The History and Future of Decentralized Operations at MakerDAO by Wouter Kampmann

foreign [Music] I will talk to you today about the history and future of decentralized operations at makerdale um first a little bit of background so um for those that are not familiar Maker Now is the foundational D5 project behind the dice table coin in 2014 this started with Rooney Christensen one of the founders posting an e-money post on Reddit and then in the years after that we launched several products such as a single collateral die which is maker but only with ethereum as collateral in 2019 there was a launch of Multicultural dye which also added other collateral types and then after 2019 when maker was still functioning as a classic Foundation we started to decentralize and that simply means that we dissolved that foundation and we rebuilt everything in the Dao so um we have had almost two years of experience with that now and yeah we are wondering what is coming for 2023 will it be make it RV next so very quickly myself I have a background in software engineering I joined makerdown in November 2017 I had to make a foundation I was the head of engineering and after that when I also joined the Dao I became the co-founders of one of the 20 core units as we call them the contributor teams at maker Dao my core unit is called makerdale SCS this is short for sustainable ecosystem scaling we've removed barriers between decentralized Workforce capital and work lately we have been thinking more and more about decentralized operations and while you may ask why don't I just use the term governance as any proper Dao member well decentralized operations I Define it very simply for me it's the art of getting things done in an open transparent and decentralized organization and by things we like to have work that produces actual value not just activity but actually creating value so why the term decentralized operations well Dow governance involves mostly discussion and decision making it is not enough to get things done this decentralized decision making needs to be supported by effective execution and decentralized operations includes governance but it emphasizes the execution part so we will be talking a lot about voting we'll be talking a lot about governance stuff but we say decentralized operations because we realize we need to execute and deliver so let's return to make it out and what does operations and governance looks like today at maker Dev there are a number of well-known Concepts that have been implemented um basically when when the Dow first started for real so uh one year and 10 months ago and of course the foundation of it all is token token voting so maker has token voting by mkr holders and it also works with delegates so mkr holders they can improve changes to the maker protocol um they have to approve these changes because the maker protocol is permissionless so without a majority of the vote you will not be able to make any changes in any way these changes they can range from simple parameters such as stability fees debt ceilings and so on but also bigger things such as collateral onboarding and off-boarding um today about 15 of the total mkr Supply is delegated and this is delegated by 222 addresses we have to say addresses because we don't know how many people are behind those addresses there are 24 recognized delegates 92 Shadow delegates and these recognized delegates they do receive compensation proportional to the voting rate although there is a limit so for example the current payout of the delegates is around 120 000 in cost for the protocol per month if you're interested in voting or delegates then definitely have a look at our voting portal vote on makeada.com the second piece of the puzzle today are the maker Improvement proposals the mips so maker governance follows a monthly governance Cadence the mips they go through three phases first there is the request for comments um this lasts three weeks and one week where the proposal is frozen so that the governance participants can properly um form an opinion about what is in there if the RFC proceeds then there will be a governance poll typically this is about three weeks and um yeah this poll will then be up on the voting portal that you just saw um MPR holders and delegates will then be voting on the individual proposals could be that one proposal makes it another doesn't all the proposals that make it then are then bundled in the executive vote so this is one one smart contract that bundles all the changes that have been voted in by governance that month and then um yeah if mkr holders approve this executive vote then these changes are applied to the blockchain protocol the MIP system is quite Advanced for example we use templates which we call sub proposal Maps there are hundreds of proposals that have been voted on since early 2022. do you want to know about all the mips that went to maker governance go to mipsommakerdire.com and the last piece of the puzzle are the contributors to core units as you may know a maker is a pretty big down so we have 20 contributor teams 100 full-time equivalents of contributors around and these core units the way that they voted in it's with three proposal types so they Define or they propose a mandate they propose a budget and they propose their facilitator the person who will be responsible for interfacing between governance and the core unit so maker Dao grew quite spectacularly in 2021 and um as a result the total expense has also grown to a total of about 30 million a year the scalability of the elements that we saw is is reached now in 2022 with the bear Market that has kicked in maker has long been known as the protocol or one of the few protocols in D5 that is actually profitable um in the the longer run if you average it out it's still the case but um if you look at the latest months that is no longer the case because the bear Market has taken its toll and you can see that the dye expenses remain around 30 million so what are the challenges that we have faced in maker governance and what are some ideas that we're thinking about to improve on the current design the first challenge that I want to talk about is stakeholder alignment and political Deadlock so in a truly open and decentralized organization it is very difficult to agree on things even the smallest things let alone long-term vision and strategy maker has been experiencing that firsthand throughout the last two years there has been a lot of governance drama at maker you probably read about us even if you're not following the dial up close and at times core units the contributors they really got sucked into this drama and they broke down entirely in certain cases so there is an incredible noise Factor there is a lot of distraction and um this culminated a while ago when there was a standoff between two factions over a set of mips that um were about Real World Finance so there was a new core unit that was up for vote to be voted in and this was the landing oversight core unit and then there was a maker Hathaway fund that was up for vote I won't go into the details of what these proposals were about but they came to an ultimate standoff between the two factions and as you can see in the screenshot there was a record MTR voter turnout and um yeah this attracted quite a bit of attention and it caused a lot of distraction in the Dao at that time definitely political rhetoric reigned Supreme Over the rational debate and one of the reasons is that makerdale has very few consensus building tools other than just a forum to have a discussion and then majority voting which really isn't a consensus building Tool uh you do that when you can't reach a consensus so what might be an idea to improve on this um recently there has been a lot of talk about the idea of decentralized voter committees in fact this is a main element of The Proposal that was put forward called The End Game Plan by the uh one of the original Founders roon Christensen the voter committees they recognize on the one hand the political nature of decentralized organizations but at the same time they try to apply some structure they try to offer some mechanisms to form consensus and to reduce the conflicts that are going on all the time what it does is a voter committee is quite simple it is just a group of MPR holders and delegates and the important thing is they are self-selecting so you have people in a group that are of the same mind they think the same thing about what makers should do next what the long-term strategy should be Etc and of course not everyone might agree with that group so there might be multiple voter committees the idea is that these voter committees will put forward strategies and that the mkr holders can then vote in a liquid election system on the combination of a strategy and the delegate that they believe in if you think that this is quite similar to political parties or elections then you're quite right I don't think it's it's a coincidence that we are re discovering the same mechanisms that have been tried and tested another part of the voter committee setup is that we want to um we want to restrict the flexibility and the possibilities that these voter committees have because if you leave all possibilities open then there is a lot larger a lot larger space for a disagreement so another part of the design would be a number of fixed scopes a number of business activities that makers should focus on and not go outside of that maker is not an ice cream factory for example the Scopes that have been proposed are so far protocol engineering real world collateral permissionless collateral and growth this will probably not surprise the the strength of these is that they Define the scope and and make it closed and then as a last element these voter committees MTR holders and delegates they need to deal with something else that is challenging about maker which is it's a very multi-disciplinary organization and you can't be at the same time an experts in engineering and finance and all the other areas of expertise that are needed in maker so when these voter committees they put forward their strategy they will Define for each one of those Scopes how they see the future for maker but by doing so there will be um there will be supported by a number of expert councils that have been put forward by the workforce by the core units and this is one idea to deal with the um yeah the the difficulties within makers to reach agreement about the long-term vision and strategy what is the next challenge the next challenge is broken transparency and a breakdown of trust uh maker is one of the most radically transparent organizations not just within the crypto space but I think globally um an important lesson that we've learned is that transparency in itself is not enough the right information really needs to be served to the right audiences at the right diffraction level people don't have time no everyone has the time to read through long documents and just distill the information that they may need so standard size structured data needs to be made available via apis if it is to be analyzed summarized and leveraged successfully today this is the case for some types of data in maker but not all so the clearest example of this was the core units and their budgets all information was always available it was on the forums but it was very difficult to find our user research has shown that stakeholders were unable to find even the simplest relevant information which core units exist what are they doing what is their budget and what are they spending their money on a result was a breakdown of trust between mkr holders and core units and even MPR holders and delegates because people had this impression that despite all the so-called transparency there was a lot of obfuscation going on so what is an idea how to deal with this there's the ideal the idea of decentralized operations platform we want to Leverage The Power of software to serve the right information to the right audiences and automate processes and embed best practices this isn't exactly a very original idea but it is one that will work we think will work properly for maker in fact we have already been doing this for the core units and the budgets this piece of information that was so difficult to to understand for stakeholders we created a limited prototype that focuses specifically on that information so if you go your expenses up make it down the network you will see a clear overview of the core units right now this platform is being used for core units to submit their budgets and Koreans can use it to verify that they've properly reported on their budget this information is available on the Forum but if you would want to collect the same information that you have in five minutes here you would probably need five days or longer so what is the next challenge coordination failure between core units there is a construction error at the heart of maker data that we were not really aware of when we put forward the first proposals for the Dao the mechanism goes like this so core units are voted in individually by mkr holders and delegates for example you may have the growth core unit that is voted in separately then from the smart contracts or the protocol engineering core unit is work done separately from the Oracle score unit for example so one coordination is needed between these core units and if you want to be successful and if you want to deliver value a lot of coordination is needed these core units I can only propose work to other core units but they can't enforce a collaboration so there is a constant negotiation that goes on between the core units how things should be done what are the priorities and if Koreans don't agree there is no one stepping in and saying we're doing it this way or that way in fact the core units then just walk away and say okay you do you I'll do me and um we'll do each just do our job the result is because these core units they have a defined mandate they have a long-term work stream but the wrong end-to-end deliverables that are defined so as a result koreanists don't feel responsible if coordination fails so you might have a core unit that say builds a front end and does a tremendous job and then you might have a core unit who needs to promote the front end but they haven't been aware that um it it was built or that where it is available and the marketing might fail or you might have um disagreements between for example technical core units which architectures to use and if they don't agree on that well the end result will simply not work so a lot of work is done it's just that sometimes not a lot of value is created because the pieces aren't integrated or working together well so which idea can help with that we have been talking a lot about project-based budgeting at makerdale and I believe that this will be a much better structure to deal with this it's a real value is really only produced when delivering an integrated solution delegates and mkr holders they should approve these Integrated Solutions projects more so than mandates so they wouldn't be paying for work like for coming to to work every time every day but they would be paying for the actual results now the partly proposing the solution so proposing the project they should be responsible and this is critical for the end-to-end delivery not just the technical part not just the marketing not just the front-end not just the back end the integrated solution because that's how you create value and then responsibility comes with authority over the full project budget so if core units disagree how to implement a certain piece of work then the um already proposing the project should have the authority to say well we'll go with your solution and not yours the current system that we have with mid 40 which defines the budget of core units and their MIP 39 with their mandate it will probably not go away but we will gradually try and transition it towards a system that is more balanced as you can see in the diagram you can think of today's budgets as 100 retention budgets we're just paying you to do what further down instead we would be transitioning to a budget that is split up between still a partially retention budget but separate from that clear project budgets where the cost items are directly related to the integrated and valuable work that is delivered then for the last challenge Talent acquisition onboarding and the compensation question maker has been struggling a lot consistently with hiring onboarding and comp challenges maker dial SCS micro unit we have run an incubation program for some time but now we are winding that down why well it's very difficult and time intensive to coach teams throughout the long and costly onboarding period I already mentioned when you do when you make a governance proposal it takes you all in all two months to go from the RFC to the final vote but if you really want to um propose a core unit you need a lot more work than that at least two months of preparation adds up to a total of four it's difficult for people to just do that out of either their own effort without compensation however for a core unit it's also very difficult to make these calls so we have been doing that for a while but we felt that the model really was it wasn't suited for the new situation that we're in and of course a large element of that is simply the bear Market this has ended the onboarding and of new startup teams and it also has created a lot more discussion about where the money should go um it's easy to get a budget approved if there is um there is about enough budget to do everything comp questions in general they're extremely difficult in a global open and decentralized organization with such diverse areas of expertise even if you know how much an engineer is worth or how much a designer a web designer is worth you may not know how much you should be paying for a risk analyst or someone working in banking for example so we have attempted to ameliorate that by hiring or incubating rather a people core unit but this proves to be extremely difficult and has not succeeded so far so what is the idea here the idea is to make maker Academy instead of an incubation program um a maker Academy would be a platform that is open to everyone and that is also permissionless meaning that it is out there in the open in the Dow and if you want to create a core unit or you have an idea for a project that you want to see funded um you need to know how can I you know how how do I fulfill the role of being a good core unit facilitator what are my responsibilities who how do I need to um uh interact with governance and all these things that can be made available in open platforms open education platforms with specific courses but also General topics especially today when maker is going through a lot of transition there is a lot of complexity on the technical side there is a lot of complexity on the Real World Finance side there is a lot of complexity on the organizational side and there is a lot of complexity in the new proposals that are up for vote so um yeah an open and um available platform for Education and Training may help people to um to acquire the skills they need and then if you combine it with the possibility of Grants then you get a funding mechanism that doesn't need to be inside a single core unit but that can be done out in the open and so maker can continue to onboard the talent that it needs so these were my four challenges so what does the future of decentralized operations that make it look like no one knows there are a lot of ideas that are floating around we do believe that the solutions we're thinking about the solutions we're building they're all open source software and they could be interesting for other projects as well so yeah thank you for coming to my talk and um let's continue the discussion thank you so much want your Camp man from maker Dao we don't have time for questions so feel free to reach out to water outside and we're having a launch stop so join again at 1 30. thank you