Meet the DeFi Delegate Knocking on the Doors of Congress
MakerDAO delegate PaperImperium is leading the charge to educate lawmakers on crypto. But his crusade brings up a looming question: Should DeFi be regulated? And how?
It might well be history: On July 28, 2021, Rep. Ted Budd (R-N.C.) headlined a Q&A session with the MakerDAO community – perhaps the first-ever meeting between a decentralized autonomous organization (DAO) and a sitting U.S. congressman.
The sit-down was cordial and surprisingly lighthearted, given that just a day before Sen. Elizabeth Warren (D-Mass.) now-famously decried crypto’s “shadowy super coders.” (Budd himself is actually a fan of the branding: “Kind of cool, right?”)
At the end of the MakerDAO event, Budd even issued a mandate for Maker fans to spread the good word about decentralized finance (DeFi) throughout the halls of Congress: He called on the DAO to “build on islands of health and strength” and to “go where your message is heard.”
At least one MakerDAO delegate – a term for a community member who wields not just their own token power but has been chosen to represent the stake of other community members as well – has heeded the call. The same one who organized the Budd Q&A, in fact.
PaperImperium, a pseudonymous member of the DAO and its most powerful delegate representing over 3% of the project’s voting power, for months now has been quietly building a network of bankers, politicians and policymakers – a group he is helping to educate on DeFi in a lone effort to encourage more hospitable regulations for Maker.
The efforts come as bigger players such as venture capital behemoth Andreessen Horowitz and publicly traded crypto exchange Coinbase seek to guide looming regulatory action in the DeFi space, a $216 billion sector that has heretofore flown under the radar.
But for all the corporate outreach efforts, a single DeFi native may be mounting a more effective campaign by simply picking up the phone.
Social and political integration
In an interview with CoinDesk, PaperImperium claims that his ever-expanding Rolodex includes members of the House and the Senate; academics at MIT, Wharton and the University of Chicago’s Booth business school; and senior staff of the St. Louis Federal Reserve, the Bank of Canada and the Bank for International Settlements (BIS).
Indeed, House and Fed officials have appeared at his events; CoinDesk verified one Senate connection and reviewed email exchanges with officials from the Bank of Canada and the BIS.
PaperImperium’s is a one-man crusade born out of a vision to see Maker become a regulated, taxpaying financial entity – what he believes to be a necessary step in the protocol’s expansion into real-world services.
“For Maker, my agenda is one of further economic and social and political integration with the real world. This is all part and parcel of the same thing: We’re building gas stations and solar farms and houses, and you can’t integrate economically and not integrate socially and politically,” he said in an interview with CoinDesk, referring to building projects from 6s Capital linked to Maker loans.
His work is timely to the extent that crypto increasingly has real-world influence.
A recent report shows that Ethereum alone settled $6.2 trillion in transactions over the past 12 months – compared with PayPal’s $936 billion 2020 total. Meanwhile, the aggregate cryptocurrency market capitalization is well in excess of $2 trillion, larger than the market capitalizations of Google and Amazon and now threatening to overtake Microsoft at $2.2 trillion.
Crypto, it seems, can no longer be safely ignored – and yet it’s nigh impossible to find a policymaker, banker or finance expert who can intelligently discuss, for instance, the difference between proof-of-work and proof-of-stake.
‘They’ve failed this industry’
Just last month, mainstream political and financial pundits were left flabbergasted when crypto advocates all but single-handedly stalled a Senate vote on a historic infrastructure deal, reflecting a widespread ignorance that rightfully frustrated insiders. Nearly a decade and a half after the publication of the Bitcoin white paper, crypto isn’t so much an elephant in the room as a rampaging herd trampling onlookers’ houses.
PaperImperium, however, places much of the blame for this information asymmetry on the crypto community itself. If the problem is a lack of representation and education, then where are lobbyists and educators?
“It’s an illustration of how far behind we are that I’m often the first person from the crypto industry that has reached out to many of these people,” he said. “It’s damning evidence that those who have been in charge of advocating for us have failed themselves and they’ve failed this industry.”
He may have a point.
Efforts to cobble together DeFi-native lobbyist organizations have seen mixed results. One instance, the Uniswap DAO-supported DeFi Education Fund, appears to be mirroring Washington itself with a lavish budget ($20 million over four to five years), unclear goals and a host of unsatisfied constituents.
On the other hand, “LexpunK,” another effort, is a “Builder Defense DAO” with the stated intent of waging “guerilla lawfare” against the enemies of DeFi. Proposed sorties include position papers, “legal defense against regulatory litigation” and “amicus curiae,” a Latin phrase meaning “friend of the court,” briefs in response to overeager charges from Gary Gensler’s Securities and Exchange Commission. The group raised $3 million from the Curve, Yearn and Lido DAOs earlier this year.
While many of these advocates are pushing for specialized regulation for DeFi, PaperImperium’s outreach strategy stands out for being focused on finding ways for Maker to function within existing legal systems.
“If we’re going to comply with any laws and regulations, then it’s clear that we should in any jurisdiction where we do business,” he told CoinDesk.
As promising as this vision may be, some members of the Maker community believe it may also be fundamentally at odds with the open, permissionless nature of DeFi. This had led to an ongoing battle currently playing out in Maker’s governance forums – one that could spill over to the rest of the ecosystem, ultimately defining DeFi’s legal framework as the young vertical moves from the billions and into the trillions.
Anywhere except in DeFi, it would be a surprise that PaperImperium meets regularly with some of the most powerful people in the world.
In his normal life, he’s an archeological consultant, specializing in helping governmental bodies and companies check for “cultural resources” and ensure that construction projects comply with the National Historic Preservation Act.
A father of three, he’s prone to bellyaching about his limited time – remarkably, his educational efforts are conducted intermittently in stolen hours between his other responsibilities.
However, DAOs reward doers, not resumes. As a MakerDAO delegate, he wears a variety of hats by virtue of having stepped up and seized them: lobbyist, educator, economist.
“Crypto, you have to understand, it’s a thinly-settled frontier,” he told CoinDesk. “You don’t always have the expertise at hand that you want, so sometimes you have to take second-tier and third-tier experts, and that means I kind of landed an ‘unofficial economist’ role, at least with regards to monetary policy in crypto.”
Based on his conversations, however, he doesn’t need to be the world’s foremost expert on DeFi or stablecoins to help bankers and regulators grasp the fundamentals.
“Let me stress that we’re starting at a very, very low bar. Even our friends do not have what people in crypto would consider very basic understanding. Even people who like us, we have to show them, ‘No, we don’t mine DAI, it’s generated by the user with overcollateralized loans. No, Maker is not its own blockchain,’” he said.
DeFi in D.C.
He noted that academics tend to be “further along,” but said central bankers and politicians can rarely name cryptocurrencies outside of bitcoin and tether, the largest stablecoin and a frequent target for regulators. The conversations are “starting from zero.”
Capable of rattling off the names of politicians on various committees and discussing upcoming elections with granular detail, he’s strategic in whom he reaches out to. When it comes to prominent academics and researchers who are currently involved in actively designing CBDCs, PaperImperium has even helped them access research and on-chain data that would otherwise be difficult to track down – after all, “these are the people advising policymakers.”
“These are the people wondering, ‘Does DAI have to passively accept monetary policy from the Fed?’ It does. These are the people who want to know how it works, and then they give a kind of high-level view to voting members of important committees,” he said.
Ultimately he strives to be a diplomat.
“Let me be clear: DeFi has no good friends and no leverage, and we need both. And how do we get that? Not by drunk-tweeting puerile messages, we do it by reaching out and engaging with people – we have to sit across the table from people.”
PaperImperium’s work is currently uncompensated.
MakerDAO is internally debating a proposal to pay delegates for their time, and likewise a proposal was recently voted down for the DAO to grant him $50,000 in DAI for his extra legwork on the lobbying side. Since its failure, he has hinted he could be taking his services elsewhere.
It’s an illustrative example of some of the challenges DAOs may face when hiring for a role like his: Public organizations need tangible results to justify salaries, but the unofficial lobbying work he conducts often requires discretion and quiet personal connections.
“I don’t do anything at Maker,” he joked about his position. “I just mash the ‘vote’ button.”
Paid or not, his efforts are growing more important.
Maker currently owns “small exposure” to pools from the Centrifuge protocol, a DeFi platform that offers real-world loans. Additionally, the protocol recently onboarded 6s Capital, a U.S. firm that builds Wawa gas stations and hardware stores, among other commercial real estate.
Those real-world efforts are also growing more ambitious.
“We’ve already taken our first and probably hardest vote to approve a $21 million loan to build a solar farm on East Long Island,” he told CoinDesk.
He hopes that this increasing meatspace footprint will help him “get in front of” more lawmakers, and a crypto-financed solar farm could be a powerful messaging tool.
“It’s a firm rebuke to the idea that crypto is nothing but a casino, because it’s now providing jobs and green energy,” PaperImperium said. “It’s a Republican district – the congressman sits on the house financial services committee – in a heavily Democratic state which is financially important, and the two Democratic senators are quite important themselves, so it’s geographically well-placed. Once we close on it, it will be proof of the evolving and maturing state of crypto.”
These messaging victories are important because the goal is simply not to be seen as “shadowy super coders;” if DeFi can become socially acceptable, the path towards regulation might grow easier.
“If you’re sitting in Congress, you have a messy withdrawal in Afghanistan, this infrastructure package, tax policy, what’s going on with the latest natural disaster – listen, we are not high on their list. You can’t expect them to be experts on us,” he said.
Much of his work is also devoted to helping policymakers differentiate between projects rather than painting with a broad brush. While he works as an advocate for all of DeFi, he made it clear to CoinDesk that he’s invested in Maker and considers himself an agent working primarily for the DAO, and he does not believe all projects – especially all stablecoin projects – are created equal.
“A lot of these stablecoins look like shadow banks because they are shadow banks,” he said. “These people wouldn’t be doing their jobs if they didn’t say, ‘Well, this looks like a deposit-taking institution.’”
By contrast, Maker, he argues, is software-as-a-service (SaaS) with no custody. Just like how from the outside a bank and a credit union may look the same, the process for arriving at Maker’s DAI and Tether’s USDT are significantly different.
Ultimately, he’s pushing for Maker to become regulatory-compliant across all jurisdictions.
“I don’t want Maker to be out there as a cowboy. Maker, at least for crypto, has a historically conservative culture. I don’t want us out there flaunting laws and getting served subpoenas at conferences,” he said.
That exact vision, however, is putting PaperImperium at odds with other members of the Maker community.
In recent weeks he has voiced support for topics that might make DeFi die-hards uncomfortable, including using Maker treasury funds to ensure all employees and delegates obtain legal protections, and identifying a friendly jurisdiction in which the DAO might register as a taxpaying financial entity.
He repeatedly expressed frustration with what he perceived to be a lack of practical steps both the DeFi community and Maker have failed to take, noting that it’s leading to a genuine existential risk.
“People underestimate the fragile position we’re in,” he said. “I’m out there trying to get external eyes on Maker to show that we’re a responsible actor. That comes in the form of prestigious finance professors performing Fed-style stress-tests on us, and I’m talking to ratings agencies and the like.”
He added: “We have to find ways to convince our critics that we’re not going to wreck everybody else.”
Not everyone agrees with this approach, however.
“This simply isn’t possible. There’s no way to force someone to join such a group, and there is also no way for such a group to control Maker Governance,” wrote MakerDAO founder Rune Christensen of a registered Maker entity in the governance forums.
This leaves the DAO at a genuine crossroads: attempt to integrate with existing financial regulation, which some believe to be impossible, or continue to operate in a legal gray area, which others believe to be untenable.
MakerDAO isn’t the only group debating these choices, either. Across the DeFi ecosystem teams are toying with “CeDeFi” – finding ways for mainstream financial entities to interact with DeFi protocols in a regulatory-compliant manner.
In particular, Aave Arc, a framework allowing institutions to deploy permissioned instances of Aave, has sparked significant debate about what steps should be taken to enable oversight.
In the end, however, PaperImperium’s vision may be the one that wins simply because he’s the one doing the legwork to make it a reality. Which is strange, given how easy he makes it seem.
“Words are cheap – often free,” he said. “We should use them as much as we can.”
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