Sep 9, 2020

As the DeFi ecosystem is continuing to grow, more and more people are questioning the long-term viability of the Ethereum network as the “backbone” of the DeFi space. After all, Ethereum has been one of the most–if not the most–popular choice for building decentralized applications, or ‘dApps’. However, with each new dApp that is created, the network grows a little bit more strained under the weight of increased usage. In fact, earlier this month, the price of ETH tokens began to fall as transaction fees grew higher and transaction speeds continued to grow lower. Increasingly, it seems as though developers are going to need to seek alternative platforms for building new dApps on. Recently, Finance Magnates spoke to Jonas Lamis, the founder and chief executive of StakerDAO, a platform that was to govern financial assets in a decentralized, secure, and compliant manner. Unlike many other DeFi platforms, StakerDAO was built on the Tezos blockchain. We talked to Jonas about why StakerDAO chose Tezos as its foundation, about the ins and outs of decentralized governance, and about the roles that the STKR and BLND tokens play on StakerDAO. This is an excerpt. To hear Finance Magnates’ full interview with Jonas Lamis, visit us on Soundcloud or Youtube. Strengthening the Proof-of-Stake narrative Jonas said that the Tezos blockchain whitepaper was actually one of the things that initially drew him into the blockchain space in a meaningful way: in particular, Jonas was attracted to the fact that Tezos was built on a Proof-of-Stake (PoS) algorithm. Eventually, this interest in the PoS concept is what led to the creation of StakerDAO: “when we stepped back and looked at the whole space, we started to think, ‘how do we really [establish] this PoS space officially? How do we do it in a way that can really make the broader community aware of things like Tezos, and Cosmos, and Algorand, and these other networks?” This caused Jonas and his team to develop a platform that would allow users to interact directly with these networks and “take advantage of some of the real interesting benefits that some of those networks offer.” The concept started to form “much like the concept of PoS itself: all of the token holders in a PoS network need to participate in that network in order for it to be successful.” Jonas and his team drew a parallel between the PoS concept and the mechanism that powers decentralized autonomous organizations (DAOs): “all of the participants in a DAO have to participate in it for it to create value for all of them.” Therefore, StakerDAO was born out of the desire to build a DAO for the PoS world: on StakerDAO, “we can create products that open up entry to the PoS world for more and more users,” he said. Building models for decentralized governance “One of the main premises of this DAO is [exploring] how you manage governance” on a decentralized network, Jonas explained. “How do you manage a community of people who want to build stuff in an effective way, and how do you do it ‘on-chain’ so that it’s decentralized–so that you don’t have one central corporation or one central person that’s in charge of it?” Jonas said that in the current state of affairs, “a lot of crypto projects have ‘benevolent dictators’ at the head of them: in some cases, they’re anonymous benevolent dictators, and in some cases, a small group of engineers are responsible for moving a protocol forward.” “What we saw a couple of years ago was a lot of challenges in those centrally-controlled protocols to determine how they were gonna change,” Jonas said, pointing specifically to the Bitcoin and Ethereum forks of several years ago that resulted in the creation of Bitcoin Cash and Ethereum Classic. Decentralized governance can look a lot like representative democracy “The trick is to build something that gives everyone a say and puts a governance process in place that can run on-chain, but also that doesn’t ‘get stuck’–something that allows the protocol to move forward,” he explained, adding that this kind of a governance system was “one of Tezos’s main innovations.” Jonas said that therefore, StakerDAO “basically decided we were going to ‘steal’ that innovation and put it into a DAO.” Suggested articles Solitics is a Must Have for Brokers, Adds New Integration Go to article >> “So, the first thing that we built with StakerDAO was a governance model that was basically very similar to how the Tezos governance model worked,” he explained. “What that means is that if you become a StakerDAO token holder, then you get a say in the process.” What does this entail? “The most basic thing that you can do for network governance is elect your representatives,” he said. “You can vote on the council that gets to vote ‘yes’ or ‘no’ on proposals for StakerDAO.” Jonas said that essentially, the governance system on StakerDAO is a decentralized version of a sort of representative democracy. “[…] That’s what a lot of crypto is doing these days: trying to build decentralized models of systems that already exist in centralized form in the world today. Governance is one of the most important foundational things to put in place first so that you can have the community manage them instead of the ‘benevolent dictators.’” Is Ethereum sustainable in the “long term”? Governance actions on the StakerDAO network are facilitated through the STKR token. “Because we are focused on the PoS space, we decided to build that governance on top of the Tezos blockchain,” Jonas said. “Almost all of the other DeFi projects that you hear about today have been built on Ethereum; there’s a lot of Ethereum love going on these days, which is awesome.” However, “we took a different path here, which is to build for the long term: we think that over time, a number of these Proof-of-Stake networks are going to emerge as really important providers of services across the ecosystem. We think that Ethereum (as it moves to PoS) will also be a really important provider of services to the ecosystem, and I’m sure we’ll be doing things on Ethereum,” he said. “But we built our governance system on Tezos.” And indeed, while Ethereum is scheduled to move to PoS system that would theoretically make the network more viable in the long term, the Proof-of-Work algorithm that the network currently runs on has led to big questions about the network’s ability to scale in the short term. Therefore, the STKR token is used on the Tezzos blockchain to handle governance matters for the StakerDAO platform. These STKR tokens were originally distributed as tokenized representations of equity for early investors in the platform. “Like every startup that I’ve been a part of, I needed to find investors to help us start this organization,” Jonas explained. “Therefore, in a very ‘silicon valley’ way, I went out and talked to venture capital firms and angel investors and people in the crypto space who were excited about this concept, and raised a round of funding to build StakerDAO.” “Rather than just give people traditional equity, like you would in a startup, we decided to give them a tokenized version of that equity–that’s what the STKR token is today. So, essentially, the STKR token is a governance token that lets these early investors participate in the network.” “The process, so far, has been to have a small community of about 20-30 different token holders. Those token holders have appointed that board of directors,” he said. “If you hold tokens [on a PoS network], you better participate in the network, or you’re decreasing the security of the network by not doing that.” In addition to the STKR token, the StakerDAO ecosystem is also home to the Blend (BLND) token, which is currently only available to investors outside of the United States. This is because “we wanted to offer it in a way that we could get broad exposure to institutional investors who might wanna hold it, and that requires us to do a partnership with CoinList.” In any case, Jonas explained that “the BLND token goes back to the original, founding concept of StakerDAO: how do we get more people aware of these Proof-of-Stake blockchains? How do we get them to participate in these blockchains? And how do we do it in a way that doesn’t require all of the technical knowledge that you really need to succeed with PoS?” After all, “PoS is more complicated that Bitcoin,” Jonas said. “You don’t just hold your token–you actually have to do stuff with your token to participate in the network to get the network to run to create value for yourself and for everyone.” “On PoW networks, like Bitcoin and Ethereum, you have a different group of people who act as ‘miners’: they run nodes on your behalf, and you can hold your tokens safely while they’re ‘running the network.’” However, “PoS is different,” he said. “If you hold tokens, you better participate in the network, or you’re decreasing the security of the network by not doing that.” Therefore, participation is important on PoS networks: “participating in the network might mean that you want to run your own node, or if you don’t want to run your own node, you might need to evaluate who you want to delegate your staking rights to.” This is an excerpt. To hear Finance Magnates’ full interview with Jonas Lamis, visit us on Soundcloud or Youtube. Share this article