Audio and transcript from the December 8th, 2021 installment of “Conversations with the Coop” with Romain from Paladin!
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Crypto Texan: Hello everyone. Welcome to conversations with the Co-op. This is where we source questions from the Index Co-op community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan, and today we have with us Romain from Paladin on the show with us today. Romain, thank you for being here with us today. How are you doing?
Romain: I'm doing great, thank you. And thanks for inviting me. It's a pleasure being here.
Crypto Texan: Absolutely. Well, we're happy to have you. We usually just get started with just a little bit of your background. How did you get into crypto and DeFi?
Romain: Well, for starters, I got into crypto by missing the Ethereum presale because of my bank. But, you know, at the beginning like most people, at the start you see Ethereum & Bitcoin, you see the price going up, you see the price going down. We try to understand what's behind it, what's the tech. For me, it really clicked when I actually met the guys from EthLend, which is now Aave. So it was like the end of 2019, and they explained to me what they wanted to do. So it was the genesis of DeFi. For a bit more description I actually have a financial and banking law background, I used to be a banking lawyer. So it clicked a lot for me, and when I discovered what the tech was about, I thought, yeah, we can actually solve a lot of the problems we actually have right now in finance, specifically via DeFi. Which is why I find it very interesting because it solves a lot of potential organizational trust problems and the concentration of wealth that we currently have, which is why I'm actually extremely hyped to be here. And I've spent yet the past two years explicitly trying to say, to try and find how we can make this place better, basically. So yeah, that was how I got in.
Crypto Texan: I think a banking lawyer background is something pretty unique and something that we haven't really heard a lot about on the show or I think in the space in general, actually. So, how did the rest of your colleagues in the banking law world view DeFi? Are they even aware of it?
Romain: They're obsessed by it. You know, banking law is basically banking, regulation and compliance. So you have to know that basically today, every single person that's learning about banking law, or that's working in banking, it was like either they think DeFi is a travesty and shouldn't exist because it goes against every single thing they work for. Or they're desperate trying to find the right frameworks. But you have to understand that crypto is basically the most important and discussed topic in the sector because the problem with DeFi, actually I would say the problem with banking regulation is that it cannot and does not fit DeFi. So we have to reinvent frameworks. I didn't want to reinvent the frameworks, I'm not interested in doing that. I want to create what basically goes in the framework. We want to build something new. Like that's, that's the whole promise of what we're building, right? Actually there's something that's not that well known, but there’s quite a lot of lawyers in crypto. If you look at Aave, for example, Stani Kulechuv is a lawyer. Andre Conje from Curve and Yearn is also a lawyer. We actually have quite a lot of founders who have a law background. The reason for that basically banking law is the architecture of finance. The more you delve into finance, the more you realize that basically it's built on two legal frameworks. And what's very interesting is that if you build DeFi you also need to build some kind of architecture and the banking law is a good school to actually teach you how to build these frameworks.
Crypto Texan: Well, I didn't realize that Andre was a lawyer as well. And so you said you met the EthLend people who started that, which is now Aave , how did you get in touch with them? Like how did that meeting happen?
Romain: Oh, actually, it was the EthLend and the Maker guys. So I'm French, as you guys can probably hear with my accent. It was during EthCC two years ago, so then it doesn't really go further than that. I was already blue pilled by crypto and I saw EthCC was happening. I didn't have an invite, but there were public events and there was an Ethereum magicians event that was actually done. Where the EthLend guys were doing a presentation and they basically blew my mind. Which usually happens once you discover DeFi, right?
Crypto Texan: Yeah, it definitely does. I mean, that's why I'm here. Cause my mind got blown by the innovation in the space and how the capital efficiency that comes with decentralized finance. Yeah, I totally understand. So what drove you to Paladin and what caused you to found Paladin and what need in the space do you feel like this protocol is serving.
Romain: Actually Paladin is broader than a protocol. What we are trying to build is more of an ecosystem I would say. The thing that happened basically is that going down the rabbit hole, I started joining DAOs looking at what was happening. I was looking for example, at MetaCartel, from afar. I joined LexDAO quite early while I was trying to find something where I can contribute, I'm not a dev. My co-founder Kogaroshi is the guy, the brains behind the code. And the more we were delving and discussing about crypto, the more I got the hunch that governance was going to be one of the biggest things. Not because we need to coordinate, but because the whole point today about DeFi is that we need to scale without intermediaries and without creating new centralized points.
What do I mean by this? Blockchain is basically just a trust machine, right? The idea is to replace trust with algorithmic control. So you have two schools in terms of governance, either you try to have as little governance as possible, which is governance minimization, or you try to have the most decentralized governance possible, for example, which the Co-op is trying to do. I don't think governance minimization is the right approach in most cases, because the thing is that the context evolves so quickly that your governance becomes obsolete. And if you want to update the governance, you need a centralized team behind it to do it, or the decentralized governance to vote on it.
So decentralized governance is kind of becoming one of the central elements of building anything in crypto. And the further I went into this, the more I realized that today we have a huge problem in decentralized governance, which is voter turnout. It's useless to build a decentralized tech and a decentralized social consensus if we don't have enough people participating, right. And the problem is that usually you give, let's say 10 to 20% to a core team. Then for example, you do private sales or you give to investors, or you have some large wells that will also have 10 to 20%. So you have basically 40% of all your cap that belongs to, vested of course, let's say two or three centralized entities that can collude. And today in DeFi, you have under 10% of voters participation, which means that on the long run, once vesting will be done, if we have under, like, let's say 50, a 25% or 30% participation, well, basically the funds and the core teams will remain king makers. So there's a lot of arrangements that can be made first to avoid this, but the core problem with that, and I'm going to go back to my banking law background, is that if we don't find a solution, the regulator can very easily requalify everything we've built as traditional tech. And they wouldn't be that wrong because it's not really decentralized. So there's a really big challenge in actually building decentralized tech, right? In terms of distribution, but also in terms of the right participation and participation is actually much more important than just because of regulatory frameworks.
What we're building is not some kind of company, the idea is that we're trying to build protocols that should last centuries, right? And that will basically be able to live off of themselves. So maybe one of us as founders will die one day, probably, most certainly. And the community should be able to keep running without us. Which means they should be autonomous. And if we don't have the right participation and the right incentives for the community to feed themselves off the protocols, well, these protocols would die pretty quickly once the hype dies down and the core team lives, right? The whole point about crypto is creating a system that will outlast us. And at Paladin what we're trying to do is how do we create some kind of overarching system, some, some kind of a flywheel on top of all these DAO to help them basically keep living it. That's kind of the jam we're going for right now.
Crypto Texan: Yeah, I understand that. And the way I think about it, and I think a lot of people think about it this way is that decentralization is really a spectrum. I mean, if you take a look using Uniswap as an example, if you just had Uniswap and you just ran the code on Ethereum and you've got your LPers LPing and people making trades, and you've got the nodes just validating those transactions and that's all it was, just autonomous code operating on Ethereum, then that's decentralized. That's very decentralized. But I almost feel like once you bring token voting into the picture, that's where you start falling on a different side of the decentralization spectrum. Would you agree with that?
Romain: I think there's something we don't talk enough about. I'm sorry. I'm going to take a detour, is that we think decentralization is a goal, which it’s not. Decentralization is a means to an end. We shouldn't strive to be decentralized just to be decentralized. Why do we want to be decentralized, that's the question. We want to be decentralized because we avoid concentration of power, because we avoid nepotism, because we avoid having someone taking over a protocol and deviating it from its original mission, right. That's my opinion of why we want to be decentralized. So why is token voting bad, and why is it good? That's a very long discussion. I wouldn't say I'm entirely for token voting, I do think there is no solution as efficient as token voting right now. I don't see one and I can't wait for one to appear. And the reason why we do Paladin lending, which is our phase one of development, is because we think it's the most sensible approach to the current market sentiment and the market state right now.
If you look at why token voting is important and its functions, there's two reasons why it works. First of all, it's the best way to harness human greed to create efficiency, right? People give energy, they give capital in hope of earning more capital. That's the basic idea. The second reason why it works is that it's very liquid. It allows people to enter and exit the system. And the third reason why it's very useful is that it's good for financing. So the Co-op did an OTC sale to finance its activity. We did a seed round for example. The reason that it’s complicated is that if you have a reputation based system, why and how would you raise money for your - how would you fund your protocol if it's not viable? Because the truth is, if you look at most protocols right now, and we're early, quote unquote, and that's the reason why most of them are not actually lucrative. They do not have enough revenue to sustain their development and to pay all the other expenses. So that's why you think token voting is necessary in the current framework.
Are there other solutions? Probably. There's been a lot of talk about separating reputation based systems and the dividends token. It's a smart approach, but it doesn't work for everyone because not all protocols have constant revenue, one, and two, most protocols take time to actually develop their revenue, which means that there's very little incentive in investing early. If we want to take another approach, we have to know that it will totally change the way we work with these current protocols.
Crypto Texan: Yeah and I'm kind of thinking back to a piece that Vitalik wrote a few months back that basically just said, token voting sucks and it might, you know, it might quote unquote suck, but it's probably the best that we have right now. I think that's kinda what you're trying to get at a little bit, but he also touched on a lot of shortfalls with token voting, some of what you touched on. But another thing is if I'm LPing my Index token, I can't use that LP to vote. And also if I'm lending it out, I can't use that to vote either. But the people who are borrowing Index, they can vote. There seems to be some sort of incentive misalignment there. I just kind of wanted to get your thoughts on that. Should LPs be allowed to vote and similar aspects like that? What are your thoughts on that?
Romain: For those who follow me on Twitter, you know I'm a very big proponent of these things. I think that one of the biggest problems right now, sorry go ahead.
Crypto Texan: Actually I saw your tweet about LPs should be allowed to vote. So that's why I brought this up.
Romain: No, no, no. But basically today we're forcing token holders and that's a problem, not with token voting, but with governance architecture, we're forcing them to choose between governance and utility. Which is ludicrous because usually if you give utility for the DAO, you're usually a proponent, you believe in the DAO, so you should have a right to participate.
And the worst part is that it's actually insanely easy to integrate utility and governance both, especially once you have, for example, an integrated platform such as Snapshot, which has had its downfalls, but has an enormous amount of strengths. With Snapshot, you can very easily integrate different tokens into your voting system.
So you already have, and you don't even need to code like literally during the AMA we could integrate the LP votes for Index because I checked it. And I thought that you could vote with your LPs in Index, but it seems you can't. Similarly as we talked about lending protocols, you could totally be able to vote with your Index, for example, if it existed. So the problem you'd have is that you'd have a double voting problem. Like you have a lot in corporate governance structures because someone could be able to borrow your Index and vote with it. So what could you do? Instead, you could say to the lending protocol either only use our token as collateral because we want to keep it as governance or instead when people borrow Index they mint a synthetic version which has no governance power. That's totally doable too.
Basically this problem when we talk about separating both, they're not problem of token voting. They are problems about us learning and using correctly these governance tools. And that's something that's extremely important because right now we’re preventing a lot of people who would vote and to actually participating.
Crypto Texan: Yeah. And just to clarify with the Index token, you can vote if you're an LP on Uniswap V2, or Balancer. But Uniswap V3, that's where we run into an issue there. Let's kind of transition a little bit and let's talk about Paladin.
Romain: Uh, yep. Just something I'm sorry. Ribbon finance did a framework to use a Uni V3 LP tokens to end vote with them. So there's already a template if you guys want to use it.
Crypto Texan: That's something we're definitely going to have to look into then. Thank you for that. So let's talk more about Paladin. What is Paladin doing now and what is it serving? How can the Index Co-op and other token voting governance protocols utilize Paladin to better serve their community and their ecosystem?
Romain: Yep. Okay. Exactly. So what we've been basically building at Paladin is how do you make voter turnout more important and how do you create liquid governance?
So what's liquid governance, liquid governance is being able to give the right decision making power to people who need it at a certain time. So of course you need guardrails because it means some malicious people could try and take over the protocol, right? But what's important to understand is that one of the biggest problem, and I think the Co-op has been keenly aware of this, to be honest, I think the Co-op is one of the most advanced protocols in terms of governance, which is you guys have the most up-to-date problems, but also have a lot of solutions.
What's important basically, we're trying to think, how do we make more people participate in governance and how do we reduce the friction in accessing all of this? So the way we see this is we see this as a three stage development phases. The first one being, we released something called Paladin lending two months ago on which we wrote the proposal.
This is basically a vote lending platform. Why should we recreate a vote lending platform today? It's because it's the most in context to the current market, it's the most relevant thing to build. It's really interesting and important to want to build coordination mechanism for minority holders, which is our long term goal, but it will not work today because the APYs are so big with everything that if you try to create something sensible quote unquote and just think about the governance premium, it's just not going to be relevant.
I'll give you a very easy example. I put this on Twitter yesterday by doing the maps. If you look at a classic Index token, it has an underlying all the $34 in all of those tokens, it controls in terms of governance premium, just with DPI, right? And it's only value that have this. Why? Because the market doesn't really care right now about governance premium. What the market cares about is about perception. It's about brand, it's about future value of the protocol, but it doesn't really care about the pure power of governance that it has. And that's kind of the problem. The question is how do we recenter the debate from pure speculation into governing?
Because the real value of governance tokens comes uniquely from governance. For most protocols, there is no other value than just governing the protocol, right? So at Paladin, what we do is how do we create something that is going to bring value to the protocols? And at the same time it's going to fit to current market mood, which is only caring about speculation. 95% of the people do not care about governance, they care about price action. So let's give more APY to these people. And let's enable people to borrow these tokens on another side, like the people who care about governance, they'll be able to borrow the tokens.
The problem you have is that if you create this, you basically treat the voting markets, which is what we did. And the voting markets, at least at the beginning, is going to “favor plutocracy”. Because it's going to enable people who have money to basically borrow and buy votes. So the question we did is we need to curve this correctly for it to be easy of access if you need a little bit of votes to do the heavy lifting, and we need to prevent it for external powers to just enter in by a vote. So basically you have to curve it; the more votes you buy, the more expensive. And you have to link it to governance activities. That's basically what we did with Paladin.
Why is this important? Because now that we have this base layer, we can now start building coordination mechanisms and we can start opening the access slowly, slowly. First to DAOs, then to delegates, and then to the individuals to coordinate for themselves. And I think that's why I disagree a lot with Vitalik and that's why we took this “original approach” to coordination or coordination protocol. We have a lot of founders saying that decentralize doesn't work, it's too complicated to build like this. We keep saying that we need to create new subcommittees to structure everything. There's something we forget. And I think that's very interesting and important is that crypto is supposed to scale coordination. Literally why we invented crypto, right? Replaces some part of the social link with algorithmic control. And if we do it right, we should be able to have a totally decentralized organization without sacrificing decentralization. And each time we sacrifice a bit of decentralization, we choose the easy path. I'm not saying we should go a hundred percent in one go to the, to the hot path, but we have to be aware that, and that's what we're trying to build with Paladin is how do we build the flywheels on top of these DAOs to basically have them go towards the pure decentralization path?
It's not an illusion. It's really possible.
Crypto Texan: Yeah, I want to touch on something that you mentioned back there. And that was, I think you called it the governance premium of the Index token because with the Index token, Index token holders can vote in governance proposals of the underlying assets of the index products that the Index Co-op creates, right? And you mentioned DPI, so we'll stick with that. So within the DeFi pulse index, within that smart contract, the tokens that allow for delegated snapshot voting are Uniswap, Aave, Compound, Yfi, Balancer, and Badger, right? So what you're saying is the price that it would cost an individual to purchase the amount, an equal amount of votes that the Index token provides in all of those protocols, it would cost around $34. Is that what you said?
Romain: Yep. So I did a small Excel and I put it on Twitter if you guys want to have a look at it. Basically the amount of tokens in terms of governance power that's held by each Index token would amount to $34. And you have to take into account that the market totally crashed the past two week it was something like $50 or $60 a month ago. So this is something that we have to be aware of. The market does not value governance premium correctly. Why is that? That's for very specific, in the simple reason, is that governance premium and like any financial premium depends on the (I'm trying to find a word in English) on the conflictual degree of the governance. The more conflictual it is, the more value it has, the more an actor dominates the governance, the less value it has, because what's the point of actually participating in governance if you know, someone's just going to keep voting until basically they see themselves deciding what happens. What's very interesting is that we like to think that there's some kind of 51% attack in governance. It's true, but it's so much lower than that. It's 50.1% of the voter turnout, which means that if most protocols have 5% of voter turnout, you need 2.51% to actually basically be a kingmaker and totally destroy the governance premium.
So what kind of, uh, I would say fucked because of this reason, because we felt that by giving like five, 10% to some actors, it would go right even to core teams. But the truth is that the voter turnouts are way too low. And by doing this will decentivize anyone to actually participate in the governance.
Crypto Texan: So with Paladin, I'm trying to wrap my head around this a little bit more. How is the voting power borrowed, and how can smaller activists within a community leverage Paladin?
Romain: Okay. Paladin right now was conceived to try and top campaigns for people who actually want to pass something, but who are missing, for example, the turn out. We've seen a lot of actors who have been moving heaven and earth to actually get their proposal threshold and weren't able to just because they don't have the right platform. What's a bit complicated right now in crypto, and we're working on it in a different manner, is that it's hard if you don't have the right brand and the right network to actually find the right power.
So how does Paladin work? It's what we call a riskless governance lending platform. Why? Because what you do basically is that instead of just lending the token, what you do is that users deposit into our smart contracts. And there's a borrow that's actually created, that's requested, we transfer into a sub smart contractor, the required number of votes, and then it delegates to the address.
So what we do is we don't basically loan the governance token. We loan the delegation mandates, the difference being that the person who has the governance power has absolutely no control over the token. So outside of smart contract risk, there is no other risks. There is no liquidity reasons. There are no counterparty risk that's on the depositor side.
What's also interesting is that unlike a bribe, for example, and I think we should get into that a bit further, to understand the importance and the situation in which Index is, the difference being that it's very easy to close the delegation. And in the mechanism we've built as guardrails into Paladin, this is very much something we're putting a lot of importance in it.
Crypto Texan: Yeah. Let's talk about that a little bit. Let's talk about bribes in the ecosystem and how that affects token governance.
Romain: So bribes is a complicated thing, right? Because crypto in defined general has always been hovering between idealism between decentralized finance and hyper capitalism. And to be honest, we're all in the same situation. We're basically deciding right now, which direction we're taking and we will make our decisions. We were very much for the purely decentralized finance. Bribes is a very smart approach. We tested it a bit. So to give a bit more context in that we've been working for a year Paladin.
We first did a proof of concept last January during EthGlobal hackathon. And we tested the bribes system mechanism during spring last year, and we thought it was complicated to actually scale this and control this correctly. Bribes basically have a pool architecture. So what they do is they say vote for this proposal and we will reward you for doing this. So basically, they put a pot of gold and everyone who does a specific action can take a piece of the action. We with lending, do the opposite, we have a push architecture. So what we do is that we give the vote to someone and he does “whatever he wants with it”. The difference with it is that we can regulate what he does with the vote, because we can see real time what he's doing.
So that's kind of the different architecture. What's really important to understand is that if you have 15 people bribing, it's going to highly dilute the importance of what they do. So on the market, on a pure market vision, if you are a client and you want to borrow, bribes are less efficient on the long-term. On the other side, vote lending is more efficient because you know exactly how many votes you're getting, but it's also totally different because it cannot happen during the vote.
So the biggest problem with any voting market is that it cannot, it absolutely cannot happen and disrupt during a vote. Why? Because if you do introduce the notion of buying votes during a vote, it's basically just going to be a ping-pong battle between who gives the more money to win the vote, right?
What we're trying to do is different. We're trying to take the act to inspire ourselves from the corporate activism. And we're basically thinking before a vote, you should prepare yourself. So we spell it. You cannot borrow a vote during a vote.The idea is that you know there's going to be an important vote beforehand. And because you've read the forums and you prepared yourself and everyone knows it on chain, everyone knows you actually borrowed some voting power. So I'll give you a bit, some example of use cases that can be done for small holders right now which are interesting. For Uniswap right now, you can put up a forum post, you can discuss, but just to put a temperature, check a snapshot poll, you need a thousand Uni. 1000 Uni is $20,000.
So I don't know how many of you have the $20,000 in there in crypto right now. We are in crypto right now so it can be a surprising amount, but it's not of access to anyone, right? So you can put an independent amount. If people are agreeing with what you did but they don't want to risk it with you, you're just not going to be able to put up a vote. With Paladin, borrowing for a week a thousand uni costs around $250, which is much more accessible. It puts skin in the game for the person to actually just put their Snapshot poll. We shouldn't engage people to $20,000 or more just for creating Snapshot poll. So that's kind of the idea.
Crypto Texan: Yeah. That's really interesting. Is there a way that protocols could somehow circumvent what Paladin is doing?
Romain: So, what do you mean by circumvent? You mean like blacklist?
Crypto Texan: Yeah. I guess possibly blacklist or some other way where they could say, Hey, we're seeing on chain that these votes are being borrowed for a temperature check. I don't know. Is there a way to do that?
Romain: There probably isn't to be honest, I haven't thought of a way to take down our proposal because what's interesting is that we have variable interest rates. So it means that the deeper, the borrowing pool is and the “cheaper interest” are right are. But the thing is that if people disagree with the vote that's actually taking place with a borrowed token. What they can do is they can trade rich quick, which is just exiting the pool. The utilization rate is going to skyrocket, the interest is going to skyrocket, and it means that the loan is going to close very early on, which can enable people to basically cancel the proposal for example. That's a rage quit mechanism. Protocols could probably blacklist a Paladin address, but the thing is that natively, each time we create a sub smart contract, so you'd have to blacklist each smart contract one by one.
The thing is, and that's something that's very important in crypto, it's not about the tool, it's about how people use it. And that's why we were very curious of doing this. It's not an experiment this protocol, because I'm very much convinced that not only is there a need to do that, but it actually reduces the friction and allows us to understand what are the needs in governance right now.
And what we're seeing is that there's a lot of frustrated people, not in terms of not being able to pass a proposal, but the biggest thing is about being heard. That's kind of the complicated thing, because if you have a 10 people governance where they're being elected, they can just speak and everyone's going to hear them. If you have a hundred thousand people, you have some good and some bad ideas. How do you make yourself heard? That's a very important question we haven't solve right now in crypto.
Crypto Texan: I feel like this just adds a completely new dimension to governance and token voting. If you can just pool all of your assets out of the pool and in an effort to make the interest rates skyrocket, to make people pay their loans back sooner, so they can't vote. That adds another very exciting element. You know, this is one of the things why I love crypto and DeFi is that. Innovation like this is just happening continually. And you're making me very, very excited about Paladin right now. But I want to get in a little bit more on some of the governance for Paladin as well. Do you have a token? If you don't, when do you feel like you'll have one? And you said earlier that you felt like Paladin was more of just an ecosystem than it was a protocol. And I was just wondering if you can elaborate on that a little bit more as well.
Romain: Yep. So I see my co-founder is listening. It's because I tend to leak things and he doesn't like it. So he’s probably surveilling me now, but we have a token. It is non-transferable, it's something we saw a few protocols do, and we really liked the elegance of the idea. We basically dropped half the PAL of the supply to everyone who participated in the large governance. So we had to make choices, we chose the one we had integrated, which are Aave, Compound, Curve, and Uniswap. And basically if you voted on chain on any of these, you are eligible to some PAL token. Okay. And the idea is that right now, the PAL token is only useful to govern the protocol. And that's basically the value of most protocols for most governance token, right? We didn't want to have anything to do with speculation before we felt comfortable with the fact that Paladin was basically an autonomous and a viable machine. I don't think we should introduce any financial aspect before that. And that's the governance will basically vote on it whenever they want. So right now, it's basically gated to everyone who had participated in governance.
Now we want to add some kind of proof of contribution dimension, where we're going to start it's in our forums. We're going to start the liquidity mining campaign to enable people to learn and borrow just for three months, just to give access to more people to the DAO. So it's a pure governance thing. Now why am I talking about an ecosystem? Basically Paladin is not just a vote lending app. The vote lending app is to fund what we want to build as a coordination ecosystem. Our idea in general is how do we make more people participate in governance. And the idea is reducing the barriers, for example, by introducing liquid governance, by incentivizing people in participating. And I think that's something very important that you guys talk a lot with the Co-op, is that you can't expect people to regularly and participating in a DAO if they're not paid for it. How do you expect people to work for it now, if they don't live off of it, and what becomes even more complicated is that most DAOs pay with their governance token.
How do you expect people to live with governance token? You can’t buy bread with Index or PAL tokens, at least not now. So the problem is that you're forcing all of your contributors to sell their token to live if you pay them. These are all different problems. And we believe that with vote lending as a reactor, we can basically build an ecosystem for DAO that's basically going to help them do that. I'll give you an example. I'm ready to put both personally and also with Paladin, but we'd have to vote on it to create either Alchemix or with an Alchemix fork a way for people to lock their governance token, borrow stable coins on top of it, basically live off their stable coins as if it was the wage and the issue yield opportunities with the token. It's basically just stakes and slowly pays back the interest rates and you can vote with the token that are locked in the Alchemix fork. This is a way for people to retain their governance power while being able to live off with their token wage. And these are the kinds of ideas that we want to either push and find the person to build.
This is not something we're building. That's why I'm giving you the idea, but there's a lot of needs that need to be done. And it won't happen with one protocol. It's an ecosystem. And our idea, we use the vote lending as a reactor because it's the most logical thing to do in today's context, we use the revenues to finance the rest of what we're building and we link everything with tokenomics. So that's what we've been building. That's why we prefer talking about an ecosystem.
Crypto Texan: Yeah. I love that Alchemix idea you just gave too, because when I think about it, like the Index token, it has two main value propositions, right. And that's governance and meta governance. And then it also has a monetary value as well in the sense that I can sell it and then use that for living expenses as well. And it sounds like what you're doing with that Alchemix example is you've found a way to separate those two value propositions, the governance and the monetary value to where the token holder can lend out the governance and make money on the governance and also be able to monetize that monetary value that comes along with it. Is that basically what you were saying there?
Romain: Yeah, I don't like the idea of saying separating governance power and then a monetary value. I think it's dangerous to think of it this way, because it creates a liquidity problem, which can be a big problem especially in crypto. If you look at the Olympus and Tokemak wave of discussions, but basically the idea is how do I keep my governance power while being able to - basically, how do I not sell my tokens while they're living off of them? And like a lot of the traditional finance society, which I think is kind of a problem, but that's a different topic. We're based a lot on lending and that's why Compound, Aave, and Rari they are working so well, is because lending is very important brick of our current traditional financial system.
And it is also a solution for us to basically retain our governance token. The idea is that, for example, you'd have your (I don't know how it's called), but this will be your alINDEX that would have governance power. And instead, like all of the Index inside of the fork would basically not be able to vote, you'd basically be able to mint some alUSD and live off of them. And can either pay back to get more of the Index token, or you can just totally get them back with time. And it basically creates a native vesting system for your governance tokens. Which is interesting, but the idea I was trying to get at is that building a coordination mechanism to help people participate in governance will not happen in one click because it is not in the interest of most people today to work together. And the idea, which is very interesting, we're seeing with Olympus, we're seeing them with the, with context, is that with algorithm, with smart contracts, we're able to push people into coordinating themselves.
Because if you look at Olympus, which is like the trend, what is Olympus? Olympus is a traditional bank. Basically they tell you, give us your reserve assets and we're going to give you a governance token that's going to help manage them. So you're trusting that us as a protocol will manage and coordinate better your assets that you loan. And that's why Olympus has value, to give the very basic idea of it.
What’s dangerous with this system, and we've been seeing this with lobbyists, with Redacted, I'm saying dangerous - is that these are creating very powerful sub DAOs reserve asset vortex, that can basically eat all of them and they will not get it back.
So it means that you are basically giving up sovereignty and something very important about crypto is that you should always keep your sovereignty. You keep your keys, you trust you. Don't where you verify you don't trust. Right. And when you give your assets and you can't get them back, you hope to god that you're going to keep control of the protocol, right Because you're not seeing your assets again.
Crypto Texan: Wow. Yeah. So you mentioned a few protocols in there and I've got a couple of questions about other protocols. My first one is what protocols out there do you see that are doing just a really good job of governance? Like to the extent, to where if there was a new DAO coming up and they were looking for an example of how to do governance, very, very well. Which ones would you direct them to and say, this is a good way to do governance. You should copy this.
Romain: Well, it puts me in a bad position because basically I was going to say you guys. So we look up a lot to how the Index Co-op has been building its structure, its organization. I think it's one of the prime examples of how to do things right. I don't know if I could basically talk about another governance. I'm just thinking quickly out loud. It's quite hard because you know, the biggest problem with most governance is that usually they're quite small and it's been very hard to scale participation in discussions between a lot of people.
So I'm a big fan of the way Index Co-op has been doing things. I think Compound has something right too, but it's kind of complicated. We don't have any rule book on how to do governance correctly. And there is some kind of incentive first, right? We have to learn how to do this. And something else that's very important is that we think there's some kind of DAO equal, everyone has the same kind of governance model, but each different protocol has this specified culture. There are specified people using them and also the budget they have. There's so many different things that we have to take into account, and it can't be one special type of governance of DAO framework that's going to work for everyone, right?
Crypto Texan: Yeah. Right. Absolutely. And I'm kind of thinking more about the structure of Paladin and maybe I'm curious about the treasury makeup of what those treasury assets look like. And I'm also wondering what are some of the revenue drivers to the protocol today or what will be some of the revenue drivers in the future?
Romain: Okay. So that's something that's very important. We've been thinking a lot about it because we knew that by building at least the Paladin lending model, the pools of not only the treasury, but the pools would have enormous voting power, right? So that's something very important. Paladin is a tool for governance. It's a tool for activists. The protocol itself will not vote with the protocols they have the deposited, neither will they with their treasury. That's not something we intend to do because we believe that this, the protocol in general can only work if it is credibly neutral.
So basically, that's the first part. The second part is that medium term, also we have to talk in a mix, right? So we'll tend to distribute most, if not all of the protocol treasury to, in a certain fashion, not to token holders, but to people participating in governance, because that's basically how we want to create the feedback loop for the protocol. That's something that's very important for us.
You have two types of DAOs if you look at it. You have those that have treasuries and you have DAOs that basically keeps constantly redistributing everything. If you look at, for example, Curve. Curve has no treasury per se. They basically redistribute everything to veCRV holders. I think that allows the DAO to be more neutral, because as long as you have the “treasury”, people will keep vying for it to basically get a budget, to live off of it. So we were thinking of it this way. Something that's very important that I think not enough protocols do it, is that usually when you create a protocol, you have the core team that basically says, okay, this is our allocation. This is what we give to fans. Now we're going to build and let's see how it works. We've been trying something a bit new in our forums, just the discussion that just happened today. We try to have the community vote on our allocation.
So why is that? I don't know if you guys remember the articles that Andre Conje wrote on the why building in DeFi sucks. Basically he gets the feeling that the core team is a slave to its users. I think it's very unhealthy for a lot of reasons. It's because the core team should not be the benevolent actor in the DAO.
Everyone should be responsible for the wellbeing of the DAO and the core team should be elected to build one specific thing for a specific time. And that's the reason. So for example, as Paladin, we basically asked for a 15% allocation vested on triggers to build Paladin lending, to build the all business development, the communication around it. And then on top of it to build another project, which we call factions, which is a minority holder coordination and to build the transition over it. And that's basically what we want to build. So we will keep in this direction, we'll fix the business development, the communication, but if there's a lot of other opportunities that can build on top of Paladin and we believe there are, I don't think it should be our job to do it.
Like we have to be very clear. The team is not the protocol, and if we are, I think it kind of creates a problem. It disaligns the team from the interest of actually building the right thing for the protocol. The committee can choose to accept or not, if they think, what the core team has been building, but they can't dictate the team to what they should do each time.
Like people should just take up the matters of their own hand and do it. Our treasury has over almost 70% of PAL tokens left. They can be financed if they need to build something, right?
Crypto Texan: Right. Absolutely. And so are y'all looking at any layer two strategies or EVM compatible side chains or just kind of want to see y'all's thoughts there and what are you looking at?
Romain: Well, most of you have seen it, right? Ethereum is very frustrating right now. I've been in Ethereum for four or five years and transactions are very unhealthy right now. The thing is that as the Paladin as a protocol, it's hard for us to go on other chains because there is no very easy, no other protocols where there's very interesting governance happening.
It's slowly getting there. We're seeing some chains like polygon, for example, where things are happening, but it's not as vibrant as Ethereum. On the other hand, I don't think you guys have seen a zK vote on Starkware is extremely promising. I do think that the optimistic roll-ups and even the more zK roll-ups show a lot of promise. I would love to see some kind of governance, roll up that would help us basically reduce the cost of voting this way onchain. And I do know some projects that are working on this and that's our plan is basically standing on the shoulder of giants and helping them transition into these more healthy and cheaper alternatives.
Crypto Texan: Yeah. I'm thinking about what Su Zhu said a few weeks ago. Do you feel like Ethereum has abandoned its users?
Romain: Yes. Uh, Su Zhu just bought $500 million of Ethereum. So he abandoned, but he's a trader and to be totally honest, I don't follow him. He probably says a lot of smart things because his job is basically to campaign down his bags. His job is to make money. His job is not to build Ethereum and this is something we have to be very keenly aware of. Most of us are in this call. We're builders. Our job is to build things. Our job is to make Ethereum go forward. You have a lot of people. 90% of the people in crypto, their job is to make money. These are not the same thing. You can make money by building, but it's not the first thing you should do. The first thing you should do is build your project.
Crypto Texan: Yeah. I think that's something that I definitely tell a lot of people who are just getting into the space is, anything you see on Twitter or in Discord or on a podcast or wherever, just keep in mind that those people have an incentive to say what they're saying most likely. And I think you should always take that into account that everyone is trying to pump their bags most likely, right? But I think when you look at people who are, who are working for protocols, and I think that's kind of something that's kind of helped me focus a little bit more, it's just getting involved with the Index Co-op and keep my head down and working in it kind of helps you like sift through the noise a little bit and focus a little bit more on what's important in this space.
Romain: Yeah. You know, things go so fast. It's hard to lose the sight of what's actually important because you see, you have the Olympus thing going at 500000% a year, which is very exhilarating, right? And then you lose sight of basically what was important at the beginning. Also something I think that's worth mentioning, I don't know how many of you have you guys know WithTally that also work in governance, they do great job. They are releasing, I don't think they already released some kind of widget that you can have on Chrome. And basically on Twitter, it basically looks at which Twitter address is linked to which Ethereum address, and you can see the bags of someone directly on Twitter and, you know, crypto is all about transparency. It's all about being able to verify if someone is bullshitting you or not. And what's super interesting is one, when you see someone basically talking about something you can actually see, and that's my hope if he was paid, if he holds a larger amounts of token, if he's a diehard member and I think giving this optionality of transparency is something that's very powerful.
And to be perfectly honest, we are aware that bribes are kind of inevitable in the sense that people will always try to buy votes. I'm not saying we should generalize it. What I'm saying is that we should be able to be aware of what's happening. And then that is really a bribe. If everyone knows you were paid for it, because either it's done in the right manner, because there are ethical reasons to actually need more votes or it's done in a wrong manner.
And you're basically losing your own credibility. I think transparency forces us to rethink a lot of the traditional paradigms we have in terms of ethics. And we haven't had that much work on it.
Crypto Texan: Yeah. I completely agree and I really appreciate your thoughts on that. And you mentioned that other protocol, I'm just curious in general, what other projects are you looking at in the space? Not necessarily related to governance, it could be DeFi or, or metaverse or data economy related, but what other projects are you looking at in the space that are really catching your eye from I guess an innovation standpoint?
Romain: I'll be honest, I'm a bit of a governance nerd. I'm extremely excited and had been called for very long time about Tokemak. I know I'm not the only one that someone sent me a message. I think it was Alex, Josh. And he was also talking about Tokemak. I think what's super interesting, you know, is that we're slowly, slowly pushing and it's logical to shift a lot of responsibilities that were in central hands into DAOs. So, what we're doing is that instead of having large holders, we have large sub-DAOs. For example, in Curve you have convex, you have Yearn, you have stakeDAO. You're going to have Redacted & Lobbies. And what's super interesting, you’re going to have Tokemak too, is that it means that, and that's basically what Index is. Instead of having to go to one main DAO, you're going to have to see the different tribes, the different sub DAOs and have them sit down together, talk and decide what's good and what's wrong.
And what's happening is that we're starting to have the base layer protocols that are losing their individual and centralized lot holders. And in place you have a lot of large sub-DAOs. So what's super interesting is that governance is about to get much more complicated than it already is for the basic word is basically your protocols.
And we're kind of trying to make some sense out of this. Because right now, for example, I give a, let's say Convex starts accumulating Uni, Redacted and Lobbies too. So instead of just choosing one Uni token, you could use an Index token to leverage your road or a lobbies token or the convex token, right? And this is where it gets interesting because depending on the supply, the price of the market, it's not always more interesting to have just purely the Uni token. So the governance approaches are going to get much more modular.
Crypto Texan: Well, yeah, that's an interesting, interesting thought as well. We're kind of running up on time here, but there's just two more questions I wanted to get in. One of them is, you know, at Index we do have crypto native index products, like the DeFi pulse index, Metaverse index, Data economy index. What is another index that you think would be interesting for the Index Co-op to put out?
Romain: Well, as I mentioned, I'm a governance nerd, so I would kind of say a governance index, but a bit differently than the DPI has done. I think what should be done is that thinking about what each type can bring, and have a specific indexes that brings specific types of governance power.
So for example, if you want a financial incentive DAO you'd have, for example, veCRV into your index. On the other hand, if you want, you could have a lending index. What I'm trying to get at is that each of these different index, because it has underlying voting power could allow the users one day buy into the index to know they're going to get leveraged power into the index.
So it could be index is centered around governance premium. What gets really interesting, and that's something where index kind of got boomer-ed by BlackRock, which is a bit crazy. I was talking with Mel about this, is that BlackRock is slowly giving up the governance power of the shares they own and letting the index holders vote with them.
So they basically decentralized their index, which is crazy. This is in traditional finance, right? I don't think there's an incentive to do it in crypto or even with the index, because the context of indexes is passive investing. But I'm just saying there's like a lot of different approaches that are appearing and we can't only think about index about just putting tokens in the basket. We can be much more modular and much more original in the approach.
Crypto Texan: Yeah. That's a really good point as well. So the last question I have for you is where can people go to find out more about you and Paladin?
Romain: Yep. Sure. So personally you can look at Twitter. It's @figue_me. I just usually ramble about governance. Paladin is on Twitter and on discord @Paladin_vote. And you can find us there to the discord. We try to be as transparent as possible. So if you guys have questions, please feel free. We've tried our onboarding process, basically onboarding index as a pool takes one hour, but instead of just on-boarding it, but we wanted to talk with the community. We don't want to build just something new and say voila, now you deal with it because the truth is that crypto is immutable. Our idea is how do we build something together? So its going to be a net positive.
Crypto Texan: Yeah, absolutely. And, Romain really appreciate you coming on the conversations with the Co-op with us today. Really excited about the future partnership between the Index Co-op and Paladin and yeah, this is great. Everyone who's listening in the audience live. Thank you for doing so, this is being recorded, so we'll get my audio engineer NakaMomo on the task, and we should get this recording out in about a week, but yeah, Romain, thanks again for being here.
Romain: Really appreciate it. Thanks for having me and thank you guys for attending. All right. Thank y'all. Have a great weekend. Bye.
Host: @Crypto_Texan
Audio Engineer/Mixing: @Nakamomo6
Marketing Image: @ChavisChance / @cafpunk
Transcript: @0xMitzy
Conversations with the Coop - Romain - Paladin.vote