Progressive Decentralization

What is progressive decentralization

It is the concept that a project initially starts with centralised control in the hands of the Founding team and gradually, in its journey of growth, relinquishes control to the community and moves towards Decentralization.

Why is it necessary

The idea is quite simple: we must let go of the idea of decentralizing everything instantly, and instead think about how can we make new technology more intuitive and increase its adoption.

In the 0 to 1 journey of any project/startup, it is required to have an opinionated visionary approach to drive the team forward, avoid friction to onboard customers, do multiple iterations and establish a product market fit. To achieve the PMF the team needs a focused but open directive which is difficult to achieve if there are more brains driving it.

However, as the idea grows and more and more people buy into the vision, it makes sense to relinquish control gradually to the users, builders, stakeholders so as to not act in one’s selfish interest alone and thus, do more public good.

Stages of Progressive Decentralization

A16Z, a renowned Web 3 VC, has identified three steps to achieve progressive decentralization. They are:

Product – Market Fit
Community Building
Distribute Authority (Become a DAO)

Founder – Product – Market Fit

Every project in its initial stage should be treated as a startup that requires Founders will, focus and direction to take it to a level where it becomes self sustainable. In order to do that, the founders need to excessively reiterate on decisions, quickly pivot, start new processes, shut down some old etc. This requires a certain level of autonomy. The right way to approach this is to communicate to the community that the initial approach will not be that of complete decentralization and share information on how the team plans to progress towards decentralization.

Community Building

As the project achieves Product-Market fit, it is clear that the idea has picked up and there is some initial traction. The user base is growing and thriving. The next stage is to build a vibrant community around this idea. Why? Because, this community is a group of people who believe in your vision/idea and can contribute meaningfully by sharing inputs, fixes, new initiatives, product features, buying tokens etc. To incentivize the community to continue contributing meaningfully the foundation can provide dividends, airdrops(free tokens or coins), improve the token allocation towards the community, etc.

Distribute Authority

Now, we have the product market fit and a thriving community. The model is self sustaining, meaning the community continues to meaningfully contribute through the design such that the economic and governing systems are creating a win-win situation for all.

Now is the right time for the Foundation to relinquish further control over to the community by distributing more of its token shares, airdrops etc. The aim should be widespread token distribution. The product will then be truly community owned and will continue working for the benefit of the people, in true way.

How can Progressive Decentralization be ensured

The answer is really simple – by putting checks that

Avoid centralized behaviour and resistance to relinquish control from the Founders
Incentivize the foundation team to take measures that lead to decentralization eventually

A few approaches, if taken, will build confidence in the community that the foundation intends to move towards decentralization. The advancement to decentralization can occur as follows:

Block number based: When a certain block is mined, the foundation relinquishes its control to the community. This can be done in gradual steps
Usage based: The foundation relinquishes its control to the community, when a certain number of transactions are reached
Monetary Incentive: Design a process such that the foundation profits more with more decentralization

Some examples of where progressive decentralization worked is MakerDAO and Aave.