This week’s interview is with Aragon co-founder Luis Cuende. Aragon is a platform for users to create their own decentralized autonomous organizations, or DAOs. Cuende started this project in 2016, at a time when most had given up on these organizations after the crash of what’s likely the most well-known DAO so far, called The DAO. The DAO was meant to be a decentralized venture fund, but it was hacked after raising over $100 million, leading to the split of Ethereum into Ethereum Classic. But Cuende pushed through with the project with the firm belief the current governance system is broken and people need tools to build their own transparent and decentralized organizations.
The space has recovered and in the past year, thousands of DAOs holding millions of dollars have flourished. The dream of more fair and open organizations, which anyone can access and create, is back at a time when the world seems to really need them. People are losing trust in institutions and crypto can provide an alternative.
But Cuende says he’s saddened to discover the space is nowhere near ready. From serving as a vehicle to help those in need amid the current turmoil, to helping solve Aragon’s own legal troubles, a lot more work lies ahead. Cuende also talks about the different steps Aragon is taking to get there.
Luis Cuende: I come from a humble family in Spain. I got into crypto in 2011. Back then it was just Bitcoin, not crypto really, but I saw this very liberating tool that could actually free people from financial slavery. I think financial slavery is a very powerful kind of slavery that we are living in today. And people like my parents who have been working their whole life for banks and that just didn’t really seem right.
I didn’t quite understand how Bitcoin could free them at first. I think I was 15 when I got into it, but now more and more I’m realizing that these tools are actually way more powerful than I thought they would be.
My background was in the open source community. I got started with my own open source project when I was 12 years old in the Linux movement. And yeah, open source, open money, it really made sense to me.
Camila Russo: Oh, that’s so interesting that your parents were working in banks. In what capacity were they working?
“I saw [Bitcoin] as a very liberating tool that could actually free people from financial slavery. I think financial slavery is a very powerful kind of slavery that we are living in today.”
LC: They were not working in banks. They were enslaved by banks. That that is the way to put it. A lot of families, especially in Spain, after the financial crisis, people were just working to pay their mortgages. Because you have basically this very, very clear peak in the real estate industry that the banks actually caused in 2008. Banks in Spain were issuing debt for everyone and everyone would purchase like three, four flats because they thought they could make money that way. And then banks basically stopped that and crashed the price of the market drastically. Basically one year to the next one, thousands of families were basically enslaved for debts that they could never ever pay in like 40, 60, 80 years. Something inside me told me that is inherently wrong and there is technology that can free the world from banks and from these powers.
CR: That’s, that’s so powerful that you were able to see, you know, from your own parents and experience how irresponsible management from banks can really crush a person’s life or make them so dependent on a mortgage or an outstanding debt balance. And so you got into open source protocols from a very early age at 12. So how did that develop and then how did that lead to Aragon?
LC: Yeah, I was very bored at school because it’s a bunch of things that you have to memorize and I didn’t really see the like the meaning out of it. And I got into open source because I felt it was like this incredible, very powerful way that you can create code and you could basically create new stuff that people all over the world can use with almost no investment. You have a laptop and that’s it. And for me coming from a humble family, that was mind blowing. It was like, I don’t need money to explore my hobby. I can just have a laptop and then grab code that other people have done. And then, you know, if I’m successful, maybe I can contribute back one day and let other people that were in my position also use this code and enhance it. It was kind of mind blowing for me.
“I got into open source because I felt it was like this incredible, very powerful way that you can create code and you could basically create new stuff that people all over the world can use with almost no investment. You have a laptop and that’s it.”
CR: It is pretty incredible. What did you start building?
LC: I’ve been always very obsessed with taking complex products and making them easier. And so Linux is this great operating system that is fully open source. But it never really had a splash in desktop users. So I took the most well-known Linux distribution Ubuntu and I made a bunch of UX tweaks to make it very easy. My threshold was, can my mom use this? And at some point my mom was able to use it.
After a few years, the Linux user experience has enhanced so much that my work wasn’t really needed anymore because Canonical and other players have done an outstanding job in making it easier. Free software was a big part of my life and I used to love that people could use an operating system without having to own the latest machine, the latest Mac, the latest Windows computer, which usually cost a lot of money.
CR: Great. And then, so that’s open source and you got interested in Bitcoin pretty early as well. I’ve talked with many people who started obviously in crypto through Bitcoin because that’s all there was. But then when they started building their dapps on Bitcoin, they found all these difficulties in doing so. Did you experienced something similar and how was your road into working with smart contracts.
Holy Grail is Governance
LC: Yeah. Bitcoin is great, but it’s extremely limited. So the first startup that I worked on was a time-stamping service. I’ve been always very interested in the non-financial utility of all of this because Bitcoin as money sounded really great, but then I discovered, or I found out that you can time-stamp stuff with it, because like you have this blockchain and you have proof that something existed at a given point in time and therefore you can use it for money and you can use it to embed that data hash.
So I worked on a startup called Stamper that I co-founded to tackle that specific problem of how can you prove that something existed, some file existed, at any point in time. And we launched the service in 2014 or 2015. And it was really exciting to me to see those non-financial applications.
The next thing was DAOs. For me what Bitcoin did for money, DAOs do for governance, and DAOs do for human organization. And that’s what’s really exciting to me.I think financial applications are really great, but for me the Holy Grail is how can we translate this into people organizing better and having more freedom to organize.
“Financial applications are really great, but for me the Holy Grail is how can we translate this into people organizing better and having more freedom to organize.”
CR: So I’m guessing your first contact with DAOs was The DAO? In 2016 most people listening will know about this big project, the biggest so far in Ethereum at that time, which wanted to make a decentralized venture fund. It really blew up and then it was hacked and then it resulted in this split of Ethereum into Ethereum and Ethereum Classic and the rest is history. What was your initial experience with DAOs and The DAO? What did you first think when you came across this project? What kind of involvement did you have there?
LC: Yeah, when I saw The DAO, I thought this is really cool, but there are so many reasons why this cannot work. Which, I still think that about a bunch of things that we’re building in this space because there is an inherent risk with anything. But I thought it was very cool and I was very sad to see that it blew up because when it blew up, people thought, because of the name The DAO, people thought that all DAOs were inherently bad. And so it took a few years to actually make people change their minds.
We actually started Aragon in November, 2016, a few months after The DAO hack. That was probably the worst time to start something like that. One big trigger was Donald Trump winning the elections in America which made us realize we need a global reset. We need new governance tools. This is not working out.
“ We need a global reset. We need new governance tools. This is not working out.”
CR: So to make a DAO project right after The DAO blew up must have taken a lot of courage and a really strong belief that this would work out because at the time, like you said, people had really kind of given up on that dream of decentralized organizations or at least many had in the Ethereum community and in the crypto community.
It’s interesting you said Trump winning the election was a big trigger. And you said that to you the most interesting use case for smart contracts and blockchain is governance. So can you dig into that. What was driving you to build Aragon at that time, an especially difficult time to work on a DAO project?
LC: So the funny thing is that my cofounder Jorge and I we were working on a different startup that then pivoted into Aragon.We were working on this platform to end with patent trolls. Patent trolls are these entities that purchase patents, they file them and then they exploit them against normal retail people or business owners. So one example is there is a patent for a printer, that a patent troll owns, not a legit company, but a patent troll. And then they call a bunch of small businesses and they say, hey, I have this patent either you pay me or I will sue you. And they don’t do anything else. And they make millions of dollars a year. And so we were really frustrated with that problem. And then we tried to like tackle it in different ways.
Fixing the System
Ultimately we found out that the best way was probably to do some kind of on-chain insurance, so that startups can buy insurance against patent trolls, but then we thought, wow, starting an insurance company is crazy. We were like 20, 21, 22 and we looked at the requirements and we were like, there’s no way on earth that we can create an insurance company. What did we do? We thought, well, we can build this on Ethereum. And we actually started building that first prototype.
But then we also realized that the core problem that we were trying to solve of patent trolls was actually not a problem we could solve because the government, the US government is so corrupt that they have the perverse incentives to keep this patent trolls alive. They don’t want to change the patent law. And so we thought the problem is actually the law. The problem is how crooked the system is. And so let’s apply this technology, let’s apply Ethereum and smart contracts, to actually provide governance tools for people to fix the system.
“Let’s apply this technology, let’s apply Ethereum and smart contracts, to actually provide governance tools for people to fix the system.”
CR: So wow you were going after a huge problem, you had an issue with like the US legal system itself, and so your way to tackle this was let’s build a separate system to let people self organize. Is that kind of the right way to look at it?
LC: Yeah, basically. We saw that it was impossible to win the game based on the rules. So you’ve got to create your own rules.
CR: This seems obviously super subversive. You’re actually calling for people to kind of ignore their local legislations and build on their own terms. Is that right? How feasible is it for this to gain mainstream adoption?
LC: If you asked me in 2016, 2017 I would say, yeah, all the way, this is going to happen and people are going to rebel. I think now that will happen just in a very different timescale. Now I have changed my mind in a lot of small things that we can do to actually get this to the mainstream and a bunch of those things actually go with getting regulation to be better for the things we’re building. Making sure that people have the legal comfort to interact in a DAO without them getting prosecuted and stuff like that. So you have to take compromises.
“Now I have changed my mind in a lot of small things that we can do to actually get this to the mainstream and a bunch of those things actually go with getting regulation to be better for the things we’re building.”
But the long, long vision is obviously to create a decentralized jurisdiction and for people to be able to opt into it and just giving freedom to people and commoditizing a bunch of services that the nation state monopolizes today.
CR: Oh, that’s really interesting to see how you’ve kind of evolved in your view and maybe not so much your view, but the right road to get there. Can you go into that, what exactly has changed in the roadmap to mainstream adoption for DAOs and how to bridge that gap between regulations and decentralized organizations?
LC: One very interesting point that we have been thinking a lot about is DAOs have to be truly decentralized for them to even go mainstream and be legal. Because if DAOs are not decentralized, meaning that they have actual leadership and they are dependent on that leadership, then you have a bunch of considerations, for example, like the whole SEC, is a token a security, concern, and obviously you don’t want people to go to jail because of interacting with DAOs, that is extremely important.
And so therefore DAOs need to be decentralized and they need to be decentralized more in the social side —they need to not have leadership— more than on the technical side. For example, we spent a bunch of time making the frontend for Aragon truly decentralized. If you go to the app right now, it runs on IPFS. There is no server at all. And so that is great, but we didn’t spend that much time thinking about the social implications. And so that has been quite a learning for us. And right now we’re focusing much more on that. How can we actually make these vehicles decentralized and not just a club. Because a bunch of DAOs they are clubs and that is a great step forward. But if we really want to make DAOs happen, they need to be decentralized and autonomous.
“DAOs have to be truly decentralized for them to even go mainstream and be legal (…) DAOs need to be decentralized and they need to be decentralized more in the social side —they need to not have leadership— more than on the technical side.”
CR: Okay. So does that mean, for example, not having a management structure. You and Jorge are clearly cofounders of this, does that pose like a legal risks to you? And would you do things differently in the future? Would you look to step down from any sort of control of Aragon?
Tension With Legal Entity
LC: Yeah, I mean, right now the cofounders we both sit on the board of the Association. The Aragon Association is the entity that manages the treasury raised on the token sale, and basically funds the project. If we had a DAO back in the day, we would have just created a DAO because it is a pain in the ass to decentralized a legal entity. Now that we are in this position, it is a very tricky position to be in because on one hand you have stakeholders, which are in this case, Aragon Network token holders, which they want control, they want to exercise that voice. On the other hand, you have the Aragon Association, which is a Swiss legal entity that has fiduciary responsibility to invest funds that were raised in the token sale towards making Aragon happen.
And so that means, for example, that we have this process in which ANT holders could signal their intent about the treasury allocations. But for example, if ANT holders signal, hey, you guys should give a million dollars to ISIS, to go to a crazy example, we just couldn’t do that because if we did that, the liability is not on ANT holders, it’s on the board members, which are Jorge and me. We would basically end up in jail. There’s this very hard tension between having a centralized legal entity and a decentralized community.I am looking forward to that day in which we just have a decentralized community and then maybe the legal entity takes care of very specific things like trademarks.
“There’s this very hard tension between having a centralized legal entity and a decentralized community.”
I wrote this blog posts in 2017 and 2018 about how you can decentralize a legal entity step by step. First you start with community signaling and then you can throw in an actual pool of funds that they can manage. And then you can throw even like social media accounts that the DAO can control, it’s a bit sci-fi, but it can be done. And then you can somehow give the DAO a legal status and transfer trademarks to them. But this is a very long process. We’re still working on it.
CR: I think that’s interesting for people who are building dapps and their own Ethereum or blockchain-based teams and want do it in a decentralized way and minimize legal risk as much as possible, what should they do? It seems like you’re calling for an end to the Swiss foundation, because that tension is too much between the DAO and the foundation, and it is pretty hard to manage.
But can you actually have a successful project without some sort of hierarchy, some sort of leader driving the vision, driving the team? It seems pretty impossible to me. Like it just can’t be this amorphous group voting with tokens all the time. Or maybe that’s suitable for like a very narrow set of organizations?
LC: This is pretty experimental so there are a lot of risks involved. The example that I’m most excited about is actually Bitcoin. Bitcoin has proven to be leaderless for over a decade and it’s been working out incredibly well. And I think we need to replicate more models like that. I think for some projects, they might need a leader and that’s it. But for some others you can encode the rules and incentives in such a way that the DAO itself is the one that incentivizes people to continue working on the vision.
So the one interesting thing that we’re working on right now is the concept of Aragon Agreements and the Aragon Court. Aragon Agreements is the tight integration of Aragon Court into Aragon DAOs. And the idea is that you can have these manifesto-driven organizations in which apart from smart contract code, you can write a manifesto, you can write a set of bylaws in plain English, and then you can have all the actions be disputed if they don’t adhere to the manifesto.
“You can have these manifesto-driven organizations in which apart from smart contract code, you can write a manifesto, you can write a set of bylaws in plain English”
So basically what you can do here is you can have DAOs that have a much more clear mission, more than just things that are in the code, which sometimes may fail or sometimes may not encapsulate the kind of subjective mission. And I think that allows for DAOs to be much more subtle and much more humane in a way, because you can really encapsulate the vision and make it last years.
CR: That sounds like a good solution to have something to compliment the smart contract and the code that’s written. What do you think of projects like OpenLaw trying to upload actual legal contracts into smart contracts, do you think that’s also a good solution?
LC: Yeah, I think it’s very cool. I think smart contracts are great, but I’m not a smart contracts maximalist by any means. I think that blockchains are a very slow computer. The more things we don’t put on them the better. Then we can have run into some issues, for example, do we end up recreating the whole legal system by doing this? Well, we don’t know, and there’s no way to tell until we actually try, but I think having these more subjective, subtle agreements apart from a smart contract is a very good way to give DAOs a bunch of abilities that they don’t have right now.
“ I’m not a smart contracts maximalist by any means. I think that blockchains are a very slow computer. The more things we don’t put on them the better.”
CR: So we talked about your idealism in starting Aragon in 2016. I think today is also a really interesting time around the concept of decentralization and having this parallel financial system and parallel governance because of the turmoil that the world is in. On one hand with the coronavirus highlighting how, much control central banks and financial institutions and governments have over people. And in the U S recently with the riots also highlighting how broken the system is in some ways. So it does seem like there’s this kind of new wave of adoption for crypto waiting to happen with all of these catalysts for it.
Are you seeing increased interest from people building DAOs? Has this changed your views at all, made you more bullish or what do you think the impact will be looking at the recent context.
LC: I think all of the events that are going on right now in the world are very much a cry for help for the technology that we’re building and for DAOs especially. The thing that saddens me is that I think we are nowhere ready.
I was working on this project called HealthDAO, which basically is a way for local health squads to form and help people in need and vulnerable groups in coronavirus. And my idea was to use crypto and use DAOs to actually bring this to people in the streets that are needing this. For example, we partnered up with a homeless person in Madrid who has a big following of homeless people and tried to fundraise around the world to get these people some help, now that the world is kind of apocalyptic. And I wrote this post in my blog about all the problems that we went through. User experience problems, regulatory problems, stuff like Ethereum gas. And it was really saddening. We’ve been building so much for ourselves in our own community that we have forgotten the focus on the things that’s really matter.
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