bonus: governance 2.0 deep dive w/ @tracheopteryx

Welcome to the Armada Podcast, where we are focusing in on DAO governance. This is a first. We're doing a second part episode with Tracheopteryx, and we got— we had a little bit of audio issues when we got into Governance 2.0, and we both felt like it's such an important topic that we wanted to sit down and not necessarily redo it, but just make sure that we had a good, high-quality audio conversation about it because there were so many fun, interesting things to talk about it. So welcome back to the show.

Well, thank you. I'm glad to be here. Glad we can put some nice smooth audio over this and communicate more on this awesome stuff.

Yeah. So let's talk about— so I think the framing that we were kind of going into is this world of Governance 1.0 and sort of having all of these token holders all voting on these proposals and the system that we've seen kind of play out. And I think there's this emerging idea around Governance 2.0, and there's a lot of great thinking about it. And I wanted to talk to you about why teams and some of the things that have gone into this idea of Governance 2.0. So could you kind of take us back and just talk about how you think about what Governance 2.0 is?

Yeah, so Governance 2.0 emerged from the active organizational development productivity work that we do at Yearn. Yearn is a decentralized, very decentralized entity. And we were feeling tension from the beginning. There was tension in Yearn with basically the YFI holders and the contributors. So both are extremely important part of any DeFi protocol. And there was a lot of tension of like who's in control of different things. And So we developed our system we started calling constrained delegation with YIP-41, which was when WIFU holders gave the multisig a number of operational powers, like to hire people, make budgets and stuff, and to do this without a normal coin vote. They could just make those decisions because we wanted to move fast. But that wasn't quite adequate. It wasn't transparent enough. It wasn't decentralized enough. And so right from then, we knew that this was kind of a half measure and that we needed to develop a new system, but there was no clear model that we could use at that time. Most DAOs operate in— we started this book club at Yearn and we've been reading Frédéric Laloux's Reinventing Organizations, and it talks a lot about the different levels of consciousness that give rise to different types of organizations. And a lot of DAOs are operating from this kind of green postmodern consciousness level where everybody's voice needs to be heard and is embodied by this coin voting system for making every decision. But that can be really restrictive. And also there is a need for people that are actually doing stuff to just go ahead and do it and make the decisions without getting approval and make sure everyone feels okay about it. There's nothing wrong with that. sometimes people are going to make mistakes or whatever, but there's a balance needed. There's a balance needed between the WIFE holders who have incredible value to the system, who are investing in the system, who also just have really good ideas for what should happen with the protocol, and the people on the ground. And that's really where Governance 2.0 came from.

Yeah, I love that piece of it because one of the things I think a lot about in traditional group dynamics. And I love that you guys are going back and rereading some of those things that have given us the mental models of organization broadly. But his idea of there's ways to give people trust, and then when they fail or misuse the trust, you can rescind or penalize that. And a system like that actually has really interesting pros and cons. It's like, yes, you have some opportunity for less ideal outcomes, but at the same token, you're improving speed and autonomy and things like that. And then you're actually mitigating the downside by having a one-strike policy or three-strike policy, whatever it is. So I love this approach of saying it's not necessarily black or white or 1 or 0. How do we build systems and processes to accommodate a gray zone, which I love? So I'd love to expand a little bit on that Governance 2.0 and what have you guys been learning and thinking about in this next phase as you guys have transitioned from the YIP, I think, 43 that you had said

Well, so much. I mean, it was YIP-41 and what we saw happening. And so Governance 2.0 really just kind of establishes these organic emergent processes that we saw happening anyways. So once the multisig had discretionary power in making a number of decisions, it turned out that they weren't the ones actually doing the work and making those decisions. That really wasn't their role. Certainly they were welcome to, but their role was more as a safety valve and a center of integrity for the protocol. 9 members, all of them with well-known public personas and reputations at stake. And what's important there is just the game theory of it. Like, 6 of them need to agree to make any transaction, and their reputations are way more valuable than whatever money they could they could skim from a bad action on the system. And so that's a safety valve, and they are responsible for executing transactions. But the actual work was happening in these emergent groups. All these different work groups would get together unorchestrated, sometimes orchestrated. Sometimes somebody would say, hey, we need to have a content team, and maybe this is someone with some natural credibility in the system based on their previous work. And then other people would think, oh, okay, let's make that. All these different teams would emerge and they'd start doing work and then they'd hand off their work product to other teams, other groups. They would get input on it and some of these would turn into transactions on the blockchain, like new pieces of software, new smart contracts, whatever. And so really what you realize is that the people doing the work often have the best ability to make decisions on it, but But there needs to be balances too because it's really hard to see the whole system. And so Governance 2.0 really tries to— well, first of all, it tries to foreground a lot of the hidden relationships that are in every DAO. A lot of DAOs look like they are really decentralized and democratic, but actually it's kind of a theater and there are centralized big holders in the background making all the decisions. Or that coin votes are just rubber stamping whatever. So I was trying to foreground that stuff and we started by looking at the decision-making space in general.

I'm not sure if it's a question as it relates exactly what you're talking about, but I'm looking at the graphic that you guys have on the Governance 2.0 and all the teams. And I was just kind of wondering, How do teams, like a Y team, how does it get decided? Like, yes, that's a Y team that should exist. And then how does that team sort of like self-manage and expand and contract within the broader kind of ecosystem?

When you look at the different types of decisions that any organization makes, they can break down in a number of ways. But one really interesting space for this is look at 2 axes. There are gated and ungated decisions, and there are on-chain and off-chain decisions. So for a you know, Web3 project, these are really important. And by gated, that means decisions that require some specific type of control. You know, you don't need to control what any individual member of a DAO writes in Discord. That is permissionless and discretionary. It's up to them. They can write whatever they want. Maybe they get kicked out later, but, you know, Right. You don't need a gate on what they say, but you do need a gate on the name of the organization. Like, that can't just be changed by anybody. That has to go through a process. And then some of these decisions are on-chain and some of them are off-chain. There's a lot of other really important axes to look at decisions too, which really come into the nature of why teams and discrete powers. So it's a bit all over the place, but the foundation of Governance 2.0 is looking at the specific decisions and making them granular objects. So you can take a set of decision-making power and make that an object. The power to decide on new hires or the power to decide on adding strategies to a vault. It's kind of a Yearn-specific thing, or to make a budget or to decide this is Yearn, this is not Yearn. All of these different types of decisions, you can make granular objects and then you can give those decision-making powers to a specific group. So in most DAOs, all of these decisions are made by the coin holders.

Right.

Which isn't actually what happens. A lot of the time these decisions are made by people in these kind of shadow background areas. But if you really just foreground all of these things, make them objects, and we're making them NFTs so that they become even more concrete as these intersubjective consensus objects that can be traded and moved around within the system, and then each of these powers gets scoped to specific on-chain opportunities. So we have a Y People team, Y Team. The Y gets a little tricky. You end up saying it too much. Yeah. Y People, Y Team, and they decide on hiring people and they have the pay team power. And now that power could be— WIFE holders can redelegate that power to a different team if that team's not doing well or The ops team can change the signers of that team. There's a lot of levers for balances, but that's the kind of foundation for this system by making all these key areas granular. And it's all to start on-chain and gated, but we're developing other processes for off-chain and ungated as well.

Interesting. I love the 2x2. Is there a graph of it somewhere that we can put in the show notes, or is it— I can whip that

up. Yeah, actually, I can send you a screen grab of this document. Awesome. Actually, we'll make this document public soon too, but we just haven't done that yet.

Yeah. So this is kind of like a dumb technical question, but you guys are— you're doing all this work and you're writing, you know, this stuff on-chain and these governance processes and you're making these NFTs and all that. I mean, that all exists within sort of the Yearn kind of protocol project. Like, and what I mean by that is obviously there's other protocol projects out there that are actually trying to build governance as a protocol, but from a technical perspective, you guys are just sort of like doing this all in-house, solving your own problems, sharing that with the world, and then like that's what this is on the technical level. Is that a fair mental model?

Close. I mean, so Gabriel Shapiro and I were the main authors of Governance 2.0, but a ton of people helped us with that. People from within Yearn and people from other protocols too, like Jack DeRose from Colony and guys from Gnosis and a bunch of others. other people helped in creating basically the operating system or the social logic or just this kind of philosophy and applied philosophy really of governance. But then it can take a number of different implementations. And Urine is a team of a lot of extraordinarily talented builders, so we might build part of this ourselves, but there's a lot of people out there that are focusing on this, and so we might work with them. And a number of different projects have said that they want to help us build Governance 2.0 and implement it. Where we're at right now is that we're not really ready to implement it because we're implementing it on the social layer first.

Right.

So these Y-teams are Telegram groups and the signers just sign. They're not actually signing a transaction. They're just making agreements.

I see. Yeah. So, and that's, I appreciate the distinction cuz I think that for some of the newcomer listeners thinking about what DAO governance is, what it isn't, what it will be, what are the shared mental models, what exists on-chain, off-chain code, it's a really helpful kind of positioning. So I appreciate you kind of allowing us to look behind the scenes and understanding what this means at a technical level.

Yeah. And you can see a lot of different perspectives on DAOs. A lot of people will say, hey, if it's not on-chain, it's bullshit. Yeah, it's nice to have things on-chain, but it doesn't— a lot of trust and a lot of relationships are real and they're not bullshit. You can do a lot off-chain. It's been happening for quite a long time.

I mean, it's the classic handshake deal. I mean, how many things have happened on a handshake deal, which is exactly what you're talking about. It's meatspace trust in some weird form of like, I didn't shake on it. So therefore, you know, I think that social phenomenon is exactly what you're talking about. And that has created massive, massive entities, like global change on so many different fronts. So I 100% buy with you. But I agreed, you know, on a theoretical and aspirational level, yes, on-chain would be great. But there's a lot of handshake deals to get to that point.

Yeah. And, you know, we want to put this all on-chain as soon as we can. But there's actually quite a lot of danger of putting it on-chain too soon. Because there's potential for attacks and there's potential for incorrect systems that just aren't going to work properly and introduce a ton of friction and slow people down. And our system is working quite well right now. We have a multisig of very trusted people that are responsible and we're able to function in a very efficient way now. We believe that implementing governance 2.0 will be even better and allow us to scale even better, but we'll do it as soon as the tools ready. Not quite ready.

I think it's a great, great approach. And it reminds me a little bit of the, you know, the Web 2.0 world of, you know, it's like, hey, can you do this with like a Google Form or Typeform? And then do all of the processes behind the scenes. And you— but what I think the layman person, when they see that, it's like, oh my god, this startup is just a Google Form. And it's like, well, you're really not thinking about it against the right time horizon. Because behind the scenes, processes are being identified, automated, you know, audited, and understood so we can scale this thing to the moon. But this actually allows us to adapt really fast. And that's what I'm getting, those vibes of you guys right now. It's like, hey, this is sort of the framework. That's certainly where we want to be. But like, let us sort of figure out the pieces before we put a bunch of energy, money, and security risk into getting it wrong. Like, no one wants that outcome.

Yeah, exactly. And, you know, the pressure to do that is really marketing pressure. Like, a lot of people are used to these really nice saccharine stories about how everything works perfectly and we got everything under control. You know, here's your one piece of information and tune in next week. And, you know, Uranus is just, we don't do it that way. Like, we're very, you know, like, we're not in it for that. Like, we're trying to actually build something and we're okay with it being messy and okay with not having a perfect story. And, you know, we work on that, we're trying, you know, but we're not gonna sacrifice the— we're not gonna, you know, take on massive risks, you know, because it sounds better, you know, as a story. Right. We're gonna do it in the right way. And sometimes it's a little messy Confusing, but yeah, I love how you do it.

It's one of my things I'm attracted to Web3 is I just feel like the community as a whole seems to have that vibe on average, which is just— I love it. So talk a little bit about the kind of role that YFI holders have and the different types of proposals that can kind of play out.

Yes, this is one of the really things that was really important to us in clarifying with Governance 2.0 because The role of Wifey holders has been confusing to a lot of people over the years. Over the years, we're like 12 months, 11 months old. But, you know, in the beginning, you know, when Andre gave away all the Wifey in a week and he said, you know, you guys are in control, and, you know, people were voting on things like, should Andre go on a podcast or not? And at that time, that was— that made sense, and that's what the agreement was. But then We've evolved as an organization and it wasn't really clear. So people voted, for instance, in YIP 34 to create an SNX synthetics vault and that passed. And then there was no vault and people were like, well, what the hell? So it's not as clear. The reason there was no vault is that there was no strategist that had a good idea, was able to build that actual vault at that time. We just launched our SNX vault a few weeks ago and it's like crushing it, but it took 9 months to make that. But in any case, before, all you could do was a Yearn Improvement Proposal. And what could that do at Yearn? That was not really well defined. So, it wasn't really clear what powers YFU holders had. And so, in Governance 2.0, it's very clear what powers they have. There's 3 types of proposals they can make: Yearn Improvement Proposals, Yearn delegation proposals and Yearn signaling proposals. And let's start with the YDP, Yearn delegation proposals. So in Gov 2.0, you have these discrete decision-making powers that can be held by YFI holders or Y teams or potentially individuals. They're not fungible, but they're transferable and they're manipulable by the system. And The YFI holders have the power of manage powers. So YFI holders can make a vote to delegate a power, and that's a YDP. And they can say, for instance, that this can be a kind of accountability movement, like the Y budget team is not doing a good enough job creating budgets and spending money. So we're going to take As YFI holders, we're going to do a YDP to take that power back so that YFI holders now have that power and we can make proposed— now we could make year-end improvement proposals with that power to execute it rather than the Y budget team. Right.

How does a Y team come into existence?

Yeah, there could be. So the YFI holders currently have a power called ratify Y teams. And what that means is You could have an infinite amount of budget teams trying to make budgets for Yearn, right? But none of them have any decision-making power unless they've been ratified by YFI holders. So when a group of people wants to make— wants to take any group of people, they don't have to be approved by anyone at Yearn. It could be you and your brother. You could say, we're the Y budget team now, we're the budget team now, and we want to make decisions for Yearn. You'd have to get ratified by WIFU holders, and once they ratify you, then you can get powers. And now you could make a proposal— if let's say you're WIFU holders, you can make a proposal to ratify yourself, and then if the vote passes, you got it. And you could say, I want these specific powers, and you could mint new powers as WIFU holders if the vote passes, or WIFU holders could delegate powers to you, but there's only one of each power. Then a Yearn Improvement Proposal is is a proposal to execute one of the powers held by WIFE holders or anything that is not described already by a power, anything that falls outside of the delegated powers. But what WIFE holders can't do is they can't submit a proposal to use a power held by a different team. They would first have to take that power back to use it. They can do that, but you can't avoid that step. And then the last thing that they can do is a signaling proposal. Which is just basically expressing desire on any topic, and it's non-binding, but it is really useful. They could say, hey, we want Yearn to get more into derivatives, and they could just say, this is why, and then 99% of people vote for that. Yearn doesn't actually have to implement anything, but they'll take that very seriously. People's voice matters. It doesn't mean that somebody— you don't have to control, you don't have to link everything with exact control. I mean, that is quite useful and the blockchain is really based on that. But trust and expression and all these things, art, all these things have power as well. It's just not directly linked.

So a question I had on some of the X's and O's of this a little bit, it's like, so if you have a dev team, like Y Dev Team as an example, and they want to like, add— they're like, we feel like we need to add someone to the team. Is that like a conversation then with the why people team and like the why budget team to sort of like, can we get budget for this to then pay? Like, how does— how do those teams interact within their sort of narrow scope? And like, does that question make sense?

It totally does. And it's actually really relevant for ongoing work happening right now. So One of the things I've been working on a lot the past couple weeks with a couple other people on the team is basically identifying the steps that an open source contributor goes through as they gain power within Yearn or gain access. There are different levels of privacy in any organization and there are different levels of access. And so we're trying to define those and make those really clear. and actually make it as decentralized as possible. So currently we have a Y People team that makes decisions across the board on, you know, hiring full-time people. But really, we kind of want to get rid of that, you know, and have each team be able to make its own hiring decisions.

Right.

And so we're outlining these different steps, and the way it is now that, you know, each team can bring in their own contributors and At Yearn, we have CoordNape, so those contributors can get paid right off the bat without having any type of agreement or contract. They can get paid just by contributing value. And then as they do that more and more, they rise up through these different ranks, and then they can get hired full-time.

Fascinating. Yeah, that feels like such an important sort of onboarding ramp to bringing Web3 to scale. And I'm glad that you guys are thinking and more importantly doing in that space. It's It's awesome to hear.

Yeah, it's really cool. It feels like we have so many of the pieces in place now. And like a lot of the work now is just kind of clarifying how they work together and putting these processes together and exposing it to the world so that people know what they're getting into and exactly what they can expect when they come and contribute at Yearn.

Well, I appreciate you joining the show and doing our first ever sort of back-to-back episode and a half. And thanks everyone for bearing with the prior episode, the audio quality. Um, but we, we wanted to give it another shot. And so thanks for being up on the podcast again and taking us through Governance 2.0.

My pleasure. And, you know, part 3 coming, coming next.

Let's do it. All

right. Thanks a lot.

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