The Arc of Decentralization
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May 23rd, 2022

The Decentralization Series: Part Three

Start with Reverse Engineering

Being optimally decentralized is about creating resiliency by sustaining a protocol in a state of sufficient decentralization. Protocols achieve this steady-state by initially iterating and balancing control, funding, and community development to eventually emerge with a decentralized workforce and governance framework. Both of which work towards sustaining the objective of the protocol.

But how do you get there? What are the paths to becoming optimally decentralized?

The answer involves balancing control, funding, and community development change over time. Ideas come from a person or team, meaning the initial development and implementation will be centralized, focusing on control. However, there are many ways an idea could manifest into a protocol and then become optimally decentralized. This post demonstrates this by introducing a mental model and two generalized routes to optimal decentralization.

The Triangular Mental Model

A mental model is created by placing the control, funding, and community components into a triangle. Then, a protocol would represent a unique weighting of these components at any point in time.

Diagram 1: Triangular Mental Model
Diagram 1: Triangular Mental Model

In the above diagram, the first triangle represents the mental model. The second triangle includes a black dot representing a protocol, where the distances from the vertices represent a form of weighting.

For instance, a point on the control vertex would represent centralized control with no consideration for funding and community, which would occur at the beginning of the protocol as an idea from a person or team.

The gray-shaded region in the second triangle represents the set of component weightings representing sufficient decentralization. Finally, the third triangle includes a green-shaded circle representing optimal decentralization.

Therefore, the protocol in this example is sufficiently but not optimally decentralized - so not quite at its destination - implying that the emergent decentralized workforce and governance framework has not quite got the protocol in a steady-state.

Two Routes

Any arc to decentralization starts at the control vertex because ideas come from a central point (putting aside ‘Multiple Discovery’). Two routes transpire by intersecting combinations of the abovementioned components with the protocol stage of life.

Four stages can describe a protocol’s life cycle:

  1. Control (C): named after the control vertex/point where it all starts.
  2. Launch (L): the project is deployed, attracts funding, and develops a community.
  3. Growth (G):  the project develops into a protocol gaining traction.
  4. Decentralization (D): protocol decentralizes with an emerging workforce and governance framework.

Of the four stages, Launch is the most important, as it sets the initial conditions for the two generalized routes:

  1. The VC Route
  2. The Open Project Route

The VC Route

Diagram 2: The VC route to decentralization
Diagram 2: The VC route to decentralization

Venture capital firms fund the founding team in the VC route. They develop their product or service with an initial customer base. So, when the project launches (Diag. 2: left triangle), it does so into this base - with no community contributors or engaged operators.

Growing the project (Diag. 2: middle triangle) does not require too much funding, but the struggle to develop the community becomes evident. Forming the community to attain optimal decentralization (Diag. 2: right triangle) is the most challenging aspect of the VC route.

The Open Project Route

Diagram 3: The Open Project route to decentralization
Diagram 3: The Open Project route to decentralization

The founding team in the Open Project route immediately shares the ideas and initial development with a community of developers and contributors. The project is open source and creates a community with an emerging culture through word of mouth, where the community supports the project at launch (Diag. 3: left triangle).

The community continues to expand in the growth phase, but infrastructure and funding are required for contributors to move from part-time to full-time (Diag. 3: middle triangle). This phase is the most challenging, as the emergent workforce and governance framework make funding difficult because funding is a centralizing function. However, following through to optimal decentralization (Diag. 3: right triangle) is easier with the money in hand.

Conclusion

Using the triangular mental model, protocols following an arc of decentralization can now map their route using something between the VC and Open Project route. Knowing where the project is in its lifecycle and mapping it against the control, funding, and community components shows the direction of the protocol’s momentum. Furthermore, it highlights the challenges the protocol needs to address.

But, there is a fourth component to consider - regulation.

Every protocol offers either a product or service to people, and we exist in a social framework with laws that manifest in this context as regulation. Therefore, understanding how to decentralize lawfully is essential to providing accessibility to the total utility and value of a protocol.

Consequently, the topic for the next – and final – post in the series will outline the compliant arc of decentralization.


Read Part One
Read Part Two

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