Jeffrey Amico, Counsel at VC agency Andreessen Horowitz, notes that cryptocurrency protocols are presupposed to be ruled by these so-called “decentralized” communities of stakeholders.
Amico explains that it’s not essentially the case that decentralized communities are extra environment friendly, or “vital” for varied ideological causes, however that it’s essential to “unlock their core worth proposition.”
In accordance with Amico, the principle worth prop of decentralized communities is that the underlying protocols will maintain operating as designed or envisioned, and can stay open to anybody eager about utilizing or constructing extra options on prime of them, with out having the fundamental guidelines change “underneath their toes.”
Amico additional explains that Bitcoin (BTC), the flagship cryptocurrency, is the unique “embodiment” of those concepts or ideas, and helped create the very first (broadly adopted) Web-native cash “at scale.”
Nevertheless, Amico believes that these ideas are “equally relevant (and beneficial) to different varieties of open monetary primitives,” similar to borrowing, lending, and buying and selling. Whereas the precise purposes could differ from one platform or resolution to a different, the requirement for so-called decentralized “governance” stays the identical, Amico claims.
For crypto or blockchain startups, transitions in direction of “neighborhood governance” might be fairly difficult, and lift difficult points associated to ongoing growth, voter participation, and incentive alignment between the completely different stakeholders, Amico added. Nevertheless, they’re “in the end needed” to ensure that these open-source protocols to “transcend” their unique builders and supply long-lasting worth as “open” monetary infrastructure, Amico believes.
As dedicated stakeholders in these decentralized networks, the group at a16z or Andreessen Horowitz needed to develop on how they “assume” about crypto-related governance, and the way they see their position on this nascent area shifting ahead, Amico famous.
“Our major goal [at a16z] in governance is to create the circumstances needed for protocols to attain long-term adoption and self-sustainability. As a normal precept, we imagine that protocols that obtain better decentralization alongside sure key dimensions — voting energy, growth work, financial upside, and so on. — usually tend to attain this final aim than these that don’t.”
That’s why the group at Andreessen Horowitz goals to focus their governance efforts on these tasks which have “the impact of accelerating decentralization in these key areas,” Amico added. He additionally talked about that the corporate believes that that is the “highest-leverage” method for them to participate in these initiatives and is “extra more likely to hasten the transition of the underlying protocols in direction of long-term sustainability than some other strategy.”
Whereas sharing some examples of one of these strategy, Amico famous that there’s delegated voting, the place in the course of the previous yr, the corporate has seen “vital innovation in token-based governance fashions amongst main crypto purposes.”
“Probably the most vital new options to emerge is delegated voting, which permits token holders to switch their voting rights to others in order that these delegates could extra actively take part in governance.”
Amico additional famous that a16z has seen “robust” supporters of delegation and “view it as an vital device to extend the general range of views in governance, to cut back the focus of voting energy throughout the community, and to extend general engagement all through the neighborhood.” That’s why they determined to “decide to delegating a good portion of our voting energy in networks” similar to Compound and Uniswap to “a variety of certified contributors,” Amico defined.
Amico additional famous that many open-source or decentralized protocols at present possess appreciable monetary sources as a part of their “on-chain” treasuries. These treasuries characterize “a robust device that can be utilized to fund ongoing growth from the neighborhood and set the protocol on a path in direction of long-term sustainability,” Amico claims.
“[The team at Andreessen Horowitz] helps governance initiatives (similar to grant packages) that look to strategically deploy these funds over time, and imagine they’re useful [because] they permit a protocol to leverage an immense quantity of third-party developer expertise and sources around the globe, far better than anybody firm or developer group might deliver to bear.”
“[This approach also] creates a significant financial alternative for a wide range of individuals around the globe who would in any other case not have entry to this work, or could be compelled to do it without spending a dime. And at last, they scale back the diploma of reliance on the efforts of the unique growth group, which can in flip scale back regulatory danger for the protocol in sure key contexts.”
As an example, Uniswap token holders are in a position to management an on-chain treasury valued at greater than $7 billion (vesting over the following 4 years), Amico famous. He added that these funds could also be used to incentivize or reward actions similar to “fuel optimizations for the underlying protocol, or integrations with different apps, or new front-end interfaces, and even advertising actions designed to spice up development.” They might even be used “to fund protocol delegates to additional decentralize the governance course of.”
He additionally talked about:
“[Andreessen Horowitz is] excited to assist the creation of a proper Uniswap grant program final yr, and look ahead to supporting related efforts to incentivize neighborhood engagement in different protocols as nicely.”
The VC agency additionally believes that token distribution fashions that “reward bonafide early customers and contributors are more likely to create extra engaged communities, and due to this fact extra sustainable protocols,” Amico famous. He defined that “these are the varieties of customers and builders who add worth earlier than a protocol achieves actual community results, and even has a lot inherent utility.”
Examples embrace the early adopters and liquidity suppliers on Uniswap and the early utility builders who created varied options on prime of Compound, Amico famous.
“We imagine that these are the varieties of customers who’re more likely to be the perfect long-term stewards of the protocol. Whereas any token distribution mannequin should take into consideration regulatory concerns, we typically imagine that efforts to reward a lot of these early adopters are more likely to place a protocol for long-term success, and we glance to assist them wherever potential.”
“Protocols that obtain significant decentralization usually tend to acquire long-term adoption and sustainability than these that don’t. Whereas the potential design area of governance is very large, we stay guided by this fundamental precept, and assist initiatives that we really feel embody it.”