Federico Ast, Kleros: Decentralised Arbitration System

[00:00:02] Jarrad Hope: All right. Hi I'm Jared. This is logos podcast. And today we're speaking with Federico Ast, the founder of Kleros, a decentralised arbitration service. Welcome. Thanks for joining us.

[00:00:14] Federico Ast: Hello, Jared. I'm very happy to be here. Thanks for having me.

[00:00:17] Jarrad Hope: Great. Good stuff. So I'm kind of curious about, like, you know, how you got into crypto and how you started even thinking about doing something like Kleros, like, what's the what's the life journey that led you here?

[00:00:31] Federico Ast: Sure. So I'm. Well, I'm Argentinian, and my background is in economics and in philosophy, and I was starting I mean, I started my career in the online media, working for a newspaper, in the online business section. And, you know, when I was there, people started talking in those innovation kind of settings and people about talking about the Bitcoin, you know, the magic money of the internet, especially in Argentina, because people were used to like a bad currency, you know. Argentina has a history of very bad inflation, you know, bad governance. So I was like quite early, you know red pilled into bitcoin because of that background. And then I was like seeing that there was this new world economy that was being created, like if you were an Argentinian and you could just use YouTube to learn how to code and maybe sell your services as a freelancer to customers from the world. But then

[00:01:39] Jarrad Hope: But.

[00:01:39] Federico Ast: You had a problem because you still could not be paid for your work through the traditional banking system, because very high, you know, fees and the government because of capital control stuff. We used to take all of basically half of your money because they would give you the official exchange rate while you know the real one was twice as high. So I mean, Bitcoin solved this problem in the sense that now you could be paid very cheaply through this new, you know, Bitcoin network. So you have like the internet had already gave you, gave you given you access to the world economy. Bitcoin give you access give you access to like the payment economy. But there still was one thing left for you to be fully integrated. You needed to have a way to resolve your your disputes. Because imagine you want to sell your services to like a customer in Germany, and the guy hires you to make a video. And then there is a dispute over that because he claims the quality was not good enough. He cannot go to Buenos Aires to go to court and sue you. Right? And he's not going to go to like a arbitration in traditional Settings, which only works for like $1 million cases. So if we could. Build like a arbitration tool. Low cost for accessible to anyone. I mean you could. Integrate everyone in Argentina and in all of the emerging world into the world economy. So that was kind of my the vision for me was, how can we build this global meritocracy in the sense that it doesn't matter where you are, it just matters what you can learn, how hard you can work, and then you know, and not where you were lucky enough or not to, to be born into. So that was the vision. And those were the main, you know I guess ideas that ended up, you know, in what Kleros is now.

[00:03:46] Jarrad Hope: Yeah, right. Okay. That's quite interesting because, like, I mean there's a very practical reason for needing dispute resolution in this case, right? Like I've always seen you from from a distance in some of your talks and understand you have like a political theory or political philosophical background to a lot of this, but it sounds like the the more the truth of the matter when it comes to clearance or arbitration is, is rooted in like, you know, something that's a bit more tangible and practical.

[00:04:18] Federico Ast: I mean, it's both because there is also on the other hand, there is another I mean, my, my background is in like economic institutional economics and also in political philosophy. So I also have a background coming from, from politics. And so and this is where these things like converge. So when thinking of how you could build like this arbitration system. So this is where all of the ideas coming from that side, I mean, came about because the most efficient way to build this and the best way to make it fair To make it affordable is to use the wisdom of the crowds. So now we we I mean, back then we already had like traditional, you know, resolution online platforms and also some, some platforms that we don't see as dispute resolution typically like content moderation in social media. I mean, if there is a dispute in content in social media, there is kind of a panel which is an employee of the Facebook or Instagram or whatever, making a decision if they want, they need to ban a user or not. But this was not like a fair in the sense that it's it's not. It's like just a like a administrative procedure done in like a black box setting. So the way to actually build this in the right way is to use the community and peers as those who should make the decisions about the cases. So use this combination between the crowdsourcing idea and we can. If you want, we can speak a lot about the ancient Greek philosophy and

[00:06:00] Jarrad Hope: Yeah.

[00:06:00] Federico Ast: How they thought about. But the main idea is if you can use collective intelligence approach into this very practical need for dispute resolution, then you can end up in a system that is both efficient and fair for

[00:06:17] Federico Ast: Everyone who is involved. So yeah, I mean, I will let you decide where which side you want me to continue.

[00:06:24] Jarrad Hope: Yeah. No. Absolutely. I mean both paths are really worth going down. I think they could be very useful to kind of understand where you're, where you've arrived at in terms of like the design of Claros. And then maybe we can go and understand a bit deeper, like what ideas, you know, went into that, that those specific design decisions.

[00:06:49] Federico Ast: Yeah. So basically kleros is an initial like a first instantiation of a field that we call decentralised justice. And decentralised justice is about the systems that use blockchains and economic incentives in order to make better decisions in conflict situations. So blockchain is important because this is an adversarial situation between like Alice and Bob. And so it's important that there is traceability in the process. It's important that every party that participates and will trust the system in the sense that nobody is tampering with the evidence, nobody is tampering with the jury selection process, and nobody is tampering with the vote counting process. So that is why blockchain needs to be involved into into the system. Also there is this idea of the crowds and economic incentives. So anyone can be a juror in Kleros. Right. So this idea of not censoring people is a big part of the architecture that makes this permissionless and makes it traceable by everyone. How do you make sure that this permissionless people like, who can be like just random people from the internet being jurors? How do you make sure that they're not going to like game the system? They're not going to just vote randomly. How are just going to be bribed or whatever. This is where the big innovation of kleros comes, which is economic incentives. So kleros is based on game theory and particular Schelling points in order to incentivise users to have to make decisions which are fair and which are like yeah, good decisions and behave honestly because they have to use a token to, to be drawn, they have to take the token.

[00:08:53] Federico Ast: And then if you take the token, it's like a lottery ticket. Then you are drawn and then your token stays locked. And if you vote in coherently with the rest of the of the users, you are rewarded. If you vote incoherently, then you are penalised. So there is a very sophisticated incentive system that we have developed that makes Kleros do these decisions in the right way through economic incentives just kind of aligns the individual incentive of each individual user with the idea of the system producing correct decisions for the cases it needs to to resolve. It's kind of a if you want to put it in a philosophical way, you know, Adam Smith had this idea of like markets and, you know, the invisible hand that people are looking for their individual, you know incentive benefit and still acting like that. They still have a behaviour that is beneficial to the market economy in general. So this kind of a clearance brings like this market idea into into solution. And yeah. So this is, this is how the system works. And as I was saying, so the transparency that blockchain brings, plus the efficiency and fairness from this crowdsourcing collective intelligence, incentive based method is what results in decentralised justice, like being this innovative way of resolving all kinds of of disputes.

[00:10:26] Jarrad Hope: Very cool. Yeah. Interesting. I guess, like I'm kind of curious how you think. I definitely understand, like, why you would want to disincentivize or incentivise everybody to to kind of vote in a similar manner. Right. But I think in some of your talks, you've also talked about, you know, the difference between, say, like institutions versus like moral character almost. Right. Like, or, you know, this sort of dichotomy between these. So you know, our technology can only take us like so far. My question is, is like around like in the case where, you know, you're almost incentivised to vote as everyone else is, doesn't that introduce some kind of game theoretic behaviour? That kind of makes you want to understand how other people are voting? And then what do you do to make that more fair or prevent that from happening?

[00:11:24] Federico Ast: That's a very good question. So this is how it works. So Kleros has a appeal system. So this idea of incentivising users to make decisions as the majority, it's not like a just like a simple majority, like we are three jurors and you have to to figure out, I mean, what the other two guys are going to vote and try to like, vote the same as they will vote. Because, you know, after this decision is made in the first round, people can appeal it. And then there's

[00:11:54] Federico Ast: Going to be a new panel with twice as many jurors plus one. So you go from 3 to 7 and then there can be appeal again to 15, 31, 63 all the way to 511 because of how the system is built. If you are a juror in the first round, you are rewarded not on your ability of voting coherently with the other two guys from your round, but on your ability to vote coherently with eventually the last panel that would make a

[00:12:25] Jarrad Hope: In

[00:12:25] Federico Ast: Decision

[00:12:25] Jarrad Hope: That appeal process.

[00:12:25] Federico Ast: On the case

[00:12:26] Jarrad Hope: Right.

[00:12:26] Federico Ast: At hand. So what this creates is for you the incentive of thinking, okay, if the community at large were to be picked to resolve this case, what would be the consensus of the majority where everyone looks at the same contract between Alice and Bob they are seeing? I mean, the same evidence and they are following the same rules of the court. It's not that jurors just vote like, oh, I think this it looks like to me he's right. No, they follow rules like a judge follows the law if you want. So this results in the following. You are a jury in the first round. So you have to try to empathise and try to figure out what would the community at large think about the case and try to vote coherently with that. So in some way, what Kleros does is try to simulate, you know, through game theory, this majority of the community consensus about the particular case without having to actually pull all of the community, which would be extremely expensive, paying 500 jurors, you know, to to make the decision. So this is kind of the kleros magic, you know, this simulating the community consensus only by pulling a small sample of that community. And we have seen this working once and again, has resolved about 2000 cases already, and,

[00:13:54] Jarrad Hope: Oh, wow.

[00:13:55] Federico Ast: It works very, very nicely. So, yeah, this is a yeah, it

[00:14:02] Jarrad Hope: That's

[00:14:02] Federico Ast: Works

[00:14:02] Jarrad Hope: A

[00:14:02] Federico Ast: Like

[00:14:02] Jarrad Hope: Congratulations

[00:14:02] Federico Ast: That.

[00:14:03] Jarrad Hope: On that 2000 cases. That's fantastic. Is there any, like, I guess, like, kind of a side tangent there? Like, out of those cases, what do you think are the most sort of like noteworthy stories?

[00:14:16] Federico Ast: Well, I mean, there are different types of cases and some of them are more consumer kind of cases about user in a fintech company, you know, the company has to decide if the user is right or not. But, you know, maybe fun cases. A few years ago, there was this prediction market called omen and there was a dispute. There are two important disputes came to Claros through through that market. So Claros was the default arbitrator for disputes happening in that in that prediction market. One of them was about what? There was like a Covid there was a prediction market, you know, a bet if there were going to be more or less than 1000 cases of deaths of Covid during some six month period and some sources when the market had to be cleared, some sources said, you know there were like 900. No. 98. And the others said, you know, there's more than one 1000. There was a dispute. I mean, who should win? Those who had placed their bets on the more or less than one 1000. So that was to be resolved by, by kleros. And there was another case, even maybe more fun for most people. About the US election in 2018 2020 and the Trump and Biden. You know, there was also this prediction market on who is going to win the election. So I think the market was needed to be clear in December 2020 and the final, you know, institutional like decision on who was the president was going to be taken in January. This was not a problem in a normal world, but we don't live in a normal world. So as you might remember, there were like allegations about fraud. And so and, you know, by the date the market had been cleared some people made the argument that still it's not clear that Biden won the election. So

[00:16:31] Federico Ast: Then the market should be ruled as invalid

[00:16:35] Jarrad Hope: Right.

[00:16:35] Federico Ast: And return the money to the people who made their their bets. And

[00:16:40] Jarrad Hope: Using

[00:16:40] Federico Ast: It

[00:16:40] Jarrad Hope: The

[00:16:40] Federico Ast: Was

[00:16:40] Jarrad Hope: Wisdom

[00:16:40] Federico Ast: A.

[00:16:40] Jarrad Hope: Of crowd against another wisdom of the crowd decision. Almost right.

[00:16:45] Federico Ast: You know, it's a it was a it was a complicated case because it was a very high profile situation, very politicised, you know, case

[00:16:56] Federico Ast: Where people were like trying to make decisions about constitutional, you know, stuff that are extremely complex, even at the Supreme Court level, you know. So there was lots of, you know, discussions, lots of, you know, fun and all that, you know, accusations of everything because of how politically charged all of the environment was. So in the end the decision made by the, by the jury was that Biden should be declared as winner because like well, it was more likely that he would be elected as the winner in the January convention, I think, and the the spirit in which the bed was made, you know, made that Biden should. So

[00:17:46] Jarrad Hope: Interesting,

[00:17:46] Federico Ast: I mean, clearly, clearly

[00:17:47] Jarrad Hope: Right? Yeah. So

[00:17:48] Federico Ast: Decided

[00:17:48] Jarrad Hope: Like.

[00:17:49] Federico Ast: That. Yeah.

[00:17:51] Jarrad Hope: Oh sorry. Yeah. Yeah, that's quite interesting because it's like it's almost there's justice being served through the Kleros Arbitration Service for you know, allegedly injustice larger system in which the outcome is going to be what what the prediction market predicted.

[00:18:16] Federico Ast: I mean,

[00:18:16] Jarrad Hope: In

[00:18:17] Federico Ast: It

[00:18:17] Jarrad Hope: A way.

[00:18:17] Federico Ast: Was it was. No, I mean, it was an interesting case. I mean,

[00:18:21] Jarrad Hope: Yeah.

[00:18:21] Federico Ast: Even to to want to think, you know, because are these, you know, economic incentive tools, the right tools to solve this extremely complex constitutional. So on the one hand, you do need a way to decide that. On the other hand, I mean, is this very still experimental methodology of

[00:18:42] Jarrad Hope: Yeah.

[00:18:42] Federico Ast: Decentralised justice? The best tool to make a decision on such a high stakes type of case? I mean, and

[00:18:51] Jarrad Hope: How do you

[00:18:51] Federico Ast: It's

[00:18:51] Jarrad Hope: Think about

[00:18:51] Federico Ast: Anyone's

[00:18:52] Jarrad Hope: That?

[00:18:52] Federico Ast: Guess, you know.

[00:18:53] Jarrad Hope: Yeah.

[00:18:53] Federico Ast: I mean,

[00:18:54] Jarrad Hope: Well,

[00:18:54] Federico Ast: I

[00:18:54] Jarrad Hope: You're the closest

[00:18:55] Federico Ast: Would,

[00:18:55] Jarrad Hope: To the problem,

[00:18:55] Federico Ast: Yeah.

[00:18:56] Jarrad Hope: Right? So it'd be very curious to hear how you think about it.

[00:19:00] Federico Ast: I think in the end it's about I would call it like, customer satisfaction. You know, do people see kleros? Not just kleros, because it could be any other,

[00:19:13] Jarrad Hope: Sure.

[00:19:13] Federico Ast: You know,

[00:19:14] Jarrad Hope: Yeah.

[00:19:14] Federico Ast: Decentralised

[00:19:14] Jarrad Hope: Yeah.

[00:19:14] Federico Ast: Justice, you know, system. Do they see this as a right way? Because sometimes, maybe it is objectively the right way to solve this, but still, because of our understanding of how a dispute resolution system should work, maybe people still don't see it as a legitimate way of, of of solving this. So

[00:19:33] Federico Ast: Sometimes so the thing with the dispute resolution industry in general is that there are two things that you need to do to to take into consideration. You know, on the one hand, there is the result, the output of the process. So did the process make the right decision? One thing. Second thing was the process. I mean, did the process work in a way that we see as fair, right. Because sometimes you could just use I. Okay. Yeah, I put everything there and you know and the I will tell you, but this is not seen as a fair way to dispute, to resolve disputes, because people need to understand why some decision was made. You know, people need to the losing party needs to understand why they lost and can I or process but doesn't having to consideration, you know, justifications. They don't solve this part even if they can reach the same. So a good output without the right process is still seen as an illegitimate, you know, decision. All of this long introduction to say that even if Kleros or any other decentralised justice system can potentially produce the right output, will people see, like some online internet voting as like a legitimate way to, to reach that output? So from our experience, it's kind of okay for like a smaller value. Situations like the Alice and Bob, you know, videos things it's fine. Now will people think that this kleros process is legitimate for like very high value, complex cases involving constitutional, you know, expertise, stuff like that. It's a bit more unclear. I

[00:21:26] Federico Ast: Think in the long run, probably, yes, but we are still in the early stages. So there are still some I mean, cognitive dissonance between how this money incentivise systems work and what people expect justice system to to work based on our common understanding. This is a philosophical question.

[00:21:51] Jarrad Hope: Yeah.

[00:21:51] Federico Ast: I guess.

[00:21:51] Jarrad Hope: No, but, I mean, it's a super interesting you know, thought like, I mean like, obviously there's the mechanism, but then, like, how do you build legitimacy towards, you know, kleros. Right. And solve for these things. And like one of the questions that comes to mind is like, well because like Kleros is really facilitating human decision making. Then like you start to bring in, you know, things like culture or even like a agreed upon set of rules like common law that decisions are based upon. I don't know how you think about this problem and how you intend to build more legitimacy towards to go towards Kleros.

[00:22:35] Federico Ast: Look so I approached this from a historical perspective. So, you know if you go back to ancient, you know, Athens, you know, people the Athenians, I mean, democracy thought jury decision should be like a decision where all of the citizens had the right to like to participate. Right. If you go to the Middle Ages, you know, they had this thing called ordeal trial. So if they would put you, you know into, like, a throw into water, I mean, and then if you floated and then it means that, you know, the waters have rejected you, you know and so you are guilty. So the thing is that the way seen as legitimate to resolve disputes is not fixed thing in history. It depends on the Technologies available to like society and the set of beliefs that the society has. Right. So in the Middle Ages well, highly, deeply religious societies would think that the ordeal trials were a perfectly valid way to resolve the disputes. So what is happening now? Now we are in a time of transition between, like the old 20th century world heritage from the Westphalian peace, you know, neutral revolution and stuff like that, moving into the network age, if you want. And so we are already seeing a bunch of processes that were done in a centralised way.

[00:24:19] Federico Ast: Decentralising. And in all of these processes, we saw at the beginning some resistance to these new things, of, of doing things. So first example Wikipedia. When Wikipedia starts, it proposes anyone from the internet just to be able to write an encyclopaedia. And what do people say at Britannica? You know, this is not the right way to do an encyclopaedia. You know, you need to have an editor. You need to hire authors who are experts in their fields and then curate this list and then, well, you know, it turns out that Wikipedia actually worked and nobody uses Britannica anymore. So it's kind of the first example of this new networked age, you know, technology taking over all the ways of doing things. The second one is a Bitcoin, you know it's kind of a similar idea of people saying, hey, you know, money should be in charge of central banks, you know not of some random, you know, network of strangers from the internet who might be terrorists or whatever. Okay. But you know Bitcoin showed that under the right incentives this network of crowdsource people could actually maintain a working monetary system that people use every day.

[00:25:44] Federico Ast: So it took time. And it's still taking time for Bitcoin to gain legitimacy as a monetary system. What if we take this logic into dispute resolution? So we have this network of people from different parts of the world that could be jurors in cases. People, of course, are seeing this as not the right way to resolve disputes because of a long tradition of what is the right way to make an encyclopaedia, make a money system, resolve disputes. But if we can show that this process can produce the right decisions consistently cheaper, faster than what exists, then people will get more used to to to this idea. So all of this long introduction to say we are still in the early stages where people are believing that this can work. It's easier for using this in like a lower value lower stakes types of situations where people are already used to alternative dispute resolution methodologies and they don't have this the resistance is less in some time. I guess the likelihood of people seeing this as a valid, legitimate decision making process is going to be higher as there is more historical evidence that this is working for for different cases.

[00:27:14] Jarrad Hope: Gotcha. Yeah, I think so, too. I think one one thing also comes to mind. There is something that, you know, doing arbitration on, like, say, prediction markets or any kind of magic internet money derivative is one thing, but the other the other thing is like something that's like more tangible, like it's grounded in, like, the real world and like I don't know if there's any cases that have gone through kleros that are like that. Because

[00:27:48] Federico Ast: Yeah.

[00:27:48] Jarrad Hope: I feel like that that's probably easier to relate to for a lot of people. Right. And probably would help build legitimacy more.

[00:27:54] Federico Ast: I mean, yeah. So when we started class, like so my goal with Kleros was always to solve real life

[00:28:01] Jarrad Hope: Yeah,

[00:28:01] Federico Ast: Problems. I mean,

[00:28:02] Jarrad Hope: Yeah.

[00:28:02] Federico Ast: I mentioned when I started, you know, Alice and Bob from Argentina, you know, they needed this. So the thing is that when we started also, we had the expectation, the hypothesis that the Web3 economy would take. I mean, we would grow faster than what it has. So you

[00:28:23] Jarrad Hope: Yeah.

[00:28:23] Federico Ast: Had all of

[00:28:24] Jarrad Hope: Same.

[00:28:24] Federico Ast: These decentralised Centralised applications using that needing some dispute resolution system for e-commerce, you know, for freelancing marketplace. It was the time where we all were drinking the Kool-Aid of yeah, I mean, you will have decentralised, you know, Facebook and the decentralised Uber and decentralised Airbnb, which I think is going to happen at some point. I mean, I still believe in all that.

[00:28:46] Jarrad Hope: Yeah, definitely just going to take longer than

[00:28:48] Federico Ast: It

[00:28:48] Jarrad Hope: We

[00:28:48] Federico Ast: Will

[00:28:48] Jarrad Hope: Anticipated.

[00:28:48] Federico Ast: Take longer. And so what we have been doing for a while, for really some time is okay, where is where are the disputes? Where, where are the need for clearer services in the in the real world? So there are a lot of fintech companies, e-commerce companies, insurance companies. So can we use this protocol in order to produce decisions and give a service to all of these existing real life companies, even if not everything is on chain, you know, as one would have wanted at the beginning. Yeah. You have everything is on chain, you know, and everything self executes and you know the legs cryptography working. So let me give you like a very simple example. There is a fintech company called lemon. It's like a exchange like Coinbase from South America if you want. They have disputes between the company and the users and the users. They go to the customer service and they say, hey, I was charged for this service I didn't buy, so give me my money back. And the company says, no, I mean, we don't think you're right. We're not going to give you any, any money back. So what happens is the guy only can go to small claims court.

[00:29:59] Federico Ast: Nobody goes to small claims court because in Latin America it's super expensive, it's slow, etc.. So what they are doing, and this is something we have developed with them is okay, let's give the user the option of going to Kleros. Okay. So the user goes to Kleros. We help the user make a better like a report so he can write it more clearly and all that. And then Kleros will load the case into Kleros, and Kleros makes a decision, and then the company pledges to like abide by the ruling of the of player. So if the user wins, the company will reimburse the user. If the user loses, he can still go to small claims court. He doesn't lose any access to justice rights. And this is working. This has been this has solved already 60 cases. It's kind of still new, but it's it's working. Users are very happy with it. 90% of the users who actually lose their case in Kleros they stay as customers of the company. Is this like a pure, you know, a like a Web3 use case, as we expected a few years ago? It's not I mean, because parts of the process

[00:31:11] Jarrad Hope: It's still pretty

[00:31:12] Federico Ast: Are

[00:31:12] Jarrad Hope: Cool,

[00:31:12] Federico Ast: Off

[00:31:12] Jarrad Hope: Though,

[00:31:12] Federico Ast: Chain,

[00:31:13] Jarrad Hope: Right? Like,

[00:31:14] Federico Ast: You

[00:31:14] Jarrad Hope: You

[00:31:14] Federico Ast: Know,

[00:31:14] Jarrad Hope: Know.

[00:31:14] Federico Ast: It solves the problem. People

[00:31:15] Jarrad Hope: Yeah.

[00:31:15] Federico Ast: Are happy with it. I mean, I'm happy with that. No. Are we doing some positive impact in the world? We are even if there is some trust element, I

[00:31:26] Jarrad Hope: Sure.

[00:31:26] Federico Ast: Think the industry at some point will have to. And I think this is they're coming to terms that not everything is going to be on chain in every use case. Some of them are not. In this case, the on chain part is the jury decision part. You know people can check that nobody tampered with the jury selection. Nobody tampered with the evidence. The rest is just normal service, you know? And it's fine. It's working. I'm happy with it.

[00:31:55] Jarrad Hope: Nice. Yeah. Yeah. I mean, I definitely think that you know, we've talked about drinking the Kool-Aid, right? And I, I've certainly drank the cool enough Kool-Aid in my lifetime. And like you mentioned, the, you know, the example of Wikipedia, and it's unquestionably like the encyclopaedia that, you know, vast majority of internet users are using but it and it does come through this sort of like wisdom of crowds and like, you know, it's it's user editable and like the speed of pace and like the topics that it covers is enormous, which is fantastic. Having that said, you know, like it's not without its drawbacks. And there are like perhaps at the time of its creation, unforeseen ways that existing power structures will like, re-emerge themselves. I believe, like one of the co-founders is quite bitter towards Wikipedia at the moment because it is so biased from certain kinds of contributions towards it. You know, whether those allegations are true or not is a different story, but it's just you know, there's it's great to find like a real problem that you can solve. And I'm very curious to see, like, what the next set of problems are going to be coming from, like, what we create, right? Anyway I guess like one of the questions I also think about when it comes to, like, these decentralised arbitration protocols is like, how do you think about enforcement? Right. So, like, it's very clear to me that if it's entirely on chain like all this collateralization then that you can implement slashing mechanics or you could, you know, have like automated, you know, smart contract logic that executes on on the decision. But how does that if we're moving more into, like a trusted sort of world or like into real world solving our problem solving, what does enforcement look like? And around these protocols, have you given much thought to that?

[00:34:11] Federico Ast: A lot of thought. I mean there is this industry of consumer arbitration On that Kleros didn't invent, and it was before us. And, you know, there is already a full legislation on, you know, what type of decisions made by some arbitration panel are enforceable or not. It's been researched since the New York convention in 1950s. So if your arbitration method complies with these rules, I mean, it's enforceable in a state court. There are lots of discussions, and people have written lots of papers about whether Kleros complies with the your convention rules. And some half of the people said yes. Others say no. I can give you like an example. And my answer is going to be as lawyers. It depends. So for example, there is in in 2020, in Mexico, a lawyer, arbitration lawyer a follower of our community, he wants to test the use of kleros into, like a landlord and tenant contract in Guadalajara in Jalisco. So makes a contract with a clause of arbitration that says if there is a dispute in this contract, then take this to Kleros and dispute starts. This goes to Kleros. We load the occasion to Kleros, jurors make a decision, and they decide that the was about whether the tenant paid or didn't pay the rent. The decision of the jury was that it didn't pay the rent.

[00:35:44] Federico Ast: So Kleros makes a decision. And this decision was taken to court in Mexico and in in Jalisco, the judge sees, you know, the contract, you know, okay. So this was the contract. This is the arbitration clause. This is what happened. The process of decision making was done in compliance with the arbitration clause that was agreed by the parties. So there is no reason why this should not be enforceable. So I mean the eviction was ordered and it was I mean, the first case where we had a decentralised justice ruling. Well, I mean, be valid in court. So this was a very important thing because it kind of bridged the on chain world with the real life you know, world of everyday people. And there is one thing that we need to take into consideration that for all of the on chain, purely digital assets, okay, we can discuss of having, you know, everything on chain enforceable. Now, when you want to enforce whatever you want to enforce in the real world, then you will have to get into the discussion of whether this complies or doesn't comply with the because the police is still going to be, you know, controlled by governments. And the governments need to accept that your method is valid under their legislation. So that thing in Mexico was extremely important

[00:37:10] Jarrad Hope: Okay.

[00:37:10] Federico Ast: Moving forward. Let me just just one more thing. 20, 24th January. There is Mexico again. They vote in the Congress. They pass a new law on dispute resolution. And this law says lots of things about AI and stuff like that. One of the clauses says that decentralised justice systems are now legally valid for arbitration in Mexico. So

[00:37:36] Jarrad Hope: Very

[00:37:36] Federico Ast: You could

[00:37:36] Jarrad Hope: Cool.

[00:37:36] Federico Ast: Use kleros in a contract in Mexico and now it's valid.

[00:37:43] Jarrad Hope: Congratulations.

[00:37:43] Federico Ast: However,

[00:37:43] Jarrad Hope: That's amazing.

[00:37:44] Federico Ast: That was a yeah, a really important and we had nothing to do, just followers of us who were like participating in the drafting of this legislation. They put that themselves. They lobbied for that. And so, I mean, we have some day we just see on Twitter, hey, Federico, you know, now Kleros is valid in Mexico. What are

[00:38:04] Jarrad Hope: What?

[00:38:04] Federico Ast: You talking about? I mean, yeah, I mean, and I go, yeah, I mean, I'm there is a piece of law actually. Of course it doesn't say kleros because they cannot put the name of a company, but

[00:38:16] Jarrad Hope: Sure.

[00:38:16] Federico Ast: It says decentralised justice described the way in which we describe justice. And one last thing. Also, sometimes, you know, it doesn't matter honestly if it's enforceable or not because of the following.

[00:38:29] Federico Ast: I was telling you about the fintech case, about the exchange. You know, this is a case that is like $100 value. So when the user gets the decision made by a panel of five jurors who said, you are not right, the company is right, he says, okay, I'm just going to drop this because a panel of my peers already are saying, I'm not right about this. It's fine. And they drop it. And so Kleros resolves the problem. Even while it's maybe not legally enforceable, it still works. It's still producing a good decision that helps the company and helps the customer.

[00:39:08] Jarrad Hope: Well that's

[00:39:08] Federico Ast: So

[00:39:08] Jarrad Hope: Quite interesting

[00:39:09] Federico Ast: It's fine.

[00:39:09] Jarrad Hope: Actually. Right. Because I mean there are entry costs to getting arbitration services, right. And that's both in just like being able to afford lawyers or you know even going to like small claims court, like there's a bunch of costs that go in to just even making that happen. And here you're able to make, you know, reduce the margins or the cost of of getting some kind of arbitration service done down to, you know, I don't know how much I actually would end up costing for something like that, but I imagine it's much smaller than what you'd have to do traditionally.

[00:39:44] Federico Ast: You know, it costs like a few thousand dollars typically. I mean, it depends

[00:39:48] Federico Ast: On the exact use case because it depends on what is the cost of jurors and the time it takes them to analyse the case. But, you know, something we have learned is that at least in our industry, a spiritual solution. It's okay if not everything is on chain, at least for

[00:40:04] Federico Ast: A number of of disputes that are typically lower value. I mean, if you are adjudicating Getting $20 million, then maybe. I mean, you might want unchained enforcement because there are different incentives for, like, a small kind of value claims. It's okay. Enforcement is typically in some settings and others not. But in some settings, like the fintech. I told you know, it doesn't matter, you know, as long as just one part of the process is unchained because of the transparency of jury selection, etc., the enforcement can be just, you know, done by by some centralised company. And, and they will do it.

[00:40:46] Jarrad Hope: Gotcha. Okay. So, I mean, like, you know, justice and arbitration is like, you know, a core service that, like many governments provide or a state or something like this. And, you know, obviously you're working on this component, but do you give much thought or have any visions around the larger set of institutions that might make up like a good government in some way.

[00:41:15] Federico Ast: How

[00:41:15] Jarrad Hope: Is

[00:41:15] Federico Ast: Many

[00:41:15] Jarrad Hope: That a

[00:41:15] Federico Ast: Times do

[00:41:15] Jarrad Hope: Much

[00:41:16] Federico Ast: You have? Do you have

[00:41:16] Jarrad Hope: Larger

[00:41:16] Federico Ast: In the

[00:41:16] Jarrad Hope: Question?

[00:41:16] Federico Ast: Podcast? Oh. Okay. So I think that what's happening now is that so we are building new institutions. Those are new institutions. And so lots of the people who are actually working in this construction industry, they come from the computer science, you know areas. And they when they try to build the governance systems of Davos, they well, I mean, they lack lots of the background about that. People have been discussing, you know, this, these things for like 2000 years or more, you know. So I see very often like discussions in the blockchain governance world about things. Okay, guys, I mean, Aristotle already said something like this. You know, James Madison, when they were discussing in the Federalist Papers, they already were, you know, a bit wary of having the majorities, you know, just rule and decide everything. So there's a lot of learnings we have that we can bring from the traditional political theory and political philosophy world that are applicable to to DAOs because humans, you know, they are still humans and they have the same types of, you know, psychological construction and incentives. So if you are interested into you know, this governance things, you know, you should take some time. I mean, you don't need to become like, a super expert in political philosophy, but you should take a bunch of maybe online courses on political science. And I try every time I can. I try to give talks about what we can learn from the past. You know, we had a bigger guys like, you know, Plato, Aristotle, you know, Machiavelli, Hobbes, Locke John Rawls you know, Tocqueville, Bentham, John Stuart Mill. So, I mean, you need to learn a bit of what these people have thought, because a lot of their thoughts about voting, about culture, about separation of powers, about the use of random selection, about the use of about how wealth is distributed in a community. All of these things affect how decisions are made. And if these learnings were incorporated into how we currently build these organisations, the path would be like way more like more smoothly than what it typically at the moment.

[00:44:09] Jarrad Hope: What do you mean, you don't? You don't view the the paths of Dalles going that smoothly so far.

[00:44:15] Federico Ast: I mean, yeah, I mean, like, you know, I'm not saying that just, you know, read some Aristotle and then, you know,

[00:44:22] Jarrad Hope: Everything will be fine.

[00:44:23] Federico Ast: Walk

[00:44:23] Jarrad Hope: No,

[00:44:23] Federico Ast: In

[00:44:23] Jarrad Hope: No.

[00:44:23] Federico Ast: The park, you know. No, it's

[00:44:25] Jarrad Hope: Yeah.

[00:44:25] Federico Ast: It's hard. It's hard it's hard and

[00:44:28] Jarrad Hope: I

[00:44:28] Federico Ast: But

[00:44:28] Jarrad Hope: Know what you

[00:44:28] Federico Ast: You know.

[00:44:29] Jarrad Hope: Mean, though. Like, it's like It's a microcosm of, like, politics writ large, right? And, like, you just see a lot of these patterns of behaviours manifesting themselves because they've employed ideas that people in history have already learned from and have already written about. Right. So.

[00:44:50] Federico Ast: You

[00:44:51] Jarrad Hope: Yeah.

[00:44:51] Federico Ast: Know, you know, the problem. You know the problem. I think the problem is that people in, you know, the Dao world, you know, they don't read books.

[00:45:00] Jarrad Hope: It's true. It's.

[00:45:02] Federico Ast: I mean, I'm sorry. I mean, there's a few exceptions, but, you know, generally speaking, I mean, people don't read books. I mean, how many people have read The Republic? I mean, or at least their summary of Plato's Republic? You know, so so people I mean, I think that they kind of lack and this is a shame. They lack some classical education.

[00:45:23] Federico Ast: You know, googling something or asking ChatGPT is not the same as reading a book, unfortunately,

[00:45:30] Jarrad Hope: No.

[00:45:31] Federico Ast: And it's hard to to replace it. I don't know how

[00:45:34] Jarrad Hope: Oh,

[00:45:34] Federico Ast: To solve

[00:45:34] Jarrad Hope: Absolutely.

[00:45:34] Federico Ast: That problem.

[00:45:36] Jarrad Hope: Yeah. I mean, people just need more time and and more interest. And I mean

[00:45:41] Jarrad Hope: For me, I'm an avid reader so I don't particularly relate. But I have seen many people. I mean, I was I'm working on a book at the moment. And I was

[00:45:51] Jarrad Hope: Looking at some Amazon sales statistics. Right. And this is like the largest sort of online book retailer in the world. And the number of sales is completely off topic. Right. But the number of sales were a bit like daily sales are abysmally small and like most of it, goes towards like romance fiction, right? If there is any sales. So you're absolutely right that people, people don't read nearly as much as the as they should. So. Oh, well.

[00:46:20] Federico Ast: You know when I was a teenager, I wanted to to be a writer. So, I mean,

[00:46:25] Jarrad Hope: Right.

[00:46:25] Federico Ast: I know, I mean, I always loved reading and I mean, I think that so one of the things that we have from the, from the like, enlightenment and there is this book by Steven Pinker, the Better Angels of our nature. And he says, so he sees like after the enlightenment, you know, and in the 19th century. So he observes, like a drastic fall in the violence in societies. And he

[00:46:53] Federico Ast: Says, what is the reason for this? You know, people don't enjoy anymore going to, you know, the central square to see other people executed or, you know, they don't enjoy, you know, cruelty, you know, games as they used to in the Middle Ages. One of the things he, one of the theses he has is that he has to do also with the literacy, in the sense that people got to learn how to read, and then they got to read novels and they got to like, empathise with others. I mean,

[00:47:23] Federico Ast: Put yourself into the shoes of this person who is in this situation of suffering that you don't. And this, according to Steven Pinker, I don't know if it's true or not, but, you know, his thesis is that now people learn how to empathise and learn how to stop making others, you know, suffer. And there's a lot of, you know, developing the soft attitudes of that you get with literacy reading. So I don't know, I mean,

[00:47:53] Jarrad Hope: Yeah.

[00:47:53] Federico Ast: I mean, I'm babbling. I just want to say read

[00:47:55] Jarrad Hope: No.

[00:47:56] Federico Ast: More

[00:47:56] Jarrad Hope: Yeah.

[00:47:56] Federico Ast: Books, guys.

[00:47:56] Jarrad Hope: Yeah

[00:47:56] Federico Ast: Yeah.

[00:47:57] Jarrad Hope: Definitely read more books. One takeaway. Read more books

[00:48:00] Federico Ast: Yeah,

[00:48:00] Jarrad Hope: And

[00:48:01] Federico Ast: Yeah.

[00:48:01] Jarrad Hope: Arbitration services. Yeah. Okay, cool. Yeah. I guess, like what else? What else do we have here? Sorry. I've kind of lost my train of thought now. Now, on the Is there anything else that you would like to cover, I guess?

[00:48:22] Federico Ast: I think I have covered quite some things. I would say that my current message to the the world of crypto fellows is like a, I mean, and let's try to solve real world problems of, of real people, you know, hopefully

[00:48:42] Federico Ast: The industry will be able to to do that. Hopefully people from the outside will start to see that we are actually a positive, you know element in the world that we are helping people have better lives. You know, it's not that hard. And then when they see that, they will start to like us. And then I guess collaborate a bit more. So that's

[00:49:06] Jarrad Hope: Yeah.

[00:49:06] Federico Ast: What I wish that

[00:49:08] Jarrad Hope: Yeah,

[00:49:08] Federico Ast: For the industry at large, you know.

[00:49:09] Jarrad Hope: I think so. And I think, like you know, I think crypto for a while, I came in from, you know, political, philosophical reasons myself.

[00:49:21] Jarrad Hope: And it was always about making, like, an impact. Right. And it's a bit of a shame to see how, you know, these technologies, like how things have kind of developed in some way. I mean, shame is probably not the right word. It's fantastic that there's, you know, there's some kind of market there and like, there's getting real world use cases, but it's not the kind of impact that I guess I was initially imagining when we were working on this. And you mentioned, like, Tocqueville.

[00:49:51] Federico Ast: Yeah.

[00:49:52] Jarrad Hope: Recently I've been kind of interested in like his idea of, like, increasing civic participation. Right. And I think even though I came in from like a technologist point of view, largely in thinking, you know, the medium is the message and the technology will be able to solve a lot of these things at

[00:50:10] Jarrad Hope: The end of the day. There's this whole other side of like, you know real world humans and culture and how they, how they actually use the technology matters just as much more. And I never really gave that the weighting. And so I feel like in the absence of really trying to enforce that side, you know, like there's been kind of this, like memetics of, like gen culture, right? And then like that kind of continues to grow. So I don't know.

[00:50:43] Federico Ast: I mean, you know, when I started, you know, working on the industry, I, my goal was not to build a crypto project. I mean, my goal was to try to solve the problem of lack of access to justice in

[00:51:00] Federico Ast: The world in the sense I was seeing. That people not I mean, I mean, from Argentina, I mean, I'm from Argentina. I mean, I still live in South America, and I been suffering from these problems. All of my life. I mean, lack of access to opportunities because of poor. Government policies. And I was just trying to help, like, lots of people like me, to try to. So. And back then, like, the way to solve this problem was to build this crypto. You know, system that helps people make payments and make decisions. And this will solve freelancers and other things as well. But if I back then I thought that the way to do that the technology was I, I would have maybe started an AI company back then,

[00:51:48] Jarrad Hope: Right.

[00:51:48] Federico Ast: But I think that the main thing I want some years before, I mean, I spent some time at a place called singularity University is a technology centre built by Ray Kurzweil in Mountain View, and I spent there like three months with technologists, and I got the chance to, well, interact with some founders of Silicon Valley companies. And one of the things they always told us, you know, there was that, you know, fall in love with the problem, not with the technology. Right.

[00:52:21] Federico Ast: So for me, the problem was, you know, how to give access to justice in a world of increasing digital interactions and where. Yeah, so we can, given the right infrastructure for governance, have a more meritocratic, you know, you know, world. It happened that blockchain was the way to do it. But what I see in the industry is like lots of people like trying to okay, I'm going to build a token. What problem can I retrofit into this to get my token going.

[00:52:58] Jarrad Hope: Yeah. Yeah.

[00:53:00] Federico Ast: So that is the wrong attitude to start the

[00:53:02] Jarrad Hope: It's a bit inverted.

[00:53:03] Federico Ast: Project.

[00:53:03] Jarrad Hope: Yeah. Yeah. Yeah. But I mean, like, I mean, I guess coming full circle, right? Is like just Bitcoin and operating as it was intended was what what you sold was solving real problems in the world that you were in the context that you're in. Right. And like, brought you into into that technology, into the field. So

[00:53:27] Federico Ast: I,

[00:53:27] Jarrad Hope: Possible.

[00:53:28] Federico Ast: I agree, I agree, I think lack of access to financial infrastructure is a big problem,

[00:53:36] Federico Ast: But we already have bitcoin. I mean we don't need lots

[00:53:39] Jarrad Hope: Right.

[00:53:39] Federico Ast: Of other like bitcoin you know, imitations

[00:53:41] Jarrad Hope: Right.

[00:53:42] Federico Ast: Or copies, you know, to solve a problem that Bitcoin is kind of already solving in a kind of good way. I think what's going to happen, you know, in the I mean this is not surprising. You know, when the dot the.com boom started late 90s. There were lots of companies that were doing kind of a also trying to solve problems that didn't exist or that, well, lots of reasons why companies can fail. I think some of them will actually survive because they are going to prove they can solve real world problems. I hope Kleros will be will be one of those,

[00:54:16] Jarrad Hope: I'm

[00:54:16] Federico Ast: Because

[00:54:16] Jarrad Hope: Sure.

[00:54:16] Federico Ast: I do think that we are solving a real problem that I have experienced well since I started. So yeah.

[00:54:24] Jarrad Hope: Gotcha. Gotcha. Cool. Well, thank you so much for your time. It's been an absolute pleasure to chat with you. I wish I could chat with you even longer.

[00:54:34] Federico Ast: We can do a second episodes if you want. I mean, happy

[00:54:36] Jarrad Hope: Yeah.

[00:54:36] Federico Ast: To

[00:54:36] Jarrad Hope: Why not?

[00:54:37] Federico Ast: Do it again.

[00:54:37] Jarrad Hope: Why not be a little fun?

[00:54:39] Federico Ast: Yeah.

[00:54:39] Jarrad Hope: I guess before we we we jump off. Is there any recommended reads you think anyone should check out?

[00:54:46] Federico Ast: Well depends. I think if you want to read some crypto stuff, Staff I would recommend. One book is called Sovereign Individual.

[00:54:59] Federico Ast: This is about this is from the late 90s about how the information technologies, digital technology is going to change the world. And there is a lot of predictions. One of them is Bitcoin that were done back then. So this is a book I strongly recommend. I, you know, I will recommend something different and I could recommend lots of books, but I would recommend something that is going to give you like a good access to lots of different things, especially speaking of governance that we were discussing. So there is this very good course at Yale. It's online. It's about political philosophy. I don't remember exactly the name of the course, but it's a very good introduction to some core ideas of the, of the future of, of governance and the history of governance and where governance is going. There is another very good course at Yale that is called power and politics in the 20th century, that is about the first one is about political philosophy. This one is about political theory and science, and how voting theories and the so, like a more applied politics, also strongly recommended. And then there is this Oxford. Oxford has a collection of small books called I think it's essentially a very short introduction to X. There is a very good one called A Very Short Introduction to Political Philosophy. So if you read these three books you if you are interested in the governance stuff, you will have a very good overview of some of the core ideas in the, yeah, history of political ideas, and that will help you a lot in your governance quest.

[00:56:41] Jarrad Hope: Good stuff, great resources, and now I guess we'll have them in the description. Thank you so much.

[00:56:47] Federico Ast: Thank you for having me.

[00:56:49] Jarrad Hope: Cool.