Progressive Decentralization: Building Crypto Applications with Community Ownership

Progressive Decentralization: Building Crypto Applications with Community Ownership

Introduction:
As the world of blockchain technology continues to evolve, building successful crypto applications requires careful consideration of various factors. In this article, we will explore the concept of progressive decentralization and its role in building crypto applications. We will also delve into the importance of product-market fit, community participation, and sufficient decentralization. Additionally, we will discuss Substack, a platform that enables writers to monetize their content by offering paid subscriptions.

The Importance of Product/Market Fit:
In the early stages of building a crypto application, achieving product-market fit is crucial. This involves assembling a talented team, adopting lean development practices, executing efficiently, and learning quickly. It is essential to focus on developing a working product that addresses a genuine market need. Without a functional product, ownership and community participation become meaningless. Therefore, launching a token before achieving product-market fit is not advisable.

The Role of Community Participation:
Community participation serves as a catalyst for the success of a crypto application. To encourage active contribution from the community, it is important to establish an economic incentive structure. One approach is to adopt a fee-per-call model, similar to API micro-services like Twilio or Stripe. By distributing the fee stream to active contributors, the community becomes aligned with the project's success. However, it is crucial to introduce fees only after strong network effects have been established to ensure defensibility through switching costs.

Sufficient Decentralization for Community Ownership:
For any successful application running on a blockchain computer, community ownership is essential. Building user-owned networks with a cooperative economic model ensures that crypto services remain aligned with their users as they scale. However, it is important to navigate the regulatory landscape carefully. Crypto tokens facilitating economic alignment may be deemed securities under the Howey Test, a regulatory framework utilized by the SEC. Nevertheless, post-network launch, if the network achieves sufficient decentralization, the nature of the token can transition from security to non-security.

Progressive Decentralization in Practice:
To achieve progressive decentralization, the core team must gradually cede majority ownership and control of the application to the community. This mitigates platform risk and ensures that the project is truly community-owned and operated. It is crucial to retain enough tokens to benefit from fees and growth, ensuring the sustainability of the company. Failure to formalize real community participation can lead to an apathetic community with low participation rates and excessive dependency on the founding team.