Decred Is Turning Its Entire $21 Million Crypto Treasury Over to Investors
If 2017 was a year when fundraising for decentralized protocols dominated headlines, 2018’s emerging narrative is about empowering investors.
From fits and starts on ethereum’s transition to proof-of-stake to Tezos’ launch, governance has been one of the persistent conversations in crypto this year. But for all the promise, one long awaited approach to blockchain governance will finally go live this week: Decred’s Politeia software.
As CoinDesk previously reported, Politeia builds on Decred’s existing approach of combining proof-0f-work and proof-of-stake consensus by attempting to turn over all governance decisions to those actively participating in the operation of its protocol at the time of any given decision.
Those who own Decred tokens (DCR) currently stake the coins in exchange for a chance to be chosen to verify blocks. (If they get chosen and do so, they get a payment from that block’s token emission.) Once Politeia goes live, though, people waiting for their turn at block verification will also be able to vote on Politeia proposals (though there’s no payment for that).
In a blog post shared with CoinDesk, Decred Project Lead Jake Yocom-Piatt confirmed the imminent launch, but he did so with a note of caution, writing:
“It is important to understand that Politeia is a very powerful tool: it can enable all manner of positive developments for Decred, but if used unwisely, it can lead to a wide variety of problems.”
In short, Politeia gives holders of the cryptocurrency a way to exercise control over every aspect of the project, meaning it puts the Decred treasury in their hands. That treasury currently holds DCR 570,000, valued at roughly $21 million.
The treasury is funded by a portion of new coins emitted with each block, so it’s constantly growing.
As Decred users start making proposals for expenditures and the community begins voting them through, Yocom-Piatt is going to initially maintain a veto power over expenditures. He’s told the community that he intends only to use these powers if a specific proposal puts the project itself or the legal entity that manages it into jeopardy.
His veto power will sunset in six to 12 months when control of the funds moves from Decred Holdings Group LLC, an organization he manages, to a smart contract.
“Once the smart contract replaces the corporate entity as the holder of the Treasury funds, there is no longer a legal entity to target with sanctions or other penalties that could result from certain stakeholder-backed actions,” he told CoinDesk.
More than Money
But Politeia is not limited to financial decisions.
It also opens up decision-making around how the organization that supports Decred works, how its staff is managed and even the fundamental consensus model that Decred uses. For example, Yocom-Piatt will also announce plans to put forward a non-treasury proposal to the community.
Specifically, he intends to propose defining how potential contractors will be vetted before they can start doing work. The process is meant to insure new contractors can work well with existing ones.
At the same time, he notes that it is important that Decred never becomes a way for the protocol’s whole community to micromanage its individual contributors, lest “we run the risk of turning staffing into a stakeholder popularity contest and driving voter apathy,” Yocom-Piatt writes.
Beyond that, though, the fact that a proposal is forthcoming on the process for vetting contractors illustrates a larger point.
As Yocom-Piatt put it to CoinDesk:
“Literally everything is on the table with Decred.”
Elsewhere in the announcement, the project sought to label the release as the start of a new era in the life of the young technology.
Yocom-Piatt compares Politeia to a hybrid of corporate governance and nation-state governance, but he exhorts his readers to avoid the pitfalls of either.
“Making good decisions requires a combination of understanding, intuition and long-term planning, and I hope to see stakeholders make decisions on this basis going forward. Bad decisions are often driven by ignorance, greed and short-term thinking, which we need to make an effort to avoid,” he writes.
Collective decision-making is always difficult, and Yocom-Piatt’s post delves into potential dangers, such as conflicts of interest, making permanent commitments to spend money that outlive their usefulness and event he temptation to turn authority over to elected officials.
Yocom-Piatt urges the community to keep the structure flat, roles loosely defined but expenditures tightly defined against milestones. As such, Decred’s boosters, like Placeholder’s Chris Burniske, look forward to a day when Politeia will be able to govern projects outside of the blockchain as well.
Others in the space are more cynical about the evolution blockchain governance so far. The creator of smart contracts, Nick Szabo, wrote in a famous tweet:
Decred seems to be aiming for the last option, but its founder seems realistic that either of the former always loom as possibilities.
With this deployment, Yocom-Piatt predicts:
“We can expand the scope of our work and engage more meaningfully with our users. There will surely be surprises along the way, so expect the unexpected and stay vigilant.”