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Heroes and outlaws: The Role of DAO Founders
Heroes and outlaws: The Role of DAO Founders
Heroes and outlaws: The Role of DAO Founders

Heroes and Outlaws: The Role of DAO Founders

Doo Wan Nam profile picture

Doo Wan Nam

Jul 10, 2023

The crypto space, often referred to as the New Frontier, is a world brimming with opportunity and wealth, but also with increased risk and lawlessness. Within this realm, we witness everything from cutting-edge protocols that handle billions of dollars worth of assets, traders and investors making millions, to Founders and Builders faced with constant scrutiny. It is important to recognize that this environment has given rise to both "Heroes" and "Outlaws" narratives, driven by individuals both inside and outside the industry. The uncertainty surrounding this space motivates many to align themselves with the "Heroes" and attribute any losses to the "Outlaws." It is crucial to understand that such a dramatic view, particularly when applied to Founders, is not sustainable in the long term for DAOs. While the cult of personality surrounding Founders may act as a catalyst to generate interest in the short term, it is essential to acknowledge that Founders are human beings, and expecting them to be invincible and saint-like only serves to destabilize DAOs.

From Startup to DAO

In traditional startups, it is expected that founders will benefit when the company succeeds. However, in the crypto space, even if DAOs succeed, their founders are often expected to sacrifice everything for the protocol while receiving minimal benefits. There was even a time when it became ethically commendable to receive no funding from Venture Capital and not retain any portion of the token for founders. However, from an economic standpoint, such practices are generally not sustainable in the long term. This issue also extends to founders and governance. For instance, when Rune Christensen, the Founder of MakerDAO, bought more MKR tokens, some criticized him for doing so. However, if he had decided to sell MKR instead, that action would have also been grounds for criticism. This problem is prevalent in many DAOs. In other words, regardless of what founders do, there will always be reasons to challenge them.

One of the reasons this challenge arises is due to the inherent transparent nature of most blockchains. Even if founders themselves remain anonymous, their blockchain addresses are often public, allowing for easy tracking of addresses that hold a significant portion of tokens or have been contributing to the associated DAO since its early days. Consequently, unlike in traditional industries where disclosures about companies and their founders are infrequent and hard to find for non-listed private companies, in the DAO space, the actions of founders and teams, especially regarding their tokens and the DAO treasury, are more exposed to the public.

From Heroes to Outlaws

The crypto space is filled with once-praised visionaries, geniuses, and heroes who have fallen from grace. From Do Kwon, the Founder of Terra, to Alex Mashinsky, the Founder of Celsius Network, we have witnessed numerous cases of Founder "Heroes" later becoming "Outlaws." For example, FTX, one of the largest crypto exchanges, filed for bankruptcy on November 11, 2022, revealing severe fraudulent activities, mismanagement, and risky endeavors. John Ray III, FTX's new CEO, who previously oversaw massive bankruptcies including Enron, strongly criticized FTX in a filing with the U.S. bankruptcy court, stating, "From compromised systems integrity and faulty regulatory oversight abroad to the concentration of control in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals, this situation is unprecedented." The FTX bankruptcy filing exposed many misconducts within the company, shocking those within and outside the blockchain industry who believed Sam Bankman-Fried, the Founder, to be a philanthropist and FTX and Alameda Research to be legitimate and highly profitable entities. In reality, Bankman-Fried was actively involved in fraudulent activities, and the companies had actually lost $3.7 billion before 2022.

The FTX bankruptcy filing revealed many misconducts in the company
Influential vlog Nas Daily covered Bankman-Fried and his philanthropy. After the bankruptcy, Nas Daily released a video both apologizing and explaining what happened with FTX and Bankman-Fried.
Do Kwon’s downfall had a significant impact on the crypto space including triggering several entities to declare bankruptcy.

After the fall of such "heroes," new "heroes" often emerge. However, their time in the spotlight is usually short-lived. Despite the rug pulls executed by these "heroes," many individuals still cling to the belief that these "genius" developers had good intentions and will eventually return.

Illusion of Absolute Good and Evil

In truth, the line between "good" and "bad" is not always clear. However, on the extreme opposite side, several figures who have contributed to the DAO ecosystem have been unfairly challenged in a negative light. For example, ZachXBT played a crucial role in exposing various frauds and scams, leading to several successful arrests. Unfortunately, ZachXBT now faces lawsuits and various misleading accusations, such as being biased or corrupt in his reports.

ZachXBT responding to accusations that he’s being biased by not covering certain coins, but as time and resources are finite, ZachXBT can’t cover all in common sense

Such accusations are common in the DAO space, particularly against founders. Andre Cronje, the founder of Yearn, often expressed frustration with this phenomenon. He argued that although he built the protocol by himself with his own resources, most of the community was only interested in the price action, and he was blamed for any faults. This frustration eventually led him to leave the protocol.

Recently, Marc Zeller, Founder of the Aave Chan Initiative, posted a tweet that resonated with the crypto community. The tweet was likely in response to the situation surrounding Curve Finance founder Michael Egorov's CRV-backed loans across the DeFi space. As the price declined, especially after the exploit of certain Curve pools, some members of the crypto community called out Michael and his family for purchasing expensive real estate. However, it is important to take a step back and question whether it is fair to equate founders making money with wrongdoing.

Marc Zeller illustrates the scrutiny founders often face

A Heroe's Hubris

Ironically, since DAO Founders are more exposed to the public, some founders exploit this visibility to their advantage. It is common to hear founding teams of new projects announce that they will never "sell" because they believe in the community, only to later reveal that it was merely an illusion (a common example is founders selling tokens and justifying it as "providing liquidity").

Example of Founders of speculative coins claiming to have provided liquidity but not “sold”

Other founders take advantage of the aforementioned transparency, amassing a cult-like community that vehemently defends them against any criticism or hint of misconduct. This can lead to an "Us vs. Them" scenario, where any outsiders or skeptics are aggressively shot down, often with insults and unfounded accusations. This environment discourages objective analysis and critical thinking, as questions or doubts regarding the project's direction or the founder's actions are dismissed as "FUD" (Fear, Uncertainty, and Doubt).

Where Do We Go From Here?

There is no playbook for how founders should behave in DAOs, and there are no easy solutions to the dilemmas they face. Even in a decentralized system, founders, in one way or another, have an influence on the ecosystem, whether directly or indirectly. However, it is crucial to strike a balance. Projects that rely heavily on a "cult of personality" expose themselves to significant risks when their founders fail to act. On the other hand, if founders are believed to have abandoned the protocol, that can also be harmful. It is important to remember that founders are human beings, and expecting them to be exceptional is unrealistic and detrimental to the builders around us.

The key is to make DAOs more resilient so that even if founders or team members are unable to function, DAOs can continue to operate. Additionally, inviting more governance participants ensures that the vision is not solely dependent on a single person but rather on the community as a whole.

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