Venture capital is one of the drivers of the blockchain world, providing the money to turn ideas into products. But ecosystem project Decred (DCR) is fighting against this financial regime, saying that venture capital does not have a place in cryptocurrency.
Decred is a self-ruling cryptocurrency project, established in 2014, that relies on collaborative open-source technology and decentralized governance.
Richard Red (not his real name) is Decred’s Research Lead. Speaking to Crypto Briefing from an undisclosed location, Red explained that the very nature of VC is inimical to a decentralized network.
“Decred has the open-source philosophy at its core,” he explained. “The main issue [with VCs] is that you can’t assume their incentives are the same as yours.” There are no guarantees they’ll continue providing funds in the future, he added. “You don’t even know whether they’ll be solvent in a decade.”
Decred has funding built into its open-source model. A Treasury wallet receives 10% of the block reward, that can be used to finance initiatives the community needs or wants.
The wallet usually receives between 14,000-15,000 DCR every month, which works out to around $320,000-350,000 at current prices. There’s currently around 660,000 DCR in the wallet, according to Red, worth approximately $15M.
In a way it’s similar to the Founder’s Reward for privacy coin Zcash (ZEC), which gives 5.7% of the block reward to the project’s founders, employees and advisors. But in Decred there is no time limit, and the block reward will continue until the mining reward fades away.
Rather than a halving event, Decred’s block reward decreases by 1% every twenty-one days. At current projections, that means the Treasury wallet will finally stop receiving funds sometime around 2120.
Decred Rejects VCs
Professional investors have become increasingly prevalent in recent years. One possible benefit, especially in a highly-conceptual space like crypto, is they can impose a level of discipline on projects, pushing them to meet their key targets.
Asked if Decred might suffer from a lack of external direction, Red disagreed. In Decred, the stakeholders make the decisions, he said, by locking DCR to purchase tickets which can be used for block validation or voting.
“The direction setting comes from stakeholders,” Red explained. In the past few years, they’ve funded node and wallet software, a layer-two scaling protocol as well as a new block explorer, known as dcrdata.
They’ve also announced new privacy functions for the DCR token, and have just funded a new DEX, to be built by the same team that created dcrdata. There’s also a marketing initiative with its own budget and a publication, the Decred Journal, that reports on the ecosystem once a month.
Not every decision has worked. The community voted to pay a $20,000 integration fee to add DCR onto the Eastern European EXMO exchange, creating new pairs with the Russian Rouble and Ukrainian Grivna. The volumes haven’t been fantastic, according to Red.
But otherwise, Red believes that Decred seems to be working well. “It’s just like any other open-source project,” he explained. “Just that there’s this big pot of money that only exists for the purpose of paying for all this work.”
Decred doesn’t recruit anyone; instead, they usually wait for developers to approach them and contribute. If the wider community appreciates the developers’ work, it may offer them a contract and reimbursement from the Treasury wallet.
Red first got involved in Decred in 2017 and soon became interested in the decentralized governance platform Politeia. After outlining principles on how it could work, he was asked to become a contractor by project lead Jake Yocom-Piatt in March 2018.
But the process is relatively informal. “Most of the time, it’s people just asking what the new guy’s like and what their work’s like,” said Red.
All of this would be lost if Decred went the VC route, Red says. “There’s a big conflict because VCs are very centralizing.” He likens it to “a big powerful entity into your blockchain ecosystem that can do what it wants.”
Because they have a lot of money, VC’s can have undue influence over the direction of a project, “which does not fit in with a decentralized network” Red added. “They have their own incentives for capitalizing and we can’t ever really know what that is.”
Red doesn’t know of any other projects that have taken such a strong position on VCs. While professional investors may not be malicious by nature, he worries that their incentives won’t always match up with those of the community.
If VCs come into conflict with the community, Red is not certain that the community would win.