Conversations with the Coop - http://www.indexcoop.com
Audio and transcript from the March 17th, 2022 installment of “Conversations with the Coop” with Chris Blec - DeFi Educator, Consultant, and founder of DeFi Watch.
To listen live on the next Conversations with the Coop - Follow Index Coop on Twitter and join the Index Coop Discord to get the real Owlpha.
Follow us on Spotify: Link here
RSS feed for Apple Podcasts: Link here
Crypto Texan: All right. Hello, everyone. Welcome to Conversations with the Coop. This is where we source questions from the Index Coop Community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan. And today on the show, we are joined by Chris Blec, who is a DeFi educator, consultant and the founder of DeFi Watch. Thanks for being here with us today, Chris, how are things?
Chris Blec: Thank you. Thanks for having me. Things have never been better.
Crypto Texan: That's good to hear, any particular reason why?
Chris Blec: No, I just always say that. I mean, in reality things have been better, things have been worse. It's okay. But you just want to hear positivity probably. So, we'll go with that.
Crypto Texan: Well, things just “are”, typically, right?
Chris Blec: Yeah. Things just pretty much are. It's raining here in Florida, wish it was sunny. But for all intents and purposes, it's a pretty damn good day.
Crypto Texan: Yeah. I completely agree with you there, but let's get started off on your background, Chris. What is your background? And then how did you get into crypto and DeFi?
Chris Blec: My background is, for a long time I worked as a marketing director, marketing lead. First for media companies, sports and media, actually, and then eventually for tech companies. I've always been sort of a tech geek. And since I was in college, I've been libertarian-minded as far as politics goes. So I discovered Bitcoin in 2015, but I didn't really get it. Like, I knew it was a spending tool and I was traveling in Asia, so it was really useful. But in 2017 it really clicked for me as far as how it could change the world. So that's, like went down the rabbit hole. It's been about five years since then. I got into it because of its potential geopolitical ramifications. So in 2017, not much was happening in that regard. But it's so weird to fast forward to now and to see everything that's going on with just all the governments of the world, starting to pay attention. And the president of El Salvador last night, like tweeting that Bitcoin is FU money in America, basically sucks.
So anyway, thinking back to those days and fast forwarding to now is kind of weird. But in 2019, discovered what was going on with DeFi, just sort of being born and got really excited, because it presented itself as a decentralized way to have financial services. So you don't have to use centralized exchanges and centralized tools. So that's when I started making a lot of videos, tutorial videos that on-boarded a lot of people into the space. And I like to credit myself and I think it's accurate, with on-boarding a lot of people in the early days, just with easy to understand videos and things like that about compound and about Aave and things like that. And then actually, late 2019 or early 2020 is when we sort of had the idea of Admin Keys become news to us.
And that was kind of a turning point for me because it's interesting with this space and maybe you've experienced the same thing. I'm not sure which direction you came from, but if you come from the Bitcoin side of things, you come with the understanding that blockchains are trustless and immutable and un-editable, which they are. I mean, not all, but Bitcoin and Ethereum are, for all intents and purposes, those things. But until you really understand how smart contracts work, you assume that they inherit those properties. And I came in, I knew smart contracts had alterable logic, but it didn't click for me what an Admin Key really was until like early 2020.
And at that moment I felt a little bit deceived by some of the development teams in the space because they never talked about this control that they had. And if they did, it was buried deep in their docs, they clearly didn't want anybody to know about it. So to me that was number one, most important thing that I wanted people to be aware of in the space is that, I thought this was way more decentralized than it actually was. And that's the most important information I think that people needed at that time. So I really started focus on sharing that.
And fast forward to today, it's like over two years of really just spreading that message. And the more I spread it, the more people want to hear it. The more people are kind of shocked by a lot of these things. And as long as people are surprised by hearing about these things, I want to continue to spread them and say them. And it's not because I want to help regulators or any governments, it's because I want to encourage DeFi developers to do better. I just don't believe in using blockchains for centrally controlled applications. It's a violation of the original reason blockchains were invented. So that's the really long winded version of how I got to here.
Crypto Texan: No, that's a great explanation. And that helps us with a pretty good base foundation. And yeah, I think if you look at your Twitter, you've gained a pretty great following, a pretty decent size following on Twitter. But with that, you've also in a sense kind of rubbed some people the wrong way. And I mean, I've talked to people on both sides of the coin. I personally am a big fan of your podcast and your tweets and just kind of going against the grain of all the hype that does come from the DeFi space. And it does have its pros and cons. I think you and I can both agree there, and it has its shortcomings as well. But I don't know, like what do you make of some of these adversarial, I guess, relationships that you've developed on Twitter and do you see yourself as abrasive, sometimes on Twitter, maybe intentionally? Or are you just out there just speaking your mind?
Chris Blec: Well, when it comes to DeFi, I put facts before emotions. And I think that the majority of at least the developers in this space come from a tech background where they're used to being in environments that embrace them and that make them feel valued and go out of their way to do so. And I worked with tech startups for years, so I know how that is. And I know it is important in a tech world to have a collaborative environment. And developers appreciate that, usually. I mean, it's different if you're talking about like the cipher punks of early Bitcoin, like it was a different story. But now we're dealing with like modern, 20 something developers in DeFi that are used to that collaborative environment that you might find at like a Google or an Apple or something like that.
But my take on it is a little bit different where, if you're working for a traditional tech company, you have a lot of oversight, you have a lot of red tape. Even at a startup, you have red tape that you have to cut through before your work can impact a consumer. And if you're a developing an application with other people and you have to go through X, Y, Z, especially if you're a FinTech app, in which case you have to deal with regulations, you have to deal with banks and security. You can't just go out and have an application where you can just steal all the money and run away to an island somewhere. So that's different in DeFi. In DeFi, you can, you can develop and deploy an application that can sort of encourage people to deposit millions and millions of dollars. And you can take that money, disappear anonymously, mix it, run off and never be heard from again.
So that changes the dynamic a little bit. So that's why to me, developers want to have a collaborative, friendly environment. But from the depositor's point of view, from the DeFi user's point of view, the number one most important thing to them is having the facts and having them in an unemotional, non-sugar coated way. Because as soon as you, the idea of sugarcoating things and saying them in a nice pleasant way, as soon as you go down that road, you're losing the intention of the fact, you're losing the actual fact itself. So what I do and what I've always done, which really irritates people is, I just say the fact. If a DeFi application gets exploited, like one did yesterday with Casio or whatever it was called, nobody, and this is a fact, this is not a fiction, this is not a lie, this is a fact. The fact is, nobody's more familiar with the vulnerabilities, the problems that might exist with the application and its code and its logic and its economics than the person who wrote it, than the person who built it.
So to me, when I see an exploit, suspect number one, unfortunately, in an unemotional world, which is where I try to live in this space. In an unemotional world where you don't put feelings first, where you put safety first, you always have to look at the developer as a suspect when it comes to an economic exploit. So that's just one example of a way that the development side of things, and a lot of users too, plenty of people think that my approach is, they say it ranges from just cold hearted to straight up lies, which is false. I don't lie. But to me it's logical when you're dealing in a space that has zero separation between user and developer. There's no safeguards, there's no regulators, there's no safety net at all, the vast majority of the time. So that's my take on it. And I'm unapologetic about it entirely.
Crypto Texan: Yeah. So it seems like previously, when you first found out about DeFi and decentralized finance, you thought, yeah, this is great. All these financial services that can be run on the blockchain without a centralized intermediary, no custody, but then it sounds like later you discovered that really some or a lot of these DeFi protocols are not as decentralized as most people think that they are. And so, I guess, in a perfect world, would you expect these DeFi protocols to be as decentralized as like Bitcoin or Ethereum is? Or is there any situation where you see that these protocols should have these Admin Keys that can make adjustments to the code? Or, I know you talk about multisigs a lot too. Do you feel like there is a time and place for this, or not?
Chris Blec: Sure. Yeah. I think that a lot of the applications that have multisigs need the multisig because of the way that they chose to develop the application and the complexity of the application and the lack of faith that the developer has in their own code, that's really what it boils down to. When there's a multisig, and the intent is to be able to fix problems as they come up, that means they're expecting problems. That means that they don't trust their own code to operate as intended. But at the same time, they're asking users a lot of times to trust the code. So there's a lot of hypocrisy when it comes to multisigs. But my point of view is this, there's no perfect decentralization. Even Bitcoin is not perfectly decentralized, but Bitcoin is the best we have in crypto. And I use that as a benchmark. So that's not to say that I think that every DeFi app should be as decentralized as Bitcoin or even as Ethereum's native layer, but it's a benchmark that I measure from. So how far away is it from here?
I don't think that that should determine whether or not something should exist. Like, I don't want to see like a regulatory body come into DeFi and just completely shut down multisig applications or Admin Key run things. What I want is for the facts to be made obvious to every single user so that they can make their own risk assessment about every DeFi application, so I participate in DeFi. I use applications that are run by DAOs, some have multisigs, but I recognize the risks that come with those points of centralization. I recognize the risks that come with, not knowing if a developer is acting in good faith. I look at the incentives that they may have to do bad things. I look at exterior attacks that could occur by whether it's like state actors or even like wrench attacks.
And then, I make my own risk assessment about how much I want to put into this thing. So something that's more decentralized, I might decide to put more money. And something that's less decent centralized, I might decide to put less. And by the way, that doesn't always even hold true because there are cases where some of the most decentralized applications are more risky because for that reason. Because the developer doesn't have a way to fix a bug as it comes up. A great example of this is liquidity. Liquidity is like an alternative to MakerDAO's as far as a decentralized stable coin. liquidity is more trustless than DAI. And the developers have no possible way to hack into that thing or even make changes if there's a problem. To me, that's a risk factor that I have to take into consideration as opposed to MakerDAO, which has a DAO, which has VC influence, which there's a lot of weird things going on with voting and stuff like that sometimes. But that centralization gives them the ability to fix bugs quickly as they come up. And they've had to do that in the past.
So, there's that customer service element that comes along with the upgrade ability and things like that. But my goal is not to shut anybody down. My goal is to educate users, and for projects to put all the facts out there for users to digest, so that they can make a proper risk assessment. And there's very few like maybe a very small handful of projects that are anywhere close to doing that today.
Crypto Texan: Well, that kind of leads into my next question, Chris, and that is, which projects do you feel like are doing it the right way? Whether it's, maybe it's the most decentralized DeFi application or whether they're doing the proper disclosures that you feel like that they should be doing on multi-sigs voting, those types of things. What are some of the more popular projects you feel like are getting it right?
Chris Blec: It depends on what we call getting it right. But I mean, I think in my perfect world, we would see entire ecosystem of trustless, immutable sort of primitives that are battle tested and that we have full faith and confidence in. Kind of like, Uniswap is a good example, the protocol, as a trustless immutable protocol, at least versions one through three are. I don't know what version four is going to look like. But they're trustless, immutable, they're battle tested. Billions of dollars has been entrusted to that code and it hasn't been hacked.
So that's my example of like what I would like all of DeFi to look like is like all of these less complex sort of primitives that then developers can maybe build upon. And this includes stable coins and liquidity is an example of a stablecoin that was built and deployed with the idea that we want to deploy something that cannot be altered. We don't want to have the ability to change this later. We want to have an ETH-backed stablecoin that works. That if regulators come at us and think that that's great. And when that's more battle tested with billions and billions of dollars and with massive Ethereum price fluctuations and stuff like that, LUSD could become just as important to this space as Uniswap is, I think. But it's not just about trustlessness, it's also about building tools in a way that's as decentralized as it can possibly be, even if it is very inconvenient for the developers. So a good example of this is, and I've been learning more about it lately is THORChain. THORChain is a very interesting project that allows trades across blockchains. So you can trade your Bitcoin for Ethereum natively. And THORChain sort of sits in the middle of that trade.
Chris Blec: Okay. Yeah. So, with THORChain you can swap across chains. And the reason I bring it up is because it's not completely decentralized, it's not completely trustless. It has a system where there's a couple hundred nodes that can do a lot of different things to the ecosystem that they've built. So you have to put your trust in the financial incentives that these nodes have to act with integrity. So to me, that's not my perfect trustless scenario, but I've looked at it close enough to know that it is as decentralized and as trustless as you can get while you're building that sort of a system. Does that make sense? So it's like, I want to see that effort from every DeFi project where it's as trustless as the technology will allow it to be. And we're not seeing that from the majority of DeFi applications.
Most of the DeFi applications we see today are retaining centralized power, either with a small part of the DAO or with a core development team, because they want to have quick upgrade ability. They want to have quick bug fixes, or sometimes they don't say the quiet parts out loud, but so that they retain that control so that they can comply with regulations when they arise, because they will arise. Regulators are coming and nobody wants to go to jail. So those are not good reasons to hold on to those powers. But we see that far too often in DeFi.
Crypto Texan: Yeah. I'm just kind of wondering along those lines like, if you were to give advice to a DeFi protocol who's just getting started and started writing code, what advice would you give? Like, what would be the Chris Blec road-map to DeFi protocol development? Like, what are the most important things that you would lay out for them?
Chris Blec: Well, it depends on what they're building. I mean, we see a lot of very complex applications that come up in DeFi. And when you build with a certain level of complexity, you can't let go of the centralized control because you know it's going to break. And you know that you don't even understand all the things that might happen with this thing. So my perfect DeFi world is a lot less interesting and a lot less sexy with a lot lower yields than the DeFi world that we have right now. So look at it this way, Bitcoin was built in 2009 initially, and had a very slow growth as far as growing the network of decentralized nodes and minors and users over many years, until before it really started to be valuable to a bigger audience.
And the idea with that growth cycle was that, the intention wasn't to launch Bitcoin and get like a million users on day one. The intention was to build a trustless, immutable primitive for a digital currency that would grow organically over a long period of time. Now there was really no other way for Satoshi to do it because there was nobody in 2009 that gave a crap about digital currency, really, no less like an immutable blockchain. So it might have been different if VCs were throwing money at Satoshi on day one, right? If Satoshi deployed Bitcoin and immediately was able to raise like $10 million from VCs to build a team, to build a company, we might have had a whole different situation. So he had the luxury of almost time not having that access. But that's the only real way that you can build fully decentralized applications, is to let them grow organically over time and to keep them simple and to keep their utility simple.
Now, that's obviously not happening in DeFi, and that's obviously not going to happen in DeFi because there's too much incentive to grow quickly. And there's too much incentive to build a business. A lot of people are coming here just to build a business. Which I see again as okay. Like I don't have any grand visions that Ethereum is going to turn into Bitcoin at any point and start to just sacrifice profit. So I think that my advice would be to decide early on, are you in this for the principal? Or are you in this for the profit? Because it's going to happen really quickly, where you have to make that decision. Like, am I going to sacrifice potential profit, my own personal well-being, potentially? Am I going to make sacrifices in order to put decentralization first? Or am I going to make decisions that are going to guarantee my safety from the law?
Am I going to make decisions that are going to guarantee the safety of my employees, of my company, so that we can ensure that we have a business ongoing and put those decisions, those of decentralization and then make decisions clear to your users? Because your users more often than not, think you're way more decentralized and think your thought process is more decentralized than it actually is. And that transparency is what I'm after. Like I'm not after, I'm not trying to tell people what to do. I'm trying to tell people, you got to be transparent because if you're not, you're going to have regulators banging your door down and ruining your life, because they're going to force you to comply with things that you don't want to comply with. And you're going to ultimately become a tool of the regulators as opposed to building an alternative system.
Crypto Texan: Yeah. And a little bit on the subject of regulation in the space. I know you're a very big privacy advocate as well. And I think when you look at Bitcoin, it's not really that private. Ethereum also, not that private. And I feel like even when you're using protocols like Tornado Cash on Ethereum or a mixer or a CoinJoin with Bitcoin, it's still not that incredibly private. So I want to get just your takes on a couple things. Like, do you see value in, I guess, like privacy protocols, like Aztec? Or privacy coins, like ZCash and Monero? And just kind of want to get your thoughts on privacy as a basic human right, in general.
Chris Blec: Absolutely, yeah. I see value in all of them. And the narrative's being built that privacy is really only needed by criminals and by drug dealers and terrorists and whatever. And my response to that is always, do you have a door on your bathroom? Do you want people to watch you when you're sitting on the toilet? No. Right? Unless you're a freak, which some of you guys might be, you don't want that. And that means you want privacy at some level. Do you have curtains on your windows? Yeah. You want privacy on some level? If you have a huge wad of cash and you're standing out in Times Square, do you kind of hide it, if you have to look at it? Yeah. You want privacy on some level. You don't want people peering into every aspect of your life, and everybody has a different threshold for what kind of privacy they want.
So this whole idea that privacy is not a right, is stupid. Unless you want to take all the curtains off your windows and take all the doors off your house. So there's too many people, especially in government, it's crazy. Like now they're saying like, we don't need privacy. Why do we need privacy? You read some of the stuff from the World Economic Forum, and they just want to eliminate privacy entirely. It's kind of crazy. So I think that privacy tools are not just used by criminals, they're used by people who don't want every single person on Ethereum, for instance, to look at their addresses and to know what they're up to. Like, that's not an illogical thing to want or to ask for. And we're in a battle. I mean, regulators are already talking about, you look at what's going on with like the FATF rules and stuff with the Swiss laws and stuff like that. They want to make it so that every self custody address that you have is registered basically with the government.
And eventually they might even want to eliminate the legality of self custody entirely so that any crypto you have is in a wallet that's on a centralized experience. So we're in a real battle. And we need to make sure that we protect those efforts to build good faith privacy tools, Aztec's a great example. And Tornado's a great example, too. In order to make sure that we don't lose everything when it comes to privacy, there's nobody listening to this that wants every single transaction that they conduct on Ethereum and in DeFi to be on the front page of a website or a newspaper or whatever, for whatever reason. There's nobody. Nobody would want a hundred percent of that. Nobody wants somebody, the entire world to see how much money they sent to their kid in college, or how much they're paying for this new car.
It's just, privacy is a right. And it should be respected as a right, but to varying degrees, obviously. So I think that all those applications you mentioned are important. I think that Bitcoin, there are applications like Whirlpool that use CoinJoin in a way that does enhance privacy and does give you the ability to sort of limit the footprints that you leave on the blockchain. And I don't think that there's anything wrong with that. And I think that anybody that bundles somebody like me, who just wants privacy, bundles me automatically with a terrorist is not arguing good faith at all.
Crypto Texan: Yeah. So what do you do to attain this digital privacy just in your day to day? Like, what tips do you have for individuals who would like that financial privacy, if they are operating in the digital asset space?
Chris Blec: So if we're limiting it to digital assets, I guess start with Ethereum. I think that it's absolutely reasonable and within your best interests to have Ethereum addresses that are not publicly associated with your identity. Now, this is not to say you should have an address that you don't pay taxes on, or that you don't act legally with. I'm just saying have addresses and conduct your activities in places that are not directly tied back to your identity. Tying your addresses back to your identity is simple if you don't use tools like Aztec or Tornado, or the other ones that are developing. So just even the smallest effort can help you go a long way in that regard.
So, that's number one. I mean, Ethereum lets you have an unlimited number of addresses. You can create one address every second until you die and you still won't even use, like won't make a dent in what's possible. So that's number one. And same with Bitcoin, there are options out there for you to create more privacy for yourself. And I suggest exploring all these tools like Samourai Wallet and Sparrow wallet and they use Whirlpool, which is a CoinJoin implementation. So I mean, as far as those go, yeah, it's about making sure that people that don't like you, can't follow everything that you're doing. It's about making sure that a centralized exchange that you might have bought crypto from, can't continue to monitor you after you leave that exchange.
Again, not because you want to hide from the government, that's not the ultimate goal here. The ultimate goal is to limit who has full access into your finances. And you don't know who's running that exchange. These exchanges are private businesses. Many of them that you use might not even be in the same country under the same rules as you are. So in those situations, especially you want to make sure that you have done whatever you can to break the links so that you're not continually monitored by a thousand different parties ongoing. And one other thing I just want to mention is, you need to keep in mind that steps that you take today, even when you're using things like Monero, that most of us agree are pretty strong as far as privacy goes and things that you can do today. Just because something's private today doesn't mean it's going to be private in five years or 10 years.
And odds are that technology is going to increase and in five years you might think, okay, well I'll just move to whatever the new privacy thing is. But that doesn't mean that somebody won't be able to look back and see all the things that you did, that you thought were private. And they were private at the time, but remember, blockchains are forever. So just having private accounts doesn't mean you should just act without morals, and without ethics, and in an illegal way. Because that behavior will become un-private at some point down the road. So I just want to throw that out there too, because too many people associate privacy with bad behavior. And I don't believe that that's a safe thing to do.
Crypto Texan: Yeah. And I wanted to get your thoughts, there is this VPN, this decentralized VPN called Orchid. Have you used that at all? Do you have any experience with that?
Chris Blec: No, I don't know anything about that.
Crypto Texan: Okay. Okay. Well I kind of want to move back over to the DeFi side and decentralization, but I appreciate your thoughts on privacy. I also think that's really important in this space and it's definitely something we don't have a whole lot of, currently, that we need more of.
Chris Blec: It's surely not respected in DeFi, at all. There are very, very, very few DeFi applications that are giving any thought to privacy, and it's too bad. But at the same time, other applications are coming up that could give us new ways to basically have like an add-on to any DeFi app, that where we could stay private. And I would love to see more development in this regard. There's an application being developed called Gearbox. That's interesting because it lets you have a wallet on Ethereum that instead of having to go out and leverage Ethereum on your own so that you have more Ethereum to do other stuff with, it allows you to have a leverage wallet entirely. And I won't do a good job of it, of giving it justice. But it basically lets you have a fully leveraged wallet that you can then use your leveraged proceeds to go out and to do other things in DeFi with.
So Aztec, for instance, is a layer two that is working on letting you hold your crypto assets on their layer two, but still utilize them privately in DeFi applications. So it's almost like an add-on, like an enhancement to the other applications that gives you the privacy that you might want. So more and more things like that are going to evolve. So, if you want to build those primitives that don't have privacy, there still might be ways that they can be used with privacy down the road.
Crypto Texan: Yeah. I completely agree. And I've heard a lot about Gearbox lately, but I haven't dug too deep in, but you're probably the third person who's mentioned it to me this week. So, that means I have to go look into it now.
Chris Blec: Yeah. It's not a privacy tool, I just brought it up as an example of a... I see them as like add-ons or plug-ins that allow you to have functionality in DeFi, based on what you choose. And Gearbox is basically like a leveraging tool that allows you to participate in a leveraged way without having to sort of jump through the hoops that you have to do today with cycling through MakerDAO vaults and things like that, in order to leverage for people who are super long on Ethereum, for instance.
Crypto Texan: Right. Yeah. Well actually I feel like I should show this now, but the Index Coop has a product as well. We've got our Ethereum 2xFLI product, which does the same thing. It automatically rebalances the leverage, so it kind of goes for a target of 2x ETH exposure. So, It's Index Coop podcast, got to throw that out there.
Chris Blec: Yeah. I think the difference there is that you have to, you can only utilize the token where it's supported. Right? So I think the idea with Gearbox is that you actually get native ETH that you can utilize. But don't hold me to that. I shouldn't be even speaking on it because I haven't done like full research on it.
Crypto Texan: Oh, okay. Interesting. Interesting. Yeah. I've got to look into that, for sure. But anyway, let's move back over to the centralization, the centralized tools. I think, you and I are in a somewhat similar boat in the sense that, I'm not like a huge fan of DAI. I love the MakerDAO protocol, one of the OG DeFi protocols. But, when I look at the collateral that is backing DAI, it's got USDC which is centralized. It's got USDT, which is centralized and maybe under collateralized as well. So DAI is decentralized, but it seems like it's collateralized by centralized stablecoins. Not all of it, I think it's like 60% though. And you've talked about liquidity as an alternative. Just wanted to see if you had like any opinions about DAI in the collateral makeup. And also if you can just touch on like USDC or USDT as well, from a decentralization standpoint.
Chris Blec: Well, I mean USDC and USDT are not decentralized at all. Right? They're just literal tokens backed by debt, that's held by Circle or Tether. So there's zero decentralization. There is a certain element of permissionlessness that they offer because you don't need to get permission to buy it, to sell it, to use it. That could change though, that could change down the road. And yeah, like last time I checked it was, I think you're right. Like 60% of the collateral backing DAI, that might have changed. I think I haven't checked it in a couple months, but it is a problem to me. I mean, I think that the idea of having centralized tokens backing a decentralized stablecoin is dangerous. Now there are mechanisms built into DAI that would give MakerDAO alternatives if there was any sort of attack by USDC, where they just freeze all the USDC and the vaults.
But I wouldn't want to be a part of that. Like, I don't want to be a part of an ecosystem where you might have that happen. And same with wrapped Bitcoin. Like most people don't understand that wrapped Bitcoin is a DAO. Wrapped Bitcoin is a very small DAO, or it's a multisig, basically, with I think it was 13 or so, DeFi related companies on the multisig. And the Bitcoin that's backing every WBTC token is held by BitGo, which is a centralized and regulated custodian. So that thing could be shut down in a heartbeat, which would freeze every WBTC token out there, it's fully within their power to do that. But people hold it as if, it's like holding Bitcoin on an exchange. Yeah, the exchange could also freeze your Bitcoin. It's the same kind of thing. The difference is it's in more jeopardy because a regulator would look at an exchange and know what to do. A regulator would look at wrapped Bitcoin and not know what to do, and would act out of fear with it. And give orders to it, to do things that could end up harming consumers.
So, when it comes to DAI, yeah, I mean, I don't think it's getting any better. I think, last I heard, parts of the DAO were looking into, how do we bring like real estate into this is collateral? How do we form a corporation in the Cayman islands that can sort of be the holding company for real estate, that would be used as collateral? And I'm just throwing stuff out. These aren't facts. I just remember hearing stuff. It's interesting with MakerDAO because they got rid of the foundation, now it's solely run by the DAO and by actually various groups operating within the DAO.
But it's interesting to watch is, that actually doesn't result in automatically moving in the right direction, as far as trustlessness goes. There's sub-units of that DAO that are actually putting time, energy and money into researching compliance, like KYC compliance. And what do we do if a regulator asked us to do this, what do we do if a regular asked us to do this? And their reasoning is that they want be ready if those requests come in, they don't want to be caught off guard. But when you have something as decentralized as MakerDAO, you're bound to have these small pockets pop up where you get these... Anybody can join the DAO, right? So why not have people who are in the mindset that we should have compliance, we should be ready to protect the value of the MKR token, if we get these type of requests.
So, that stuff is happening right now. That's why, again, like I said before, like DAI, I feel safe with it as far as holding it, using it, but from a governance point of view, I'm very nervous about it. And I like the fact that liquidity, for instance, has no governance, none at all. So it's from that point of view, it's an interesting thing to think about, but everybody's got to make their own risk assessments. I think most people would feel more comfortable using DAI over LUSD right now, because of those things. But, it's up for each person to decide.
Crypto Texan: Right. And also the liquidity of those stablecoins also plays a factor too. And the utility of them like. I can use USDC in a lot more DeFi applications than I can DAI, or USDT or LUSD, also. So I think that's kind of what it comes up against as well. So liquidity or liquid USD, they kind of went the Zora route where Zora just kind of like deploys code and it just operates in the blockchain forever. Is that the route that they went there, since you said there's no governance, so there's no governance token either?
Chris Blec: No, there's no governance at all. It's similar to how Uniswap V1 through three were deployed, where no real significant changes can be made to the code after it's been deployed. So if they want to deploy a new version, they have to get all the users to move to the new version. So unlike MakerDAO which has deployed new versions, but only in really significant cases, most of the time, you're just able to do upgrades and smaller iterative changes to the protocol.
Crypto Texan: Okay. Yeah. That makes sense. It's interesting to me and I guess that there is very two different situations on the same subject, but you talked about how you Uniswap is this pretty good prime example of a true decentralized finance application. And you've also been very outspoken about the DeFi Education Fund that went through Uniswap governance as well. Do you want to provide a little background on that for our listeners and just kind of explain what kind of concerns and reservations you have about that fund?
Chris Blec: Yeah, sure. So Uniswap launched their token, when was it now? When did they launch it? I don't remember actually, when they launched their token.
Crypto Texan: I feel like it was about a, was it like a year and a half ago? Maybe?
Chris Blec: Yeah, I guess it was. I guess it was late 2020, which was interesting at the time, because like I said, version one through three of Uniswap are all immutable, ungovernable smart contracts. Smart contract ecosystems, basically. So the question at the time was why do we need a governance token, if this thing can't be governed? Which was valid. But the governance token came anyway. And it was airdropped as everybody knows, hopefully some of you got the airdrop, back in the day. And so when it was airdropped, simultaneously, a treasury was formed, which is common with the new tokens. The airdrop portion goes to the founders, the VCs, and then a portion will go to treasury or some other fund for future development. And so a bunch, like a lot, went to a treasury.
And fast forward a few months later, and that treasury is worth billions, I believe. I believe it was worth a lot of money. So then in the Governance Forum questions start to rise like, wow, we should do something with this. All of a sudden, out of nowhere a proposal springs up from Harvard Law School who had enough voting power to propose something, which we didn't, I don't think we knew when the proposal came, where they got that voting power from. But they put a proposal out there that was very, very detailed about forming a lobbying committee of sorts, more like a steering committee for lobbying efforts for DeFi. And it wasn't only for Uniswap, it was for all of DeFi. And the idea was, we give this committee $40 million worth of DeFi at the time, of Uni, to do whatever they think is best for furthering the education of regulators, of governments, of anybody in the space who they think can affect future regulation.
And it had seven committee members named who were very specifically chosen by somebody who were all attorneys from very specific DeFi projects. There's one attorney from the World Economic Forum who was on there. So I immediately started asking a lot of questions because, A, this was a lot of money, B, this proposal was very specific, came out of nowhere. Didn't give users really a lot of say, as far as who was going to be on the committee, how the money would be used, what kind of accountability it would have to the Uni community after it was created. The idea was this $40 million worth of Uni would just go into a multisig controlled by these seven attorneys. And they were attorneys from like Compound and Uniswap itself and some other DeFi applications.
So none of the questions really got answered which was very concerning. And on my website, defiwatch.net, those letters are up there for people to check out. But it became apparent really quickly that most of this was coming from the whales, so to speak, of uni tokens. And the biggest whale of the whales is Andreessen Horowitz, the VC firm. And it turned out that they had delegated the Uni to Harvard Law School to be able to make this proposal. And also to a number, maybe dozens, of other university organizations, like-minded people in the space who ended up voting to get this thing pushed through with basically zero negotiation, zero compromise. And so the question after that was, who came up with these ideas? Who came up with this concept to have this sort of legal slush fund that Andreessen was so enthused about?
And that's never really been figured out entirely, but what we do know is that the proposal would've not been proposed, would've not been voted through and the people on the committee would not be there if it weren't for Andreessen's influence. So my takeaway, pure speculation still, but my takeaway is that this thing was put together as a way to further Andreessen's interests in the DeFi space. And to make sure that any regulation that comes up down the road has the influence of a committee like this, so that it favors the VCs. So that they remain safe in the space and so that they can have a committee like this $40 million worth of tokens without having to actually fund it themselves, and do it themselves as a venture capital firm.
So again, I don't have like firm evidence of any of this, but it's pretty clear if you look at the all the facts around it, that that's the most likely thing that happened. And to me, like we said before, Uniswap protocol, totally trustless, totally decentralized. Then you got Uniswap governance over here, creating a token that isn't really necessary. And then it's being used, and Uni holders are ultimately the ones that are paying for a fund like this through delusion, $40 million worth of Uni. So it was a lousy way to approach it. The questions never got answered. And I think that I still want to have conversations about this because it's so important to the future of the space.
Crypto Texan: Yeah. Didn't you have someone on your podcast who was a part of that DeFi fund organization, or am I remembering that incorrectly?
Chris Blec: Yeah. Yeah. I had Marc Boiron, who's the, he's now the General Council for dYdX. And we had a two or three hour conversation. And I'm really glad he did it. It was very frank and open. But I mean, basically the takeaway there was that he didn't even, I mean, what he said was that he didn't have the information as to who came up with the proposal, why he was even on the committee. He was asked by another committee member. So what I said to him on that podcast was, maybe you're so in it that you don't see what's going on, bigger picture. And to me, once you look at the bigger picture, you look at the delegations that were made by Andreessen to all these different universities, to all these different people in the space, that sort of think in the same way. And it's very clear that Andreessen would not delegate to me, because I'm not on their boat.
Like, I don't believe that VCs should have so much influence in this space. I don't believe this space should be sort of drawn into woke culture. I don't believe that Silicon Valley should be able to take over DeFi. So I'm not a delegate. Universities on the other hand are much more likely to be progressive minded and to think in the same way as a Silicon Valley firm. And there's other DeFi participants that also are on that boat too. So this isn't a political thing to me, this is like, should a big giant venture capital firm be able to sort of, in a non-transparent way, be able to take from a decentralized treasury, with the sole intent of furthering their own vision for the space, just because they have all of that money. And that's really what happened. I would have the same complaint if it was a different type of mindset that they were trying to further, but it's really clear that it was sort of an abuse of the idea of a decentralized governance mechanism. And I want more people to understand that so it doesn't happen again.
Crypto Texan: Yeah. And I think there's a lot of people in the space who believe that the token voting system is Definitely not the best system out there, but it's just the one that we have right now. And it's good to see teams, in my opinion, experimenting with different types of token voting or other types of governance that possibly could prevent something like this to happen in the future. Not that I personally feel like this was all that bad. I feel like that there is a lot of value in educating legislators and lobbying those legislators for the betterment of the crypto and DeFi space in general. But I can see how people including yourself, just kind of feel like the process in which this came about was probably not the best, maybe not the most transparent that it could have been.
Chris Blec: I think there's value in educating regulators as well. The question is, who's educating them? What are they educating them about? What are the incentives of those educators? Who's paying those educators? Do those educators have the incentive to put users interests over that of corporations? In this case, a hundred percent no. Everybody on that committee is getting paid by a DeFi company or organization or a venture capital firm. And we can't sit here and pretend that users and VCs are going to always have the same interests. We know they're not. We already know that. So the regulations that we ultimately see, are going to tilt in one way or the other. Those people on the DeFi Education Fund are not going to put users privacy ahead of the profits that a DeFi startup can make. Or ahead of the regulatory certainty that a VC can have that they're operating in a way that maximizes both profit and legal safety.
So that's my problem. My problem is that the people who are Defining and molding the regulations are incentivized to act against users. And they're taking the funding to do the work from the users. So they're taking from users in order to build regulations where users don't have a voice. So the right way to do this, would've been to have that committee represent non-corporate interests and to have some sort of accountability back to the users who funded this thing in the first place. But that's what I asked for. But there was no consideration given to that at all. This was a straight up corporate initiative that ultimately is going to work against users.
Crypto Texan: Could you ever have imagined in 2017 that we would be having these types of controversies in the crypto space?
Chris Blec: I mean, there were controversies back then too, but not on this scale. I mean, not as far as dealing directly with... Like I've had talks with people that are straight up with regulatory bodies or governments. So that's the kind of stuff where in 2017, like if you even heard one mention of Bitcoin on the news, you're like, "Oh, wow, did you hear that? I think they said, Bitcoin." And it's now, it's like every single day they're talking about crypto and they're talking about governments and how it's affecting Ukraine and stuff like that. So it's Definitely a different scene from back then. And imagine in another like five years, man, we're just seeing the tip of the iceberg right now. Like five, 10 years from now, this is going to be absolutely off the wall bonkers.
Crypto Texan: Yeah. It's the fact that we have Matt Damon doing crypto.com commercials kind of cracks me up, still. It's weird to think that we've, I mean, it is mainstream now. It's a niche in the mainstream, but it feels Definitely a lot more mainstream than what it felt like in 2017.
Chris Blec: It's mainstream until the next bear. Then everybody will forget about it again for a couple years. And then it'll, by the way, Matt Damon was the top signal if there ever was one. Right?
Crypto Texan: I totally agree with you. Absolutely. Well, Chris, this has been great. Like I said, I'm a fan of your podcast. For those listening, if you haven't checked out Chris's podcast, Proof of Decentralization, I highly recommend it. A lot of podcasts out in the space just do a whole lot of shilling, but he kind of digs in and asks some tougher questions that maybe people just don't want to, or are afraid to ask. So, Chris, we only have an hour on this and we're up on time, but just, where can people go to find out more about you and what you're working on?
Chris Blec: Just mostly on Twitter @ChrisBlec, B-L-E-C. And yeah, I have a couple websites out there, but most of what I'm putting out right now is there. And also wanted to just give a quick hello to Scott Lewis. He's got me on block for a long time now. So Hey, Scott. Hope all is well with you.
Crypto Texan: That's great. All right. Well, everyone who's listening live in the Discord, thank you for listening live. This is being recorded and we'll get this out in about a week. Chris, thanks again for coming on. Really appreciate it.
Chris Blec: Thank you.
Crypto Texan: All right. Have a good one.
Chris Blec: You too, man.
Host: @Crypto_Texan
Audio Engineer/Mixing: @LloveraFrank
Marketing Images: @crypto_diller_
Transcript: @0xMitzy / @Crypto_Texan
Conversations with the Coop - Chris Blec - DeFi Watch