Q Protocol on implementing decentralized governance across blockchains

0:01I'm Ashen Edison from the Crypto Coin Show and today on Blockchain Interviews with Niklas Biagosch, co-initiator of Q Protocol. Niklas, welcome to the show and thanks for taking the time. Thanks for having me. Very excited to be here. Likewise, uh excited to dive into Q Protocol and everything that the uh the team and and the foundation have been working on. I'd love to start off

0:24our conversation by sort of getting a high-level overview on uh what is Q Protocol and the and the functions that it serves and then we can dive into all the details. Sure. Um so, Q Protocol is a decentralized governance layer for Web3 which allows for subjective or discretionary decision-making in a fully decentralized way. Um you you can think about it the

0:49following way maybe. So, whatever um we have in blockchain technology today is also sort of a governance framework where you have rules um that are transparent, um where you have um enforcement of these rules which is automatic and where you have n- never have any disputes because those rules and whatever you can code is always binary. So, it's always yes or no, if

1:16this then that. Um the the reason we started uh the Q Protocol was uh um to say that we we saw that um in the in the blockchain space, because everything is is codable and programmable, um we are missing the opportunity to do anything that requires some kind of interpretation in a fully decentralized way. And we've seen that

1:44uh early on with things like um the original Ethereum DAO hack um or other or like the block size wars um where the only dispute resolution was just a social uh one and that's okay. Um, but as soon as you as you dive into or get into a little more sophisticated business models like

2:11we've seen in DeFi, system critical questions come up like what's an eligible asset um to borrow against in in a borrowing and lending scheme like for example Maker DAO or and others and there we saw that we're hitting um a wall in that those um questions require some kind of interpretation and cannot be coded. And then the the outcome of that is either centralization

2:39or governance exploits like we've seen with I mean so many different ones um Mango DAO was a classic governance act that was a compound um just recently there was an attempt on that. So like that is kind of the background why we have built a system that cannot only do programmatic governance but also um subjective uh rules can be enforced and um

3:08uh on chain and then and that in a totally decentralized fashion. Mhm. That's a great uh intro Nicholas and I agree currently in in in DAOs and decentralized governance there's sort of just like a yes no vote um and and you know, what what's the dispute resolution? Is it yeah, if you accidentally vote the wrong thing, fork the whole chain and start over? Something crazy uh like like

3:34in Ethereum. Um I there needs to be some kind of way to come to an agreement without having to say no, start over, say no, start over and and finally there comes to an agreeal uh agreement agreement on that. So what are some of the parts of Q protocol, you know, on-chain and off-chain that create this kind of subjective dispute resolution where people can come to agreements in a more

4:00efficient way. Yeah. So, um I think it is important to understand governance as all of us always requires three layers that are integrated with each other. This is rule setting, enforcement, and dispute resolution if you are going beyond just code is law or beyond anything that can uh be coded and uh require some kind of of interpretation. So, um one of the things that you can

4:27think about is in in any kind of decentralized organization, a DAO, but also like I mean um like all kinds of Maker DAO is a DAO, right? You know, um all kinds of decentralized organization. Um simple things like spending rules uh or treasury spending and so forth more likely than not require some kind of interpretation because it is

4:54impossible determine uh to determine all future stages of the world. We don't know unknown unknowns, right? So, that um uh like Kju enables you to put down rules in a contract, like human-written contract, which is a contract amongst all members of an organization, then the Kju protocol is able to take

5:23these rules like a referee, like a uh credibly neutral external governance security anchor and enforce those rules. And when there are disputes, those disputes can then um be taken to the ICC, the International Chamber of Commerce Court of Arbitration, which is the biggest private arbitration organization in the world, and um find a resolution there.

5:47There are also other means like integration with Claros and others, but that's kind of the the idea. One very important aspect of it is also, if you look at the space today, you know, you might answer I ask the question, why has DeFi not grown really since the first DeFi summer? And there is a um fundamental systemic problem in in the space, which is

6:18that the governance tokens are designed to protect the TVL or whatever assets are in a treasury. So, if you do this on a like within every DAO themselves, this is different than you deal with transaction security. So, transaction security everybody um uses either Ethereum or the layer ones or layer twos.

6:45Um with the further background of the idea of shared transaction security, it is more cost to corrupt a transaction than the benefit of the transaction is. The same must be true for governance, because otherwise, you might have a treasury that's worth 100, but the the value of the token, if it's below that, you have an immediate economic attack vector. And by um taking

7:13this out um and giving it to to Q, Q acts like a shared governance security anchor. So, those are a couple of uh examples that that that show the the benefit of having an external credibly neutral, credibly fair um governance security anchor. Mhm. Now, those are great points, Nicholas, and having a an international kind of resolution or a court system, I

7:42feel like that's more up-to-date with, you know, the current standards. You know, the the way that it is right now where, you know, everyone in in blockchain at least is sort of working from different countries. And then we just decide, "Hey, it's all going to happen in this country." Um and people have to go across the world to resolve some dispute is is very

8:01inefficient. Um so, I could see how that uh will continue to grow. And And your point on the Ethereum ecosystems, I'm curious on how the governance system of Q Protocol, can that work on uh apps that are multi-chain or they're using different blockchains? Um do they have to be under, you know, the Q Protocol development or can something on Ethereum also work with this kind of governance

8:27model? Yeah. So, the the idea of Q is to be a governance layer that um is available to anyone in the space. That could be applications on other layer ones, but also other layer ones themselves. Like for us, we have built Q as a layer one in order to achieve the same at least the same um security like other layer ones. And um

8:55the the governance features that are available to others are being used within the protocol itself. Like for example, um when we do code upgrades or um those are being voted upon and they are done in a way that is decentralized. They don't We don't require any admin keys um and and whatnot. Um which is by the one by the way one of the uh reasons we have received regulatory

9:23clearance uh in in Liechtenstein because they asked, like, "Do you have any central entry points?" Mhm. And only when we could show how we like how the Q Protocol allows for decentralized code upgrades without any admin keys. Um, then we received regulatory clearance. Um, and and that is available to others as well. So, we do already have a couple of examples where

9:52um, a treasury or assets are on Ethereum or on Arbitrum, and then the DAO as such could be on Q, and then via cross-chain messaging um, those those assets can be put under what we call like treasury oversight, which is one of the governance features we're offering. Um,

10:20ICP has just uh, given us a grant in order to integrate with them um, for for applications that have their um, um, treasuries or or their assets or part of their technology on on ICP using that to then be still integrated with Q. So, thinking about Q is more like thinking about a fundamental governance security

10:49layer rather than a layer one where everything just has to happen on that layer one. Yeah. And there are a couple of of um, examples where we already I think Arbitrum yeah, Arbitrum um, and ICP are concrete ones which are integrating and um, so that's the idea. Mhm. Yeah, I know I think it's a great approach, especially as these interchain protocols uh, become

11:18more developed, they're going to want to have, you know, the liquidity shared between protocols hopefully, um, to, you know, lower costs, make more efficient. The governance should be able to be on uh, whichever protocol like Q is more focused on doing governance properly and maybe that app is deployed on on many many chains moving forward. So I think it's a great approach. Um and

11:42I'm curious though as there are many Web3 projects right now that you know they they want to become a DAO. They don't know where to start and how hard it will be to set up governance properly especially because companies are of different sizes. You know some of them maybe they have a small team and a large community or maybe there's you know unicorns already that have hundreds of

12:08employees and a more bureaucratic setup that has more things to manage in a DAO. How would these companies get started in using Q and setting up decentralized governance properly? Yeah. So first of all there is a little bit of tooling it's called the DAO factory. It is um just an easy way to play around with it and try it out. So what we always

12:36um try to explain is the the most important thing is to start um small as small as you can because the one of the biggest benefits of having the ability to have human written rules is to have very transparent processes on how to change those rules. So other than when you coding you don't have to understand the ultimate outcome of everything

13:06at the beginning. You know the that's very important. It's a it's a little bit a different approach for for things. Like when you're coding a smart contract you have to understand everything right from the beginning. What you can do in a DAO that you put on Q or where you use Q is you can start with a very minimal we call it constitution. You can call it whatever

13:33you you desire to call it and and that has a couple of fundamental things or should have which is like what are the members? How does it work? Um and then especially a way of changing this because that way you can kind of securing the sustainability of your organization because you don't know what will come

14:00your way and then also you can design an organization that's maybe fairly centralized in the beginning Mhm. and all parts of it are decentralized and then you can move it into more and more decentralized organization over time. We call those hybrid organizations. But at all ways you will have like very transparently laid out how this works. Um which is

14:30also from a regulatory perspective then I'm um I'm oversimplifying. This is not legal advice obviously. But if I if I am oversimplifying, regulation looks at two things amongst others. One is transparency. So that you can tick and the other thing is centralization. Is there somebody who can run other people's money? You know. So that's a big big benefit. The other

14:59benefit is and I think you touched upon it already. If you have then as another aspect an integration like for dispute resolution an integration with the ICC given that the ICC is acknowledged by pretty much all relevant courts in the world you you you form a Um, entity that is beyond any legal entities acknowledged

15:28in nation states, but that also works beyond any region. So, one of the things we're we're doing this for is because we thoroughly believe that a more digital, more decentralized ecosystem like we're seeing it growing very fast at the moment requires new kinds of infrastructure for governance because otherwise like where

15:55do you put your DAO? Like you put it in the United States? Well, other people in the world that are part of your system will maybe say like why the states or why Switzerland or why you know. So, there you can have a starting point that is independent of any region. Uh, that's really good to hear especially for larger companies that have more centralized governance and

16:23they have to come up with a plan. They're thinking what if we just have to flip a switch and all of a sudden, you know, there's a million community members or stakeholders. How are they going to agree on anything? We need some kind of hybrid transition where hey, we can start building decentralized governance for, you know, these basic tools and then as people get familiar, we can then

16:45release more of that centralized power one step at a time. Otherwise, I feel like starting from day one with a million community members with one vote, it's hard to to agree upon something. Very, very much so. And as I said, we call this hybrid models. The other element which we believe is very, very important is if you if you use a system like ours,

17:10you can enhance the ability to put down those rules and have independent oversight. You can form we call these expert panels, you could call could call them sub-DAOs in in the traditional world, this would be called like departments, where you can give a certain group of people either centralized or decentralized certain veto rights, certain decision-making powers, certain advisory

17:37rights and so forth, and have them um overseen by an independent to them independent entity. So, that way you you can establish actual accountability, and you get out of um this this really problematic situation where everybody is asked to decide upon everything all the time, which then leads to voters fatigue.

18:04Um it leads to phenomenon like um we see in DAOs where not everybody's an expert in everything. So, like the the wisdom of the crowd, if you will, is really bad with those decisions that require domain expertise. So, you can kind of outsource that, but still have an oversight mechanism that's effective. Mhm. Yeah, that's great to know, Nicholas. And yeah, you got to have expert panels

18:29or or ways to identify the strengths in each person to you know, give them a little bit more influence into hey, you know, I've been studying this my whole life. I shouldn't have the same power to vote as somebody who just has a dollar in and they don't really know what they're doing. Um so, there's so many things to work out in in a decentralized governance protocol.

18:49Um and and I want to dive a little bit more into uh Q protocol itself. You talked about the security of the network of the governance of the protocol. I know that also involves uh a Q gov token that helps bring security to the network and the governance. Can you talk about how that works in securing the actual protocol? Yeah. So, uh there are a couple of of

19:14aspects. Like the the Q token is the native asset of uh the the protocol. It is used um this is a DPoS EVM compatible um layer one, so it's used for for staking um and and so forth. There's a second layer of of nodes we call root nodes that are uh important for the enforcement functions.

19:40Um they are being rewarded or their work is being rewarded in Q tokens. Um and then overall um what what the the Q token is important for is whenever there's an integration of a protocol using the governance features provided by the whole protocol, also involving um token holders that that are like the community, then

20:08um governance fees are used as reward for these for these um features and for for the benefit um that is being created by Q protocol. Um governance fees are very different from transaction fees because in governance it's not so important to have like many transactions, but the value of these transactions is very very important. You could have one

20:34transaction with a lot of value behind, so governance um fees tap into that value creation in that they are a percentage of the value that the governance of Q um provides to whoever integrates with it. So, like um you might have a um treasury protected by Q and then a percentage of that treasury um will be paid in rewards directly through

21:04the protocol, no centralized treasury in between, and go to all of the stakeholders that are actually running the protocol and making sure that the governance is secure. So, that's one so there is there's an actual value behind the protocol. It's not just speculation. Um but there's the actual value of whoever we create a benefit like Q protocol um creates a benefit.

21:33They part with some of that benefit and it goes back to the protocol and uh is is securing it. The The other way is more like I um like a securities the design feature where um other protocols that well like or other layer ones are um uh have like this that there's one layer of either um proof of work or proof of stake and and

22:02other systems that um needs to to secure the whole system. With with Q, we have that. Just state of the art as pretty much anyone else. Um but then there's a second layer of full nodes as I said, which we call root nodes and they're completely independent of the validators. And um they are themselves again overseen by the whole community and the ICC and all of this works on the basis

22:31of the foundation of the constitution. So, um essentially what you're doing um when you're adding vertical layers that are independent of each other in uh securing like infrastructure design um you're adding like with every layer you're adding a huge amount of security above the other because you would have

22:59to compromise all those layers at the same time. So, you would not only have to compromise the validators, Mhm. um but also the root nodes, which can take out rogue the rogue validators, and then the whole community and the ICC and and essentially because the root nodes themselves are overseen. So, all of this has to happen at the same time, um which apparently is much harder than

23:27just looking at one layer and trying to to corrupt it. This Yeah. No, that's that's um it sounds like there is like a full revolving door of value going into the system, and then also when protocols are are using Q, uh receiving value of uh the ecosystem. So, if there is a uh startup that's using Q protocol for decentralized governance, then are they

23:54incentivized to become a validator or a staker as they start their governance, and then when they have proposals and people vote, they're actually receiving Q as well for success fully platform? That's completely independent. So, any like validate and it's an open system, anybody can become a validator. Um a root nodes is also an open system. Root nodes are being voted in by the

24:23community. So, anybody uh can propose themselves to become a root node, and then and the the Q constitution in Annex 2 talks about what are the requirements to become a root node and so forth. It's all uh open um to any There's no So, you don't have to become a validator and And that's like the distribution of powers. It's very important that these things completely separate from each

24:50other. Um you could do all of these things, but for example, you are a validator and a root node. There is obviously uh some kind of um maybe like conflict of interest, which is not so bad. It's transparent, you know? That's And the community would probably ask for a lot more

25:17stake to put down as a root node in order to ensure the independence of that. Or would just decide like, "Nah, um we don't see that new root node to add to the independence of the root node layer." And I do not vote on it. That makes sense as a decentralized governance platform that it's more decentralized and you know, you're not forced to participate in

25:42every part of the ecosystem. Though, if you want, you could maximize value with each of those parts. So, that's good to know. So, if anybody, even if they're not participating in in Q as one of the protocols that's using it and they're voting it, maybe they're not a company, people are able to stake Q and get involved in the ecosystem, you know, with sort of no barriers to entry.

26:08Yes, absolutely. I mean, we're we're really promoting for for anyone who's interested in this to to become a part. What you do is you you use Q tokens to that, then lock this in what we call the vault, which gives you voting rights, and then you can participate in in the governance. And so, right now there's a program out

26:35there that's called patron program, where we're incentivizing long-term um activity. And then as I said, you can combine it, but you don't have to combine it. And so, that that's definitely worth checking out on q.org. And um because what what we're really trying to do is to have like a build a sustainable system. It's you

27:03know, the growth rate is long-term. That's what we're looking at. So, that's why we're encouraging people to come in, try it out, and um maybe stay a little longer and become really like an active part of the system, which is the core of what we do. I mean, we need community to um to secure the system, to be active and a part of it. Mhm.

27:29And I agree long-term uh sustainability is absolutely needed, especially because decentralized governance we're really just at the very beginning of hopefully all organizations in the world transitioning to some level of of decentralized governance, whether it's hybrid to start or full-on decentralized governance. Um and you know, there's so much to be done. So, you know, I I'm

27:55looking forward to seeing how uh decentralized governance uh grows and and and how Q protocol plays a part in that. Um and so, you mentioned there about a incentive program or something on, you know, how can people get involved or how can companies get involved? Can you talk a little bit more about that? Yeah, so it's called the the the patron uh program. It you can find it on q uh

28:20dot org and um that is if you if you have acquired Q tokens, you can either stake them or you can uh use them for for governance participation and be rewarded for your engagement there. And um so, all the details can be found there. It's really easy to do. Um and definitely worth checking out because it's a little bit of a first of

28:49its kind and then go to the HQ, which is the D app and you can see like all of uh the the the voting proposals and participate in those. Um and um it it can be actually fun to do that. Mhm. That's awesome. And I I saw that uh the Q token is also on MEXC uh exchange at the moment. Can you talk about that and sort of the plans for you know getting

29:16people in and out of the system and how to make it easy, lower the barriers to entry for individuals and and companies to get further involved with Q through the token. Yeah. So, I mean that that's the idea behind uh having a a liquid or tradable token. Uh MEXC um was uh the the first exchange that the token was was listed on in order for people to have access

29:42to the system, which is always through through the token. And um and and yeah, because as I said at the end of the day, like increasing the decentralization of the whole system is one of our biggest goals. And um and that requires for more and more people to actively work in the system, become a part of the community. The other um side is of course to

30:13um focus on more integrations and focus on more partnerships and um whoever wants to use the system to help them enter, explain what we can do, and and so forth. So, um and you know, we we've seen a a pretty nice growth in in the community over the last months and and years, but especially this year. Um and I'm just

30:41one guy helping out and um there are others as well and it's it's a growing community. So, I'm I'm really excited to see who what else will be coming and um there there are partnerships like as I said ICP is one Mhm. that that decided to integrate um with Q and and that's an amazing

31:09um sign for for the need for better and more sophisticated governance in the space. And maybe one thing that you mentioned which I which I really do support and um we I've heard it a lot in the in the community where where people are saying like um freedom always equals choice. You like you do have to have an alternative. And and for many of these things

31:37governance we don't have an alternative to centralized systems today. So, people are excited to to become part of this and participate uh participate because they want to work on an alternative. And then whoever wants to set or needs to set up governance, they can decide and that's ultimate freedom. You know, it's like I'm not saying everything will be

32:02decentralized. I'm even not you know, it's like everybody will have to make up their own minds, but today it's much harder to do that as you mentioned for decentralized organizations because it that there are missing fundamental infrastructure which is available in the more traditional centralized world and and what Q I think is trying to do is provide an alternative

32:27that hopefully will be used more and more around the world where people will say like, "Well, we can do this better." Because the world has become a more decentralized, more international, digital, global place. Um so, yeah, I very much agree with what you said there. Yeah, thank you, Nicholas, and and uh I I'm looking forward to more companies introducing decentralized governance and

32:54being able to contribute more, you know, without having to just go to the annual stakeholders meeting, you know, in these in these trad fi companies, which I'm sure eventually they'll start adopting this little by little. Um and uh I I like what you said about ICP, which is the internet computer protocol, one of the major chains. Uh it's great to see

33:15uh them also expanding um their decentralized governance. I know they're they have crazy technology and uh feel like the Q infrastructure uh is uh would they would benefit greatly from each other. So, I'm looking forward to that. Um what is the best way to follow along with those updates? Um I know you mentioned the patron program, we can add that in the show notes. Is there any

33:36other uh information or gateways to learn more about this and and how else people and organizations can get involved? Yeah, so I think q.org is a is a great uh starting point. You will find um like blog posts, uh you will find all of the documentation that that you might want to look at. You will find a link to to some tooling like the the HQ

34:06um there that was built um and uh then Twitter, of course. That's uh Q blockchain on on Twitter. Um you and there's Discord. Um so, like there are kinds of any but I think q.org is a is a great starting point to then find out um whatever there is. The the beauty and um the the curse of

34:34governance is it's it allows for so many applications. So, many times I'm being asked to tell me about the killer application. And then I'm like, well, where do you want to start like AI like uh um governance of of decentralized AI because then decentralized AI will require decentralized governance. AI can govern itself that I don't think would be a good idea or do you

35:03think by or real world assets where you can build a bridge between real world situation and events and then on on chain enforcement and so on. So, it's You'll find a lot of this on the website. No, thank you so much Nicholas and and it's the kind of infrastructure that's required in all types of decentralized applications. So, it sort of applies to

35:30all of web 3 and eventually all of every organization in the world as they realize they're missing the boat by not getting involved in in in the future of the internet and money and and and everything. So, I'm looking forward to checking out more on on Q as it grows. I appreciate your insights into the state of decentralized governance, where we're at and where

35:52it's heading and I would love to have you and and Q back on in the coming months or whenever there's another major update. So, thank you so much for taking the time. Thank you. It was a it was a fun thing to be here and as you can see I love talking about decentralized governance and great to be here. Thank you very much.