The Path of Decentralization: A Spectrum with 4 Stages

Decentralization is not binary. It's actually a spectrum with 4 main stages.

Almost every dapp starts at the "autocratic" stage 1. What's important is to assess team-efforts to walk the path of decentralization.

Here are some remarks 👇

article: https://t.co/dzwMOi08OM

👇 pic.twitter.com/sMYFbPQykh

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

Stage 1 is an autocracy. The team has near complete control with little to no checks and balances.

While this seems wrong for a "dapp" (it is), it's a highly efficient stage to build MVPs and deliver to try to reach PMF.

In tech, being slow often mean being ded. pic.twitter.com/0UC9gUUQ8L

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

In stage 1, your token, if there's any (better if there's none tbh) is a fan club ticket. You're invited to smile & sit on the benches, all decisions are taken without u.

if there are governance theaters at this stage governance look like this 👇 pic.twitter.com/PVejSaijsF

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

Stage 2 is an oligarchy, often the early stage after funding rounds.
Token supply is concentrated in a few hands of early investors.
This is the early stages of decentralization

This stage is meant to build the foundations of stage 3

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

Stage 2 is also an equilibrium between decentralization but "not too much" that allows high efficiency. That's why staying there might be attractive.

token start to have value as a gov token but it's often an uphill battle to beat vcs

At stage 2, governance looks like this 👇 pic.twitter.com/PAm3Y57HB1

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

How do we move to stage 3?

The answer is simple but hard to implement:
-find PMF & achieve DAO revenue
-implement a DAO culture & welcome delegate platforms
-implement robust DAO frameworks
-fight voter apathy
-use DAO revenue to dilute team work with DAO service provider work

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

Stage 3 can happen only if the token supply is sufficiently distributed to dilute the oligarchs of stage 2.

This usually happens with early investors exit and with distribution (airdrops, LMs, staking revenue)

oligarchs delegating to (at least a bit) independent delegates helps

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

Stage 3 is mature DAOs. It's a liquid representative democracy.

Protocol has healthy revenue. Most work is done by service providers working for DAO directly and paid by it.

Decisions are taken by chosen representatives that can lose their voting power if they suck (liquid).

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

Rules are clear, there are frameworks in place, and governance is transparent and predictable (even if debate can exist)

This is the stage where "excess" protocol revenue (once expenses covered) should be distributed to token holders having an active role

no one is stage 3 yet.

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

It's important to note that even if, as a Frenchman, I do love guillotines, migrating from one stage to another should not be a "coup" but instead a healthy dilution process.

The monarch's power & work are diluted by the oligarchs, and the delegates dilute the oligarchs.

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

What is the current state of DeFI?

Few are still in stage 1, most are in stage 2, and the bests are late stage 2 (Maker & Aave) at the doors of stage 3.

No one is in stage 3 yet, but I have good hopes for 2023. pic.twitter.com/wplu0g6ecv

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

To achieve stage 3, Aave DAO needs a more precise set of frameworks and half a dozen "ACI" that actively contribute to the protocol.

Also, excess protocol revenue should start to be distributed (Real Yield) to safety module stakers.

GHO & Portals will get us there.

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

what about "direct democracy"? And ppl voting directly instead of delegates?

Direct Democracy is a dream from Athens, the other truth about Athens is that citizens were the 40k free males that were doing this while slaves & women did all the work. pic.twitter.com/cScbpX5VGg

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

Is there examples of protocols taking the reverse direction?

I can think of 2

Uni V1 was stage 4 (stateless), and V3 regressed to stage 2

Yearn started as a messy stage 3, and reverted to stage 2 then 1 with the last vote organized in Sep 2022. the team took back full control.

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

Wat about Stage 4?

It's the "holy grail" of decentralization and very complex to achieve.

Either fit for fully mature projects or laser-focused ones on a small "defi lego brick."

Just as it's hard to go without a state, it's naive to think we write perfect code on first try.

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023

Who are stage 4?

Well, LUSD, Bitcoin & Ethereum. That's pretty much it IMHO.

there's a thick brick wall between stages 3 & 4 for many reasons.

the current focus should be to achieve stage 3 for now.

— Marc Zeller 👻 💜 🦇🔊 (@lemiscate) April 3, 2023