Bankless - Introducing ShapeShift DAO - Erik Voorhees (SotN 7/21)
Primer: ShapeShift, a digital asset trading platform, is converting from a shareholder company to a DAO. Erik Voorhees, their founder, shares the whys and the hows behind their move with the Bankless team.
Background
One of the earliest pioneers of the industry
Huge believer in bitcoin and the non-bitcoin parts of the crypto industry such as DeFi
Found ShapeShift, an on-chain exchange
6 billion in lifetime volume
150,000 monthly users
500,000 wallets
2.5 billion in assets
Why Are They Turning Into A DAO?
Converting ShapeShift from a VC-backed shareholder company with a board and executive team to a DAO where the governance and the value accrual revolves around the token
Aligning ShapeShift with the ethos of crypto
"We are ultimately trying to build an open-source, multi-chain, self-custody crypto platform for the whole world. And to do that, we have to be decentralized, we have to uproot the shackles that keep us tethered to, you know, the normal corporate world." - Erik Voorhees
History Of ShapeShift
The Beginning
Started in 2014
Did not want the world to use centralized exchanges. The collapse of Mt Gox almost destroyed the industry
Saw a burgeoning ecosystem of digital assets. Wanted to create an easy way for people to convert between assets
Example: People who wanted to trade Bitcoin for Ether on ShapeShift had to send bitcoin to a Bitcoin address/QR code and ShapeShift will send Ether to their Ethereum address
"But when I first used Uniswap, I had this feeling like, holy crap, they've rebuilt shapeshift, and they've done it better than us using tools that didn't exist back when we started. I must learn how they've done this, and we should potentially go down this path." - Erik Voorhees
In 2018
Grown fairly large and people loved their service
Invested money into regulatory investigation to assess to what degree are various global financial regulations going to apply to them
"We came to the very depressing conclusion that we would potentially be treated like a financial institution, which meant, we would have to impose KYC and accounts and all the various financial surveillance apparatus." - Erik Voorhees
After implementing KYC in mid 2018, they ended up losing 99% of their business. Most of their users went off to other competitors
Reinvented the product to be not just an exchange, but an integrated wallet. Did not get traction because of KYC
The Return Of ShapeShift
Rise of DeFi. By early 2020, Uniswap started to rival Coinbase
Impressed with Uniswap but realized it is for Ethereum-based assets only. Thought of extending it to enable cross-chain swaps, but they had no solutions
"So we decided to just rip out our guts as a business, like our trading engine and our ability to interact with customers as a trader, and just replace them, outsource them with these decentralized protocols." - Erik Voorhees
Integrated Uniswap and the 0x aggregator that is integrated with 12 different DEXes into ShapeShift
Discovered Thorchain that allows trades across chains. Integrated them in April 2021
No longer has KYC. ShapeShift is back to being a frictionless place where people can trade freely
Becoming A DAO
Gradually, their conversations started to revolve around decentralization and turning into a DAO
The Logistics Of Converting Into A DAO
They are still 100% centralized today
Has 2 basic themes that they are working on
Open-source all of their code over the coming months. Distributed the FOX token to incentivize people to care and participate
Unwinding the legacy entity. ShapeShift is a Swiss corporation with several subsidiaries in different jurisdictions. Their balance sheet has to be liquidated to shareholders and their contracts have to be wound down and ended
Employees of ShapeShift DAO
Employees will no longer be employees by the end of this year
Each receives a generous severance as well as FOX tokens, which will unlock over the next 3 years
Erik's Position With ShapeShift
Will no longer be CEO. Will be an influential member of the community. Economically incentivized to make sure that it is a success
How Will Things Get Done In A DAO Model
Remains skeptical about DAO as organizations
Trying to figure out as he goes along. People can be coordinated around the economic incentives of a token
Has observed people from other DeFi community projects coming into their Discord and proposing interesting ideas
"So it's a [DAO] model in which people are far more free, you know, they can come in, they can go as they please, there is no employment contract. People may show up and work for a day or they may be committed for 10 years and it's on them. It is something that is far more appropriate for work life balance, because every person can figure out for themselves what they want to do." - Erik Voorhees
Will DAOs Collapse Back Into A Corporate Structure?
There are some overlaps between DAOs and Corporations (e.g. tokens and equity shares)
There are some good practices in corporations that will end up emerging in DAOs
The bureaucratic elements of corporations would end up getting eliminated
Logistics Of The FOX Token Airdrop
Massive airdrop to past ShapeShift customers and the broader DeFi community
Took a look at other airdrops and projects that have done this successfully and built good communities around it
Airdrop ranged from 200 to several thousand FOX tokens
People can check their eligibility for the airdrop at https://fox.shapeshift.com/airdrop
Window of 90 days to claim the airdrop else it will be returned to the DAO treasury
Liquidity Mining
Started 48 hours after launch to give everyone a chance to start at the same time
3-month program
Selected Uniswap V2 instead of V3. Decided to stick with the tried and tested
Expectations For The Next 6 Months
Open-sourcing of ShapeShift's code
Would have completed a number of successful governance vote on important topics
Winding down of the ShapeShift entity
Regulators And DeFi
Regulators are varied; they are not one homogenous group
Regulators can regulate in name only; the underlying immutable code will continue functioning regardless of regulation
"My hope is that a lot of these regulators recognize this financial technology brings about a degree of soundness and transparency, transparency and honestness and gives the entire world a level of access to financial services, which their prior status quo financial system has never been able to do." - Erik Voorhees
Strong cryptography was once considered illegal in the US. A series of regulatory battles took place in the 90s and it became available to all. Strong parallel to crypto and financial privacy today
State Of Crypto In 2021
The Ups
Crypto has done incredibly well and more diverse than when it first started
Bitcoin is on route to become the dominant form of money on earth
"So I'm just, I'm just so happy to be part of it [crypto]. And I'm in awe of all these brilliant people that have flowed into this industry and are helping to build it." - Erik Voorhees
The Disappointments
The toxicity of Bitcoin maximalism
"Most maximalists are Bitcoin maximalist and the degree of toxicity, negativity, anti-innovation, anti-open-mindedness, tribalism, religious dogmatism to an orange coin, rather than the principles on which that orange coin was built, has been frankly, really disgusting to me." - Erik Voorhees
What Excites Him The Most About Crypto?
Excited the most about DeFi
"And I have to just be in awe at how destroyed the banking system is going to get as this tidal wave approaches. They are so far behind the curve." - Erik Voorhees
Finds NFTs cool, but personally not passionate about them
Finds DAOs cool, but are unproven and untested
Advice To People In Their 1st Crypto Cycle
Zoom out and chill
Don't put in more money than you can lose
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