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March 29, 2023

Live from ETHDenver: Governance

with

Yitong & Charlie, Co-founders of Agora

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Another episode recorded live from ETHDenver! In this episode, we’re joined by Yitong and Charlie from Agora, a project that works with organizations like Nouns DAO and Optimism to build public governance tooling and infrastructure. Governance is so important to crypto, which is why we’re discussing it today. How does distributed/community governance actually happen? To what degree is it happening? And what do all these governance tokens that have experienced a “Cambrian explosion” actually do? Yitong and Charlie fill us in.

Yitong and Charlie are the co-founders of Agora. Yitong has a background in crypto and previously worked as a Product Designer at Coinbase before leaving to start Vector DAO. Charlie has web2 founder experience and experience with corporate governance and scaling.

Mark Lurie:

Welcome to WTF, Crypto. Today, we are coming to you live from ETHDenver, which is in Denver. Very exciting conference with a lot of very interesting speakers and people here, great opportunity to learn about crypto and meet people in the ecosystem. I'm especially excited for this episode, because we're going to be talking about governance and governance is so important to crypto. We always hear about decentralization, and this idea, this Ethereum, is like a distributed computer. There's all these programs, and apps, and software, that can work autonomously and can't be stopped, right? But someone's making the decisions, someone or some group of people. How does that actually happen? To what degree is it happening? And what do all these governance tokens that have experienced a Cambrian Explosion actually do? Today we're here with Agora to talk about exactly that and I'm really excited to dive in. Thank you Yitong and Charlie for joining us.

Yitong:

Of course, good to be here. Thanks for having us.

Mark Lurie:

Why don't we start by just hearing a little bit from you about why you're such credible guides and experts on this topic, so people have that context as we dig into these issues.

Yitong:

My goodness, that might be overselling us a little bit, but we'll try our best.

We've been pretty keenly interested in governance and working in this field for a while now. It started as a little bit of an intellectual interest, maybe five, six years ago, when there frankly wasn't much governance happening. There's the promise of Ethereum, as you highlighted before, is that it provides a way for people to coordinate design incentives, and attack problems, or a tragedy of the commons, governance of public goods, and this is the thing that drew me to Ethereum. And for a very long time, that was happening at the social consensus layer on Ethereum, and not much of it was really happening in a very software-driven way that somebody could do something about.

It wasn't until the emergence of Compound Governance, a couple of years ago, that this really became a thing that was widely deployed and widely utilized, and that's where we started being really interested. And the thesis that I think we have is there's often this meme out there that, "Ah, yes. Governance, it's all a [inaudible 00:02:46], it doesn't really work.". But I think the reality is that not a lot of people have tried very hard to make it work. So that's where we come in, we're like, "Hey, this is really important". As you said yourself and somebody ought to make a real concerted effort here, on a horizontal level, where we can create some public infrastructure that everyone can use in this space. And that's what we're up to.

Mark Lurie:

Awesome. Makes sense. And so you also have a background. You have started companies before. You've worked at Coinbase. Give us just a little color on that.

Yitong:

Charlie, you want to go first? I feel like you have the corporate governance perspective.

Charlie:

I'll go first this time. So yeah, so my background is more Web2, bit of corporate governance. I've seen a lot of structures scaling companies from zero to a few hundred people, and different stages of companies. And I think what we're seeing a lot, as people would say, we're speed running through a lot of history of governance. And there's a lot of things broken in the traditional Web2 governance world, where either things are opaque, things happen behind closed doors in the boardroom, and the transparency... A lot of times things are moving goalposts to some extent. So there's not a lot of transparency. And that trust, you can't really, especially as a minority shareholder or someone who's on the outside of let's say a corporation, you don't really have much visibility, insight into what's really happening behind the scene.

All you got to see is what the results are, what you get to see are tech run for a [inaudible 00:04:18]. So I think that's what first drew me really excited. So I come more from a traditional background and coming into Web3 it's like, "Wow, everything is on chain. Everything can be verified.". And I think that automatically creates a level of trust that you could start to work and build on top of that just wasn't possible.

Yitong:

Oh, yeah.

Man, I mostly came from more of just doing stuff in crypto background I guess first got into it in around early 2018, joined Coinbase, worked there for four years, worked on a variety of stuff across the wallet app and the consumer app was one of the early designers there, but more so a generalist I guess.

And then left Coinbase started this thing called Vector DAO so that the thesis was, "Well, if we're going to do something in the public good and a community and governance field, we should probably have a community and start one and try to see what happens when you do something like this.". And so that was my entry point into a lot of this. So still do a little bit of Vector today, but mostly focused on Agora.

Mark Lurie:

Okay, great. So let's start at the beginning and give people who maybe are a little less familiar with this whole wild world of crypto, a sense of what governance means. So maybe a good place to start is compounds. So correct me if I'm wrong because you'll probably know this story better than I will, but for those who are unaware, Compound is a money market. It's a lending protocol in crypto. And so you can of think of it as you can deposit some ETH you have into their smart contracts on the blockchain and then people can borrow some of that by putting up other collateral like USD Coin. And they pay an interest rate for that and it's a lending market.

Now they wanted to decentralize this to the community, and so they issued a governance token back in 2020?

Yitong:

It must have been earlier in my mind, but it could have been 2020.

Mark Lurie:

Okay.

Yitong:

Yeah.

Mark Lurie:

And so this governance token basically entitled people to have one vote in decisions made by Compound and Compounds DAO, which is their organization. And so Compound had to build all these contracts which basically how do you vote, what does the vote do, how do you make decisions? And that's the emergence of let's say, at least in DeFi token based governance. Does that sound about right?

Yitong:

That's right. If you want to be nitpicky about the history, of course Maker did it first. And there was Aragon and a bunch of different projects, but I think Compound Governance was really the first one that generally took off and was widely forked and applied.

Mark Lurie:

Okay. And so Compound's Governance contracts are still used by a lot of these other protocols, DAOs, whatnot. It's become a little bit of an industry standard. Is that right?

Yitong:

That's right.

Mark Lurie:

Okay. So how does this work? Can you just describe the governance process in the simplest case or something like Compound or I don't know another project perhaps you work with? And I know you tend to work with the more complex ones, but maybe let's start with the simple case.

Yitong:

Yeah. I think I'll take this one Charlie, if you don't mind.

So you can think of it as at the very base level as... This is a little bit approving a PR, right? You have a very-

Mark Lurie:

Pull request.

Yitong:

A pull request, that's right. Yeah. The developers, when they work on big code bases, if you want to manage changes, you have to make a pull request, which means to pull your branch into another branch. And when things are relative low stakes, pull requests are done willy-nilly, anybody can just merge them in. But when things are really high stakes, when there are billions of dollars attached to a couple of lines of code, now you want to be really careful about how you change the code base. And so we had to design as a community a way to make sure that we can manage changes to a set of code that is very valuable. And that's what really governance is, if you think of it of a very technical level, it's a well defined software enforced way of deciding what code that will be changed and what functions are we allowed to call into this code base as a community.

From a more a human perspective, it's really a way for us to come together and with a pre-agreed set of rules administer a public good most of the time, or a more specifically a protocol that has shared implication for many different parties and where many different parties have to agree on how they want this protocol to proceed. I can go super deep into this, but those are my low level and high level analogies for this.

Mark Lurie:

Okay, awesome. I think that's pretty good. So in a traditional company, let's say an equity instrument gives you a vote and you go to shareholder meeting and you cast your vote and then the board does what you say.

So let's say you're voting for an acquisition, the board then wires the money out of the bank and buys the company. Whereas in this context, everyone who has a token, they vote and the software, there's presumably a code proposal, and when everyone votes, the software just automatically pulls and deploys that code. And so no one actually has to go and execute it in a traditional company.

Yitong:

That's right. Even if the traditional company we vote on, let's say we acquire this company, there's a lot of extra stuff that happens behind the seeds. Well price, who is this company, what are the fine prints? Those things never get defined up front, but when we're talking about a pull request in this case, it's very much spelled out at a very fundamental level saying this code is being executed for this amount on this date, and it's very transparent and it's also logged there for anyone to see it.

Mark Lurie:

Awesome. Super interesting. Okay, so there's all sorts of crazy implications for this, right? You can put any logic in, have any voting, you have direct democracy, so you can have represented democracy, so you can have weird things I presume, different classes of voting tokens, et cetera.

But maybe before we go into that, could you give us a sense of how widely this is actually done and used in DeFi and to what degree this happens on chain? What's the universe of people participating and then how much is hype and how much is reality?

Yitong:

Well, there's certainly a lot of governance being done. I'll put it this way. If you go on Snapshot, there are tons of things happening. If you go on Tally, there are tons of things happening. So there's certainly no shortage of governance.

Mark Lurie:

Man these are... Snapshot and Tally are-

Yitong:

Yep, that's right. So if you look at it in theory there's a lot of governance happening. In practice there's a sliding scale and a spectrum, if you will, of how serious people are with governance. Some of these projects are very serious like Optimism. They have a team, they think a lot about how to do governance, how to involve their community, how to progressively decentralize. Nouns very similarly, very serious about this.

And then there are teams that are maybe if you want to be charitable about it a little bit more fast and loose about things where governance is more of a social consensus where instead of what we described before where code executes automatically and transparently, it's almost an online poll where they pull the token holders and then get the sentiment and then do the best they can to obey the will of the token. So definitely a wide spectrum I would say. And then all different people with different degrees of seriousness, I guess, about to go about their governance.

Mark Lurie:

Makes sense. Okay, so on one end there's this pure people vote and the code automatically executes. And on the other end there's this informal poll and then people who are most involved actually go ahead and do the thing that presumably the token holders say.

Yitong:

Yeah. And sometimes these polls don't even have a thing that they're asking to do, right? It's like, "Hey, do we want, or do we like this thing?", and it's like, "Okay, but what is the action that we want out of this poll?". A little unclear.

Mark Lurie:

Yeah.

Yitong:

So when you don't have strongly defined things in the code to do, sometimes you run polls and it's unclear what the poll outcome really wants.

Mark Lurie:

Yeah.

Well it also strikes me the questions... We see ballot initiatives in all sorts of states. And the process to get a ballot initiative is very tough, not just because you get need to get it on there, but because the way the question is phrased matters. You can do a poll initiative in California for everyone to get a million dollars from the government, but it ain't necessarily possible. And so it seems there's a tension there between freezing things precisely versus abstractly and asking for things that are or not possible. And I guess the more off-chain you get, the more that can happen, the more on chain you get, the more precise of what exactly is happening you get.

Yitong:

Yeah.

Charlie:

Yeah.

Mark Lurie:

Okay. Awesome. And there's a site, DeepDAO.com, and I think it says there's several million members who vote 10,000 DAOs, right? Which are these organizations, and I think they hold 10 billion plus in assets. So this is a big, just by the numbers, this is a real thing.

Charlie:

So the overall stats look quite charitable. It's a large number, number of DAOs. But then when you start to dig it down into it, you'll notice that the parallel as it exists everywhere in life definitely exists here too. Where the top, not even 20% of DAOs, the top like 20 DAOs takes up 8 to 9 billion of that 10 billion in terms of treasury amounts.

And then it also begs the question of how liquid is that treasury and how spendable is that treasury? And even if you know it's spendable, it begs the second question of what does the velocity it's spent? Is there actually impact after you spend whatever amount that's there? And those are numbers that I think the juries throw out in terms of how that is actually doing. And there's not even that much analysis has been done on it to be very honest. I think we've seen a lot of folks start DAOs, we've seen a lot of action happening in governance. I think there's probably hasn't been enough time that has passed to really know is that the right way, is that a better way to run whether there's a protocol or public goods, whatever organization or entity that we're trying to govern.

Mark Lurie:

Okay, makes sense.

And one of the interesting things about governance is that it can be very dysfunctional. So do you have any war stories for us about things you've seen that are especially dysfunctional? And then I'd love to hear a little bit about the innovation you're doing for some of your partners and how they're structuring governance to try to make it healthy and functional.

Yitong:

If we share the real war stories, we'd be shanked by the minute we walk out of here.

Mark Lurie:

Okay.

Yitong:

No. I'm kidding.

I mean it's true, right? I think it's that the meme of governance is dysfunctional. Everybody is getting on their soapbox, saying crazy. That has some root in reality. It is true that if you want the most efficient, fastest decision, you will not get it out of a DAO and you will probably never get it out of a DAO no matter how much we improve. That is not really the point.

If you wanted to do things fast, then you should be a LLC or a C-Corp.

Charlie:

Centralized organization.

Yitong:

That's right.

Charlie:

The definitional.

Yitong:

Yeah.

Charlie:

Yeah.

Yitong:

But if you want to build something that is credibly neutral, censorship resistant, where people can build on top of you and rely on you for core pieces of their infrastructure while also having the confidence that they're not going to get rugged or they will have a significant voice in the ecosystem, that's when you need governance. And then yes, governance is messy because it is a way to capture and represent the competing interest of many different stakeholders. So one example of this is this whole bridge selection process that Uniswap recently went through that we've all heard about.

Mark Lurie:

Oh yeah.

Yitong:

Where Uniswap is deploying a instance on BSC and then-

Mark Lurie:

And just for context, so Uniswap is the largest decentralized exchange today.

Yitong:

That's right.

Mark Lurie:

Non-custodial, they do billions and billions in volume, probably 70% of the market.

Yitong:

That's right.

Mark Lurie:

And decentralized.

Yitong:

Very, very important protocol. And one of the things that they do is that they governed, the DAO governs the right to deploy on new chains. So they've decided to deploy on BSC, but now they need to select a bridge in order to bridge-

Mark Lurie:

And BSC is another blockchain beside the Ethereum, which is Binance sponsored.

Yitong:

Yeah.

And so they have to select a bridge provider. The final two bridge providers were competitors.

Mark Lurie:

And I'll give one more clarification. So a bridge is, sorry I'm stopping you.

Yitong:

No, please. I appreciate it.

Mark Lurie:

So a bridge is a piece of technology that helps a token from one blockchain be transferred to another blockchain almost as if you have US dollar in a US bank account, you need to get Yen in a Japanese bank account, you need to bridge that dollar to Yen and or maybe a US dollar denominated bank account in Japan but you have to bridge that through the system. In the same way you got to do that between each blockchain.

Yitong:

Yep, that's right. So bridge selection was very contentious. There were different people who were for and against different bridge providers, and it was a vote where people came in, some people voted for, some people voted against. There was a lot of drama and brouhaha around it but to me that was... You can see that as dysfunctional in that it is not a smooth decision, it was not done quickly. But the flip side of that, is that that's exactly how it should work. Different people have different competing interests, you're all deeply dependent on Uniswap and we have to have all the stakeholders interest represented and sometimes they're not aligned, and when they're not aligned, you have contentious governance decisions. To me that is the system as it is designed working well.

Now there's a lot of different things that we could have done during this process to make it way better. There's a process-wise, there could have been things-

Mark Lurie:

Wait, but you have to get to the fun part, which is the Andreessen situation. So serve us some of that gossip tea on what happened there so people are aware.

Yitong:

Sure, yeah.

Andreessen came in and then voted against the bridge provider that seemed to be the favorite. And they had their reasons for it, I forget exactly what it was but there was this perception from the community that, "Hey, you guys voted against this because this is not your portfolio company".

Mark Lurie:

Yeah. So basically one... I'll say it in case you don't want to, so at least my understanding is Andreessen is a big holder of UNI tokens and was an investor in Uniswap, and they're also investor in one of the big bridges, which I think is LayerZero or something. And so there was a vote and Andreessen and a lot of these VCs tend to try not to vote because they just don't want to have the liability or they just want to try to stay out of it. But in this case, they came in, they used a bunch of their voting power and they're like, "Nope, we want to go with LayerZero because LayerZero is a portfolio company". By the way, I love Layer Zero, great company, great team. Not saying it's wrong, but that's the drama that played out.

Yitong:

Yeah. And I think that the drama has been heavily narrativised in a very-

Mark Lurie:

[Inaudible 00:20:37].

Yitong:

Andreesen against the community or Andreesen versus Jump, but I don't think that really was what it is. It's like, look, people have competing interest and they're all trying to represent the interest in a neutral protocol. And so they're voting with, well, it's as intended, the system is designed-

Mark Lurie:

They are big token holders, they get the votes, I don't see the problem with that.

Yitong:

Yeah. It's like if you don't like it, you can change the process and change the system, but that is how the system works and it's acting as intended.

Mark Lurie:

Yeah. Interesting. Okay. Charlie, you look like something you want to say?

Charlie:

No. I was thinking more on the previous conversation around there's this whole spectrum where, as Yitong was saying, how centralized you want to get for a particular decision, how decentralized you want to get... Well probably just on the spectrum. And I think where we see, you get to see a lot of this drama, if you will, is where... On a high level, we all agreed that decentralized better, it's more censorship resistant, it's more probably robust in the long term. But then when it brass tacks and we're making a single decision on do we deploy with this bridge or do we give this amount of funding to this working group or something very tactical now is where things get dicey. Some people have very different competing interests.

And there's also a question of, I think... We started to see some of this with different DAOs where especially when you come to very niche or narrow decision making, so for example, let's say it's a risk parameter change or if it's, let's say... Usually it's technical and a lot of times some of the delegates, you have a split between the technical ones and the non-technical ones. And then there's a question of, "Well, how does someone", I'm one on the non-technical side, "do I get enough information to make a credible decision representing my whatever interest that my delegators have trust [inaudible 00:22:41]". And I think that that's one of the things that needs to be solved that hasn't really been quite figured out yet.

And on the flip side, if you then say, "Why don't we just give all the decision making power to this one party who is very technical and can say credibly about that, then does it become a centralized decision?". Flip back to the traditional model of one person who's calling the shots in.

Mark Lurie:

What's really interesting about that is... Companies tend to be pretty centralized, but the dysfunction you're talking about is actually a lot of the dysfunction we see in democracy. And the thing is it's not clean. We have this idea in our head of, "Oh, perfect decentralization and everyone gets this votes and so it's very organic in the community", but the way democracies play out is that you have a lot of uninformed voters and you have somewhat informed voters and you have lobbyists and you have different... For some reason it's not anywhere in our constitution, we have these senate and house majority leaders who command an enormous amount of control just by whipping their constituents, their coalition into shape. And I'm not actually sure that ideal is solvable or even is a thing.

Yitong:

And to be clear, there are much more functional types of governments and democracies and they're less so, but it would be a false equivalence to try to say, "Ah, man, I wish the government was run by a dictator or a company". It's just that's not how we want to run things that we all have a stake in that we all want to be represented in. It's by definition going to be a little more ineffective. You're trading off neutrality for efficiency and that's the wrong trade-off for a lot of things. And it's like, "To be clear, you should not be neutral and you should be very efficient on many aspects", but that's already a solved problem in Web2 company information.

I think the cool thing about crypto and Web3 is that there are all these things that previously were ungovernable and undoable because there was no way to do them credibly neutrally. And now we can.

Charlie:

Interesting. And at least all lot of these things are surface. Mark to your point, it's not that these politics didn't exist in companies, especially when you hear about large companies and different leadership board members coming in by shareholder votes, proxy fights. These things all exist they just happen behind the scenes. They happen behind closed doors. But we don't really hear about them oneself they become so big that someone leaks. Well, here I think everything's just on a discourse level. Yitong had better words.

Mark Lurie:

That's right.

Yitong:

There was this one thing that somebody told me that was really funny, and it's in blockchain you always know where the vibe floor is. It can't get worse than what you can see on chain because it's all there already. Whereas I think in corporate governance and in traditional governments, you don't know where the floor is. Most people are not privy to where things really are.

Mark Lurie:

Yeah. And it's great, but also hard because if you do it transparently, then all your dirty laundry's hung out to dry. It gives a big attack vector for skeptics to look at that and say, "Look how dysfunctional it is", but it doesn't mean that that's not going on in the other ways of doing it. It just means you can't see it. And I guess that's the downside of transparency, but hopefully... It's probably better in the end.

Yitong:

Better than the long run, we hope so.

Mark Lurie:

Yes.

Yitong:

And I would've qualified better for things where it matters. It's there are things that you don't have to be transparent on. And I think it's if you're trying to do that, if you're trying to do governance on things that really ought to be just private companies then it's worse. But once you've identified somewhere where it's really important, then yes, it is long term better.

Mark Lurie:

Yeah, that's a great point.

Okay, so can you tell me a little bit about what Optimism's doing, because that's a very interesting innovation that actually echoes actual democracy in a interesting way.

Yitong:

All right, I'll take it. Okay. Cool.

Optimism is very interesting. At the very high level, they recently transitioned from being a private entity to a publicly governed entity. I hesitate to call them a DEL because they're not quite a DEL, but they are certainly a publicly governed thing.

And one of the-

Mark Lurie:

Actually I should pause you. What I should have said is Optimism is a blockchain. It's a layer two blockchain, so it anchors into Ethereum, but it's a blockchain on which applications of software can just run faster and cheaper than on Ethereum itself.

Yitong:

That's right.

And one of the very important things that they need to do is they need to grow their ecosystem. They need to attract builders, they need to attract liquidity, they need to attract users. So they need to find some way to coordinate all the actors within their system. Traditionally, I think with token governance, as we were mentioning before, then you would just fork compound governance and start from there. What they did instead is they thought from scratch, "Hey, what system do we want? We want your token holders to be represented in our governance structure, but we also want a second level of governance.", that they call the citizen house.

And so they have a bicameral structure that is a little bit more of a house and Senate situation, though not quite. I would argue that it's probably a little bit more, half of it is a shareholder representational structure where the other half is a little bit more of a... The analogy I have is very niche, but bear with me for a second. For the French language, there is a body of poets and authors that are called the Immortals, and they're designated by each other to govern the laws of the French language.

Mark Lurie:

Huh.

Yitong:

Very crazy thing. So that English is a language that just exists in the spoken habits of people, but French is a language governed by the Immortals, and these immortals are elected for life and they are people that have deep trusts the public to good stewards of the French language. And they have a-

Mark Lurie:

That's so interesting.

Yitong:

And they have a very similar structure in Optimism, where they call them citizen houses where these are slowly selected, I don't think for life, but certainly for the long term stewards of the ecosystem that have high levels of social trust from the community to act in the good interest of Optimism and its stakeholders that is sort of a second level decision system that acts in concert with what they call the token house. So very interesting, a two level governance structure that we're very excited to be working.

Mark Lurie:

That's so interesting because when you said French, I thought you were going to say French Revolution and the first estate, the way their legislator worked is the first estate where you're going to have to correct my history, it was the noble, the nobility. The second estate was the business people who had money, and the third estate was the peasants, I guess the citizenry. And so you had heredity gets votes, and then you had money gets votes, and then you had individuals gets votes. And that also seems like it echoes a little bit of what you're talking about.

Yitong:

Yeah, that is where the bicameral house parliament comes from, it's the upper house and lower house, the nobles and the people. So very similar to that. I don't know why my mind went to the French language governance.

Mark Lurie:

No, I love that. That is so interesting.

Yitong:

Yeah.

Mark Lurie:

Okay. That's so cool because they're pulling in lessons from democracy that we've learned over hundreds of years and making it work for crypto. And to your point about sometimes it doesn't make sense to do that depending on what your use case is, but for a blockchain that's trying to be agnostic and have a lot of application development, it's a economy of its own. It's almost like a country.

The same way we were talking about bridging between US dollar and Yen, it's like well each blockchain is its own economy and country, and so it makes sense for that to have a complex governance structure. I'm curious if you think at some point it will reverse and actual democracy will ever start being executed through token based, blockchain based governance. And maybe the US boating system is a little pie in the sky, but there's localities. There's a Estonia which has an e-voting system. I wonder if you think it's ever going to go in the reverse direction and actually be used for sovereign issues?

Yitong:

I think so. That's my short take. I guess when I hear a question like that, my mind comes to what are the arguments against? Why wouldn't that happen? And the only good reason I can think of why that wouldn't happen is really just entrenchments. You're going to have a lot of... It's classical change management. Why do banks still run on COBOL or very old antiquated languages or frameworks, if you will. And it's because been there, people would say it works, the status quo works, why bother changing it. But I do think that with enough time passes, either newer, I guess this is the harder part of municipality because can't really... When it comes to corporations, newer companies replace older companies. They come into place, they create a destruction cycle.

Charlie:

Wow. Yeah. You're a call for revolution, eh? Just sounded like newer things replace older things. Who are you trying to replace? Which country do you think should be wiped off the map? We start with cities though.

No, I actually have the opposite view. I think entrenchment is deep. The governments are the most entrenched of all institutions and they're going to keep working the way that they work. If anything, I think that if you were really pushing this question, it's far more likely that we see net new states that form on using this governance. And they might be things that don't look like states at first, but it eventually come to be recognized as state-like entities. I swear this is the whole biology network state thing. I have my qualms with that, but I think that probably if you were to really push the thought exercise where the new crypto governed state would come from.

Mark Lurie:

That's interesting. Let's push that thought exercise a little further. Can you just give an example of a network? What do you mean by a net new state for the listeners?

Charlie:

I think something like an Optimism looks a lot to me the beginning of a new state. It's a neutral platform on which people can build major pieces of infrastructure that is governed at the base level by everybody who has a stake in the ecosystem and it has rules and so some levels of guarantees that it has for the denizens of the chain and it charges a price in terms of gas to provide those guarantees. Looks a lot like tax to me.

Mark Lurie:

Looks a lot like a court system and a tax system.

Charlie:

They have a tax system. They do tax and they provide a service which is a security service. TBD, if it wants to provide more service, it could decide to, but that that's up to the stakeholders of Optimism.

And I already think that gas is state tax for blockchains.

Mark Lurie:

Yeah. It's a sales tax, I guess. It's regressive.

Charlie:

It's a security tax, that's what it really is. And yes, it is regressive tax.

Mark Lurie:

Yeah. Interesting. Okay.

That bends your mind a bit, right? It's like what is a state? Well, it has, I guess, land historically.

Charlie:

Historically, yeah.

Mark Lurie:

Historically. But it has a currency, it has a military, it has tax, and it has courts to enforce contracts. And that's pretty much it. That's a nation. And so you think about these, Optimism or whatever on chain community, the smart contracts execute contracts. So you don't really need courts to adjudicate. You have democracy through token voting. You have a currency in Optimism. You have a tax to the gas. And I guess you don't really have a military.

Charlie:

But you don't need a military when you have a code in for security. I think that's the cool part is that the security is provided through a different means and that, to me, serves a arguably similar function.

Mark Lurie:

Yeah. I guess what the traditional governments have is a monopoly on the use of force. So the police will enforce what the courts decide and the laws. So I guess in this case, since the code just runs, you don't really need that.

Charlie:

Yeah.

Mark Lurie:

And it's hard to attack because it's not physical.

Yitong:

Also, [inaudible 00:36:17] counter-arguments to that is, "Well we still live in the physical world". So no matter how much security you get on the digital world I suppose, you'll still live in some physical house and someone could still come knocking on your door.

Charlie:

Oh, yeah. I 100% believe that. I think that's my biggest qualm with stuff like network state, is that you can't really exit from the physical world unless you un-alive yourself. There's nowhere on this good earth that really is suitable for human habitation that also isn't within the jurisdiction of an existing state. So really living in a network state is choosing to live in two states instead of one. So I think it's more a state plus instead of an alternate state.

Mark Lurie:

So that's a good point, but just to take it one step further, with enough money and power, if the economy grows big enough, a network state of a bunch of people can certainly influence the way that the geopolitical landscape looks now. You get enough money and you lobby a government, they'll probably adapt their laws potentially for you. You could buy a big slice of land and with enough money, bribe a country probably, it's not really bribery it's just buying. But Alaska is purchased from Russia with enough money, in theory, you could purchase a piece of land from another sovereign state. And so there could be crossover in a way.

Yitong:

I'm going be wrong on my history here, but I believe the last country that was recognized by the UN was not that long ago. So it's still a thing.

Charlie:

South Sudan.

Yitong:

South Sudan?

Mark Lurie:

Wow, nice.

Yitong:

So you can get a plot of land. And if you have, to your point, an economic power, start to get people to also recognize that you are a country.

Charlie:

If you look at the history of new state formation for the last couple of decades, none of them have been particularly pleasant. And none of them have come from a place of liberty and a, "Oh man, what if we had this grand experiment?", usually comes from a great place of oppression. So I don't know about that, color me skeptical about the physical world.

Mark Lurie:

Pessimistic lens there.

Charlie:

Yeah. Definitely a little bit of a pessimistic person when it comes to the physical world.

Mark Lurie:

Yeah. Okay. Fair enough. And we're definitely pie in the sky here and short term I don't see that happening anytime soon. But you look on a long enough historical timeframe, and you have, well, there weren't quite nation states back in futile times. It was just individual sovereigns, and then this idea of the nation state emerged. And so the way we're structured internationally evolves over centuries. And so it's just interesting to talk about that in that context.

Yitong:

Yeah. If anything has a shot of surviving a century, it's got to be Ethereum, right?

Mark Lurie:

Yeah.

Yitong:

Ethereum can [inaudible 00:39:35].

Mark Lurie:

Yeah, that's true.

Well, look, thank you for joining us. I think if they look back and say, who are the people that helped this emerging model of governance come to fruition, you'll be one of the crew. Maybe in a hundred years you'll be like a Ben Franklin type not to toot your horn. So it's really important work that you're doing. And maybe before we tie off two things. One, just anything else you'd like to share that you think would be fun for the audience, and then second, just give us a little shill for a Agora and what you're working on specifically. And then finally how people can follow you, learn more, reach out to you if they want to.

Yitong:

Very kind of you to think that history might recognize back on us. The Ben Franklin is a favorable way to look at it. Or we could be the ones that might get shanked. We'll see.

Charlie:

Yeah. We'll see if we live to survive that reputation.

Yitong:

Okay. Yeah.

Agora is at the end of the day real, a crew of very small team. We're three and a half people. And we're out here to build governance, public infrastructure. We work with organizations like Nouns, Optimism, and soon Uniswap and ENS on building, governance tooling, governance infrastructure that helps delegates, contributors, ecosystem participants come together, decide on important topics, and administer the comments together in a hopefully marginally more efficient way every couple of months. And that's what we do. We have an app, we have a set of contracts that we're going to deploy. And in the long run, we hope that this creates a new way for people to govern. And it has some of the properties of credible neutrality, but also is just a little bit less chaotic for everyone.

Mark Lurie:

That sounds nice.

Yitong:

Yeah. And you can follow us on Twitter @nounsagora. Follow Charlie. What's your handle Charlie?

Charlie:

@charliecfeng.

Yitong:

Yeah. And myself @zhayitong. Yeah, that's the crew.

Mark Lurie:

Great. Thank you so much for joining us again. And to all listening, we'll have links and more information in the description. If you enjoyed this, please do leave a review, we read every single one. It helps us generate the content that is most helpful for you. So thank you again. I hope you have a really great conference.

Charlie:

This was great, too.

Yitong:

Thanks so much for having us.

Charlie:

Yeah, thank you so much.

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