Robert Leshner and Jesse Walden: Deep Dive on Decentralization

[Music] hi everyone I'm Jesse I'm the program manager for crypto startup school and prior I was on the investment team at Andreessen Horowitz prior to that I was also a founder of a project in the space called media chain and today I'm gonna talk about progressive decentralization and give a playbook for building crypto applications now before we dive in to this playbook why are we even talking about decentralization and why is it so important for crypto apps decentralization is important because it's a way to build trust the Internet is based on open decentralized protocols like IMAP pop and IP and many and these form the basis of the Internet services that we use today on top of these neutral protocols entrepreneurs have built some of the most valuable companies in the world these companies are valuable because they extend the functionality of the bare internet protocols and give those rich experiences like search email and social media but today we know that these types of Internet companies follow a predictable pattern when Internet platforms start out they do everything they can to recruit users developers and businesses to join the platform because each of these commits community members forms the basis of a multi-sided network effect that makes the platform four more valuable and defensible yet as we know as platforms grow they move up this adoption curve and they follow a predictable pattern where they slowly start to change their behavior instead of cooperating with their communities they start to extract value from them for example many web 2 platforms used to have rich developer ecosystems I think at one point Twitter had more traffic going through third-party clients than through their own official app um but in order to account for more the value Twitter changed rules and in handicapped the API and centralized the client Spotify account unless other platforms have done the same thing so for users and developers this is a bait and switch these rich ecosystems that were started out cooperative ended up getting killed off and the innovation emerging from them was stifled in contrast crypto networks offer a new model for building Internet platforms unlike corporate owned networks crypto networks aspire towards being decentralized and what I mean by that is that they strive to be community owned and operated but that sounds kind of crazy how is that even possible well here it's important to understand that crypto tokens are a exciting new innovation in that they enable value to flow at the cost of information that's pretty much zero marginal cost and that means it's now possible to financially reward independent users all over the world for their contributions to a network and the result is that crypto networks can have a more cooperative economic model instead of having to extract value value from users in order to return that value to shareholders a well-designed crypto network routes value directly to those who contribute it and that in turn means that crypto networks can be much like earlier internet protocols and that they can grow to much larger scales of adoption while enabling sort of unabated and innovative ecosystems on top so that's why decentralization is so important and now I'm gonna talk about sort of how building in crypto is actually different from traditional platforms so in order to explore that we should probably start with things that are the same because there is a lot that that is the same in traditional startups and crypto startups you need product leadership you need rapid iteration and a managed go to market but this is where the differences start to come to the fore because in crypto you also need to consider how the product can successfully run in a community owned an operated manner so that's tricky because community ownership is often at odds with these other three things product leadership rapid iteration and manage to go to market require a core team so how do you crypto founders resolve this tension now that's where the playbook comes in so to help founders think through this I'm gonna run through this three step process that hopefully serves as a guide for how to run the process of progressive decentralization and taking a step by step approach allows teams to focus on the right thing at the right time and also a positive path towards regulatory compliance and so before I jump in I want to note that you know crypto is still operating in a pretty uncertain regulatory environment and so the final stages of this playbook are really only pointing towards potential solutions rather than identifying proven winning strategies but you can think of this as a possible path forward all right so let's start with an overview so I believe that a successful crypto project will need to execute three objectives in this sequential order the first should be obvious which is building a product that people want without a product that people want you don't have much so objective two is building a community around that product and then finally the thing that's new and exciting about crypto is giving ownership of the product to the community so let's start with the first there really is stage of building a crypto application is all about a finding product market fit and as I mentioned earlier this requires a lot of the same ingredients of as normal startup you need a great team you need lean development you need tight execution and quick learning and again all of this does in service of product market fit its and here it's important to avoid designed by a committee or can ordered the community great product needs opinionated leadership to do all these things to hire great team to you know execute quickly and so in practice this could mean having admin privileges on an application that uses smart contracts for example that would allow the team to effect upgrades or shut down the application quickly as needed and and in turn iterate rapidly so at this stage there should be no pretense of decentralization since a core team is driving all product decisions by necessity and accordingly launching a token at this stage probably isn't advisable because the product is dependent on the core team's efforts and dependence on the efforts of others is it one way you might fail at the Howey test which is an SEC regulatory framework that you're gonna hear a lot about in the coming weeks and you don't want to fail that Howey test because thinking about securities regulation is a huge distraction from product market fit so the idea of a core team controlling all the aspects of a project may sound weird because we're talking about decentralization and it's likely to ruffle the feathers of some of the people in the early crypto community who who hold decentralization you know to to to in in high regard but if users are complaining about the control you've got that's actually a good problem to have because it means that someone cares about what you've built so that said it's it's pretty important to communicate about control where it exists because if you're faking decentralization that's a quick way to undermine trust with your users whereas transparency about control is a better way to build it so at early signs of product traction which could include a growing user base developer ecosystem or some network effects starting to take shape it's time to start devoting more cycles from thinking about product to thinking about how to how to engender harmony between the core product team and in the community and that's what objective two is all about so this is going to look different for different types of communities but a lot of the products building in the crypto space are our developer facing so for developer facing products community building might involve investing more heavily in the best practices for running open source communities which can include good documentation you know building a developer evangelism program or issuing bounties and grants and other incentives for third-party development and going even further it could make sense to start thinking about how to eliminate dependency on the core team in order to build more trust with the community and so limiting control over the product is one way that you can start to invite community participation for example compound who were going to hear from later made a change to their smart contracts that delayed upgrades for 48 hours which allowed time for the community to sort of review the upgrades and respond so relinquishing some control comes with this opportunity to invite community participation but as you know about engaging community members it's important to revisit their incentives and ask the question why will community members contribute to the product in the first place so last week you heard from Ollie about business models for crypto projects and hopefully you recall from that presentation that the business model for crypto is actually somewhat similar to the business model of web two platforms crypto occasions are multi-sided market places and like web two platforms their defense ability comes from network effects those network effects create switching costs which allow for the possibility of charging a fee so long as the fee that's charged is less than the cost of switching to a new platform this model is sustainable and so the concept of charging a fee for a service of course is nothing new but as we touched on earlier what's new in crypto is who benefits from that feeds fee stream so because crypto tokens reduce the distribution cost of moving value to the of moving bits it's now possible to distribute economic value directly to communion community members to incentivize their contributions that being said it may not make sense to start charging a fee right at the outset of the project and it almost certainly doesn't make sense just to start distributing fees but right at the outset either because that has the potential to trip regulatory wires so what is important is to think about how to design an effective incentive and token distribution plan and part of that needs to mean conceiving of a distribution of incentives that's both fair and effective fair and that it rewards past participation and effective and that it will sustainably reward ongoing contribution from community members in the future in 2017 we saw a wave of icos which is one way to distribute value selling tokens to a community but I think since then we've learned that the ico model is somewhat suboptimal in that ico is invited sort of unengaged communities of speculators and a ton of regulatory scrutiny that distracts from finding product markets it so crypto applications that focus on product market fit have an opportunity to do better than I SEOs did because they can distribute tokens to an already active user base and to start teams might do this by testing an initial distribution of tokens with a managed group of community members a number of layer 1 block chains have done this by running test net programs where independent community members can register to run novo those tests network participants are promised tokens from a future distribution but only after they've demonstrated their ability to run the network so permission group can be affect an effective way to demonstrate that the network can operate in a truly community owned and operated fashion and once you've got a sustainable network operating a service it's time to start thinking about how to scale this distribution of incentives to a wider group of active participants that might contribute to the network in the future and the wider community to boot that might join even later on so an effective distribution ship could of course consider the core team that built the product as well as the users that make it useful and some common questions to think through here are what percentage of tokens should be allocated to the initial team versus how will you you know reward different types of contributors to the product or service in the future and and one important one is how well technology leadership be rewarded going forward and getting this right is hard and I don't know that any single project has figured it out perfectly yet but starting to model this out is really important at the stage where you're where you're thinking about building a community because communicating about incentives and the roadmap for community ownership in the future is a powerful way to invite community participation and once you've got a model in mind it's it's time to move to the last and final objective which is all about actually distributing ownership to the community now I keep coming back to this idea that crypto tokens are a new instrument for distributing value including a fee stream to a community of stakeholders and what I mean by this is I mean actually giving that community tokens so in practice how do you actually do this I like to call this this stage exiting to the community because I think one way you might do it is by actually air dropping tokens to users based on the plan that you mapped out in the previous step so imagine there's a smart contract that mints and distribute tokens per the schedule the distribution schedule defined prior at the moment that that smart contract is triggered and those tokens are minted and distributed a number of exciting things will happen number one the core team will ceded control of the application from the company to the community so the product is now governed and owned by its users and that of course mitigates the risk of the platform changing against the rules against the wishes of the community the community can now sort of make changes to the product that they agree on and hopefully another thing that will have happened is that the company will have found a sustainable business model by retained enough tokens to benefit from the fee stream of this product and its growth in the future and similarly community members who are now part owners of the product will also start to be rewarded economically for their contributions and and hopefully they will see increasing returns to scale as the co-operative economics of the service allow for continued growth and finally because the product is no longer dependent on the core team it's possible that the token may not be considered as security which eliminates some of the regulatory overhead that comes with SEC Securities regulation so the spirit of this objective is really all about marking a specific moment when you call this smart contract where a crypto product completes its journey from a traditional product company to a sustainable community owned and operated network now a reminder if you've if you're a crypto founder and you're ready to exit to the community that means you've done objectives 1 2 and are on number 3 so you've found you've built a product that people want built a robust community around that product and figured out a way to incentivize community participation on an ongoing basis such that you can turn over ownership to the community and I think right now we haven't seen a crypto absolute application execute on all three of these yet but there are a few that are well on their way and one of those is compound which is why I want to invite Robert leshner and the founder and CEO to help us think through how they've been approaching progressive decentralization in real time and so for those that don't already know compound is a money market for borrowing and lending crypto assets and it runs as a smart contract on aetherium the company was founded in 2018 and they've been executing a progressive decentralization plan ever since so with that I'm gonna invite Robert to join me here on the zoom and we're gonna sort of have a little chat about what their journey has been like and afterwards we're gonna open it up to questions from you guys Robert are you out there yes I am hey Jesse okay okay nice awesome thanks for joining us first of all from looks like from the compound office which is great yeah and so I guess let's let's start let's start from the top first I I briefly introduced compound but maybe we can just start with your you know quick summary what it what is compound so compound is a market for interest rates on crypto assets it lives as a smart contract on aetherium and for a number of supported aetherium assets our protocol is created interest rates an application or a user or any aetherium address can earn if they have the asset and supplied to the protocol or that an application or user can pay to borrow an asset from the vertical ok got it that's great that's a much much better explanation than the one I gave so also I want my miss I'm sure a lot of folks are curious what were you doing before crypto like how did you get into all this so before this I went down the traditional Silicon Valley founder and product manager track so I founded two software companies prior to this build teams built products brought them to market and I also worked in a large tech company has a product lead going through like a large software development cycle building hardware and software ok cool so so I imagine a lot of that experience was useful in applicable to compound it's actually surprising to a lot of people but I think there's a lot of similarities between developing a product for crypto and developing a product that's traditional software it's more similar than it is dissimilar in a lot of ways ok cool I mean yeah I agree as you probably just heard in my presentation I think you know finding product market fit is still the very obvious number one objective for all founders in crypto just like traditional startups so I'm curious I'm what what did compound look like thorough it is as you guys were striving to find product markets it so most people don't know this but there's actually been three versions of that we built over time and the goal has always been to find product market fit to iterate to incorporate feedback from users in the community and into a cycle of building a better product the cycle for us really has been one of three phases in the first phase we had version zero which was an unreleased product that was really for our team or friends and a very small number of people to private the test and sandbox the core idea behind contact we could create interest rates crypto currencies it was clunky it was difficult it was ugly but it helped us get the principles into the hands of a very small user base we then used that to build and launch the first main net version of compounds which we launched in August of 2018 and from there there's nothing that gives you data and education and product feedback like being live in the market and then we used the opportunity to be live I'm starting in 2018 to learn as much as we could before building and releasing what we consider to be the final version of compound that incorporates all of the lessons learned from having the first product live in the market we made a number of incredibly large changes based on user and developer feedback including tokenizing balances which is now C tokens including having risk parameter if they're set for each asset and streamlining the codebase to make it simpler for developers to use and so for us our vision has always been the same from day one we're gonna create interest rates for crypto assets and we followed a very traditional product cycle to find and refine the product until we've achieved the semblance of product market fit cool so it sounds like when you start it out you guys you know kind of built full stack you built the original protocol you were the first consumers of that protocol building your own user interface and then you started to open it up to you know what you learn from you know building full stack and then you start to focus on the developer community can you talk a little bit about you know this this sort of second phase of develop community building and what that looks like so most people won't remember this but you know we've always envisioned compound as a protocol that developers could build it you could launch applications with interest rates built on top of compounds and this has always been the idea that we've been pursuing but the very first version of compounds didn't see developers building on top of it what we did is we actually built the first interface on top of compound version one in order to prove that we could to dog food the process of building on top of the protocol and to create a very basic interface to help bootstrap the quitter because the basic idea is until there's usage other developers don't want to plug in the same thing happened as we launched the second version of compound but this time we had the advantage of knowing what the underlying system should be to make it easier for developers to build on and so when we launched compound version two we had a depth of experience so that we could launch with a number of partners from the moment that we put it on test net we actually worked side by side with a number of different teams preparing to go live for when we finally launched the production protocol it's when we launched they actually did so with a couple of core developers that had been building with us the entire time cool ok so very much the case that you guys sort of you found product market fit by a dog fooding and building a product or sells bootstrap some liquidity in your marketplace and then shifting gears to you know focus on the developer community can you talk a little bit about today what that looks like like how do you how do you work with the developer community and what's the relationship between the company and the community so this goes to phase 2 of decentralization building a community we view developers as the users of content as the community of con and at this point a hundred percent of our effort is focused on enabling developers to build on top of content for us that means thinking about the product as being holistic and everything that developers need so we spent a lot of time doing things that most people find boring like working on documentation working on you know um guides working on content working on things that really make the entire product experience when the user is another developer and so it starts off with thinking about what is the product that for us that's a protocol and the ability to build on so we spend a lot of time on Docs we also spend a lot of time building a community of developers and we do this in a few ways so one is we get everyone into one place you'll notice that when we talk about you know how to interact with compound we always say join us in discord it's a chat server that we really try to focus on developers and creating an environment where everyone can ask questions can compare notes can share code can collaborate can trade ideas and to build collective and it's extremely active we probably one of the most active discord in crypto and it's been a way to bring everyone into one place to enhance what everyone is already doing and lastly we try to celebrate and market what our users built you know our homepage of compound there's just a list of the products built on compound you know we think that the most important thing we can do is enable other developers to succeed for themselves to go through the cycle of finding product market fit to building a community to decentralize them on their own and that means doing everything we can to empower them it means you know helping them think about product development means helping them think about fundraising and it really means leveraging our expertise and giving that as much as we can to other teams that's great so earlier in the talk I was a you know at the very beginning I talked about why community ownership is so important for compound or for crypto at large but also for compound so I guess I want to hear from your perspective you know you've been very vocal about about the goal of turning you know ownership over to the community members so so why is that important for compound so for us we believe that having a decentralized protocol does two things very powerful one is that it allows the protocol to live forever right now you know our team is necessary to maintain the protocol but if we can distribute the responsibility and the ownership of the protocol to a wide audience there's the expectation that it can run I like to say that you know if it coin was run by the Bitcoin corporation nobody would trust it or use its the fact that it's not run by any one company that you expect that it's going to be there next year next decade next century and we want to put compound into the same position you know that's the biggest advantage especially if you're building a developer centric product and saying they want developers to build on they want to know that it's gonna be there they want to know that the rules aren't going to change because you know I wake up one morning and feel like it and they want to know that it has a sense and so that's the first major advantage of decentralization the second and I think this gets talked about a lot less frequently is that it enables a wider audience to upgrade and to contribute to the protocol right now you know we're a small team based in California there's only so much that we can do to upgrade the protocol but if you can open up to the entire community of open-source developers to enable them to contribute changes upgrades and improvements then the speed at which compound advances can accelerate on itself so we see that as one of like the biggest things that's gonna change is that the pace of evolution is going to accelerate once we decentralize got it okay that that's awesome yeah so I guess another another thing I want to touch on is you know right now you're in the middle of this process right you're you're so you've got the community going you're trying to figure out how to turn ownership over to them I'm wondering like has there been attention there like how do you talk about this plan with the community members how do you keep everyone sort of rowing in the same direction this is very question so since day one we've always communicated that the goal eventually was to decentralize the protocol and you know when you're you know day zero just launched and nobody really takes you at your work because you haven't proven it of course you're planning to decentralize but it's been like us pounding the drums about this for two years consistently and we've taken a number of steps along the way such as you know restricting our ability to make sudden changes to the protocol creating a significant number of pages around transparency of governance certainly show people how the protocol we're now going through what I consider to be the final three changes as we start to hand it off and this really is you know step three that jess was talking about before which is the decentralization process compound has a three phase decentralization and right now we're trying to talk about it heavily so phase one is the company that built the protocol the team that built the protocol is still generally responsible for making changes but they're done in the open they're done transparently they're done with some limitations to slow us down and they're done in a way that brings you know people into the process you know even when what are the ones chipping the code we still try to incorporate the community's involvement voting for what they'd like to see even if they're not doing it with a token or they don't truly you know have the ability to make the change on their own next we're gonna move to a sandbox decentralization where we're going to be testing on chain mechanisms of decentralization where it won't be just our company it'll be sort of this middle step where we can test end-goal platform of decentralization but with a limited number of stakeholders really it's our team and our company and a slightly wider group of people that are going to be able to test the governance mechanisms before they're rolled out to the entire community of users and at the earth and so then lastly once we've been able to like ensure that everything is operating smoothly yet there's a huge amount of transparency about how compound governance works and we think that the variables and parameters that we set are the right ones then we're going to take the final step which is handing it off entirely to the community to run from there on and by the time we do that we're gonna have a lot of confidence that this governance mechanisms that we built that are very customized and calibrated to compound work and then from there we'll have achieved complete decentralization yeah and that map's perfectly to the the sort of you know three-step plan or the token the distribution plan that I'd talked about where you start with sort of a permission group and then you move out to sort of a more after group of active participants the protocol and and from there you can imagine going even further to potentially all the sort of users that come down down the pike in the future oh yeah that's awesome so it's it's pretty exciting because I think you guys are literally like a couple of weeks away from from doing the first permission distribution right yeah I think by the time this talk goes live we're gonna have achieved the first major upgrade to the protocol okay that's that's that's incredible alright so another question is you know I think you're you're sort of out in front of you know in terms of projects that are executing this and there's also been I think a lot to learn from you know other other teams in the space that got started maybe you know 2017 a little bit earlier where this you know playbook wasn't quite clear so I'm wondering if if you had some advice for founder's what would you tell them to avoid like how do you how do you not get stuck executing this playbook so there's really two things that I think founders can do to execute this playbook one is to have a extreme laser focus and tunnel vision on the goal that you're working towards I've seen a lot of teams and a lot of founders try to do too many things and try to spread themselves in many different areas you know a compound we always had a very specific vision of what we're trying to create and we started off very simple we started off very rough and over time we've kept focused on improving that one simple thing that we're trying to do the second is to leverage the sort of decentralization playbook to start from a position of extreme efficiency prove out product market fit while you're still efficient while you're still making all the decisions yourself and then eventually using decentralization and using the superpowers of blockchain for what they're best making a system that unkillable that'll run forever as transparent that's frictionless and that's open but not starting I think it's very easy to get caught up and do it backwards where you try to start with decentralization and then design something that has product market share I don't think any product that's been successful has ever been designed by committee what has ever been really truly designed in a completely decentralized fashion there is a wisdom to the crowds but you know the need very specific tools to be able to express their views and so I think that you know the real you know success that we've had has really just come from being very focused on building one thing extremely well and iterating on both the product as well as the amount of decentralization up until the point that we can step back that it runs without us and that ideally it runs for him yeah I think I think that's really great advice basically stay focused don't do these things in the wrong order you know and and and iterate your way towards community ownership well yeah so so thank you so much for you know bringing to life all the ideas that I discussed in the presentation I guess you know is there anything else you want to leave students with anything that where they can learn more about what you're up to so we're one of the first teams to go through this entire decentralization process but we're not gonna be the last there's probably you know thousands of teams that hopefully you know learn from what we're doing learn from what other teams are doing and you know don't have to reinvent the wheel we're doing a lot of work right now as we think about governance and governments mechanics and how we're building the content governance token that we hope can be recycled by other teams so I would encourage people to go check out the announcements that we've done around governance look at the code look at how we're implementing Unchained voting and look at how we're incorporating into the protocol and we'd love if other teams can use that as just a starting block for their own efforts later but I would say you know until there's a community that is excited and ready to take over governance you know don't try to implement it too soon yeah that's that's great advice okay awesome so with that I think let's let's open it up to questions so it looks like we've got a bunch of questions from the slack so the first one is from key and I'm just reading this one out loud it's I think it's for me Jesse you mentioned there there is no gold standard for a project that just found a balance between allocating value to the original development team and distributing tokens to all Network participants once the network is live can you can you talk through which projects occupy different parts of that and what the trade-offs from each choice are yeah so so I guessed one one thing I'll say here is that I think a lot of a lot of projects that I touched on this earlier but a lot of projects that got started in 2017 they you know they ran icos and so essentially in my playbook they started backwards they started with decentralization first and they tried to get that decentralization by literally selling it selling ownership to the to the community and I think crowdfunding is you know it's a cool idea and it's exciting but when you're doing it in this sort of speculative mania it sort of invites the wrong crowd and so I'd say that's like you know that's on the wrong end of the spectrum and what we've learned since from you know projects like like compound is that it's much more effective if you're out there with a product first and people can wrap their heads around why this thing is useful why they might want to build on top of it and what it means to actually own a piece of it and sort of the value of that in the future so you know of course you know Robert sphere because we think compound is on is on the very much on the right end of the spectrum and so you know if I had to assign a gold standard I'd say you know compound is it today and like Robert said hopefully there's many more to come so so hopefully that answers that question next one's from Paul and this one's is sort of when exiting to the community will the community be expected to purchase tokens at that time like in an IPO perhaps beyond any tokens they've already earned that's an interesting question I guess maybe Robert I'll turn that one over to you and maybe you can again like touch on exactly how tokens are going to get distributed in in in compound so we haven't released the exact mechanisms that we're gonna use yet but I will say this now this can be you know exclusive to crypto startup school you can be the first to hear exactly how it's gonna work so no one's gonna be buying tokens what we're gonna do is distribute tokens for free to the users of the compound protocol over time you know right now the primary users of the protocol or other applications what we're looking to see is you know for the applications and user that know the protocol best to wind up receiving for free ownership and governance rights in the protocol itself and so the idea is you know we're not using this to raise funds we've relied on venture funding years ago to be able to build the protocol you know we don't view tokens when built correctly as fundraising mechanisms they're used to align incentives and to decentralize governance and to create a stronger better protocol and so for us there's not going to be any sale of tokens um they're going to be distributed for free to the users cool yeah I think I'd add to that that I think you know one of the benefits of running the PlayBook is that you have the active user base to sort of gauge and and and let those analytics there inform what the distribution should look like right so you actually have some data to go on in terms of determining what an affair and effective distribution might be and now that I think is really important an advantage that you know compound has that ICO projects didn't so okay next one's from Sarah for Robert what kind of user research around borrowers have you discovered are they mostly traders trying to shore currencies one of their applications are there for borrowing that you've seen so that's a great question um and the longer you're live in the market the more you learn about your users and you know it helps you think about the use case so that we've seen three primary use cases and these all surprised us you know it's funny cuz when we launched the compound originally we didn't even launch with the stable part who would have thought that stable coins were the primary use case um the three use cases that we see one are traders and speculators so they're typically interacting with borrowing assets for leverage or to hedge a portfolio so they're either borrowing stable coins in order to buy more crypto assets they like or they're borrowing crypto assets they might borrow ether to sell it as a hedge against other assets they may hold traders are of dominant use case the second one we've seen is we've seen miners actually borrowing stable coins to finance their own operations and to smooth out you know the cost structure that they have so they don't have to sell in certain market conditions you know they can basically you know plan their financing more seamlessly the third that we've seen are we've actually seen some teams borrowing stable coins to actually do international global paper without having to figure out how to manage Treasury you know there's a lot of teams out there with large amounts of crypto they're just borrowing stable coins so they don't have to think about you know how do they manage a treasury sell crypto hey people do all these things they just say oh that's complicated we're gonna put crypto and compound take stable coins out okay our developers so we've seen a couple different use cases and I actually think the number of use cases are actually going to increase as more applications get built so as there's more stable points in different currencies as other blockchain starts to get bridged into compound and aetherium for that matter I think you're gonna see more borrowing use cases that just aren't available yet like being able to settle transactions in different currencies internationally being able to settle OTC trades and you know different assets seamlessly I think the use cases go up over time not that yeah totally and that that's very much aligned with your sort of reason for decentralized in the first place right which is if the community owns this thing and they can trust it they can continue to build you know all kinds of use cases on top of it without fear that the rules are gonna change on them and as a result you just get you know way more use cases than you imagined at that set exactly cool alright so next one is from Mark besides building community how do you think compound came to dominate this market looking at loan scan you can see a number of platforms using compound under the hood what pitfalls did you avoid in order to get there it's a great question so we've always focused almost entirely more so than you know anyone would think reasonable on security and safety we move extremely slowly in the sort of development cycles that we have and everything that we do internally in the company is always you know about asking questions about how do we do ask how do we do this safer how do we think about every possible edge case and you know the thing that I like to communicate to developer so that we spend an exorbitant amount of time thinking through what could go wrong because you know developers are trusting the code in a lot of ways they're trusting us and so the thing I think that we've really excelled at in you know rising up the ranks is getting other teams to be able to build an application on compound know how it works know that they can you know trust the process that we've used and know that it's okay for them to build on top of it and a lot of I'm at this point you know comes from other interfaces you know a huge amount of compounds numbers you know come from applications and tools that other teams have built not us and that ethos goes into how we think about the future just trying to create like fertile ground for other teams yeah I think I think one thing you guys have done super well is is basically run a great developer evangelism program and there's like you touched on a number of facets of it and we're actually I think in a few weeks we're gonna hear from Tom Preston Warner founder of github and he's gonna talk about developer evangelism but this is like this is like a well understood sort of go to market strategy for developer facing products and I think you guys are you know executing from that playbook quite a bit right yeah thank you yes we you know we think you know cryptos great and block teams are great I mean the thing that got me excited in the first place was you could program one right aetherium was in my mind like the killer developer platform for us you know I I was enamored and just you know impressed wildly with you know if it's Halligan all the work he's done aetherium had to develop her first approach as well you know and we're just one more stack on top of another developer first product and you know we're taking that you go so that people can build on top of compound but you know we're not the first ones to do this extremely well in this space of crypto I think you know the best delivery of it develop developer lead ecosystem really is ethereal I think aetherium has just knocked the cover off the ball and done a better job of this and anything else and so you know we're not writing this you know approach from scratch you know we're learning from the best yeah that's awesome okay cause the next one from Abbey Shack do you find some jurisdictions to be more friendly in terms of regulation for decentralizing product and and feeling comfortable that is compliant with securities and financial regulation and is the u.s. one of those so I can only really speak to the u.s. because we're located here in the u.s. um I would say that you know within the US it's probably harder than many other jurisdictions but it's not impossible you know the regulatory landscape in this country is people just want you to build things that you know protect your users that are safe that you're playing by the rules which have already been written and they're not there to stifle innovation they're not they're there to help you know create a safe environment for innovation to grow um you know everything that we've done so far you know has been within the context of regulations that exists you know some in some ways to be great if there was no regulations we could just go hog-wild you know but I actually like the ecosystem that exists here because the PlayBook that we're following the sort of decentralization PlayBook works it's you know build something that works that people want that you don't have to do a public token sale for you you don't have to do a you know violate securities laws to finance you know you can use venture capital financing to build a profit that's not controversial at all then to build a community that works great within the existing regulatory structure and then finally once you can you don't have an asset your decentralizing it you know in order to strengthen the underlying system you're not doing it to raise money you're doing it to make what you've already built safer and better and you know I actually think you know this this playbook here can operate extremely successfully here and in any country around the world I think a lot of other strategies and approaches won't work here I think the era of the wild ico is over for a reason there's a lot of you know bad behavior there um I think we've done a great job as a society in a country of cracking down on some of the worst behavior that I think a lot of us you know grimace when we remember from 2017 and so I think it is a conservative and cautious approach but it allows you know good teams with good products to excel wildly and I think that's the goal totally and one thing I'd add there is like in 2017 you know there was a lot of bad actors as you mentioned and you know certainly there was there was a lot of greed involved and people looking to get rich quick from the bubble but I do you think that's something what's something else important was expressed during the ico boom which is that people want to own a part of the platforms and services that they use every day and here is this technology innovation that I've allowed them to do it and what what you're doing today has the same result right like the users of the protocol will own a piece of it it's just you're you're doing it in a way that sort of eliminates all the bad actors from from the equation and that's that's I think you know that's great yeah I mean what's great about this is sort of you know increasing decentralization approach is you know you don't have speculation on the success of the project until it's already successful and that changes everything you know when there was teams that were raising you know capital using tokens you know before a project existed of course it was going to be speculative of course it'd be mania and booms and busts because there's nothing there and so I think that you know being able to exit to the community at the very end this the final step will reduce a huge amount of speculation and create much more stable and responsible assets that the community can use right okay so one next one is also from Paul if you were to start compound from scratch today would you consider using a token or affiliate fees to incentivize third party front ends or third party strong contracts building on top of it from day one it's a great question um I don't think so I think one of the things that's really interesting is that you know post decentralization once the community and a much wider audience or the ones management compound if that's the best approach if that's what you know creates the largest outcome then the token holders can vote but those decisions you don't have to make you know day one um I've really enjoyed not having each other and not having any commercial interactions with the developers on top of the protocol and also it's been freeing in a lot of ways to enable us to just do one thing really well and that's focused on building the underlying protocol so I actually don't think I would you know have a token or affiliate fees going back I think post decentralization as people see how we distribute tokens to users and how we can allow developers in the applications in the front-end built on top of compound to participate in governance and to you know be able to upgrade the protocol I think people are going to say wow that's a great wave that you know the front-end the applications can have a say and be involved and have a stake in the game yep okay next next question is from Rochelle can you talk about the monetization model for the core team after ownership of compound is turned over to the community so that's a good question as well so a compound it kind of goes to some of the things Jesse said earlier you know we're focused first on D centralizing the protocol um our company is a business model you know hasn't looked too far beyond building something that's widely adopted widely used beloved and can grow to be really really big cuz until something is really big you know there's no sense trying to monetize so I think over time our company might develop alternative revenue streams similar to how Red Hat you know built an amazing business off of Linux where we can build an amazing business on top of the compound protocol still in support of other developers and still in support of other teams and helping the entire world build on top of comment right makes sense okay so next one is awesome from Sarah what are your thoughts on under collateralized loans and the risk associated with that another great question so you know define general stone an extremely early stage one of the reasons why define works so well and so efficiently is everything is contained on the etherion blockchain you know right now if you look at a lot of the projects that are starting to work it's because all the data all value and all of the state is sort of in one place and so it can operate very quickly you know compound doesn't need to know who you are it treats everybody the same it just says how much collateral do you have to be able to borrow that's it I think one of the things that's difficult about under collateralized loans is if you looked at traditional finance it requires really a sense of identity yeah right now is not contained on the blockchain very well so either you have to build a sense of a credit score within this bubble of aetherium for it to work or you have to be able to import it from outside of aetherium which doesn't work very well yet or you have to find some completely new approach that doesn't rely on the traditional ways of doing under collateralized loans I think it will absolutely happen I'm a you know huge believer that someone's gonna solve this I don't know if they're gonna solve it next week but I know it's going to be solved right and maybe maybe it could be solved on top of the compound and it could be solved on top of content you know the future is bright if you're working on something let me know right okay cool so next one from from Blake for Robert when the protocol becomes more owned and operated by the community and they start actually contributing code and such what is the spread spectrum or distinctions between compound employees and simply highly engage community members when users be rewarded for code contributions or more or would be more that community members with with lots of the network token have a high amount and say on upgrades and features so here's the cool part the employees are just individuals will each have you know our own you know tokens our own personalities our own you know individual aetherium addresses you know there's gonna be a lot of cool things you're gonna see about compound governance people are gonna be able to voluntarily identify who they are there's give you a leaderboard of all the different contributors to the protocol we hope to see crypto politicians emerge you know or responsible for just contributing code or ideas but you know you're not gonna see compound the corporation or the company involved in governance there'll be you know a lot of people participating and our employees will just be as individuals not as the company and so everyone is going to be free to contribute code to compound anyone can receive the sort of strength and support from the network that they need to propose changes that the rest of the protocol can vote on and we'll see the answer is it's an unknown it's gonna be a lot of fun to watch this unfold you know governance that we're building is designed to be upgradable by governance and so there might be changes but it's gonna be a lot of fun and I'm really excited for members of the community to be extremely active I'm excited for applications built on top of compound to be active a great example is like if you're a developer at an application that's built on top of compound today like insted app or Dharma or linen or any applications built on top of compound and you would like to see a change even if it's as simple as producing the gas or the protocol to make it more cost-effective to interact with the protocol you're gonna have the opportunity to propose those changes and so I think it's gonna bring a ton of people into the process it's gonna be a lot of fun and you know just like many things in crypto it's uncharted territory okay so next one from Paul how how important have C tokens been for compounds continued success I think they've been very important for one reason and the reason is it's enabled developers to more easily build products on top of content you know it makes it easier I think in some ways to understand what's happening you could do a lot of the same functionality before C tokens as you can with C tokens but really they're just programmable compound balances you know maybe yeah you just explain what they are sorry I should have prefaced with that but for those that don't know what what are C tokens and then why are they a big part of the success yeah it's a great great point so within the compound protocol every balance of a user is represented as a Caesar so it's just an accounting object that tracks how much of an asset you've supplied to the protocol but it allows the Val furs to do really cool things and to basically do magic tricks with compound the protocol and allows developers building applications on top a compound to program C tokens to send them to receive them it allows people to transfer a balance to an address they control like the cold storage address and retrieve it later it enables people to use the underlying protocol in whatever way is that you can imagine because you can move your balance anywhere you can move your balance outside of contact you know you can move your balance to another application that combines them in interesting ways and so we think C tokens have been extremely important just because it's teed up the creativity of developers to think about what can they build on compound and manipulate the balances of users inside the protocol more easily and you know for us that's been like a really nice advancement so yeah just all but all part of the developer event it wasn't playbook and making it a nice experience for them yeah it's why we designed there because developers before we had them said oh it's really hard to program a balance inside content why can't I you know figure out a way to manipulate the balance you know inside the protocol yep totally ok great so next one is from nori did you see any issues with collateralized loans on compound during the past few days where you know for folks are watching this later we just saw the you know a huge drop in in the crypto currency markets alongside than the main financial markets so Nord is saying I heard that major Dow had some issues what about compound yeah so for anyone who has been paying close attention yesterday crypto prices dropped by about 40% it was basically the worst sell-off in one day in history it had been alongside massive declines in global financial markets you know it was the worst day since Black Monday 1987 compound performed phenomenally and there was no issues with under collateralized loans on the platform you know one is we were lucky but two is we benefited from the fact that compound is not yet massive you know we spent a lot of time for thinking about market risk we actually recently commissioned a paper by a team called gauntlet to actually analyze the of the compound protocol how liquidation works in different settings you know price declines order books slippage time delays all these things and it's really interesting if you google compound market risk assessment gauntlet you'll probably get there if you go to our website you can find it but we spent a lot of time looking at the market parameters and what that would mean for the health of the protocol and the positions in it we actually didn't anticipate a day where prices move down 40% or more you know because the worst day in history was like 25% you know either the clients but compound held up phenomena I'd like to think we're lucky you know if compound were ten times the size you know there might have been significantly more issues but you know even on the worst day in history the protocol that we build performs phenomena there were other issues elsewhere in the ecosystem I think it's a great learning opportunity a moment for every project every founder every developer to see what's working and what's not working because the goal is to build things that work you know over the next hundred years and there's gonna be hiccups along the way you know certain projects will always have a stumble here or there but it's really about how does the entire community an ecosystem learn from it fix it and become strong and so you know it was definitely a wild day yesterday there were definitely some problems but this is not the beginning of defy this is probably the beginning right okay cool so next one from from meta could you explain your relationship with companies like Dharma and how they've evolved as in going from previously competitive to then Dharma building on top of compound what what type of support do you give these companies in your ecosystem yeah that's a great question so we like to give every company's building on top of compound a huge amount of support really it's access to our team access to our knowledge we like to help you know celebrate the team's building on top of compounds you know we're just trying to build neutral infrastructure that everyone feels comfortable building on top of you know it doesn't matter if someone was previously building their own products you know we want them to enjoy you know working with us and building on top of the protocol that we built you know huge fans of them huge fans of every team is building on top of compound you know I don't think there's any like you know you know secret sauce or hidden things here it's just you know I think teams try to find you know the best way to achieve a goal and for some teams the best way to achieve a goal of an extremely simple wallet that anyone in the world can use to earn an interest rate and send and receive money between Fiat and crypto and no compound as a piece of its you know talking right ok so last one finally so the this one's sort of on on hiring and sort of how you build out the team at compound what what does staffing and marketing look like for compound so I'll start with marketing marketing is zero I'm the only person within compound that you could really even consider a marketing employee we have zero members of our team folks that marketing at this point but in terms of staffing you know I think this is actually one the most important things for a crypto company because if you have a great team you'll go extremely far and if you have you know a team that doesn't work well together you'll go less far than a traditional software is because building up of a blog traffic five times harder and building a traditional web stack product so we spent a lot of time as a team thinking about hiring what we've done is we've set an extremely high bar and we try to put a lot of effort into meeting that bar bringing people onto the team we're still mostly engineers at the end of the day and you know we're very cautious you know you're building financial software you're building the software that moves money you have to be extremely cautious and you have to make sure that the people that join her team have the ability to build software that moves money responsibly and safely and so for us you know the question I always ask in my interviews is whether or not I can get to the point of trusting someone to build financial software and you know it's a very different process than hiring for you know your standard mobile app where you know you can look for different characteristics you know a compound we're always looking for extremely quality people that we trust to build software that moves money awesome okay well thank you for answering all these questions and and for being here again to sort of like elucidate in real time how to run this this playbook that's that's all the questions we've got for now so I think with that we can can give you a virtual round of applause for being here and and yeah thanks thanks so much go build great products awesome it's just nice [Music] you