pet3rpan: Three Steps to the Great DAO in Rome
Source: DAOSquare
Author: Adam Levy
Translator: DRD, blcold, Nakamao, 郭郭
Background
The eleventh episode of Season 2 of Mint features Pet3rpan, a thought leader in DAOs and NFTs, who is well-known for his work at the early blockchain investment firm 1KX. He is also a community organizer and summoner for the decentralized organization MetaCartel, as well as the founder and wizard of the decentralized autonomous organization MetaCartel Ventures. In this episode, we will discuss:
The investment philosophy of 1KX;
Understanding leaders in DAOs;
How to stop or eliminate bad actors;
Strategies for developing decentralized communities;
Views on JPEG Summer;
NFT investment strategies;
What will eat Web3?
And more.
Please briefly introduce yourself. Who are you, and what were you doing before joining the cryptocurrency space?
Yes, I currently work in investments at 1KX. We invest in decentralized finance (DeFi), NFTs, and social tokens. As you know, the key innovation in cryptocurrency is that you can extract logic from technology and then distribute ownership. Moreover, we started investing early in almost every sector, so we are not like a typical DeFi fund. We are also not an NFT fund. We consider our core competency to be broad.
For example, leading seed rounds and Series A funding. Over the past few years, I have worked in DAOs, with my most notable work being the creation of Moloch DAO and helping to nurture the DAO ecosystem.
DAOs emerged from this. Creating a venture capital DAO or MetaCartel Ventures was the first DAO to invest in Ethereum and really posed the question of how people should invest together. In the cryptocurrency world, it's like user research for a designer before doing product design or UX design, where you talk to users. Yes, I think that's what I've been doing all along.
Do you remember the first cryptocurrency you bought?
Yes, it was probably ETH or something else around 2012/2013? Technically, the first cryptocurrency I came into contact with was probably in 2012 or 2013 when I was collecting Bitcoin from faucets almost every day. I had a separate wallet with about $70 worth of Bitcoin in it. But back then, it was just a few cents; I was just playing around.
What drives your obsession with DAOs? Did you have an unpleasant work experience at a company that made you think, "Screw this, we need to make a change"? Where does this excitement for decentralized organizations come from?
Yes, to be honest, I didn't really like or care about DAOs until I wanted to join Moloch DAO and was rejected. At that time, nobody really knew what the first true DAO on Ethereum was. Those DAOs created in 2016 or 2015 might have been hacked and then ceased to exist.
But Moloch DAO was the real DAO, truly born in early 2019, and it created a lot of DAO activities. I tried to join it. Its establishment felt like an elite entertainment department with many Ethereum insiders. I thought, wealthy Ethereum insiders were so popular. I just wanted to join this experiment, but I didn't think too much about it until I was ultimately banned from joining.
Do you know why they didn't let you join?
Because I was poor, and nobody knew who I was. So basically, there was a lot of awkwardness, you know. Ironically, I mean, it was also quite interesting. For example, many members came from Ethereum whales (large holders), because 100 ETH holders at that time were actually only worth about $20,000.
But compared to others who were nearly bankrupt, that was still quite a lot of money. I can't remember exactly, but I might have had 20-30 ETH, and then I thought, is it worth putting a third of my ETH savings into this random DAO just to learn? Nobody knew who I was, and Ken just thought the money was too little, so they rejected me. It was like a charity DAO, you know. Amin later talked to me, like, why don't you create your own Moloch DAO? I thought that would be funny. Then, an adventure began.
What is the current state of the DAO you founded? Where is it now? How many members do you have? What do you generally do? Tell me about it.
Okay, we created a Metacartel DAO, the first branch of Moloch, released in early mid-2019. After creating the first one, we practiced funding and experimentation on DAOs, and we also had some service-providing server expansion DAOs, like Devshop and design-related work.
We created the first investment DAO on Ethereum, the decentralized autonomous organization (MetaCartel Ventures). We initiated the first experiment on decentralized brand economic models, like the decentralized brand DAO with Meta Factory. It was initially called SWAG DAO. We tried to work on a decentralized reputation system. The purpose of the DAOs we worked on should be to coordinate various parties in real life.
It was originally intended for initiating sponsorship activities, but it quickly evolved into hosting whiskey parties. You know, the one called Orochi DAO was created by programmers with kickbacks. A Metacartel DAO can easily have over a hundred people. Then you become part of this ecosystem. In the entire decentralized ecosystem, there are probably about 200-300 people. So it's like a group of people wanting to try DAOs, like the early internet; it was just our community hanging out.
Looking back, it was a wonderful time; nothing was more worthwhile than that. You know, nobody was making money. And it was like a pure experiment. I think we became closer as a community.
When you started your DAO, how did you manage leadership? Did you encounter any problems at the beginning? Tell me about it.
Yes, the main model is to create as many leaders as possible. I think my mindset model is to enable more people to start their careers, support them, and give them as much responsibility as possible, you know? Giving people a sense of responsibility that they typically wouldn't be assigned.
That's why it's part of being a centralized value, one of which is to bet on each other better than others in the community. I think this is a heuristic that truly leads, at least a value system that genuinely guided the development and diffusion of these DAOs. Because it's like when someone thinks, "Hey, should I create a DAO to create a decentralized brand? Or create a DAO that I don't know how to serve?"
We basically maintain a consistent idea: come on, let's do this now. We want to be the ones pushing them to experiment. I think that's the most important thing; at this stage, we support each other. We really pushed for a culture of experimentation and practice. I think many people just talk big, while what we really want is to push things forward and operate.
When you think about organizational structure, what kind of big hat do you need to put on when initially launching a DAO?
Yes, you need leadership. I think you need a role similar to a chef in a kitchen, where everyone has their own responsibilities, right? Just like in a kitchen, you have someone like the head chef who manages the dishes on the menu and oversees the preparation of the dishes; but there are also sous chefs who are responsible for several dishes or key areas on the menu.
So different people may have different responsibilities, but you always need a central coordinator. Typically, these things expand in a way that, you know, from my experience. I wrote a lot of code until a group of enthusiasts took over, and they were called "Paladins." Right? We set different roles in the DAO. Then the Paladins started to take over operations, and that group took over. Then, you know, for each independent DAO, someone gets pushed into the coordinator role.
They usually set the tone for what the DAO is, then gather resources, set goals and tasks. And once they form the initial operational team that works together, they think about setting up basic processes and systems to decentralize that central coordination point's power. But to launch any kind of DAO community, I think you need to know the coordinating center of the organization, the effective scope, or the workshops that can be conducted to push things forward.
I mean, like centralized coordination is effective and efficient. And I think you can absolutely rely on it because when your organization becomes large enough, it really can't operate and function in the same way anymore, so I think you should make the most of those early times.
Because in the early days, you have the autonomy to create and design. Just like I saw in the early stages of Meta Cartel, who participated, I wanted to bring in. We could bring in whoever we wanted, which was very important. And we could do this as a group, needing to be very meticulous about it, rather than just being able to use people casually.
And today, I meet many people from the Meta Cartel ecosystem, even though I had never seen them before, but they are part of the entire network. And the reason it has come this far is that every group that has been spun off has maintained the cultural spirit of Meta Cartel overall, even though the DAOs they belong to are completely different things.
And it certainly hasn't gone through that much design and planning, but that's why I think DAOs will become a real way of organizing in the future. DAOs just need good coordination; it's like having the ability to differentiate. And another person, starting as a coordinator, sets the main tone, like creating DNA, this magical double helix gives rise to everything else that is life.
With all your experience managing and launching DAOs, how do you think about the reputation of contributors?
Reputation, I think, is something that makes it easier for you to trust others more, right? It's basically like the glue that coordinates people in society, right? It actually exists in reality but hasn't really been formalized. In many early DAOs, I think whoever was coordinating was just a central ledger recording the reputation of each contributing member.
And over time, I absolutely believe it makes sense to establish some kind of reputation system to indicate who did what because as you grow as a group, you can't really, I think it's like Dunbar's number (note: "Dunbar's number," also known as the "150 rule," refers to the cognitive limit of a person's ability to maintain stable relationships with about 150 people), right? It's like you don't know who is who, or you've forgotten, making it harder to keep track, at least on a mental level.
I think for Meta Cartel, we haven't really gone through that stage; we still heavily rely on individual key community members to oversee things for everyone. I think this is a guarantee for new members and new projects.
You will definitely see many other communities needing a more formal reputation system, but for us, we are just growing very slowly. Yes, like you would ask what Meta Cartel is today? It’s more like a group of DAOs focused on their respective goals, and the individuals within are a trusted curated list of you in Meta Cartel, right?
Yes, that makes sense. All these people you trust, you have either met them or they are all network roles recommended by others you trust.
Yes, over the past three or four years, I have basically known all of them. Initially, it seemed like a large group gathered online, first getting to know each other online, then meeting offline, it seemed to follow this pattern of going from strangers to familiar faces.
When you launched these DAOs, how did you think about community building? I ask this question because you published a great article in June titled "How to Develop Decentralized Communities."
The community-building process of a DAO has no secrets. It entirely depends on what the DAO is for, that is, what the goals of the DAO are. So you can start with DeFi, for example, if the DAO has a DeFi protocol, you know DAOs can basically manage treasuries and funds, right? Or specific DAOs, you know, purposefully focusing on services, privacy, and social management of social clubs.
So when someone you admire creates a DAO and recommends it to you, whether to participate depends on what the DAO is doing and how it is developing. Is the DAO starting from scratch? Is it based on existing products or does it already have some assets? It really depends on where your heart is. For all other types of DAOs, these various emerging patterns, how will you guide them? How will you launch these specific networks around them? It completely depends on the goals and types of each DAO.
Take me through these three levels and share your insights on the meaning of each part.
I think this will be quite an abstract thing, like a mental model. What I want to share is that to truly create a community of stakeholders who genuinely care about the project and participate in governance in various ways, it needs to be effectively cultivated, just like creating a great community requires fostering a sense of ownership.
Therefore, ownership is the driving force behind participation in governance beyond monetary incentives. It drives community development, just like product feedback iterations. It drives recruitment efforts and also encourages participation and contributions from working groups.
You know, all these areas driving DAOs are a decentralized organization, and you need to fill certain gaps, right? And unless you can guide that ownership, it's hard to manually find community members, right? And how do you gain your ownership? You have to establish effective relationships.
Before you can build relationships, you need to attract and engage in effective communication, you know, finding potential community members and making them resonate or click is itself very important. So this really is a regression, like how do we cultivate ownership? How can we reach the point of cultivating ownership?
Then, how do we attract the right people? I think broadly when we think about the entire process of building a community, we need to consider the end state we want to achieve. My definition of a community is essentially a group of people who collaborate one-on-one on a set of shared goals and values in a many-to-many manner. You know, to reach that goal, this is the general process you must go through, no matter what you are effectively building.
And it's a bit abstract, like we talk about ownership, but it fundamentally applies to every network. Recently, I even made some adjustments to this. The latest insights are that some communities may actually want to maximize community participation. Some communities may actually want to benefit from community participation in the token network itself, right?
To some extent, it's like minimizing governance; different communities can leverage network participation in different ways. For some, it's about using a de-risking platform, while for others, it's about crowdfunding, right? Because that means the network, means crowdfunding for ideas or projects, like developing index products. In projects like developing index products, they may want to maximize the level of crowdfunding.
So when we can better understand the different types of token networks, these thematic questions arise. So it's not always black and white, like we want to build what might be the largest community. I think the key is identifying who the stakeholders are, which is crucial for the ultimate success of the network. Or when conducting a project, it also starts from the stakeholders, and then effectively builds these funnel structures to attract people to become community members.
How to build in public without prematurely leaking too much? So let's take an example. Say you are building a consumer application or web application, and you want to consider the DAO components in terms of how the community can participate in its ownership, but you don't want to give up too much governance power to these individuals.
You want to maintain the concentration of the core product and its team but still need to establish DAO governance in production. Is there a way to mix these two? How would that work? For example, how do you form a DAO without giving up all governance power and fully exposing yourself? How do you keep it focused and concentrated, and then gradually expand? What needs to be done?
What is the ultimate goal of the DAO? All your decisions revolve around compromises; I wouldn't even start from that question. Yes, when you want a decentralized product, in the early stages, you would want to maintain some control over it, especially when you need to create community engagement, build community participation, make quick decisions, and act quickly. Different projects have different degrees of centralization, granting different levels of ownership to the community, which all depends on what your ultimate goal is.
If you want to build a financial primitive system worth hundreds of billions of dollars, then you want nations and states to trust you. You might want a fairly decentralized network, but if you are really building an application, if you really want to build an application, then to some extent, you want to be involved, you want to find the upward space, and you want to determine network ownership to help you achieve the ultimate state you want to reach.
For some projects, they might give 30% of the tokens to the community, while some projects might give up 50%. The wonderful thing is that projects will compete for the same users through their networks, and when you choose to give up fewer tokens for a product, there will be more ownership. It depends on which product is better. Which product or community resonates with you the most?
Maybe everything is the same; you just want someone who truly cares about users or yourself, which actually depends on the different situations faced. They want to find some fluctuating parameters to describe it, and you know, there is no right answer.
How do you instill that sense of ownership that transcends token purposes within a community? It also means how to encourage people not just to speculate but to contribute?
Most projects have incentives when launching tokens, trying to attract participation with incentives. And in reality, you should find contributors or community members and then find a middle ground between participation inside and outside. So you want to start with participation and then design how to reward it. And now in most projects, you just get tokens that can be sold, like liquidity mining and dumping, creating a fairly transactional environment.
So yes, when we operate a project, a key aspect, and a real method, at least the approach we take is that you want to quickly build a community, right?
Find community participation or network participation. Then once you understand what the network looks like, you will design it, who the most important stakeholders are, and then truly design a distribution system or token allocation plan that genuinely rewards the most valuable network participants. Rather than starting from incentive design and working backward, at least from our perspective, that doesn't really work.
Another question I have for you is, as DAOs approach more mainstream worlds, do you see more of those creators, internet KOLs, Instagram KOLs, and various big names establishing these so-called modern decentralized fan clubs? Does this excite or worry you? Because it brings more speculators and communities, do you think this is good or bad for the industry? What are your feelings about it?
Yes, no matter what situation we encounter, we will solve it anyway. I think web 3.0 is a democratizing force that will empower communities. Participants will also become victims of scams, you know, others exploiting people; it's a whole new paradigm. So I think this is inevitable.
I don't think there is a reasonable way to approach something so powerful, so caution is needed. When the internet impacted society, there were those very naive ideas: hackers looking for meat chickens on the internet, breaking into insecure systems. People suffered greatly.
At the same time, you know, all these internet industries emerged, all these people; now we have online shopping, we have all these other services. Just like I like to say, I am definitely excited about the emergence of actual adoption and actual use cases. But I think it has its pros and cons, I suppose. Yes, that's how I think about it.
You at 1KX are one of the earliest NFT investors. How do you understand what happened during JPEG summer? How do you make sense of it?
Yes, that's a good question. I mean, of course, there are a lot of musical chairs (hot potato games). But I think what is happening is that at least there is a case or argument around NFTs that we think of art and collectibles as a great foothold, like, you know, what it might be. They are the obvious use cases for NFTs. But we are more interested in the financialization of NFTs themselves. Basically, everything on the internet is an NFT.
It's just that it hasn't been introduced or minted into the web 3.0 economy. When they need to do so, they can unlock the financial value of assets through contracts, like the ownership of NFTs. We are very excited about things like NiftyFi, where you can basically use your NFT as collateral and get loans from there. If you are an Instagram influencer, you actually can't go to a bank to get a loan for your Instagram posts.
Because that's not a real job; nobody cares about it. But your rocks (EtherRocks), whatever you want, your penguins (Pudgy Penguins), you can go there and get a loan with it. You might get a loan for your videos, which could generate income, or even your tokens could earn rights to video and article income. So we think this is really the future; we actually overlooked a lot of photo-type NFTs.
Initially, we would say what happened? We didn't really understand. But later we realized we missed the musical chairs game and hot potato game in our industry. In the NFT economy, there is a part, especially around profile picture NFTs, like these photos or avatars actually represent ownership. Just like they represent ownership of certain communities. So I think something like Cryptopunk is definitely one.
Bored Ape and other projects, maybe they ultimately could become like a musical chairs game, become a hot potato, but we hold a bit and then have some very interesting insights, "Hey, this is actually about ownership on the internet." So I think that's our explanation for this.
In fact, we are quite excited about this revelation. It's like, it is actually another perspective on identity, completely different. I think many people have dealt with and tried to solve what identity is from a very pure technical perspective, like from a standard perspective. But you can look at it from a social perspective, which makes more sense.
What does 1KX focus on? Are you investing in profile picture NFTs? Are you more inclined towards equity investments? What is your investment strategy?
Yes, as a fund, we generally do not purchase NFTs themselves individually. We try to look for an overall strategy. We look for investments that can build risk across a wide range of areas. So we look for opportunities on the index. We haven't really found any, at least in the profile picture NFT space, but I absolutely agree with your point, like at least in the early days of MetaCartel when we created MetaFactory.
There was a lot of discussion about user experience being a barrier to mass adoption, like the abstraction of cryptocurrency technology, and we think that's part of the problem, but our theory about mass adoption is that it will actually happen in the cryptocurrency native space. It's a bit like hip-hop, right?
Hip-hop is very niche, created by a real Black community, say in New York, right? In fact, it really comes from a place, so niche, so unique, with such a unique identity, and it becomes cool. And others want to be part of it.
Hip-hop didn't try to attract other things; it is itself; it says, fuck everything else. I think, like our theory of MetaFactory, we want to showcase the coolest parts of web 3.0, like digital ownership, DAOs collecting NFTs, digital property rights, royalties, etc., to the rest of the world. We start with digital and physical clothing, like we have branded clothing, but they come with rare, collectible NFTs and RFID chip clothing.
This argument is definitely playing out. Well, mass adoption is actually happening in the native aspects of cryptocurrency. And many people are trying to solve this problem, like how do you do the same things in Web 2.0 in the Web 3.0 era.
Adam: What a great metaphor. The comparison between the rise of hip-hop and the rise of cryptocurrency. I would even say cryptocurrency will be bigger than hip-hop music; it has its own dignity and way of development. Clearly, they are two different components, but it's a great metaphor to see the rise of something, like the fuck you mentality; that's our culture. That's how we feel. That's how we express ourselves.
If you want to be part of us, join us in our way. Crypto is largely a mindset that you haven't really seen in any other field so far. Therefore, the projects you are investing in. I know you mentioned the intersection between DeFi and NFTs. Clearly, that's the point of excitement for many people right now. People are talking about this across all of crypto Twitter.
Besides DeFi, what other use cases in NFTs excite you?
I think, so besides financialization, like NFT financialization protocols, I think we see it as basically a melting pot, right? All the creativity that comes from digital assets and how they become valuable, or at least how people extract value from them.
I think cases like this are not so much about products and technology but some facts, like NFTs, where you don't need to be over 18 to enter this financial economy without permission. I remember when I was 13 years old using the internet, trying to freelance and do sports design, but I couldn't. I had to get my parents to register a PayPal account.
I feel like NFTs are like, as a 13 or 12-year-old kid, you can create these financial assets, and if you want to do this kind of thing, you can start a business from day one. I think this permissionless economy is actually a key use case that could bring about really cool things. The existence of this economy itself is a complete platform.
Adam: What excites me personally is all these future consumer applications that will be based on NFTs, whether it's social NFTs, NFT markets, or just NFT portfolio management, we haven't seen yet. Now, if you think about it, the current state of NFTs is that it is largely desktop-driven, right?
There isn't a real mobile market yet that allows people to buy and sell things on the go. This is something you have to access through your Metamask wallet. And the user flow is really messy. I know you would say this isn't a user experience issue; it's more of a cryptocurrency native issue, but I want to say something different.
What I want to say is that many people need to understand what a simplified version of this looks like. People are still overwhelmed by Metamask. People are still inundated with opensea and all the data and searches, and basically just finding the initial things. Understanding what JPEG I should buy? How can I buy it, etc.? So this is what excites me personally.
What are your thoughts on the development of cryptocurrency native consumer applications? Are there any new findings in this area?
Yes, I absolutely do not oppose it. My point is that we really need to first solve exciting use cases. Once you solve that problem, the next limiting factor is user experience. I think we are definitely at a stage where the future of society will be a group of people collecting NFTs together.
It's a group of people buying and trading NFTs with each other. Creating NFTs as a group, meeting in these DAOs. I think slowly, maybe we won't call this activity DAO or NFT collecting; who knows what we will use to describe it and how we will refine its meaning. But I do think it will be somewhat similar to this. And this is how people meet and connect with each other now, right? At least in the future.
And I think regarding user experience, I think it's a bit like how people initially explore how cryptocurrency native value will be brought to the masses.
Maybe it happens from a top-down perspective, like having a Steve Jobs who loves the product so much, or maybe it's a more decentralized approach where you just have different ecosystems emerging, slowly solving the larger adoption problem.
Because it's not like an explosion, you know, where a better interface is invented overnight, and users go from zero to a million. It's what are you doing? We are growing; we are usually growing quite fast in the user base of Web 3.0 and the NFT economy itself. So I think it's like this ever-expanding bubble, no pun intended, just saying it's growing continuously.
Adam: In my view, we see the rise of all these different innovative protocols, whether it's curation management protocols, attendance proof protocols, or NFT market protocols. I think it would be cool to see all these different puzzle pieces come together in a beautiful, more mainstream way.
Because users need curation. Users need to create a diary to record the places they have been and the things they have attended, right? Users need a marketplace. I think working in a decentralized way has a beauty to it, taking all these different puzzle pieces and making a beautiful picture.
Just to add to this puzzle metaphor, my favorite metaphor is that web 3.0, cryptocurrency, DeFi, overall web 3.0 is a giant Sudoku puzzle. You might be filling in squares a bit blindly, and it might not make much sense until you, for example, maybe you filled in the right square, and suddenly you unlock all the other squares. The Sudoku puzzle suddenly becomes super, super clear.
I think in the quietness and bear market of DeFi, I think like in 2019/2018, we filled in those two squares that really unlocked everything, like lending markets and AMMs, like Compound and Uniswap. And these two financial primitives unlocked, like the rest of DeFi.
And for NFTs, maybe bringing NFTs into the mainstream, like NBA TopShot proved that people understand collectibles. This answers those big questions. Like, do people really get this? I don't know what you would call this group of hardcore people.
Adam: They are the most active fans.
You know, there are those who watch on TV, and then there are those who go to games, buy jerseys, buy cards, buy branded cups, and smear some silly things on their faces. These are the most active fans. You give those more active fans a sense of community, a sense of ownership, and the things they love and support. I want to turn to the last question. At least in Season 2, I started asking everyone this question.
I am a big fan of the development of the internet, especially how it transitioned from web 1.0 to web 2.0, and how web 2.0 consumed web 1.0. Let's paint this picture. Web 1.0 was very static, right? It was largely read-only. You really couldn't do much besides browsing information haphazardly.
After web 2.0 emerged, you had more advanced products like Google, Facebook, Instagram, creating more user experience UI layers on this decentralized virtual world. You have companies like Uber, many mainstream centralized companies, and the rise of this whole data control and data aggregation. And what this means.
Now we see the development of what we like to call web 3.0, a decentralized version of social networks, decentralized ownership, and web 2.0 consuming web 1.0. And the stakes are that web 3.0 will consume web 2.0.
What will eat web 3.0?
I don't know; I used to think about this question. We might be like, you know, considered the next boomers, and when that really happens, we are likely to be blind to the next wave of things happening, right? I don't know. That's a very good question. You know, everyone eventually becomes a dinosaur. It's a cycle.