Liquid Staking for DAOs by Dennison Bertram | Devcon SEA

[Music] minutes uh great to see everyone my name is Dennis Bertram I am the CEO and co-founder of tally uh we are one of the largest Dow tooling infrastructure companies in the space we build a lot of solutions for Dows and protocols at large we're really focused on making this new kind of decentralized organization really work so today what I'm going to talk about normally when I do this talk or talks like this I talk pretty generally about Dows the problems the challenges you know really excited to have seen uh left ter speak you know he's big I'm a big fan of his and uh you know he brings up a lot of points but today I'm going to speak about something pretty specific uh really one particular solution that we believe in very strongly right now which is staking for Dows which maybe for many of you might be a new kind of idea and you're sort of like okay what is the staking for Dows so I'm going to dig into it a bit of course so first to sort of talk about Dows really at a high level just sort of set the stage uh Dows are the new future form of Corporations and when we think about corporations we're actually talking about the largest asset class out there in the world right um last year the corporation market cap hit $123 trillion so when we think about why are we building Dows what are Dows for what is the opportunity here actually that number is the opportunity because we can convert convert some meaningful percentage of that into decentralization so as I mentioned Dows represent a new corporate form uh but there's something interesting here because you know my Jennings put up a tweet where he said tokens are not equity and there absolutely correct because Dows actually aren't corporations uh token holders are not shareholders but I want to give you a little intro little analogy Right Here Right In traditional corporations you have these shareholders let's take something like a gold mine you this gold mine you have these employees the managers and you have these shareholders if all the shareholders die in a terrible plane crash in the Andes um it's a terrible sad story but the mine continues to work right they can continue to mine gold they can sell it in the market they can earn revenue and they can pay one another right that's kind of a traditional corporation uh so corporations can exist without their shareholders even though shareholders do have a specific sort of function in the corporate form but Dows actually die without their token holders right this seems kind of obvious but if you think about it you know if you take your protocol and you take your Dow and everyone gets together a big party they eat some bad Sushi and they all die it's very sad but also your Dow is dead the protocol is dead right this is a really big distinction the token holders are really core and critical to your organization in a way that in the corporate form shareholders are not the problem is especially today the Dows are actually misaligned with token holders right um and I'm going to talk about this in the next coming slides but high level contributors that bring value to Dows today are actually forced to exit these organizations to actualize their share of value and operators because of the misalignment of incentives are actually incentivized to capture rather than collaborate in Dows so this is kind of the phases of dows that go through and I'll talk about these really briefly but all protocols start in something I call the experimental phase and in fact most of crypto has spent most of its lifetime in the experimental phase and the experimental phase is when people bunch of people get together they have some idea they're going to write some smart contract code they're going to create a lending protocol something like that this is an experiment you know I think if you look in crypto a lot of times we like to talk about crypto being an experiment everything we're building is an experiment well experiments are quite interesting especially in crypto because experiments capture value via speculative price appreciation right if you put work into something that is an experiment the way you get value out is through speculative price appreciation and we have a lot of tools that enable us to do this namely exchanges um then we have inflation or value actualization as a kind of failure and business the for Final Phase when Dows that actually make it past this point succeed so let me dig into these really quickly speculative appreciation I've talked a little bit about that that is essentially I joined this Dow it's a cool idea everybody loves it it's hype Vibes are popping off token price goes up great because I have brought some energy to this I've brought my own contributions to this I've helped create value right you know a lot of organizations here go from zero to a billion overnight you have helped create value fantastic but how do I actualize my share of the value that I've created well I have to take my token and sell them right but this is kind of oh I was going to swear this this this sucks right because what you're doing is this model actually forces out the operators who bring the greatest value to your protocol out of the protocol right they have to essentially sell their participation to get their value and now they're no longer aligned right the success of this organization is forcing out its very operators who contribute to that excess so the actualization is failure this is very critical when we look across the ecosystem why does the chart look like this so often right of course it's speculation but it's because at the very top here the only logical operation for operators and operators I Define as anyone who's helping to operate a dow is to exit right there is some price at which you've priced in all the Vibes all the hype all the RZ of an organization and now it could only go down and now it's a race to the exit and this kills even really good successful ideas because there's no path to longevity because you force out the operators who've created this value now if a protocol succeeds at this and this is where we'll get into staking um protocols become businesses right what you want is these people who've contributed value and they've contributed to the growth of this organization you want them to stay you want to keep them aligned with the project that you're working on right they should not have to sell their participation in order to continue uh to be able to get some value out and right and this this goes to kind of a core thing about governance Dow tokens right they're intermingling Financial utility with governance utility right this token is used to operate a protocol but it's also an asset right people talk about I have most of my net worth in XYZ doubt right it's an asset but it's also a utility so what we need to do in order for protocols to become businesses is use a mechanism to return value in a way that doesn't force them out and what I'm going to argue here is that staking is actually the right way to do this so to solve the alignment we need to fix incentives so staking is the web three native way to align Dows we we know staking works we know staking is compliant right e does staking many many l1s do staking staking is already product Market fit for Capital and Assets in web 3 I mean maybe it's a little bit reductive to say but in many ways the number one product Market fit with crypto is use your money to make more money staking though is also the compliant way to return value and compliant here is a very important term first of all I'm not a lawyer but I'll talk to you a little bit about what we mean by compliance here in corporations they can return value bya dividends of course no corporations do that anymore because the entire world is just meme coins and everything's kind of but that's fine the point is they can return value in the form of dividends and if token holders were just to receive money from the protocol you actually are turning your protocol into a security you can't just return value to everyone who holds a token because they have contributed potentially nothing right this is very important we have to find compliant ways to return Capital even in whatever the new regulatory regime may be and staking does this because staking requires some sort of value some sort of effort on the behalf of the token holder to return value right you stake your eth in order to earn inflationary rewards you stake your tokens and Unis Staker and Del delate to someone in order to receive a portion of the fees right now quickly rewards can be revenue or inflation people talk to me about this a lot and I'll talk about this really briefly first of all protocols need to return value to token holders there needs to be Revenue there needs to be cash flows if you think that this can go on forever with no revenue and no cash flows you're deluding yourself right these things must become businesses in the long term to survive yeah maybe it's fine that it's been four years and you know there's no cash flows and all that stuff but it doesn't last forever and it doesn't last forever for a very practical reason the majority of these Protocols are VC funded and these funds have shelf lives and at the end of the shelf life they have to get rid of these tokens and when they compare the world against like holding eth or holding your token and the need to return value in the fund there's going to be a hard decision to make right and we're not going to be able to support the future of Finance via speculative price appreciation because today the market is absolutely filled with things that are driving speculative price appreciation you may hear people joke about Dow tokens as being meme coins and if we never return value if there's never cash flows that's exactly what they are thank you the other one is inflationary rewards and inflationary reward sometimes gets a bad W right you created Dow token and now you're going to do inflationary rewards and people say oh you created this Monopoly money and now you're just going to give out more Monopoly money it's like following right that's not true the majority of staking rewards are inflationary rewards ethereum has no cash flows right nobody pays in a way that you could actually create some other sorts of value it just returns you more e right but that's actually correct this is the right way to do it in many cases because in many of these protocols you have a large number of token holders who aren't doing anything right they haven't provided any value weren't initial investors maybe they just bought this stuff off Unis swap what value does that bring to your protocol we need a way to identify the operators of protocols in a strategic clear way that's transparent and inflationary rewards allows you to inflate out people who are doing nothing and staking is the decentralized way to allow people to choose to participate I going have to go a little bit faster so I'm going to jump through this a little bit okay inflationary rewards have Dows manage their operators that's just talking about the point here is if you have a group of people who are doing nothing you need to try and inflate them out of the system right you can't take people's tokens that's not web three aligned you have to give them an option if you are participating in being an operator of the protocol if you continue to bring organizational capital and value to the system you should be rewarded with more ownership over this system because you are participating and so you can use inflationary rewards to slowly push out the dead weight in protocols now you may not agree with me on this and you don't have to use inflationary rewards that's all fine but this is something I feel quite strongly about because if you look around there's a lot of dead capital on protocols that provide no value but they just hang around for other people to do something that drives the price up and then to dump into it right and that's net negative for Success staking helps manage token Supply and liquidity this sort of goes back to the inflection point of failure if I am a founder and I've created a prop a protocol and now I have $10 million worth of my token you as the larger ecosystem want to keep Founders aligned right founder mode is a big sort of meme that's going on right now what does founder mode look like with decentralization you need Founders core teams investors aligned with the long-term success right staking helps manage that token Supply and liquidity right that gives them an alternative to binance taking creates a new class of investor series D I like the joke there are no series D investors in crypto in fact there's barely any series a investors in crypto right all the value is in preed and then there's that pump and then everybody gets out and we're done right problem is of course is that you're holding on to your tokens you're all locked up and then five years later you got to close the fund and now what you're already down here what are you going to sell into right so series D investors are folks that are looking for just long-term chill gains right one 2% per year right and this is where Dows actually really shine if you look at Enron if you look at FTX how the would you look into those corporate books and know what's going on you can't but we're building something different you can look on chain and specifically see oh here's the cash flow here are the revenues here's the go to market this is exactly how much money this protocol is making now maybe the valuation might be a little lower than we're all happy with because things are Skyhigh but it creates an asset class where third parties can transparently trust and understand the value and that means it makes it worthwhile for them to purchase and hold long term because they can accurately assess the value of the businesses that we're creating staking must preserve governance this is another really important thing today tokens are not compatible with staking because the moment you lock tokens the moment you use tokens as collateral you break the utility of tokens which is participating in governance and operating governance so we must build staking systems that align with governance that allow us to both use our assets as collateral but also use them as the utility of operating these protocols finally I think this is finally yeah almost finally staking empowers the operator class right who are The Operators The Operators are the active token holders these are the delegates these are the people who show up to vote no on malicious proposals and yes on things that Advance the Dow these are folks who vote Yes to reinvest Revenue to grow the organization no to scams that show up and want to just suck the treasury dry these are the operators the people with whom if they die all in a crash your protocol is dead we Empower them because we give them a revenue stream and when they have a revenue stream they professionalize and they compete over providing value right and this is how we actually grow our ecosystems right we all know one another we were nfts you know maybe we're a pudgy penguin something like that but the future is not a bunch of rando anons running multi-trillion dollar protocols right the future is large well- capitalized organizations who work in a professional manner to drive value to build the infrastructure that powers the future of the global economy right and we need tooling that aligns the most talented participants around the world into participating again a superpower of dows so staking fixes Dows this is what I've been trying to talk a little bit about maybe I didn't express enough the sort of like core problem here but we align the operator class we align the founders and core teams we align the investors and we align the wider Community with success right no longer is this just a pump and dump kind of operation we want to build something that grow grows over time uh tally bills taking for Dows um feel free to come and talk to me about this more if you want to understand a little bit more about uh our perspective what we're doing here but most importantly this is what we want to leave you with we need staking as the web three compliant tool to enable success of our organizations they are not meane coins but they're going to be meane coins if we don't act on creating long-term sustainable mechanisms so that's my talk I have three minutes I not sure if that was supposed to go into the questions answer period thank you very much uh it was very nice and you speak so clearly and so uh energetically that the guys even came and brought more chairs thank you you're like pulling the crowd in this is really this is more we need more of this it's really nice thank you very much pleasure and we have some time for some questions uh so maybe I will read them out and you can have an answer but uh yeah so the first question I think maybe it's asking for a little summary of The Talk actually how does staking do dow tokens for a protocol bring value isn't it just locked liquidity in smart contracts okay this is a great point no because when you lock the liquidity you demand something right so the way it high level works is you have your tokens you stake them but you have to pick an operator to represent you in governance a delegate right so you say okay I'm staking my tokens I'm picking my delegate now in order for me to receive my staking rewards the delegate must do some sort of work in the Dow right we're working with arbitrum to build staking for arbitrum they're using a tool called karma which creates a score for delegates and they say okay if you reach this minimum score I don't know 88% on the karma score you are eligible for your rewards what that means is token holders have to watch their delegate closely because if the delegate goes on vacation and doesn't show up for a vote you don't get paid right and if you don't want to delegate to someone you delegate to yourself now you can earn both the delegates rewards and your own token holder rewards right but this is important because it demands that you operate the protocol and this effectively turns all participants into kind of independent contractors right you're not being paid for just being viby and hanging out you're being paid for doing the work of operating the protocol or making sure your selected delegate does their job in operating the protocol uh so for me this kind of touches on the point that you say it becomes a professional Manor like for me I don't know like I think people do their job when they have a fear of losing something like of course yes you're incentivized by getting money at the end of the week but you do your job purely is because you don't want to lose the money at the end of the week so do you think this also plays a role in staking or yeah one of the things that this is based on is the opportunity cost of capital right if you have certainly large amount of money there are a lot of ways to earn yield traditional staking you have slashing here the slashing operates on your opportunity cost right if at the end of one year your delegate didn't show up you lose all the income that you could have earned you lose the opportunity cost of your Capital this is quite important because in Dows there aren't objective yeses no answers we can't take people's tokens for having making decisions that we consider wrong because you need these minority protections so you can at least say well no you're not qualified to earn these rewards and that's the sort of mechanism that you lose right so that for professional delegates they can go out they can pay for food you know they don't have to do some retr pgf where they got to like beg for their rent you know six months later this is how we do it in a professional way and do you see this so one of the things that I kind of wondered when I first started hearing about D was like maybe I do this as a profession like if I'm interested in politics or whatever maybe I actually do this as a profession do you see people actually doing this and like staking enabling that there are large organizations already in crypto who are professional delegates they hire teams they have analysts many investors now take the governance seriously where they have analyst teams you know you look at large organizations like black Roth that participates in the arbitrum Dow you look at VCS like panta that are actively participate in their Dows so yes we we see these these large not necessarily large but professional um working group of folks who focus on these protocols that's quite cool and so what we have another minute so we can have one more question so what is the first stage of growing and identifying our ecosystems operating class so how do we get yeah yeah so that is work right because if you get it wrong you you can screw up things majorly and you really need to identify who needs your protocol who's excited about your protocol and what there is between so it depends on kind of what your protocol is if it's a VC backed protocol probably your first operating class are going to be your VCS if it's a Community First protocol it's probably going to be the people who contribute to the energy of getting stuff done every day if it's a protocol that's composable and people build on top of it it's probably the folks that are building on top of it as you get more mature it also becomes more attractive for the third party group groups things like kpi or Gauntlet or stable node stable La l2b many of these other organizations who are available as a professional class to help uh operate U I think because you finished the talk one minute early we have one last one if you want I hope they they don't complain to me because I think like lots of questions came in um so one of them spicy which uh Dow do you like the most I can't pick favorites no okay good um one other one before that that that came in before the time ran out um how would arise in AI agents operated protocols change the need for Native tokens and staking yeah AI agents actually don't change the equation right one of the things that's incredible about Dows is that we've built a corporate entity that AI agents can actually natively interact with right when Bitcoin first came out one of the amazing things about it was I could send you an email that says I love you uh and you'd feel loved or I could say you send you an email that says here's a dollar and you don't have any anything right Bitcoin changed that I can send you a dollar and that was a major blocker for machines actually participating as co-equal partners in the economy now with Dows AI agents machines can actually be valuable contributors to these ecosystems and they will also need renumeration for the services because AI actually has many of the same requirements that humans do right they have to have some physical location where the servers are they have to pay for electricity so they will also need to be able to pay be paid for their services so this aligns very much with creating some sort of cash flow stream that pays for compute very nice thanks very much well now I think we're a little bit overtime so maybe we can pank the speaker once again this was the first you closed the first session of stage three in Devcon 7 thank you very much