Let’s start off by asking the right question.

Why Decentralisation is Important?

• It’s a way to build trust

Web2 companies follow a predictable pattern where they do everything they can to recruit users, developers and businesses to join the platform because each of these community members forms the basis of a multi-sided network effect that makes the platform more valuable and defensible.

But as they grow they move up this adoption curve and follow a predictable pattern where they slowly start to change their behaviour instead of cooperating with their community they start to extract value from them.

For example:

Twitter had more traffic going through third-party clients than through their official app. However, to capture more of the value, Twitter changed rules to make it harder for other apps to work with Twitter which made their official app more popular.

For users and developers, these rich ecosystems that started out cooperative ended up getting killed off and the Innovation emerging from them was stifled

• In contrast, crypto networks offer a new model for building internet platforms, unlike corporate own networks. It aspires towards being decentralized meaning they strive to be community owned and operated.

• Crypto tokens are an exciting new innovation which enables value to flow at the cost of information at zero marginal cost.

• Crypto Network routes value directly to those who contributed and that in turn means that they can be much like earlier internet protocols in which they can grow to much larger scales of adoption while enabling innovative ecosystems on top.

  So that's why decentralization is so important.

Playbook For Crypto Founders

A three-step process that serves as a guide for how to run the process of progressive decentralization.

1. building a product that people want

2. building a community around that product

3. giving ownership of the product to the community

Crypto projects will need to execute three objectives in this sequential order.

Let’s dive into each step in detail.

1) building a product that people want

The earliest stage of building a crypto application is all about finding Product Market Fit.

This requires a lot of the same ingredients as a normal startup you need

• great team

• lean development

• tight execution

• quick learning

At this stage, there should be no show of decentralization since the core team is driving all product decisions by necessity.

Also, launching a token at this stage probably isn't advisable because the product is dependent on the core team's efforts not the community.

Dependence on the efforts of others is one way you might fail the Howey test which is an SEC regulatory framework.

Securities regulation is a huge distraction from product market fit.

At early signs of product traction which could include a growing user base, developer ecosystem or some network effects starting to take shape, then go to the next step.

2) building a community around that product

This is going to look different for different types of communities.

For developer-facing products, community building might involve investing more heavily in the best practices for running open-source communities which can include

• good documentation

• building a developer evangelism program

• issuing bounties and grants and other incentives for third-party development

Going even further start thinking about how to eliminate dependency on the core team in order to build more trust with the community.

Limiting control over the product is one way that you can start to invite Community Participation.

Crypto applications are multi-sided marketplaces and their defensibility comes from Network effects.

Those Network effects create switching costs which allow for the possibility of charging a fee as long as the fee that's charged is less than the cost of switching to a new platform then the model is sustainable.

The concept of charging a fee for a service is nothing new but with crypto tokens, it's easier to move value, which means economic value can be given directly to the community.

It is important to think about how to design an effective incentive and Token distribution plan.

3) giving ownership of the product to the community

Crypto tokens are a new instrument for distributing value including a fee stream to a community of stakeholders.

What it means:

Imagine there's a smart contract that mints and distributes tokens as per the distribution schedule defined prior at the moment then the smart contract is triggered and those tokens are minted and distributed.

A number of exciting things will happen:

• The core team will have given control of the application from the company to the community so the product is now governed and owned by its users and that mitigates the risk of the platform changing against the rules, against the wishes of the community, they can now sort of make changes to the product that they agree on.

• The company will have found a sustainable business model by having retained enough tokens to benefit from the fee stream of the product and its growth in the future and similarly community members who are now part owners of the product will also start to be rewarded economically for their contributions and hopefully they will see increasing returns to scale as the cooperative economics of the service allow for continued growth.

• Finally, because the product is no longer dependent on the core team, it's possible that the token may not be considered a security which eliminates some of the regulatory overhead that comes with SEC Securities regulation.

So, the spirit of this objective is all about marking a specific moment when you call this smart contract where a crypto product completes its journey from a traditional product company to a sustainable community-owned and operated network.

Conclusion

If you're a crypto founder and you're ready to exit the community that means you've done objectives one and two and are on number three.

So you've:

• built a product that people want

• built a robust community around that product

• figured out a way to incentivise community participation to give them ownership

We haven't seen a crypto application execute on all three of these yet but there are a few that are well on their way.

That’s the playbook. Happy Learning!

Learnings from a16z lecture: Deep Dive Decentralisation by Robert Leshner & Jesse Walden.