The Path To Decentralization
The arrival of web3, future governance of DAOs, real-world usages of blockchain, and the calls to out-compete Wall Street with fairness.
This is an opportunity to build a resilient, borderless, and permanent infrastructure for the new digital world that creates trusted bridges between the physical and the metaverse.
It will address a lot of the early problems in Web2 and some of the antiquated thinking behind centralization that governs it.
Web3 is open-source and designed for global coordination unlike anything we’ve seen. Its structure is antifragile, participatory, trustless, and decentralized.
This won’t replace Web2 but add a layer to the Internet that strengthens it and makes it increasingly real as people spend more time in the digital world.
We’ve never recreated something as seamless as cash for the internet. We don’t have true and secure digital ownership and there’s a lack of democratic rule and visibility over governance.
What web3 offers is paradigm-shifting with DAOs, trustless systems, ownership, identity, consensus, and an open footprint. Web3 rethinks governance, financial models, organizations, and ownership, and that scares an unequal world.
We cannot approach web3 with the thinking of anything that currently exists in web2 or you won’t comprehend it.
The decentralized web takes decision-making away from top-down hierarchies to build everything openly on protocol consensus at the speed of trust.
We’re relinquishing control and the speed that comes with centralized responses to updates, bugs, and new features, for resilience and permanence.
With enough eyes, all bugs are shallow in open-source, and working with multiple teams, tests, implementations, and consensus secure the permanence of creations.
These communities are discovering the playbook for decentralized coordination and it may never achieve the same efficiency, but it will certainly have a better framework to follow.
Consider the evolution of how collaborative comms transitioned from Reddit to Slack, to highly efficient Discord channels, to see how the space is learning. It’s not unlikely that we’ll find a battle-tested and cohesive playbook for those that stand on our shoulders to follow.
A tokenized community needs to provide financial remuneration to fund the builders, but it has to be deeper. It has to be built around shared value systems and visions.
People are aligning to community pledges, research, and the genuine opportunity to architect a new world that enriches people. There’s a huge demand for good documentation, signposting, middleware, and concerted efforts to increase the magnetism of these spaces by unpacking the deeply technical for the non-crypto natives.
This is a generational opportunity to do something novel and change the world. Web3 is the free realm of possibility for builders that can rethink the playbook.
Lockdown measures during the pandemic drew agricultural supply chains increasingly under the lens. After analyzing the journey from farm to fork, it’s painfully clear how compromised and leaking the infrastructure is.
Agricultural supply chains have an enormous amount of middlemen, a dense fog over the process, and a serious delay in sharing information.
As a result, almost half (40%) of the global food produced is never consumed. 1.2bn tonnes of food (15%) are lost before it even leaves the farm and a further 25% is wasted across supply lines.
Farmers are the biggest victims and have a complete lack of visibility or traceability over their produce, its journey, the wider market, prompt payment, or access to a durable system of record.
Typically, they will be forced to sell their produce within 15 to 30 miles of their farm and for every cup of coffee sold they will make two cents to the dollar. The rest of the funds are absorbed by the middlemen and supply chains.
The fate of farmers can be determined by the weather, the buyer’s promise, the quality of produce, and a host of other factors. In remote areas and less developed economic countries, many are unbanked, contractually unprotected, and lack the ability to secure financial independence.
There was an ethical, sustainable, and efficient demand for accountability, true transactions, and traceability across the agricultural supply chain.
By leveraging blockchain we can bring transparency, visibility, and connectivity to farmers that are otherwise locked into trading with uneven terms. Companies like GrainChain seek to equip them with a sword and shield. To create solutions like Trumodity, their flagship blockchain transaction platform that provides a defensible position of proof and guarantees payment.
It gives farmers, banks, auditors, insurers, landowners, and buyers the ability to create smart contracts on a very simple platform in an accessible way, by asking questions that they know the answers to:
The journey from farm to fork is filled with misinformation and more is sold than actually produced. By integrating IoT with blockchain we can quantify, verify, and paint a visible truth of reality and start ensuring no more waste.
GrainChain is able to pool machine-generated data from the plant, their tanks, scales, the journeys, products bought, and other sensory systems across the supply line and farm, and pull it into the blockchain to remove the human point of failure in recording information.
A farmer can show up at a drop-off point at 11am and be paid by 2pm on the blockchain. By verifying and replacing the data that would usually be constructed by people, paperwork, and banks.
Buyers know where their product came from and farmers know where it’s going. By 2050, it’s anticipated that we will be supporting a global population of close to nine billion and we will need a sustainable, antifragile, system to supply them.
Klaus brings over a decade of experience and consensus research on blockchain privacy and security to discuss the ethics, risks, and solutions to fairness in DeFi.
Can an intuitive understanding of something as uniquely individual as fairness be universally bottled and deployed, when even the technical definitions of the topic are over-defined?
As the DeFi environment matures and institutional adoption grows, so does concern over miners' extractable value and the guarantee of order fairness. The risks associated with MEV have provided ammunition for Capitol Hill and Wall Street to criticize the validity of cryptocurrency as a legitimate financial alternative. Arbitrage bots used in front running across blockchains succeeded in siphoning $107m in 30 days on DEXes.
The very nature of decentralized exchanges makes front-running possible and this is something that will continue to discourage Wall Street traders and talent from moving into the space.
Because DEXes are not controlled by a single authority, all incoming, pending, and completed transactions are openly visible for compromised validators to move against. Michael Lewis’s fictional traders of Wall Street became a robotic reality on DeFi.
It’s a reality that’s shared with Wall Street’s high-frequency trading, however, it’s compounded on DeFi because:
If we leave networks to total anarchy people will play by their own rules and not the wellbeing of the community. We need some policies and protocols, especially for extractable value.
One challenge is the risk of compromising the validator economy when you anchor rewards to auctioning rulings. A fixed salary or performance-based salary for validators could counter this.
A lot of participants involved in validation can create an illusion of diversity, but they could be weighted to the same software, country, communities, and larger companies. Adding properties to the staking mechanism and monetary incentives will encourage the spread of diverse locations and people to encourage fairness.
An anti-whaling rule to ensure no one person can become too big or powerful. A diversity rule to prevent companies, groups, communities, and geographies from being over-represented.
This can be done by baking it into the consensus layer, or through economic incentives. Those that only care about front running are beyond the latter. Those that rely on MEVs are the equivalent of judges fencing off their prison sentences.
Klaus introduced Vega Protocol’s recent pre-protocol towards fairness, Wendy, its theoretical framework is discussed at length here.
Wendy is agnostic and a counterpart to Casper which can be glued to blockchains to include certain fairness rules. Every smart contract or market could define its version of fairness and decide on its inclusion.
By collecting transaction data Wendy functions as a filter between the blockchain and mempool to scrutinize fairness and prevent front running. We’re talking of delays down to a 200th of a second to restore fairness.
It's a common misconception, and seldom the case, to view DAOs as monolithic or binary. We have to avoid positioning decentralization and centralization as counterweights to each other and start seeing them as a gradient. There are aspects of decision-making that benefit from both.
Ethereum is open-source and brings a default level of transparency and accountability with the physics of the environment, but this becomes convoluted in the splintered channels that decision making is achieved through - be it Telegram, Discord, or various tunnels in and off the community.
We need clearer trackability and visibility to foreground some of the hidden relationships that can exist within a DAO. The more on-chain the better. You can join each dot stretching back years to track and analyze every historic decision and evolution. It removes the vaults of tribal knowledge encountered in traditional orgs that give unreliable power to individuals to construct history, decisions, and their reasons.
You only have to look at the rise of NFT ticketing and digital twins to see how the lines between online and real-world social constructs are blurring.
Entire economic systems are incubated within virtual worlds, where assets are created, manufactured, and transact between DAOs. The interoperability of this universe means that unicorns - and bigger - will exist and be governed entirely in the metaverse.
These powerful, trustless, environments that thrive in adversarial conditions have built a new foreground in the collective space where introspective objects have real mass. Look past the interfaces and token designs and you will see collective organisms with the blood of money and mixed anatomy of cohesive expertise that are far beyond anything we can evolutionary comprehend.
Reject immovable structures and ring-fenced governance, but stop fearing hierarchies. Consider that the sun is naturally bigger than the earth and someone with 20 years of experience in quantum physics will naturally be more knowledgeable and influential on the subject.
Leadership is both valuable and inevitable and the conviction, competency, and expertise of characters will form the structures of DAOs. If it adds collective value it should be encouraged and ideally, DAOs will operate fluidly to complement organic and interchangeable hierarchies that allow the person that knows what to do next to govern.
The most important paradigm-shifts should be more diffuse in their decisions. However, every decision doesn’t need community-wide participation and delegation to smaller enclaves of governance, providing they move at the speed of trust, is necessary to scale a DAO.
Should we shy away from token weighted governance and look at reputational-weighted governance that decays with inactivity? Recognizing inactivity recreates the natural churn of an org and recognizes that the best people often join an org later in its lifetime. Anchoring governance to reputation, value, and activity would encourage those with the most value right now to command the most influence.
Crypto communities can form around ideas, geographies, celebrities, and fandom. They convene around a shared belief system and the idea of value that shapes these spaces and that evolves into a DAO.
Whether you’re intentional or not, a realized culture is inevitable. It’s important in something as fluid as DAOs to be purposeful in defining the values and reasons that create the currents it travels on.
The mechanics of the smart contract, its function, and the social constructs around them will naturally influence culture. However, communities like 1Hive, go further and have a covenant or pledge that unites members within a rule of order.
We also see that culture is cemented in the DAOs where initial members stay the longest as people are attracted to those that are equally driven by the same things. DAOs can start with leaders helping architect the space and progressively decentralize to community design.