62 - Governance and Capital | Joel Monegro

Joel Monegro is a partner at Placeholder VC, where he invests in decentralized networks and companies that democratize data, wealth, and power. ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 🎖 CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge 🎧 Get this Episode's Debrief: https://shows.banklesshq.com/p/exclusive-debrief-governance-and ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini 🔀 BALANCER | EXCHANGE & POOL ASSETS https://bankless.cc/balancer 👻 AAVE | LEND & BORROW ASSETS https://bankless.cc/aave 🦄 UNISWAP | DECENTRALIZED FUNDING http://bankless.cc/uniswap ------ 📣 DHARMA | From Dollars to DeFi in a Tap! https://bankless.cc/dharma ------ Bankless Podcast #62 | Governance and Capital Guest: Joel Monegro Joel Monegro is a partner at Placeholder, a venture capital firm where he invests in decentralized networks and companies that democratize access to data, wealth, and power. He started the firm in 2017 with his friend Chris Burniske and mentor Brad Burnham after three years at Union Square Ventures, developing the firm’s early blockchain thesis and portfolio. In this episode, Joel explores the relationship between Governance and Capital, broadly used terms in desperate need of proper definition. Governance focuses on the decision making process in regards to capital. Capital is a broad term for economic resources – that which has utility. Governance can refer to autocratic individual decision making, but we dive into governance as a mechanism for collective decisions and achieving consensus. It is typically tied to a social and/or economic system and is made of structures that drive decision making among groups of people. Capital represents influence, power, or control over economic resources. Capital and its utility are natural social phenomena and are relative in nature. Governance and Capital are deeply linked and arguably synonymous. The optimization of governance over capital and capital instruments are priorities of blockchains, which involve both financial and governance technology. The utility of capital can increase when pooled, especially when governance is scaled and effective. A core argument of the crypto industry is that blockchains offer a more advanced instrumentation of capital, creating maximally efficient pathways for the exchange of value. They allow the transaction/contract settlement layer to migrate away from a state-backed system, which involves the use of courts and violence to achieve security. Replacing violence with cryptographic consensus is a powerful but challenging concept – one explored deeply in this episode with Joel Monegro. ------ Resources: Placeholder VC Blog https://www.placeholder.vc/ Joel on Twitter https://twitter.com/jmonegro?s=20 Generations - Strauss and Howe https://www.amazon.com/Generations-History-Americas-Future-1584/dp/0688119123 ------ This Week on Bankless: 🧢 Weekly Action Recap (4/24): https://newsletter.banklesshq.com/p/ethereum-at-aths-weekly-recap 🗞️ Weekly Rollup (4/23): https://shows.banklesshq.com/p/-rollup-venmo-huge-eth-q1-canada ⚫ The future of synthetic assets (4/22): https://newsletter.banklesshq.com/p/the-wild-future-of-synthetic-assets ✏️ A Short History of Ethereum Hacks (4/21): https://newsletter.banklesshq.com/p/a-short-history-of-ethereum-hacks 🏴 Coinbase Goes Direct (4/21): https://shows.banklesshq.com/p/-sotn-43-coinbase-goes-direct-jeff ------ Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:06David Hoffman?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, fantastic episode. Who did we have on and what did we discuss? We had on Joel Monegro of Placeholder VC. Joel is very close with Chris Burniske, who we've also had on the podcast. And I personally really enjoy this duo of really big thinkers. And these guys really take the very nuanced details of token governance,

• 0:49David Hoffman?

  crypto network management, and really extrapolate it from the micro all the way to the macro. And this is a bankless podcast that I think is really pushing the frontier of crypto knowledge. Because again, we are not designing these systems, we are exploring these systems. And Joel, I think, is doing a really good job exploring the frontier of crypto network governance and what that means. And he has, I think, done a very fantastic job really defining and articulating what is actually going on when we talk about governance and linking it to capital. And his association of governance and capital is actually two sides of the same coin, I thought was extremely profound, and perhaps actually the entire through line of this entire episode.

• 1:34Ryan Sean Adams?

  Yeah, what's crazy here is I feel like a lot of people who, whether they're bankless listeners, or just the population in general, have this feeling that something big is happening, like something has changed. Like, we are entering into almost a new era where our previous institutions no longer work, and we've got to discover these new institutions. Like, change, very much, maybe it's the 2020s thing, but it feels like change is in the air, David, and people are uncertain how this is all going to shake out. And what I love about this episode with Joel is he thinks big picture about how these technologies

• 2:10Ryan Sean Adams?

  Specifically, these coordination technologies, capital coordination technologies, governance technologies, will shape humanity's trajectory, will shape us into the future. It's just a very big brain, a very big picture, high level, long-term type of podcast that blends like what we love to talk about so often on Bankless, this kind of philosophy side, you know, this anthropology side of things, the societal impact side of things with the technology. This is dude, this is right in our sweet spot. This is the podcast that we, we love to do because out of Joel, we get definitions for things that we hadn't previously really defined or thought about. Like, what is the definition of capital, David? Hmm, let's ponder that for a bit.

• 2:55Ryan Sean Adams?

  What is the definition of governance? We talk about these terms so often on Bankless, but Joel actually brought some definition to these terms. And that's what I loved about this episode.

• 3:05David Hoffman?

  And I don't think there's any other realm of knowledge outside of the crypto space that is really tackling questions like this, tackling questions that Joel is really going after. And the inspiration for this podcast came out of a desire to really articulate why governance has value in the first place. Because we've been here, ever since DeFi summer, we've been hearing that like, oh, these DeFi tokens, they control the, the passing of money. You know, you need, you need governance tokens to control the LP fees. They control how money is sent around in the system. And there, and therefore the governance tokens will just vote in fees to the, the tokens. And then that's how there's money. That's how there's value collected in these governance tokens. That's why governance tokens has value. And it's been this very hand wavy explanation.

• 3:50David Hoffman?

  It's like, oh, the, the governors of a system will just vote in fees for the governors. And so I really wanted to get Joel on the podcast and ask him, is it really that simple? Is it really that, you know, if this, then that? And that's why governance tokens has value. And to some degree, Joel said yes, but also he said no. And we dove into like, how actually capital is a form of power over the world. And as a capital owner, you can direct power and route power as you see fit. And whether or not Fees actually do make it from the hands of the protocol into the hands of the token owners. The value of these governance tokens have value no matter what because of their ability to dictate

• 4:30David Hoffman?

  power around the world. And just like you said, we can talk about that in the very micro aspect of crypto network governance, but we can go all the way back into the history of human governance at large and talk about governance is power, power is capital, capital is governance. And all of these same things are becoming distilled inside the same asset on Ethereum and tokens and crypto networks at large.

• 4:54Ryan Sean Adams?

  If you love previous Bankless episodes like Slaying Moloch or our episode on the Crypto Nation State with Balaji, or we talked with Chris Dixon about how the nation state would be unbundled, how there's this new capital coordination technology, this is the episode for you. And of course, if you are a paid subscriber to Bankless, stay tuned for the debrief that comes out on the Bankless premium feed where David and I do an after the podcast digest of our thoughts. Definitely one to catch up this time. David, one more thing, we'll get to sponsors, then we'll get to the interview, is Dharma is hot these days. Folks that are listening to the Bankless podcast over the last few episodes know we've been talking about Dharma, which is

• 5:37Ryan Sean Adams?

  a smart contract wallet, enables you to go directly from your bank account into a crypto protocol, start earning yield in something like wirens, particularly if you're in the US. David, tell me something good about Dharma because we're really excited about them these days.

• 5:52David Hoffman?

  Yeah, my current thesis, and I'm pretty sure Ryan, you agree with me, is that retail season is right around the corner. How could it not be when Doge is at 40 cents? Retail is coming and retailers is expecting a centralized platform level of performance, but we are trying to get people on boarded to the values and merits of decentralization. And Dharma, I think is how we do this, right? Dharma is how we make sure that people get into actual real capital assets like the ones we're about to discuss with Joel, and they do it in a very easy and quick way. And without having to worry about things like Doge or Litecoin, because the capital assets on Uniswap are legitimate assets and you can access those legitimate capital assets directly from your bank account with Dharma.

• 6:36Ryan Sean Adams?

  If your friends are asking for a way to get into DeFi, send them to [email protected]. Speaking of fantastic DeFi tools, we want to tell you about the sponsors that made this episode possible.

• 6:49David Hoffman?

  Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries, just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. Something brand new in the Uniswap ecosystem is the Uniswap Grants Program is now accepting applications for grants. We have been saying this for a while and we'll say it again. DAOs have money and they are in need of labor. If you think that you have something to contribute to the Uniswap DAO, apply for a grant to Uniswap.

• 7:34David Hoffman?

  Just look at the size of the Uniswap treasury. It's almost $3 billion. This mountain of capital is looking for labor. Do you have something of value to contribute to the Uniswap DAO? No matter how big or small your idea is, you can apply for a UniGrant at unigrants.org and help steer Uniswap in the direction that you think it should go. That's exactly what we did to get Uniswap to be a sponsor for Bankless and you can do the same for your project. Thank you, Uniswap, for sponsoring Bankless. Balancer is DeFi's most powerful automated market maker. Typical AMMs just have two tokens inside of one liquidity pool, which can lead to fractured liquidity across the many pairs in DeFi. With Balancer, you can access the full power of multiple tokens inside of one single AMM, which unlocks an entirely new playing field of possibility.

• 8:19David Hoffman?

  This makes Balancer an awesome building block for so many different use cases. Balancer pools can make asset indexes, but instead of paying fees to portfolio managers, Balancer lets you collect fees from traders who use your portfolio for liquidity. Additionally, Balancer smart pools can be programmed to have properties that change according to predetermined rules, such as changing the swap fee based on market conditions. Or even liquidity bootstrapping pools, which can help you launch and distribute your token with day one liquidity. At Bankless, we used a liquidity bootstrapping pool to sell our BAP t-shirts to much success. Balancer V2 brings powerful new features that makes your money work even harder for you. In V2, idle tokens are capable of generating yield in DeFi without sacrificing liquidity in the pool. To top things off, Balancer is reimbursing all gas costs with BAV rewards, meaning that

• 9:03David Hoffman?

  all your gas costs are returned to your wallet with the Balancer Governance token. Balancer's mission is to become the primary source of liquidity in DeFi by providing the most flexible and powerful platform for asset management and decentralized exchange. Dive into the Balancer pools at pools-balancer exchange.

• 9:19Ryan Sean Adams?

  All right, everyone, we are super excited to have Joel Monegro on the podcast. Joel is a partner at Placeholder Ventures. Placeholder is a venture capital firm which invests in decentralized networks and companies. We call these crypto native organizations. He started the firm in 2017 with his friend Chris Berninski, who is a Bankless Podcast alum. Go check out Chris's episode as well. And one of his mentors, Brad Burnham, after three years at Union Square Ventures, which is a relatively famous VC fund, he developed the firm's early blockchain thesis and portfolio there, including such memes and articles as the fat protocol thesis.

• 10:03Ryan Sean Adams?

  He is now a big believer and has been for quite some time that crypto will change the structure of all markets, maybe even how humans organize societies into the future. Guys, prepare yourselves. This is big brain stuff today. We are going deep. We are super excited about this episode. Welcome to Bankless, Joel.

• 10:25Speaker 02

  Thanks, Ryan and David. Super excited to be here and looking forward to the conversation.

• 10:31Ryan Sean Adams?

  You know, we got to start at the highest level macro place we can to get introduced to this. And this is like the structure of societies, the structure of humanity. One of my favorite books, I know it's David's as well, is a book from Yuval Harari called Sapiens. And there's a lot of great insights in that book, but one of the insights is the thing that separates humans from all the other animals, not all of their species, is our ability to coordinate socially. That is humanity's superpower. And you can even think about our trajectory, our technology trajectory through the ages. We've come from kind of a cave society to agrarian society, to this digital society,

• 11:15Ryan Sean Adams?

  as just increasing progress on coordination technologies. Want to start with this question around, with that grounding around coordination technologies in a term that we use so often in crypto, which is the term governance. Now, I think of governance as the ability to really determine how decisions are made. But governance is almost a coordination technology in and of itself.

• 11:44David Hoffman?

  How do you think about governance at the highest levels, Joel? What is governance?

• 11:51Speaker 02

  Yeah, um, so governance is is a tricky term because it's so broad, right? And I think that's what makes it sometimes difficult to think about and analyze. But I'm with you that governance is ultimately about how decisions get made. And the structures that drive decision making between groups of people or among groups of people. It can also be within an individual, though there, I guess you would call that autocratic governance or use a similar term. But yes, at a high level, governance is how decisions are made.

• 12:32Speaker 02

  And they're usually tied to some kind of of system, whether it's a social system or economic system, and you could say that those are the same. But governance exists between a group of friends, for example. If you're going out to eat, there is a governance process by which humans find consensus about which restaurant to visit. All the way to DeFi protocols, there is a governance process and a system that gets created for deciding where a network goes.

• 13:09David Hoffman?

  And also, like Ryan said, Sapiens mentions how the reason why humans are different from other species is that we can actually scale governance. And we, he talks about how humans use stories initially to scale governance, shared stories and shared myths. But as and also, as Ryan said, governance is also a technology. And it's really a, humans are trying to find governance mechanisms, governance technologies that allow us to scale into larger and larger groups. And that allows us to scale beyond just like tribes of 50 to 150, things below Dunbar's number into, you know, nations of millions and hundreds of millions.

• 13:54David Hoffman?

  And so, Joel, when we talk about governance, what is it that we are actually governing over that allows us to scale from just, you know, hunter gatherer societies of, you know, 50 to 150 to nations of hundreds of millions?

• 14:11Speaker 02

  Yeah, I think ultimately, what we're governing is pools of economic resources. And so that can be anything from a household. You know, if you live in a house with people, there is a kind of understood, or maybe not so well understood, but there is a governance process internal to the household that is about how to make decisions for that little system. And in economic history, there have been periods where we have set, for example, the family as the core economic unit. Other schools of thought think of the individual as the core economic unit.

• 14:51Speaker 02

  But this idea that it's a little economic system, we're deciding how resources are distributed and how responsibilities are distributed within that system. You can have governance over another kind of economic system, like a company. And there you're making decisions about how voting power is distributed, same kind of exercise. How do you distribute the economic resources within that system? Who is responsible for certain aspects of that system? You can have governance over countries, as you mentioned, and it's the same dynamic. It's who makes the decisions about how resources within that country are distributed.

• 15:29Speaker 02

  And now, the principles are the same, whether it's, you know, a family, or a company, or a country, or the world. If you think of the United Nations as a way to create a governance system that can coordinate across countries. And the technologies change, right? At a household, you know, you may not need a rulebook, though I know that some households have household rules that are written down. And other systems have, you know, for example, a company have shareholder agreements and all kinds of contracts that define the governance system for that kind of organization. And different companies or different countries will have different systems.

• 16:14Speaker 02

  And by and large, the technology, the dominant governance technology is writing.

• 16:20Speaker 02

  Writing is what you use to define a lot of the processes and a lot of the responsibilities. And it's ultimately about what mechanism do we use to find consensus among a group of people? And it's how it starts kind of giving us a window into why blockchains are so intertwined with this idea of governance, because we primarily know them as consensus protocols. And it's very different from, say, the protocols of the internet, which are communications protocols. And so this idea that we now have this new technology that allows us to create consensus protocols of various different kinds, from the Bitcoin blockchain to a DAO, really helps

• 17:05Speaker 02

  us understand that we are dealing with not only a financial technology, but also a governance technology. It's a new tool, kind of parallel to writing, which has been used for thousands of years.

• 17:16Ryan Sean Adams?

  So Joel, you said the thing that we govern over most often is economic resources, various economic resources. I've often heard crypto and systems like Ethereum being described as sort of a capital coordination tool, or a capital governance tool, if you will. You just used the word consensus. Maybe we're kind of swirling around some synonyms here, and maybe these terms have different meanings. How would you relate the concept of capital to governance? Are we essentially in these crypto economic systems? Are we governing over capital? Is that the thing? Or are capital and governance more closely related in your mind?

• 17:57Speaker 02

  I think they're more closely related than we might think. And to zoom out a little bit, a lot of my time over the past couple of years, I've spent it trying to understand capital a little bit more. And it was this funny thing, because I found myself kind of a... Thinking about the traditional definitions of capital, which are taught in economic schools and so on. And I think the the most common definition goes back to Adam Smith, who describes it as the part of your your stock that that affords you revenue.

• 18:40Speaker 02

  And capital is this interesting thing because I I found out that everyone is aware of capital, kind of the same way that everyone is aware of energy. It exists in every social system. People usually understand what you mean when you say capital, though most people don't seem to be able to describe it precisely. And so it's something that we experience, that we know what it is through experience, but don't necessarily know how to how to precisely define it. And I found that the the classic definitions in the textbooks don't cover the full spectrum of capital that that we have observed in society over the past couple hundred years. That that 300 year old definition of, you know, those those possessions

• 19:25Speaker 02

  that you have that afford your revenue were created at a time when there were there was a limited number of observed forms of capital. And so we're we're used to thinking about capital as money. For example, we're used to thinking about capital as, you know, the the equity of a company.

• 19:47Speaker 02

  But capital takes so many different forms. We now know to speak of political capital. We now know to look out for social capital as well. And I find that those new forms of capital don't adequately fit within that framework of this thing that affords you revenue per se. And so as I started thinking more about it, I came to the conclusion that at the end of the day, what all the different forms of capital have in common is that they all represent some kind of power or control over economic resources, which is a form of governance. And so, for example, if you think of

• 20:31Speaker 02

  Um, political capital, if you have a lot of it, uh, you're a congressperson, for example, and you have through your career accumulated a lot of political capital. There's no object, right, that that embodies your political capital. It's kind of a power that you have. And the more you have of it, uh, the more influence you have over how laws are created and which laws, um, uh, get, uh, or which proposals become law. Um, and so your political capital in that scenario, um, is governance, is control over the rules of an entire country. Um, and that's an incredibly valuable thing, even if it's not a revenue producing asset like a share of stock in a company.

• 21:14Speaker 02

  Um, if you have 10 million followers in social media, you have a lot of social capital. You don't have, again, this object or this instrument that necessarily gives you direct value like the dividend on a stock. Um, but you have the power to influence the public opinion of your followers or the opinion of your followers. And that's an incredibly valuable thing. And so what's interesting about that exploration is that if, once we understand capital as control, um, and once we understand governance as control, um, then we start to see this very intimate relationship between capital and governance. Um, and we might even say that governance is capital.

• 21:56Speaker 02

  Um, and this idea that governance equals capital is, I think, a, a foundational principle for understanding, um, how to think about governance in decentralized systems. Because once we understand that, um, the governance of a protocol is really the capital of that protocol, um, it helps us understand then, uh, what to expect from, from a governance system or what to expect from, say, a governance token.

• 22:22Ryan Sean Adams?

  Joel, there's so much to unpack there, like just the idea of governance equals capital. Like, I mean, I think that that could be, quite honestly, the rest of this podcast. It's so deep.

• 22:31Speaker 02

  Yeah.

• 22:32Ryan Sean Adams?

  Like, I want to get in back into just some of the concepts you're talking about. So what you're saying is basically there are all of these other forms of capital that aren't very visible to modern society that Adam Smith didn't see. And we might not see, might not be quite obvious now. We might not recognize them as forms of capital. And it's probably partially because there aren't assets around these forms of capital. And there aren't markets around these forms of capital. So if I wanted to measure the level of political influence of a senator, say, like Senator Bernie Sanders, for instance, over time, there's no asset I can purchase, like I can't purchase burn token, you know?

• 23:11Speaker 02

  Right.

• 23:11Ryan Sean Adams?

  And and chart that over time. Not yet. That's interesting. Same as social capital, right? I can't, you know, David is a really popular crypto social media figure, as we all know. I I can't chart the the value of that over time because the asset is not visible. So what one thing I think you're saying, among the many things, is that there are all of these forms of capital in human societies that are like forms of influence as well, forms of governance as as well, that are basically invisible to us because we don't have financial markets set up for them. At least that's part of the reason why. Is that is that what you're saying?

• 23:52Speaker 02

  Um, for the most part, yeah, I think you're right. I, the way I like to think about it is, or the terms that I use are there's there's capital, which is a natural social phenomenon.

• 24:08Speaker 02

  And it's if we think of capital's control or influence or power, all of those things are related. Capital kind of emerges naturally out of any social system. If you have a group of friends, there are some friends who are more influential than others in terms of how a group decisions are made. And same with a company, there's a more established hierarchy, same same with the government. And so as we scale the systems, they tend to have more structure around them. But there's there's capital and then there's capital instruments. And the instruments are what define the behavior of that capital.

• 24:48Speaker 02

  The instrument layer, if we want to think about it that way, is where technology comes in. And so for the most part, because we have used writing as the governance technology for thousands of years,

• 25:01Speaker 02

  instruments have been defined with language. And so, for example, reusing that friend circle example, there's no friendship agreement that you might use with your friends. And so the capital exists, but there's no instrument around it. And the instrument is the object, the abstraction of capital, that makes it observable, measurable, and tradable. And once you can do those three things, then you can create markets around it. And that's where the financial market aspect of it comes in.

• 25:32Speaker 02

  But there's a really important concept here to unpack this idea that capital exists, whether or not it has an instrument. And then the instrument is the mechanism that we use to build consensus among a group of people about how that capital is distributed. And so, for instance, in a company, you use the full stack of contracts from the incorporation documents to the membership agreements or the shareholder agreements, to the employment contracts, to the lease agreements when you're renting an office. All of those things are instruments, attached to different forms of capital that define the behavior of the assets within that system.

• 26:13Speaker 02

  For instance, if you are the CEO of a company, you have a different set of rules and responsibilities than if you're an employee. And your capital within that company is represented by shares of stock that you own. And those give you certain governance powers over the organization and certain control over the organization. If you have, if you're a, an employee, you have some capital in the organization and that is defined by your employment agreement. And it tells you what things you have power and control over and what things you don't.

• 26:54Speaker 02

  If you're an investor in the same company, you also have shares of stock, usually with different rights and different terms than say the shares owned by the CEO. And that's another instance where we use writing to define how this form of capital behaves differently from this other form of capital. But the instrument there is the share of stock. And so the stock that is distributed to employees versus the stock that is distributed to the founders or, or leadership versus the stock that's distributed to investors may have different terms and different rules. And so it defines how the different kinds of capital within that system behave. And it ultimately defines what they are worth.

• 27:35Speaker 02

  So for example, investor shares tend to have certain economic properties and protections and we usually call them preferred shares. And those have a different economic arrangement than say common shares. Now the instrument remains the share of stock. For other forms of capital like intellectual capital, for instance, we may have other kinds of instruments. So a patent is an instrument for an idea that you had. And it's, it's the instrument that we use and it's in writing, it's a legal contract as well. That gives you certain rights and certain control over that idea that you have. And that ends up in this instrument called a patent or a copyright.

• 28:20Speaker 02

  We may have also, for example,

• 28:25Speaker 02

  property titles are yet another paper contract written in language that gives you ownership and control over a piece of physical land. And that's an instrument for a different kind of capital. Some people call it real capital or land is a, is a form of capital. And so the instrument there is a property title. And so we have these different kinds of capital. And then we have associated instruments that allow us to do those things, observe it, measure it and trade it. You know, I can, I can sell you my patent, right? And it's how I am able to trade something that's not tangible, like an idea, using this instrument that's been created around it.

• 29:07Speaker 02

  But what's interesting about that is that we have all of these other forms of capital that don't have any instruments yet. So going back to political capital or social capital, you know, political capital, as you described, it's hard to measure. We don't really have anything to measure it. And if we can't measure it, we can't value it or price it. And we also can't trade it formally. And so it kind of stays in this gray market governed by lobbying and, and other forms of, of capturing value from that political capital. And so that I would argue is inefficient, and I'm sure we'll, we'll go into that in a second. But then using the example of social capital, we have, we have a way to measure it, right? Like followers and social media, so we have that.

• 29:51Speaker 02

  But we don't have an instrument that allows us to trade it.

• 29:56Speaker 02

  Because we don't have those instruments, then we can't create markets around it. And so we can't accurately price and value what that capital is worth. And so I think one of the big opportunities we have here with blockchain says, at the end of the day, we have a technology that collapses the cost of instrumentation. It makes it so much cheaper and easier for you to create instruments for all kinds of capital. And I would argue that most kinds of capital that exist in the world don't have instruments attached to them, and therefore don't have markets attached to them. And so there's a lot of wealth out there in the global system that is yet to be captured, because we haven't created instruments for those forms of capital.

• 30:36David Hoffman?

  Joel, this is insanely cool and I want to back up and just kind of recap the conversation so far. And so when people typically talk about capital, they typically talk about perhaps their net worth. And their net worth is always something that is a collection of all of their defined assets. Right. But what you're saying is that capital, we can actually look at capital more expansively. And perhaps a way to define capital is a trying to measure the some individuals or some individuals' capital, their ability to influence the world. And perhaps we don't know how much capital that person has until after they try to expend it. And then we can look at how much of the world that they have changed.

• 31:17David Hoffman?

  And then we can measure it's like, well, you have this much capital and we can judge that by expending it. But before they expend it, before we understand all the forms of capital that they have in their potentially infinite different forms, we actually don't know how much capital there is out there in the world. Because humans, through their unique ability of communication and language, can instrumentize capital. And that is something that we try to do and seemingly has, we've always tried to do more and more and more of as we progress through history. And now we have these crypto networks, which, as you said, collapses the cost of instrumentation,

• 31:56David Hoffman?

  which allows humans to express capital in our and define it in a precise, specific asset. So now that now they have this cool new technology where more and more capital can be defined and instantiated in one single asset. My question to you is, what does that unlock? And why is that good? Why? Why is the instrumentation of capital? Why can we say that that is advancing of human society? What does that unlock for us? What ability does that give us?

• 32:27Speaker 02

  So the first thing it does is it unlocks wealth at the broadest sense.

• 32:35Speaker 02

  In part because.

• 32:38Speaker 02

  Once you instrumentize capital, once you create an instrument around a form of capital, the most important thing that instrument does is allow you to exchange it. And that, once you understand capital as control, you know, something like a share of stock is a share of control over a system. And once we can trade it, then we can create markets. And once we have markets, then we can put a dollar amount or a dollar value to that unit of power, if you want to think of it that way. And so I think there are lots of forms of capital out there that

• 33:17Speaker 02

  so far, we have unable to create instruments around for various reasons. And to understand that a little bit further, it's worth

• 33:27Speaker 02

  noticing that every instrument of capital that exists today is a legal contract.

• 33:35Speaker 02

  Everything from a property title to a patent to a share of stock, none of those are objects that exist. All of those are abstractance of that power of over the underlying system. If you own a house, you can do whatever you want to it, right? It's or if you own a piece of land, you can do almost anything you want. And so you have total control, right? And so this idea that you have complete governance over that plot of land. If you own all the stock in a company, or even the majority of the stock in a company, you have the control over that system and you have complete governance, control and power over that system.

• 34:13Speaker 02

  We used to have kingdoms, right? And so all of the capital in a kingdom was invested in the monarchy. There was no instrument for trading it other than violence and death. You had to go kill, kill the king or queen in order to transfer that capital.

• 34:32Speaker 02

  Capital was transferred through war and control. And it wasn't until we started creating legal agreements, which are consensus mechanisms and consensus technologies, that we were able to transfer power.

• 34:45Speaker 02

  And so going back to the question about what this enables, it unlocks more wealth because we can create more markets around new forms of capital.

• 34:56Speaker 02

  I think there are so many interesting things that can happen once you make influence tradable, for example.

• 35:03Speaker 02

  And I also think that capital is valuable in and of itself, whether or not it produces, say, profits in the traditional sense that that we're used to thinking about capital assets. And so this idea that we can use this technology to create new kinds of capital assets that have never existed before.

• 35:22Speaker 02

  It shouldn't be controversial to agree that capital is inherently valuable and whether or not you can measure it. And so being able to measure it means that we can distribute that power more efficiently. So if you think about the wealth concentration that happens in a monarchy, when all the power and all the value is concentrated in a family versus how much more distributed wealth is in the modern world with democracy and open markets, we can take that a step further. And it's almost like, you know, hyper capitalism, but in a good way. Capitalism is actually responsible for distributing, for discovering and distributing a lot of dormant value in the world. And so being able to take that idea further is, I think, what's enabled by blockchains.

• 36:07Ryan Sean Adams?

  So we are unlocking more capital. We are instrumentizing it, if that's even a word as well. And this is going to unlock wealth. I want to camp on a particular subtlety. I think that I don't want listeners to miss here because this is super interesting. When you were describing it, Joel, you kept using the terms, and the way we create an instrument out of capital is we use words, we use language essentially. And I think what you meant were things like it could be a verbal agreement, a verbal contract, but more commonly could be a legal contract that we create. These are the words. This is the code essentially.

• 36:48Ryan Sean Adams?

  Of course, in the crypto world, in the blockchain world, that can literally become digital code. Those words can be Code, we can embed some of these these ideas and if then statements into actual code. But another change that I think is is worth talking about is the settlement layer is somewhat different. Right? So the words that we write, the settlement layer is ultimately the legal system of our nation state. So if we have a dispute on some contract, then Joel, you you might take me to court. And ultimately, that's going to be settled by the nation state. And of course, at the root of the nation state, the the nation state uses force, you know, violence,

• 37:30Ryan Sean Adams?

  the ability to throw someone in jail, potentially the ability to to find them, you know, against their will. That's how these word based contracts are enforced. But crypto and blockchain offers an alternative settlement layer as well. And I I wonder if you could reflect on this because it seems to me if we have digital contracts that are settled on a crypto consensus layer and outside of meet space court systems and nation state court systems, we actually are able to remove that need for force and violence as the base settlement layer. It is that is that the right framing of things and the right thinking of things? Or or how would you respond to that?

• 38:15Speaker 02

  Yes, it is. And it it starts opening, you know, or pulling yet another threat, which is, how does this play into the future? How does this evolve over time? And it it starts a trend towards the unbundling of governments. Because if the more commercial activity that we move over to blockchains that are able to enforce contracts between people and enforce agreements without the very expensive use of force. Then there's everything we've talked about so far in terms of it expands the you you reduce the cost. You do a couple of things once you expand the the amount of that activity.

• 38:58Speaker 02

  And so, for example, and I think this is what we're seeing with with crypto. The activation energy to launch a token is much lower than the activation energy to launch a company, for example. And that's in part because you don't have to do all of these time consuming processes to make sure that those agreements settle in in physical court. But then as we need courts less and less and less, and we need the state less and less and less to enforce contracts, it's it's cheaper for for everyone involved. It's more efficient, it's faster, it's all the things that you would expect. But it also reduces the role and the importance of the state, which opens all kinds of weird side effects.

• 39:43Speaker 02

  But the most important one is, I think, it helps scale capitalism globally in a way that was impossible before this consensus technology, before blockchains. Because one one interesting thing about what I'll call industrial capitalism is that, and then the instruments of capital that we have today is that most of the instruments we have today were created under this industrial paradigm of capitalism. Shares of stock are just a couple hundred years old, but capital has existed forever, right?

• 40:22Speaker 02

  Patents are relatively new, property titles are also relatively new in the context of humanity. But shares of stock in a company, that is a concept created under this idea that or or under the paradigm of the economy where it's based heavily on production or heavily on kind of land-based capital, this kind of physical forms of capital. And they're also designed to operate within the framework or the paradigm of a nation-state because they have to be enforced by some court, right? And so when you remove the need for a court, you could think about all the things that that does to the state, which is one rabbit hole, but also you could also think about

• 41:06Speaker 02

  some of the things that it opens. And one of the things that it does is it makes it much easier to conduct commerce on a global scale.

• 41:15Speaker 02

  Because one of the ways in which we have found the limits of industrial capitalism is with globalization. And globalization has created a lot of weird side effects that we're still struggling to with today. Going from wealth inequality that has been created all the way to just the cost of creating and distributing capital around the world. And what I mean by that is

• 41:45Speaker 02

  You know, if you want to start a company, you have to choose what jurisdiction you want it to exist in. And so let's say it's the United States. And so you have to make a big investment into making sure that all of the rules around that company are kind of compliant with the underlying framework of the United States. And that works fine as long as you're in the United States. Things get orders of magnitude more complicated the moment you're trying to do business globally. And that's how you end up with very weird structures with companies and parent companies and children companies and all of the weird effects around, you know, how taxes are handled across jurisdictions, all these things that are very expensive.

• 42:27Speaker 02

  And what ends up happening is that because most of the instruments that we have today are designed to work within a jurisdiction as opposed to work globally, it makes it very difficult and expensive to distribute capital around the world. And what does that mean? So you have, let's say Walmart was started in the United States, operating in the United States. As long as you're in the United States, it's easy. You can go public and the idea of a public company within a country makes sense within the confines of that country. And so for a business like Walmart, that's all good. There's no weird issues there. It's a bit of a crude example, but to illustrate the point, you have something like Facebook, right?

• 43:12Speaker 02

  Which is a very different company than Walmart. It's very different because Facebook is global. Facebook has customers all over the world or users all over the world. Whereas Walmart has most of its activity concentrated in the US. And now Facebook, Facebook's capital is concentrated in the US as well. Because Facebook is a US company. And when Facebook went public, Facebook went public on American stock exchanges. And later you can find those shares maybe in London, maybe in Tokyo. But by and large, the capital of Facebook is concentrated in the United States. And if you are anywhere else in the world, your life is affected by Facebook, whether you are, you know, using Facebook or not.

• 43:59Speaker 02

  But you are unable to access the capital created by Facebook.

• 44:04Speaker 02

  Unless Facebook shares, which is the instrument of capital for Facebook, is available in your country. And it's unavailable in the vast majority of countries in the world. So in the times of Walmart, that was okay, because if you are in, you know, pick a place in Latin America, you're not really directly affected or influenced by Walmart in the United States, because Walmart is kind of just putting up stores in the United States. But now you have companies that exist in the US or in China or in Europe that can do business globally, but their instruments of capital are still tied to individual jurisdictions. Because you need a court to enforce all of those things. When you replace that with these global settlement layers,

• 44:47Speaker 02

  then you can now create more inclusive instruments of capital that are broadly available. And so the theme that I'm trying to, or the line that I'm trying to draw here is, with this new technology, you do two things. You collapse the cost of instrumentation, which we can think of as the cost of creating capital. And then you also collapse the cost of distributing that capital over the world.

• 45:13Ryan Sean Adams?

  So Joel, it seems to me also that what we're doing is we're collapsing the cost of essentially maintaining consensus on that capital. Because instead of, you know, tanks and armies and a court of law, we have the expense of a global settlement network, something like Ethereum or something like Bitcoin. Is that the case too, that we're collapsing costs on the consensus layer?

• 45:38Speaker 02

  That is the case too, and it goes even further than that, which is a result of basically everything that happens before you go to court, right? There's a lot of humans in between, making sure that those agreements are followed to the letter. And that's where we get that phrase, to the letter. But a lot of that gets automated with smart contracts. And so it's not only that it's much cheaper to settle, but as you mentioned, it's much cheaper to operate because it requires less humans and less oversight. Because really, when you and I create a contract between each other, we're both trying to avoid going to court.

• 46:22Speaker 02

  And so I have to hire, if it's a business context, I have to hire accountants, I have to hire operations people and lawyers to make sure that the contracts are being followed. But a lot of that goes away with automated smart contracts.

• 46:36David Hoffman?

  And with crypto networks, we really get a two for one punch with both the efficient settlement and efficient, more scalable distribution. And so just returning to that violence conversation where Ethereum and Bitcoin, they've replaced tanks and fighter jets and armies with proof of work and proof of stake. And Bitcoin is frequently cited as this super inefficient network, right? Where like one transaction consumes as much electricity as like 50 households for a year. And even though that's perhaps an inappropriate calculation, the connection still stands the same. But people forget to make the similar comparison where like Joel, if you and I make a contract together,

• 47:19David Hoffman?

  well, that contract is actually settled by, you know, F35 fighters, right? Regardless of whether we actually need them or not, the dispute will go all the way to the courts. And if it makes it past the courts, then it makes it to violence. And so one takeaway I've already had from this conversation is that crypto networks, proof of work, proof of stake, perhaps just make this world a less violent place because it makes the returns on investments into military and physical power less lucrative because we just don't need them anymore. If we don't need armies to settle our consensus agreements, then perhaps there will simply be less violence in the world as a result of that

• 48:04David Hoffman?

  in the very, very distant future. And that's, that's only one side of the equation. The other side of the equation is what you were talking about where we have made it more efficient to distribute capital and just with, with what we call, you know, tokens, both L1 tokens, Bitcoin and Ether, but also tokens on Ethereum. And I think we can definitely draw the comparison, the difference between Facebook with its capital locked up inside of the USA. Nation state versus Uniswap, which distributed 400 tokens to 100,000 individuals all over the globe without asking where in the world do they live, because it doesn't matter where they live, because it doesn't settle to the nation state.

• 48:48David Hoffman?

  So we really get this massive two-for-one punch with crypto network and specifically crypto network governance. Do you have any thoughts on that?

• 48:57Speaker 02

  Yep, and I think you're exactly right, and it's a perfect example, and it goes for all crypto networks, right?

• 49:06Speaker 02

  And this idea that, you know, that's impossible to do with the instruments of industrial capital. It's practically impossible for you to distribute capital that broadly. Because those instruments were created for the industrial age. And now in the information age, with online communications networks, we are reaching the limits of how much we can scale the instruments of the past. And what makes this, and that's what makes blockchain so foundational. It's a technology for creating new capital instruments

• 49:42Speaker 02

  that are orders of magnitude cheaper to create, orders of magnitude cheaper to distribute, and orders of magnitude cheaper to defend. And you're right that I think this is part of a longer trend towards less violence. It doesn't feel that way necessarily to us, but if we take a very high-level view to the history of humanity, we live in the least violent times in human history. And with every socioeconomic revolution

• 50:22Speaker 02

  that creates new capital, that distributes that capital more effectively among society, we require less and less violence, because we have more and more consensus in a way. And so I think crypto is yet another one of those socioeconomic revolutions driven by a new technology. Just like the industrial revolution was driven by, you know, steam power and all of that. That allows us to make a significant leap forward in terms of being able to agree with each other without the need of violence.

• 51:01David Hoffman?

  And with with governance throughout history, we've seen two different ways that humanity kind of progresses, which is both the improvements of making governance aligned with what humans want. But there's also this other side, which we haven't yet talked about, which is what Ryan and I have called ungovernance, where Bitcoin and Bitcoin proof of work is actually trying to be an ungovernance mechanism. And so we have we have new ways of distributing power, distributing tokens, distributing the the control over the system. And that is a perhaps an order of magnitude improvement upon our previous systems, yet it is still the same pattern. But we've also unlocked these a new frontier to expand upon, which is ungovernance,

• 51:46David Hoffman?

  which is, well, what can we do when we make systems that actually there's no governance about? And so, Joel, like when you wait, when you measure the future or project into the future, the future of crypto networks, do you look at new governance mechanisms as the main innovation that has been unlocked? Or is it ungovernance or the or the removal of governance that is really the cool new innovation?

• 52:12Speaker 02

  So the the only thing I struggle with in with that idea is,

• 52:19Speaker 02

  I think that what you're describing as ungovernance is itself a form of governance. And so Bitcoin requires less, and I'll use slightly different terms, less active participation. It does not require less governance. There's a governance process every 10 minutes with every block. It just so happens that the rules for how to process that information have been pre-established. And we found the miners find consensus around those rules. And then what you have is hyper-efficient automated governance with every block. But we've already agreed on the rules, and that is and that is governance. And so this is actually something that I debated a lot with my partner Brad,

• 53:04Speaker 02

  where he believes, and I largely agree, that crypto should allow us to have the least amount of governance possible. And the least amount of governance possible is achieved through more and more automation. Now, there, I think, is where it's worth thinking about, okay, governance as a concept is one thing.

• 53:30Speaker 02

  The amount of required participation to maintain that governance system is another thing. And so, for example, if you have a crypto network and you compare it to a country, a country requires a lot of active participation in order to keep the system running because it does not have a lot of built-in automation. And so, yes, we can agree to the laws and we've agreed to them, but we have to maintain an entire apparatus employing hundreds of thousands or millions of people to maintain that system. Whereas with a crypto network, you define the laws and then the machines maintain the system.

• 54:12Ryan Sean Adams?

  So, Joel, is this, is this a new form of governance then that humanity has unlocked? David just called it ungovernance. I think you, you added that. It is actually governance, but it's governance embedded in, in code. I, I often think of the comparison of like, sort of, you know, we had economies and states ruled by kings. And then the US went out on this endeavor and created something called the, the constitution, which is essentially a governance protocol, right? And allowed them to, to scale a different form of society. That was like a technology unlock. Have we unlocked something new here with these systems?

• 54:56Ryan Sean Adams?

  Let's talk about these base layer systems like Ethereum and Bitcoin and kind of the, the ungovernance that, that they have, which is like, there's this ability to fork if you don't like a decision. It's, it's very much opt-in. The rules are all defined in code. Is this a entirely new governance unlock for humanity? Or does it mirror something that we've, we've always had in the old world and just translate it into code?

• 55:26Speaker 02

  That's a good question, and I think the answer is both.

• 55:32Speaker 02

  And I would say on the first half that

• 55:37Speaker 02

  we are in the process of unlocking new governance systems, and this is where we have to differentiate between the tools and the systems. We have a new governance tool, just as previous advances gave us new governance tools, like when we created courts and contracts and private contracts, right? That was a big unlock, or that was a big new tool that we were able to use to create agreements and have them enforced versus, say, just verbal contracts, right? Which are not very reliable. And so, once we went from verbal agreements to written agreements,

• 56:18Speaker 02

  that kickstarted a whole new era of productivity.

• 56:25Speaker 02

  And with crypto, I think we are making a similar leap going from the inefficiency, or the relative inefficiency of paper contracts over to digital contracts. We have a new tool. But as for whether we have a new governance system, depends largely on what we do with that tool. Because I can create a DAO or a crypto network governance system that works exactly like a traditional company, with a CEO and different roles and departments and a hierarchy. And there, I'm using the new tool to implement an existing governance system.

• 57:07Speaker 02

  But at the same time, we can use the new tool to create vastly new or vastly different governance systems.

• 57:15Speaker 02

  I think we are in that process of formulating those new kinds of governance systems.

• 57:21Ryan Sean Adams?

  It does feel like we're in this awkward process right now. For example, I have a personal gripe, Joel. I don't know if you share this at all with everyone calling everything that has a token decentralized governance, you know, or a decentralized autonomous organization, when a lot of the governance structures that are proposed to me look just similar to like shareholder governance, like how do you make decisions on the network? Well, or in the protocol, well, it's a coin vote, right? Well, this looks a lot like stock voting and like proxy voting in corporations. So to me, a lot of what crypto calls in this awkward phase that we're in decentralized governance

• 58:02Ryan Sean Adams?

  actually turns out to be very much a close mirror of governance that we have in the traditional world in a C corp. Can you maybe reflect on that? Like, do you share that opinion that sometimes token vote is just an analogous to like C corp vote? Or do you think that there is actually something new here that I'm missing? Or some other governance forms that are going to be completely different and much more unique in the crypto realm?

• 58:30Speaker 02

  Yeah, I think it's a it's a mix of both. On the one hand, I share some of that gripe and I like to think of DAOs, for example, not as decentralized autonomous organizations, but just digital organizations to not necessarily say that they're inherently decentralized because they don't always are.

• 58:50Ryan Sean Adams?

  Much more precise, in my opinion. So do's, not DAOs, guys, just digital.

• 58:56Speaker 02

  Well, you still have the autonomous in some sense, right? Depends on how much how much functionality you bake into the contracts because you have a broad spectrum. You have protocols where.

• 59:08Speaker 02

  The token votes just provide a signal and then someone else has to go and execute it. And so there, I like the analogy of of of nation states better where you have the executive branch, which are the core developers. And, you know, they are there in the day to day, understand the system really well, and they make decisions all the time that are not put up to token holder votes, right? You don't want token holders to do your code reviews, for example. And you don't want always to allow everyone to make every proposal, or you don't want to create a whole governance proposal in a protocol to decide whether the button should be red or blue.

• 59:50Speaker 02

  And that's not something that is is a productive use of a DAO. But then you also have situations where

• 1:00:01Speaker 02

  keeping some of the similar structures, like, say, some a company hierarchy. But opening some functions out to to the public creates this kind of hybrid, sometimes awkward situation, which, whether it's good or bad, I think depends a lot on the specific circumstance of the underlying network.

• 1:00:23Speaker 02

  But for example, one one line that we could take is, yes, in some cases, it may be frustratingly similar to the concentrated levels of control that we see in traditional organizations. But we have much more open processes, for example, and that is arguably a positive thing. You may not want to vote in every decision, but you may like to know that you have the right to vote in every decision, whether or not you actually participated in or not. But ultimately, I think that

• 1:01:01Speaker 02

  First generations of any new idea or any new concept tend to be very similar to the things that we know and understand. So for example, early web in the 90s, a lot of it was mimicking the traditional media business models of, you know, pre-internet, like, for example, Craigslist was classified ads, which is a straight copy of what you would see at the local newspaper, very different from, say, eBay and/or Amazon or the e-commerce boom. And so I think we're at that stage where the best we can do with the new tool

• 1:01:42Speaker 02

  is try to mimic what we know. And it may be up to the next generations of innovators who don't have as many preconceptions about how governance should work to come in and create vastly new systems. Like, for example, we've talked about the Moloch Dow in another conversation about how this idea of a rage quit is really quite innovative, that, you know, there isn't, that's not common, for example, in any organization that I know of, of the kind of industrial paradigm, where you can just take your share of the assets and go whenever you want. And so that's an innovative use of the new tool that we really couldn't implement before.

• 1:02:26Ryan Sean Adams?

  Yeah, I, by the way, just on the, on the Moloch Dow, I showed one of my accountants, like an illegal guy, the, basically the prospectus of Metacartel, which, which uses a concept from the Moloch Dow. And he loved, absolutely loved the term rage quit, because he was like, I've seen the need for rage quit so often inside of the traditional deals I've done, that I wish it was embedded in every single company contract that I wrote. So there are some cool things being unlocked here, for sure.

• 1:03:00Speaker 02

  Indeed. And in that very example, like, try to implement a rage quit in an actual company contract, right? You could write it, but then think about the expense of executing.

• 1:03:13Speaker 02

  If we build in a rage quit into an organization and let's say that the three of us are the shareholders of that organization. And you can give me the exact same rights as the rage quit and say, look, whenever you want, you just submit this notice to the group and saying, I'm rage quitting. I'm taking a third of all of the assets of the organization.

• 1:03:36Speaker 02

  And so what needs to happen after I've made that assertion?

• 1:03:42Speaker 02

  The two of you have to recognize it. Number one, we have to get to consensus that this thing actually happened, that this rage quit actually happened. And then there's the entire process of, you know, it might be bank accounts, it might, there might be lots of things that are indivisible, like, you know, a piece of property, right? And someone has to sign off on those distributions of assets, right? And so now we're talking about all the time that it costs to actually go through that procedure. Someone has to go to the bank accounts and calculate what a third is and send me the right amount. And let's say that the person responsible for that is you, Ryan. What happens if you don't do it?

• 1:04:20Speaker 02

  Then I have to take you to court and then we might spend several months fighting this in court where they have to read the paper contracts and say, well, you know, this is what happened and, you know, got to defend this whole thing. And if you still don't do it, going back to the, to where violence comes in, then the court can find you and at fault and then threaten you with, say, prison time. That is completely different process from just pressing a button on your wallet, calling the rage quit function on a contract and all of the underlying tokens just being sent to you. Within, you know, even if gas is expensive, it's nothing compared to how much it would cost to actually execute a rage quit in a traditional company.

• 1:04:59Ryan Sean Adams?

  Such a good point.

• 1:05:00David Hoffman?

  Amin Soleimani, who coined the term rage quit, I, I think the, the, the name itself is actually really, really awesome because it, what it's, the metaphor, the illustration is that like you're playing a video game on the computer and all of a sudden you're really unhappy with what just happened. And at the, just the, at the click of a button, you're out, you're done. And it was so easy for you to just be, get done and exit.

• 1:05:23Ryan Sean Adams?

  And in the game, you always announce it. You make a big deal out of it. I'm about to rage quit.

• 1:05:28David Hoffman?

  But like the ease of exiting is so incredibly important and we see the similar pattern or a lack of pattern in the traditional nation state where there is an exit tax of 50% or more for most nation states, which is literally an anti rage quit mechanism where if you leave the United States, you get half of all of your capital revoked from you and returned back to the nation state. And on Ethereum, all of your money is one transaction away from going from one DeFi app to another DeFi app. And so if that DeFi app has governance, you the ability to rage quit and immediately exit is always one block away,

• 1:06:11David Hoffman?

  just 12 seconds away, right? And so migrating your capital from a system that perhaps you don't agree with the governance into a system that you do agree with the governance is so trivially easy. And this is to me, a very powerful mechanism that puts power into the hands of the individual rather than the governing body. And it really is a check on the power of two over two heavy handed, inappropriate governance that is not aligned with the people. Joel, how do you, how do you feel about that?

• 1:06:48Speaker 02

  I agree with you and it's, it's yet another example of

• 1:06:57Speaker 02

  the efficiencies that you have. And when you play that out further, you mentioned forking, Ryan, which we haven't really pulled on that threat yet. But forking is embedded in it at the, at the lowest level of everything in crypto. Because you could always fork Ethereum and you get a complete copy of everything that's built on top, the entire body of activity. And that is insane. You know, that in, that's probably one of the most important governance innovations that come with crypto and by being baked into basically the constitution or the constitutions of the entire space, this idea that you can make a copy and leave.

• 1:07:43Speaker 02

  One, it's something that only exists in the digital world. You can't have that in the physical world. It's just impossible.

• 1:07:53Speaker 02

  And two, what's interesting about it being baked at the core is that it extends to to the applications built on top. And we've seen lots of forks of, say, DEX protocols, right? There was a time back in the day where Uniswap was presented as a fork of Bankor without the token, which I think is kind of funny. And now it have, you know, forks of Uniswap. And a lot of the forks that we see either at the blockchain level or at the protocol level, they tend to be because of differing values. You believe that a system like this should be governed in that way versus you believe that it should be governed in another way. That's, I think, at the core, there's, there's forks that

• 1:08:38Speaker 02

  are opportunistic and you're trying to capture, you know, value kind of, you know, parasitically. But most governance disagreements that result in forks are due to deep differences in values among the participants. And that is, that is subtly powerful because it means that we might end up, or we were likely to end up with several parallel systems and markets for the same activity, say decentralized exchange, that provide you the same function, but where you are able to choose which one you want to use based on which one aligns with your values the most. And so your example of the US, if you feel like the US is not

• 1:09:22Speaker 02

  aligned with your values and you're an American citizen, it's very expensive for you to leave. But if you feel that Uniswap is no longer aligned with your values, there's 10 different other protocols that do the exact same thing that you can choose from if you want to depart.

• 1:09:40Ryan Sean Adams?

  Do you know, the more you're talking about this stuff, like even just the concept of forking, Joel, forking is not possible in the industrial revolution era, in the analog world. You can't just like, let me take your factory and like, I will fork that automatically. I mean, I think so much of what we're talking about here is actually upgrading our capital system and if capital equals government. Governance, then that means upgrading our governance systems for humanities you know, trajectory into into the metaverse, into the digital world, right? We were in analog world and that's where our capital system has been created. But now we need new tools because we're in this digital world where it's completely different. There's the concept of forking. There's the ability to rage quit with the click of a button.

• 1:10:26Ryan Sean Adams?

  Want to get to something specific here as we talk about governance, Joel? And this is maybe a concrete question that embodies some of what we've we've talked about that that bankless listeners and people on the journey often ask. And they ask this question. So a governance token, and there are many of these in DeFi. Why do these tokens have value? Many are like pre-revenue. For instance, they're just the ability to vote in the protocol's governance scheme. They're not attached to any sort of value accrual from fees within the protocols. We often just kind of hand wave and say, oh, well, you know, governance is going to eventually vote fees in and value accrual into the protocol. Is that your answer? Is it as simple as that?

• 1:11:11Ryan Sean Adams?

  Or how would you answer the question, Joel? Why are some of these DeFi tokens that are just governance tokens? Why are they valuable?

• 1:11:20Speaker 02

  So to answer the high level question first, this is where understanding that governance is the capital or the governance of a system is the capital of that system is incredibly important because at least to me, it creates a baseline assumption that that governance is inherently valuable in proportion to the value of the underlying system. And so if the underlying system is not worth very much, then control or power of that system is not worth very much. If the underlying system is worth very much, then control or power of that system should be worth more.

• 1:12:02Speaker 02

  And so when it comes to kind of going down to the micro level and trying to think about the value of governance tokens in a particular network or a particular system,

• 1:12:16Speaker 02

  there it's it's it's. There's a lot more variation that makes it kind of difficult to say, for example, this is exactly how governance tokens will capture value. Because it'll change from system to system. Now, a lot of the

• 1:12:36Speaker 02

  pricing that we see with governance tokens is speculative. And that's not very different from what a venture capitalist does in the industrial model of organizations. We buy the governance tokens, which are shares of stock in young startups, and we value those governance tokens or those shares at millions of dollars, sometimes hundreds of millions of dollars, often before it's even clear what the business model might be or how that value might be created. And so I think to a large degree, we're at that stage where you're not making a bet necessarily on the specific way in which

• 1:13:16Speaker 02

  that value may be realized, but you're making a bet that the underlying system is valuable, that the value of that underlying system is going to grow, and therefore, control over that system or the value of control over that system is going to grow. Now, this is where, going back to the idea of capital versus capital instruments, is is kind of interesting.

• 1:13:42Speaker 02

  In in a company, the the capital of a company is the equity. And the equity is a a different but related object to the to the shares of stock, right? The shares of stock are the instrument of the equity. And the shares of stock are contracts that distribute the equity among the different people involved in this in this organization.

• 1:14:07Speaker 02

  Shares of stock as an instrument have evolved to be primarily focused on.

• 1:14:15Speaker 02

  How to distribute the profits of the system? And so a share of stock is fundamentally a voting token. And it just so happens that the most important thing it has power over is has to distribute the profits. And so we have built markets and we have built valuation models based on how much profit is being redirected to the holders of that instrument, which is the share of stock. And it's what the holders vote on. And anytime that a company decides to reinvest its profits as opposed to distribute them, that is a governance vote. It was either established in the in the organization or it's an actual vote in the case of mature companies, when there is a vote at the end of the year to decide what to do with the profits.

• 1:15:01Speaker 02

  With crypto networks, it's possible that we might create new instruments whose value is not necessarily tied to the profitability to the holder of the instrument. And this is a bit of an unexplored area, but we got a little bit of a heads up to this future with

• 1:15:24Speaker 02

  with Amazon's progression through being a public company. Where for much of the early 2000s and even 2000s, 2010, a lot of the criticism towards Amazon from traditional financial investors was that you had the stock who was or the value of the equity was increasing more and more. But there were no profits and no dividends being issued to shareholders. And so that broke a lot of the valuation models for a lot of people. Because if you just use them straight up, it would say this stock is worthless because they're just spending money. And they're not distributing any to shareholders.

• 1:16:07Ryan Sean Adams?

  The price earnings ratios would be in like the thousands or like infinite, right?

• 1:16:10Speaker 02

  It breaks. Exactly. It just doesn't work. And so if you're just following the traditional models, it'll it'll break every model. I think 20 years later, we can agree that Amazon as an organization is an incredibly valuable thing, whether or not it distributes profits. Because at the end of the day, a share of stock in Amazon is a proportional right to the entirety of Amazon. And whether or not Amazon distributes profits to its shareholders is independent of the value of Amazon as an economic system.

• 1:16:44Speaker 02

  This is where it's interesting to think about the value of control when we talk about the value of capital, because control over Amazon is an incredibly powerful thing. And it's an incredibly valuable thing. If you owned fifty one percent of Amazon's stock, whether or not you're able to capture that value for yourself and extract dollars from it, I think it's easy to agree that that power is is is very valuable. And now I think that we're closer to markets, financial markets pricing in the value of the asset, not necessarily the value of its cash flows. And we might end up in a similar place with crypto protocols where over time, we might discover valuation models

• 1:17:26Speaker 02

  that tell us what the value of governance power is in a system without that system necessarily having to distribute profits to its token holders.

• 1:17:34Ryan Sean Adams?

  You know, I'll give you an example, Joel, of a time I was wrong about this in in DeFi and DeFi tokens. Twenty seventeen, it was the era of futility tokens, right? Every ICO had a new token that was going to serve as maybe a money, do something inside of its economy. Zero X, the Zero X network, had one of those too. And I remember they released their token and and what was the utility of the token? What was the token going to be used for? Governance, voting in the system. And to me at the time, that felt very like hand wavy, especially given the the valuation that Zero X, Z R X token had at the time. It was just like, well, like, how do you value something like governance?

• 1:18:17Ryan Sean Adams?

  Flash forward now, Z R X is actually receiving a portion of the the system value i- i- in in terms of cash flows, in terms of revenue. And now I very, very much clear, I clearly see the value of Z R X as a financial instrument. And it was really the governance vote that has given it this value. So that's a time, maybe I was like, I was wrong about the value of of governance. I think I've like kind of learned my lesson. But is that, is that an example of that sort of thing, what you're talking about here?

• 1:18:51Speaker 02

  A hundred percent. And in the same timeframe, we were raising our first fund. And Xerox was an example that I used of the kinds of things that we would invest in. And we did end up investing in Xerox. And it was an interesting argument to defend with our investors where,

• 1:19:16Speaker 02

  you know, why is governance over Xerox valuable? Well, if there is a chance that a decentralized exchange protocol like Xerox grows to say, be responsible for the exchange of, I don't know, 10% of the world's value, trillions of dollars, right? If trillions of dollars are flowing through this network, I can't tell you how that's going to translate into value for Xerox in terms of cash flows. And as you described, over time, then indeed, the governance voted in fees, and those fees are now being distributed to the token holders.

• 1:19:53Speaker 02

  But it was easy to get people to understand that if, for example, Xerox is responsible for trillions of dollars in transaction volume, it's clearly a valuable system. How much is control over that system worth? I don't know, but should be a few billion dollars if you're responsible for trillions and trillions of transaction volume. And so that was kind of the picture that I painted in terms of, you know, why? And this is before thinking about making that relationship between governance as capital, but this kind of basic intuition that control over a valuable system is itself valuable.

• 1:20:25Ryan Sean Adams?

  Well, it turned out to be the right call, but like, I'm curious as to, because I remember the debate in that era was basically, oh, should we buy the token or should we buy equity in the entity? How did you wrestle with that debate? And how has it turned out?

• 1:20:39Speaker 02

  Well, the equity in the entity is in large part,

• 1:20:46Speaker 02

  the value of that equity is in large part valued by the value in the token. And that is actually, because the equity holds a lot of the tokens, and that turned out to be, to become How we think about investing in in in crypto network companies? Because we can then have how, okay, if this company is going to launch a network and they're going to keep, say, 20% of the token supplier or 30% of the token supply, then we can basically value the equity in the company in proportion to the value of the equity of the network. But in in general, I think you have to basically hold those two ideas at the same time.

• 1:21:29Speaker 02

  There's the equity of the company and the equity of the network. And then you have to make the decision about whether you want to participate in the equity of a traditional organization or you want to participate in the equity of of a decentralized network. And we started a placeholder to participate in the equity of decentralized networks. And that was one of the main ideas that that we wanted to pursue.

• 1:21:51David Hoffman?

  Zero X is an example of when fees was actually turned on as a value capture mechanism. But we actually don't need fees to be turned on to have similar valuations. And Joel, when we were planning out this podcast, we talked about Uniswap. As as and this is Uniswap is the classic example. It's like, oh, we'll just turn on the fees and then the uni token holders will get the fees and then it'll be valuable. But perhaps not. And it's it's I think this the reason why perhaps not is because the users of the system, not only the traders, but also the liquidity providers could have different incentives or different motivations or different desires over how the Uniswap economic system operates

• 1:22:34David Hoffman?

  that bakes in the values of the cash flows regardless of whether they are paid out or not. So perhaps you could you could illustrate an example of where an economic system is generating cash flows and it specifically does not distribute fees, yet the value of those fees still gets captured by the governance token.

• 1:22:55Speaker 02

  Yeah, and we could use that same example of Uniswap. Because it's it's it's easy to think through. If you're an LP in Uniswap and you're staking in different pools and providing liquidity, you are

• 1:23:12Speaker 02

  having fees that get distributed to you as as an LP in Uniswap pools. And so let's say that you you run an LP operation in Uniswap. You're making X amount of fees every month from this operation. It's very profitable for you. You're very happy.

• 1:23:31Speaker 02

  And along comes a proposal to say, we're going to essentially tax that fee income that you're that every liquidity provider is is receiving. And let's say that I make that proposal and I say, hey, you know, let's take 50% of all the fees generated by LPs in Uniswap and put them in this pool that gets distributed to uni token holders, right? If I am a uni token holder that's not an LP, I'd quite like that idea because it means I'm I'm just getting this this distribution of of the income in the system just by holding uni or just by staking it. But if I'm an LP and I'm running a a very profitable operation being an LP, I may very well not want

• 1:24:17Speaker 02

  that tax to be introduced because it'll cut my LP profits in 50%. And I may do some math and realize, well, wait a minute. If this proposal passes, my income gets cut 50%. And I don't, you know, the uni that I hold and I might stake to get a share of that may not complete and kind of make me whole. And so I may actually have an incentive to vote against the inclusion of fees to protect my own profitability. And the value of preventing that that tax still gets captured in the token because then my incentive is to acquire as much uni as I can afford over time to prevent fees from being introduced into the system.

• 1:25:03David Hoffman?

  And specifically, the measure or magnitude of that incentive to purchase and hold that uni token to sway that vote is proportional to the fees, no matter what, regardless of whether the fees are paid or not paid, the incentive, if there's a lot of fees being paid or a little fees being paid, the magnitude of the incentive to sway that vote is still proportional to the fees. And so at the end of the day, it collapses back down to how much control does Uniswap have over economic resources inside of its system, which goes back to how we're talking about capital as governance and governance equals control.

• 1:25:38Speaker 02

  Correct, because the main thing that you want to control is how those resources are distributed to whom and why. And it's the same as in a company as it is in a crypto network. In most companies, the governance of the equity votes on how profits are distributed, and it's usually fairly straightforward, it's distributed based on token ownership, or sorry, on share ownership, and that's pretty easy. It's not always distributed based on share ownership, right? So if you have, for example, common shares versus preferred shares, the reason investor shares tend to be worth more is because they have things like liquidation preferences, which means that in a liquidation of the companies being dissolved or acquired,

• 1:26:21Speaker 02

  that the holders of preferred shares get paid upfront or get paid first before the holders of common shares. And so that's why you often see very wide discrepancies in the value of investor shares versus the value of common shares in a company. And that means that you have two different stakeholders with different incentives when it comes to voting on things. And we subscribe, or we invest different voting rights in different classes of shares. In a crypto network, you may have the same instrument, but you may have different stakeholders with different incentives. And indeed, the power to

• 1:26:58Speaker 02

  To prevent fees is just as valuable as the power to introduce fees.

• 1:27:05David Hoffman?

  Aave is a borrowing and lending protocol on Ethereum, and just recently released Aave version 2, which has a ton of cool new features that makes using Aave even more powerful. With Aave, you can leverage the full power of DeFi money Legos, yield, and composability all in one application. On Aave, there are a ton of assets that you can deposit in order to gain yield, and all of those same assets can also be borrowed from the protocol if you have deposited collateral. Here you can see me getting a 200 USDC loan against my portfolio of a number of different DeFi tokens and ETH. I'll choose a variable interest rate because it's a lower rate than the stable interest rate option, but I could choose the stable interest rate option if I wanted to lock that interest rate in permanently.

• 1:27:50David Hoffman?

  One of Aave's V2 features is the ability to swap collateral without having to withdraw your assets. Trade them on Uniswap and then deposit them back into Aave. Aave does all of this for you, all in one seamless transaction. So you don't have to repay loans in order to change the collateral you have backing them. Check out the power of Aave at ave.com. That's A-A-V-E. Gemini is the world's most trusted cryptocurrency exchange. I've been a customer of Gemini since I first got into crypto in 2017, and it's been my main exchange of choice to make my crypto buys and sells. Gemini is available in all 50 states and in over 50 countries worldwide, and on Gemini there are markets for over 30 various different crypto assets, including many of the hot DeFi tokens.

• 1:28:33David Hoffman?

  And it's one of the few exchanges that has liquid die markets. Gemini just launched their Earn program, where you can earn up to 7.4% interest on 26 various crypto assets. If you're tired of paying fees in DeFi, or you don't want to worry about DeFi exploits, but you still want to earn interest on your crypto assets, Gemini Earn is the product for you. Another product I'm stoked to get my hands on is the Gemini Crypto Back Credit Card, which gives you 3% cash back on all of your purchases, but paid to you in your preferred crypto asset. When I get my Gemini credit card, I'm going to make sure that I get my cash back in ETH, so whenever I buy something, I get a little bit of ETH bonus back to me at the same time. You can open up a free account in under 3 minutes at gemini.com/go-bankless.

• 1:29:17David Hoffman?

  And if you trade more than $100 within the first 30 days after signup, you'll be gifted a free $15 Bitcoin bonus. Check them out at gemini.com/go-bankless.

• 1:29:28David Hoffman?

  Joel, one thing that makes me optimistic about crypto network governance is that the topology of networks seems to be a lot flatter than in previous systems, as in there is seem the different parties, whether you are a Uniswap LP, you are a Uniswap transactor, or you're just a uni token holder, you still are different parties. But in comparison to previous systems, where with what you were just talking about with privileged shares or privileged stocks over other shares with different governing powers. And in crypto networks, everything seems to be a little bit closer together as the users. We all have more aligned interests, yet we are still not one homogenous global organization of people. Different people

• 1:30:12David Hoffman?

  have different incentives. And so my question to you is, have we really just made a marginal improvement on how these economic systems can treat everyone? Or are we still going to be presented with the same problem that humans have been presented with since the dawn of time, which is that some people have different incentives than others, and over time, those differences will turn into frictions and will cause disorder and chaos. And so really, I'm trying to get at a very long-term, multi-generational perspective here, where how can we make sure that these systems that we are governing over, like maybe Uniswap is actually an economic system that spans centuries? How can we make sure Uniswap answers

• 1:30:57David Hoffman?

  to the needs of everyone that uses it, not just perhaps people that are using it today, but people that are using it tomorrow and in 50 years from now? How do we make sure that, like, and we talked about how Facebook is really governing over people that don't get to determine how that governance works. And that is one of the reasons why Facebook is always is an example that we keep on using as a bad example in this podcast as to how perhaps we don't want governance to look like into the future. How do we make sure that the governance over these DeFi apps or crypto networks stay aligned with the users that use them now and into the future?

• 1:31:38Speaker 02

  So I don't think we we can guarantee that. And there's kind of a Lindy effect of of human issues here where we've had this issue since the dawn of time. We're probably going to have it till the end of time. And, you know, I I'm optimistic that with every new kind of innovation in governance technology, it is easier to coordinate. There is less conflict and there is less violence. So I do think we make a significant leap forward in reducing the space for disagreement. Because the more the more we rely on code and automation, then there's just

• 1:32:19Speaker 02

  fewer avenues for discord among people, and that is a good thing. But it's it's generally difficult to make everyone happy at the same time about anything. And in in part, the role of a consensus protocol is to get people to pre-agree to disagree on certain issues. Like if we look at nation states, you know, you may vote for the candidate that lost. And, you know, that's OK. We've pre-agreed that if you lost the election or, you know, any any kind of office,

• 1:33:03Speaker 02

  that you you can vote again in four years to to pick a random example, right? And so we've bought into the idea that the you may not always get the people in power that you want. But there are systems and pre-agreements that, you know, make sure that we can you get the opportunity to vote again and so on.

• 1:33:22Speaker 02

  When it comes to crypto, there's there's all kinds of of interesting things that I don't know how they will play out. But I know that they are different. One is, especially when you compare crypto to, say, governance over a company, is you tend to get

• 1:33:40Speaker 02

  Well, you have no guarantee that the people who voted today are going to be the same people that vote tomorrow. Not in the same way that you have it in traditional organizations, at least, where if I put a vote on Uniswap, I don't know who's gonna vote. And I don't know, you know, who the people are behind that vote. Whereas if you think of the decisions that get made at the board of a company, usually the people in the board have been there for some time and have known each other for some time. And you can kind of predict how one person's gonna vote versus another. And that brings certain efficiencies and certain inefficiencies. And similarly, having a much open, much more open process will bring some efficiencies and some inefficiencies.

• 1:34:22Speaker 02

  There's, there's one kind of subtle difference that I think is very powerful and one of the main ones. When comparing governance in crypto to governance in, in the industrial world at a, at a societal scale, which is that if we think of the governance systems of a country, for example, say the United States, and you're voting on, you know, the precedent, for example, or the, as a, as a representative vote for the broader governance machine that is, you know, say the government. You have to make, you, you make a vote or a single vote on

• 1:35:04Speaker 02

  the full spectrum of decisions of the United States. All markets, all spaces, all economic activities. And so you have to choose a, the precedent of a governing body of an executive branch that governs over all markets. And that's an incredible, incredibly difficult thing to do. Because most of us only understand a few markets. I can't say anything about farming. I have no idea. So if I see a proposal for like, you know, how farming policy is supposed to work, I just have no, I, it, it just flies over my head. But if they're proposing finance regulations, then I have a much stronger opinion about what's

• 1:35:47Speaker 02

  right and wrong. Something that makes me optimistic about crypto is that every protocol or protocols tend to be much more specific in the activities that they that they preside over and they govern. And I think that makes it easier to govern because it means that if I'm voting on Uniswap, then the the scope of things that I'm voting on is fairly limited to what Uniswap does. And then, you know, I can go to Maker to vote on another thing, but it's still equally narrow. And so rather than having a single body preside over all markets, now we can have each market and each subsector of that market have its own

• 1:36:29Speaker 02

  internal but open governance system. And ultimately, I think that leads to specialization of governance, which is not necessarily something that that we have today in traditional governance systems.

• 1:36:44Ryan Sean Adams?

  Joel, for somebody who's listening to this podcast, I made it all the way through here today, but is still doubtful on whether this is a good thing for the world, right? So I'm picturing somebody who's listening to this and has heard you mention this our trajectory into the into the digital, this new form of of governance, this new form of capitalism. We've even used terms like hyper capitalism. And they get this picture of the current state of the world, which is extreme wealth concentration, extreme power conversation, concentration. And we talk about the bankless movement and crypto and DeFi is as we're part of the revolution now. We're, you know, against that. We're for

• 1:37:27Ryan Sean Adams?

  open access to the best self sovereign money system that humanity can create. That's what that's what crypto is now. How do we how do we kind of preserve that ethos? Do you have any concerns that we sort of become, you know, the when we're old men, we sort of become sort of the stuck in our ways and a new generation has to revolt against us? What's the case? Boomers. Yeah. What's the case that this hyper capitalism, everything we've talked about so far is actually good for people, good for humanity and good for the world?

• 1:38:02Speaker 02

  So that's that's almost an impossible question to answer.

• 1:38:09Speaker 02

  But mostly because I believe that the future is uncertain. And I heard something the other day that I loved, which is that

• 1:38:21Speaker 02

  optimism, the definition of optimism is believing that the future is uncertain. Because if you're a pessimist, you're just sure that it's you're sure about the future. And so to be pessimistic about the future of government governance is to be sure that this is going to fail. Right. And I think the world is a little bit more complicated than that. I do think that opinions here will be drawn by generational divides. And so, and part of the reason why this is a difficult question to answer is because for us who are part of this movement and helping shape it in, you know,

• 1:39:05Speaker 02

  different shapes or forms or ways or forms.

• 1:39:09Speaker 02

  It's going to work for us because we are building it, right? But it's not necessarily going to work for tomorrow's generations. And because we have invested so much in this infrastructure, we're really going to resist challenges to this paradigm. Just as our generation resists the paradigms that were set by people two or three generations before us. There's actually a book that helped me understand this a lot. It's a fantastic book. It's called Generations: A History of America's Future. It's brilliant. It was written in the 80s.

• 1:39:51Speaker 02

  It's it's by two researchers, Strauss and Howey, who actually coined the term millennial back in the 80s before millennials existed. And they go back through the entire history of the United States to find every generation and then try to find patterns between the way that different generations emerge. And what they found is That there is this kind of hundred year pattern in the way that generations behave that is heavily driven by each subsequent generation's reactions to the previous generation.

• 1:40:22David Hoffman?

  And bankless listeners, we've, we've called this the fourth turning thesis. And so bankless listeners will remember that, that term if they have been following along.

• 1:40:31Speaker 02

  Yep, yep, very, very similar paradigm or set of ideas. And so what, what generation theory kind of suggests to us is that there is a, there is a general repeatable pattern to how, how different groups of people think about the world.

• 1:40:50Speaker 02

  And I think that the, we will find the limits of this technology generations into the future, just as our generation is finding the limits of industrial capitalism and the problems that it created. And so while I think that this technology helps us solve a lot of the problems that we observe today, I don't think it necessarily helps solve the problems that will emerge tomorrow as a result of the introduction of this paradigm and this technology. And so we'll need the next generations to figure out what the issues are and solve them. And it's on us to get out of the way when they come in, you know, we're just going to say these damn kids, they, you know, we fought so hard to get blockchains distributed

• 1:41:35Speaker 02

  all over the world and now the world is run by DAOs and they're probably going to complain about how difficult it is to change a blockchain and how expensive it is to fork and, and all kinds of things. And, and we'll have to listen and, you know, we'll have to be better than the current generation in allowing the kids of the future to take power.

• 1:41:57David Hoffman?

  Joel, here I've, I've thought about this concept as well, and I want to run this by you because here's why I'm optimistic that this time it's different. And because, and I recently wrote an article called the digital culture revolution, which touched on this a little bit where I said, um, the reason why there is so much strife felt among young people these days is that the age old institutions that were created. Out of World War II in the late 40s, early 50s and 60s. Those institutions, the keys to the kingdom have not been passed down. The the wealth has not been actually being passed down from generation to generation. And therefore, the young generations are rejecting the older institutions because the older institutions are not working for them.

• 1:42:40David Hoffman?

  And then, like we said, the boomers just don't understand this. It's like, why don't you guys accept these new, these institutions that we've created for you? And my critique of of the boomers, and it's not totally fair to call them the boomers. It's really just the boomer elite. But to say that that the reason why young people have rejected them is because the boomers forgot to hand off the value of the system, the control of the system to the younger people. Therefore, these institutions are not updating. And this is perhaps less of a technological problem and more of a psychological or sociological problem. Right? This is not something that can be completely solved by technology. But I think the technology can really, really help.

• 1:43:19David Hoffman?

  And the difference between legacy technology of C corps and nation states and blockchain technology and crypto networks is that crypto, the the technology, money and technology are the things that intermediate all of our relationships. And when our relationships can become disintermediated, us as a people can become closer together. And that can actually change our culture and change our psychological disposition. And this is something that I'm I'm hopeful is something that I'm not just blowing out of proportion, but I am seeing what it could be a change in psychological disposition on the economic actors of these networks. And I wrote about this, about the the Uniswap V three NFT that was

• 1:44:05David Hoffman?

  minted and then sold for half a million dollars and 100% was donated to charity in a, in my mind, a wealth distribution event. And we saw the Edward Snowden NFT be minted for 5.5 million dollars and all of that money donated to a Freedom of the Press Wealth Distribution Event. And so what I am hopeful for is that the type these, this more distributed technologies changes the culture of the people. People that use them and allow them to have a more inclusive disposition of being able to pass wealth down. And maybe this doesn't solve the problem, but it postpones the problem and allows blockchain technology to

• 1:44:46David Hoffman?

  really be more inclusive for more generations for longer and really is capable of kicking that that calcification problem down the road for much longer than like the nation state lasted or the C corp organization lasted. How does that, how does that land with you?

• 1:45:04Speaker 02

  Um, I, I would like to agree. Um, and today I, I agree with you. I don't know why I would disagree in the future, but the reason I, I qualify my answer like that is, you know, we, we have a good couple hundred years with the current system in terms of like, um, how, how it's been working. And so, you know, I would, I would give credit to, I would give a little bit more credit to industrial capitalism and what it did. And relating it to generations, I think your opinion or our opinions on each paradigm depend on when we came into the system along the curves.

• 1:45:48Speaker 02

  So we, we came into this system at the tail end of industrial capitalism, our generation. And so we're predisposed to have a negative view on the institutions that are now established. Uh, and we're predisposed to have a very positive view on the institutions that we have established. But this new paradigm is not old enough yet to, to show its limits. And right now it's full of promise. More and we, we can see where, you know, we can see places where there's script networks that concentrate too much wealth and, you know, there's, there's ways to address that. Um, but.

• 1:46:32Speaker 02

  I want to bring a couple of elements from the conversation back to this answer. One is forking. Part of the reason why it's so hard to transfer the wealth from one generation to the next. It's because it's very expensive to leave. You know, you had that, the example of the exit tax, but also in physical space, it is very expensive to leave. The more we transition these systems over to digital space, it'll be much cheaper to leave. And you use the example of how easy it is to move your assets from one protocol to the next. If we expand that idea to the macro scale, it means that we will be able to leave governance systems

• 1:47:14Speaker 02

  or that the people participating in the system will be able to leave at will without much cost and without much violence. And ultimately, what that does is it increases competition. And this is where I like using the term hyper capitalism, even if it evokes the wrong ideas in certain people. Because the main, one of the main principles of capitalism, pure capitalism, is competition. The idea that you solve a lot of problems through competition. And the, the thing that makes me most optimistic is that we now are creating the space for competition among just purely the governance philosophy and a paradigm of a system where, you know, you, you, for example, may disagree with the way Amazon is run.

• 1:47:58Speaker 02

  But you can't go to an Amazon that provides the exact same service and it's just governed differently. And now we can. And so that may create the incentives for the, the system as a whole to be more inclusive and more in line with the needs of its participants. And it may prevent the ossification that, that we see with, with industrial capitalism.

• 1:48:28Speaker 02

  But it's, you've got the opportunity for forking and then you've also got the.

• 1:48:36Speaker 02

  The participation is more liquid. And it's that conversation that we had in the beginning where political capital doesn't have instruments attached to it. And so much of what prevents the transfer of wealth from say, the previous generation to this generation is the policies that were established by the previous generation. But if you have, and then a lot of it is captured in political capital. And that's something that it's a market that exists, but we can't observe. And so then that power is not very easily distributed. And so if we're able to distribute power more effectively among a larger group of people, then we might have less of a challenge in actually facilitating that state transition,

• 1:49:20Speaker 02

  so to speak, to the next generations. Because some of the pain that you described, we feel in the US today, has a lot to do with the lack of representation in governments from the younger generations. I think we had the, I knew, I know that people observe that in this last presidential election in the US, both candidates were over 70. And that is, I think, a prime example of that discrepancy between the characteristics of most of the population versus the people in power. And if we have more fluent exchange of governance power, because we now have instruments

• 1:50:02Speaker 02

  to trade that governance power, then markets, we can rely on markets to distribute that more efficiently. And then hopefully that results in more efficient decision making.

• 1:50:14Ryan Sean Adams?

  I think people can get behind the type of hyper capitalism that you're talking about. What they reject is sort of the crony capitalism or elite capitalism. But what they embrace is the ability to compete and challenge and participate against the existing institutions, which if crypto plays out, plays out the way we hope it will, will be the case. I just want to ask this, this final question, Joel, to you is this whole transformation that we've been talking about, how long does it take? How long will this take to play out, do you think?

• 1:50:46Speaker 02

  Probably hundreds of years if we don't annihilate ourselves before then.

• 1:50:55Speaker 02

  But it's it's it's low and it'll it'll take it'll take a couple of generations. But I do think that we are in the middle of

• 1:51:08Speaker 02

  a a new turn of the wheel,

• 1:51:13Speaker 02

  where we're establishing new institutions and new beliefs and new values in society that will be embedded into systems that we create. And and that takes a while. Generational transitions take anywhere between 50 to 100 years.

• 1:51:32Speaker 02

  Because we in part of the theory of that book Generations is that you we don't really react to the generation immediately before us. We react to the to two generations prior.

• 1:51:41Ryan Sean Adams?

  The one that raised us.

• 1:51:43Speaker 02

  Right. And so you have, you know, millennials reacting against the boomers, which are our parents. And so I think for people to react to our institutions, it will be two generations down the line. And as we're seeing today, just a reaction does not drive change. And so I think we're in for this ride for at least 100 years before we really begin to transition to a new model.

• 1:52:11Ryan Sean Adams?

  We always talking crypto about this being like the internet in the 1990s. I also wonder if it's like governance in the 1770s. You know, this this whole like generational change that we're we're revolting against essentially. And that's part of what the crypto movement is as well. Joel, it has been an absolute pleasure. We really appreciate you coming on Bankless. Thank you for sharing so much of your insights with us.

• 1:52:35Speaker 02

  Thank you. Thank you for having me. And, you know, I could talk about this for hours. It's it's so broad and and important. So thank you for the space.

• 1:52:45Ryan Sean Adams?

  Well, I am looking forward to sharing a place in the coffee shop when we are old and arguing with the kids about immutable blockchains with you guys. And in talking about this and being present for this revolution, of course, Bankless Nation, we are glad that you are with us as well. Some action items following this podcast, make sure you check out Joel's written work at Placeholder VC. If you have enjoyed some of his thoughts here, you can find this in written form there. I encourage you to check that out. We will include a link in the show notes. Also, we'll include a link to the book that Joel had mentioned around called Generations. So make sure you check that out as well.

• 1:53:26Ryan Sean Adams?

  Risks and disclaimers, of course. Crypto is risky, ETH is risky, so is Bitcoin. This is the revolution that you signed up for. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but thanks for joining us on the Bankless journey.

• 1:53:42David Hoffman?

  We hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcasts and community as a Bankless premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks and exclusive content, and even the Bankless token for airdrops, raffles and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings and weekly rollups,

• 1:54:25David Hoffman?

  where we summarize the week in crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless Nation.