Interview Transcript
Christian Arita:
Hey, Nicola, appreciate you being here. Let’s jump right into questions. What’s important in governance or what defines whether a protocol has good governance?
Nicola Santoni:
Sure, look, a definition that I try to borrow, I would say from traditional board that I like quite a lot, is that governance is a sort of a system of checks and balances that ensure that an organization will be stronger than whoever and whatever happens to be leading it at any time. I like it a lot because it gives us sort of responsibility to governance. It needs to be above a certain dynamics. So, I see it’s like a sort of system of preservation for a better future. What do I mean with that? The aim is not to survive but actually to thrive. Governance should be additive overall and definitely not a burden or anything that substantially slows or penalizes anyhow, the efficiency of the protocol development. In that regard, I personally advocate for a gradual governance process where you have different sets of stakeholders, agents, taking the lead gradually and thoroughly throughout all the stages of the protocol and the maturity of their agents. That’s very important because the participants they evolve and the role of the network, in the agents, they evolve with time. There’s still some visible problem in governance today, in my opinion, for example, one is the participation. Effective participation is complicated to reach, it’s often very confusing, there’s no clear standard notifications are almost nonexistent or not standard again, reaching all the stakeholders at the same time for a proposal vote, it seems very complicated and hard to achieve. The interfaces are not standardized, it’s very hard to find a common ground and there are different… for different projects especially, if you want to be active on different platforms, on different protocols. It’s quite hard to have one good place I would say. Very often I also find that discussions are too scattered, yes, there are forums, there are dedicated places but it’s often too scattered and the industry definitely lacks a standard measure for comparison also between protocols. So, there’s no really good way to quantify what’s good, what’s bad, what’s acceptable, what we learn from mistakes and stuff like that. Finally, I think look more than often, governance is not the core of a protocol. So, you can sort of see that it becomes a distraction. And I think that this is something that the industry may be brought it to an extreme, which is not too healthy. So, good governance is when a protocol ensures that most of the problems are well-considered and there is a solution to find a solution.
Christian Arita:
What do you think makes for a good proposal in your opinion?
Christian Arita:
Some pillars, I would say, first of all, clarity. Explain all the possible scenarios and consequences with a forward-looking perspective of all the implications coming with the proposal. So, with that, it comes to mind the idea where when a new vote is contemplated, the contracts, for example, we submit that with a vote which is theoretically ideal. Of course, a good proposal should consider inclusiveness in a sense that you want all the stakeholders and agents to be considered. I would look for a good balance in that regard between the various stakeholders, so not skewed for any particular group. It needs to be a proposal which is overall sensible for all the participants, so it needs to consider the implications for usually three main parties, which are developers, governance itself and ‘helpees’ and stakeholders, so the participants. You know, if a particular party would be penalized there needs to a consideration of economical furnace, because that’s what keeps a crypto network going right, the crypto-economics behind. So, a proposal and consequently, a vote in a sense, embeds a sort of solidity and I believe there is some beauty in immutability. So, the idea that something cannot be changed and that’s exactly how it is and how it’s going to be. It’s very fascinating in a sense, it’s dangerous but fascinating. And that means that you need to have a proper thinking and proper commitment before any proposal is made. A good proposal, let’s say, in a sense, would be the architect, as I said before, have a solution that you’re looking for and make it sort of immutable. And, of course, you can leave some room for small changes, like fees, strategies or anything that would eventually imply better efficiency and better inclusiveness for a space that is extremely fast-changing, like DeFi today. So, a proposal needs to be contextualized on what’s going on the ecosystem in general, and consider carefully all the attack vectors, and all the consequences that any new development brings with it and all the risk that comes with it. And finally, I think it’s always nice to give a time to the stakeholders and LPs in general to decide if you want to be part of this proposal and have a small window of time to jump in, jump out, if you disagree.
Christian Arita:
How do you vote on proposals or specifically, what’s your decision making process when voting on a proposal?
Christian Arita:
First and foremost, a double down on forward-looking approach, I would say the most important thing is foresight. It’s the way we invest these the way our vehicle is built on, it needs to be something working on the long term. So, a long-term outlook is, first and foremost our approach. A second thing is a mix of fairness and consistency with previous decision made that affected some of the stakeholders. So, you want to have a crypto network beautifully coordinated by economics and everybody has a piece, everybody’s happy to be there, you don’t want to create any friction. So, fairness needs to be a basic groundwork to start when considering a proposal or any decision making. We would look at all the factors that I mentioned, security fairness, forward-looking, and all those, and how the proposal is a solution to a problem. So, of course, consistency, efficiency, fairness, economic incentives, but is the solution, the right solution to the problem the network wants to upgrade upon or is trying to fix. And the very last beat, we always try to optimize for network effects. That’s, I think, really the secret sauce, not really secret anymore, obviously. But we really pay attention to what could trigger better, more sustainable, more efficient network effects in a proposal.
Nicola Santoni:
What skills or characteristics do you think future crypto governance leaders should embody?
Christian Arita:
In terms of skills, I would say they should think of who they want to have their tokens and give the power to have a say in the destiny of the protocol. So, this is extremely important on some aspects like liquidity mining narratives. So, the agents who are entitled to earn those tokens will be the one, one day holding the right to vote later on. So, really, a crypto governance leader should aim for robustness, efficiency fairness as I said, and tangible progress, openness to the community. Because the fact is, the community is the owner of the protocol. So, it’s a sort of like dilemma or trilemma where you have to have the skills to balance. So, if you would tell me, what’s the best skill? I would say balance, because you need to balance all those, efficiency, fairness and so on for the agents that will vote one day. So, you are empowering in a sense, with your decision, you’re empowering these agents to make decision for the network. So, balance I would say, above all, it’s the most the required skill, I would say.
Christian Arita:
What are you most bullish about in the DeFi ecosystem, whether on Ethereum, or any other networks that you follow?
Nicola Santoni:
Look, we have seen the last couple of months an explosion of multiple use cases, multiple chains. So, stepping back a little bit, I would say, what still makes me extremely bullish is the increased composability that we have seen in the last months, and how intertwined and interoperable those things are actually thinking. It’s a really a new way of design, a beautiful way of design. Where we were used to talk to teams and they have ideas and vision, and they were pretty much stand alone. You know, last year, the table turned completely, you rarely hear funders right now discussing their project and not mention any other. And now, so maybe until last summer it was mentioning other protocol. Now you’re mentioning other chains. So, it’s actually at a very healthy evolution, because the space should talk to each other much, much more and that’s the direction we’re going. So, composability, absolutely. We see a lot of very good brains from Silicon Valley or the web 2.0 and the traditional finance, coming to the DeFi space, coming to the decentralized ecosystem, bringing knowledge, bringing technical skills, bringing new, beautifully designed solution. And, you know, I used to work in traditional finance, in derivatives, and I’m seeing fantastic developments on that front. So, really new models, new solution to problems like fixed-income assets on an AMM or time decay assets on AMMs. How do we solve this problem? How do we create efficient product that can be suitable also for different and more sophisticated financial instruments? So, that’s for sure something that makes me extremely bullish. And yes, maybe it’s rhetoric but the interoperability between chain is happening in a sense. We have deployed in a couple of layer ones which are doing very well and it’s also very interesting how they first level of projects that they want to build upon those new chains are actually extremely technical already, because they have learned a lot from Ethereum and that ecosystem. So, they borrow whatever worked and they iterate on a more sophisticated, more suitable for that layer one solution. So, extremely bullish on it.
Christian Arita:
Thank you again, Nicola.
Nicola Santoni, Lemniscap
Nicola Santoni
Lemniscap
Christian Arita
StakerDAO community member
Christian was responsible for the research, proposal development, and product implementation of STKR, BLND, wXTZ, wALGO products by StakerDAO. Prior to working within crypto full-time, Christian worked at Deutsche Bank in research covering Global Macro and Equity Strategy. Christian graduated from UC Santa Barbara with a degree in Economics & Accounting and he lives in San Francisco, CA.
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