Twitter Spaces Transcript B: Jae Kwon - Decentralists, ICS and Smart Contracts (followed by Liquid Staking)

[ghost]

CryptoCowboy:
Hey, Jae.

Jae Kwon:
Hi.

CryptoCowboy:
I actually ironically think that the issue with liquid staking the relative analogy would be closer to 2008 financial crisis where you derivatives and4 mortgages on mortgages and that's really where you had a secured mortgage that you were taking equity out of and driving derivative products.
That's why liquid staking shouldn't be in a secure hub. Like to your point and on you the for this that that the original staking is to secure the network. Period. End of story. If we run financial derivative products, they need to be outside of the secure hub.
And have no problem running you know derivatives on on other coins or other products but it should not be in in compromising and again doing paper on paper type of financial products that we've already seen in macro scales completely fold.

Jae Kwon:
Yeah. Thank you for that.
So.
it is it is a lot like
Or committing to particular.
I guess structure, I don't know. Some commitment.
And then?
And then the liquid staking tokens are kind of like derivatives of that house.
Based on mortgage and so on. And then if the building burns down then.
Yeah.

CryptoCowboy:
That's it. And then you have this this collapse, right? And it it it's literally no, it's a derivative product. That's what liquid's taking is.

Jae Kwon:
Uh-huh.

CryptoCowboy:
and derivatives are not a problem if done in a correct isolated box, right? They're just a product. But when they're built on top of something that is meant to be a foundation.
and you start and then you do multiple layers of it because that's what ends up happening financial products as you get derivatives on derivatives that's what the collapse is and so when

Jae Kwon:
Yeah.

CryptoCowboy:
and you start and then you do multiple layers of it because that's what ends up happening financial products as you get derivatives on derivatives that's what the collapse is and so when we saw this
And you start and then you do multiple layers of it because that's what ends up happening, financial products, as you get derivatives on derivatives, that's what the collapse is. And so when we saw this, I was like, we're literally building the same thing from a financial instrument over here. This is a fundamental problem. And to your point, you called it out, which is perfect. That's not what the intent was.
Staking it was not to make a derivative product a financial instrument.
Its purpose was to secure a decentralized network.

it's it's funny i think a lot of people are like well we're not quite sure of the ramifications of liquid staking and and i actually argue i think we know exactly what they are they they there are different term for a very old financial product of derivatives and we've seen how that has worked out and and worked out in a much more stable what we would what we would consider non speculative and stable economy
It's it's funny I think a lot of people are like well we're not quite sure of the ramifications of liquid staking and and I actually argue I think we know exactly what they are they they there are different term for a very old financial product of derivatives and we've seen how that has worked out and and worked out in a much more stable what we would what we would consider a non speculative and stable economy and look what it did.

Jae Kwon:
Yeah.
My thesis for the past, for the 08 crisis, which, by the way, ripped through, you know.
of my life in one form

CryptoCowboy:
Hmm.

Jae Kwon:
Of my life in one form it.
It seemed to almost have been intentionally designed.
Like, you know, it seems like these crises are kind of manufactured, and they come every ten years or so.

CryptoCowboy:
Kind of.

Jae Kwon:
You know.
You know, OK, alright, I, you know, I I think there's good reason to believe that's what's happening and do you believe do you believe that's true and and do you think?
you know maybe maybe there are elements of that in liquid staking in the crypto in cosmos ecosystem like

CryptoCowboy:
Without a doubt.

Jae Kwon:
You know, maybe, maybe there are elements of that in liquid staking in the crypto and cosmos ecosystem, like that's why.

CryptoCowboy:
What with 100% without a doubt.

Jae Kwon:
OK, yeah. So it's not just me. Yeah, really think liquid staking is being pushed systematically by some actors in order to create the conditions for.
Um, for destruction.

CryptoCowboy:
Instability, correct.

Jae Kwon:
instability

CryptoCowboy:
instability correct yep
Yep, Yep.

Jae Kwon:
Instability, chaos, so that they can come out.
On top with order.

CryptoCowboy:
Yep.

Jae Kwon:
Yeah, and it's like this.

CryptoCowboy:
And that's why I'm saying like I'm I'm not fundamentally against the instrument of let's say liquid staking or even derivatives just put it in a box right and and have it run so that it doesn't affect the entire let's say ecosystem and or you know interchange the term economy either way.
allow that derivative product to run on its own and not be again upholding an entire economy or ecosystem that could come down but without a doubt O eight was was one i mean just look at the transfer of of wealth what Blackrock did in terms of of buying up and a transfer of private homes into funds like it's pretty clear what ended up happening and the same people that created it were also the same benefit biggest benefactors that isn't coincidence
Allow that derivative product to run on its own and not be again upholding an entire economy or ecosystem that could come down. But without a doubt, O eight was was one. I mean just look at the transfer of of wealth like what BlackRock did in terms of of buying up and a transfer of private homes into funds. Like it's pretty clear what ended up happening. And the same people that created it were also the same benefit biggest benefactors. That isn't coincidence.

Jae Kwon:
Yeah.
Yeah.

CryptoCowboy:
But I just, I really wanted to honor you. I wanted to give you that analogy and then honor you for holding true and say like look security if we if we are not securing the network.
Then what are we doing?
Right, if we have a network that can just.

Crumble them then why are we, why are we building what we're building? Why are we moving forward these ideologies if if we're creating instability at the same time? So I thank you for pushing back so much on liquid staking towards the hub at least.

Jae Kwon:
Thank you.

MadMan:
And I'd like to thank you too for you know, for bringing those points up. I I think it was well articulated. I appreciate that.

And and also use it as an as a way to incentivize creation of good tooling that fits specification you know.
Maybe we do want a bit of liquid staking.
Because I can see the utility in that sometimes, you know, like.
As long as there isn't.
As long as there isn't.
Too much emphasis on the secondary derivatives market.
Right. And it's, it's used for its utility which is to you know, to unbond faster with some penalty is how I would call it.
When conditions are OK, right?

CryptoCowboy:
Yeah, I think what you have to do. Everything in our world comes with a risk profile.
And and I think as long as you have thought through the risk profile and put a Max, you know what whatever that is and you've written it into the governance that only X percentage of state tokens can be in a secondary derivative or liquid staking market and therefore the caucus clearly shown that.
You can't. You're not creating any sense of a collapse. Absolutely. I I think you can provide freedom to financial instruments that way. And I'm actually, I'm.
An advocate for it, it's just you can't be at the compromise of the entire ecosystem, right. So I think you do one or two things, you allow a certain risk profile portion to be able to put into secondary markets and liquid staking or you move it into an isolated box in itself, run it much more like an.
I don't know. I'm not sure exactly. I've taught my head how you do it on a secondary I I think you probably focus on the risk profile of how much you're going to allow for the original staked amount to be in a liquid staking environment and all that can be managed on chain and your risk profile can be algorithmically managed as well real time.

Um, and so then you have, I guess, some of both worlds. Jae to your point.

Jae Kwon:
Yeah, I, I guess, you know, I, I wouldn't mind if the Cosmos hub just banned liquids taken entirely and just said, you know, you can't, you can't speak through ICA, you know

CryptoCowboy:
Yeah.

Jae Kwon:
Yeah. Yeah because because I honestly think I see the Cosmos hub and say no we want liquid steak and give us liquid staking. You know and and and then and then we go huh. You know we're not doesn't feel secure. We kind of want a minimal hub that doesn't have liquid staking now right. So yeah I do agree with you. You know I do think we need a minimal hub that doesn't compromise. We need to have at least one and and and.
I feel like we should, we should be celebrating this diversity, not not feeling like it's it's a bad thing, you know?

CryptoCowboy:
Well, I feel like anyone who's building an app and building value on top of an ecosystem, just like building a house, you want a firm foundation.

Jae Kwon:
Hmm.

CryptoCowboy:
We all should be concerned about that, that we're building something on, on, on something that isn't firm. And here we are putting so much time and effort into creating value on something that could just collapse. That's not good for anybody. Like like we look at the devastation on any of our collapses that we've seen, right? And so if we can.
Foresee that that's a possibility to mitigate against it, then why wouldn't we be doing that?

Thanks, Jae.

Jae Kwon:
Thank you.
Um.
So how do we start? You know, I do think we need to start with.
Several proposals for a Constitution that lays it out and says why.
And Thursday, Adam one. But it's it's, I honestly think the ATOM 1.0 Constitution should be split into two, into one you know?
So we take out the photon token entirely, and then.
Um, take out the photons and then flush it out a little better. And I think we have a good start for a minimal Constitution, and I'm kind of waiting for people to.
Hinting people to fork.
Fork it and and and for us to create.
Many alternatives. One thing I noticed the other day is that if we have ICS.
It it shouldn't be hard to create an application.
That.
Auto stakes.
Atoms just automatically sticks atoms across the board, according to the you know.
The ratios and then forwards all rewards pretty much.
Or or some of the rewards.
You know mine. You know at least all the transaction fees to the validators.
OK, so in other words, if we have ICS, we can.
What I'm saying is the photon that was proposed in Atom one is going to happen automatically because people are going to want to.
People are gonna want to.
Autostake.
Because and it would be easy because someone wrote that application and you'll know it's secured because it's running. You know and and and and there. If you tokenize the auto staked atoms, you have photon, you have a, you have a, you have basically a.
Deflationary token and not exactly like what's in that one, but anyways so it's inevitable that we're gonna have a multi token system.
Anyways, moving on.

Ian Clausen:
Hey, Jae, quick, quick question kind of in that line that I'd written down earlier, but.
Does this group have any ideas about how to get like individuals that aren't validators to to be more involved in the voting process instead of just defaulting to whatever the validator has set when when proposals come up?
Because I think that also contributes to the fact that we, you know, was stated earlier around some of the validators being quote UN quote whales within the system. Well, that's just exacerbated by the fact of individuals not participating. But I also know that, you know, we've got to.
Asking so much of an individual to be so involved at different levels can be difficult as well. So just any ideas around how that might happen? And I bring it up because in the context of what you just said, if we are auto staking all of a sudden, if that's happening for me automatically, I'm I feel like I'm probably even less likely to get involved in governance.

Jae Kwon:
Hmm.
Yeah, yeah. I mean, OK, let's talk about this. So.
Umm.
From a governance point of view.
I'm going to want I want to delegate to people, not validators. I want to be able to delegate to anyone.
So that when I'm not actively voting because I can't say I know, I know some someone or some Dow has my back and voting and I trust them to vote. Maybe, you know, and maybe there's some penalty for delegating it this way perhaps or whatever. But like you know, so maybe my vote is not 100% but but I fully believe we'll have better signal this way.
So isn't that like kind of like liquid democracy? Except this is obviously not a democracy, it's more of a capitalistic voting system. But it's a liquid voting system. What if we what if we implemented?
And had some experiments like an implementation in GO and GNO and and in CosmWasm.
That and and we try to see what system works for us for liquid delegations.
So, so I can imagine wanting to.
Wanting to auto stake for simplicity's sake because I don't know, say, right?
Um.
But.
Yeah, knowing that, my vote will go towards, you know.
An outcome that I would I would agree with.

Ian Clausen:
Yeah, I mean that gets super better because maybe I want to set my governance preferences before I let it auto stake such that maybe I fall in line with a with a validator that's, you know, thinks the way that I think, right?
Umm.
But I think auto thinking is also interesting because it would probably diversify.
Where people stake, right? Like you can algorithmically manage to have the validators more balanced as a set than, you know, folks just picking at the top of the list, or, you know, based on Commission or whatever. You know all the other reasons.
I mean, if we're honest, everybody's looking to make the most money at this point. Probably, you know, like and and less about.
Whatever the validator is said about how they're going to vote.

Jae Kwon:
Hmm.
Yeah, yeah. I think we can do a better job. Well, you know, the auto-stake.
Yeah.
That's, you know, it's just a lot of design space here, so it's probably gonna be.
Little tricky.
To get right. But yeah, it'll probably happen anyway, so we should get ahead of it.
And, and I think though that some of this should so the auto staking system does have some power because it can propose an equalizer system for validator payments. But I really do think we should.
We should take that into the Constitution.
You know to say that validators are going to get some minimum pay to cover.
They're their infrastructure expenses.
And and.
And specify what that algorithm is.

Ian Clausen:
Yeah. And we've seen that I think in in on other chains, right, where there's caps about how much you can have bonded or staked as a validator, right, which then forces, you know, new folks that are coming to players. I don't know if that is the solution, but something like that could be written into the Constitution.

Jae Kwon:
Hmm. Yeah, yeah.
And, you know, I'm sure we'll have. Yeah.
Validators need to be.
independent and if they are affiliated with another validator in some way they have to disclose it so on yeah all that needs to be kind of written
Independent and if they are affiliated with another validator in some way, they have to disclose it. So on. Yeah, all that needs to be kind of written down somewhere.

Ian Clausen:
yeah that all
Yeah, that all, yeah.

Ian Clausen:
I think that's a whole another ball of wax, that kind of KYC validators at that level, right? Or, you know.
Yeah.

Jae Kwon:

I don't know. I think that OK, we're not trying to solve the general KYC problem here. We're just trying to see who the, the, the validators are. I think it's fair to say the validators who are accepting delegations should identify themselves.
And, and I think the Constitution is where we should add clauses like, you know, you have to disclose your affiliations or associations with other validators. So we know you're not like, you know, smurfing us or whatever.

stakepile:
Can I jump in here for a quick thought?

Jae Kwon:
Yeah, stakepile.

stakepile:
Since we're on this topic of you know, governance, what about the kind of structuring it's similar to how you know US congresses were validators would be capped at like a Senate system where you know let's say there are 100 validators each would be capped to like one vote and then the other tier where delegators are like you know the the House of Representatives where their.
Votes are are, you know just yeah, they're not pegged to a certain validator. So like their votes, whoever votes will be counted and you know if 50% voted that's so be it, that's 50% out of 100 or you know if 30% voted you know that's 30% out of 100. You know, total percent that's voted and that's not pegged to a validator vote.

Jae Kwon:
Yeah, that's that's a good thought. Just don't have representation altogether.
Right, just direct phoning only.
We'll have to change our quorum quite a bit.

stakepile:
right

Jae Kwon:
Yeah.
And. And we don't know exactly what that should be.
But.
I think that's a good way, you know, I.
Umm.
I still think.

CryptoCowboy:
Jae, this could be a good experiment for another hub.

Jae Kwon:
ohh the minimal hub where there's no delegation

CryptoCowboy:
Yeah.

Jae Kwon:
Have more of an expectation of direct participation, right? The nice thing about having delegations is is I think it might actually represent the token holders better.
if we do it right

CryptoCowboy:
Hmm.

Jae Kwon:
If we do it right then only having only having direct participation like like.
I do think we can get better signal.
If we can delegate to people we trust to to analyze a proposal.
Then, you know, and if we can do that, if there's anyone we can trust who's gonna do the work anyways, and we were gonna agree with them, it would solve it. It would. It would free up a lot of mental space for all the participants.
Rather, if everyone had to vote individually.
And that was the expectation all the time. It's almost like we're raising, we're raising the the amount of joint.
Focus we have to put into every single proposal.

CryptoCowboy:
Yep.
Yeah, I don't know that this is the answer, but it's, you know, just trying to draw correlations here. It's similar to once again U.S. government House and Senate and and I kind of cringe when I even say that because of the bureaucracy, but.
What it allows for do is one side is proposing and the other side is is approving.
And so that's what I meant by a tiered system, if there's something to get it much more efficient on, and maybe this goes into some of the constitutional governance on some more structure on what is proposed. So we don't have such a.
High influx of things that aren't relative. I'm I'm not sure, but if you had some way to make sure that the proposals were elevated and then to your point you're you're not drowning people in.
Votes or things to read through that are of low relevance. You elevate the proposals up to elevate engagement at the same time to make sure the community is getting what's important in front of them and and at that point they know that it's really important for them to vote. Like what is being brought forward is is of substance.

Jae Kwon:
Hmm.
Can we can we do that? There's quorums, so adjusting having a dynamic quorum system that ensures that only.
You know.
The right number of proposals come into focus because they passed a quorum and then that's the bar where after everyone should take a look.

CryptoCowboy:
Yeah, I, I love that. And especially I think if you could get to a point of where that quorum was.
You know.
I again I'm I'm gonna I'm trying not to to bring in our U.S. government too much but it's kind of something that that a lot of us are are familiar with and and so like if those seats have quorum or voted on by the the Community right they were elected individuals for representation and maybe if you wanted to get into a point where everyone's speaking about terms right and so there's there's terms of that Council.
That they have a a specific lot of time and then people get re, you know termed in.
I think they could be really interesting, but I think that's where you're driving efficiency and proposals, you're driving structure. You're adhering to much more governance, which is only going to, as long as it's done correctly, it's only going to allow for the community to scale much more efficiently together.

Jae Kwon:
Yeah.
And yet, if it's going to be on the minimal hub, it has to be some minimal system.

CryptoCowboy:
Yeah, totally, yes. Can't get away from that term.

Jae Kwon:
Yeah.

CryptoCowboy:
I'll think through more of the quorum concept, Jay. I think it's really it, it's strong. You know, we've been thinking through it on our side for a while and and have some some more deeper thoughts around it. But I think I think there's something there. There's a lot of nuance in the design that needs to be thought through and your term of again game theory and subversion always has to be at the forefront when you're designing something like that, but.
I do think that's how you start to take the whole ecosystem to the next.
Level.

Jae Kwon:
Hmm.
I imagine.
Imagine.
Ohh yeah we can take a look at historic performance of yeah how many people are voting directly without delegation to get the right figure for the quorum amount.
And then..
As long as, as long as the system is. Yeah, yeah, we could probably solve this in a systematic way. Like there could be a heartbeat. You know, like maybe. And once a year everyone has to vote just yes on this thing, you know, just to get.
Adjust that amount, that quorum amount or something.
Umm.
OK.
But, but I think the common thing here is that, we kind of want to try and experiment where we.
The validated delegations in governance as much.
If at all.
No.

We talked about equalizing validator pay, which we'll need to do for an ICS system.
Different ways to do that.
Um.
Next time we have this call, I think we can have.
More smart contract developers.
On the call and we can focus more on that topic.
I think next week is the holidays, but maybe when we come back from the New Year we can have another call like this.

MadMan:
I would love that.

Jae Kwon:
Alright.
Right.
Um, so the next call, the decent next Decentralist, round table or town hall, whatever we're calling this.
Will be probably on smart contracts and ICS we can talk about liquid staking too we can have this kind of conversation we'll try to get more developers on the call especially from CosmoWasm and EVMOS so please please invite people to join
And we'll make an announcement about the date sometime in the next few days and schedule it for next year.
Early next year.
Have.
You know.
Happy holidays and Merry Christmas.
And hope you all have a wonderful end of the year and happy New Year.

Thank you all for coming.

MadMan:
Thank you.

Adriana:
Thank you all and thank you, Jae.

Jae Kwon:
Thank you all for conversations. Bye, bye.

[jaekwon]

Thank you JohnnieCosmos!

[jaekwon]

Added to https://github.com/decentralists/DAO/tree/main/meetings and also https://github.com/decentralists/DAO/tree/main/contributions. Please check.

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