The world of cryptocurrency has seen its growth accelerate tremendously in recent years. Significant advancements have come in the fields of decentralized finance, digital assets, and blockchain gaming, putting cryptocurrency near the forefront of public discourse and bringing interest and energy into the blockchain space. This phase of growth has created an exciting atmosphere that bodes well for continued innovation and the advancement of decentralization as an organizational philosophy throughout the world.
Unfortunately, that rapid growth in interest has also brought with it a number of challenges, primarily brought about by a culture of short-term thinking and value extraction. Focuses on speculative token value and malpractice by centralized entities in the space have brought heightened regulatory scrutiny and have stifled the progress of the many promising real-world use cases for blockchain technology.
These practices are supercharged by individuals with outsized influence, who have wielded their status to catastrophic effect while taking advantage of user trust. Unfortunately, despite the failure of several such projects over the last year, the underlying attitudes that led to those collapses still need to be addressed directly.
We believe that the solution to these problems can be found through the holistic adoption of a regenerative mindset in our industry. In this context, we refer to regenerative practices as those that provide more value to an ecosystem than they extract.
For all its promise of disruption and innovation, it is clear that major actors in crypto have brought along with them the very mindset and practices that the industry was initially conceived to address.
Sadly, crypto has adopted the same concept of “structural crookery” that infects most of our large institutions. A fundamental assertion of decentralization is that it is a better mode of organizing power, specifically because it protects against the systemic issues we see time and time again from centralized institutions.
The practices we see appearing in our industry reflect the fact that our incentive mechanisms are broken and do not incentivize actions that serve the common good. On the contrary, they largely promote a culture where the biggest winners are actors driven by self-interest, to the extent that causing harm to others in the space becomes a non-consideration.
The major collapses that we saw in 2022 are a feature of our current system, not a bug. As long as it makes more sense to extract value than it does to generate value in crypto, we cannot expect to see the adoption of regenerative practices.
As much as we all enjoy the “to the moon” meme that is embedded in crypto culture, it does speak to our industry’s unhealthy obsession with exponential growth. This thinking is, at least in part, a carryover from the conventional business world, where startups face relentless pressure to scale and generate massively increasing profits in very short amounts of time.
This mindset has been supercharged in crypto by groups and individuals looking to exploit the lack of regulatory oversight for short-term financial gain, to the absolute detriment of the industry at large. More often than not, these bad actors have no interest in the foundational ethos of decentralization and are by nature extractive in their intentions.
Even so, it still takes a large number of people in the space to buy into those narratives, which shows just how important it is that our industry grows considerably more discerning as it matures. It also highlights the fact that, as unwanted as regulatory overreach is, some regulation is necessary if the industry has any chance to rout out the most egregious violations.
Another widespread negative we see from this focus on exponential growth is the way it impacts perceptions of value in crypto. While speculative value is an issue in the stock market, regulation and the size of that market prevent the complete detachment of financial and real value that exists in today’s crypto industry.
This leads to a situation where the hard work of building products with tangible real-world value is not remotely favorable to those playing for quick gains; and causes a dearth of talent and attention in the areas where crypto could actually prove itself most useful to the world.
The need for growth and scale also affects projects that start off from a mission-driven place. Such projects often resort to centralizing resources in order to deliver a product at scale, sacrificing their mission in the process. This illustrates the fact that individual actors cannot take regenerative actions within the confines of a system that incentivizes and rewards extractive behaviors.
The framework that exists for traditional startups and venture capital emphasizes rapid growth and scale at all costs. Of course, this does not leave much room for building with a regenerative mindset, which requires slower, more intentional development. Ultimately, this means that the answer to many of crypto’s woes comes not from advancements in blockchain technology but from an industry-wide shift in mindset.
This mindset shift also repositions us to take full advantage of the strengths of the blockchain. Decentralized systems in general are not optimized for speed and efficiency of execution: rather, they are optimized for resiliency. It’s important for our industry to embrace this, and to make sure that expectations align with this reality.
Transparency is one of the biggest value propositions of public blockchains. Through transparency, shared information, and the concept of consensus, we can build systems that, at a bare minimum, are more accountable than private ones.
The worst examples of extractive behavior in crypto have come from centralized actors who have operated without transparency in their processes. We can see examples of these behaviors in the recent, high-profile collapses of Celsius, Three Arrows Capital, and FTX.
Quite contrary to the ideals of decentralization, these organizations were driven by the decisions of a small number of individuals who painted a public picture of their organizations that were far away from the reality of their operations. Though there were some people sounding the alarm on different aspects of these entities, their apparent success created a false sense of security for the people utilizing them. Widespread critical assessments only came with the benefit of hindsight, after users had already suffered significant harm.
We want to see the industry continue to grow in its capacity for due diligence and mitigate the actions of individuals through wider decentralization. At the very least, the increased scrutiny that comes along with transparent organizations makes operational malfeasance much harder to carry out.
Cryptocurrency gives us not only the ability to tokenize ownership and power but also the ability to build economic systems that can exist in a space outside of the grasp of those past institutions.
We now have the technology to economically represent, as a token, pretty much any asset that people care enough about to participate in. This allows tokens to be a powerful tool in our endeavor to create incentive structures that serve a common good, as opposed to our status quo incentive structures that reward a few by extracting value from many.
Tokens also allow us to create powerful incentive mechanisms that have the ability to scale over time. By designing incentives to work with human nature and not against it, we unlock an incredible ability to grow while still working within a regenerative framework.
A prime example can be seen in Bitcoin. The global propagation of Bitcoin has been aided by the fact that people will do what benefits them more often than not. In the case of Bitcoin, the more people have Bitcoin, the more valuable it becomes. This is a beautiful alignment of incentives between the protocol and its users.
That’s not to say that tokens don’t present their own challenges of course. Both the lack of regulatory clarity and the current size of the market leaves plenty of room for the manipulation of token prices by token issuers and third parties alike. Naturally, this separation of token value from real value was most evident during the bull market, but such habits are likely to persist in the future without significant redirection.
The incentive for token issuers to operate in this way only exists within the framework of maximizing financial gain as quickly as possible. Through the lens of regenerative thinking, token values would be more tethered to their utility, in the way that traditional stocks are tied to the performance of the companies issuing them.
In pursuing a regenerative mindset, the question remains: What practical steps can we take in order to begin this paradigm shift in our industry? We believe that DAOs are an important part of the answer.
While DAOs are a new enough concept that their definition highly depends on an individual’s perception of them, they are, at their core, a framework for groups of people to share ownership and accountability, and to make decisions for their collective benefit.
More often than not, the centralization of resources and decision-making power leads to adverse outcomes for people without that access. Indeed, the levers that individuals have to impact the operations of centralized institutions are limited by design.
Part of what DAOs can offer their participants is better security against negative outcomes by decision-making through consensus. Without the influence of a central decision-making authority, we can expect to see decisions better reflecting “the greater good” within any organization or community. Additionally, the dynamic nature of DAOs allows members to opt in or out of participating as they see fit.
In a traditional company, the biggest drawback to gathering consensus is how it slows down decision-making, impacting companies’ abilities to move quickly and efficiently. Luckily, our regenerative mindset calls for us to slow things down in order to build more resilient systems. From this vantage point, the consensus-forming that DAOs allow is a major strength, not a weakness.
No matter the industry, we can see a repeating pattern throughout our society where technology and convenience have accelerated faster than our social ability to manage those things responsibly. This manifests itself in an institutional codependency that, while making aspects of life easier, perpetuates harm in a number of ways.
The United States is arguably the leading example of this, with a majority of homes reliant on centralized supply chains that provide our water, power, and food. The negative effects of these institutional grids are often so subtle that they can only be viewed with the benefit of hindsight. There’s no better example of what we stand to lose when we sacrifice sustainability for immediacy and convenience than the effects of climate change, which are the biggest existential threat we face today.
In order to embrace the regenerative mindset, we need to ensure the health and longevity of our industry and be honest about the challenges that come with it. It’s similar to moving from a suburban house on the grid to an off-grid home or homestead. It’s highly unlikely that an individual would make such a move with the expectation that they could reap the benefits of leaving the centralized grid without considerable effort on their part to replace the function of the grid in their life.
This is the approach we need within cryptocurrency. We want our organizations to be more transparent, more equitable, and more sustainable than the institutions we intend to leave behind. However, we can not reasonably expect to do so while retaining the convenience and speed of execution that we have come to expect from those institutions.
As Decent Labs has transitioned into Decent DAO, we have seen firsthand the challenges that come from relinquishing the operational framework of traditional companies. The upside to this is that it puts us in a position where we must commit to creatively reimagining the necessary elements for these off-grid organizations to thrive.
While this approach takes a lot of work upfront to enact, it helps us create organizations that can truly stand on their own.
The status quo sees traditional start-up organizations as hierarchical rocket ships, whose goal is to grow as fast as possible. Participants in these organizations rarely share in the equity and responsibility that comes with ownership. As a result, participants are incentivized to help grow these organizations as big and as fast as possible, and to simply get out and move on before it crashes.
Through the sharing of equity and decision-making power, we can truly empower participants with a level of ownership that incentivizes them to grow sustainably in a way that benefits everyone over the long term.
A critical function of Decent’s DAOification efforts is to ensure that we are building these regenerative practices into the fabric of our venture studio. This shapes exactly how Decent is going about the work of creating successful, standalone ventures, as the brute force, volume-based approach of traditional venture studios does not lend itself to sustainability.
The concept of redundancy of resources is important to Decent’s overall drive to build a resilient protocol. This means rethinking and diversifying the ways by which capital comes into the ecosystem beyond fundraising and sales.
Putting tokens on the market is one way, as it allows people to buy into a protocol at any point as opposed to during limited rounds. Of course, raising funds at this time comes with other limitations. For one thing, clarity of regulation is imperative before tokens can be treated as a stable investment vehicle. Volatile price movements are another major challenge, although as previously stated, these can be mitigated over time as token prices sync up better with real-world value.
Another example of this diversification is the replenishment of the DAO treasury by doing paid work for funded projects. This effectively subsidizes the resources that are going towards building new ventures.
This is a practical example of Decent choosing sustainability over speed. Importantly, even if it takes a longer time to launch ventures, we believe that doing things this way vastly increases the timeline that we have to do so successfully with the goal of longevity.
One of the foundational visions of Decent DAO is that we are far more builder-friendly than a traditional company. This is one of the ways that Decent is embodying its mission to restore power to individuals by accelerating the decentralized future.
We recognize the benefits that tokens can provide to the builders that contribute to Decent. For one thing, granting our builders equity through tokens is significantly more transparent and harder to dilute than traditional shares. Equally if not more important is the governance power that tokens can provide. Through a single asset, we are able to offer our contributors a much larger stake in what we do.
In this way, we can empower our contributors to really drive the future of Decent, while ensuring that they are fairly compensated in the process. We believe that by truly allowing people to benefit from the work they do, they feel much more motivated and responsible for that work. This is a win for the organization and the people that make it run.
It’s important to note that operating as a DAO does not mean throwing out all the practices of a traditional company. There are many things that companies do very effectively. Deciding what decisions are best made through decentralized consensus is a process that all DAOs must go through, and there is no one-size-fits-all approach.
The contributor model that Decent DAO uses is also a positive alternative to traditional employment, in that it provides the flexibility to expand or contract as needed and in a way that's consensual and understood by everyone participating. This elasticity means that Decent doesn’t have to worry about the violent contraction of employment that often accompanies the rapid growth and scaling of traditional companies.
A good rubric to test whether or not crypto is moving in the right direction is its impact on industries outside of itself and finance. Building crypto projects that have to interface with the real world inherently causes us to slow down and analyze what actual value is being provided.
In taking a more honest approach to what is being built, we must recognize the difference between products that are useful and products that simply represent a money-making opportunity. Our industry needs to do a much better job of organizing talent and attention in the areas that provide value.
If cryptocurrency can bridge that gap between understanding economics and understanding governance, and bring it to people who are solving really important social, environmental, and ecological problems, then we can make an impact on the world that’s a lot more meaningful than simply upgrading the finance industry.