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THREAD: As $YAM plays out, I’ve become more convinced that this may be a key marker on the “true decentralization” launch spectrum for #DeFi projects like COMP was, and it may be offering instructive lessons for broader infrastructure changes.
Some random thoughts (1/alot):
Some random thoughts (1/alot):
A threshold point is that structure of a project's financing is inextricable tied to ultimate governance outcomes.
You can arguably break down eras of financing for ETH projects into 4 eras:
Pre-DAO
Post-DAO '17-'18
Bear '18-mid '19
Emerging Bull '19-Present.
You can arguably break down eras of financing for ETH projects into 4 eras:
Pre-DAO
Post-DAO '17-'18
Bear '18-mid '19
Emerging Bull '19-Present.
Pre-DAO: A lot of equity financings in *companies*. Some pro rata rights for any token the companies sold, but not much legal/financial engineering.
Direct sales of tokens also popular, but lightly papered or just bought w/ crypto. Little focus on long term gov./distribution.
Direct sales of tokens also popular, but lightly papered or just bought w/ crypto. Little focus on long term gov./distribution.
Post-DAO ’17-18 (1/3): Everyone learns securities laws still exist, but ICO mania still takes off b/c everyone believes they have a “utility token.”
Fewer equity investments directly in *companies*, many more direct token purchases (w/ or w/o legal documents).
Fewer equity investments directly in *companies*, many more direct token purchases (w/ or w/o legal documents).
Post-DAO ’17-18 (2/3): As SEC enforcement actions pick up, more nuanced agreements emerge and agreements w/ companies start to resurface. The most popular is the SAFT. But, many of these remain investment contracts may not be separable from underlying tokens in some cases.
Post-DAO ’17-18 (3/3): By the end of this era, pendulum for selling tokens unchecked has swung back, more sophisticated legal/financial structures that provide investors exposure to equity and tokens exist. This is also when onchain gov starts emerging w/ V1s of certain projects.
Bear (1/2): Far fewer tokens are launched with straight sales given regulatory shift and bear market. Non-crypto VC money has cooled some, and of the money coming in, much of it requires companies (which are ubiquitous) to provide specific gov./control rights of future networks.
Bear (2/2): At the same time, some projects believe that there won’t be tokens like what we saw in 2016-2018 and glibly give away governance rights or control b/c they don’t have a network or don’t think it will be very material. This becomes important.
Emerging Bull: As last year ceded ground to the bull market, a few interesting things happen. Projects have robust, fully functional products, DeFi has a small but organic community that has emerged in large part thanks to @UniswapProtocol, and financing is resurgent.
When $COMP launches though, things change dramatically. Comp is what I think I read someone here call the first volley in “progressive decentralization.”
I like this in that it reflects their methodical approach started from a centralized entity to decentralize the protocol.
I like this in that it reflects their methodical approach started from a centralized entity to decentralize the protocol.
Following $COMP, we see emergence of liquidity pools, new AMMs, superfluid collateral (h/t @delitzer), and people start valuing gov. This leads to $YFI, which I’d call a “Substantially Decentralized” launch due to initial control of some smart contracts before delegating/burn.
$YAM represents another inflection. It’s the first large scale protocol w/o a POW launch like BTC that began with no individual in control, and importantly, no investors with information or access asymmetries present. In fact, like $YFI, there is no formal entity at all.
This is probably the closest to Hinman's "sufficient decentralization" as we see in non-POW projects. Note that this doesn’t mean no potential securities law issues (e.g. if you are a controlling whale of these networks…you should check w/ someone who knows laws and stuff).
This style launch isn’t all good; the @YamFinance bug today shows there can be value in having some degree of centralization early on. Compare $COMP/$MKR early launches and protocol changes that were needed where A16Z/Paradigm could rally votes around their credibility w/ today.
But, in absence of that influence or historical financing, it freed devs to take more risks, and I think it is benefiting us all. If large swaths of $YAM had been presold from a company, we wouldn’t see as much enthusiasm and voting dynamics would differ substantially.
The devs would also have spent years w/ investors + counsel trying to figure out how to legally “monetize” what would certainly be regulated activity if operated as a for profit business rather than OSS that can’t be controlled or manipulated by them unilaterally.
The lessons currently being learned on voting, rebasing mechanics, proxy delegation, etc. are fundamental issues needing resolution if we want to decentralize other aspects of society. Don't think we’ll be there for years, and am skeptical we’ll ever “Decentralize all the things”
Being frank, I don’t even think we *WANT* “all of the things” decentralized, but we need experiments and data points to figure out what things are and are not appropriate to focus on.
As I look back over the past few years, it’s been incredible to be able to trace how projects/companies have been built and financed, and I’ve been fortunate to have a front row seat to see these models evolve.
Today, I’m actually more encouraged than I have been in a while that there’s still some cool “weird” left in crypto that’s not just about getting rich (although it is for most) and can provide useful building blocks. I think more people should look at $YAM through that lens.
