TQ Tezos – Meet the Independent Driving Force Behind the Growth of Tezos
We are joined by founder of TQ Tezos, Jacob Arluck. TQ Tezos is a company that works to advance the Tezos ecosystem by creating open source software and other public goods. It’s been over two years since we last did an episode about Tezos and this was a good refresher on how that project is shaping up. We hear about the decentralized and permissionless nature of the Tezos infrastructure, the protocol development of Tezos, and how TQ is working to make Tezos more accessible.
Topics discussed in the episode
- Decentralized nature of Tezos development and the teams that make up the ecosystem
- Who is funding Tezos protocol development
- Permissionless nature of the Tezos architecture and governance mechanism
- How TQ is working to make Tezos more accessible
- The impressive number of development languages and issues around interoperability and comparability
- Michelson – the stack-based DSL (domain-specific language) and the shift towards Michelson 2.0
- The types of applications being built on Tezos
- The role of the Tezos Foundation and the Breitmans today
- A look back on Tezos governance two years in, and the future of the protocol
(5:54) Introduction, background, and getting involved in Tezos
(9:18) The public goods of Ethereum
(11:56) Coming up with the name TQ
(14:51) Major players in the Tezos ecosystem
(26:40) The permissionless nature of the architecture
(28:26) The focus of TQ
(33:07) The languages of Tezos
(36:44) The Michelson language
(39:33) Applications being built on Tezos
(42:45) Why so much focus on securities?
(47:57) Arthur and Kathleen Breitman
(50:38) Key areas of focus for the foundation
(53:11) On-chain governance and lessons from the past 2 years
(62:14) The future of Tezos, in light of all the other governance chains coming around
Sebastien: We’re here today with Jacob Arluck. So Jacob, thanks for joining us today. Yeah, happy to be on so please tell us a bit about your background, how you got involved in crypto and how you got involved with Tezos.
Jacob: Absolutely. So, I used to work in the biotech Life Sciences space. In 2018 or, even before that back in 2016 had been interest was piqued again, in the space. A lot of people got into the space after 2014-2015 because of Ethereum. For me, it was more that I was really interested in Z Cash launching and some of these projects that had been white papers back in 2014. Cosmos was another. These things that were resurfacing, there was code, there’s people working around these projects. Then in late 2017 Tezos drama. Tezos was one of these projects, as well, that I had been following for obviously a really long time.
I’ve always been really interested in coordination mechanisms. Personally, I’m really interested in decentralized governance and these kinds of questions even back to undergrad. Tezos was just coming out, I thought it was a more academic approach, originally, I also thought originally it wasn’t something that would make practical sense. But then when I saw in 2016, with the DAO fork, and a few other things that happened in that time, even at all the rumblings around Bitcoin governance. I became very interested again in some of these ideas. In early 2018, after the foundation mess had been resolved, connected to the project and you got involved around the launch, in Paris, in June of 2018.
I’m from New York. I wanted to spin up an organization, that was really the thing to realize was there wasn’t much focus around building these key public goods to establish an ecosystem. When you look at Ethereum all the reason it’s been a huge success, in my opinion, in addition to the fact that it really has a powerful ethos and developer culture, and also being the first place to have a useful smart contract platform, also they invested in robust public goods that took many years for them to build, to get to a state that could be used by major companies, by any random developer. The goal that we set out to [accomplish] is, if we’re going to scale up, Tezos has to be something that’s global that’s widely used, etc, it’s going to need to be able to onboard all all these folks and there’s a need for sustainability around how public goods are maintained and managed so down the road. That led to the creation of a lot of other a lot of other sub projects here at TQ. The founding of the company and of the project here, we’re working on how do we create the key necessary building blocks for people to build, to feel it’s an ecosystem where they’re comfortable to get started, and build a business, or build an application or you know anything on top.
Sunny: What do you see as some of the most important public goods in the Ethereum ecosystem? Is it some of the stuff that Consensus was building with Truffle and Meta Mask or is it stuff from the EF? What do you see as the most important ones?
Jacob: From the EF it’s definitely the EIP process itself is really underrated as a driver of Ethereum’s success. Also a lot of the focus on security auditing, a lot of the focus around privacy research, research, a lot of cutting edge stuff that a lot of people don’t even realize the EF is behind. And then you have Consensys stuff, which is, I think, really underrated. People like to bash Consensys for being very large and trying to influence a lot of things in Ethereum. The thing they got right, I think, is having Infura and having truffle. Without those things, having a long term sustainable, funding source would be pretty impossible to maintain. When you go to another ecosystem, if you’re even giving up one of these public goods, you’re “I don’t want to go there”.
One of the things we hear constantly is where’s the Tezos version of MetaMask? We have things like Infura on Tezos, we work with truffle, they’re launching on Tezos, in March. Now the thing is, where’s MetaMask? I want to build an application, but there’s no nothing like meta mask and so figuring out how to make sure that we have all those key key public goods that are there, and then also down the road the idea is to build decentralized processes and other mechanisms for identifying gaps in funding them, and then also, properly managing them. You can get into how we think about how to tackle all these parallel but connected problems.
That’s the way we’ve come at it. Right now, let’s get up to speed. Let’s catch up to Ethereum. Let’s compress the two years of Ethereum and open up and all these things, it took a while to develop. But when you go to Ethereum, it’s as if those things have always been there. If we could jump that, we could skip the line, so to speak, and get a lot of these public goods. I think if you look at other new projects, Cosmos is a great example. A lot of the focus on what are the things that you can pull out of the box to compose with your custom chain, right? Polkadot’s doing that Cosmos is doing that, folks like Celo are doing that. And I think that that’s going to be what really drives adoption, or rather, that’s what people talk about. What ETH killers look like, what will start pulling people through the funnel away from Ethereum, or off of Ethereum. It’s going to be that, at a minimum, that’s what you need to have in order to do so.
Sunny: We’ll jump into talking about some of the public goods that you guys are working on directly in a minute. Before we do that, tell us about the name of the company, TQ Tezos. Because, when I first learned about the story, I was “Oh my god, this is the perfect name”. I love this name. And when I first heard it, I accidentally thought it stood for Tezos Quorum.
Jacob: Which is our main conference series, and we play a big role in that as well. The head of TQ, Alison Mangiero, she’s a political scientist by training. We were thinking about what will be some cool names for this organization. And the original one that we wanted, we talked about a lot was Voltaire. I was really excited for it. and then we were “wait, we should probably, these are a bunch of dead white guys”, we should probably go back and see what some of their positions were and see what they did anything that would scar a company down the road, and so I went up and looked up, looked at Voltaire, he had a lot of views that were not in line with current thinking.
So we’re, let’s think of another one. Well, what about Alexis de Tocqueville? Tezos has its origins in France, and now we have this entity here in the US. That’s fine, but when people hear Tocqueville they think of marijuana or something. So let’s come up with an abbreviation that’s really catchy and really easy to say, and whatever it came with came up with TQ. And so then that stuck, so everyone refers to us as TQ?
Sunny: Can you just give a brief explanation of what de Tocqueville did and what was his main body of work?
Jacob: What he did was mostly, precursor to, what people call political science.
Sunny: We used to call it political economy back in the day that’s what my minor was in.
Jacob: Oh, yeah, nice, nice. He wrote this book called Democracy in America where he went up close and really analyzed how the American psyche and American social norms and things differ from his homeland in France, or just Europeans in general. And a lot of it is around, the relationship between notions of how folks interact with authority. How folks think about power and those are all topics that we’re super interested in. Part of the inspiration of Agora, and the Tezos governance process, in general, we’re really interested in, what are the institutions that internet native institutions that we need to create around the Tezos ecosystem, to really make sure that it fulfills its long term goals and mission. There’s lots of parallels to that. Yeah, for sure.
Sebastien: So give us a sense of who the major players are in the Tezos ecosystem and how they interact. If someone was coming to this for the first time, and sort of mapping of the Tezos ecosystem, what would they see?
Jacob: I think the place to start is you have the main architects and creators of Tezos, most of whom sit in Paris, in Nomadic Labs. One way to think of it as sort of, Parity for Polka Dot, or one of these founding teams that created the protocol, and has an obvious role, in some capacity, as stewards of the network or feel some responsibility for, for, improving it and whatnot.
That nature tells us we can get into this multistage on chain governance mechanism. In practice, there’s no canonical core dev team, there’s no canonical group that is the steward of the chain. In practice, these things tend to fall back to a team, given that is also written on OCaml, there’re very few OCaml devs in the world. It’s not surprising that these folks are the main stewards of the core, of the shell, all these other protocols, etc. Then you also have other core dev teams that are contributing to a lesser extent, but obviously still important. So you have Criptium Labs based in Switzerland. They’re both a validator as well as they work on inner core protocol amendment proposals. Then you also have folks like DaiLambda, which is a company in a small company in Japan, that’s also part of this process. We have a couple protocol devs here in New York, including a member of the Merge team, and someone on our team who contributes to core development as well. So that’s how core shakes out.
Then above that you have different language teams so you have LIGO, a language that compiles down to Michelson which is the smart contract DSL. You have teams like SmartPy, you have teams then there’s others Archetype and SCaml and Albert. There’s these teams that are working on those angles. You have folks who are doing some of the layer two projects, there’s a couple of them. One of them is in Japan, called Cryptoeconomics Lab, I think they also developed a thing on Ethereum called Plasma Chamber. They’re doing a lot of work around optimistic rollups, in IBM, stuff on Tezos. Then you have, obviously entities like ours, you have entities like the Tezos Commons Foundation, as well, which is a community organization. We collaborate a lot with them, particularly on Tezos Agora, which we can get into later, as well as projects like LabNet, and other Tezos projects that are really focused on fostering an open, decentralized governance process.
There’s all these other entities around the world that are working on Tezos’ adoption or projects. There’s teams in Brazil, there’s a team in Israel, there’s a team in Ukraine, there’s a team in Japan, there’s three other sides of Southeast Asia, there’s China in Hong Kong. All of these have full time folks working on Tezos projects, and are working towards Tezos, in some way. That’s the basic lay of the land. Then, of course, you have the Tezos Foundation, which is, serving as an endowment, that funds some portion of ecosystem activity, they also help on coordination in some capacities, undertake strategic projects, they’ll talk to folks who want to build something on Tezos. Folks who are thinking about doing equity investments in people building something on Tezos, stuff like that. A lot of what their role is more as a funding source for certain parts of the ecosystem. Obviously, we work with them pretty closely, especially around the public goods around Tezos, the conference series. Even describing it this way, it’s probably still a little confusing. The basic way that this thing is designed is so that you have representation of Tezos in all these key geographies around the world. Pretty much every continent, other than maybe Australia and Antarctica, has some meaningful, full time business presence at this point. There’s a lot of effort going forward to figure out how to what other entities should be spun up, what other types of funding vehicles should we spin up for ecosystem public goods, and other matters.
Sunny: There’s a lot of very decentralized development going on. How do you coordinate this? Are there situations where this becomes an issue? At cosmos, we’re going through this process right now as we speak of, decentralizing our development. I’d like to get some learnings from a team that is in that process and has done that.
Jacob: There’s a few areas where I think there’s a lot to learn. It’s obviously a big question around who’s funding protocol dev, who’s capable of doing pro dev? What’s the barrier to entry, those sorts of things. In Tezos, the barrier to entry that from the beginning has always been around OCaml, right? As well as just functional programming in general. Functional programmers just think differently than traditional developers. They write code that has to be maintained probably by other functional programmers.
In Tezos’ case, a lot of the opportunity for decentralizing protocol dev, seems to be trying to refactor the codebase or build tools and documentation about parts of the code base that are poorly documented, so that folks can very easily get started. Understanding that there’s probably a smaller subset of the total devs in the world who can ever contribute to Tezos, but at least we can capture a larger share of them and in practice.
One of the analogies that I use is that People always talk about how WhatsApp sold to Facebook for $19 billion and had something like 15 employees. Some day, a set of blockchains could run trillions of dollars in global GDP but only be supported by a small number of devs relative to that. Maybe even 1000 developers who support software that powers trillions and trillions of dollars of value. We don’t need to get the number up that much. We don’t need that many folks doing core Dev, it’s more so a matter of even doubling, what we have today. Or the accessibility, doubling what we have today would make a huge difference. Then it’s a lot more accessible to get into core development.
The roadmap is so complex, so that there’s a different barrier to entry, which is around, who can possibly build a sharded proof of stake, highly scalable, blockchain infrastructure? That barrier to entry is a really big one. There’s not a lot of folks who can even work on zero knowledge. A very small number focusing work on doing sharding and cross chain interaction and light clients, all this stuff. Where I think it’ll all go, in the long run, stems from what are the incentives to improve the core. Tezos, and Cosmos as well, have on chain funding mechanisms to incentivize core development. It hasn’t really been used yet in Tezos.
There’s a lot of hype and discussion around, using this concept of the invoice in Tezos, which is where you can attach a one time or recurring reward, for a proposal that you submitted to improve the protocol, and this can all be done on-chain in Tezos. In other networks, maybe there’s a treasury, and people need to vote on it, and then the development happens, the execution of the amendment proposal happens, totally off chain. I think in cosmos, right you guys don’t do automatic upgrades, maybe you’re moving towards doing automatic upgrades down the road, but you vote on a proposal and then someone goes and implements it, and then it gets your hard fork, to adopt it right.
Tezos, it doesn’t work that way. The architecture is inherently more permissionless. That said, there are probably more barriers to entry around who can work on this thing. Given the unique skill set that’s needed, getting funding, getting up to speed and then also thinking that your amendment even has a chance of making it. It’s very hard to say right now, in any of these networks, when you have a really capable team and they say, we want to submit the changes to the core, do they have a sense of what the expected chances of success are? That’s one of the things that we’re really interested in, especially where we want to take Agora, is creating a lot more legibility around what are the needs of the project, especially at the core level, and then creating an open permissionless prioritization systems using, for example, prediction markets combined with signaling.
Think of some of the ideas that were put forth by DAOstack. There’s a lot of interesting mechanism design ideas, using that for something like holographic consensus, or some derivative of that, to prioritize potential protocol amendments and thus justify decentralized funding of those things. So that’s one of the areas where we definitely are interested in taking it. If a project can get to a point where they can do decentralized open source development of one of these core protocols. Turn of phrase that I use is, if you can get teams that hate each other, potentially, to work around the same coordination mechanism, you have a good mechanism. That’s a base layer expectation for an institution is whether or not it can coordinate and manage competing priorities and people who don’t like each other. One experiment that’s really worth making is probably around making the needs of the platform legible and stuff. Even if it’s just in a limited area at first, then trying to build mechanisms that can help inform prioritization of the things. And this would all be off-chain, by the way, for now, I mean, parts of it would be executed.
Sunny: You have teams in the Tezos core development community that hate each other?
Jacob: I don’t think so. No, I think there’s obviously tensions between, core, and there’s inherent tensions between the different stakeholders of the ecosystem. You have Baker’s who have one set of incentives, you have token holders with another set of incentives, smart contract developers and enterprises, you have core teams and folks who are really interested in functional programming. Balancing those different priorities is really important. And in order to do that, you need to have a mechanism for making legible concrete needs and then fostering discussions and then enabling prioritization of those. In all politics, all institutions, you ended up with agenda setting as more important than the actual vote. In the US Congress, in most parliamentary systems, the outcome of most elections, and most decision making processes is pretty well known well ahead of time. And that’s because most of the game is not around the actual vote, it’s around what even gets put up to a vote. Obviously, that’s set on based on who has control, who has the most votes in this thing, but where it all eventually plays out is in the agenda setting component of the process. So what we’re thinking a lot about now, and how to improve that so that you can introduce some of the permissionless and openness that you have of the operating system off chain, to summarize it that way. That way to just bring it more into harmony with the expectations of all the stakeholders of the system, and then prioritize those expectations accordingly.
Sebastien: The permissionless nature of the architecture. We think of blockchains as permissionless application platforms, right. It’s the first time that I’ve heard someone use that term to define and characterize the development and the evolution of blockchain itself. I think that’s one of the things that characterizes Tezos is the permissionless nature of how the protocol evolves through the on-chain governance system, that’s an interesting thing to think about.
Jacob: The idea of building an autonomous internet native infrastructure institution. There’s lots of folks in other ecosystems who will start shaming you for using this framing. But I think that’s where Tezos is really aiming to be. I think it already is well on its way, but the long term goal is to try to become a fully autonomous organism, you want to call it. That can power, obviously, all sorts of crypto native internet native institution use cases. Whether that’s asset settlement, whether that’s DAOs, internet, native organizations, those sorts of things. Power items inside of games, you could imagine in game economies that are totally autonomous, and in terms of the scale at which you can run an MMORPG, for example, that has, yet, mediates economic value. That’s what you hope these kinds of architectures make possible.
Generally, we’re trying to introduce, if you think of the process right now as a lot of soft, normal human processes could also involve gitlab and whatnot, that then lead to this permissionless and hard on-chain process. We think a lot of this is going to probably go over time is, at least in our team at TQ. Our conversations other stakeholders in the ecosystem is towards widening along that journey, moving the permissionlessness a little bit outward, and more into the agenda setting part as well.
Sebastien: Tell us what TQ focuses on specifically, then.
Jacob: One of the main areas where we focus on today is really around smart contract development and standardization, as well as working with some of the key language, the new smart contract language projects that make Tezos’ development a lot more accessible, as well as working with folks like truffle suite and some of the well established development platforms for Ethereum.
We also work with companies that are building on Tezos and basically, a lot of that is around tokenization and Digital securities. And there’s a host of other use cases that we haven’t yet communicated on. But a lot of the thinking in our team is how do you build this ecosystem around Tezos, given its starting point, which at launch had Michelson in a very low gas limit. It just wasn’t really built for public consumption, initially. You didn’t have really good tooling, lack of testing infrastructure, there’s lack of a feedback loop around people who would want to use the platform.
We initially created something very similar to ERC20 and that’s what a lot of the ecosystem uses for it’s different tokenization projects. Since then, we’ve been working for many months on thinking about how to build a better token architecture, treating token standard as almost a platform for people to invent other kinds of token types and token based applications without being constrained by one particular token architecture. So, obviously in Ethereum, you have the success of ERC20, ERC721. Then, obviously, folks have tried to foster some others. If you look at EIP repos, You’ll find just so many different failed standards and whatnot. Instead, our plan is when you find that ERC 721 and ERC20 doesn’t for you, you don’t have to even worry about a lot of the base transfer semantic, or how you connect to permissioning around your token, and instead, you can focus on build it creating some prototype or finding some token type that will thus it will already be supported in wallets, but you can customize a lot of the behavior of that token. Those are the kinds of projects that we’re undertaking.
We also work on the more meta of all of this with the Tezos Foundation, we’ve created this platform for discussions as well as governance, visualization, and other stuff that initially is a governance explorer plus a discussion forum, that’s very similar to Ethresearch in practice. That was created to discuss protocol amendments, discuss changes that are coming to the platform as well as speculative ideas and trying to foster that community around research, and development, as well as making it easier for bakers and smart contract developers to understand and discuss some of the changes that are coming down the road.
We built the Tezos Agora platform over last summer and launched it in the fall of last year. It’s been really instrumental in fostering discussions around some of the controversial amendment proposals that have emerged in recent memory. So there was this amendment called Babylon, for example, it was this really big test of the amendment process, because there was a bug discovered and it halfway through, the joke they make is that it was a much smaller version of the DAO hack. Now well, we have to make this decision, there’s pros and cons of either one. It’s more about making the decision in a way that has a high degree of social consensus and moving on, rather than about the exact details of that. Agora was really important around mediating a discussion. of shockingly high quality, for people on the internet, around that particular dilemma that was facing the community.
Sunny: I guess we’ll come back to the governance stuff in a second. I’d like to focus on one of the first products that you mentioned, which is coordinating of these different language teams. One of the jokes I had about Tezos ecosystem is that there’s more languages being developed than actual applications. Obviously, a joke, there’s probably some applications being built as well. Every team that’s working on Tezos is developing their own language. And so why is this happening? And how does this affect the composability of applications in the Telos ecosystem?
Jacob: It affects it a lot. Yeah, so basically, it’s a joke about functional programmers is they are into these kinds of projects, because they’re really into programming language theory. It’s definitely true in our ecosystem. So there’s a lot of folks who have opinionated views about and enjoy the art or the science of creating programming languages. No programming language on Tezos, out of the gate, was widely usable enough that it would gain the network effect that solidity.
Sebastien: One quick question here, how many languages are there?
Jacob: So there’s LIGO, SmartPy, Archetype. All the Haskell flavors, that’s Morley, Lorentz and Indigo. Consider that one. So that’s four. Then you have the Juvix project from Cryptium Labs. Then you have SCaml, which is a Caml compiler to Michelson and then you also have Albert. Albert is an intermediate representation, I believe, for that makes Michelson a lot more readable. But yes, so you’re talking let’s see. Well, there’s seven meaningful ones. There are also some older ones, like liquidity and fee, which nobody uses anymore.
In practice, we would argue that there’s probably three of these that are getting any use. So LIGO, SmartPy, and the Haskell ones are the only ones that are getting significant use. I’m sure there’ll be some folks who try Archetype, offers some formal verification tooling. And then you have Albert and also just Michelson itself, which also offers a bunch of formal verification tooling. There will be a few things written in these, but there’s a lot of languages, and that’s I think mostly a cultural thing. The nature of these languages taking a while to become fully useful the way that solidity is in Ethereum. The bigger problem is interop between all these languages. Ethereum, you have the API, or people are defining contract interactions in a harder way. This doesn’t exist in Tezos, right now. One of the challenges is that interop between some of these languages can require, people call it Glue Code. A dongle between applications written in different languages.
I don’t think this is as big of a problem as people think. In practice, probably there’ll be a power law around two of these. And then it’s just a matter of trying to create something akin to an API in Ethereum. I’ve heard on a recent Tezos core thread, there was discussion about turning Michelson into a lingua franca for all of these different languages. So creating really clearly defined interaction, clearly specifying an underlying semantic interface by which these different contracts in these different languages can interface with each other.
Sebastien: We’ve mentioned Michelson a couple of times. What is Michelson?
Jacob: It’s this stack based language that Tezos contracts compile to. It’s a DSL that’s interpreted to OCaml that people can, in theory, you can write it up by hand yourself and write contracts in it. The best analogy to give is, imagine if the EVM was a bit more readable. You had this stack based language that people could write contracts in. In practice, what it has become is a compilation target for all these new languages that have come out. So LIGO, SmartPy, and Archetype and all these things. Most of them just compile down to Michelson.
Sunny: Sort of like the EVM bytecode. Some people will go ahead and hand write EVM bytecode, but I’m not sure if people want to do that. It’s the same thing with Michelson. I’ve also heard some discussion around a shift from Michelson to Michaelson 2.0, whatever that might be. Can you tell me a little bit what that is about?
Jacob: So I think that’s still shaping out. There’s a desire to move towards something that better serves as an intermediate representation, so that people can compile these higher if all of the contracts are gonna end up in these higher languages, which we all expect, that you want to build something that’s just a better intermediate representation. Then you can build compilers, you can build all sorts of good, better tooling and formal verification tools across these different languages. Right now, there’s been a lot of effort expended on this library called Mi-Cho-Coq. It’s a Coq representation of Michelson. There’s contracts that have been written in Michelson, and then specified in Coq form and with proving properties in Coq Michelson contracts.
The idea is to make it a better target for certified compilation as well as generalized formal verification across some of these other languages. Then also, if you go and tell us or you’ll you can find a few articles by a guy named Sander Spies and has an OCaml implementation of WASM. There’s a lot of discussion there that’s probably more speculative and takes a while. It won’t be, I think, WASM, as you see it in Polka Dot, or some of these other projects that are WASM from the start. It’ll probably be some subset or some other flavor of WASM as I understand it. Some of the immediate features that people want to add to Michelson is definitely around readability, is definitely an intermediate representation, etc. It’s also about adding events and the things that are widely used in Ethereum that don’t exist today, and Tezos because the project was launched without some of these very useful features, things that people who are doing integrations or tooling or wallets, definitely want to use.
Sunny: So we talked a bit about the languages side of my joke. How about the application side, what are some of the applications that are currently being built on Tezos?
Jacob: I would break it down into a few categories. So you have folks who are doing defi things and so you have StakerDAO, where folks hold a security token and then can govern in this basket of tokens. Initially, they’re doing one that represents a bunch of staking assets. The way I explain it is you can think of it maker DAO, but instead of just doing a stable coin, do lots and lots of different DeFi applications we govern through this DAO. The governance token from the start as a security. Let’s go bigger, and also constrain the set of holders. Creating that clarity around onboarding for institutional type folks, I think, is underrated. I think that project is really interesting. They’re using a lot of the stuff that we’ve built here at TQ and other parts of the ecosystem. They have a fork of Tezos Agora, that, imagine if maker DAO governance decisions were mediated in part through something like Tezos Agora, that’s what they’re doing. They obviously use our reference implementations and token interfaces and things. So that’s one interesting project.
Then there’s a bunch of other folks doing digital securities offerings, or other kinds of digital securities projects on Tezos. A lot of work with folks in Brazil, a large investment bank, they’ve been doing they tokenize Brazilian REITs, and this is BTG Pactual. Then you have a few other digital securities projects. Elevated Returns based out of Thailand. They’re also tokenizing some REITs. There’s also digital securities projects all around the world. There’s folks tokenizing artwork in Korea, then you also have other flavors of projects. Going back to the defi topic, one idea that’s been open sourced, stable coin design. Arthur Breitman, one of the founders of Tezos, put forward this idea of Checker which is inspired by stable coins, and maker DAO and I think has some distinctions, but I think that’s definitely something to look out for. There’s also something very similar to uniswap coming out pretty soon. I think they’re figuring out their last steps and trying to get a smart contract audit. But that’ll be coming out soon enough. You have the underpinnings of a defi ecosystem. The couple assets that folks are bringing to market. You’ll hear about some of these interesting ones soon. You have the stable coins that are being considered, then you’ll have, obviously, this swap style DEX, after all that you can start to get into lending or compound. Once you have the basis for on chain activity, especially the base defi primitives, then we can extend into some of these other other areas.
Sebastien: You mentioned digital securities, and that there were quite a few projects building these types of applications on Tezos, give us a sense of why that is, why do you think that there are so many of these being built here?
Jacob: I’d back up and say, why do people want tokenize securities on blockchains? So this is a thing, a lot of people in the blockchain space are very mystified by. That’s not sexy, that’s not, interesting, it works fine, etc. The idea that we’ve been looking at is that a lot of the value prop for say doing this on blockchain at all is you can get a common infrastructure for the way assets are represented both in trusted and lower trust environments that scales globally. Imagine that you could take off the shelf software that represents any asset, for any asset related use case, for anywhere in the world that follows the same standards on a common platform, and drives the cost of this financial infrastructure down to zero. Even if there’s the regulatory restrictions, even if there are still moats around exchange, and liquidity.
You’ve just driven the friction to getting started, it’s no longer around the software infrastructure, the software infrastructure now costs zero dollars, there are a lot of long term benefits and innovations that can probably come out of folks onboarding, all these different types of assets using common standards all around the world. You can think of, for example, some more interconnected global markets, because all these assets are standardized. And even if there’s obviously, lots of, regulatory restrictions that are needed for how you ensure people are following the appropriate local regulations. This is the foundation for building interconnected global economic infrastructure. If you take that long view, that’s the approach of entities in Tezos ecosystem. We’ve directed a lot of effort towards onboarding projects that want to eventually be on one big common economic infrastructure.
The value prop for Tezos specifically, is that a few of the scary things about existing blockchains, Tezos tries to solve. So for example, security of the underlying smart contracts, and that’s a core tenant of Tezos and since Tezos was first introduced, there’s been a huge amount of focus on formal verification across a lot of other ecosystems, especially in response to hacks on Ethereum etc. Tezos really has both that security component and then also, that focus on trying to have smart contracts that are very correct and very correctly specified and defined, and have properties about them, in mathematical form.
You also have the governance aspect, where basically, if you want to tokenize something and you have this life cycle over 20-30 years. How do you know what platform is going to be around in 20-30 years? Well, the argument is that Tezos has this governance mechanism so that it maintains a social consensus over a very long time horizon, and the ability to add features to the protocol over time, as new innovations become available. So the idea there is that imagine your, your contract remains secure on this network, but you’re getting access to this self improving economic infrastructure that’s becoming faster, it’s becoming more secure, it’s becoming battle tested, it’s adding functionality that starts to accumulate all these network effects driven fundamentally by the improvement on the underlying infrastructure, but while maintaining the security and safety of your assets on that platform. That’s very theoretical, but in practice, it’s designed with how you make these kinds of theoretical advantages tangible, and that’s what we’re really interested in working on. It’s the self improving economic infrastructure that people can tokenize their assets on safely And know that over 30 years there, the infrastructure will continue to improve, but that their assets are in there, their applications are secure.
Sebastien: There’s a long term vision here about the longevity of Tezos, given the on chain governance given this self amending property of those that is somehow attractive to people who want to build financial infrastructure that will outlast let’s say, the whims of those developing the project or the ecosystem.
Jacob: Yeah, exactly. It’s autonomous base layer financial infrastructure for everyone in the world. That improves and continues to [innovate], but itself improves conservatively, because of the way the governance mechanism is designed, while maintaining the security of the applications and assets that are on top.
Sebastien: I wanted to ask you then because you mentioned Arthur, and I think he plays a role in the ecosystem in terms of pushing ideas and doing research, and what is his role now? More broadly, what is the role of the foundation? Kathleen, as well. Those are two pillars in the Tezos ecosystem that can’t be overlooked.
Jacob: Absolutely. So Arthur definitely provides a lot of inspiration to the folks building on Tezos, and as well as the core development so I think contributes to the types of things developed at teams like Nomadic labs. Evaluates some of these ideas or even write prototypes of different ideas that he has and then hands them off. If they’re interesting, or valuable, someone will try to advance them through the process. If you go on Tezos Agora, you’ll find a lot of his blog posts about different ideas that he’s considering. One of those, is the idea of contract signatures. You can find him talking about different topics around delegation and staking and how he would improve the Tezos staking model. I think he was a contributor to the upgrade of the Tezos consensus algorithm back in the Babylon upgrade. Most of his involvement is definitely around some of those areas for sure. And then Kathleen, she has a gaming company called Coase are building Magic the Gathering on Tezos, really have a lot of experience in the gaming space, and they’re doing trading card game based on Tezos.
Then you have the question on the foundation’s role, at least that’s its set out for itself. It’s a member of the community that funds key infrastructure and public good projects. It’s a different role than I think the Ethereum foundation plays. The Tezos foundation does not control anything like an EIP process. I’m not saying that Ethereum foundation 100% controls the EIP process, either. But the way that it’s set up in Ethereum is such that core development, as well as standards, and all these things do flow through Ethereum foundation. There’s a very explicit role for both the founders of Ethereum and Ethereum foundation to stick around for a long time and guide things quietly. The Tezos foundation is much more of a caretaker foundation where it’s participating, but it’s not governing or managing the network by any means. It’s really more of an organization that’s funding key projects. Then basically, making sure that the money is not spent on bad activities.
Sebastien: And so what areas is the foundation funding at the moment? And where are some of the key things that the foundation wants to focus on?
Jacob: Yeah, sure. I’m involved with a few of their committees, and a few of their internal decision making processes. What I can say is, essentially, the focus is on building as you say, a lot of this key infrastructure from bottom to top that enables the vision that I described. The notion of this thing as currency and also as financial infrastructure, what are the things we need to build, and what are the things that need to get funded. Things like wallets, going out and finding folks who want to tokenize something interesting on Tezos and getting them to understand the value prop and then providing them direction towards some of the tools and other public goods that are available for them to get started. Some of these language teams are funded by the Tezos foundation directly.
The foundation doesn’t, for example, sit down with these language teams and say you need to do the language this way. It’s, instead, here’s the funding, and then there’s a technical committee that checks the progress of these language projects, and then evaluates, should these language projects be continued or expanded or shrunk based on the performance. Now, how you set those kinds of priorities and evaluate based on those is the age old political question. I think there’s going to be a lot more focus on trying to make some of these things transparent and obvious as to how the foundation thinks about what is important and what is a priority.
One other thing I’d say is a lot of the foundation decision making processes are really the output of external folks in committees. There’s a Technical Advisory Committee, there’s folks who also advise other kinds of talk about deployment from the foundation, but a lot of the operations I’d say are pretty small. It’s a very small organization. I think Ethereum foundation at its peak had 150 people either contracted or employed. Tezos foundation is 10 times smaller. It’s just trying to fund things and make sure the funding is properly spent.
Sunny: Another source of funding is the governance system of the chain itself. Has anyone received funding from that yet? Or is that still more in theory people could be, but no one has.
Jacob: So there was a small invoice for Athens the first proposal that was about 100 tez, I think it was just a demonstration. I don’t recall what it was. This current proposal cartridge has nothing associated with it cuz it’s a very small fixed to a few bugs. This is probably something that’s going to happen over the next year or so. A lot of folks are really interested and you can see this in the recent core development ama, around how do you do price discovery around these invoices in a way that’s fair. Gabriel from the LIGO team, published in this AMA, that he wants to see prediction markets that are evaluating… you can do the Ralph Merkle mechanism, where basically it’s a prediction market on the satisfaction of people, in a year or two years, something like that. And in theory, you can combine that with other kinds of mechanisms Arthur has published on. I think he has a blog post where he talks about, if you change, staking, for example, to be based on an auction mechanism, you could basically run a prediction market. I believe it’s on the future of inflation rate, rewards that people would want from auctioning off block writes and stuff like that, trying to build some internal mechanisms around that.
So that’s still a ways away. I think that coming up with a really robust viable price discovery mechanism for invoices is probably going to take a long time, in the short run, and I think it’s Olaf Carlson, from Poly Chain, who’s made this point before. Say, for example, there’s an amendment that causes Tezos to become significantly more adopted. Say that there’s a 50% increase in Tezos, so I’m making up the metric but I’m just using it as an example. There’s an increase in Tezos smart contract adoption, where 50% more contracts are deployed over the next year or two years. In theory, you don’t have to provide a big invoice relative to the size of the network to fund changes that could lead to such a significant increase in adoption.
What I mean by that is going back to the point about WhatsApp not employing over 16 employees, but selling for $19 billion, or something. You could have an invoice that funded a team of 20, or 10, or even five people, but maybe we’ll use zero knowledge, or sharding, or something where a team of say 5-10 people worked on sharding Tezos, that increases scalability by, let’s say, by 20x. The absolute amount this invoice could represent could be very large, but the relative amount to the token holders, and the bakers could be quite low. So a half a percent in a vesting contract over say three, four years, could turn out to be something that scales the network by 20x. Is a cost spread out across four years, right. When I say .5%, I mean, point 5% of the current tokens now, when you do the invoice those tokens go into a vesting contract. And then inflation is known. You’re not minting new tokens. There’s lots of ways where you can create clever incentive models that are really cheap for all the stakeholders relative to the market cap, but have really significant benefits in terms of adoption or scalability, or some metric that you want to choose.
Sunny: beyond just the funding, what have you guys learned about the governance experimentation that is Tezos now almost reaching up to about two years in? What is different about the current Tezos governance process than explained in the white paper? And then has anything changed since the launch of Tezos?
Jacob: So basically, I have a blog post called Amending Tezos. That blog post is the output of having traveled to the nomadic offices in Paris, sat down with the team and said, what is in the codebase? and let’s figure out what the Tezos amendment process is, how to kick this thing off and start using it. Right? Basically, went there, we sat down, discovered that the way it was implemented was pretty similar to what was in the white paper.
There’s this four stage process, and then it has this quorum, where it’s mechanism adjusts based on previous participation in the process. So if, say it’s 80%, and then it has an adjustment formula that, if it was say, above 80%, that would adjust upward weighting recent participation by 20%. Then using 80% as its basis for the rest. Then when we went to Athens and other actual amendment processes cycles, this produced the dynamic where the quorum was expanding, going up a lot because there was massive participation in terms of stake. It was something like 88% or 87% of the stake, voted in the initial, Athens cycles, that led to an increase of the quorum to something lik 81 or 82%. It’s a paradox of the quorum where basically, and it was predicted in the amending Tezos article, that you would start to increase the quorum significantly above 80%. Then because that’s happening, because you’re increasing it, even though you think that you’re raising the bar for the amount of consensus that’s needed to pass something. In fact, at some threshold, you start to, if it’s not capped, that you end up giving a lot of power to someone with a three or 4% stake to come in and just veto anything. So you can even get through the initial stages of the process, and then someone could come in with 3% or 4% of the stake and veto the execution of one of these amendment proposals.
The change, I think Cryptium labs wrote it, similar to what we had worked out in late 2018, was let’s put a cap on the quorum and a floor on the quorum. And people are Well, no, lowering the quorum that’s going to make it easier to pass things. And Whales will have more say. In practice, it does the opposite. Because it means that, a small cartel of folks, or even just one large stakeholder can’t just veto everything. Having too high of a level of consensus required to make decisions centralizes things. That’s the paradox here. You see it in the US Senate, you see it in other places to where you just end up basically, status favors, a lot of times, big players. And so, trying to find that sweet spot is really important. And just one more point on that, I think it’s worth mentioning is somebody who has done a really deep amount of thought on this topic is Matan Field from DAOstack. A lot of the conversation with him was really informative in terms of thinking long term is our quorum viable? He has his own very generalized framework for evaluating the quality of governance decisions. What he described was basically, you want to be able to scale your decisions, be able to handle lots of decisions, but you also want to make sure that they’re representative of the larger group. You can end up with a quorum that is too high to make scalable decisions, and too low to be representative of global consensus.
So that’s one of the things we’re gonna have to think about a lot. And that’s where it starts to become interesting to think about alternative mechanisms, like prediction markets. If you think about stuff like Brexit, people are like, we wish we hadn’t done Brexit, right? In a lot of cases, right? And finding a way to have a check on these, low participation, or this thing is definitely something that’s worth exploring I think in the future, but we haven’t yet fully thought out how you solve the problem. I don’t know if you guys in Cosmos have thought about any solutions. I know you guys have a differently designed quorum system than ours, I think it’s 51% is that right?
Sunny: We just have it fixed, takes 51% to pass a proposal, one third can veto, and there needs to be at least 40% of stake voting for it. Otherwise, it gets automatically rejected. Relating to that point, in Tezos originally one of the main value propositions was it going to be the governance focus chain, but today, almost all the new chains that are launching are usually have some form of strong on chain governance, so whether it’s Cosmos or even some of the newer chains, so how does Tezos position itself in the market? Now, in a way you could, you could say that Tesco succeeded in a way where you have convinced the rest of the blockchain ecosystem that hey, on chain governance is maybe a good idea. But given that, what’s the future of Tezos? What’s the new market positioning?
Jacob: So would push back and say, it’s easy to say that you’re going to do on-chain governance. You don’t really need on-chain governance unless you’re trying to do something useful. There are certain chains out there and I’m not going to name them, that love to talk about governance as the only thing that they do. I think those are probably all bound for irrelevance, to be frank. I think that you only really need governance when you have something to govern. So Tezos ultimately, regardless of the governance process is aiming to be a currency, and as a project was founded to be a currency in a smart contract platform, right? The governance process is really only useful insofar as it’s in service of those kinds of goals.
I feel the larger question we should be asking is, why does Tezos build a really robust social consensus, why does it build the moat that somebody in Ethereum or Bitcoin has? how does it get to that point? Realistically, if you can make lots of decisions really quickly, you’re probably not, in most cases, a particularly interesting chain, probably, to begin with, because you don’t have any, people using the platform who want to veto your changes. I don’t know, who do you particularly have in mind, because I can say how I would position Tezos versus Cosmos. I think cosmos and Tezos follow the opposite vision.
Network effects probably accrue to one chain. Basically, we want to figure out how to have the most network effects of any chain. And we’re going to do that a priori before, before thinking of the practical considerations of does anyone want to build on the thing. And then Cosmos thing is, there’s just certain limitations that as you try to scale socially, you just cannot get over. So you might as well have a pretty open architecture, in terms of, allowing people to spin up chains. Then we’re gonna put all the effort into making all these different sovereign zones talk to each other. I mean, I’m exaggerating, but it depends on what you want to be right? When you grew up. If you’re a chain that wants to be to be money, and to acquire a lot of network effects, following the Ethereum or Bitcoin model, then Tezos is I think, decently positioned to that, it has a lot of social consensus that has emerged from people onboarding to do staking. So even though staking, we’re surprised at how interested everyone is in it.
There’s this sense of participation and direct engagement with the network that is accessible to anyone in the world around one chain that resembles how a lot of people coalesce around Bitcoin and Ethereum and whatnot. Whereas chains like cosmos and polka dot are really more about, running in the background, in my opinion. How many people who ever use anything that will be built on Cosmos ever, are ever going to have to think about cosmos? and hopefully that’s true for most things that are built on Tezos as well. In practice, think that’s the difference in consciousness around these chains is, do you want to be a chain that is populist and lots of people coalesce around and, and lots of people care about etc, or, people want to participate in or do you want to be a chain that where people just build things on top of it, it runs very much in the background. And thus, you want to focus on having some architecture that is, going to onboard as many different potentially conflicting folks as possible.
Sebastien: That’s a good note to end on, I think is What will Tezos become as it grows up? It’s definitely an interesting ecosystem. Thanks for sharing your thoughts on how the Tezos ecosystem is evolving, and we’ll definitely keep following it as it continues to grow.
Jacob: Yeah, absolutely. Thanks for having me.
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