Unchained - Can Maker’s Rune Christensen Fix the Sad State of DAO Governance? - Ep. 534

Episode Date: August 22, 2023

The height of the last bull run was when MakerDAO cofounder Rune Christensen felt most disillusioned by DeFi and DAOs. “I didn’t even see how Maker was going to survive,” Christensen tells Laura Shin in the latest episode of Unchained. Now Christensen is leading an effort to help DAOs escape their trough of disillusionment. He says the ambitious “Endgame Plan” for MakerDAO seeks to overcome “the central issue of voter apathy.” Will it work or are DAOs doomed to fail? Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. Show highlights: the disillusionment that comes with the growth of DAOs and the need for a new approach Rune’s insights into the challenges that most DAOs face how Maker plans to implement alignment engineering through tools, gamification, and incentives what each phase of Maker’s “Endgame Plan” seeks to accomplish the strategy behind Maker’s rebranding, including the launch of new tokens while maintaining MKR and DAI the importance of governance boundaries in ensuring that participants follow the rules and contribute constructively the goal to reach a state of ossification and certainty, similar to Bitcoin the challenges of renaming tokens and the decision to keep the original brands why Rune believes that Phase 2 of the Endgame Plan will change the industry how SubDAOs will work to align incentives, improve the organization, and avoid ponzi schemes what Maker’s “Atlas” is and how it intends to set boundaries how Maker plans to use artificial intelligence  the role of delegates in the DAO and how users choose them the difference between “dovish” and “hawkish” governance what the motivation was for launching the Spark lending protocol why the DAI Savings Rate (DSR) is not offered to American investors and Rune’s take on DeFi regulation why South Korea and Japan are the best crypto environments in the world, according to Rune whether Maker should be doing more to mitigate the influence of “whales,” given that Rune owns about 10% of the MKR supply Thank you to our sponsors! Crypto.com Arbitrum Foundation TOKEN2049 Guest: Rune Christensen, Cofounder of MakerDAO Previous appearances on Unchained: Rune Christensen of MakerDAO Part 1: How to Keep a Crypto-Collateralized Stablecoin Afloat Rune Christensen of MakerDAO Part 2: How Dai Stayed at $1 While ETH Crashed From $1,400 to $85  The Chopping Block: How to Manage MakerDAO, With Hasu and Rune Rune Christensen of MakerDao on Its $15 Million From Andreessen Horowitz Why It's so Hard to Keep Stablecoins Stable Links Unchained:  MakerDAO: The DeFi Protocol That Lets You Be Your Own Banker MakerDAO’s Spark Protocol Blocks VPN Users MakerDAO to Raise DAI Yield Amid Lower Demand for Stablecoin Maker Founder Proposes Changing DAI Savings Rate to 5%  The Defiant: Christensen Drops Radical Plan to Remake MakerDAO and Address 'Fundamental Problems', Christensen’s Twitter thread explaining Endgame Learn more about your ad choices. Visit megaphone.fm/adchoices

That was when I was the most disillusioned with Dau's and DFI and the whole crypto space in the I just thought, it looks to me like it's all like a fugasi. And when I looked at Maker, I didn't even see how Maker was going to survive. Hi, everyone. Welcome to Unchained. You're no hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto eight years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time.

This is the August 22nd, 2023 episode of Unchained. At Token 2049 Singapore on September 13th to 14th, Bala J. Sweeney Vossin, Tyler and Cameron Winklevoss, Arthur Hayes, and 200 others will hit the stage, joining over 10,000 attendees. Visit Token249.com for 65% off regular ticket prices with the code Unchained. Link in the description. Arbitrins leading layer two scaling solutions can can provide you with lightning-fast transactions at a fraction of the cost, all while ensuring security rooted on Ethereum. Arbitrim's newest edition, Orbid, enables you to build your own tailor-made

layer 3. Visit Arbitrim.io today. Buy, trade, and spend crypto on the crypto.com app. New users can enjoy zero credit card fees on crypto purchases in the first seven days. Download the crypto.com app and get $25 with the code Laura. Link in the description. guest is Roon Christensen, co-founder of MakerDAO. Welcome, Roon. Happy to be here. You proposed a change to MakerDAO that is now going to be adopted, and MakerDAO has been around for quite a while. It's very well established. So why is it that you wanted to implement this big change? Yeah, Maker has at this point, I think, existed more than eight years. And I mean, it's really a project that's like a product of the early ideological kind of, you know, very early days, right? Sort of coming out of the kind of ethos and the community of originally Bitcoin and then into, you know, the very early Ethereum community.

And I mean, from the very beginning, we've been driven by this, you know, passion and vision of decentralized finance and having it actually do something real for the world, right? actually impact users for real. And I mean, I think obviously that's why many people are in this space, but also at the same time, I think you see today that there's a lot, I mean, there's a lot of stagnation to some extent, right? There's this, especially we had defy summer, we had the bull run, yet we didn't actually end up seeing too much sort of real new innovation coming out of that. And I actually think that a major reason for that is because of DAO's and the challenges and

the problems of DAOs, but also the massive opportunity of DAO's, right? Because basically what DAO's are, is like they are supposed to be this like governance layer that makes it possible to decentralize, not just, you know, kind of the infrastructure of finance, but the actual, the decision making, right? The kind of the, you know, the half, the holes of power, the balance of power, the, the kind of what's going on behind the scenes, which is what really matters, actually, right? which is where the real problems occur as well in finance. So DAUS are sort of meant to be the solution to that, right?

That actually can give us this like utopian future of properly decentralized finance, financial inclusion, banking non-bank, right? Like more transparency, more efficiency, all this good stuff. What ended up happening is, I mean, I think DOWs and also just like crypto tokens in general just ended up not really working out so well in most cases. And I think in Maker, I mean, Maker is not nearly as bad as what happened in so many other cases, right? But what we still ran into in Maker was just that, I guess the naive ideal of a Dow doesn't work in the sense that the idea is you have this token, you're distributed to a bunch of people, and then they sort of harmoniously, you know, happily get together and make clever decisions from mutual benefit, right? Well, rather, I mean, that actually sort of works when you're small.

So you have everybody knows each other. Everybody trusts each other, right? Like a tight-knit community. So everyone knows that everyone else is moving in the same direction. But then once you grow past a certain size, then that kind of breaks down because you don't know, you no longer know if everyone else is moving in the same direction. And then what happens is you run into, I mean, what we, I guess you call coordination problems, right? kind of like, you know, strategy of the commons or like the prisoner's dilemma where how that really

manifested itself in Maker was this, like sort of this very difficult time we have sort of managing our expenses and whether anything was actually happening through all the expenses that the DA was generated, right? So like, I mean, Maker is like, it's oldest DAO in the world. It controls the biggest decentralized stable coin in the world. It has like, I mean, more than a hundred million, like 130 million dollars in income per year. Currently it has something like a bit more than $40 million per year in expenses and at its peak it was even more. Like for a long time, we actually didn't even like actually our income wasn't even that high, but our expenses was even higher. And like the biggest problem was it was sort of out of control. Like nobody really

knew what are we actually paying for? How are we paying for it? The system is, was sort of just like chugging along with the basic process being that people make proposals to the Dow no longer as it was originally for the sake of the whole Dow, but primarily for their own sake, right? Because what they saw was everyone else is doing the same thing. And you get this kind of coordination problem. So at the time actually when, I mean, basically, and this is actually at the height of the Bull Run, that was when I was the most disillusioned with DAO's and and the whole crypto space in the end. I just thought, it looks to me like it's all like a Fugasi. And when I looked at Maker, I didn't even see how Maker was going to survive.

It looked like Maker was completely, there was not really a way for it to sustain itself because it just looked like people weren't collaborating. There was no incentive for them to collaborate. The only incentive was focusing yourself, right? Yeah, I honestly feel like that disillusionment comes for all people who've been building in crypto for a long time during the, height of the bull runs. Yeah, I mean, absolutely.

And the thing is, I mean, now it's obviously just what it really was, it's like a growing pain thing, right? And I ended up kind of, I mean, basically determining not to give up on the project. And then it's just being like, okay, well, I guess we need to go back to basics and sort of rethink how can you make, how can you design a doubt to go beyond this naive idea that you just give people a token and then they're going to work it up? basically what I looked at, one of the main things I looked at is like all the things that worked really well with Defi Summer. And then like sort of how these failure modes happen in practice as you scale up and as you sort of lose.

It's kind of like, I mean, I think maybe the main, one of the really main factors in this is this kind of disconnect with what impact you're having in the doubt. It's like any particular individual may be doing a whole bunch of stuff. But there's no like feedback. Like, maybe they're doing great, but they don't really get a reward necessarily beyond what they would have done if they had done. They hadn't done very well. And that lack of a feedback just like really, you know, it's discouraging. But it also, I mean, it's also the other way around that if people are doing bad things, then nothing happens. And then they get really encouraged to just be like, okay, well, then I should just focus on getting more money out of it.

So what I came up with after looking kind of trying to deconstruct all of this essentially, right? and try to think about it again from first principles. I mean, it's a, it's a, it's a method. I call it alignment engineering, but it's sort of like it's, I mean, it's basically, it's based on, on this concept of like organizational alignment and organizational design, but applied to a DAO where it needs to be decentralized rather than sort of emanating from a, from a leadership team. So it's like methods that you use in traditional organizations to get people to be

on the same page to work together. You can apply similar ideas to a DAO through this approach that in our case, we call alignment engineering. I mean, the kind of the tagline of it is that we want to scale constructive participation, right? We want to, as we scale, we want to just keep getting more people involved. And as people anticipate, it should always be constructive, right? So they just keep, they just naturally collaborate.

And if you have more people, they just generate even more value, right? And they always kind of, you know, on the same page, moving in the same direction. And you do this through well-designed tools that make this easy for them, right? It makes it sort of natural for them to work together in the way that actually is constructive. And then gamification. So you kind of make it an experience to participate, right?

Like a contributor to a Dow is also a form of user. So you need to like gamify kind of, you know, you need to think about the experience they have participating. And then you also incentivize finally, right? So you design very advanced incentives rather than just this sort of very simple, original idea for Dow of like everyone gets a token and then bam, they're all on the same page and it's just going to work.

But if you put these three elements in place, right, tools, gamification and incentives, then you can actually give people a lot of autonomy and a lot of freedom to sort of operate and do what they think is best within the Dow. as long as you add the final layer, which is governance boundaries. So you need to have a mechanism to sort of set some kind of boundaries where you get autonomy, you get to make your own decisions and not have to deal with kind of the crushing bureaucracy

of a DAO, which is another frustration of DAO's, right? But there's of course going to be, like there's going to be certain rules where basically if you step outside the rules, then we know you're being misaligned and it's sort of I mean, it's basically, it's a little bit like a legal system, actually, in a sense, right? That you have a kind of a, as long as you follow the rules, then all the factors combined mean that we can expect that your input to the Dow is constructive and it's generating value. Yeah, to me it sounds like what you're trying to create is something like the original, I mean, like Bitcoin, where you have this coin. and in send advises mining, which is needed for the network to have security. But you want to do it for kind of like other things in MakerDAO.

So describe kind of the whole endgame plan. And I know there's like four phases, a rebrand, sub-Dow farming, voter rewards, governance, AI tools. So why don't you just walk us through each of these phases? Well, and first of all, I mean, it's exactly the Bitcoin thing. That's exactly what we would like to go for in the sense that that's what we, We can't be exactly like Bitcoin, but we often call it like a Bitcoin, like endgame. The name endgame is chosen because we want to reach this like Bitcoin like state of a high level of ossification and certainty and reliability of like the future state of the system.

Right. And yeah, so so the way we implement all this, I mean all this stuff I was talking about is basically through these like four major different aspects of the alignment engineering. So the first one is just like the branding and the design of the system. And this, I guess, is maybe like, I mean, on one hand, this is going to matter a lot for growth. And of course, growth is like a really, I mean, it's essential. I mean, the whole point of this is we want to make the system super robust so that we can grow it really large and it will not fall apart. So, I mean, it would be pointless to do it all without also making sure we focus on growth. And the reason why we believe there's a big opportunity for a new brain is because basically the original brains were just, they're kind of made up without too much thought being put into it.

And the big problem is two of them. There's like two separate brands. And they're actually great for like, I mean, they're great for like sort of classic crypto. And also very important to know that they will stick around, right? So nothing will actually happen to MKR or die. But there will be like this new sort of third umbrella brand that will include a new stable coin and a new governance token. And they will then have kind of the same brand, you know, so it's not too completely separate. sort of things that you don't naturally associate with each other.

But rather it's like, it's like the brand and then like the Dow for the brand, basically. I mean, one of the reasons, one of the things we noticed was that we would go to events and people would be like, yeah, I used dye. I love die. Oh, it's great. And then they'd be like, what the hell is maker? I've never heard of it. I have no idea what that is.

There's so many people like that. And actually also, for like I stand, the other way around because MQR holders are like, I mean, MQR right now is like a very unique token in crypto in that we have this like super low supply and just like a kind of a very sort of a culture that has always been very focused and like being very rational and sort of this like risk management focus. And that's just also resulted in that that a lot of the holders of MKR token aren't necessarily die users or even like that much of like regular crypto users. But there's like this very sort of unique and specific type of MGR ecosystem participant. And we really hope to change that because that is also, I mean, getting more overlap between the users and those who govern the system. That is by itself also, I mean, a key step of alignment engineering, right? Because now you naturally get an alignment where, I mean, the people who can run the system, they're much more likely to use it.

So they're much more likely to think about what do the users want and how. How do we keep them safe? And that's going to inform their decisions. So basically what you mean is like comp, compound uniswap, uni, is that what you're getting at that like literally just the names need to be more similar? Yeah. But I mean, you could think of, I mean, but it could be something right. I mean, there's like compound and comp and then there'd also need to be something like

comp USD, right? That's sort of the, in our case, we have both a stable coin and a, and a, you know, and a a governance token that have to be very similar. And I mean, and the big challenge right now is like, if you're trying to describe the whole ecosystem, there's actually not really a word for that, right? Like, I mean, the closest would be MakerDAO, but the most important part of the ecosystem is die,

and that's not even contained in the name MakerDAO, right? And then it's not too many, I mean, I could go on about, I've got all these, like, I mean, all the kind of obvious issues that came up many years later when I really realized this name is actually, really sticky and you know it pops up everywhere and it's used a lot in different contexts and ultimately it was not designed with that much foresight so i want to i mean i basically think that

mkr and dye are great brands for like sort of crypto insiders because they have this history and there's sort of classic brands right so they're very valuable and need to be you know maintained and nurtured and serve their niche basically but for this major push towards growth towards action spreading, I mean, breaking the stagnation of defying crypto that we're in now, getting new users involved, I mean, get people to stop losing hope in crypto and stop seeing it as just a giant scam, but instead see some kind of opportunity, something exciting you get into. That's basically, it's the right moment to then come out with a much more well-thought-through brand that can serve this role of like being the vehicle of all these new features,

I mean, all the later stages of endgame, basically. and then also just be like simpler. I mean, and this is kind of simplicity. It can be hard to see how that's even possible, right? Because, I mean, Maker is famously complex, right? But what our, I mean, our approach is we want to be friendly, but complex, I guess you can say, right? And I always keep comparing it to like gamification, like a video game, right? If you start playing a new video game, it could be massively complex.

There could be so many things. But when you're playing it, it's fun. not overwhelmed because it keeps you on like the right, you know, keeps you in the right track, right? It slowly lets you delve deeper into the world if you want that. Or just, you can just stay in the very beginning and just never get into any of the complex stuff and not feel like you're doing something wrong, which I think is kind of the problem with Maker often today is that it's like either you just die and you don't even know what Maker is or like you try to understand what Maker is and you feel like you're like you feel like you're not even

welcome. But one thing is like you're calling it a rebrand, but you're keeping the original brands and then just launching two new tokens, right? Which is a different sort of thing. Like why not just rename EB-KR and die? Well, I mean, so I would say it's a rebrand in a sense that the website will change for instance, right? So all it'll, it's more like so the overarching brand of what it is will change. I mean, you actually cannot really. You can't really rename tokens. I mean, it's very difficult to try to do so. Because they have a, you know, they've got like this sort of identifier on chain that determines a name.

That's one thing. The other thing is, I mean, there's going to be a lot of people who will just like freak up, who, you know, who will generally get a heart attack, right, thinking that their money is lost or something. So you'd never, I mean, we actually, I mean, we consider that, but in practice it's just the risks, unknowns of trying to do that are very severe, I think. And then finally, on top of that, I mean, there's a lot of, I mean, there's five billion die in circulation, right? There's a lot of users that I like that. And that's what they're familiar with.

That's what they like to use. There's no reason why they should be disturbed, right? And for MPR, I think, I mean, some people, they think it's super cool that it's just like super low supply token. And it's just like it's sort of an OG token, right? And similarly, I don't think that there's any reason to kind of. mess with that. What we can do is because we're offering so many new features and all these new features are growth focused in particular the sub-dower farming, which we'll talk about it just a second, right? But basically we can we can be like, look, you can stay with the old system and no one's

going to mess with you and everything will be safe and nothing's going to happen to your money. And if you want to try to upgrade to basically what is just a new brand, same security, you know, same governance, same guarantees as a. system has always offered you. Then there's all these new features that you can access. But it's entirely optional and you can go you can go back again, right? So you can switch from dye to this new stable coin. And if you don't like it, you can just switch right back. And it's so it's completely risk free. Right. So this I think is actually, it's crucial in making sure that there's nobody who gets more confused or, you know, like overwhelmed by it.

It's got to be it's got to be fun, right. It's got to feel. and it should never feel like you're getting stressed out and you rather just do something else than this overwhelming, complicated crypto stuff. All right. So now let's talk about sub-dow farming. As a segue to that, one last thing to mention about this rebrand of the tokens and these new tokens, right, is that as a part of the rebrand. And so this is, by the way, this is the thing that's called phase one. So this is the first change that will come will launch likely end of next year.

And so as a part of that, there's the new stable, which will get some, you know, get this new name, new brain. And then the new, the new, the new Gov token, we call it as a code name. And the new Gov token will be redenominated. So that's the thing about the low supply thing I'm talking about. So there'll be a lot of these new tokens. They'll be like, they'll redenominate one to 12,000. So it's kind of like a wrapper, like wrapping your eith into wrapped eath. But you get for one eth, you know, for one mkir, you get 12,000.

thousand new Gov tokens out. And then you can also go the other way. So there's no risk to doing it. But the other new feature that comes immediately in phase one in addition to this re-denomination is that you will immediately, from the moment phase one begins, you will be able to farm new GovTocin with new stablecoin. So immediately, in addition to having these aligned brands, if you hold a stable coin, you can get the governance token for free. So this is a way to really try to get those user bases to overlap. And then from there, we go into phase two, which is kind of like the big launch. The phase one, we call it the beta launch, because that's just like getting the conditions in place for kind of like, you know, getting the rebrand in place, getting a lot of the basic infrastructure and getting these new tokens in place. And then when we get to phase two, that's the really, I mean, that's kind of, that's the big, the big launch. I think if we execute correctly, it's going to change the industry.

Like, it's really going to, it's going to be a before or after with these sub-dust. Because nothing like this, like nobody has ever done this. Not even like small experimental projects has done anything as ambitious as what we're trying to do. And we are like basically the largest defy project. And we are, you know, really playing with like, I mean, the most powerful sort of potential and possibilities of what you can do. with defy and blockchain that's been discovered so far right and basically what we're doing is

we are launching six new dows and six new governance tokens at once and this is i mean a really key reason why we're doing this is because of this concept in alignment engineering that we want to i mean we want to gamify and we want to incentivize and so the key is that we want to kind of take all the complexity all the features of maker and kind of split them off from the core. So the cork is really, really simple. And it just focuses on some very basic functions, like keeping the stable and safe. And then all these like advanced features and initiatives and things like marketing and growth and innovation, all this stuff, that gets basically split out into these sub-dows. And then as a user, you can farm any of these sub-dows.

if you hold the stable coin. So now as a stablecoin user, I mean, basically as a customer of the system, right, as an end user, you get this like full access to like what part of the system do you think is interesting, do you want to participate in? I mean, one thing is that the subdiles, what they focus on is like different, you know, different parts of the business, right? So some of them, I mean, a big split in particular initially

will be some of them focus on like deep cryptos, So there's like Spark Protocol, for instance. That's an already like, I mean, early stages of fleshed out, sub-dial that focuses on innovating on the, you know, the classic defy borrowing functionality. And sort of, so that's sort of going in a direction of this like deep defy, deep tech, deep crypto. Then we also got the real world assets, which is the kind of the big, I mean, the other big thing that makers really. you know, famous for and has a lot of momentum in right now is that we have very, very advanced and large scale deployment of real estate. Which is doing really well because rates are super high right now in Tradfire. And so this is also getting split up into other sub-dows.

And basically the idea is that, I mean, you know, back to this earlier thing I was talking about, right? That there's so much, like we used to have so much expenses, so much stuff happening, It's totally overwhelming. Like, it's like, if you do one thing somewhere, you'd have no idea if you're actually, like, if you're doing the right, if you're doing it right or not. And as a token holder, you just have no, it's impossible to, like, you can't both be an expert, you know, like, cutting edge blockchain innovation and complicated questions of legal structure in 30 different jurisdictions around the world. Like, especially not if you're supposed to be like kind of a casual Dow participant, right? You're not even getting paid, right? You just have a token.

And it's definitely not like, fun. and it's kind of like a full-time job and yeah very few people did that and could really do that so with the sub-dials i mean we basically try to make it we split it up into these more like focused bite-sized chunks kind of right like projects and then um they will they all have their own community they all have their own culture their own design their own language their own you know like the idea is also to tap into actually to do this other thing that we discovered in um Defy Summer, which is like, I mean, we actually call it very simplicity, like the NFT sort of dimension, right? Like that there's something beyond just cold, hard cash.

There is a sense of community, like a sense of shared values, right, that draws people into what's possible with blockchain and immutable infrastructure, right? So that's also something we can harness and sub-dows to ultimately get something like, for instance, a community that is like, look, we are all in it together to, you know, make, really push to the limits what's possible rival assets and do things like trade finance or funding small businesses and actually act as like the the connection between the kind of the bulky economic might of maker itself and then small businesses in emerging markets that could really benefit from having direct access to this the thing is maker itself would never be able to do this it's way too complicated right impossible to scale but with a sub-down you can have the subdub in between sort of essentially like take the risk of this interaction

by putting up their own capital and make their own decisions with their tokens right so they can vote with their own governance tokens that they farmed and they sort of you know they self-organized by farming the same token now they're voting with this token to bet on business ideas that they think are going to pay and in doing so they can sort of basically borrow cheaply from maker and then lend at a higher rate to small businesses in emerging markets, for instance. And then if they succeed and they get some good yields in return and don't have a lot of defaults, then they get the most of the reward. So now you've dealt with this problem of like this sort of apathy of like,

it doesn't matter what I do makes no difference to me that we had in the early days. Now suddenly it's like if you get in a good sub-dow and you make a big difference and the sub-doubt does well, you're going to get really, really rewarded because most of those rewards will go to that specific subdub, which will be a much smaller group, right? And they'll be only doing that one thing. So that's how you resolve for the issue of, you know, people when they farm, they often just are there during the time when they can get a lot of new tokens, which then they, you know, dump or whatever to make a quick profit. So this is your way of getting people invested. So they stay longer term rather than just trying to farm and then move on to the next farming opportunity.

It's actually a slightly different issue. Like I actually think so we actually don't mind people farming and just selling the token. We just want some people will not do that and those are the ones we want those who just sell the token. That's actually also fine because the tradeoff is if you farm with your new stable then you cannot get the savings rate. So there is kind of a cost to getting the the subdoubt tokens. And that is that you're not getting, you're not getting a savings rate in cash. So that way it sort of equilibrates over time, right?

That is what you'll be able to farm with the tokens will be. I mean, it'll likely be more than you can get from the savings rate since that's, that's, you know, very reliable, stable cash, right? But it will not be, I mean, but basically at some point, more and more people will farm the stockout tokens and the value, you know, the yield would go down,

but it will never go lower than the savings rate. Because if the savings rate, anyone can get that right. So if you're farming a subdow and you can get a higher yield switching to the savings rate, then you're going to switch over to that. And this then means that the system is actually, it can do this sustainably, basically, because as people farm the subdard tokens, they deposit capital into the core maker system. And the core maker system then allocates that capital out into collateral that generates a yield. And if you're then farming a subdued token, you don't get the yield yourself. The core gets the yield and uses that yield to then basically create and support the subdows. And so basically you can choose to get a yield of cash, or you can just to get this indirectly as a subdial.

But then as you get it indirectly as a subdow, this whole universe of gamification and incentives and possibilities is available to you if that's something you're interested in. And again, it's all about making it as easy as possible, right? It needs to be really straightforward. And by having many different choices, there's a greater likelihood that there's going to be something for, you know, for people who are interested in that, right? So something like real world assets or deep crypto or even, I mean, one of the kind of the things we are looking at and sort of experimenting with right now is like it's like a soft down that is focused on the Japanese community and sort of we, you know, it's kind of like trying to take a completely different angle of like instead of making it focus on a particular product. a product, then it's more about like a brand, a set of values, a culture. And I mean, and specifically the Japanese crypto community, which is quite, it's kind of quite distinct. I mean, I guess a lot of crypto communities in Asia are very independent.

But the Japanese community is particularly so due to like language barriers and also like cultural differences, something like that. But what we what we have found is that there's actually a lot of, I mean, of Westerners basically, in crypto. that think all this stuff are like Japanese values, like Japanese like art, anime, this kind of stuff. That's something that's like really, that's appealing to them. And through a sub-dow, it's like you can offer something. I mean, in the end, it's just a yield, right? It's just an interest rate.

But you can offer it now in a, like, in a completely different form, right? Like, it's something, it's not just like rational, cold, hard cash with no, like sort of, I don't know, like, gray, boring thing that's just like doing math and managing your finances. It actually can become like a sort of an emotional gamified experience even, right, of like participating in something and finding something that sort of resonates with your own values. And finally, and this is the most important part, is not going to blow up in a Ponzi scheme because this stuff happened during the bull run, right? But the problem is it was abused to create Ponzi schemes and take people's money. And that's the big difference with the sub-douse is that all this sort of the economics and the

tokenomics and the all these like value flows are very, you know, balanced and and, you know, they're like designed to be sustainable as the, that's the main objective, right? It's not about like pump and dump. It's not about getting people to like buy a token that, you know, without knowing what they're going to get in return. Rather, it's like basically taking the core maker values, the call maker knowledge that we build up over all these years, and then actually making that available to these more, I guess, like more fun, more flexible, more independent communities so that you get kind of the best of both worlds. All right.

So in a moment, we're going to walk through the other phases. But first, a quick word from the sponsors who make this show possible. Join over 10,000 attendees for this year's biggest crypto event. 2049 Singapore on September 13th to 14th. Sandeep from Polygon, Eric Wall, Chris Berniske, and over 200 others will hit the stage, joining the industry's most influential for an unforgettable experience ahead of the Formula One Grand Prix race weekend. Singapore will transform into a crypto hub for a week from September 11th to 17th, with over 300 side events that will make for unparalleled networking opportunities. Builders and investors at the bleeding edge of innovation will drive an agenda that covers the ever-evolving regulatory landscape, the convergence of crypto and AI,

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and Avion points that never expire. Your idea of never missing out happens here. Conditions apply. Visit rbc.com slash avion. Back to my conversation with Roon. So we've discussed the rebrand. We've discussed sub-dow farming. Now let's discuss the other two phases.

Yeah, so what we call phase three is a little bit more fluid because it's going to be, we're going to start implementing that immediately. In fact, you could say this is actually maybe what we started doing right from the beginning. So phase three is the implementation. And maybe you can say phase three is like the delivery of the governance AI tools and the sort of the core governance infrastructure to a point where the system is able to run autonomously and run without, I mean, basically without needing any particular person involved, right, without needing me being involved or other like. core team members or something like that. And we already had we already pretty far in some in some ways

with doing this because the very beginning of the end game was that we created this thing originally we called the maker constitution, but now we changed the name to the maker atlas. And so that's because basically constitution has a lot of connotations and baggage that it turned, you know, we just want to avoid and and it's a new thing. It's not it's not exactly the same as a institution basically. It's not exactly the same as a legal system, but it's similar. And it's, it's kind of like a mechanism for creating like at the sort of the outer layers of it. It's,

it's about creating governance boundaries. But then you kind of weave those boundaries and the processes and the principles that you create that are possible within this structure. And you use that to basically design and implement. and enforce alignment engineering. Yeah. So the Atlas is this rule set, basically, that sets the boundaries and then codifies all this alignment engineering, the different ways it's implemented in the system

as gamification, as incentives, and as tools that are provided to the participants. And it's actually, it's already in place today. So it was sort of the thing that signify that endgame was actually approved by Maker Governance was when the first, version of the Atlas was approved. So that was back in, I believe, February of this year.

And since then, it's basically what happened to Maker Governance is that it changed to a format where now the way governance works is that continuously the community updates the content of the Atlas, basically just making it more and more sort of fleshed out, specifying more and more things. the key objective from, I mean, in the beginning, was simply just try to like codify and document and make explicit all the different like, you know, processes and rules and interactions that have been occurring for a lot of the stuff we've been doing in Maker Governance throughout the years.

But a lot of which a lot of it was sort of this informal stuff that wasn't like really official but sort of was. And it was very hard to get involved with, right? and it was very opaque. So the first stage of the Atlas is just trying to document that. But the kind of the end stage, I mean, the place where we want to go with Atlas is it's supposed to actually contain all relevant data for the entire project. So that the definition of like what is relevant data becomes it's in the Atlas. And what that means is it would not be possible to find any information, at least in theory, that is,

like useful or relevant to the ecosystem that is not inside the Atlas. I mean, the reason why we have so interested in this is because today, or rather, it passed, especially. It was this overwhelming sort of hunt to figure out where do I go to get this information, like, how do I find out, who do I talk to, like, how to do this stuff. It was like various or opaque. You'd have to go to five different websites and talk to five different people and go to some different sections in the forum or something like that.

And then instead the Atlas is like it's a single place where 100% of that data is contained. And if it's not contained there, it doesn't exist. Like it's not a part of the system. Well, the one thing I wonder, so I understand, yeah, having kind of like a central repository for the information. But one thing that confused me was, I'm sure you're aware that these newly launched AIs, obviously they're really interesting and they can give you accurate answers. but they don't always, and sometimes they get creative. And so I wondered why you were going to integrate this super new technology when it felt like a basic search would be better, like a really good search.

Do you know what I'm saying? Or maybe you can limit the AI so it doesn't get like, yeah, creative with the answers and basically go beyond kind of what's there. Absolutely, right? And I mean, the first thing to hammer home is that the Atlas itself is an AI, right? it's actually just a whole bunch of data. And ultimately, all of that data has to be human readable. And all of the processes have to be sort of possible to do manually as a human.

So actually, what the AI, I mean, but it just happens to be that if you put all possible data that's relevant to Dow into a giant file, I mean, document or like basically a file, I mean, eventually it's not going to be accessible for someone, especially someone who's supposed to be, you know, just having fun. and being sort of casually participating. The whole point is we want to make it so that anyone can participate in this, right? Anyone can access this. It shouldn't just be the ultra-specialized full-timers, right? And so that's, I mean, that's actually at the stage where, like, I mean, the AI tools come in.

They are really, I mean, they're really just supposed to act essentially as like search pattern matching systems that assist humans in interacting with these processes that ultimately are designed for humans and human readable. So I mean, so first of all, one thing is really important to realize

is this means there's not going to be like one, like maker AI or like one official AI system that's like the thing that decides what happens. Like nothing will actually be run by AI. It's rather that humans will have a lot of very useful tools that makes it actually easy to navigate the Atlas. But at the same time, they're going to have to deal with,

I mean, exactly what you're talking about. that there's always going to be the potential for inaccuracy, not just from the AI, but actually also from other humans, right? So this is actually just like a normal heart of governance. And the key way you deal with this problem is diversification, right? So, I mean, when you think about it from the perspective of AI tools, is that you want to have multiple different tools that work in different ways, maybe just some that are just basic search tools, right?

And while others are language models, and maybe something, I mean, more exotic like symbolic AI or something, you can use many different tools together, right? You can use search, you can use language models. And so language models are particularly good at things like summarizing a huge amount of complicated data, for instance. But in the future, also more advanced AI, something like symbolic AI and neural symbolic networks and this kind of stuff.

And basically the key is that humans are the ones running everything, and all of these tools are just making a lot easier so that it becomes possible as some total casual outsider to potentially completely master all of the rules of the entire system and sort of be able to say, I'm going to check out if there's anyone anywhere in the whole ecosystem that's breaking some tiny little rule. And that will actually be easy with the AI tools

However, it will not be correct 100% of the time. So if you do that, then all you will know is you'll basically know where to pay attention. You're not going to know with 100% certainty. Here's somebody who's like breaking a particular rule. But you'll know that here over here there's a good chance that there might be something that is, you know, if you look more into it, there may be something that is that is misaligned with the rules. And then the final sort of piece of the puzzle here is that as a total, outsider, if you can basically sort of prove based on the rules of Atlas that somebody took an

action that was against the rules as they are, as they have been approved by the governance, you can get a whistleblower bounty. So this and then the people who were responsible for following these rules and operating within the system, they, I mean, that's basically that's the sub-douse, right? So primarily the, I mean, the sub-house are the ones that are sort of doing all the operating in the system. And the subdiles have tokens and they have, you know, they have reserves and they have a treasury and they're collateral. So when you, like, so basically they got to pay your whistleblower bounty.

And that means they're going to, you know, they know that anyone can come and very easily ask all of these power of AI tools if we're not following the rules. And then we'll have to pay. So we'll, there's, you know, that just creates this incentive to be very careful about doing things according to the rules, right? And the sub-dows themselves, I mean, they're also just made up of people, right? But they also have access to the same tools. So they can basically ask the same tools, like how can we operate so that we minimize a chance that we break the rules, right? Again, though, they're still fundamentally responsible as humans for, you know, if the AI is

wrong, then, you know, there's no way to like prove that they weren't intending to break the rules, right? The fact is they broke the rules. rules. So they got to always double check everything. And that's sort of the role of like the humans in the system, right? It's that they are like the final sanity check. But as long as the AI systems then perform correctly, the humans just understand that they are taking the responsibility. They are sort of pushing the button according to what the AI is suggesting. Then you could think of the system eventually, especially as the AI gets very mature, as a system that is like, you know, very rapidly able to iterate, able to innovate, able to make decisions through, you know,

AI-driven sort of intelligence, right? And like thinking and reasoning about this is the data available. This is the best possible choice. Something like, where should we allocate the collateral? There's a new proposal. We can process that super fast and be like, yes, we'll, we'll deploy capital or maybe no, we're not going to deploy with you, but we'll consider these like, you know, 5,000 other possibilities and pick the best one out of them. And that's the kind of stuff that today is like, I mean, that's completely out of reach of today's Dow's, right? Like today's Tao's is like, who's the, I mean, step one is you've got to be friends with

some insider, right? And then step two is you got to wait for two years for some like, you know, masochistic bureaucracy as it's sometimes called, right? And with this kind of approach, it's just things can be so fast, right? And sometimes there will be mistakes, right? So sometimes it'll go too fast and a subdial will be a little bit too fast and loose or maybe like we'll just like get used to just rub staming whatever the AI is suggesting. And then one day it's just hallucinating and setting them in the wrong path. But when those kind of mistakes happen, then the overall like the boundaries, right, the large scales or governance boundaries prevent any particular action from being like too massive in one go.

Right. So it's kind of a big part of the system is learning, right? that if a subdub does something, it turns out to be a bad decision or a broken AI or something, then maybe they suffer a loss. But that's fine. I mean, they're designed for that, basically. They've got, they're overcapitalized. They've got their tokens. They sort of, I mean, so first of all, they insulate, you know, maker from taking any sort of loss with all of their own capital, right?

But also because they're, I mean, they themselves, you know, well, at least they have all the tools available. and all the knowledge available to practice correct risk management. Then it also might just be, okay, well, they moved too fast. They took a loss. But now they, I mean, now they know this is the way things can break. So now they can sort of integrate that into the Atlas and basically be like, from now on we know that whenever this happens, we need to do some extra checks because otherwise it can go wrong.

And what's really cool about this is that this is not just going to be contained in one sub-down, right? Now that knowledge will like be available to the whole ecosystem. So you again get this like best of both worlds where on one hand you have these individual actors that can move fast and break things right and be very flexible and focus on particular specific areas. But you also got this like very scaled up sort of network effect and economies of scale of like a very large system where you got a you just need to pay the price of making the mistake in one place at one time. And now the whole ecosystem will learn that and will forever be able to actually. that data and the AIs will be able to sort of think about, okay, well, maybe they're doing something similar in some subdub somewhere else, but they can actually look at see that, well, there's other stuff now. They did something that looks similar to what we were doing. And there was a problem. And they, you know, they should have done these particular checks. So we got to make sure we will do something similar. And the AI tools help the humans also try to sort of make those connections, right? And sort of search through all the data and then try to integrate it. Yeah, I think, I mean, it sounds really interesting in that way, and it does remind me of how people talk about how AI will be used in health care so that doctors who maybe are less familiar with certain things, they'll at least have the knowledge that comes from the experience of other doctors. But, you know, a part of me thought, well, you could have sub-dows that do things that are positive for them, but negatively impact other sub-dows or negatively impact the whole system.

which, you know, I think it'll be an experiment for sure. One thing I wanted to ask you, though, is that Andresen Horowitz opposed your plan. So why is it that you think the Maker-Dow community decided to adopt it anyway? Well, I mean, I guess a big reason is that I'm just by far the most active, you know, large holder of the tokens, right? And I've been doing the whole thing uncompensate as well. So I'm like a proper volunteer, right? So I think that... Well, except you have

slightly under 10% of the total MKR supply, I think. Yeah, absolutely. But I mean, the point is that if I didn't think that this would be beneficial because I hold all these tokens, then I wouldn't do it, right?

And on the other hand, I mean, more importantly, I'm doing it because I think they will basically be worthless without it, right? Like, I don't think that the, like, basically in the current state, like dows will require like you know i mean basically they they don't they just don't really work unless they are very close to to being centralized the way they currently work right so and for my perspective that's that's like a dead end like so what we need is that is some kind of answer to this

that is more than you know let's just pretend that's not the case or let's just hope for the the whales are going to go correctly or something like that and then i mean i think the final thing is that this sub-dow model has immensely, like, helped this internal friction and drama that, I mean, happens at every DAO, but especially happens a lot. Well, I haven't a lot in MakerDAO, right? Because, and that's going back to the thing of, like, the sort of the cultural element of sub-dows, right? That it turns out that in a DAO, just like in any organization, I mean, so much of what's

happening is not rational, it's not mathematical or financial. about it's like people working together and then some people having trouble communicating because they're cultural differences or personality differences and and in a in a in like a in like a sort of a cookie cutter naive down there's this super dysfunctional dynamic of if you have some kind of conflict between two people you can like escalate it publicly to sort of the code of public opinion which is just such a horrific yeah it's just such a terrible environment of working And yeah, I mean, it's really that everyone that's worked in the, I mean, basically throughout the years have been like crawling through the mud and dealing with this kind of stuff in Maker. Everyone did it because they saw this like lighter than the tunnel.

They had this like belief that one day we'll figure it out. We've got to be able to have some way we can create as like utopian decentralized organization, right? This like open collaborative community and we'll figure out a way to get all the drama behind. us and all this like dysfunction. And subdiles basically is like the first realistic sort of answer to how to deal with this. Because what it means is, oh, well, all the people that work well together, they go in the same subdow. Those that don't work well together, just make sure they don't go in the same subdap. Then suddenly it's like the kind of the conflict becomes like, I guess you can say explicit in a sense, right? And it turns into just competition. And in fact,

a kind of competition where you still end up collaborating. I mean, I understand. I understand. understand like why you're doing it, but I don't know if it will necessarily turn out that everybody in one sub-Dal will disagree with, will agree with each other because as time goes on and the DAO coalesces around a certain purpose, then there's going to be people who disagree on, you know, steps forward. So we'll just have to see how it works out. But I wanted to also ask you about what we mentioned earlier, which is your large. holdings of the MKR token. And, you know, to have this one actor that, you know, has such a large percentage of the supply,

that's a problem for a governance token. So how are you trying to mitigate that problem and or actually just solve it? Yeah, actually, I just want to, one thing I just want to manage about sub-dust. Well, so the answer is that's actually phase four. So it's like the last phase is once everything else is in place, then we get to the point of, we get to this. the central issue of voter apathy. But I just want to make one quick point about the dynamics of sub-douse and there's like

the question of alignment between people. So basically the thing is sub-douse will totally fail. There will be sub-dows that have drama and can function. And they will actually, you know, they will go extinct essentially, right? They will just not make it. They'll not be competitive compared to those that figure out how to work together. I mean, another dynamic, though, is that you do also have the, you know, you can very easily walk away, right? So it could also just be that you're like, oh, this sub-dial is not for me anymore,

but there's this other one that, you know, maybe is compatible. And then you can, like, you've got somewhere else to go, which is not the case in old school maker and old-school model lithic dials, right? But the most important ultimately is that sometimes it will just die out. And then what the system does is it just creates more and more. So it just keeps creating new sub-diles and the rate at which it creates new sub-diles depends on how many there already are. So the more there are, the slower it creates new ones. So eventually you get some kind of equilibrium where if a lot of them die, it just creates a lot of new ones.

And then those news ones, they're going to look at, I mean, in fact, it'll be integrated into the Atlas. Like what happened and knows that where it didn't go well? And what are they doing in the ones where it does go well? Maybe it's something like you've got to make sure you fly everyone together, got to spend a lot of energy on having, you know, meetups or something like that. And if you do that, then it helps, right? Or maybe you've got to really be laser focused on what is your focus area.

And if you try to do too many things, then you get clashes off. Or maybe there's just some people that are just not suitable. And whenever you hire those in a sub-dial, they help, you know, they make it blow up. Whatever it is, you can kind of learn from it, right? It's kind of an evolutionary process. And, I mean, I can't guarantee it's actually going to work, I guess. You know, maybe they will all blow up, in which case, I think Dow's, simply do not work.

And that's kind of my thinking with endgame in general that like this is like the last chance. If it doesn't work, then I don't see how the idea works at all, basically. But if we just find a few instances where it works, then we've got everything lined up to like learn sort of aggressively, you know, like build on top of that and learn from that and make sure that that's what's done and everything that goes against that, everything that goes in the wrong direction, we can very easily sort of cut that off, basically, cut it loose and really make sure we're focusing on this singular goal of actually

making it work, right? Actually trying to deliver the true purpose of the project, right? And, okay, so phase three, the end, like the end of phase three is this, I mean, that's sort of, that's basically the idea is that that's when we are at this stage where now we have a sense of, we know how it works. We know how to make it work, right? We know how to make and not blow up people. And the AI tools are mature enough and the Atlas is mature enough to contain this knowledge

and to help to very easily guide people into like, you know, so it would be something like, the Atlas contains a bunch of data related to how to constructively participate and the AI helps explain that to you in a way that you're going to understand as an edge user. So that whenever new people come in, that very, very much directed towards, you know, don't make a bunch of comments about something or, like, make a bunch of proposals.

That's going to piss people off, right? Don't do that because that's not going to work well, right? Do something else, like participate in this way, and that's going to help you understand how to constructively participate. Something like that, right? We'll be able to, like, grow the ecosystem and participating isn't going to require that you, like, have the right friends or have the right mentor or something. have the right connection, right?

You actually can sort of just come from the outside and kind of integrate. And it's easy. And I mean, it'll never work 100% of the time. But I think it would be like a lot of the time it will work because if people want it to work and they have enough of an open mind that they can fit into one of the six sub-dows, that one of them is like it's the right fit for them. I think all the cards are stacked in our favor in the sense of like, I don't think there's going to be many people who, I mean, if they have a genuine interest,

I don't think there's going to be many that's going to not be able to find someplace where they're going to fit in. And when we finally have recess stage, that's when we then can go. I mean, when sort of phase three is done, then we can go to phase four. And so phase four is about basically locking down the governance by putting in place voter incentives. So basically, and we go through this system. called this Sagittarius locksteak engine. And so locksteak, lock staking is, it's like our word for something. It's similar to like the curve tokenomics, right?

Of like you, you really lock your assets up into the system. In our case, it's you don't lock it up behind a timer. You lock it up behind an exit fee. So it's like, if you lock your new, new Gov tokens into the system with this, I mean, if you lock, stake them, then if you want to unstake, basically, unlock them again, you've got to pay 15% of your principal. So you can leave the next day, but you've got to immediately pay 15%. So it's a very steep price to pay, right?

So once you're in like this, you want to stay in for a long time. And the reason why you want to stay in, the reason why you want to get in the first place is because you're getting paid to vote. And the way you're paid is through, well, it's like a choice. So you can choose to either get paid in a percentage of the cash income of the system or in subdoubt tokens. So this is the one other way to become a subdart token holder is to have the, well, the upgrade of MPR, new Gov token, and then lock stake and then get a large amount. Like, I mean, there's a relatively large amount of subdot tokens you get this way because obviously there's going to be a lot of stablecon holders. while not that many lock stakers compared to the stable homeowners.

But ultimately, I mean, because the rewards for lockstaking will be so significant, you know, it'll be, I mean, there'll be a lot of people doing it, right? There'll be a lot of inflows because the yield will just be so, so high that even with the exit fee, it will be, you know, it'll be irresistible, basically, to people who are already, like, participating in the system. And then when that finally comes around, I mean, that's when whales like me finally can sort of pull back, right, and not really have to be so active. And in theory, I could like leave entirely, right?

I mean, that's what always, that's always been my goal is I could get the system to a point where I could just entirely leave or go on holiday for a year, right, and not even check in or anything, right? And just basically count on that all of the incentives, including you've got these lock stakers that are locked in the system, they have to vote. And because it's expensive for them to leave, they're going to be interested in making sure they vote in a way that doesn't damage the system. And can they delegate?

Well, actually, they have to delegate. So lockstaking requires that you delegate. Oh, right. If they're delegating, then they can outsource the voting and then they don't need to actually be active. Yeah. Well, I mean, the way they're active is they're choosing how they outsource the voting. So basically, this is all a part of like the Atlas and the Goverland's AI tools.

There's like a whole system of like checks and balances where basically the what we call the aligned delegates, which are the like professional compensated delegates, they have to follow specific strategies that are designed by another type of professional compensated participant or the aligned voter committee member. And this creates a sort of check and balance where in all cases, there's a lot of of rules around that basically when you participate as one of these aligned, well, actually they're called alignment conservers, right? The number one job that they have that they're getting paid for is that they have to make

sure that the boundaries of the Atlas are respected. And they're following what we call the Spirit of Atlas. So this basic idea that, for instance, I mean, one of the things we keep, we saw a lot that naturally tends to happen when you delegate is that the delegates tend to think that they should have more compensation and the role of delegates should grow over time, right? That they should be doing get more responsibility. And this is like, I mean, this is a total natural thing if you're like on remote control and just delegate power and you're just like, oh yeah, you'll figure it out. I'm not going to give you any support other than just telling you to figure it out yourself. Of course you're going to

then be like, well, then I have to put things in place so I have a chance to figure it out, right? that's actually a natural response for people when they sort of thrust into that position of of of power and authority that they weren't even expecting to get right because that's not sort of the supposed to be the point of being a delegate right but with with basically an endgame as a delegate you've got all you know you got this very streamlined gamified process you've got the Atlas giving you a lot of boundaries a lot of of of you're you know, like data around how what's supposed to be, how a decision is supposed to be made, made, and you've got the AI tools to navigate all this. And everyone else has got the AI tools to figure out if you're following the rules enough, if you're remaining in alignment. And so the end result is that as a voter, as a lock staker that's being, you know, that's basically, that can, you can choose to lock into the system so you can get paid to vote.

your user experience is this, I mean, sort of like a gamified election, basically, that is like every single year you've got to go and you got to elect. Basically, what you choose is you choose a delegate and then you choose a strategy. And it's comparable to like, I mean, a democracy and choosing a political party. And we, I mean, right now the word, the terminology we use is that our equivalent of like the political spectrum is that we got what we call dovish and hawkish governance, right? And so Dovish governance, that's like higher budgets, you know, lower rates, lower spreads to use us. And there's like long-term focus of like let's grow, let's get things done. Right. And then Hawkesh is like lower the budgets, increase the spreads, right.

Focus on on accumulating capital, building up buffers, sort of securing our financial situation today. Obviously, there's a lot of other factors as well. But there is a very hard limit on like what it's possible to make decisions about. So the Adlerus just like forbids, you know, something like, let's change the role. Let's make it so delegates also do marketing and double their budgets or something, right? Like that's a proposal. Like there's just no way that you could ever make that kind of a proposal. Because every single AI tool would just be like, can't do that.

That's misaligned. You're going to get a whistleblower bounty for shutting it down. right and it's naturally like there's no way you could interpret the atlas to allow something of that and same thing goes for i mean something like let's uh also launch uh out of a derivatives market from the call or something all of that would it would be the same would be like no way the call needs to be bitcoin like as we talked about in the beginning right it needs to to stay the same and not get interrupted and not drift and not corrupt uh and just focus on this basic objective of stability and mitigating tail risk.

And then all that fun stuff and, you know, all that experimental stuff, go do that in the subdubs. Right. So that's the other thing is that we have that outlet of like we're not saying, well, forever it just be like the most boring thing and nothing can happen. Actually, there's plenty of room for that. It's just it needs to happen in these kind of de-risk sandboxes of the subdiles, right? So if you want to do some crazy experiment, then there's. there's a time and a place for that where the incentives are correct. And if you make a mistake, you're going to basically, you know,

you can't like socialize that to everyone else. It's going to be for your sub-dow specifically. And the other participants in the sub-dow knows that that's what they're signing up for. So we'll get to the question about your allocation of tokens in a minute. But why don't we just keep talking about some of the things that you're launching as you guys implement this new endgame? you have the Spark lending protocol, which you mentioned briefly earlier. You know, you could talk about that.

And then also, you know, Dye recently adopted an 8% interest rate. I don't think that's sustainable. But, you know, maybe you could talk about both of those things and what you're trying to incentivize. So Spark Protocol and SparkDow is like, that's kind of like the first subductor got really fleshed out. And basically it was, I mean,

it's based on the Ava code base. Because it's just, I mean, basically it's like an attempt to adopt is like very modern, powerful featured codebase. And then, yeah, like use that to experiment with having that in a sub-dial and then having the sub-dial determine things like what collateral to onboard. I mean, we in Maker, we discovered that we were really, really bad at picking collateral types. And we paid huge sums of money to onboard all sorts of stuff. And then we had to pay huge tons of money to off-bought it again.

And like we developed oracles and we paid crazy gas costs for the oracles. And then we had to like shut down the oracles again. And usually we never made any money at all from all of these like random collateral types. But it costs a lot of money. And I guess even worse, it cost a huge amount of governance attention. So that's kind of idea of Spark Dow is it's a Dow that, you know, maybe by only focusing on that and not being distracted by all the other stuff that we were distracted by in Maker,

they'll actually be able to pick the winners and mitigate the losses. And if they're not able to, then they're going to be the ones paying, right? It's not going to be the entire Dow that'll be paying for this. And, you know, maybe it went on for like a year before anyone noticed, basically. And that's the kind of the classic Tao thing, right?

That you're just repeating the same thing and nobody cares because it's so big that like any individual isn't really going to have you know, going to feel the effects of it in the short run. And then so leading up to, I mean, the launch of token farming for SparkDau, which is a lot of interest in that, right? A lot of people are really excited to get involved with that. But, I mean, but we basically want to make sure, I mean,

we want to have as many people as possible to, to farm these tokens and to, I mean, we want to really grow the demand for dye, right, for this, well, for this new stable coin, this new brand. So we can, I mean, I guess, hopefully break the stack. nation in the space and and and you know bring in a new you know a new wave of users and show them that there's actually something exciting that can be done that isn't going to be a scam or heck or something the problem is that right now maker is mostly seen as it's right it's like I mean well die is used for as a stable coin it's not really perceived

as a place you can get yield right there's not I mean that's because the die saving rate has been 0% for so many years. So even when we increase the die savings rate to like 3.5%, which is very sustainable given the yield that maker can generate from real assets, nobody really adopted it. Like the adoption happened very slowly. So this new initiative called the enhanced die savings rate is basically based off, I mean, basically the difference between how, like how, like basically that, actually everybody that holds dye should be getting the dice savings rate.

savings rate if they were rational. And if only a very few percentage of them is getting it, then that leaves this massive amount of like unutilized dye that is just generating excess yields for the protocols for the protocol basically, right? Like if somebody holds die doesn't get the die savings rate and Maker gets to put that into high yielding real estate, then Maker is going to earn a huge windfall surplus. And we've been doing that for like, I mean, basically the whole year. the dye demand has also been decreasing and generally the whole space has been sort of stagnating right and so in the light of that basically the enhanced dye savings rate is basically making the better that we're better off investing in growth right now than just like hoarding profits especially because what we can do is we can kind of like send a signal to the market that look die is actually going to be about not just stable coin it's going to be about yield as well and this is kind of kind of

like the first taste in a sense, right? And if you remember, then the key thing that makes subdu farming sustainable is that you cannot both get the die savings rate and farm subdaos. So we wouldn't actually even, I mean, in the end, we would be doing something of this anyway once we launch the subdouse. So we wouldn't, like, it's not, in that sense, it's not costing us as much. or like it's not taking away our long-term income generation potential because we never counted on I mean almost like ripping people off in a sense right I mean I guess we're not ripping people off but like people are not we're offering the money and they're not taking it so we're getting the money ourselves and that is not supposed to be how the system works so by setting the die savings rate

higher and getting a lot more people into take take the yield that helps it without growth it costs money, but ultimately because we'll be doing the sub-doubt farming anyway, then it costs less money than you think because many of these people will convert over the sub-doubt farming once that goes live. One of the big topics in Defi has been regulation. I mean, it's really been the topic in crypto everywhere. But, you know, I've seen obviously you're blocking Americans from the yield farming in your new system.

Why is that? Yeah, I mean, so. like you said yourself, right? Regulation is like, and compliance is like really the, it's like the biggest thing that everyone's focusing on now. And like in the whole, in the mega ecosystem, like every company, every participant, they're all like trying to figure this out. And what would need to change in American regulation for you to, you know, unblock Americans? So, I mean, that's, it's actually really hard. I mean, the problem with the U.S. is that it's just, it's just uncertainty, right?

There's actually no, it's not really, I mean, it's not very clear. And so it's uncertain. And I mean, I think basically for now this is like the, this is like the best. I mean, we're comfortable with like the current approach to this. And unfortunately, I mean, obviously it's, it's, I mean, it's annoying for end users. There are a lot of people are upset about this, right? because they think it's like some kind of discrimination or something like that. But ultimately, I mean, like I said, I mean, like you said, this is a number one thing everyone's concerned about.

I mean, this is the number one thing that could. And it's also, we're also being impacted by the fact that there are so many hacks, there's so many schemes, right? That's just further kind of, it means that you really, like, it's a very good idea to be prudent and, you know, really find the right solutions for this. So you're basically, it sounds like a couple of things. First of all, there's no clarity around the status of tokens, how they should be regulated. And then second, it's that if the North Koreans hack you, then you won't face a tornado cash type of prohibition. Is that what you're getting at? I mean, the whole question of hacking and tornado cash and so on, that's actually a, I mean, that's a,

that's not really related to yield. That's like its own problem, basically. But I think, I mean, and I mean, yeah, and the tornado cash is like its own complicated case, right? With a lot of complicated facts and nuance to it. But, yeah, I mean, like, I mean, again, it's ultimately, this is an evolving thing. We have a huge, we have this, I mean, we've got both this thing we're called

the legal resilience fund, basically, legal resilience, like, process in the Atlas that budgets for just like generally making the system as resilient and as, as, you know, strong in order to protect users from some kind of like accidental side effect of regulatory action or something like that. And then also like legal research, right, so that we're trying to like adapt. and predict what's going to happen in the future. How can we improve the system? How can we even try to impact things

so that the global regulation of crypto can go in a more positive direction? And I think overall, the thing that I had the highest hope for in terms of like, I mean, basically getting us beyond regulation being the thing that everyone's worried about all the time and that sort of is one of the big sort of issues

that the space still needs to, correct, right? I think overall, like, basically we need to prove that those jurisdictions that embrace crypto and do offer clear guidelines and do basically make it, you know, create a good environment for crypto businesses. We need to show that they're going to get rewarded big time with legit value, innovation, jobs, growth, not a bunch, you know, not that they then get a bunch of scams. And that's really a major part of our strategy, right? And they're an, and it's a, and it's So in particular, South Korea and Japan are two countries that we are focusing heavily on. And that's because they have, I mean, they're exactly in this kind of shape where like they actually provide very good environments, very stable environments for crypto.

If we can, I would love to be able to, I mean, have basically these subdiles that could find ways to allocate real estate into these jurisdictions and generate good yields. because they're just like, I mean, they have basically shown that, you know, they're not going to create a bunch of uncertainty and then in that, make arbitrary decisions and then be like, oh, it's your own fault, you should have known better, right? But rather, I mean, not that that's, I actually don't think that's necessarily really happening anywhere, but the possibilities there in many places. In South Korea and Japan, they're probably the two best places where it's just like,

that doesn't seem possible the way, I mean, given the current signals that are being sent from there. And then the other thing is they're large countries, right? So they're not like some tiny offshore or just like a place that will very easily get pushed around by other countries. All right. And so let's revisit that question about your, you know, the fact that you own slightly under 10% of the supply of MCN. what are you doing to either mitigate that problem or just resolve it completely? Yeah, so like I said earlier, I mean, basically what needs to be in place before it's safe for me to, I mean, potentially stop participating or selling my tokens or maybe just like delegate and go on autopilot?

What's needed for that is, I mean, first it's the phase three element of like there need to be really strong rules and boundaries and AI tools that makes it possible for everyone to sort of operate the system without relying on like whales and someone like me to be there. If things start, you know, spiraling into some problems, problem, right? But rather we need to, that needs to be built into the fabric of the doubt itself. And then once that's built into the fabric of the down itself, then we can incentivize voter participation. So, I mean, we want to get, I mean, you know, we want to get 30, 40% of all the tokens voting, right? And once we get that, then basically, I mean, nobody, like, nobody's ever going to be a whale that has that many tokens in the system.

So you're never going to have individuals that are going to have much of a, of, like, a say at that point. And even if you did, then there would still be boundaries for what they could do. Like, they would still not be able to break the Atlas. And that's, I mean, the final reason why, and this is actually, I mean, this is protection. that Maker actually has this protection today. And actually no other project has this, but it's basically because we have minority token holder protection. Today, it's in the form of the ability to completely shut down

and settle and unwind the system in case. So that would basically be you do that in a case of an attack where someone's trying to steal all the money in the system. Then you can make it so, okay, yeah, you can't steal all the money. We're going to, I mean, we shut it down. Everyone just gets their money back. I mean, the big downside to that is that, it's still a disaster because now the project is dead, right?

And at the end, at the very last stage of end game, we'll change that to a system where you can actually sort of put it back together smoothly. So it's like a sort of an additional layer of governance that goes beyond the token voting, the token voting. And that actually allows you like, so basically is if a giant whale at that point says, I'm going to like take all the money for myself or I'm going to like rule myself as CEO of the project. And I can vote for that because I have the most tokens.

Then actually the system can be like, well, that's against the Atlas. So it's actually possible for like the entire EU system to sort of cut down, settle out everything and then reform back together. But without this guy. And the reason why it's possible to coordinate around that is because the Atlas will contain like very specific data around like when exactly is someone abusing the voting power. What are you supposed to do in that scenario? How do you do it? How do you coordinate it? So you don't have to like figure it.

out on the fly, it's like all written down already and everybody can use their AI tools to make it easy for them to understand what they're supposed to do in that scenario. And that way, yeah, like at the end of it all, basically it should be like, I mean, I shouldn't have to do anything. I shouldn't be needed for the system whatsoever, right? And yeah, like, I should be able to sell all my tokens and just walk away and nothing material should change for the project in that case. All right, Rune. Well, this has. been so fascinating hearing your vision for how all of this should transform over the next few

years. I look forward to seeing how well it works out. Where can people learn more about you and your work? So of course you can go to make it out.com. That's also a place to if you want to get the enhanced die savings rate and get a really good yield as a taste of what's to come with subdif farming. If you're not American, unfortunately. and then I mean there's our Twitter at MakerDile and then there's my Twitter at Roon K-K. You want to follow for more. Great. Well, it's been a pleasure having you on Unchained.

Yeah. Thanks so much for letting me come. Thanks so much for joining us today. To learn more about Rune and Maker, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with all from Kevin Fuchs, Matt Peltcherd, Zach Seward, Juan Aranovich, Sam Shre Rum, Megan Gavis, Ginny Hogan, Leandro Camino, Shishank and Margaret Curia. Thanks for listening.