S.1 Ep.4 Beyond the Private Key: from Dark DAOs to Liquefaction with James Austgen & Dani Vilardell
In this episode, together with James and Dani we dive deep into the revolutionary concept of "liquefaction" and its profound implications for Web3 identity, governance, and ownership. We explore how this groundbreaking research challenges fundamental assumptions about blockchain addresses, private keys, and digital identity, while examining the emergence of Dark DAOs as anonymous voting cartels that could reshape decentralized governance forever. James Austgen is a PhD student at Cornell Tech and is advised by Professor Ari Juels. His research interests include blockchains, privacy, next-generation wallets, and TEEs. Dani Vilardell is a second year PhD student at Cornell Tech and is advised by Professor Ari Juels. With a background in mathematics and electrical engineering, his interests include Zero Knowledge Proofs, Blockchains and Privacy. James and Dani are researchers working on liquefaction, which enables the transfer of assets or privileges that are meant to be nontransferable/illiquid. Their work exposes critical vulnerabilities in current Web3 systems, from locked token mechanisms to NFT exclusivity, while also revealing new possibilities for privacy-preserving applications and cross-chain interoperability. In this episode, James and Dani share invaluable insights from their cutting-edge research on liquefaction, shedding light on vote buying, identity theft risks, and the transformative potential of programmable private key sharing. Learn about complete knowledge proofs, trusted execution environments, the ethics of identity rental, and the future of governance in a post-liquefaction world. Don't miss this comprehensive discussion that bridges cryptography, governance theory, and the evolving landscape of digital ownership. Some of the work we mention in the episode: - Austgen, J., Fàbrega, A., Allen, S., Babel, K., Kelkar, M., & Juels, A. (2023, November 1). DAO decentralization: Voting-bloc entropy, bribery, and dark DAOs (v1.0) [Preprint]. arXiv. https://arxiv.org/pdf/2311.03530 - Austgen, J., Fàbrega, A., Kelkar, M., Vilardell, D., Allen, S., Babel, K., Yu, J., & Juels, A. (2024). *Liquefaction: Privately Liquefying Blockchain Assets*. Cornell Tech. Available via: https://arxiv.org/pdf/2412.02634 - Take my Ape experiment : https://takemyape.com/ <br> Chapter Timestamps00:00 - Intro & Teaser02:55 - Welcome and Setup: Web3 Fragility & Liquefaction04:46 - How Liquefaction Enhances Private Coordination06:26 - Redefining Ownership Assumptions in Web308:00 - Lock Tokens & Undermining Incentives09:59 - Dark DAOs and Vote Selling Risks12:10 - State of Decentralization in DAOs13:55 - Dark DAOs as Decentralized Cartels15:17 - Identity Theft via Liquefaction16:56 - "Take My Ape" Experiment Explained19:39 - Renting Reputations & Board Ape Access22:00 - Complete Knowledge as a Defensive Mechanism24:55 - Technical Breakdown: Why TEE > MPC27:07 - Ethical Questions of Open Sourcing Dark DAOs28:10 - Constructive Use Cases: Treasury, Auctions, Bridges30:15 - Overlay Smart Contracts and Interoperability32:00 - Reputation Rental Marketplaces34:12 - Per-Asset Policies & Selective Liquefaction36:00 - Asset Sharing & Community Coordination37:45 - Rethinking Governance Models39:10 - Governance Marketplaces & Vote Monetization41:00 - AI Delegates in DAOs: Risks and Coordination43:00 - Ethics of Renting Identity & Credential Markets45:00 - Final Thoughts: Future of Governance46:50 - Quiz: One-word Governance FuturesListen to this episode on all platforms: Apple : https://podcasts.apple.com/us/podcast/gov-futures-trailer/id1823028614?i=1000714675608 Spotify : https://open.spotify.com/show/6QRkrWmq21Z66jRJtN2UIuFollow us on X: https://x.com/gov_futures
Top Keywords
- liquefaction 0.051
- dark daos 0.010
- daos 0.010
- dark 0.009
- complete knowledge 0.008
- private 0.007
- account 0.007
- governance 0.006
- identity 0.006
- james 0.006
- danny 0.006
- complete 0.004
Transcript
Dark DAOs are essentially the most honest form of corruption that we've ever seen.
I can't go out and buy a board ape, but now I can potentially get access to the community and, you know, it can kind of add these elements of inclusion potentially in certain environments.
It could be fatal because it's Web three and and Web three bugs are pretty harmful. One of the worst case scenarios is that we actually see a new form of identity theft in crypto
in which users get tricked into basically giving over their entire account to someone else. So basically, if it came from your key, you did it. Case closed. And your guys' work challenges that fundamentally.
Even if there hasn't been any transactions in a single account, the identity of the owner of the account might have changed. Liquefaction enables for private boat selling, and the ability of not being able to sell boats is something that's kind of been really big in any governance system.
So much of Web three's architecture is really built on this idea of nonfungibility.
But we'll have to see what they do if multiple people try to attend with the same NFT. In the future, everyone will be world famous for fifteen minutes on the website.
Hi. I'm Eugene.
And I'm Jamila.
And this is the Governance Futures podcast where we explore the past, present, and future of decentralized governance.
This week, we had the pleasure of speaking with James Osgen and Danny Villardelle. James and Danny are both PhD students at Cornell Tech and are advised by professor Ari Jewell. James's research interests include blockchains, privacy, next generation wallets, and trusted execution environments or TEs. Danny has a background in mathematics and electrical engineering. His interest includes zero knowledge proofs, blockchains, and privacy.
James and Danny and their team have been working on liquefaction, dark DAOs, and the Take My APE experiment to really highlight the idea of encumbered wallets. The essence of these projects is essentially disproving the assumption that private keys equals a unique identity. In this interview, we go over their work, and we get into both the exciting and potentially scary applications of liquefaction. We think these concepts are important to understand whether you want to build a governance system that actually relies on the assumption of shared identity, or if you wanna explore ideas such as complete knowledge proofs to ensure that private keys are truly associated with who you think they should be.
Before we get into the interview, a reminder that if you like what you hear, please subscribe wherever you're listening. Leave us a review, share with others, or reach out to us if you want to chat.
And without further ado, here's the chat with James and Danny. Welcome, James and Danny. Excited to get into the conversation with you today.
Yeah. Thank you for having us. We're excited to be here. Yeah. And I figured we can start the conversation
with some of the work that, you know, you wrote around liquefaction and try to set some initial context before we fully dive into the conversation. And one element was that you wrote that in a lot of Web three environments, a lot of assets are actually meant to be liquid. Right? When we think of soulbound tokens, locked tokens, governance rights, there's a lot of applications where there's this inherent assumption that, you know, things are kind of sticking with the wallet address or with the identity that is, kind of publicly known. So in that sense, so much of Web three's architecture is really built on this idea of non fungibility and being tied to an identity. So related to that, do you see that as an inherent fragility of web three and that's just been sort of the persistent reality and liquefaction is maybe exposing something that's already been latent? Or is it, something that you think most people haven't fully
come to terms with and liquefaction might actually be this point of exposing something fundamentally new? Yeah. So the way I see it is that in Web three, you could always coordinate with other people. So you could always have, like, these private channels that you all agree on some policy and then execute on that. So, like, for example, I know there exists today in DAOs these private Telegram channels where kind of some of the whales will come together and kind of agree on on something, and maybe they'll barter with each other. But so I think in in that sense, you could always agree with other people to coordinate in a way that the rest of the world doesn't really see. What liquefaction does is it enables you to do that with in a way that you don't have to trust the other people. You don't have to know their identities, and you know that they will still follow through on on this policy that you agree on. So it's really an enhancement of, like, some existing practices. But it is a revolution in the sense that you now can coordinate with lots of people at the same time.
Yeah. I I also feel like the kind of vision that people had when it came to ownership previous to liquefaction was a very natural choice in a sense that makes a lot of sense to assume that if someone has the private key, they won't share it. So if you give, like, a sole point token to a private key, that's gonna be linked to the person kind of owning the private key. So once we present a way of kind of sharing private keys or con constraining access to private keys, you're breaking an assumption that that was really grounded and kind of not that trivial to break.
And before we get into asking you to fully define liquefaction and some of the other elements around it in more detail, you know, would be helpful to maybe also contextualize what are some of the systems that you see as being most fragile and sort of not recognizing this element of the potential shareability of these private keys and these more non fungible elements?
Yeah. So kind of any system that makes the assumption that a particular blockchain address is associated with an individual or an individual entity is at risk of of basically liquefaction undermining that assumption. So kind of the areas that I see where there could be great impact, like, one big example is blocked tokens. So a lot of projects will launch with a token lock up period in which their original, like, founders, they can't sell their tokens for for maybe the first year or two. And so the idea behind the locked tokens is to ensure that everyone has, who's participating in the founding of the project has skin in the game. And with liquefaction, you could basically sell those locked tokens to someone else ahead of time even though you don't have the ability to transfer it on the blockchain. Undermining this crucial glue that will keep founders aligned with their projects.
Yeah. That's one of the main kind of risks of liquefaction. Another one that kind of was the origin of the liquefaction project was, what we call dark DAOs. We'll dig more into that later, but that's basically systems to sell boats privately. It's reasonable to assume that if a DAO wants the the ability of people to sell boats, then that can be implemented easily on top of a blockchain. The problem is that if a DAO does not want it, liquefaction enables for private boat selling. And the ability of not being able to sell boats is something that's kind of been really big in in any governance system as it kind of breaks a lot of kind of integrity of the voting system if you are able to sell boats privately. So, it's it's kind of, another place where liquefaction could be really harmful.
Yeah. Absolutely. I mean, I know whether it's, you know, some identity solutions like WorldID or, you know, just thinking of our own governance system. A lot of assumptions are very much predicated on thinking that those private addresses or private wallets are really unique to an individual, and it's not something that's getting shared. And so I guess to kind of finish setting the context, how do you both define liquefaction? What do you see as kind of the the short summary of of the core idea here when you're presenting it to folks?
Yeah. So liquefaction's a wallet platform that essentially enables you to fractionalize your account and, and the assets in it and allow others to sign messages or transactions through your account using some policy that you initially define. And yes. That's kind of the short answer.
Yeah. Liquefaction, we've mainly talked about the bad things of liquefaction, but liquefaction has many good things. So I feel James' definition does capture this kind of flexibility liquefaction provides and the ability to have both the kind of harmful behavior the this flexibility brings, but also the the kind of positive traits that you can achieve with such a flexible wallet that enables you to add logic on top of your address.
Yeah. That's great. Really appreciate kind of the the core context that you're setting, and happy to pass it off to Jamila to dive a little deeper into some of these things. Thank you, Eugene.
It's great that we have those conversations because it makes me realize how we're actually naive. Because it feels like we have so many assumptions that if a transaction is signed by Wallet, then it must have come from the person who owns that wallet. I feel like, James, you mentioned that in one of your presentations that if we see a vote or transfer coming from Vitalik, Vitalik's address, then we assume that he sent it. And this assumption we see everywhere in the web three. So, basically, if it came from your key, you did it. Case closed. And your guys' work challenges that fundamentally. And to Danny, you touched upon dark DAO, so I'm very curious to take a little bit deeper into dark DAO. So you define it as essentially private smart contract that targets legitimate DAOs, attacking its voting integrity by enabling vote buying amongst its users. And you also connect the emergence of dark DAOs with the state of decentralization that we have in the web three. In your blog post, I believe you mentioned that the reason why we don't see dark DAOs in the wild, just because DAOs are not decentralized fully yet. So before turning to talk about dark DAOs, I was curious to hear from you, what do you think is the state and the trends when it comes to decentralization and governance? Because both your paper and the blog post, they are from last year. So today, as of summer twenty twenty five, where do you see those trends going? Do you see DAOs going towards more progressive decentralization? And just to flag it, we recognize that decentralization is a spectrum. Or do you see different trend and, you know, maybe DAO is going towards more centralized structures? So very curious to hear from you both.
Yeah. Thank you for asking. Actually, our team worked recently on a project that kind of measures decentralization, and it kind of makes the finding that decentralization is not such a trivial concept in the sense that you could have a fully decentralized system, but have big clusters of voters that make the kind of governance system centralized. So, James was, one of the main authors of the paper, so I I'm gonna let him kind of dig into that.
Yeah. So we kind of think that most DAOs are not yet really that decentralized. As I mentioned before, you could have these, like, private Telegram channels with all the whales, and they can kind of control the outcome of of a lot of DAO proposals. But what our work is trying to do is we're addressing what will happen if DAOs actually become decentralized. That's when dark DAOs might become an actual point of concern because you would need widespread coordination in order to swing votes in that case. We're not there yet. You can still swing votes with couple whales today.
Yeah. You describe dark DAOs as essentially decentralized cartels. So would it be fair to say that they are at the core anonymous cartels with fair, programmable bribery built in? There's no central admin, no coordination overhead, no reputational consequences either. So would it be too bold to say that dark DAOs are essentially the most honest form of corruption that we've ever seen?
Absolutely. So dark DAOs operate using these private smart contracts, basically. You can think of them as that. And so a lot of the rhetoric that you would hear when smart contract contracts came out kind of at the dawn of Ethereum, that also applies to dark DAOs. So you can achieve trustless coordination for DAO votes, using dark DAOs.
Danny, question to you. What do you think worst case scenario that you might be preparing people for, you and James and your colleagues with your work on liquefaction? Where does this actually go if we're not paying attention? And when I was reading your papers, it looked like dark dau, it's some sort of meteorite that is gonna hit the planet. And it's not the matter of how, but it's when. So curious to hear your thoughts a year after the paper was published where things stand today.
Yeah. I do feel like while liquefaction is a big threat to many, like, DAOs integrities, we also provide kind of a solution. We call that complete knowledge, which kind of ensures that people are not selling or buying their boats privately. So while I feel liquefaction can be a big threat and more like, also, James was able to build what they call the dark DAO light, which is kind of a an upgraded version of dark DAOs that enables you renting and selling your tokens in a really easy way. I feel like that's still not yet being deployed. And if it was deployed, in order to get used, it would have to kind of be published somewhere. People, like, the DAO organizers would know about it, and they could start requiring people to kind of provide complete knowledge proofs in order to vote or kind of build some kind of walls to avoid this kind of vote selling if it was not desired. I I do feel like there's some other places where liquefaction could be more harmful than it is in in governance.
I do feel like governance systems do need to be ready for it, though. One of the worst case scenarios is that we actually see a new form of identity theft in crypto in which users get tricked into basically giving over their entire account to someone else. And the difference is with encumbered accounts, this could be done in a way that they have no longer have access to the account, and then now the user doesn't even have a way to prove that they once had access to that account. So it's like the whole identity of the account gets stolen, and the thief can basically continue to operate similar to the user, kind of tricking everyone.
Thank you so much. That actually leads perfectly to my next question about take my ape experiment. I saw you, Danny, presented not long ago, and I had similar questions. So from what I understand, and I love that you've mentioned Andy Warhol's quote, in the future, everyone will be world famous for fifteen minutes on the website. So you could essentially gain a full control of the image. You can play with the ape. You can prove ownership via signature. You can even access only member member only areas. Can you just walk us through, the idea behind it, how it works? And to your question, James, how does that change our understanding of, you know, identity and reputation that is earned versus rented?
Yeah. I'll take that one. We were really excited with the liquefaction project, but as you may have seen in the paper, it's something quite complex and theoretical. So we were thinking on what's the best way to kind of showcase our the powerful the power of liquefaction to the world. And we came up with this kind of take my eight demo. It's not harmful. It's also not very kind of useful in terms of what's providing to Web three. It's more kind of showcasing what we can do with liquefaction, and we set to build it. And we during the liquefaction project, we were able to kind of build a really compact module that allows the creation of of policies that restrict access to the asset in the accounts and creates new encumbered addresses and kind of handles all the underlying liquefaction logic. And then we were able to build our Take My Ape demo on top of that, a demo that shows liquefaction by allowing people to own, Board Ape for fifteen minutes for the price of less than a dollar, for example. And how it's done, basically, is you create an encumbered account, an account that's under some liquefaction policies. And you're able to do anything with that account but kind of steal the ape. So you kind of get access to an encumbered account, send the ape to that account that you own because you're able to do anything with it, but you're not able to kind of send the ape to any account you want. Since you're able to sign anything with that account, you're able to sign kind of log login challenges to the take the Discord, for example, or enter the restricted areas in the website by kind of signing messages that they request with a specific nonce. And you're even able to sign transactions sending Ethereum if if we implemented more policies on top of Take My Ape. So I feel this flexibility of renting your Ape to someone, ensuring that it comes back to you, and allowing them to kind of use it to access the metaverse is is something really cool and really powerful.
Yeah. So imagine an Ethereum account that's just going on doing its regular activities, and then it receives a Bored Ape NFT, and then it continues doing whatever it is. And it looks like the it literally was sent a Bored Ape NFT from some other person, but, actually, there's this secret policy attached to the NFT that requires it to boomerang back to somebody else, like the next person who wants the the ape. And that's essentially what, Take My Ape is doing. It attaches this private policy behind an EOA address that just simple blockchain analysis isn't gonna expose to anybody.
And it's really interesting to think about because on the one hand and I I appreciate in, you know, in your paper, you'll have the table, and maybe we'll we'll try to get that as a pop up graphic of that shows the benefits and potential disadvantages of kind of the various use cases of it. And thinking of it, you know, specifically for Bored Apes, you know, like, I can't go out and buy a Bored Apes, but now I can potentially get access to the community. And, you know, it can kind of add these elements of inclusion potentially in certain environments. But I I did also wanna think of and maybe expand upon what are some of the negative concerns potentially. And, especially, I don't know how the Bored Ape community, if they're even aware of this or excited about it or not. But if you are able to share, you know, as this experiment has come up, you know, have there been either any theoretical or realized concerns that have been stated of, like, hey. This might either devalue it or in a different direction of, hey. This might create a secondary market condition where during, like, Bored Ape events, the price of getting access to it is gonna spike and, like, you could start adding interesting market dynamics that can also have both positive and negative. So, yeah, just wondering how y'all are seeing and kind of interacting with any potential negative or challenges relating to this. So, yes. Certainly, Liquifashion can be used to undermine,
like, things that are supposed to be exclusive in the Web three ecosystem because now you can do this kind of secure reputation rental to someone else where someone else can become you for some amount of time and in a way that's completely secure. So in that sense, yes, it could undermine exclusivity. And especially when it comes to in person events, I think whoever's organizing these events are they're gonna have to ensure that the users that were approved didn't sell or transfer their NFT to somebody else because then you could do this thing where you have maybe a thousand people show up to this event who only paid a dollar for it. That would be a huge concern, and that's something we're also kind of worried about with upcoming Ape Fest in October. So we don't actually know how they coordinate it at the Bored Ape Yacht Club yet, but we'll have to see what they do if multiple people try to attend with the same NFT. How did you
actually get the first owner to lease it for you? How did it practically work?
Yeah. So our lab's involved in this broader research organization called I c three, the initiative for cryptocurrencies and contracts. And I c three was generous enough to allow us to use their funds to purchase a Bored Ape NFT for use in this project, and we expect the Take My APE demo to be live for at least a year, probably even longer, depending on how much people are interested in in using it. Got it. Thank you for clarification.
I was like, oh my god. Who is donating? Who is this generous soul that is interested in research? Now it makes a little bit more sense, but, also, it would be great if someone volunteered
their ape for research purposes. But Yeah. I feel it'd be a bit scary, though, because just a miss in the implementation, and it could be fatal because it's Web three, and and Web three bugs are really harmful.
Yeah. And I guess a a quick follow-up, especially to the example you're mentioning of, like, a thousand people potentially showing up to, you know, the NFT gated event or something like that. And especially as we see things like WorldID, which, you know, involves biometrics different way, though they have I know there's been papers at least. They're dated. They're a few years old, so I don't know if these issues have been addressed. But, you know, that there were these, like, UBI farming effectively happening across those and, you know, it was effectively, like, a liquefaction type scheme, though I I don't remember that they were exactly using that kind of architecture. But, nonetheless, are there concerns that this actually pushes identity towards being more physically linked and actually having, like, biometrics enabled into identity and kind of increasing the desire for that as an unintended consequence?
Yeah. I I'm not sure about that. The the solution we we kind of provide against liquefaction is not linked to biometrics, but more linked to proving that you actually know the private key. The thing with liquefaction is that when we are renting the NFT with some to someone or we are sending the the NFT to their account, they don't know the private key to the account. If they knew it, they could just sign a transaction sending the NFT to anywhere. So the property you want to kind of prove when kind of showing that liquefaction is like, your account is not encumbered, so it's not under liquefaction policies. It's just showing that you actually know the private key. I'm sure that some biometric kind of solutions when it comes to moral, world coin kind of voting or or more real life voting could also provide a possible solution against many of liquefaction accounts. I also think that it's not strictly necessary nor maybe the best solution.
Thank you so much. I would like to take a little bit deeper into complete knowledge. James, you offer paper together with your colleagues, and from what I understand, complete knowledge could be used to protect creator royalties and NFTs and help link KYC credentials across wallets. And is this some sort of new compliance layer that is built cryptographically instead of legally? And, also, I'm curious to hear your thoughts on what systems do you think should be requiring proof of complete knowledge and who is essentially responsible for for implementing those standards?
Yeah. So I would say that this is not necessarily a new compliance layer. It kind of keeps the existing status quo of every address is owned by, like, some individual or or entity. And that's kind of the underlying assumption behind certain types of KYC systems and then also NFTs. So when it comes to NFT royalties, like, currently, when you sell an NFT to someone else, it has to initiate an on chain transfer. And with Liquefaction, you could transfer ownership without doing that. So it would kind of undermine this, any sort of royalty system within the NFT contract. But with complete knowledge, you now get those properties back to where we've been operating with them for years. So it kind of just keeps the status quo. Yeah. Once we start seeing liquefaction type effects actually popping up in the ecosystem, then the applications that are being affected by it should probably start transitioning to requiring proofs of complete knowledge. I will say complete knowledge is still kind of in its infancy, and we're still working on making it more accessible to everybody because it currently relies on some specialized hardware. Although we do have an implementation that runs in Android phones, so that's pretty good so far. But we think, yeah, we think it will, matter more when we actually start seeing activity using liquefaction.
Yeah. And here, perhaps a bit more technical questions. In your paper, you mentioned that there are two main ways to enforce delegation without relying on the trusted SOTA forty third party. It's either secure multiparty computation, MPC, or trusted execution environment, TEE. And you argue that the latter is the most practical option compared to MPC. So could you walk us through why that is the case and perhaps share some of the examples that would illustrate that advantage in practice, especially for those who are not as competent in technical terms but are very curious to learn about that?
Yeah. So maybe the simple way to put it is that multiparty computation generally requires a large communication overhead. And so, essentially, if the multiple parties that are using MPC are in different places on the network, like maybe in different countries, it basically might, require a lot of latency, a lot of communication to do something that's rather simple to do in a TE. So we use TEs in liquefaction because it enables us to do a lot of private computation with basically the speed of a computer. So it's very fast compared to MPC, which might require kind of these long distance coordination for back and forth for a long time to do rather simple task. MPC is great for specific applications, but with liquefaction, we're thinking more general purpose policies, general purpose computation.
Thank you so much. I think now I have a bit more clear idea, and I always appreciate when people with technical background just, you know, try to, simplify it to the terms where a person like me with absolutely zero technical background can understand that. I wanted to also point out that you've open sourced dark DAO, which is essentially a bold move, especially given that we were talking about some of the potential threats that they pose. And, yeah, first question, was it a hard call to make?
No. I think everyone in the team really like, we wanted to open source it. We're not really interested in keeping things to ourselves, especially since the the concept is, like, technically not that difficult to implement. But kind of the the reason we decided to open source it especially was that the original, like, instantiation of dark DAOs came out in in this 2018 CoinDesk article and and this corresponding blog post by Phil Dion. And there were some people answering to the CoinDesk article, and they basically dismissed DarkDAOs as a manager, basically saying that it was not going to happen. And so we wanted to show that it was possible today and fairly easy to implement. Yeah. I wanna point out that we we did not only open source the dark DAO code,
but kind of a really flexible general liquefaction model. So any application that's that's, like, built on top of encumbering addresses and, liquefaction can be implemented with very few lines of code using this module.
So considering all the threats, there are also beneficial use cases, like securing DAO treasuries or avoiding constitution DAO style auction vulnerabilities. Right? So I'm curious to also hear you know, give maybe a little bit of a predictions. Where do you think it's going? What are you focusing in your research next? Do you think by exposing and proving that dark dials, in fact, is a very real practical threat, where do you see your research going forward?
Yeah. There's as we point out in the paper, there's many constructive use cases of liquefaction. You've pointed out a couple. One that our team is really excited about is what we call the overlay smart contracts. Basically, it allows you to kind of add smart contract logic to chains that do not have these capabilities, for example, Bitcoin or XRPL. And by doing that, you don't only allow for this kind of more complex asset treatment on top of Bitcoin, but also it allows for things like atomic swaps between different assets on different chains. And this kind of interoperability between blockchains is something that I see built on top of liquefaction in the future. It provides some really good properties when it comes to having to wait for finality and
even some security guarantees that many bridges do not currently have because of its decentralized properties. Yeah. A lot of bridges today, you kind of just send your money, and you hope that it winds up on the other side. And we think with liquefaction, we'll be able to write some bridge code that's really simple that even, like, fairly, like, technical but regular people could understand.
Yeah. Thank you so much. I also wanted to pick up on what Eugene previously mentioned. It feels like this rentability, if I could call it this way, creates a whole new different market, essentially similarly to, like, Airbnb where we have ability to rent someone's credentials. So and then, like, my initial thought is like, oh my god. We fight for this notion and assumption of authenticity, ability to prove, and now it feels like it's this assumption is more liquid. So I'm curious to to also hear from you, Danny and James. What do you think is gonna be going, you know, towards? What markets you anticipate, and how will that change the dynamic, which we see today, for example, an ownership or NFT, a pull up, whatever you might call it, essentially is integral to someone's identity and proving certain credentials. So, yeah, please,
would be very interesting to hear your thoughts on that. I feel like most of the kind of harmful use cases of liquefaction are the ones that break this link between the identity and the asset that's supposed to be linked to the identity. So I I do feel like this kind of assumption based use cases of liquefaction are gonna be eventually patched using complete knowledge. I also feel like the privacy guarantee that liquefaction provides is is the one property that builds most of the constructive use cases. So in the future, we are gonna see, for example, more legally compliant privacy pools built on top of liquefaction, more kind of auction based systems built on liquefaction for more privacy reasons. Anything that kind of the blockchain that cannot be done in a classical blockchain due to its kind of public properties will be able to be done using liquefaction to kind of provide this extra privacy guarantee. But I do feel like this kind of detachment the private key is something that in many cases is not desirable.
Just follow-up here. Whom do you see would be the first to jump on that trend as the notion of rentability and liquefaction becomes more and more accepted and people become more and more aware of that?
Yeah. First of all, I feel privacy preserving blockchains will be really interested in that. I mean, they it's kind of a big market that's opening up now building liquefaction applications. Those are built on top of privacy preserving blockchains, so they will kind of want people to build companies on top of that. I know of a company that's starting now to implement the locked stroke token selling. This has already been done on top of some kind of legal contracts, but now can be done more automatically using liquefaction. And there's already a couple more companies that are kind of starting to build on liquefaction, but it's usually kind of using the privacy. I know another company that's starting to build privacy pools on top of liquefaction too. So it makes many applications that were previously built on top of some cryptographic, really complex constructions that can now be implemented in simple code, deployed in a privacy preserving blockchain, and be used by everyone much easier, much quicker, and and less academic and more kind of industry side oriented.
And here, James, question for you. Do you see any version of, so to speak, selective liquefaction where in certain cases, certain tokens could be much easier to share for purposes of, for example, increasing accessibility, and then in other cases, making it as hard as possible in other context. So just to draw parallels between, you know, is there a spectrum of liquefaction? Are there any parameters that we can tweak? Or is it just one way that it functions? Does that make sense? And I'm sorry if this is an oversimplification, but trying to digest it as a nontechnical person, this is the question that came to my head.
Yeah. So, certainly, you can have different policies for different assets. And so you might have a policy for your high value NFT that, like, you wanna make sure it's super secure and and maybe you do wanna rent it to your friends, but you don't want it to go any further than that. That's something that you can do with liquefaction. And maybe there are other assets that are more strict about who's able to maybe rent the token or what they can do with that way. And so maybe for other assets, they they'd require the proof of complete knowledge, or they'll require you to use a specific policy that has their own restrictions. There's a lot that's possible because liquefaction is so general purpose.
So you can have per asset policies pretty much. Yeah. I wonder how much those per asset policies will actually enable or revitalize some attempt at, like, small network asset sharing. I'm thinking of just, like, shared properties or communal living or, like, access to physical spaces where you might not want it on a free market or, you know, on a much more open thing. But, you know, if the four of us are friends, you know, then we can share a thing. So do you see that as sort of an area that gets you particularly excited and especially when it comes to, you know, the the companies being built or the actual implementations. Are you seeing things kinda working towards that direction yet?
Absolutely. So, yeah, that that's another critical thing that we should cover is that liquefaction essentially enables you to create these enriched private access structures in ways that existing assets don't give to you. So maybe you have some smart contract that's already out there that lets you rent properties or something like that, but it doesn't let you, like, have some fine grained private access control system. Liquefaction can be put on top of that contract and manage all of that, privately for you. So I'm super excited about those types of applications where we can take assets that need those and and give them more powers through the wallet itself.
Have you guys convinced your lab to start doing, like, card identity for access to your physical lab using liquefaction?
Yeah. I I feel liquefaction only works when you have some kind of private key that you're kind of hidden. Once you have this kind of identity that's linked to something, so intangible as a string, then if you can apply liquefaction on top of it, but physical access to cards or that's why, like, real governance system require you to show the ID. That's hard to break using liquefaction of impossible to break, actually.
In one of the blog posts, remember you mentioned that vote buying may be illegal in political elections, but it's very much legal in DAOs. And, I love the reference that you said that vote buying in DAOs would probably follow this trend that we have in Web three of just monetizing everything from people's friends to MEV. So I'm curious how liquefaction will change the delegated governance as we know it today, which is a predominant form of governance participation in DAOs. Do you have any thoughts on that?
Absolutely. So, like, currently, if you delegate to someone, you're not making any money off of that. And maybe there's a bunch of proposals in some DAO that you have DAO tokens in that you don't care about the outcome for. So, like, maybe there's some DAO that's, like, has a proposal to change the interface color or something like that, and maybe you just don't care. And you wanna make some money off of the people that do care and want to influence the outcome. Well, in the future, with with liquefaction especially, you can start profiting off of all of the proposals that you have no hard direction for. So we've even created this completely nonvoting derivative DAO token that we call a dark DAO light token that will automatically sell your your vote on every single proposal and essentially act as like a liquid staking platform for DAO tokens. So maybe if you aren't going to use the DAO for a year or something and but you still wanna keep your DAO tokens, you would, use the dark DAO light that will automatically sell your your votes. So that's might might be where it's going where you can have more ability to profit from your DAO votes as where previously you you didn't. Yeah. And I hate to be this person, but it seems like a lot of conversations around the future of governance somehow involve
AI agents. So let me just throw this question to you guys. How do you see AI agents coming in and whether that would intensify the risk of dark DAOs or, you know, all associated threats that we were just talking about? Or do you think that may not pose such risk? So maybe you, want to share any of the perspectives on this.
So, yeah, there is a risk that all the AI agents will be tricked to making the same decisions on the same proposal. So that's one kind of alignment risk where they all kind of gravitate toward one answer, kind of regardless of what their owners really want them to do. But the other risk is that they do other things with your wallet that you don't want them to. And so Liquefaction can enable you to do this private delegation where you can make it look like you're voting in the DAO, but it's actually an AI agent that's helping you do that. And the benefit with Liquefaction is you don't don't pay anything to do this extra delegation, and the AI agent that's controlling your Liquefaction wallet would only be able to help you sign votes and wouldn't be able to control any of your other assets.
And here, just a follow-up question as well. If we see, like, renting reputation not necessarily as fraud, but economic coordination, does this mean that we should, first of all, embrace composable reputation, rentable reputation? But, also, in your opinion, does it push us towards establishing new norms around ethics of identity in, crypto?
Yeah. We really haven't seen very much, like, selling identities yet in the crypto ecosystem, but it might become a thing. And we might have to, as you mentioned, start developing a system of ethics around that into what sort of delegation is nice to do and what is not so nice to do. Certainly, there's a lot of economic coordination that will be involved with that because I don't think people are going to release their identities temporarily even, for free.
That's a good point. Is there anything that, James, you would want to warn the general public about when it comes to liquefaction and just the future directions, you know, in governance and the way we think about identity and this whole idea of one person, one wallet.
Absolutely. So currently, it's pretty easy to track on the blockchain what's happening, and a lot of people enjoy using block explorers to give them the bigger picture and also reveal exactly what happened in the past. But with liquefaction, it kind of shows us that it's possible to do a lot of things privately, especially like, transferring ownership completely privately in a way that doesn't create any on chain transactions. So I will warn that kind of viewing the blockchain as a complete history is going to be challenged with liquefactions, And you should be careful not to assume that identities remain consistent. Even if there hasn't been any transactions in a single account,
the identity of the owner of the account might have changed. Before we will move on, do you want to provide any input?
Yeah. I guess I'll mention that TEs have a history of being broken into. And so with liquefaction, we do require that the key remains inside the t blockchain that liquefaction runs on so that other users using that account are able to access it. Because even if you connect and other if other people have access to your account, they still wanna be able to use it. But in the future, we're thinking of developing a more secure system that would basically create a committee of TEEs to reduce the risk of a single one being compromised. So there needs to be more security before liquefaction probably will be used for really high value applications.
I've been to a couple of conference recently, and and AI is a big topic. It's everyone's talking about it, how it's gonna change web three. And AI in DAOs is is kind of a big thing. I know that many people do not like reading all the proposals. They would maybe prefer to have some kind of AI vote do the job for them. So I feel this integration is gonna happen. I also feel like giving your vote to AI could be problematic in many ways. There's many attacks on top of kind of making AIs the things that maybe the user would not want to by kind of making some kind of poison attack or adversarial examples. And I do see that needs to be taken care of, and there's sure gonna be research on top of that in the future when it's more common. But I guess time will tell.
And before we jump to quiz, I wanted to also give you a chance to maybe mention anything that we haven't covered yet, but you wanted to make sure that it's there. Maybe any message, any last comments.
Yeah. I I would advise people to kind of get familiar with liquefaction, the concept, how complete knowledge interacts with it, and and rethink their applications from this kind of new ownership viewpoint because it's gonna
definitely be a bigger thing in the future. And I guess before we transition to the quiz, I I'd love to kinda ask maybe a a summarizing question. And when both of you think of how, you know, liquefaction will, you know, fundamentally reshape governance or enable new elements of governance, what do you see as kind of the core elements? Because I know we've talked about interoperability and privacy and certain accessibility, but also dark DAOs. And, you know, especially if we're jumping forward to a future where liquefaction is much more proliferated, where complete knowledge systems are very robust, how do you kind of see the main changes to governance, or what do you see as kind of the the core of governance in that world looking like? I I feel like complete knowledge tools are gonna be more accessible in the future.
It's gonna be easier for applications to kind of decide whether they require this kind of protection against liquefaction or not. And new markets are gonna appear. Web three really likes monetizing stuff, so I'm sure some DAOs are gonna be happy with this kind of new private selling of votes. And, this kind of extra liquidity we are adding to the blockchain, I'm sure, is gonna be, like, good in in many ways.
Yeah. I completely agree with Danny. I think we'll see a little bit more complexity in governance as the model gets not as simple in terms of ownership, but it's not something that the DAO community won't be able to navigate. And I am excited to see what how they address some of the challenges that liquefaction and some other threats to DAO governance pose to them.
Yeah. No. I appreciate you both helping kinda summarize it there, and I feel like that's a great transition to our final segment on the podcast, which is this quiz where I'll be asking you a couple of questions, and we're just looking for one word answers. So I I know that's never an easy feat, but, nonetheless, the first question I wanna ask you both is the future of identity is
Complicated.
Flexible. Liquefaction will enable.
Liquidity.
This one's tough because there's, like, so many things that we know that it can't enable. I will say let's see.
Interoperability
is a good one, I guess. Oh, yeah. That's a really good one. I'll go with that. Interoperability.
Sounds good. And then the biggest threat to DAOs is? Vote selling. Does that count? We'll we'll pretend there's a hyphen there, and we'll accept it.
I say whales. Whales are still a threat today.
I feel like we could've focused the whole conversation on those Telegram groups that are the equivalent of smokey backdoor, you know, private club type environments. Yeah. But with the final quiz question being, again, just one word, what's the future of governance?
Web. Web of trust, web of lies. It's it's going to be a big spiderweb.
All the webs. Yeah. I'd say decentralization. In a good governance system, has to be decentralized.
Amazing. Well, thank you both so much. This has been a a great conversation. Really appreciate both the research that you both are are doing and leading and and are part of. And, yeah, thank you for, both doing it and helping, make it more accessible
so much for having us.
Thanks for tuning in. The Governance Futures podcast is sponsored by the Scroll Foundation and produced by the governance team at the foundation, Eugene Leventhal and Jamila Kamalova, with editing support from Creator Sapkora. Any music and photos are tested in the episode description. If you'd like to get in touch, reach out over Twitter at gulf underscore futures, or you can email us at governance@scroll.io. Until next time.