The Search for True Decentralization: Why Aligning Interests Early is Key to Unleashing Blockchain’s Potential

Blockchain is one of the most disruptive technologies of the past two decades, going through several hype cycles before the metaverse and AI took center stage. By powering cryptocurrency, NFTs, DeFi, and web3, blockchain promised to usher in a new era of decentralization. However, a closer look at how most blockchain projects operate under the hood inevitably suggests that such decentralization is yet to become a reality.

Decentralization has always been at the center of the blockchain movement, which promises it is the key to ending the need for central authorities and intermediaries. However, it is important to note that “decentralized” projects existed long before blockchain, especially through P2P protocols and projects like Gnutella (2000), The Pirate Bay (2003), and BitTorrent (2001). It was this type of protocol that would come to popularize the term “peer-to-peer”, which Satoshi Nakamoto would later use to introduce Bitcoin through their 2008 whitepaper.

While the history of decentralized protocols is complex and their individual journeys differ between them, there are some similarities. These range from emerging as a response to authority to their heavy dependence on activism. However, one of the more paradoxical similarities is their reliance on centralized services.

A great example of the need for such services is The Pirate Bay, which often refers to itself as “the galaxy’s most resilient BitTorrent site.” Having been around for two decades, the site has become synonymous with P2P piracy, facing multiple takedown attempts by law enforcement in cooperation with organizations like the Alliance for Creativity and Entertainment (ACE). However, while it is decentralization that makes it possible for TPB and similar projects to still be active, the team has relied on centralized tools, technologies, and strategies to remain operational.

It is possible to argue that many blockchain projects are nothing like The Pirate Bay but closer to protocols like BitTorrent. This is something that Vitalik Buterin has pointed out when talking about DAOs and censorship resistance. However, this opens a new can of worms, shifting the discussion to the topic of governance and development.

The risks of faulty governance models are ones that blockchain entrepreneurs, developers, and analysts know very well. Most blockchain projects rely on governance models like DAOs in an attempt to give all users an equal say in decision-making. Unfortunately, as a means to ensure those participating in the governance have the best interest of the project in mind, this decision-making is often linked to token holding volume, which results in whales gaining unparalleled power.

DeFi researcher Thor Hartvigsen found back in February that some of the most popular DeFi protocols already are or will be controlled by whales in the near future. Other experts like Blockstream’s former Chief Strategy Officer Samson Mow have also pointed out that the ability of certain entities to modify DeFi protocols disproves their claims of decentralization. Whether it is whales dominating a DeFi protocol or individuals taking action against whales, the need to balance the interests of all parties without compromising decentralization is clear.

The Block’s Editor-at Large Frank Chaparro sat with Souq’s Co-Founder & CEO JonPaul Vega, Framework Ventures’ Principal Brandon Potts, and Parallel’s Co-Founder & Head of Game Design Kohji Nagata, to talk about ”Aligning Stakeholder and Protocol Interests.” The panel, which was part of this year’s edition of Grit Daily House at Consensus, touched on topics ranging from how to identify quality stakeholders to what proper decentralization looks like.

To learn more about how blockchain projects can become more decentralized by aiming to align their own interests and those of their stakeholders from the start, make sure to watch the panel on Grit Daily’s official YouTube Channel or the video below.