Decentralization Is a Process, Not an Event
By Jack Tao, CEO of Phemex
Misinterpretation is prevalent on the concept of ‘decentralization.’ The approach as a whole needs to be better understood before it is adopted as a remedy for all. The narrative of decentralization being the one-for-all solution stems from an emerging narrative that all centralized platforms are bad.
The legacy framework of the traditional world houses several drawbacks and bottlenecks that need change. However, decentralization is not the quick fix. Centralized platforms are in dire need of a progressive change that blockchain tech aims to cater to.
Adopting blockchain tech, which is innately decentralized, is a change for the greater good of centralized platforms. And this change is taking place rapidly across several industries.
Transition to a decentralized world
Decentralization is not a feature that can be added to centralized systems to turn them into productivity machines. It is a journey that needs to be embraced by centralized systems by incorporating tenets of trustless operations. As more businesses explore a decentralized approach, it is critical to realize that it is as much a collective mindset change as it is a tangible change in operations.
Blockchain tech and its applications are being magnified by legacy industries adopting them and also by the emergence of DeFi. At the core of this evolution, we can find a paradigmatic shift to a user-centric approach. Communities have been the drivers of growth while also being the much-needed sounding board for companies.
The transition towards a decentralized world involves the gradual decoupling of a company from its authority. This needs to be a sustainable transition.
Inclusive adoption is a must for decentralization
One of the reasons why mainstream decentralization has not yet occurred is due to limited knowledge and resources. Currently, DeFi is largely used by true blockchain enthusiasts, which only account for a tiny fraction of the population.
This exclusivity concern boils down to the lack of user education initiatives. Outside of cryptocurrencies, there is a serious lack of effort to nurture Web3 participants and aid dApp development. User education should be a top priority not only for educational institutions but also for DeFi protocols and projects.
Moreover, user-friendliness needs to be spread across dApps and blockchain projects. After years of reiterations, Web2 products have reached a certain level of accessibility. Likewise, decentralization needs to be accompanied by intuitive education.
Building for Web3 is tough since there is no robust infrastructure in place. However, developers for Web3 have two main assets that more than compensate for the lack of infrastructure. Firstly, Web3 will mainly be open-source so each problem only needs to be solved once. Next, credible user-centric solutions will be driven by the community itself.
Starting forums and DAO structures are not the only iterations needed for embracing decentralization. Aspects of a decentralized ecosystem must be drip-fed into existing structures.
Progressive decentralization: The right way to move toward Web3
The journey to achieving decentralization starts from a centralized framework. It is imperative for the initial team to be close-knit. This leads into finding the right product-market fit while accumulating an initial set of users to test the product. They serve as a funnel of feedback that reflects product usability.
The subsequent product launch marks the start of the journey to decentralization. It begins by building a community that helps the product evolve. An inclusive and organic community where everyone is valued is a must. As time passes, the community gains greater influence as the centralized setup starts to dilute.
This can be furthered by incentivizing community participants and their commitment to the product. When the product stands independent of the initial team, a DAO-type environment has already arisen. At this point, the incorporation of an official DAO structure solidifies the product’s commitment to decentralization.
With more DeFi protocols and blockchain projects adopting decentralization, the journey to Web3 is moving forward at an incredible pace. This also cements the fact that a community-first approach will no longer be a marketing phrase but a status quo for Web3 products and applications.
About the author:
Phemex CEO and Co-founder Jack Tao is a Morgan Stanley veteran with more than a decade’s worth of experience in building high-throughput, low-latency, large-scale algorithmic trading systems as the VP for MSET BXS Global Development. In 2017, he led a group of nearly a dozen Wall Street professional traders and investors to address the lack of efficiency, trustworthiness, and customer focus within the cryptocurrency industry. By leveraging their decades of traditional finance experience, the core team created a new cryptocurrency exchange that offers a more professional and streamlined experience.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.