Hey, Alice here.
We're looking to bring the DAO ecosystem together and explore standardization of best practices in core areas such as governance.
While frameworks in areas such as governance can benefit from standardization, frameworks in other functional areas may need a great degree of flexibility. We aim to uncover these best-suited frameworks for DAOs via interviews with DAO members having unique insights into sector/sub-sector frameworks.
I'm super excited to be interviewing Thomas Hepner. Thomas is the Creator of Data Economy Index @DATA_Index and is contributing as a methodologist at Index Coop (Index Coop is a community-led initiative making crypto investing simple, accessible, and safe).
Let's go down the rabbithole.
Would love to know a bit about your story and how you fell into Web3?
I’m incredibly excited to be part of the Wonderverse Interview Series! Thanks for having me, Alice.
I will reframe your question in a slightly different way, “What was the first crypto asset or token you ever owned?”
Numeraire (NMR) was the first crypto asset in which I owned a material stake.
How did I come to own Numeraire?
After graduating from college, I went to work on the Kindle Content and Prime teams at Amazon as a financial analyst in 2014.
While there, I began tinkering on Kaggle, a website for crowdsourced data science competitions, and became captivated by the potential of artificial intelligence to create miracles from self-driving cars to the ability to diagnose cancer better than a team of board-certified radiologists.
I left my job at Amazon to teach myself data science through courses on Udacity and Coursera as well as competitions on Kaggle.
While participating in these competitions, I discovered Numerai, a crowdsourced stock market competition that paid data scientists in Bitcoin for accurately predicting the stock market.
In mid 2017, I found to my surprise that I had been included in the Numeraire airdrop to incentivize the construction of an AI-powered hedge fund. Nothing will suck you into Crypto like an airdrop - I was hooked!
From 2017 to 2020, I absorbed everything I could about the innovations happening in Crypto, and invested heavily in Bitcoin, Ethereum, and other crypto assets while working as a Data Science Manager at a FinTech startup.
Since then, my interest in Web 3.0 has been at the intersection of artificial intelligence and blockchain, which I believe are the most significant technological revolutions currently underway.
How do you see DeFi tech transforming the crypto investment management industry?
DeFi is transforming crypto investment management in two key ways.
First, it is massively broadening investment opportunities for non-accredited investors (i.e. people who are not millionaires). The permissionless nature of DeFi empowers anyone in the world with an Ethereum wallet to be able to buy and own the Data Economy Index.
Contrast that with the Bitwise 10 Crypto Index - it is only available to US accredited investors. In 2020, it was estimated that there were ~14 million accredited investor households in the United States, roughly 35 million people.
Globally, there are ~4.7 billion internet users, so about 135 times as many people can invest in crypto-native index products like the Data Economy Index as in crypto investment products that use TradFi rails!
Second, DeFi protocols like Set Protocol’s TokenSets infrastructure separate the functions of asset selection and asset custody.
When an individual purchases the Bitwise 10 Crypto Index, they are trusting Bitwise to maintain the index methodology, which is the asset selection function, and they are also trusting Bitwise or a partner, to safely custody the assets in the index on their behalf.
On the other hand, a Data Economy Index owner always has custody of their portion of the assets in the index! In a single Ethereum transaction, a DATA Index holder can remove their assets from the index.
Could you take us through the journey of the Data Economy Index, from creation till today, and your contribution to Index Coop.
I first learned about Index Cooperative in late 2020 through Twitter.
I immediately saw there was a huge opportunity and purchased both the DeFi Pulse Index (DPI) and the governance token of the Index Cooperative, INDEX.
I also wrote a research report titled Why I Invested in DeFi Pulse Index and Index Cooperative that won the Index Creative Challenge.
With Index Cooperative, I saw an opportunity to build at the intersection of my three biggest passions: investing, blockchain, and artificial intelligence.
I began exploring ideas for a new index that I could launch.
I remember thinking it was strange that the DeFi Pulse Index included Augur, but not Numeraire, given they are both prediction and information marketplaces which I had previously invested in.
And then I came to the realization that two of the largest data-centric DeFi infrastructure projects, Chainlink and the Graph, were not included in the DeFi Pulse Index or other crypto-native index products offered outside of Index Cooperative.
These observations made me begin to think that there was an opportunity to build a data-centric crypto-native index.
I started searching for other individuals who had come to the same conclusion. That’s how I found my co-founder, Kiba Gateaux, who had previously written a proposal for Index Cooperative to launch a “Data Economy Index”. After that, I reached out to Kiba on Discord and we immediately started collaborating in May 2021.
We redesigned his initial methodology for the DATA Index and went through several iterations after receiving feedback from the Index Cooperative community to arrive at our most recent methodology.
We then passed our proposal through governance and launched the DATA Index in late September 2021.
In the two and a half months since launch, the DATA Index has grown to over 500 addresses on Ethereum mainnet and Polygon, total value locked has doubled, and we’ve launched the DATA Club Research Series which publishes research reports on Data Economy projects and tokens like Basic Attention Token (BAT) and Numeraire (NMR).
Today, we’re excited to announce that the DATA Index now has a Chainlink price feed!
This means that DATA Index holders will soon be able to do more with their DATA including the ability to deposit and borrow DATA on DeFi lending protocols and use DATA as collateral for stablecoin issuance.
Crypto projects could be backed by solid tech and community and yet face high volatility and lack of liquidity in the short term. We have different kinds of participants in the ecosystem, traders/speculators, contributors and long-term investors? Do we have incentives and systems in place that incentivize long-term backers?
In most cases, the incentives for DAO founders and investors to be long-term oriented backers are already there: material ownership of tokens.
Through distributed ownership of tokens, yield farming, or liquidity mining, has been the primary tools that DAOs have used to acquire users, attract contributors, and bootstrap their communities.
However, the Web 3.0 ecosystem has realized that unless liquidity mining is a component of a protocol’s tokenomics as is the case with Curve and Sushiswap, liquidity mining is not long-term economically sustainable.
Liquidity mining is actually a suboptimal solution to two different problems: liquidity provision and user acquisition.
Liquidity mining grows liquidity for a project by attracting “mercenary capital” that chases high yields, but leaves as soon as the token incentives are no longer offered. Deeper liquidity can be obtained and retained much longer at a fraction of the cost of liquidity mining with protocol controlled liquidity (PCL). With PCL, projects own the liquidity necessary to support their own products, rather than relying on borrowing liquidity from users.
Liquidity mining is also a suboptimal user acquisition strategy as it typically requires a user to hold two tokens, usually ETH and the native token from the protocol offering liquidity mining rewards.
If a user truly wants to acquire and hold more of the native token for the long-term, why should they be forced to hold ETH to acquire the token? Single-sided staking or targeted airdrops may be more cost-effective and efficient strategies for user acquisition than liquidity mining.
What are your thoughts best practices for designing Tokenomics such that a DAO can align long-term mission with incentives? Could you share an example(s)?
Creators should do two things when designing tokenomics for their DAO.
First, they should ask if they want community governance or protocol governance. What do I mean by this? If a DAO is using governance for on-chain technical upgrades, then it’s a protocol DAO.
Most DAOs are not protocols, so why are they governed like they are? Most DAOs are community governed which is far more analogous to shareholder governance than the protocol-based governance we see with Bitcoin and Ethereum.
The design space for community governance should be much more flexible and subject to change.
Protocol based governance is suitable for DAOs where lack of change, or lack of governance, is a feature, not a bug. In the future, I believe most internet native organizations will be community governed and built on top of internet-native protocols like Bitcoin, Ethereum, Solana, and others.
If you are building a protocol DAO, it’s especially important that you consider what work is valuable before launching a token, and build the tokenomics around the work that should be rewarded because once you’ve launched your token everything becomes harder to change.
This is definitely still important in community-governed DAOs, but not anywhere near the extent of protocol DAOs, as they are naturally more flexible and the ability to adapt and change is a feature, not a bug.
One of the key concerns about the long-term success of DAOs is the bikeshedding problem. Does this concern you? if yes, what could be the potential solutions to this problem?
It turns out that democracy, or its new variant, token-based democracy, is not an effective system for “getting shit done”.
It also turns out that Discourse forums are not the most effective way to communicate and coordinate.
Why is the Web 3.0 community relearning these lessons? The problems of democratic government were well-understood by the framers of the American constitution hundreds of years ago, and by the Romans and Greeks thousands of years ago.
Discourse and Discord are new, but humans and democracy as a system of governance are not.
It seems that delegated governance, meaning the election of leaders and creation of hierarchical structures, like that which already exists for modern corporations and governments, are going to be the key way that DAOs organize to build long-term strategies and plans, hold subDAOs and contributors accountable against their goals, and execute effectively on their missions.
What's new in store for you in the near future?
My co-founder, Kiba Gateaux, and myself are building a DAO to make the DATA Index a truly community-governed index in the spirit of the ideals of Web 3.0.
We envision the DATA Index as the first product of many built by a community passionate about ushering the Web3-based Data Economy into the mainstream.
Stay tuned for a big announcement in the coming months by following DATA Index on Twitter and subscribing to our blog!
Within Web3.0 ecosystem - What are you most optimistic about and what concerns your the most?
I’m most optimistic about the potential of Web 3.0 to build an ownership economy that corrects one of the central problems of modern capitalism, the concentration of opportunity and ownership in the hands of a select few.
It was not so long ago that the benefits of technology were distributed across the whole of society.
Unfortunately, in recent decades wealth creation has been mostly captured by those who are already wealthy and well-connected.
I’m most concerned that Web 3.0 will fail to build an ownership economy, or go as far as I believe it can and should in distributing ownership.
In many ways, Bitcoin is the “gold standard” for widespread ownership of a protocol.
So far, many, if not most Web 3.0 projects have failed to live up to Bitcoin’s ideal. We can and should strive for widespread ownership of Web 3.0 protocols so that as many people as possible can benefit from the massive wealth creation that is currently taking place.
Is there anything specific that the web 3.0 ecosystem folks could help you with? Just ask.
We’re looking for individuals who are passionate about data-centric Web3 protocols to join our community.
We want to connect with data analysts, scientists, engineers, and other passionate individuals to share ideas, conduct research together, collaborate on new products, and build relationships around our shared dreams and aspirations for the future. We invite you to join us in our Discord!
- END OF INTERVIEW -
I'd like to thank Thomas for his contribution to the web3.0 ecosystem and for contributing to the DAO Insights Interview Series.
If you have more questions for Thomas, share a link to this Interview and Tag Wonderverse on Twitter to ask your questions.
If you're a DAO contributor and would like to contribute to this interview series, please fill this form and we'll get in touch with you.
👋🏼 until next time 🙂