DAOs Will Make Financial Services Truly Collaborative and Equal in Nature

Philipp Zimmerer, Core Contributor at Spool DAO, talks about the future of DAOs and Finance with Ishan Pandey

Ishan Pandey: Hi Phil, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind Spool?

Philipp Zimmerer: Hey, thanks for having me. I’m Philipp, a founding core contributor of the Spool DAO. I have been focusing on the vision for the DAO’s core product, the Spool Protocol, since the inception of the DAO. The Spool DAO started to form in late 2020 via a temporary Founding DAO that is currently transitioning to its final version after our successful LBP back in December 2021.

Our DAO was formed to create an infrastructure that allows composable and easy access to all current and future DeFi protocols where users can capture yield by providing liquidity. It all started as something we wanted to build for ourselves to keep a handle on the rapidly growing selection of yield generators but it quickly became apparent that there was a much wider demand, which led to Spool in its current form.

Ishan Pandey: The number of DAOs has surged by more than eightfold in the last year. The amount of community participation influences the rate of growth. Do you think decentralized governance will follow suit and emerge across all ecosystems?

Philipp Zimmerer: Decentralized governance is an incredible tool to empower digital communities via a form of “liquid democracy.” At the same time, DAOs are still a very nascent idea. As an industry, we need to prove that DAOs can scale and have an impact that transcends the blockchain community.

DAO is an umbrella term that currently covers a lot of very differently run organizations under the same name. In reality, one DAO may be entirely different from another in terms of its power over the thing it supposedly governs. Some DAOs are little more than glorified suggestion boxes, while others strictly follow the “code is law” maxim and any passed vote will automatically be executed, even if potentially harmful.

Spool went a new way: it was formed DAO-first, meaning there is no centralized entity or team behind it. Instead, we are only now setting up and finalizing a Swiss association for the Spool DAO. This makes Spool a strong DAO, having full power over the protocol and treasury while also enjoying actual representation in the real world.

Ishan Pandey: The assumption that the cryptocurrency sector possesses magical abilities to hand out rewards that exceed those seen in traditional financial markets while posing no risk is being quickly and painfully debunked. What are some ways in which the crypto ecosystem can overturn this series of misfortunes post the Terra fallout?

Phil Zimmerer: I believe that our industry has a hero-worshipping problem. The Terra collapse seems obvious in hindsight, but a mere 6 months ago, it was seemingly the industry’s poster child, with leading VCs, influencers, and influential personalities in the space praising it as the future of money. Critical questions were often ridiculed and shut down or answered with overly complicated answers with little substance.

If support on public platforms is overwhelming and the supporters are seemingly respected experts and professionals, less informed market participants will naturally follow more or less blindly, with their due diligence being little more than feeding a confirmation bias.

It is important to remember that everyone with a platform and influence in the blockchain industry is also a market participant. To avoid future fallouts, being more mindful of that influence will be key to stopping flawed projects from rising to the top and their inevitable collapse, subsequently wiping out retail.

When evaluating projects, we need to move from overusing social proof to logic and economic analysis. Getting there is still a long journey.

Ishan Pandey: Please tell us a little bit about Spool and its use cases?

Philipp Zimmerer: Spool is a DeFi platform for users to create diversified yield portfolios that automatically rebalance and seek the best risk-adjusted yield. Spool’s goal is to make DeFi simple: users get access to multiple yield sources with one deposit, while Spool takes over the complex work of auto-compounding and auto-rebalancing the yield portfolio.

Spool is fully composable as a foundation to enable entirely new financial use cases or to build new, advanced DeFi primitives on top of it.

In simple terms, this makes Spool a toolbox allowing users to create any yield product they want with a single access point. Any deposits are tracked individually but optimized jointly, meaning that depositors never have to pay for any rebalancing or compounding operations that are carried out to optimize their yield.

We are building Spool to become a robust and reliable backbone for the entirely new industry of DeFi-powered financial services.

Ishan Pandey: Bitcoin fell to its lowest level in over 18 months after the Celsius lending platform froze withdrawals, raising concerns that fundamental vulnerability in the crypto industry will hasten the digital-asset market implosion. How has Celsius pausing withdrawals and risks around Three Arrow Capital insolvency risk, in your opinion, affected the DeFi ecosystem as a whole?

Phil Zimmerer: In the short term, this really hurts confidence in digital assets and DeFi specifically because DeFi has quickly become a blanket term. DeFi tokens are being dumped indiscriminately - it barely matters if the project is an actual segment-defining protocol or a copy-pasted fork. I attribute this to a low level of education in the market, which has been taught that “narratives” matter more than actual performance and organic adoption.

Jumping from A to B as Twitter dictates has been a profitable strategy in a raging bull market dictated by new L1 blockchains launching and pushing their own DeFi ecosystems with massive incentive funds. This created a ton of noise which led to a rapid-fire of increasingly flashy new DeFi protocols that ventured deep into the unsustainable territory to attract mercenary liquidity in the short term. It wasn’t growth that could last in any way, shape, or form.

Now that the market has turned and seemingly invincible behemoths are crumbling rapidly, world views are shattered and panic ensues. But when evaluating more calmly, there are DeFi apps that have garnered massive adoption over the past few years. Examples like Uniswap, Curve, Synthetix, Aave, and others have become mainstays in the daily lives of crypto users and can boast organic usage that is driven by actual use rather than incentives. In the long term, DeFi will thrive, and we hope to model Spool’s growth according to the mainstays rather than a quick straw fire.

Ishan Pandey: DeFi is a fast-growing segment of the cryptocurrency market that offers to provide traditional financial products without the involvement of regulated intermediaries like financial institutions. According to you, should DeFi be regulated?

Phil Zimmerer: I would hate to see DeFi regulated, period. What I would much rather see is “regulatory compatibility.” What I mean by this is that DeFi, at its core, remains as accessible as it currently is but at the same time becomes accessible for institutions that have no choice but to operate under regulatory constraints. This means that DeFi persists as is, but the infrastructure is built to allow compliant access.

This would result in a synergistic existence of traditional finance and DeFi, where TradFi institutions are able to tap into DeFi and provide liquidity where they see opportunities, but at the same time, current users of DeFi are not restricted in the ways they are interacting with it now. Spool is positioning for this kind of future, where its openness enables use cases for retail and crypto-native users and sophisticated users coming from the traditional world.

Ishan Pandey: According to you, what new trends are we going to see in the industry in the next five years?

Phil Zimmerer: I believe we will be revisiting all recent trends again, but with less emphasis on quick hype cycles and more on sustainability in terms of actual economic use cases. This might be a lot less exciting, but that’s the course a lot of innovative sectors take. I am most excited about the disruption of more traditional financial services via blockchain, as we have already seen with asset exchanges and lending platforms.

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