first principles, UMA's range tokens, the efficiency of deploying capital as a DAO, the importance of treasury primitives w/ larry sukernik

Welcome to the Armada Podcast, where we are focusing in on DAO governance. Let's hop into the show. If you could start with who you are and what you're working on.

I'm Larry, and I've been in the crypto space for several years now. Most recently, I was at Digital Currency Group, where I led investments. And you know, for those listening who haven't heard of DCG, it's kind of this. It's like the Berkshire Hathaway of crypto, where there's different businesses and subsidiaries that it owns and operates, and then uses the cash from those subsidiaries to make investments in tokens and startups and all sorts of businesses. My job was to invest that cash into all sorts of companies and have invested in probably over 100 companies while I was there. Earlier this year, I left to start a company called Reverie. with a co-founder of mine. And really, our job is to really roll up our sleeves and get our hands dirty and really try to make DAOs a thing. I'm a big believer in it's easier to invent the future than to predict it. And I think a lot of people are talking about DAOs in the theoretical sense and not actually in the nuts and bolts sort of sense. And I think controlling your own destiny and actually rolling up your sleeves and doing the work to make DAOs a thing is exactly what we believe in and what we seek to do.

Can you elaborate a little bit more on what that thing is, or is that still kind of behind the curtain, so to speak?

I think people over-intellectualize DAOs in general. We're just talking about groups of people who are motivated to build something, right? And how do we get groups of people who live all over the world to actually do stuff, right, and do stuff in the best sense possible, right? And what I mean by that is, You look at companies like Apple, and Stripe, and Microsoft, and Google, and there's strong attention to detail, strong perfection within those cultures. And with DAOs, I think the best ones will have that very same sort of culture and obsession with perfection. And I think what we want to do is really try to expedite that for DAOs and bring that forward, that future forward a little bit. And practically, what that means is creating some sort of capital allocation methods for DAOs. How do they actually deploy their treasuries, which hold sometimes billions of dollars in tokens, effectively? How do we create organizational structures that scale really well across thousands, if not millions, of people who are going to be part of these DAOs? How do we figure out the legal side of things? DAOs are typically unincorporated entities. And And how do we make sure governments don't kill that? Right. These are the sort of things we're doing and a lot more as well.

Interesting. Yeah, that's— I love those 3 pillars as being at least kind of a first pocket of opportunity, because I agree with all of them. Part of the treasury piece of kind of seeing that and how do we coordinate is what kind of brought me into the DAO space more broadly of like, hey, these protocols have come up with these ideas, and now their treasuries are worth an insane amount of money. But like, how do we actually get that from capital into progress? And how do we move from theory to practice? And I think governance is that piece. And it sounds like that's kind of a little bit of the thought train that you're outlining there. And then I love the third part of it, like, okay, well, now you have the train going. Well, like, what are the laws in order to make that all work? And how do we make sure that these different countries and nation states understand and interact with this in a positive way? So it seems like a really great set of first principles stack of what needs to be done. Really resonate with that structuring of that.

I think the industry, because it's so— and this is just a general observation from being in the space for a while— because it's so intangible, a lot of people feel like just contributing ideas into the space and narratives, that's enough to actually get the train moving. And it's not, right? You need to build the tracks, you need to build the train, the engine, and all of that, and get people to board the train. And there's many different moving pieces. But at the end of the day, someone needs to do the work. And it's not just going to be the initial teams who formed the DAO, it's going to be outside contributors as well. And we think that what we're doing, we may be some of the first folks doing it, but we think there's going to be a lot, lot more folks quitting their day jobs at really prestigious places to to work on DAOs full-time. First of all, the upside's there. 2 is you can really control the DAO's destiny, which for a lot of people is really exciting, right? It's like building something from scratch and you can really, I think, and we strongly believe this, make the next trillion-dollar organization a DAO, but it will require a lot of heavy lifting.

Absolutely. Yeah, man, I have so many more questions about that, but before we get too far in there, I do wanna ask you which fictional character you love to have dinner with?

So I'm a big fan of the show Mad Men, and Don Draper is the main character there. And he's sort of this suave, very, very astute kind of marketing guy. And I'd love to kind of chat with him, the fictional Don, not the actor Jon Hamm, because I think a lot of really good ideas, they start as marketing messages and being able to create a very clear and concise marketing message is really how you get, you know, you basically are able to take an idea that's in your head that may be not fully formed and convince other people that this idea should be in their heads too. And I think marketing achieves that really well. And Don Draper in the show, I think he's just exceptional at it and he's charismatic and he's He's just really good at bridging products to mainstream people. And, um, and, you know, speaking to him about that, I think, would be really, really cool.

I, I love the pragmatic, uh, approach of that. It's like, hey, like, what could I learn from this person to actually apply to, you know, Web3 and crypto broadly and, and learn from that? And of course, meet an interesting person along the way. And so, uh, I love that because we've certainly had some answers, you know, that are, you know, like Star Wars related or whatever. And it's kind of a A fanship, but you put a layer of pragmatism on there that I thoroughly enjoy.

If Jon Hamm is listening or Don Draper is listening, I would love— I'd love for you to reach out.

Oh man, if Jon Hamm is listening to a DAO governance-focused podcast, I'm a little bit more bullish on the world than I was before I thought of that same thing.

Never say never.

So before we kind of get into some of the questions that I was kind of prepared thinking about this, you were talking about first trillion DAO company and how Google and some of these other companies, they think about perfection, and they really think about these pieces. And you talked a little bit about governance. Do you imagine that the way that we get to that scale is that we're replicating a lot of governance procedures that we've seen from successful Web2 companies? but doing it in a crypto-native way that might open up new avenues, but it might look and feel a little bit from the outside as similar, but maybe some of the fundamental parameters are different. How do you see that organization existing from a structure perspective?

I think in general, some things don't change, and very good products that are well marketed and that are better, faster, cheaper than their competing products are typically going to win in a marketplace. And I view the products that DAOs own, that token holders own, as that, as a product that competes in a competitive, dynamic marketplace. So I don't think that will change. But the actual organizational procedures, the control, the governance around these products I think there's a huge design space there just in general. And yes, we can probably map some existing playbooks that have worked in the traditional world over here, but I think a lot of it just needs to be invented from scratch, right? And it's not like we magically woke up one day and we're like, well, here is how we structure a company and here's how every company needs to be structured. This took thousands of years of iteration. This took a lot of principles thinking. And frankly, a lot of it is really idiosyncratic. What works for 10 individuals may not work for another group of 10 distinct individuals. And so I think every company is structured in a very different way, has very different cultures, rhythms, organizational procedures. And I think DAOs will have the same thing. And maybe it will look a little bit like the corporate form, or maybe not. But I think that's on us to figure out over time.

Yeah, yeah. I, I, it seems that the piece that I keep thinking about is how do we onboard, um, you know, Web2, talented Web2 people into the Web3 space and make it a kind of an easy process to start allocating some of that talent into these, into these DAOs. And I feel like the conversations that I've had with my Web2 peers of like, hey, you know, it's actually not that difficult, and explaining them these concepts and, you know, There's still these mental model roadblocks of like, well, how do I get a job there? And is health insurance covered? And the framing, I think, of the kind of classic Web2 worker is so conditioned to the incentive structures of these tech companies that it's almost hard for them to even conceptualize what that Web3 thing is. And so part of my thinking and kind of area that I'm continuing to try to stress test a bit on the podcast is How many of those mechanisms do we have to sort of mimic to get that migration to be even stronger? Because like you said, the upside's already there. Like when you really do the math and you're talking about real ownership and real equitable positions, it's there. And so how do we sort of address some of these concerns? That's maybe the piece that I get fixated on. Do you— does that resonate with you? Or does that feel like I'm still stuck in the Web2 thinking and I need to break free of it?

I think in general, when technology is young and when the market is still immature, it benefits from having people who are not experienced in the old paradigm of doing things and are rethinking things from first principles. Because anyone who's worked for any large Web2 company or traditional company for that matter, no one's like, this is the perfect corporate form, we've figured it out. There's so many different processes and just annoyances and red tape that people see all the time. And I think if you come from that world and into this one, you may want to mimic it because that's all you've known. And I think not having any sort of experience, having just a blank slate, having people who are not conditioned in a certain way to come in and design DAOs, I think that's probably the better start. And then once the industry is a little bit more mature, when there is a path forward for DAOs to take, I think that's when we can start really taking more experienced folks and saying, hey guys, here's the designs with which we created DAOs, and you can run with them, but don't try to use your existing experience to recreate the corporate form for the DAO. I think that would be a big loss for our industry.

Yeah. Yeah. I feel like every episode I've recorded, I feel like I fall deeper and deeper into that thinking, and I can feel my old thinking get challenged further and further and further. And I'm starting to see the light at the end of the tunnel of saying like, hey, I think I might just be attached to the, to the comfort. It's sort of a familiarity bias, for lack of a better word, of wanting to model those pieces. And as I'm seeing these really unique crypto-native solutions to crypto-native problems, it gets really, really exciting about all the opportunities you can build on top of that once you, to your point, start thinking about it on a first principles basis in this new world. And so I appreciate you kind of continuing to push me down that rabbit hole. So thank you.

It'll be, you know, something I think about a lot. It'll be fun 40 years from now, um, when we are the old-timers and we're like, well, DAOs work and there's going to be some new sort of DAO and we are going to be pushing back against that and saying, hey, this already works. We figured it out. There's nothing else to do. I think that's just human nature to do that.

Yeah, I do love thinking about human trends and fashion and different cycles, technology cycles. And you're totally right. There seems to be something that happens and I suspect it has something to do with neuroplasticity of our minds becomes less plastic, uh, over time and we become less adaptable to new pathways. And so we become in our ruts a little bit and we're like, well, I've thought about that same problem 50 times. So what, what's gonna make me think it's different on, on rep 51? Whereas like beginner's mind is on rep 2 or rep 3, they're gonna be a lot more, um, open to have new pathways in their mind, be able to connect solutions that we're gonna struggle with. So, um, that's a fresh perspective.

I think it's fun to look at other industries like artists and musicians, how they're really— I think the good ones are really good at keeping up with what the kids think and what the zeitgeist of 10 to 20-year-olds is and trying to create music or art that caters to that because that is the future, right? And it's not rocket science, but being 40 or 50 years old, and trying to understand the zeitgeist of the 10 to 15 to 20-year-olds is very difficult. And your peer group is probably not made up of 15-year-olds, or at least that'd be very worrying if it is. And so, you know, trying to— I think in general, trying to keep up with that zeitgeist and constantly creating a blank slate in your head to reprogram yourself to think about what 10, 15, 20-year-olds do, I think that's a winning strategy, but it's very difficult.

Yeah, I love that. Like, Jimmy Iovine kind of comes to mind of like being able to think about what the music vibe, music zeitgeist is at that time, which resonates with that younger crowd coming up and being able to help in a production way. And like the wide breadth of genres that he's been able to kind of tap into that, that's such an interesting sort of space and kind of a mental model, aspirational mental model to kind of think of. What, who, who and how do we be the Jimmy Iovines of DAOs and what Web3. That's a really interesting thinking. What do you think of— so let me rephrase this. So one of the things that I feel like is being discussed as of last night, which— and I know that you didn't work on this, but I just kind of wanted to talk a little bit about— but it's Yuma's new range tokens. What kind of catches your eye about that project and that idea? What do you think is so interesting about that?

Just to take a quick step back, I think in general, anyone who's worked in the traditional capital markets knows that things like equity, bonds, convertible notes, and every product in between, it was invented. It didn't just kind of spontaneously form. It was invented to solve a particular need and problem in the market. And usually this need is for companies and for investors, because those are the players in the financial markets. I think in DAO land, these very same players are there. There's the DAOs, which have tokens and are considered issuers, and then there's investors, and then there's contributors and everyone else in between. Creating products that are built specifically for DAOs, Someone needs to do that. And I think UMA is leading the charge here in their new product, the Range Token. I think it's a really cool product. If you've looked at it, it reminds you of a convertible note, which gives you some downside protection, but also has warrants attached and gives you upside in case the price goes up. And so I think for investors, it's a really interesting product because you get a different level of exposure than you would from just buying the tokens. And then for issuers, you are able to generate cash upfront in a very tax-advantaged way while still protecting your dilution and downside. So I think products like the range token are going to be very popular. There's going to be thousands of them, and not all of them are going to work. But the ones that do, I think, are going to be industry standards, just like SAFE notes are In the traditional startup world.

Yeah, yeah. My mind was kind of ranging and like thinking, and I was taking your advice from earlier in the conversation of not just reapplying everything that I think from Web2 into Web3. And I'm like, yeah, like what is the SafeNote comparable? And, you know, just thinking about it and riffing about it out loud, it's like, well, Convertible Note is really solving a lot of the same problems of the SafeNote, although the SafeNote is much quicker and simpler. But it does make me think of in I have a— we have kind of a hobby DAO that we're trying to grow into a thing called Krause House and really thinking about like, what are the first steps? And like, you know, there's some slight investment interest to kind of go do this as a, as a broader thing. And if we're in the Web2 world, it's like, oh, well, yeah, I guess I could just set a valuation on the SafeNote and put together some capital and just raise as we need. And it's just so interesting how when you put your Web2 hat on, it's sort of like, I feel like I can just hop in the car and drive down the road. When I put on the DAO one, There's sort of so many different options and thinking about it that I'm still kind of wrapping my head around the optionality there. But does it strike you that there's a SafeNote-style opportunity in Web3? Or is that me again, trying to pigeonhole Web2 ideas into it?

I think one way to make it easier not to pigeonhole ideas, and I struggle with this all the time, but like, one way is just to just understand the customer problem and design the product from scratch that fits it. And if you do that, you've basically rethought things from first principles. And it may happen such that what you've come up with just looks like what you find in the traditional world, but maybe not. And I think it's worth just evaluating the customer problem first. And the customer problem, I think, in this case is maybe you are really bullish, or maybe a project is really bullish on its token, which Hopefully, all projects are. And you don't want to sell tokens today at price X if you think a year from now, the price will be 2X. But you need cash, right? Right. Or you need some sort of stablecoins to pay people. And so, I think this range token is— it solves a problem for you. And it's a really, really new product. So, we'll figure out all the kinks. And I guess the UMA team will figure out all the kinks as it speaks to more customers. But I think the pain point is there. And this product could potentially solve it.

Yeah, yeah, that's great. Thanks for kind of going down the rabbit hole. And I would love to have them on the podcast to talk about it in depth. So I appreciate you kind of giving me your outsider's perspective on it. There was a tweet you had recently, which was, you know, hey, there's this experiment running over the next 24 months, and can DAOs allocate capital equal to or better than companies? And I'm just kind of curious, like, how do you see this experiment playing out? What areas are you kind of bullish on? What areas are you a little I

think in general, it's really easy to be pessimistic about how DAOs spend money. And you see all the sorts of things they spend hundreds of millions of dollars on, on things like liquidity mining programs and marketing stunts, et cetera. And people get super bearish when they see that because they're like, well, this is a waste of capital. And I think people forget just how inefficient traditional companies are. I think anyone who's worked for most traditional companies knows that most people don't do anything. They clock in, clock out, collect their paycheck, go home, and do that for decades, and they get paid potentially millions of dollars, and the company still works, and it works really, really well. I think with DAOs, it's going to be a very similar thing where you don't need to have 100% capital efficiency. You don't need to design the perfect product. Don't let perfect be the enemy of good, but it needs to be better than the traditional corporate form. And it needs to be significantly better, right? Because if it's marginally better, that's not a huge win to transition people over to DAOs. So I think the 10x improvement is feasible. And how we get there, I think, is— there's probably many paths, but the general mental model I use for this sort of stuff is, In the traditional corporate form, capital is typically allocated top-down. So the CEO has a specific idea, he or she goes to the board to ask, you know, run the idea by the board and say, hey, we need $10 billion to do this over 2 years, and then, you know, allocates those resources from the top to the bottom. And very, very often, you know, anyone who's read the Wall Street Journal or the New York Times and is reading about a company building some product, then you think to yourself, wow, who would use this? This is a product that's never going to work. Anyone who's had that thought knows that most companies are just not good at allocating capital, and they have a lot of it, billions of dollars, and they still suck at it. I think to contrast that to the DAO, what we have the ability to do is create a very flat corporate form where people who are really close to the problem, people who have a pulse on the market and really understand the customer pain points, they can requisition capital from the treasury through a governance vote and get significant amounts of capital and be able to execute on it versus someone who's operating top-down and doesn't really have a sense for the customer problem or a pulse on the market. Now, I think some CEOs are really, really effective. at going from the top all the way to the bottom and back, right? Someone like a Bill Gates or Steve Jobs or the Collison brothers at Stripe. But these are exceptions. Most CEOs and most senior-level employees are really not good at their jobs, and they misallocate capital tremendously. And that's why you see so many poorly run companies and products that really don't resonate with the market. And I think here we have the ability to cut all of these levels of bureaucracy and red tape, and really give people who have strong ideas, who really understand the customer problem, capital, and have them run with it. And I think that's really exciting. Now, there's going to be horrible, horrible mistakes made, but I think in general, it strikes me as a way better approach to capital allocation and coordination, particularly with folks who grew up online and all over the world.

Right. Yeah. You're getting a breadth of talent and then you're removing red tape. And so you're kind of getting a double dip there, which is a much, much bigger opportunity. Totally buy that. So one of the things you talked about in your excitement of thinking the range tokens are pretty cool treasury Primitive. I just wanted to ask, A, what do you— what defines a primitive to you broadly? The word gets thrown around a lot, and so I just kind of wanted to ask the dumb question and say, like, how do you think of what primitives are? And then secondly, why are treasury primitives important?

Yeah, primitive is definitely— we should rebrand that because most people, they don't understand what that means, myself included. Sometimes I get confused by Here's how I think about it. At the end of the day, for DAOs to function effectively, they can't create everything from scratch and roll their own products, particularly financial products. It's way more efficient for them to purchase off-the-shelf products from a financial supermarket of products. And so if you're cooking a dish, and you need to create all the ingredients from scratch and grow them, that would take forever, and that probably would prevent you from creating the dish. And I think the same goes for financial products where, you know, by primitives, I think what people refer to is just off-the-shelf products that you can use that make you achieve your job faster and get productive way faster.

I see. Yeah. And so that's such a great mental model. I love analogies. So thank you. And that one's sticking really well with me. And so then Let me, let me take a stab at my own question. So treasury primitives are really important because A, treasury is one of the most important components of the DAO organization. And so being able to have a collection of those primitives to achieve your goals allows A, the efficiency, and then B, even the opportunity to, to set up, set forth to accomplish your mission.

I think that's exactly right.

Yeah. Wow. Yeah, I love that analogy. I think it's Gemini. I think they have this wiki of all of these different crypto definitions, a Wikipedia for Web3. I've bumped into it a handful of times and it's an interesting little SEO project, I'm sure. But part of me feels like we need mental model version of that. I suppose that maybe we need that for the entire world, but— Excuse me. For the entire world. But I love this idea of using these analogies and these mental models to kind of say like, okay, yes, I can type out what a primitive is. And you can kind of— but like, what's the mental model analogy I need to use to understand this thing? And I would love to subscribe to a product like that. But thanks for adding one into my collection.

I'll never forget, I was watching a video, I think Steve Jobs talking in the '80s. And And this became rather famous after the fact, but he called the computer the bicycle of the mind. Right. It just gets you from point A to point B way faster than walking. And the computer does that for tasks. And I think, you know, if we hearken back to those days, it was really difficult to explain what a computer is. And I think if you ask the average Joe today, right, 40 years later, and you ask them what a computer is, people would really struggle with answering that. Same with the internet. And so I think analogies are just way easier for most people, experts included, to just grok things without actually getting into the technical details.

Right, right, right. Because like a meal and cooking is so intuitive to us, and so we can, we can get 80% of the framing wrapped up and so that we can set that aside. And going all the way back to Draper, your fictional guest, I mean, like, you know, effectively these are memes. Effectively, these are— they're advertising ideas and transferring ideas between minds. And so Uh, maybe, maybe he's, he's the person to, to try to help me think about that.

I really hope he's listening.

Well, I appreciate you for joining the podcast. If you could remind people where to find you, and thanks again for joining.

My pleasure. Uh, you can find me @lsikernik on twitter.com. That's probably the best way to, to find me, and, uh, always open to chat about DAOs if anyone's interested.

Yeah, Larry's got some awesome tweets and awesome retweets. So, uh, highly recommend the follow and, um, be well and we'll chat soon. Thank you for listening to the Armada Podcast. We would greatly appreciate a review in your favorite podcast player. And if you wanna stay in the loop even further, head to armada.fm where we have a repo. You can check out what we're doing and what we're learning along the way. Love to see you there. Thank you.