On Optimal Decentralization
April 13th, 2022

The Decentralization Series: Part Two

Recall the Starting Point

Previously, our post - “On Being Sufficiently Decentralized” - stated that technological decentralization and self-sovereignty are the ingredients for a protocol or application being sufficiently decentralized. But, it is not a natural steady-state; it has to be maintained.

Reaching the state of sufficient decentralization is one thing, but maintaining it requires much work. Creating the right environment and framework to sustain this state is what Optimal Decentralization is all about.

NOTE: For this post, ‘protocol’ refers to blockchains and decentralized applications.

Creating the Right Environment

Sustaining sufficient decentralization requires a framework of independent contributors fulfilling core responsibilities for the protocol. It also requires a governance structure appropriate for the type of protocol and community.

The framework of independent contributors is better known as the Decentralized Workforce that works alongside the governors of the protocol, referred to as Governance. How these two groups emerge to contribute to a protocol will determine its sustainability.

Governance and the Decentralized Workforce are emergent functions from the protocol’s developing and growing community. The question is, how does this happen? How does the protocol create the right conditions for a Decentralized Workforce and Governance to emerge from the community?

The answer requires first looking at community development and then the components that help create an optimally decentralized protocol.

It’s All About the Community

The protocol’s ethos, values, and objective create the North Star that brings a community together. For example, permissionless decentralized blockchains (such as Ethereum) already have a philosophy of self-sovereignty and freedom that most protocols incorporate. Consequently, the protocol’s objective is around how it will manifest that philosophy through its product or service.

A community that successfully develops Governance and a Decentralized Workforce generally does it on the back of a simple, well-understood objective supported by a singular product or service.

But, it also includes understanding how the community fits into the big picture represented by the balance between three operational components that determine optimal decentralization:

  • Desired control (Control)
  • Required funding (Funding)
  • Community involvement (Community)

Striking a Balance

The founders, the initial team, and the developing community need to understand the abovementioned components and the appropriate balance to succeed. However, that requires elaborating and understanding the trade-offs between the components.

Desired Control (Control): Refers to the level of control that Founders or Funders wish to have at each stage of development. Centralization provides efficiencies through coordination and allocation of resources - but lacks resiliency.

Required Funding (Funding): During the early stages, a community contributes to the protocol for free. But at some point, people will have to be paid, and raising funds for a protocol is a centralizing activity.

Community Involvement (Community): A protocol witnesses its community developing from passion and alignment with the North Star of the project—a group of people contributing to the objectives in their spare time, basically as free labor. But, this won’t last; as previously mentioned, eventually, people will require payment to contribute or service aspects of the protocol.

Image Courtesy of Future
Image Courtesy of Future

The Trade-Off for Optimal Decentralization

A protocol needs to establish a balance between the abovementioned components during the stages of its development. For example,  a protocol that is too centralized because of funding or a desired level of control will lack a built-in resiliency or engaged community. On the other hand, being too focused on the community leads to a lack of coordination that could potentially not bring in the initial funding or future revenues from the protocol.

Striking a balance between the components creates a foundation to establish a bespoke Decentralized Workforce and Governance within the community. Furthermore, it also provides the protocol with the required versatility to adapt, and remain sustainable - to become optimally decentralized.

Read Part One
Read Part Three

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