SCRF Interviews | John of SafeDAO interviewed by Renee Davis (Ep. 12)

Governance and Coordination
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To kick off our second season, we have a special conversation with John, the Governance Operator at SafeDAO, interviewed by Renee Davis, the founder of talentDAO. Their discussion covers how SafeDAO was spun out of Gnosis Safe, why it was founded, and how it’s governed. The interview was recorded live on the floor of the Cryptoeconomics and Governance Community Hub in Bogota in October 2022.

Audio: Spotify, Apple, Spreaker

Takeaways from the conversation:

What steps did it take to spin out SafeDAO from Safe (previously Gnosis Safe)?

GnosisSafe started in 2017, building core infrastructure for Ethereum. Not wanting to go down the same old web2 path, John and his team decided to become a DAO and issue a token. They also set up a Swiss foundation, the Safe Foundation, similar to the Ethereum Foundation, with the goal of shepherding the Safe protocol. At the moment, John is focused on fostering an ecosystem around SafeDAO.

What are the three best practices for DAOs spinning off new entities or sub-DAOs?

  1. Look at the North Star. Get the core mission aligned with core participants.
  2. Don’t jump into initiatives before establishing an operating model.
  3. Understand the legal and regulatory environment.

How did SafeDAO choose its distribution strategy for the airdrop?

SafeDAO wanted to reward those who contributed to its adoption. When the team looked at users of the Safe, they found that DAOs were using it to manage their core contracts and their treasuries. This aligned with the team’s desire to reward entities rather than specific individuals.

Most people know Gnosis Safe for its treasury capabilities, but it’s also a smart contract system and a developer ecosystem. What are some things that smart contracts can do that people might not know about?

One of the most untapped things in web3 is the ability to program a smart contract with flexibility. If an individual owns an NFT, they can now loan it to someone else and that person can attend events or do what the NFT allows its owner to do, for as long as that loan is in existence. Meanwhile, the original owner’s assets are safeguarded as well.

What were the hiccups in spinning off a DAO that surprised the team?

The first thing was getting aligned around a North Star. It would have been better if the whole team had been aligned on the goals and metrics that SafeDAO was designed to resolve. Beyond that, token distribution has to be managed very thoughtfully. Things would have gone more smoothly if SafeDAO had allocated more resources and made time to project manage. Be slow and don’t move fast, don’t break things.

What is exciting about governance in general?

The new space of delegation. SafeDAO initially wanted everyone to be involved in everything, but this isn’t practical. No one can be informed enough to vote on every single proposal. Once we had delegates in place, the excitement shifted to exploring ways to reward them.

People in this space are talking about the role of a “protocol politician.” Is this the best way to describe the future of delegation?

SafeDAO avoids using the word “politician.” There’s a fear that it will turn us into a lobbying industry full of bribery and malpractice. The most vocal people on crypto Twitter are not necessarily the most valuable people. Quiet introverts may add much more value to a project or protocol.

Other topics not yet covered?

For one, the new space of retroactive funding. SafeDAO is a big fan of exploring different ways to do capital allocation and retroactively rewarding contributions that are made toward public goods.

Is SafeDAO going to do public goods funding? If so, what sorts of projects?

SafeDAO definitely plans to go down the Guardians route, that is, our retroactive funding for contributions to the Safe ecosystem. SafeDAO is also looking at a grants program for rewarding initiatives for monitoring and milestone-setting.This text will be hidden

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I must say this is interesting,but i fail to understand the future of delegation here.
Is SafeDAO launching its governance token?
What then should be used to describe this if not “protocol politician”?

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I understand the point about everyone not being informed enough to vote. Even in real world democracies, free elections are not always fair where a large number of voters are not educated. Uninformed voters may make harmful choices and can also be easily manipulated, making the party with the most ignorant sympathisers more powerful than others. Nevertheless, the use of delegates centralises power in the chosen delegates. This makes me ask; is centralisation not inevitable after all? Will knowledge asymmetries such as this, as well as other factors, not always lead to some level of centralisation?

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The text here is just an attempt to summarize the main points raised in the recorded interview. I’d start by listening to the actual interview; the links to the recording are at the top of the post. However, bear in mind that the interview was conducted on the floor of a trade show; the audio isn’t perfect and John and Renee don’t go into depth on every topic they raise.

SafeDAO is a new entity, and there isn’t much online to read yet, but here’s an article that may give you some answers, or at least further directions to go: “Has SafeDAO Set the New Standard for Launching Governance Tokens?”

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It’s a good question. No one has a definitive answer to this, but as I said to @Jas_mine above, listening to the original interview and reading the article I linked to on SafeDAO’s governance tokens should provide a bit more detail on these points.

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While reading this interview summary, this part pricked my interest. I, therefore, decided to go down the NFT lending rabbit hole. I’m not so into NFTs, so this is my first time coming across the idea of NFT lending.

The main idea John is trying to pass is that smart contracts have unlimited potential. He portrays this idea with the concept of NFT lending using smart contracts.

NFT lending is analogous to Defi lending where you employ your NFT as collateral to borrow some stablecoin from an NFT lending protocol.

Let’s say I own a piece of Bored Ape NFT but need some stablecoin for my arbitraging business. However, I don’t want to sell my NFT. I can instead use it to take a loan from an NFT lending protocol. This loan will be paid back at a specified time with interest.

So why is the idea of NFT lending important?

Much of the debates about NFTs are that most of them have no real utility or value. The idea of using NFTs as collateral negates the view of NFTs as lacking utility and value to a large extent.

Again, the idea of lending is what most top DeFi protocols like Aave, MakerDAO, and Compound implemented and have built a lot of value around. So it will be a win for NFTs too.

Limitations to NFT lending

There are a host of limitations to NFT lending, but I will focus on one which stands out the most.

Because NFTs are non-fungible tokens and have several collections issued by different entities, not all NFTs are accepted in a lending protocol. This is unlike fungible tokens and DeFi lending where you can use your Ether as collateral to borrow from most available lending protocols.

Each NFT protocol has specific NFT collections that are accepted as collateral. However, this is understandable as a good number of NFTs are just mere JPEGS with no real value.

Risks associated with NFT lending

Although the idea of lending out NFTs is exciting, one needs to consider the risks associated with it.

There are generally two risks that stand out the most:

  1. Platform or smart contract risks

  2. Liquidation risks

Platform or smart contract risks

Being that smart contracts are in their early stages of development and application, they are presently vulnerable to exploits due to bugs. We have seen cases of millions of dollars worth of assets lost in smart contracts.

Once you grant access to your NFT using a protocol, the safety of your NFT then depends on the security of the protocol. If the protocol is not secure, your NFT can be stolen.

So it is important to research a protocol first before committing your assets to it.

Liquidation risks

Just like in DeFi, most NFT lendings are overcollateralized because of the price volatility of NFTs. So, a lender uses a high-value NFT to borrow a smaller amount of stablecoins.

In case of a liquidation call, and the lender doesn’t have enough liquidity to return the stablecoin borrowed, they get liquidated thus losing a high-value asset for a smaller amount borrowed.

Conclusion

Smart contracts present themselves as a tool that can be used for carrying out various autonomous activities on a blockchain. NFT lending is one such activity. NFT lending creates a powerful utility for NFT but comes with risks that every lender should be aware of to stay safe.