable coins is, I think, a pretty interesting phenomenon. But certainly the new force for people to consider is a sovereign adopting a non-sovereign currency, right? So you kind of are taking advantage or acknowledging the fact that based on whatever set of circumstances you have, a fiat that you own and maintain isn't the right solution, but you also don't want to be beholden exactly to, you know, U.S. foreign policy or whatever. It's like there's an option now that seems sort of viable, right? Yeah, absolutely.

Look, I mean, this might take years to play out, but I've always felt that you are seeing a dislocation of money in state, and this is the very, very early beginnings of it. So it's probably going to take a few years. But again, I think, well, the probably first stages will be small countries, developing countries, maybe countries that are under sanctions with the U.S. and stuff like that. And so I think ultimately it starts there, but it doesn't stop there. It's countries that all see an opportunity to come out ahead, whether to be more pro-crypto

or just about Bitcoin to be more relevant because the smartest people are coming into this space and it becomes, you know, countries will become essentially more like corporations attracting talent. Estonia has made a big leap in this direction, hasn't adopted Bitcoin, but I don't see why they shouldn't. Really, you could argue it's a marketing play. You could argue it's more of, you know, attract foreign direct investment or human capital or whatever. but I think more and more Bitcoin or in crypto generally will become an opportunity for countries

to come out ahead this century. Love it. What's something that happened this year that you could have never predicted outside, of course, of El Salvador adopting Bitcoin as legal tender? That is a really good question. You know, I've been disappointed with Elon Musk and his, the way that he's sort of, shilled Dogecoin. And look, I mean, Dogecoin is the good community.

I'm not dismissive with the project. But it just has felt like it is a bit of a mockery of the space. And it's brought awareness to crypto, but I don't think it's the right way. And I've been just surprised, right? I think when you have that amount of influence and power, I think you have to be mindful of what you say. And I think he's the most influential person of the world. And, you know, of course, we love memes and all that stuff.

But if I were in his position, I think you could do so much more. And I've been disappointed, underwhelmed by that. that. Do you think there's a larger conversation to be had around just the nature of power and influence in social media in general? I mean, because the sort of remarkable thing about it is just the scale of kind of the attention that he can command on a whim in some ways. Yeah, absolutely. I mean, look, in many ways, it's very positive because Elon, like, directly interact with politicians on Twitter and calls him out on bullshit and directly interacts with, like, independent media. On another, he just sort of like, I think he's sort of manipulating markets. Like,

what he does to those markets is crazy. I mean, look, media has been broken for a while, and especially in crypto, like we notice it so much, right? You're independent. You do great content, but, you know, you go on CBC, you go on Bloomberg. And they just, you know, it's always talking about price and nonsense. And so I think if I were to portray one mega trend going forward is this idea that people are losing trust in institutions, more and more, and at increasing rate. And whether it's because government, policies around COVID and lockdown or just the way that they dismissed it early on or money printing. I think generally people are coming to terms that they want an alternative. And overall,

crypto provides a very viable alternative. I'm not saying it's necessarily Doge going. It's probably more kind of legitimate projects. And so we do have to be mindful when you have that big of an audience to be more prudent, I guess, in your approach. So this is a super interesting line to explore a little bit. I agree wholeheartedly on the sort of one of the dominant, those shaping forces in the world being the longitudinal decrease of trust in institutions. Do you think we saw this year in the crypto industry with things like Dow's the emergence of some proto versions of lightweight alternative internet native institutions? Absolutely. I think you're seeing very quickly Dow has become, you know, Bitcoin and similar Ethereum smart companies allows you to move money at the speed of information.

And Dow's really are the continuation of that and coordinate human capital in a very interesting way. It's not a lot perfect. It feels super early. We might not get it right this cycle because Dow's are really hard to this coordination problem, right? I mean, you need some hierarchy. I'm not, you know, people who have to say, hey, we need to blow up institutions as we know them. I think they're not very pragmatic. You know, you always kind of need some sort of structure.

And I think we're still figuring that out in this chaotic world of open source networks and protocols and Dow's. But it is super interesting how quickly people, not just crypto-nated people, have come on, like Constitution Dow. Was, you know, I think early glimpses of where you could go. Nighting sponsors this podcast and they are the go-to Bitcoin company for banks and credit unions as well as corporate treasuries, fintechs and hedge funds. Learn more at nidig.com slash nLW. That's nydig.com slash nlw. DOWs are fascinating to me. They have been for a very long time

because of what feels like supreme inevitability of something like this emerging. And by that I mean something that is more formal than a Facebook group, but isn't an LLC with a bunch of members governed bylaws. That plus, just if you start to look around at how many parts of human experience roughly come down to we'd like to coordinate a set of resources towards something in some way. It's actually a phenomenal array of different things that

we do that roughly come down to that. And so, you know, it seems kind of inevitable. But I guess the interesting thing is, I guess the question is, what do you see as kind of the landscape of experiments? And I don't necessarily mean specific attempts. But is, is, everything that calls itself a Dow the same thing? Are they all right now kind of fundraising coordination DAOs? Or are we starting to actually see some different attempts at different approaches to what a DAO can be? I think you are. It's early, but, you know, DAWS can be, you know, as more more people come into the space that are interested in NFTs and gaming, you know, you have guilds, for instance. That to me is a fascinating, fascinating way. And like in the same way

that Uber and Airbnb transformed their respective industries and created new labor structures. You know, you are seeing this plate earn movement, which is very different than perhaps a constitution doubt type. It is, as you said, you know, like an internet. It's like an e-sports, you know, that is perhaps a more applicable comp there. But, but yeah, for now it's been mostly just around, hey, a specific goal, purpose of acquiring something. But, you know, it doesn't stop you from creating different structures.

as you say, like angelus can be totally transformed and converted into a doubt. Like, why wouldn't you? Instead of relying on an SBB manager, you just embed logic in a smart contract and program code. And this programmability of money with the immutability of a blockchain allows you to program stuff and logic in a very interesting way and really makes this coordination a little bit easier for certain things. Money and like a specific financial objective is the easiest.

When you try to like program and embeds, at lodging in less clear things like certain objectives that are not financial or as binary, then it becomes a little bit more complicated. You need some sort of human intervention, and that's where it gets messy. You know, it's interesting. This could be totally my perception, but I actually see sort of a similar pattern playing out a little bit where, so if you were kind of watching Ethereum projects start in like 2016, 2017, it was like the tokenize everything, right?

It was the disruption of social media. And not that those ideas have necessarily gone away, but part of what happened after the ICO bubble burst is there was kind of a return to the financial roots of smart contracts and the logic around finance flows and value flows. And a lot of kind of what emerged in terms of defy was people shifting their focus back to just these set of financial use cases and getting away from this idea that that wasn't sufficient as a space to play around it, right? Whereas like at the peak in 2017,

there was a lot of like, oh, no, we don't care about the money. We just don't think that Amazon should be, you know, exploiting the people who use its marketplace or whatever, not that that's a bad objective to have. And I feel like DAO's, there was obviously the DAO, and then when people started talking about it again in 2018, early 2019, there was again, this very expansive idea, you know, just theoretical at that point about what DAOs can do and how they would be organized. And this year, you've seen a lot of return to just this, no, we want to as a group buy that thing.

And we can do it if we come together. And I actually think it's important to not diminish the significance of a very simple use case in group coordination of even in a single moment in time. You know, like Constitution Dow would have been interesting even if they didn't have ambition to become, you know, the Indiana Jones Dow after that. And they just wanted to support this specific thing, right? No, absolutely. I mean, this is the thing like finance can be boring, but it's a vastly inefficient market. And, you know, defy's a little bit out of favor. but it's we forget.

I mean, it's the amount of friction that can be unlocked with this idea of moving, you know, money through bits is explosive. And I know it sometimes can't be sexy or it's not as sexy as other more theoretical use cases. But if we just stop there, that is a big enough improvement, zero to one improvement to the current state of affairs, which is a terribly broken, inefficient, not very transparent financial system. And regulators don't seem to understand that. So let's actually hone in on that idea of defy being a little out of favor right now. When you think about this past year, how would you characterize just sort of the crypto

community's attitude towards defy or the state of the defy industry? I think there's been a little bit of fatigue, you know, that this is another fork, another farm, liquidity mining, this idea that you know, distribute tokens through liquidity and provisioning liquidity. I think there's been a lot of, perhaps some fatigue in the market. But there's been a lot of innovation happening in the back end. If you look at, for instance, defy charts on relative to like E-P pair, most of these defy assets are down 60, 70, 80%,

look, number of users is a metric that is important, right? We tend to anchor to total value in log and transactions and volume. It is a very, still very concentrated set of participants, mostly crypto-native funds and people that have been around in space that are swapping and farming all this stuff. But I think stable coins are the Straton, course of crypto adoption, sort of like the email moment, maybe NFTs, but stable coins really are very, very explosive for adoption. And we're not far from a state of the world where a

revolution, your traditional fintech companies, your banks are going to tap into defy because when a regulated financial institution like Circle creates a savings account that is paying you 4 or 5%, which is orders a magnitude more than what JPM Morgan pays you or your random bank, that puts a lot, a lot of pressure in incumbents to tap in a D5 for yield. And, you know, that's a killer use case. So it's been slow. There's been some frustration. Obviously, the issues with Ethereum, GASP's being quite high have blocked out a number of users.

But, you know, you have viable solutions like other chains like Solana. And you have L2s that are coming at the right time to support this greater interest from a lot of institutions that are the aggregators for a lot of users. because the reality is users don't like to think about finance. They love NFTs. They love collecting. You love gaming. But finance, it's not like something you think about all day. You think about money, but not like switching backs or interacting the defy for the sake of it.

But when your financial institution really just taps in defy in the back end, you might not even know it. You just benefit a lot from that. I think that's where we'll probably enter next year. But it's been quiet over the last six, nine months for sure, much, much more quieter than what it was when I, you know, when I was a paraphrie, we were kind of really. really the first fund that said, hey, we're going to invest in defy, and people were like, what is this? This is not a thing. And then in that year, compound launch and it was cold defy summer, and then things kind of quieted down a little bit. But I think it's due for a comeback, I think largely catalyzed by more adoption of games and NFD. You know, as soon as people land there,

then they start doing other things and define the back end. It's interesting. It feels to me a little bit like one way to potentially look at like, call it this last 18 months plus a year from now or something is defy summer creates a lot of momentum and energy in that space also creates a lot of new wealth some portion of that helps fuel NFTs which are super exciting to people a lot of people find their home even though they were in the crypto industry before there plus a lot of new people who haven't come in yet are also excited about NFTs and you might see kind of the inverse where those people who walked in the door through the NFT path, start to find themselves into sort of doing the underlying infrastructure

things as what you can do with NFTs expands and then all of a sudden we're back at Defi again. I have no idea if that's how it plays out, but it seems kind of plausible to me. Yeah, I think so too. What do you think are the biggest risks to the crypto industry in the year to come? It is a great question. I think, look, I mean, putting macro things aside, I'll focus on the things that we can control as an industry because there are things that are idiosyncratic that we can't focus on, right? I think as an industry, we still can sort of mess this up if we don't kind of sell police. You know, I think regulation's always been this wall of worry, but I think it is incumbent on us to continue to educate regulators and even like if you're a founder, building

a product, there are things that you can do to protect users. And that should always be our North Star in an industry. You know, it's fun. This technology, you know, It's not about, we are moving fast, but unlike Web 2, we can't break things because when you break things, there's no 1-800 to call. Like, you lose funds and it's not fun. And so I think the industry is moving the right direction. You know, industry groups to police, to create standards are important. And so if we lose sight of that, I think that's probably the biggest risk, because that will continue to be something that may hold us back. And so self-policing is something that we should continue to do.

And if we don't do it, it's not going to vote well for the industry. Because people might be too scared coming into this world, right? And so we just have to act in a roll into court based on the loose guidelines that we have, hopefully get more clarity. But even if we don't, it's incumbent upon all of us to educate people and not necessarily show something or be totally, you know, there are fundamentals, narratives, the technology is exciting, but we need to be, you know, balanced in our approach when we, invite other people to test this technology. We're still very much super early. And so we need to

remember that. You're here. What's something that you're paying attention to, that you're surprised that more people aren't paying attention to? Or do you think others should be paying more attention to? One is, for a lot of people, crypto continues to be Bitcoin-centric. And I just think that that narrative is not even relevant today. The new allocators of capital into this space, probably nine out of ten calls are from technology-focused investors, and Bitcoin doesn't come up in that conversation. It is, tell me about this, they see this as the next arc of innovation, continuation of the internet. And Bitcoin, as much as it is a novelty and a breakthrough, and I'm not dismissive with that, I think the applications that you see in some

like Ethereum or Salon or some of these other generalized smart contract computing platforms is fascinating. And that is very different. You know, eight months ago, I I certainly noticed that. You had like the same characters that are showing up investing in even like stuff like FDX, right? It's like the tigers of the world. These are, or sequoias of the world. These are things that I think most people don't appreciate the magnitude of that. You know, the idea that they're comfortable investing in tokens, not just picks and shovels, you know, on the margin. Like now they're restructuring their funds to invest in this space. And I can't think of a clearer signal, you know, putting aside market cycles and all this other nonsense regulation,

and all this stuff. Like, the ship of sale, like people, I think increasingly, a consensus view is this is the most exciting thing in technology today from a human capital perspective and the largest funds, like Sequoia, are noticing. Like, Sequoia doesn't necessarily need to be the first mover to come into crypto. Like, they can win any deal in traditional venture, right? But the fact that they've done it in the way that they have, and it took them a while before other normal funds in the space,

maybe A16C has been, you know, at the forefront of that, but it's pretty impactful. And so I think that's something that hasn't properly kind of synced in to a lot of market participants, I think, or just the industry in general. Yeah. So I spent a lot of time covering fund flows in. I've also gone through frequently why I think traditional Silicon Valley missed this for a long time. There has been a shift. In 2017, 2018, there was a lot of, is it money crypto or is it tech crypto? And I think what's happened now is that both have won in some ways, where the money, crypto side, whether you're looking at digital store of value asset that is just going to kick the crap out of something like gold for the generation to come, or if you're looking at the money

Lego side of the programmability piece, both of those are off to the races, but then also sort of the underlying infrastructure that's then how that filters into other parts of technology. Silicon Valley, or quote unquote, represented by VC firms, have finally started to plug into that or understood that as something that's super significant. So I think it's fascinating. I also think it's hugely important to understand as we think about how market cycles may play out, just to look at all the dry powder in these companies, because I think it has a deterministic impact and how brutal any potential crypto downturn will or won't be. Dude, this is super fun.

I could have this conversation for hours. I try to keep this 21-minute constraint, but just to wrap up, what's one prediction you have for next year? I think we'll go mainstream next year. If you look at the roadmap and releases for a lot of these games, and NFTs, but largely games. I would have thought Sablecoins would have done it. I was wrong.

I think gaming will definitely do that. And look, a testament on that is Axi as a game is not very immersive, is not great. It doesn't compete pound for pound against a Web 2 game. But the idea of ownership and play to earn, play and earn is captured the imagination of a lot of gamers. And I think you'll see very immersive games like Illuvium Embersword that compete on graphics and quality relative to up two games, plus all the benefits of properties are crypto. And I think that's something like that is what really puts. It's like the email moment of crypto.

And I think we'll be there next year. But I'm excited about it. Love it. All right. Well, Santiago, thank you so much for hanging out today. Let's check back in before a year is done. Absolutely, sure. And have the holidays.

And thanks again. You too. Happy holidays. Thanks for having it. Even as I'm doing these episodes, I'm prepping something for the beginning of next year, an episode that I'm calling my top big picture power shifts to watch, and one of them is going to be about how

Dow's might or might not challenge other types of fundraising apparatuses. It seems like there's going to be a lot to explore there, and I appreciate Santiago taking some time this holiday to share his perspective with us. Until tomorrow, guys, be safe and take care of each other. Peace.