Decentralisation will disrupt many industries

This is not the typical post that says Blockchain is great and its going to eat the world. Blockchain has some serious issues but more and more of them are being solved. The disruptive nature is actually not Blockchain but because regulation is obliging companies to be decentralised, a very disruptive type of company is being born, decentralised autonomous organisations or DAOs, and they are taking the world by storm.

Unlike current companies who are optimising value for shareholders, decentralised companies are non-profit organisations or foundations. They cannot make any profit and as such there are no shareholders that are trying to optimise the company’s value. Instead the foundations are optimising total value locked by the smart contracts governing the DAO. Translation into human? The foundation creates a protocol or solution for buyers and sellers to use. This protocol is fully autonomous built on top of smart contracts which automate the whole business. The protocol is designed to optimise the assets under management held by the smart contracts and does this by generating maximum value for buyers and sellers who use the protocol and organisations who run any required infrastructure. The end result is that markets emerge with little or no intermediaries. Full market transparency is obtained based on a fully automated set of business processes.

Traditional companies would maximise fees and profit taking whereas DAOs maximise market usage. Why market usage? Most of these decentralised markets work via the use of one or more crypto tokens. Before building the market the original creators set aside a large chunk of tokens of the 100 million to 1 billion total token supply, often 10% to 20% or more. If they can make the market successful and make the token go from let’s say $1.86 on January 1st 2021 to $257.19 on November 8th 2021, you can go from owning a low number of millions of tokens to becoming (almost) a billionaire. The numbers here are for the Solana token price which did exactly as described and has 300M tokens in circulation. By creating a decentralised organisation where participants vote on new features and via a grant programme and community rewards, others built and operate the decentralised market, the original founders are able to retire after a few years. They are often younger than 40, if not 30 and multi-millionaires if not billionaires. Their legacy is a super efficient organisation against which traditional intermediated markets have no chance to compete. Early investors often bought some hundreds of thousands or a few millions of tokens and in exchange provided a few millions in capital to build the first prototype. This prototype serves as a basis to do a coin listing which often can raise tens of millions [e.g. both Casper Labs and Human Protocol which I advise(d) raised over $50M through their coin listing]. These early investors often can sell their coins at large profits after the coin listing. This has made that there is now an oversupply of cheap token investors and crypto venture funds.

Regulators can decide to make the usage of the decentralised market or the crypto token illegal. They haven’t been successful however. Even China who already multiple times banned Bitcoin is finding it hard to eradicate a system which is completely decentralised. Kill one mining farm and two new ones are started on the other side of the world. At the same time China, France and many others are launching their own crypto tokens. This makes completely forbidding the use of tokens even more challenging. Finally small countries like Cayman Islands, British Virgin Islands, Panama, Switzerland, Singapore, Anguilla,... are all embracing crypto companies and offering regulatory frameworks and even licensing in some cases. Also in the US several states are enabling crypto companies to register while at the same time the SEC seems to be in a public battle with crypto companies. More regulation will come but making the decentralised economy illegal might be like forbidding Internet in the year 2000, so many governments are playing a game of carrot and stick.

With many new possibilities and boatloads of money, it is no wonder criminals have caught on and lots of fraud is happening. Smart contracts get hacked and tokens get stolen. Projects get created with the sole purpose to do a pump and dump [talk up the value and sell] or rug pull [founders run off with all the money]. So more regulation will be needed, just like has happened in the early days of the Internet. However if anywhere the next Google or Facebook is being created, then it is the decentralised economy. Especially in decentralised finance, or DeFi, a lot of interesting decentralised protocols are launched that can make the finance industry cheaper and more transparent. Also high electricity usage is being tackled. Many chains are moving from proof of work to proof of stake in which you no longer need an immense number of computers but instead have to proof you own enough tokens that cheating on a few transactions is not worth it. Finally other technical challenges like performance are being solved. Solana has taken transactions from 5 per second (for Bitcoin) to above 65,000. Hundreds of thousands of transactions per second will soon be possible. This means that smart contracts will be able to substitute global payment systems and so much more.

So for all the above reason, this is why decentralisation will disrupt many industries. What do you think?