May 24, 2022

Charles St.Louis: Element Finance, and voting vaults as a primitive

Charles St.Louis is the COO at Element Finance, a protocol for fixed and variable rate yield markets.

Charles St.Louis is the COO at Element Finance, a protocol for fixed and variable rate yield markets and previously the governance architect at MakerDAO. In this conversation, we talked about Element’s governance system - with a particular focus on voting vaults, a powerful new primitive that decouple the relationship between capital and voting power and allow much more expressiveness in how users are given a governance voice in the ecosystem.

2:54 MakerDAO’s arc of decentralization
7:51 how Maker influenced Element’s design
10:22 the Governance Steering Council
21:25 voting vaults
29:10 L1 and L2 for governance
33:23 qualitative evaluation for contributions
37:50 the ElFiverse and NFTs in the Element community
42:24 on being a protocol delegate

Mentioned in the show:
The Governance Steering Council -
Voting Vaults -
The Elfiverse -


Sina [00:00:18]: Hi everyone. Welcome to another episode of Into the Bytecode. Today, I sat down with Charles St.Louis. Charles is the Chief Operating Officer at Element Finance, a protocol for fixed and variable yield markets.

In this conversation, we focus on the Element DAO and the governance system they've designed, which includes a number of new and interesting ideas.

Importantly, Charles was previously the governance architect at MakerDAO. And so he's taken a whole bunch of his learnings from helping Maker transition to a DAO and brought them into Elements design. In this conversation, we talked about Voting Vaults, which are a really powerful new primitive that decouple the relationship between capital and voting power and allow much more expressiveness in how users are given a governance vote in an ecosystem. We talked about how Element is integrating NFTs into their community and how Charles thinks this might evolve over time. Towards the end, we got some of Charles' personal thoughts on what being a delegate in a governance system feels like, and what he would say to people who are considering this.

So I'll leave it at that and hope you enjoy the conversation.

Charles [00:01:58]: First and foremost, just as an introduction. I'm the Chief Operating Officer at Element and Head of Governance. I was previously as a decentralized governance architect at Maker, and the first person officially onboarded to the DAO as a mandated actor, MIP editor, governance facilitator.

And from my experience there, I learned a lot from setting up a very kind of core governance community. You can see all the problems with voting participation, the way certain technical smart contracts are built in the system to encourage people to vote, certain ways to lock votes in to make sure people are actually voting, a lack of incentives causing certain issues - there was a lot of big lessons that I learned from my two and a half years with Maker Foundation and MakerDAO, which did it ultimately helped shape part of the design of Council and the implementation Element decided to use Council for, for the DAO.

Sina [00:02:54]: Maybe actually, before we go into governance. Like, what was your experience like at Maker being involved with governance so closely? Because I feel like Maker is probably, I mean, it's, it's one of the most interesting arcs of decentralization of going from DAO to like semi centralized, to decentralized again and learning a lot of these things the hard way, I imagine. So what was it like being there through that?

Charles [00:03:25]: Yeah. So Maker was the first on chain governance system in the ecosystem. So I often say that I think first mover advantage, in many cases, is a paradox, especially in this industry. You see a lot of projects, go with experimentation, try big risks. And the people after that often learn from it and improve upon it and emulate.

So. It's really amazing to see how far Maker's scaled since like the first creation of SAI, all the way to MCD and then governance, dissolution to the foundation. Moving from there. My specific role was building out the Maker Improvement Proposal framework to enable anyone in the community to propose changes to both governance and the protocol.

And that was a huge transition. Just pushing everything over to the governance community, helping them understand how the proposal life cycles work for technical proposals, for governance, social proposals, setting up a location for forums and chatting was definitely an interesting thing. At the time we started using Discourse.

And now it's basically a defacto forum for DeFi governance or Ethereum governance. The interesting thing about Maker is that - I'm going back to that first mover advantage problem - is that they built an incredible governance system. However, it's not upgradable, it's not flexible. So whenever you do, you want to make a change to that system, you have to upgrade the entire system.

And that includes like migrating the MKR token to a new token. So you have to create a bridge. It would involve a lot of overhead and technical debt. And obviously the people in the community are very used to certain processes. So getting people up and running with a new process is a huge adjustment as well.

But yeah, Maker's plan since 2018 was to have this foundation to bootstrap the protocol. I think it consisted of over nine engineering teams, around a hundred people. So in 2018, dissolving that foundation and moving people over to the DAO was a huge undertaking and understanding how to give control over to the MKR token. All of the governance responsibilities was a huge transitional period. And just last year, it finally dissolved and all of these teams moved over to the DAO. The other people went to different projects, including myself. Although I did help out with governance and MIP editing for quite some time after, but the ecosystem is thriving.

I mean, I think almost 11 billion DAI generated now, from 2019. So, and the teams are, are great. The DAO teams within Maker are called Core Units. And essentially it's MKR holders voting them in, they're paid a budget through the protocol revenue, which is just surreal to explain to most people and they're working on protocol engineering. So improving the Maker Protocol adding features, onboarding collateral, there's the Risks teams that like understand the risks behind adding these collateral. There's the Oracle Core Unit that makes sure that the pricing around these certain assets and liquidations are handled and all these teams are working together in harmony to onboard more collateral for people to borrow against, even hosting events at all those big conferences like Devconnect.

Like I think. DAIvinity was funded by the Maker Protocol. So all these teams are doing a great job. They're learning a lot of lessons along the way, but it's definitely the role model for many DAOs to, to learn from, but also get inspired from.

Sina [00:06:56]: That is wild. Yeah. So it really, at this point, is being operated as a DAO, right? Like truly when a lot of people are talking about it and it's not in fact the case, but with Maker, it's coming from the DAO.

Charles [00:07:10]: Yeah, everything is from the DAO. And the only thing that I would probably tweak or learn from the core unit model is that yes, the teams are onboarded by MKR holders and paid by the protocol, but governance and the governance processes still take quite a lot of time to push things through. So to actually see these core units have assigned responsibility to push things forward quicker in the case of emergency situations or prioritization would be great.

So having control over their area of expertise, because they've been trusted to do that, but actually act faster than a traditional governance path that someone from the community would put forward. So that would make these a lot more fit.

Sina [00:07:51]: Yeah. Well, we could talk about maker forever, but I'm actually curious, how did that lead to Elements governance design?

Charles [00:08:00]: Yeah. So, I mean all of these terms definitely come up like “voter apathy, voter fatigue, starting with fatigue, turning into apathy,” having these malicious proposals be snuck through because people just don't want to vote every five seconds. And that's, that's the main assumption I think a lot of DAOs these days should keep in mind is: You don't really want everyone to have to like vote very frequently. Like it's a, it's a bold assumption to think that people want to vote even once a month, even twice a year. So that's where we kind of looked at the Council model and the representative democracy model that you'd see in the traditional corporate governance or traditional governance, is that if you can kind of put your trust in a council to make decisions, they're compensated to be more data-driven, there's more likely to be better results coming from that, because if everyone's voting, it could result in poor decisions because one, they don't spend the time to actually look at like what's happening. They just click on an option.

Sina [00:08:59]: very demanding to, just to have enough context, to be able to meaningfully engage with the proposal.

Charles [00:09:05]: Exactly

Sina [00:09:06]: In some ways it's a full-time job, unless you're like, Embedded in if, unless you're doing something day to day, that is somewhat related to the governance process of this protocol. And that gives you particular insights, which let you engage with like certain types of proposals. And then not again, not like probably everything that the protocols going through.

Charles [00:09:30]: Yeah, absolutely. it's not just with makers with any doubt, like ENS, Gitcoin. All these ones that recently launched is they come out with these terms like delegates and stewards, which are essentially the same thing. But to be a delegate, involves a lot of attention you have to spend on the forums, engaging with different community members to get their support, understand what they want. And there's only so much time where you can actually spend without getting paid. People have to pay their bills. They have to work on other projects. So compensation models is definitely at the forefront of many conversations in these DAOs and actually compensating them thinking through like specific models, if it's on a by-term basis, could it result in them pushing forward ideas just to get paid? Should it be on a per block basis based on the responsibilities? There's all these considerations that you have to keep in mind when compensating delegates or councils.

Sina [00:10:22]: And so, Elements, has gone with this delegating model where basically, the larger community delegates their votes to anyone else they want. And then there's basically a threshold of votes beyond which you, as a recipient of these votes is selected into the governance steering committee. Right? And then that, that means that you're like more fully involved in every Element governance.

Charles [00:10:54]: Yeah. That's well put, so. Taking a little step back Element was very passionate about governance. Since the day we started, we were very focused on bringing primitives to both DeFi, but also to governance because there's a lack of innovation. Ever since that DeFi craze kind of came up where protocols would essentially just use Snapshot and a multisig to govern, which was not in that like core ethos of decentralization.

So we built a governance protocol called Council and it's built on Ethereum and essentially in short, just allows a community to manage a DAO, but the system is designed to enable flexibility, experimentation and modularity while maintaining the security and robustness of the protocol it's governing.

So this means you can try certain modules for experimentation around funding, grants, voting power, adding all these things that wouldn't have you necessarily need to upgrade the entire governance system. So you can try these things if they don't work, just move on. If they do work, That's great.

So we use this implementation or this governance protocol, for Element, and the three main features are – like the first one you mentioned, and that is the Governance Steering Councils. This is kind of like an emulation between traditional corporate board of directors and the great parts from decentralized governance, like delegation and voting quickly, spending money quickly, with purpose.

The GSC essentially is - there's something called the Governance Steering Threshold and it's delegation. So it's on a rolling basis. It's not like an election based like in traditional governance or Synthetix council model. So if you get delegated a certain amount of votes, I think it's around 110,000 voting power, you are eligible to join the GSC so you can join by calling a certain function, “Join”, and if you don't want to participate as the council level, you don't have to have opt in

So once you're on the GSE, you have certain authorities at a base level, and of course, governance can add things to that as it goes. And as the GFC becomes more a vision and a core part of governance, but the first ones are the ability to push a proposal straight on chain.

So the typical flow is you create a proposal. There's a review period. It goes to an off-chain Snapshot as a sentiment gauge to see if it's worthy of passing forward to the next step. Once that passes, it goes to an on-chain vote. And if that passes it's executed. With the GSE, they can just draft the proposal and put it directly on-chain.

And the council is really interesting because they each have one vote if you're on the GSC, it's not like it's their delegated voting power of the top. So it's, Sybil resistant at its base, which is also really cool.

Sina [00:13:41]: They each have one vote? What do you mean?

Charles [00:13:45]: So in normal delegation systems, let's say you have 100,000 voting power. I have 59. If we're in the GSC and we're making decision together, you have a lot more voting power than me, almost double. So you would be able to sway the vote as a whale would in your system. So it's like a capital issue.

So in this case, it's just each GSC member has one vote. It would take a quorum of, let's say two or three people to actually pass that vote on chain. So it's like this, like decision-making at the top level and ultimately the community does have the ability to kind of veto for lack of a better term, those decisions. So it's not ultimately on the responsibility of the GSC as a liability.

The other cool thing about the GSC is that they have their own treasury contract that is funded from the DAO. So the DAO can give this treasury contract of the GSC, certain funds for them to spend on one of projects, grants, or, or things that need to be spent quicker. So it's an expedited process, allows them to spend without the traditional barriers that governance would have to go through.

Sina [00:14:51]: Right. The side treasury that the GSC has is kind of operates as a, multi-state basically between the members of this committee. Except for the fact that the that the larger group of voters can still probably veto what's about to happen.

Charles [00:15:09]: Yeah. And so the cool thing about the GSC model is that it can extend further. So right now there's only one Governance Steering Council, but there could be a Protocol Steering Council or a Risk Steering Council or Treasury Steering Council, or they have the same models there and they have their own treasury to spend and give grants and fund people from the DAO.

So you could go that way with the organizational structure. Our DAO is still figuring out how they should approach like the DAO structure. If we should use things similar to the core unit model, where they like propose their budgets and they show their team breakdown, or you could go to Orca pods where there's working groups.

And it's fun to do that. The DAO is still very like in this early stage of figuring out what's best, which is really cool from my perspective,

Sina [00:15:55]: I mean, this is actually pretty mind blowing that all of this is happening on chain, right? Like you can go look at the Elements ethic council smart contracts, and like all the process of delegating your votes to someone, like ratifying a proposal. Like all of this stuff is actually happening in the smart contracts. I think, I mean, the idea of DAO's can seem fuzzy and as this like idealistic vision that's quite far off, but when you look at a system like this, that's going to be managing real amounts of funds. It's actually all happening in a, dependable way via these smart contracts. And I think that's like super cool.

Charles [00:16:39]: I mean we're still early. There are actually quite a few projects looking at using the Council Protocol for their own governance system. And the cool thing about that is that they don't have to take the whole protocol. They can take Voting Vaults, they can take the GSC structure and apply to their use case.

So it's not like you have to take the whole framework. It's modular at its base. So they can take the parts that they want to use and continue to use the rest of like, whatever structure they've built. But. I did this really interesting talk at ETHDenver on like why crypto protocols are failing on governance and how to fix it.

And I went through the whole history of governance ever since humans began beginning with tribes and clans all the way to like republics and whatnot. But the main, the main point was that governance is never going to be fixed or solved. It's an evolving thing. Like it constantly fails. It's about adapting.

So what we can do in this industry to make better governance systems and more participation is to actually just build adaptable and flexible systems at the basis so that you can actually change as the political dynamics alter within the DAO. So that's one, the main thing that I brought up earlier with Maker is that like changing their governance system is very hard from many reasons.

Migrating technical debt, user adoption, all these different things. So if you start with a base level system that allows you to adapt quicker, it can be more successful in the long run to run more efficiently.

Sina [00:18:03]: Yeah. how does this sort of a system touch the regulatory legal world. Cause I think that's one of the big questions that as a team who's like launching a protocol, you have to think through.

Charles [00:18:17]: Yeah. So there's different approaches. I mean, like we saw with the Maker Foundation and MakerDAO, they, their original goal was iterative de-centralization or, there's a few different gradual decentralization, different terms like that. So if that's your original goal, and like, the plan is in place to actually go fully decentralized over the course of a few months, a few years. And that's the original goal. That's great.

You ultimately do need to get there so you can take the gradual way. You can take the immediate way. With our launch - We essentially pass over voting power immediately to the community. There is no snapshot or multisig. it's ultimately up to the DAO. So I think a lot of projects that haven't had the liberty to do a lot of governance experimentation, or go through these processes on their own, tend to go to the lowest hanging fruit of, “Let's use Snapshot and a multisig for now while we figure out what our grand plan for governance is. In the meantime, we can transfer a snapshot to the DAO voting.” But after that, I will have to decide between building our own system using Governor Bravo from Compound, maybe even using Council now. So it's kind of like this crutch to lean on as they figure it out.

But I think it's a really huge priority to fully decentralized. And a lot of projects are kind of putting it on the back burner when it should be the ultimate prior.

Sina [00:19:38]: How, how so I imagine if you're fully decentralizing out of the gate, that also requires that you've kind of helped develop a community that understands what's going on. And that cares enough about the projects to meaningfully get involved. How did you think about that piece of it? Or what, what were the sorts of things that you did in advance of this? Like, you know, a long time in advance of it?

Charles [00:20:01]: Yeah, I think the first thing that is important is to educate around what governance is going to look like. I think we first post our introduction to Council, nine months ago. And we started to explain how it's going to work. Like, what are the key features? What it means for the community, once governance launches providing them with a foundational kind of tool basis.

So we came out with the Element Governance proposal framework. Doesn't have a, quite a ring to it yet, but it explains generally how, like a social proposal will be passed, how a technical proposal will be passed and the different statuses, ways to propose, channels to aggregate like a governance dashboard, a forum, giving them the like level of tools to actually start walking before they run. And then once everything is kind of moving, a political dynamic has been settled on, they can start to improve it as they go.

So over-communicate about where you're going to do with governance. Don't just drop it out of the bat because it's a really bold move to just drop a governance token, if that is your use case. And then just say the community is going to figure it out because that's going to take a long time. So you want to kind of provide them with like minimal tools to actually get started. And then once they're comfortable to evolve it and make it better as like a collective group.

Sina [00:21:25]: Right. So, you give the system enough of that initial push and momentum to carry it through this initial stage. But then in the case of Element, you've also left like pretty big decisions that the system needs to make, right? Like even unlocking the tokens in the first place. And maybe this is a good transition to talking about these voting vaults.

Charles [00:21:46]: Yeah. So that is my favorite feature. The third feature, which we might not get to, is kind of Optimistic Rewards and Optimistic Grants because - In general, as you probably know grant systems in the ecosystem, always kind of assume a pessimistic approach to the grantee failing and the payment method and the way they're compensated is reflected in that.

So it's kind of like this off-chain way of creating reward systems and calculating, but also maintaining the ability to clawback if milestones aren't reached.

But Voting Vaults. So it's my favorite because it increases inclusivity of like governance community in a DAO, but it also allows capital efficient voting.

So I'll start with capital efficiencies. In many systems, you essentially have to lock your voting power up in a contract. And the only thing you can do with that is vote on proposals. Whether that happens each week, once a month, twice a year, it creates a huge opportunity costs on participating in governance.

And if you're a whale, like that's fine. For people who are minnows or smaller holders - they kind of have this opportunity where they could go into DeFi and use their governance tokens to borrow against it or LP, or actually make some sort of return from it. So it's a huge problem and reduces governance participation. When you have people just go off and do their own thing and stop to care. So with Voting Vaults, it essentially allows you to assign voting power or voting weight to a specific user. Now it's very broad. So I'll go into some examples.

The first one could be a Compound Voting Vault. You could have your governance tokens in Compound, borrowing against it in going and doing DeFi stuff with that all the while, maintaining the ability to vote or delegate in the system. So you get the best of both worlds. And I actually think this is a very base level governance incentive, which is also lacking in industry.

Another example would be an LP position. You go into a liquidity provider position with your governance token, you can still maintain the ability to vote. So it increases your capital efficiency and allows you to trust someone else to vote on your behalf or for you to even self delegate and vote as well.

The inclusivity piece is something that matters a lot to me, because I think with a lot of these projects with one token, one vote, there's a capital barrier. So you either have to go to the protocol that this governance system is governing and do activities to earn voting power, or you have to go on the market and purchase it where a lot of people can't do that.

With the inclusivity piece and Voting Vault, you can actually create an identity Voting Vault, which allows people to get voting power for their work efforts in the forums, on GitHub, in Discord, all these people who are in the trenches and actually making a huge difference in governance to get voting power, to equalize the different levels of the token, purely token way to voting.

So it grows the governance community allows more people to have a say, and ultimately the decision making reflects the entire community, as opposed to just one small niche of it.

Sina [00:24:59]: Yeah, this feels like a really huge idea. So maybe my way of understanding it has been that you know, we have this Council Governance System. Right. Which requires voting power as like, as an atomic unit for putting forward proposals, voting on proposals like passing proposals and importantly, like voting power is not the same as token ownership. Like these are two different things that are completely decoupled from each other. Like voting power is just this abstract kind of point system that's basically created inside of this protocol. And these Voting Vaults are a mechanism for defining how much voting that power, a particular address, has, and they get to basically write an arbitrary kind of like program that defines how much voting power a person has.

And like the most vanilla version of this could be that there's a Voting Vault. You put in one token into it and you get one voting power, you know, unit out of it. Right? And so that would, that would kind of approximate the existing governance systems, but you can do all sorts of other things. Like you're saying, like you take your token, you've put it into a Uniswap LP pool.

You have that LP token. Now there's a new type of, of voting vaults where you put in this LP token and it gives you maybe 0.7 voting power coming out of this. And to me, the very interesting idea is decoupling ownership of the underlying protocol from voice and voting power and making the relationship between these two much more flexible.

And it also allows you to. give voting power to people who like maybe don't even own any of the Element tokens, right? Maybe as Element kind of grows in its footprint in the world, you know, let's fast, forward 10 years, and this is used as one of the biggest, you know, bond markets on the planet.

You know, various stakeholder groups could get voting power by virtue of what they're doing already. They would participate in a Voting Vault that understands their role in the world. And basically. On the other side of it, mints them some voting power within the protocol.

Is that a good way of like understanding what's happening here?

Charles [00:27:39]: Yes, absolutely. I mean, it can be extended in, in so many ways. And that's, I think the most exciting part is that, I mean, let's say even if there was like a working group or a certain DAO team onboarded, you could essentially assign each member of that team who's getting paid by the protocol an NFT which represents voting power.

And the cool thing here is that as governance proceeds through their experience of voting, understanding Voting Vaults, the community actually has the ability to change the voting multiplier on these different Voting Vault. So as of now we have a vesting voting vault and a non-transferable vault.

But in the future you could have like, essentially the governance token be weighted less than someone who is an actual DAO contributor. Another cool one would be - because a lot of people complain about actually voting on L1 and the gas cost associated with it. And that also is a capital barrier along with the other reasons we mentioned earlier. But there could be an L2 L1 synthesis volt, and a few projects are actually looking into this and researching it where essentially L2 would post a balance trie hash and L1 would vote using the Merkle balance proof on L2.

So you could essentially vote on L2 and it’s recorded on L1. So. It could encourage people who don't really want to spend that capital to pay gas on L1 to vote on L2 and hopefully increase voter participation as well.

Sina [00:29:10]: Yeah, super interesting. On that last case, why do you think one would divide their governance system between L2 and L1. In that case, why not just put everything on the L2 in the first place.

Charles [00:29:27]: Yeah. I mean, that's a good question. I think it could eventually go there. I think a majority of governance decisions, like people would prefer to have it off chain because like, as you're seeing, the huge kind of appeal of Snapshot voting and signing messages to approve as opposed to doing it on chain.

You do ultimately want that accountability on L1 when actually executing something for the protocol? So figuring out how that could possibly work, where you could have essentially an execution layer on two and then it kind of does that same structure. Yeah,

I think that would definitely need some research, but it could be an appealing way to go.

Sina [00:30:09]: It's also, I feel like the L2 landscape is it's going to be a while before the dust settles and a protocol could have constituents on multiple L2s. So, you know, taking all of these Merkle proofs and compiling them on L1 to get the final votes might make sense as a way to get.

Charles [00:30:30]: Yeah, you could have like different L2 L1 voting volts for like Arbitrum, Optimism and the actual members who are using those chains and voting would just like, be able to go into that vault

Another cool one. As we see more DAO to DAO relations in the industry or acquisitions of protocols by other protocols would be something like a DAO merger vault, where essentially it gives token holders of other protocols the ability to vote, or even like where you actually have the Element principal token - so the fixed rate tokens – or any non governance token that get more votes than a governance token. So there's a lot of things that we'll figure out as we go. And like, ideas are proposed. We're working on something that makes it a little easier to propose a Voting Vault.

So like kind of like more of like a template where basically you just have to agree on The logic on actually assigning voting power and you'd propose it. And then if governance approves it, that Voting Vault would be then an option to governance to use.

Sina [00:31:34]: Yeah. How so when introducing a new voting vault, which, you know, indirectly introduces a whole new kind of voting constituency into the protocol, how do you think about how that affects the top down, you know, like if you're looking at the protocol governance from the top down and there's this like pie charts of constituents and like what they're each doing, how that affects quorums needed for votes to pass.

And I think the way council works currently, it's not going based off of like a percentage of the votes voted for something, but instead it's more of like, you have to pass an absolute threshold for something to go through. When you add a new voting vault, you'll kind of increase the total number of voting power in the system.

Charles [00:32:26]: Yeah, Yeah, that's a good point. So you'd actually have to keep a close eye on the actual threshold. So right now we do have a proposal threshold. So you have to have a certain amount of balance to actually propose something on chain. There's certain quorums as well, so that would all have to adjust as like the voting power in the system increases.

We haven't seen any ideas yet that have proposed anything related to the governance token. So that'll be an interesting use case. But yeah, in terms of proposing future Vaults, all that's really needed is to establish that logic for counting votes and providing voting power. and then governance will essentially vote to approve that method and it was successful and the integration is complete.

Any user can start voting using that.

But that's something that maybe the Governance Steering Council will keep an eye on to see, like how can we skip voting power and like establish and keep our other governance parameters updated as these things scale.

Sina [00:33:23]: Yeah. Super interesting. But it feels like a very powerful primitive.

Charles [00:33:29]: I'm very excited to see how it's going to increase inclusivity, especially. I mean, I personally think that I've done a lot of research on actually giving voting power or governance incentives through projects like source cred and understanding the qualitative aspect of measuring contribution has always been tough.

You have to create custom algorithms on measuring this cause people could just like certain posts or comment nonsense and it counts towards their contribution. So that's going to be tough with the identity voting vault is actually measuring the qualitative aspects of contributions because the quantitative side can be very like easily gamed, especially on like - let's say on like Github I'm contributing to the core protocol contract, or some other aspect, and I create a hundred commits instead of squashing into one. It could be easily gamed, right?

So it's going to take a lot of research and, and I mean, as we know, like whenever you introduce metrics, it's always a possibility of having it gamed. So it's going to be, it's going to be quite interesting to see that.

Sina [00:34:36]: Wait, so an identity vault. How would that actually work? You like you put in your Twitter handle basically as the input. And it's, how does it decide how much voting power you get?

Charles [00:34:53]: Yeah. So Twitter would be tough. I think the first ones that come to mind would probably be like a Github contributor to the Element protocol, like repo or the Council protocol itself. Another one would be like forum participation. So you want to think about the level of contributions. If it's just a comment in the code, obviously it shouldn't be weighted as high.

So it gets very complex when you start to think about like, how do we create these metrics for assigning voting power based on those. Maybe you could look at certain things on the forums. Like if this person proposed a proposal that was successfully implemented, that's like a boost to a score or a multiplier, or certain voting percentages. If they're a big delegate.

Sina [00:35:40]: how would the contract be able to read this information?

Charles [00:35:46]: It would probably all be done off chain and then just post it on chain for like the vote counting. So

Sina [00:35:52]: right. So there, there would be like some group or some sort of an oracle process for like computing, these things using off-chain computation. It's interesting that because these governance systems and I mean, just, let's say airdrops as well, having a need for being incredibly neutral, they end up rewarding work that is kind of more legible and can be, as you adjudicated in a more defensible way. And that means that it's usually around like code or like, did you use the protocol on chain or did you vote on governance? But it can't get into the subjective stuff or like, you know, the operational oriented work.

Like, that feels like a very interesting area of research and exploration. And the sorts of ideas that I find interesting there are like, just of giving up on the idea of trying to come up with some objective measure of someone's contribution. And instead, try to construct it in a subjective way.

Like, you know, just like everyone who's worked with them gets to like allocate some points on, you know, how much this person contributed versus everyone else. And when you aggregate all of this together, it gives you a sense of what's going on.

Charles [00:37:10]: Yeah, it's very hard to automate such a process. And I mean, like I say about governance in general is like, you kind of want to automate as much as possible, but the end of the day, you're going to have to have humans to step in whether it's in the case of emergency or setting certain parameters and actually looking at it from like a human level.

It is all about experimentation as this industry is. So I think that's, while I'll bring it back to this concept of Council and being upgradable, modular, flexible, blah, blah, blah, is that it allows us to try these things and if they work, that's great. But if they don't like, we learned a lesson and we do want to constantly just push forward new experiments, like Voting Volts, even extend further. And just continue on that path of Ethereum's core ethos.

Sina [00:37:50]: So one maybe last topic before we wrap NFTs as a potential part of a community and governance, right? So Element has this kind of PFP project called the Elfiverse, which is like a bunch of elves and they were gifted to users of the protocol. And I think some amounts of them remain to be given out by the protocol over time.

And my understanding is that these NFTs don't actually do anything functionally at the moment. Right? It's more to be a part of this social community, which I feel is like super interesting as a way to like tie people together.

But I'm curious, like how you're thinking about the role that NFTs in general can play in, in how these decentralized protocols grow over time.

Charles [00:38:43]: Yeah, it's definitely something that hasn't really been pushed forward all that much with DeFi protocols. I mean, obviously NFTs are blowing up. But the CEO of Element posted around the date of the drop was that our hypothesis, at Element was that NFTs will be an integral part of DeFi and DAO governance going forward.

And I think the major takeaway there is - Your community are your future governors. So bringing a way to build a community and grow the community through NFT is, and marking your PFP as an elf and bonding over these things brings everyone together. So it's more about a way to grow your community to different, speaking back to inclusivity, is like bringing the NFT, like group in bringing the DeFi group together and putting them together and allowing them to bond over these things. And maybe in the future, you can use these NFT is as a means of like a Voting Vault. So like, if you own this, like you get some voting power in the system.

So there's a lot of things that the DAO can decide on what to do with this project. And I think it just brings back to like, ultimately your community will be your governors. So you got to treat them well, you got to get them excited about things and bring them together. So that's kind of what the goal of this project was, is that it excites people. It brings people together and then they can decide where it goes.

Is it going to be a game? Is it going to be a gamified area to bring people back to the Element protocol. Is it going to have voting power. There's all these options that people can decide on.

Sina [00:40:15]: Right. It's I just, I love the fact that you can have like a playful kind of NFT project alongside like a hardcore financial primitive, like fixed interest rates, you know, whatever. And there's like a, there's an overlap in the Venn diagram with people in the world right now who are into both of these things and get a kick out of being part of this community.

I think there's like something fun and special going on.

It also makes me think of this like idea of, you know, great things start by looking like toy. And the fact that it's so playful is a very positive thing in my mind.

Charles [00:40:55]: Yeah, that's really well put. I'm excited to see what happens with the ElFiverse and if the DAO eventually creates a working group on, on pushing certain aspects of it forward. Maybe it could be some sort of game of how to experience that ties it back to learning about the Element Protocol and then tying certain aspects there.

Or if it's just a way to measure your Identity Vault as like an aggregate. So maybe an Identity Vault could be just tying voting power from your Github contributions, your forum ties, if you're a NFT holder and assigns you voting power to then kind of have a bigger say in the governance system, there's just so much that can be done.

And we actually are going to, I think, Cash on our team. He did a great thread on the architecture decisions around the ElFi verse and like what contracts we used what that means, that it's open source. It can be extended upon. It can be used for other projects. And just seeing what happens next is going to be really exciting that I was just picking up - I think we've seen four Element governance proposals come forward already.

I imagine some of them will move to a vote to soon. So we're really just in that kind of “walking before running” process and all the ideas in our Discord are just so exciting and it really shows like all the people who have got excited with these NFTs are now moving over to the governance channel to talk about like, how are we going to manage this?

Or how are we going to manage onboarding assets in the future? And all of these different areas are just starting to really like avalanche.

Sina [00:42:24]: Yeah. what advice would you give to someone who's considering becoming a delegate in one of these protocols? And I think there's a lot of interesting protocols that are coming live in, in the last few months. Right? Element, ENS, optimism.

There's just like a bunch of like interesting stuff that's going on. like, I wonder if you could - given you've been in and around this space of governance for a long time - what can you share about what being a delegate involves? like what sorts of people should consider this?

Like, what do you need to be good at? But you need to enjoy what is like the workload?

Charles [00:43:04]: So I think I have two answers for that. The first one is there are projects that recently launched. And the delegation delegate profiles are kind of up to the person to decide. So that one's a little tougher is like - don't consider being a delegate if you don't want to be involved on a daily basis or a weekly basis in this project, if you're not passionate about the project. If you’re doing it just to throw your name in the ring. Go ahead. But you probably won't get much adoption. The second one is, if there's already a delegate presence set forward, I think a delegate profile should depend on the areas of the protocol that actually need attention. So treasury management, protocol engineering, risk, the list goes on.

So if you can offer certain aspects in that, and you actually like doing it, much like any job, you should get some enjoyment out of it. Most protocols definitely need more technical people on the delegate level. Because a lot of these delegates are kind of these protocol politicians who have loud voices and opinions, and all of the opinions are I mean, good and bad, but you need more people who are actually on that base level.

So like foundational core developers, which is actually one of the reasons why our airdrop reached to the core infrastructure of like, Ethereum core devs and like public good projects is because these people understand all the problems that have existed in the industry for as long as it's existed, but also they've built the core infrastructure.

And these DeFi projects are on top of that. So they should have a voting power in how these things should be governed as well. I went off on a bit of a tangent with that, but with a delegate, I think - always be over like communicative, try really hard to set up community calls because people will follow you if you just try to organize. it's, it's hard to be a timid person with opinions when you aren't just going to push yourself to set up a community call and talk about things. The last thing I'll get to is’delegate compensation. I think it's absolutely critical for any project to compensate delegates or even councils and contributors, because there's only so much time where you can, like I said earlier, where you'll work for free.

And then the work will kind of get diminished. Malicious proposal will sneak through because people stop caring and it kind of just shows a lack of prioritization for the protocol to not compensate these people who are helping making decisions. If you can't do that and you're willing to spend on something that's a little less meaningful than you're probably not in the best political dynamic.

Sina [00:45:42]: Yeah. I mean, especially talking about like technical contributors, like just sitting down to understand the proposal and give real feedback on, it would take half a day, you know, easily. And this person's time is scarce at the end of the day.

Charles [00:45:59]: Yeah, and I mean, delegates can be a wide range of, they can be catherders. They can be like, yeah, coordinators. They can be technical experts, subject matter experts who actually contribute their ideas. What I really like about the Council set up is - back to what we were talking about, All the metrics that we would have to look at continuously in the governance system for adjusting quorums or adding voting bolts is – with a council, you can kind of view it as like a board of directors where like they're getting compensated. They have a treasury, they can spend to hire outside service providers to do data analysis continuously so that they have better informed decisions to guide things forward. So

Sina [00:46:39]: Like you, you don't need to think of it as like I'm at delegate as an individual. And I need to do all of the work. You can take more of a kind of like leadership, like PM type mentality of I have resources, or I can ask the protocol for resources and I can delegate pieces of where I can - I can delegate the other kinds of delegating like to get, to get the information I need to make good contributions.

Charles [00:47:06]: I mean, that's the Core Unit model with Makers that they have these teams that work on those various areas, but they have a Core Unit facilitator, which is kind of like the public figure or the protocol politician for that group where they're communicating all their updates on engineering, risk marketing.

But the team in the back end is working on this stuff. So they're like, they're kind of like the team leader or the face of the group which I find really interesting.

Sina [00:47:32]: Yeah. We could talk about this stuff forever, but we can gradually bring to a close here. Thanks so much for taking the time.

Charles [00:47:41]: Yeah, this has been awesome. I really appreciate it.