Zima Red ep 73: Aaron Wright

The DAO Master Class

Primer: Aaron Wright is a galaxy brain OG in the space. Learn about his legal and tech background and his role in launching Ethereum and OpenLaw. Aaron is also an active member in many DAOs (The LAO, Flamingo DAO, Neptune DAO, etc.). Get his firsthand experience with DAOs here.

Origins

• Professor at Cardozo Law school in New York (background in law and technology)

• Played a role in the launch of Ethereum

• Published a book titled Blockchain and the Law: The Rule of Code

• Sold a company to Wikia, the for-profit arm of Wikipedia

• Behind many of the major DAOs (e.g. The LAO, Flamingo DAO, Neptune DAO, etc.)

Interest In Tech

• Always been fascinated with tech

• His dad was in scientific research and was an early user of the internet

• After college, hoping to work for an internet company. Could not do so as it was after the Dotcom crash

• Decided to go to law school as he likes to write

"So I grew up, just completely seeing my family online, like my dad would be sitting there late at night, like messaging people on a black screen, green font, you know, over the internet. I was fortunate enough to kind of see the whole Web1 movement in like my formative years." - Aaron Wright

• With a background in law and a deep interest in tech, blockchain caught his attention

Role In Launching Ethereum

• Really interested in Bitcoin. Started in 2011

• Thought about a protocol for law or rules. During that time, Ethereum came to his attention

• Paid for a conference ticket and got connected to Joe Lubin, the co-founder of Ethereum. Figured that he could help out on the legal side

• Helped out with Ethereum both pre-launch and post-launch

Initial Attraction To Crypto

• Worked with law firms who had to clean up the financial mess from 2008

• Was a horrifying and eye-opening experience. Saw the plumbing of the existing financial system

• Found Bitcoin interesting from a tech perspective and how it is advocating for a new system

• Ethereum was an extension of Bitcoin

• Was an IP lawyer working in the music industry. Fascinated with the intersection of IP and blockchain

• Ideated on use cases early on. Involved in music and the payment of real-time royalty income to artists

Why Do You Think That NFTs Have Caught Mainstream Attention?

• NFTs are constantly exceeding expectations when it comes to consumer adoption, artist adoption, enterprise adoption, etc.

• Trend accelerated by COVID. Creators lost their jobs and found crypto/NFTs as an alternative income source

• The infrastructure is there to support it as well (SuperRare, OpenSea, Nifty Gateway, etc.)

On DAOs

• Broad concept that is floating around the Bitcoin ecosystem in 2013

• Dan Larimer, founder of the EOS blockchain, came up with the notion of a Decentralized Autonomous Corporation

• Conversations back then revolved around colouring Bitcoin in some way to use it to represent other assets like stock in a company

"So it [Vitalik and others] took this Decentralized Autonomous Corporation and then generalized it into, you know, a Decentralized Autonomous Organization, because I think people realize it didn't need to be in the shape and form of a corporation, like a hierarchical structure could be flatter." - Aaron Wright

• Vitalik and others generalized that concept into a DAO in Ethereum

• Easiest way to think of it as an online group/community with a bank account and a whole bunch of rules around it

• There are other types of DAO too (e.g. management of open-source tech and stakeholders direct how the tech is going to develop over time)

How Are DAOs Able To Cut Through The Noise And Get To The Signal

• Same like online groups. People that join are aligned along a common interest

"And it's that combination of people that have a similar interest, with some sort of, kind of unifying structure and monetary incentives that I think just makes it [DAOs] work really, really well." - Aaron Wright

• With everyone aligned, it is within human nature to acquire information and bring it back to the group

• Information brought back is assessed by the community and serves as a point of coordination

What Do DAOs Do That Regular Companies Do Poorly?

• DAOs do well in information collection and information sorting

• Since they are flatter, information can flow in more emergent ways

• In regular companies, the loudest person tends to win. In DAOs, everyone has equal footing and good ideas come to light

What Do Regular Companies Do Better Than DAOs?

• Corporations scale very well

• Over time, DAOs will get to the same point as governance issues get sorted out

Future Landscape - Corporations Or DAOs?

• Current landscape has plenty of corporations and LLCs

• LLCs are slowly eating up corporations

• Corporations are increasingly like a narrow structure that's limited towards companies that are either international or have some tax considerations (e.g. going public, want to raise venture capital)

• Personally think that crypto is the tip of the spear for tech. Closest thing to an entirely digital native, remote-first, highly disparate, and highly decentralized environment

Ideal Voting Mechanism For DAOs

• Don't have a full answer right now

• We have the tools to experiment

• Traditional enterprises use quorum-based decision-making. Decisions are made when certain thresholds are reached

• This rough consensus approach seems to work well for The LAO, Flamingo DAO, and Neptune DAO

• Other projects are experimenting as well

  • Jack du Rose, who runs Colony, uses a veto model. By default, the answer is yes and people should just be able to veto an action

  • Quadratic voting is experimented on by Gitcoin and many projects

  • Conviction voting involves staking something to show how much you actually care

OpenLaw

• Contracts are part of human civilizations

• Today, there are certain things that contracts do that are not accounted for in smart contracts:

  • Managing risks

  • Calibrating expectations

  • Events that cannot be rendered down into some sort of data object

• Thought of how Ricardian contracts would help solve the problem

A Ricardian contract is a digital agreement "that defines the terms and conditions of an interaction between two or more peers, that is cryptographically signed and verified. Importantly it is both human and machine-readable and digitally signed."

• OpenLaw aspires to be a Ricardian contracting system that enables users to take a legal agreement and digitize it such that a computer can understand it and, at the same time, triggers smart contracts when it is signed

• OpenLaw can be used to highlight the risks that people are getting into when they join DAOs

The LAO

• Knew that there was a lot of interest for DAOs

• Saw a project called MolochDAO. Decided to extend and generalize it and put together new data like structures

• Started The LAO, where the idea was to back projects and test the assumption as to whether a community can make fruitful decisions without members knowing one another

• Began to discuss collecting NFTs inside The LAO

• Decided to set up Flamingo DAO that would be focused on collecting NFTs

• Decided to set up Neptune DAO that is DeFi-focused

"So The LAO is kind of like the first experiment and like an incubation center." - Aaron Wright

• The LAO also incubated:

  • Museo, a NFT museum

  • Dark Horse DAO, play-to-earn DAO focused on Zed Run

  • Alien DAO, for purchases of alien crypto punks

Contributing To DAOs

• Happens organically. People have different interests and will contribute in areas where their interest lies

Example:

• Flamingo DAO community loves generative art

• The LAO and Flamingo DAO provided support

• Collected tons of art blocks

Flamingo DAO

• Started in October 2020

• Executed on the strategies they came up with:

  • New class of emergent digital artists (e.g. ix shells)

  • NFTs (e.g. CryptoPunks, Autoglyphs, generative NFTs, and other early NFTs)

  • Metaverse (e.g. land/parcels and other items in the metaverse)

  • Sports collectibles (e.g. NBA Topshot)

Generative Art NFTs As The First Asset Into DeFi

• For works that are more networked, it is possible to get an approximation of pricing

• Pricing information can then be used in DeFi (e.g. use as collateral, making loans against it, etc.)

"There's a whole bunch of financialization of the traditional art market, it's likely going to happen with these like networked entities first, and that in large part covers generative art." - Aaron Wright

Do People Specialize?

• Mix of both

• There are generalists that are into a whole bunch of different things

• There are specialists that are super into a particular project

Neptune DAO

• When Compound announced their governance token, The LAO geeked out on it

• DeFi has a different risk profile than venture capital-style investing:

  • Need to claim/stake

  • Risk of rug pulling

  • More complex calculation that needs to be done

• Had an idea to pool capital and be supportive of projects that require liquidity at launch. Resulted in the formation of Neptune DAO

Token For Neptune DAO?

• No native token yet

• There's conversations about how to make something like that happen

Regulatory Issues Around Token Issuance

• Interest in DAOs are not securities; more akin to partnership interests

• DAOs have a mechanism called Rage Quitting where users can walk away with their money

• People have more control over their assets in a DAO than compared to a VC fund or a Hedge fund

Museo

• Launched Museo to be a permanent collection for art

• The artists themselves are doing the curation of what goes into Museo

• Artist donate to Museo —> Existing members accept it —> Artist gets to decide what gets accepted next

"I think, again, like going at 50 years, I can't imagine that we're not going to see some NFT-native museum that sits alongside or is as reputable as something like MoMA or MET or some of these other amazing institutions that we see across the globe." - Aaron Wright

What Is The Metaverse

• Metaverse is the context for the next generation

• Some of the virtual worlds (e.g. Decentraland, Somnium Space, Cryptovoxels) could end up becoming the dominant virtual world

• Foresees that NFT-based games will coalesce together with the metaverse

Favourite Video Game

• Civilization. Played 1 through 5 very heavily

• Had to uninstall it because he got too into it

Single Favourite NFT

• Huge XCOPY fan

• The aesthetic appeals to him

• Theme is a little dark

Most Controversial Thought On NFTs

• NFTs are actually still discounted right now

"So I could see a world in the future where financial products like DeFi is really just servicing a more creative economy, where people are trading art, ideas, memes, culture." - Aaron Wright

If You Could Improve One Thing In The Crypto Space

• Regulation. A lot of the rules don't firmly work in the crypto space

World Of DAOs In 3 Years

• Exponential growth in DAOs

• Building out the tech tooling for DAOs

• Might see DAOs become massive household names over the long-term

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