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Haseeb Qureshi: Discussing Decentralization’s Core Purpose, Trade-Offs, Declining Marginal Utility and DAO Decision-Making

Oct 10, 2021 · 66 min media

By Tom Shaughnessy

The Delphi Podcast Host and GP of Delphi Ventures Tom Shaughnessy sits down with Haseeb Querishi, managing partner at Dragonfly Capital, a cross-border crypto venture fund. The two have a philosophical discussion on the topic of decentralization, covering its core purpose, the costly trade-offs, the declining marginal utility of pursuing decentralization and much more!



Interview Transcript:

Tom (00:00:01):

Hey, everyone. Welcome back to the podcast. Today, I’m thrilled to have on Haseeb, who I’ve known for a very long time, of Dragonfly. Haseeb, how’s it going?

Haseeb (00:00:09):

It’s going great. Good to see you again, tom.

Tom (00:00:12):

Haseeb, you’ve had a storied career, man. How long have you been in crypto to date?

Haseeb (00:00:16):

Full time in crypto four years, but I’ve been looking at it and kind of dabbling at the margins for more than that.

Tom (00:00:24):

Yeah, no. I feel like you’ve been one of the pillars of crypto for a long time now. Four years, it’s a third of the life of crypto, though.

Haseeb (00:00:32):

I guess that’s true. I mean, you’re-

Tom (00:00:34):

[crosstalk 00:00:34].

Haseeb (00:00:34):

… always looking back at the people who were there before you, and you’re like, “Oh, shit! If only I was around in the Mastercoin days or …” I have friends who did the Ethereum ICO and stuff like that. And I wasn’t paying that close attention to the space back then.

Tom (00:00:48):

Yeah. No, I’m with you.

Haseeb (00:00:49):

So, but having now been through a cycle and having a new generation of crypto investors who now look at me as being an old hand is kind of weird. And honestly, it feels good and it feels bad in different ways.

Tom (00:01:04):

Yeah. I kind of got that feeling walking around Mainnet conference. I didn’t know anyone. Weird. It was … Yeah.

Haseeb (00:01:12):

Yeah, yeah. Definitely-

Tom (00:01:13):

“Now, where’s all my friends at?”

Haseeb (00:01:15):

The NFT zoomer generation getting into crypto and kind of defining a new conversation. It’s been great to see that, but then also somewhat slightly alienating of like, “Oh, wow! I’m a boomer relative to the people who are trading JPEGs all day.”

Tom (00:01:30):

Yeah, no. I’m with you, man.

Tom (00:01:33):

Well, let’s see. Tell us a bit about Dragonfly before we dive into your post.

Haseeb (00:01:36):

Absolutely. So, Dragonfly, we’re a cross-border global crypto fund. So, we have offices around the world, both in Asia and the US. I’m based in the US. And we invest in everything crypto. So we generally back entrepreneurs from the earliest stages, early investors into DeFi, into CeFi, into web3 and layer 1s and layer 2s. So, we do a little of everything and we’ve been doing it for a while. That’s Dragonfly.

Tom (00:02:05):

That was awesome. I love that. And you wrote a post a long time ago, Why Decentralization Isn’t as Important as You Think. When did you actually write this?

Haseeb (00:02:14):

When did I write this? This was early 2020, I’m guessing. I don’t remember exactly.

Tom (00:02:19):

It feels like a different world then.

Haseeb (00:02:21):

It was definitely a different world. It was a time, I think when … Actually, let me just look up when it was posted, but it was definitely not peak … So, it was March 2020. This was before DeFi Summer.

Tom (00:02:39):

[crosstalk 00:02:39].

Haseeb (00:02:39):

So crypto is still kind of slumping. Actually, this was … When did the big COVID sell-off happen? It was in March, right?

Tom (00:02:45):

God! March, yeah.

Haseeb (00:02:47):

Yeah. I thought it was in March. Yeah. So, this is right after the COVID sell-off, but it was a time when nobody was excited about crypto, but I remember there was a conversation going on around particularly Jesse Walden’s piece, which was about progressive decentralization. And there was a lot of conversations happening at that time about this thing’s not decentralized enough, that things not decentralized enough. I felt like there was a lot of decentralization purity ethics, and I thought it was very unhealthy. And so I want to write a piece capsulating what I thought about the right way and a sort of lucid way to think about decentralization when it matters and when it doesn’t matter.

Tom (00:03:28):

It’s kind of hard to write a philosophical post in such a bad market at that point, crypto.

Haseeb (00:03:33):

Yeah. Actually, now that I remember this, I think what happened actually is that I read because Laura Shin wanted me to write a piece and read it aloud on her podcast. It must have happened in January. And then I posted it on my blog in March. So, I think actually this happened before the COVID sell-off.

Haseeb (00:03:51):

So, it was actually kind of a philosophical time, because it was like end of the year. Things were kind of calm and reflective, not that much was happening.

Tom (00:04:01):

You’d go to a cabin, write something and [crosstalk 00:04:04].

Haseeb (00:04:03):

Exactly. Exactly. Yeah. You got it. You got the vibe. You got the vibe.

Tom (00:04:07):

So, diving into it, though. So, you wanted to try it this piece on decentralization. What was the cornerstone? So you said it was Jessie’s posts on progressive decentralization. As a jump-off point, did you agree or disagree with him or was it more so the sense that you kind of wanted to get your views out there on what kind of decentralization actually is?

Haseeb (00:04:27):

I largely agree with Jesse’s viewpoint about progressive decentralization. So for your audience who might not be aware, back in, maybe it was late 2019, early 2020, Jesse Walden, he’s now at Variant, he wrote a piece called Progressive Decentralization, where he described this idea that if you were an early stage crypto entrepreneur, you should not try to think about being decentralized from day one. Instead, you should gradually take steps to decentralize over time, but be willing to cut corners in the very beginning to build an MVP, get product market fit, be able to move fast, be able to iterate, which is almost pretty standard startup advice, but it never really had been articulated very clearly in the context of crypto, given that crypto always has this emphasis on decentralization.

Haseeb (00:05:11):

Decentralization comes at a cost. Decentralization faces a very, very steep trade-off with respect to being able to move quickly because the standard trope at a startup is that the more people you have, the slower it is that you can move.

Haseeb (00:05:26):

So, you have 50 people, there’s just more overhead, there’s more management, there’s more coordination, there’s more consensus building that needs to happen in order to make a decision and get everybody rowing in the same direction. When you’re six people and everybody’s just in the same room and everybody can talk to each other very quickly by just leaning over their chair, it’s much easier to move fast and iterate quickly. And early stage crypto protocols are much closer to startups where they need to move quickly, they need to iterate fast until they actually get product market fit and start getting adoption.

Haseeb (00:05:58):

So, that was Jesse’s post. That was a backdrop for what I was writing. And I agreed with that, but I felt like there was a common reaction to that post, which is that, “No, no, no, no. This is all standup startup advice. And this crypto’s different and if you’re not decentralized, there’s no value to what you’re building.”

Haseeb (00:06:16):

And there was, you’d see all this one-upmanship within crypto of it’s how protocol starts, it’s not that decentralized and people like, “Oh, blah, blah, blah, multisig, blah, blah, blah. This thing is not even on chain,” and people shitting on each other. You know what I’m talking about.

Tom (00:06:31):

Yeah. Oh, yeah.

Haseeb (00:06:32):

It’s Twitter dunking about people not being decentralized enough. And I thought it was very unhealthy.

Tom (00:06:37):

So, I mean, just looking at that, though, I mean, the whole idea of progressive decentralization. Since you’ve written this post, since Jesse wrote his, have you seen any examples of that actually happening in the wild? I mean, ETH is a good example. Synthetix might be a good example. And there’s a couple out there, maybe even Maker, but have you seen any actually go through this progressive decentralization route and I guess quote, “Succeed,” or maybe that’s the wrong kind of framing?

Haseeb (00:07:05):

Well, so I’d say almost every crypto protocol that’s now plausibly decentralized was more centralized before. So, it is almost trivially true to say that many things have gone through progressive decentralization. Take something like Sushi, for example. Sushi originally was entirely controlled by Chef Nomi and then they did this multisig and now they’re doing actual proper on-chain governance. All these protocols that now have transitioned to being more and more on chain, like Synthetix is another good example. Originally, Kain was basically benevolent dictator of Synthetix and gradually over time has transitioned to becoming less reliant on Kain and on particular individuals controlling everything.

Haseeb (00:07:53):

So, most protocols that are decentralized go through this transition, but it’s almost as though, it’s obviously true that this transition happens, but I think before Jesse’s piece had never really been articulated very clearly that this is normal, this is what’s supposed to happen and you should embrace it. You shouldn’t look away from it or be embarrassed by it or feel like this is some kind of aberration that things start off more centralized and gradually become more decentralized. And to be really thoughtful about the way in which that happens, as opposed to you start off centralized and you feel bad and people dump on your Twitter, then you slowly cave into people pressuring you, which is kind of the way historically that it’s sort of happened.

Haseeb (00:08:36):

And I think, over time, the more that the industry matures, the more we’re going to develop a better playbook for how you become decentralized in the same way companies, startups develop a playbook for how you develop a board and have good corporate governance. But you don’t do it from day one and you don’t do it out of pressure. You do it in a thoughtful way, knowing how it long-term helps the trajectory of your enterprise.

Tom (00:09:03):

I mean, back then, though, it seemed like it wasn’t easy to progressively decentralize. I mean, even today we’re lacking a lot of the tools to make coordination and communication and decision-making within an app easily.

Tom (00:09:16):

I mean, I know we have some. We have Gnosis, we have a lot of communication apps, but it’s still pretty hard to achieve. I know it’s a spectrum. We’re working on, everything’s more decentralized than it was, but it’s still hard to get to that point, let alone a year or two ago when you guys were kind of thinking about this.

Haseeb (00:09:34):

Totally, totally. Although, part of the point of this post as well is to try to question the dichotomy between is decentralized and is not decentralized, right, because, like you said, it’s a spectrum. And to say that somebody has gotten there, has not gotten there implies that there’s some end point that we’re trying to get to.

Haseeb (00:09:55):

And in reality, so one of the points I make in this post is that, in crypto it’s largely perceived that decentralization is a terminal virtue, meaning that it’s important to be decentralized for its own sake. If you’re decentralized, that’s good because you’re decentralized. And I think that’s bullshit. I think that doesn’t make any sense. And I think-

Tom (00:10:19):

That was the sales pitch for every project.

Haseeb (00:10:21):

Always, always.

Tom (00:10:22):

Everything. Always. Yeah.

Haseeb (00:10:23):

And it’s become completely unquestioned dogma within crypto that decentralization in and of itself matters. And I think this is completely wrong. Decentralization in and of itself does not matter at all. It doesn’t do anything. The reason why Satoshi Nakamoto made Bitcoin decentralized was because he wanted to mitigate censorship and shutdown risk. That was why he made Bitcoin decentralized. If Bitcoin could mitigate censorship and shutdown risk without being decentralized, he would have done it that way. The principal reason why decentralization is important is because we made a really nasty architectural trade-off. Decentralization fucking sucks. It makes everything slow. It makes things expensive. It makes things hard to coordinate. It’s like you mentioned, they’re bad tools. It’s very difficult to actually enact governance. Governance is subject to all sorts of attacks and corruption and blah, blah, blah.

Haseeb (00:11:17):

All these things are really endemic problems to decentralization. If you could make things that worked and that couldn’t be shut down and couldn’t be censored without being decentralized, we would do it that way. And so, for that reason, you have to understand, decentralization is a means to an end. It gives you something you want down the road, but decentralization in and of itself does not do anything.

Haseeb (00:11:39):

So, the question is, what is the actual thing you’re trying to accomplish with your decentralization and have you already accomplished it without going all the way to, “Okay, I’m as quote, unquote, ‘Decentralized’ as Bitcoin,” and a lot of times the answer’s yes. Without having to move further along that spectrum.

Tom (00:11:59):

I guess you never really know where you are on the spectrum, though. I mean, how do you even define … If you want something that’s half as decentralized as Bitcoin. I mean, obviously you can look at node count, you can look at mining power, et cetera, but do people even know how decentralized something is? It would be very hard for me to look at a new crypto app, look at a new DeFi app, look at a new NFT drop, whatever, and say, “Hey, this is X decentralized versus …” It’d be so hard to land on something like that.

Haseeb (00:12:30):

Right. Totally agree. So, there have been a few quantitative measures proposed, like Balaji wrote his Nakamoto index. This was back in 2018, I think he published this paper on it. I don’t think any of them are that convincing in terms of being useful as a benchmark of like, “Okay, this thing is more decentralized than that thing.” Again, the reality, the thing that I come back to is what’s the real thing that you were worried about with respect to decentralization, because there are a lot of things that are decentralized and are fucking awful.

Haseeb (00:13:04):

And another thing that I point out is that decentralization is often a proxy for competent stewardship. And the thing we really want is competent stewardship. I mean, that’s one of the things we want. We might also want censorship resistance. We might also want some other things that come with being decentralized. But when we talk about decentralization, normally what we mean by decentralization is some kind of decentralized competent stewardship. Being decentralized but having the people who are controlling you be fucking idiots is completely unhelpful. And you can go down the list of top 20 assets and find things that are decentralized, but are just in the hands of just people who you don’t want controlling a cryptocurrency.

Tom (00:13:45):

So, I see. That’s a great point. Let’s take that a step further. Let’s say Ethereum is generally decentralized today.

Haseeb (00:13:52):


Tom (00:13:52):

I mean, to be honest, I don’t really see Vitalik deciding what Shell 2 we’re using and choosing zkSync over Optimism, take your pick here. Definitely doesn’t control a master node, which is a meme at this point, but let’s say Vitalik kept full control of Ethereum, was a dictator, kept it going. What do you think the difference would be today? What would be different today versus where we are right now, do you think, if that were the case?

Haseeb (00:14:17):

Well, there’s the upside and there’s downside. So, the upside, presumably, if Vitalik were still benevolent dictator of Ethereum, probably Ethereum would be able to move faster, it’d be able to coordinate more effectively. You would have a more strategic use of resources, most likely. Anytime that you’re running a big decentralized operation, there’s a lot of just volunteer coordination and kind of left hand doesn’t know what the right hand is doing, that kind of stuff.

Haseeb (00:14:43):

Now, what would be on the downside? On the downside, do you remember back in, I think it was late 2017, there was a rumor that Vitalik had died. Do you know this?

Tom (00:14:52):

Oh, yes. I remember seeing the tweet. It was [crosstalk 00:14:54]-

Haseeb (00:14:53):

Yeah, yeah, yeah.

Tom (00:14:54):

… Venture or somebody tweeted it out.

Haseeb (00:14:55):

Yeah, exactly. That Vitalik died and the Ethereum price, it had a little mini crash for that day. And then it was confirmed that Vitalik posted a picture of himself or something. And then the Ethereum price came back.

Haseeb (00:15:06):

And then there was another point where I believe Vitalik, it was announced that Vitalik had a girlfriend and then the Ethereum price went down less than 10%. It wasn’t as bad as Vitalik dying, but the Ethereum price went down. That’s what would happen.

Tom (00:15:21):

[crosstalk 00:15:21] the fact people have, just the amount of time you have to spend in a relationship.

Haseeb (00:15:22):

Yeah, yeah. That’s what happened is that everybody would be trying to figure out what is going on with Vitalik, because if something happens with Vitalik, then the value of Ethereum is going to go down because he is the fucking CEO, effectively, of Ethereum. And that would not be good for one reason. It’s just that you and I have spent a lot of our time thinking about particularly what is this guy doing? Second, of course, is that if Vitalik … I mean, it would be a great risk to Vitalik’s own life. The ways in which people could profit from going after somebody who is effectively, again, the benevolent dictator of a hundred billion dollar cryptocurrency is pretty significant. In addition to that, he could get sanctioned. He could get targeted by the SEC or CFTC or FinCEN or DOJ or whoever who doesn’t like Ethereum and what’s going on with Ethereum and wants him to shut Ethereum down, there would be a particular place where you could exert pressure and make that happen.

Haseeb (00:16:25):

So, all those things feel like, on balance, there’s some pros and cons. Obviously, the fact that we really, really care that Ethereum cannot be stopped or controlled by anybody is really valuable to what makes Ethereum Ethereum. And so, to be clear, there’s almost all of the weight goes on the side of it’s good that Ethereum is more decentralized, but that may not be true for everything.

Tom (00:16:50):

No, no. That’s fair. I mean, are you of the opinion … I guess my opinion on it is I’d rather obviously base layer be more decentralized. The apps built on top. Take your DeFi app. Less decentralized, they can move fast, decentralize over time. This way the base is much harder to attack and what’s built on top could iterate quickly. Are you of that same opinion or do your views kind of apply the same way to the base layer as it does to what’s built on top?

Haseeb (00:17:15):

I absolutely agree. The closer you are to the metal, we should say, the more reliable you need to be. And one way to be reliable is to be decentralized.

Haseeb (00:17:27):

That being said, take something like Solana. Solana obviously is moving very fast, they have a very aggressive roadmap. And it’s pretty clear that Solana Labs is very deeply involved in what’s going on in Solana. Solana was offline for 12 hours or 11 hours, whatever it was and who was working on this, but the Solana Labs team moving as fast as they can to fix the bug, figuring out what’s going on, coordinate all the nodes, get them all together. That’s not something you can do if you’re fairly decentralized.

Haseeb (00:17:58):

That being said, they’re absolutely choosing the right trade-off because they are early in their life cycle. They are pre-product market fit. They need to do a lot more in order to get the ecosystem off the ground. And people are not choosing Solana for reliability. They’re choosing it for performance and the promise of performance that they think they’re going to get as the system becomes more robust over time.

Haseeb (00:18:16):

So, for different layer 1s, there’s a different trade-off, but again, this was not obvious in 2018. In 2018, there was a real fear about these Ethereum killers and the sense that Ethereum needed to move faster.

Haseeb (00:18:30):

I don’t know if you remember. It was Fred from USV. I think he wrote a post saying that-

Tom (00:18:36):

Oh, he said Ethereum needs … Yeah.

Haseeb (00:18:38):

Exactly. Ethereum CEO, Ethereum needs to iterate faster. If this was a company, we would fire the CEO and the board would hire somebody new to get them to move faster and iterate it, put a SWAT team on getting this stuff locked down. And, in retrospect, now that we look back on that, we’re like, “Yeah. I mean, Ethereum’s still just 14 transactions per second, but thank God it does. And that it hasn’t gone down to the last two years and it has remained completely neutral, robust, reliable.” Nobody’s worried about whether Ethereum is going to last. And that’s great.

Tom (00:19:10):

I mean to see, though, too. Let’s take an example here. And I agree with you in that Solana is taking the right roadmap. Let’s say I’m going to build crazy and finance raw. I’m going to pick Solana, no, huge speed, more centralized, or I’m going to pick, let’s say, production ready ZK rollups on Ethereum. You get all the security of the base chain. You get the same amount of speed on Ethereum. Let’s say it all works perfectly. How do people realize the security trade-offs or the decentralization trade-offs without some type of attack? I feel like there’s a scenario where there are no attacks, both drift along, and it’s literally just perception at that point.

Haseeb (00:19:50):

I mean, in the beginning, before we have any real data, the only way we can know what’s secure and what’s not is to kind of glance at it, come up with some theories and go with our judgment. Once we have data, then we don’t have to argue about theoretical models anymore and say, “Well, ZK rollups with this and Solana’s that.” We just have the data. We can just go and see, like, “Look. This thing has been attacked once. This thing has never been attacked. We know exactly how much money it would cost to corrupt the system. And we know how geographically dispersed the nodes are.” Once you have all that … We don’t need to argue theoretically about which is more corruptible, Ethereum or Bitcoin. We can look at the numbers. We can actually see which of the two systems has been more robust and which of the two costs more to 51% attack.

Tom (00:20:39):

So, I guess what’s your takeaway, then, on the Solana versus Ethereum example? Is it that decentralization, the benefits will not outweigh the performance benefits of a centralized team that can move faster because it’s hard to determine how much decentralization matters? I’m just trying to understand the cutoffs on your argument, but it’s hard, because this is all spectrum, if that-

Haseeb (00:21:02):

There are no cutoffs. It’s a continuum. It’s a spectrum. It’s the same question of … Facebook’s been in the news recently with all the stuff about Instagram and social media being bad for you and doing all these internal research that they knew it all along. The degree to which Facebook is just like, “All right. Screw it. Let’s just move on. Let’s just push ahead and keep growing everything, despite the fact that there may be some negative externalities.”

Haseeb (00:21:31):

That was totally fine when Facebook was Mark and 10 people in their garage. But now that Facebook is a hundred potentially trillion dollar company, that doesn’t fly anymore. You now need to have much more robust governance. You now need to move much more slowly. You now need to have checks and balances and oversight in place for a lot of these things that previously you could just run roughshod over. And there’s no this is the physical point you cross where now you need to start delegating to a board and having oversight of all of these things. It happens very gradually. And some people don’t get the memo until too late.

Haseeb (00:22:10):

So, this might be an example of something or Tron. I’d be like, “Okay, they got the memo a little too late.” They’re like, “They need to decentralize earlier.” But something like Solana is clearly at the very beginning of its ascent and reaching product market fit. And the whole point of Jesse’s post is that before you have product market fit, it’s crazy to try to decentralize at that point because the market doesn’t actually need what you’re selling yet. And I would argue Solana is still pretty [inaudible 00:22:41] fit. It’s got some NFT volume and that’s kind of taking off, although it’s a little fly-by-night, but the real bulk of what Solana wants to do, it’s not here yet. The ecosystem hasn’t really matured all the way to that point quite yet. And so they still have a lot of work to do. And I think the team is very well aware of that.

Tom (00:23:03):

No, that’s fair. And I mean, a key point of your post was on how you can’t compete on being more decentralized. And to me, I totally agree. And you said earlier, you can go to these quantitative frameworks. And I agree, but it’s hard, though. I mean, in my mind, Ethereum will always be more decentralized than, and important investors in Solana have huge fans, but it’s obviously more decentralized at this point.

Tom (00:23:25):

So, when I see something, if I can get the speed on top, while being that decentralized is automatically mental model for me. It’s hey, more decentralized, but to your point, it’s not really something to compete on. What exactly do you mean there? I’m a little lost on that side, because when I think more decentralized, I think, “Hey, whatever I build is more centrist to persistent. My value will always be there. Nobody can mess with me.” Those are the quick mental models I’m thinking of. But, to your point, maybe that’s not as valuable or how should I think about that the right way?

Haseeb (00:23:53):

So, the way that I describe this, I have a very simple framework. So, if you imagine a property of a system. So the system could be fast. It could be censorship resistant. It could be very cheap to use. These are different properties of a blocking system. There are two axes on which you can separate out these properties. One axis is whether it is direct or whether it’s indirect. So something that is direct, something that you can directly feel is something like the transaction fees. You can feel whether the transaction fees are high. Something like security, you can’t feel. So something can be more secure or less secure, but you don’t actually feel it when something is not secure. You’ll just someday at some point, get hacked or lose your money or something like that.

Haseeb (00:24:44):

And then there are local properties and global properties. So a local property would be something that only a subset of people on this platform feel and then global properties, something that everybody on the platform feels. And the problem with decentralization is that it’s both indirect and global, meaning that there’s no particular person who feels this problem. It’s not like this particular person got their transaction dropped by the [inaudible 00:25:14] pool. That’s a very local problem. Only certain people feel it and the people who feel it have a really outsized response to it. They’re like, “Oh, my God! This sucks so much for me.” Whereas everybody else is like, “Ah! It didn’t happen to me, so I’m fine.” It’s a global property. I mean, nobody in particular is harmed by it. And it’s an indirect property, meaning you don’t feel it directly. It’s some abstract notion that like, “Hey! Bitcoin is more decentralized than Dash.” When I’m using Dash, I don’t feel like it’s less decentralized. Maybe somebody tells me it’s less decentralized, but there’s no direct experiential way in which my usage of this thing is harmed.

Haseeb (00:25:49):

And so, when you’re trying to compete over an abstract property, saying that, “This thing is more decentralized than that thing,” trust me. It is, even though you can’t feel it, even though you can’t see it, I’m going to explain to you why it’s less decentralized. The way in which it really gets cashed out is by that decentralization, having a downstream impact, like again, going back to the original thing. Why does decentralization matter? It matters because it gives us some other thing that we actually care about.

Haseeb (00:26:14):

And that other thing might be censorship resistance. If it’s censorship resistance, the way in which I am going to feel that I like this thing, because it’s more decentralized is because the other thing I’m on got censored, that’s going to make it into a direct property. That’s going to make it into something I actually fucking feel and care about. It’s like, “Oh, man! I really don’t like that I’m getting censored on the LIBOR chain or on the whatever chain. That’s really no fun.”

Haseeb (00:26:39):

So, when you’re trying to compete on being decentralized, most of the time, what you’re really competing on is you’re competing on trust. You’re competing on brand. It’s a way of saying, “Look. I’m not trying to tell you that you’re going to get censored on this other chain, because you probably aren’t even thinking about censorship when you’re thinking about decentralization.” The real thing I’m telling you is that I’m trustworthy. I have great institutions. I have great governance. I’m very popular. I’m able to fulfill all the things that crypto people care about. That’s what really people are competing on where they’re competing on decentralization, in my perception.

Tom (00:27:18):

No, no. It’s a great take. I’m just trying to unpack the race a little bit. Because, as a blockchain, as a layer 1, or as an app, you have to outrun the ability to be censored. Solana has to get to a point where, as the economic value within it grows, it becomes more decentralized that people can’t take it down. I guess the decentralization aspect obviously has to grow I’m not sure faster than the economic value or maybe slower. I’m totally not sure. But my take is once you get censored on a chain, you’re not going back.

Haseeb (00:27:55):

Possibly, possibly.

Tom (00:27:57):

Maybe, yeah.

Haseeb (00:27:57):

I mean, I don’t know. Depends on the nature of the censorship. BSV has been doing some censorship for a long time and it doesn’t seem to ever go away.

Tom (00:28:08):

It’s also like the user base there.

Haseeb (00:28:10):


Tom (00:28:10):

Like I’m getting censored if I’m earning a thousand percent APY on something [crosstalk 00:28:15].

Haseeb (00:28:14):

Exactly, exactly, exactly. And ES has had some examples of it, too. I mean even like … What was the one that hard-forked when Justin Sun tried to do a takeover? Steem. Steem.

Tom (00:28:25):

Oh, Steem. Yeah.

Haseeb (00:28:25):

Steem. Yeah, yeah, yeah. Yeah. I mean, depends on what you mean by censorship. But the reality is censorship is a little bit of a boogeyman in crypto. How many times has a major cryptocurrency actually gotten censored anywhere?

Tom (00:28:39):

Oh, god! Well, I mean, how often has it been attacked, though?

Haseeb (00:28:43):

Attacks are much more common. So, 51% attacks and hacks and bugs and these kind of things. They definitely happen. And the graveyard of crypto is filled with projects that just were not able to stand the test of time.

Tom (00:28:57):

Yeah, no. That’s totally fair. That’s a good point. I mean, what do you think about adverse situations with nation level states? I know decentralization is a means to an end on your view in your posts, but nation-state wakes up and says, “Hey. Screw Solana, Bitcoin, Ethereum, and TRON, EOS. We’re going to go after all of them. At that point, it becomes really real. It comes from indirect to direct very quickly.

Haseeb (00:29:28):

So, it depends on what you mean by nation-states going after these projects. So back in 2017, people had very, almost naive takes on what nation-states would do in response to crypto. It’s like, “Oh, they’re going to attack us. And they’re 51% attack us. They’re going to buy a bunch of mining hardware. They go buy a bunch of coins and try to break her out of …”

Haseeb (00:29:50):

And that’s not what they’re doing. China’s like, “Look, we’re just going to ban this and we’re going to throw you in jail if you build stuff in our country.” Or the SEC is like, “Look, I’m going to go sue you. I’m going to go sue you and say that you have to register as a security.” That’s the way they’re going to come after you.

Tom (00:30:04):

Do you remember everyone in 2017 was like, “Oh! They’ll never take my coins.” And meanwhile, everyone’s like, “I’ll fill out a KYC form in two seconds if [crosstalk 00:30:11].”

Haseeb (00:30:13):

Yeah, exactly, exactly. Either the IRS is mass scraping all this data now. And, it’s like, yeah. The models we started with, and that’s a problem is that a lot of our thinking has not really updated. So much of the way that people think about crypto has not back propagated the way in which we’ve actually seen nation-states responding to crypto, like the security model of, “Oh, no. What if they 51% attack us,” is just totally wrong? That’s not the way that any of these countries or governments think about how to respond to crypto.

Haseeb (00:30:44):

So, all that being said, if they were to come after crypto, how well could crypto respond? There are a few different ways I want to answer that question. The first is that, again, if you look at something like the SEC, if that’s what you’re worried about, if you worried about the SEC coming after you and saying, “Look. You’d be decentralized so that the SEC doesn’t shut you down.” The SEC didn’t even shut down EOS. It didn’t even shut down KEN. KEN, I think was like one of the most obvious security-like things. Ripple, I bet they’re probably going to settle with Ripple and not register as a security.

Haseeb (00:31:20):

Overwhelmingly, the SEC has not really won any of these cases against crypto protocols. So, I’m not terribly worried that the SEC is going to force you to be sufficiently “Decentralized,” quote, unquote, such that if you have any nexus of decision-making whatsoever, you’re not going to last because the SEC’s going to come after you.

Haseeb (00:31:40):

Now, if you’re actually worried about a nation-state level attack, the reality is almost none of these cryptocurrencies actually would be able to stand up to a nation-state level targeted attack. Take China, for example. China obviously has banned the trading of Bitcoin. It doesn’t ban ownership of Bitcoin. It’s actually totally legal for you to own Bitcoin, for you to transfer Bitcoin. That’s completely fine. Just the buying and selling of Bitcoin is what’s illegal in China or facilitating that, rather, is illegal in China.

Haseeb (00:32:12):

So you can still access the Bitcoin network within China. You don’t even need to use a VPN tax [inaudible 00:32:20] network. China, though. It obviously has the Great Firewall, has the ability to monitor traffic and understand what people are doing. And Bitcoin messaging is actually not that hard to detect within the context of a network. The bootstrap nodes in Bitcoin are well known. The Bitcoin network is not that big in terms of total number of nodes. And so, just by seeing where your IP traffic is getting routed, it wouldn’t be that terribly hard for them to start blocking access to the Bitcoin network.

Haseeb (00:32:47):

Now, people could adapt. People could create ways to continue interacting with the Bitcoin network, even without using the public internet or without encrypting traffic or shadowing traffic in different ways. The point is that these governments have not even done that. They haven’t even tried or the cat and mouse game hasn’t even begun because it’s just not the level on which they care about this stuff. It’s not the tool that they use to combat things like Bitcoin.

Tom (00:33:16):

No, it’s interesting to think about. So let’s walk through this example a bit further. Let’s say the view is that all governments are not going to attack, let’s say Bitcoin’s [inaudible 00:33:29] Ethereum. It’s like everyone’s on the same playing field because where the government’s going to go after you is at the personal level, at the IRS level, at the let’s block access to the website level. More consumer-level blocking or penalties which applies to any blockchain, not any one specifically so [crosstalk 00:33:48].

Haseeb (00:33:47):

To be clear, it’s really more at the corporate level than it is the consumer level.

Tom (00:33:52):

That’s fair. That’s fair. But if that’s the case, I guess your point is that decentralization matters a lot less, right?

Haseeb (00:34:03):

A lot less than what?

Tom (00:34:04):

[crosstalk 00:34:04] … I guess extreme scenarios. Extreme take-down scenarios don’t matter as much because, in your view, they’re not going to go after networks in that fashion.

Haseeb (00:34:16):

Yeah. I mean, to be clear, that’s not the only reason why you care about decentralization, but I do think relative to where these values got crystallized, which was in 2015, 2017, and obviously earlier than that, people just did not have the right mental model for how nation-states were going to interact with cryptocurrencies.

Haseeb (00:34:36):

Now, I mean, there’s always the question of, “Oh, well that might change and once people realize how big crypto is, they’re going to be more aggressive against it.” But, to be honest, crypto had a lot worse reputation than it does now five, 10 years ago. And even then they weren’t doing any of these kinds of things. So, at the time crypto was perceived as, “Oh, it’s for evading sanctions, it’s for drug money, it’s for criminals.” That’s when you want to be most aggressive in combating crypto. And even then, the tools that governments used to combat crypto were roughly the same as what they are today.

Tom (00:35:09):

That’s fair. I’m trying to think through on this line of thought, like where we go with governments, where we go with decentralization. It’s hard to figure out what five or 10 years looks like with regard to your post. I’m trying to think they’re alive, but …

Haseeb (00:35:23):

Look. The point of this post is not that decentralization doesn’t matter. It absolutely does. And all things equal, if you can be more decentralized, usually you should, barring some trade-off that actually makes it harder for you to get the core thing that you care about. That being said, it is the thing that I think most people don’t understand about decentralization is that, one, it’s not a good in and of itself. It’s good for some other reason that is actually the terminal good. And then, second is that decentralization has declining marginal utility.

Tom (00:36:01):

Those are two important takeaways, absolutely.

Haseeb (00:36:03):

So, when you are pretty decentralized. Let’s take Ethereum. Ethereum is obviously very decentralized, but it could be even more decentralized. The Ethereum Foundation is still fairly active. Vitalik still talks a lot about Ethereum. People hang on his every word and he’s a big thought leader within the ecosystem.

Haseeb (00:36:19):

So, if all that were deleted tomorrow, if we just completely wiped out the Ethereum Foundation and Vitalik, Ethereum would be even more decentralized.

Tom (00:36:30):


Haseeb (00:36:30):

What would this materially improve about the situation at Ethereum? Not a whole lot. I mean, arguably it would make things worse.

Tom (00:36:38):

I’d argue it would be hurt. I mean, it’d be more decentralized, but I would argue it’d probably be hurt.

Haseeb (00:36:41):

Yeah. It would all certainly be hurt. But do any of the things that we care about, like the take down risk, the censorship risk, the governance risk, is any of it actually improved significantly by deleting the Ethereum Foundation? It’s like not really. Maybe slightly, maybe tiny little iota.

Haseeb (00:36:59):

And so, the whole point of this thought exercise is to show that early on, when you’re starting to decentralize, you get really huge benefits from just the when you move off the multisig and you go to at least token-based governance. That’s a huge improvement. And then every subsequent thing you do, it’s like, “Okay. It’s marginal, modern improvement. Okay. Improvement, slight improvement, small improvement. And there’s almost no improvement at a certain point.” But the game of, “Oh, you guys are less decentralized.” That game just keeps going on. People will constantly shit on Ethereum for having a foundation or for Vitalik became the creator. Bitcoin people will always point their finger at Ethereum and say, “You guys are not decentralized enough.”

Haseeb (00:37:39):

But if you understand this declining marginal utility, they understand like, “Look. At a certain point, the juice isn’t worth the squeeze.” You should be as decentralized as it’s worth being and no more than that.

Tom (00:37:51):

Now, your take on the declining marginal utility of centralization is really cool. I think that’s really worthwhile. And to be honest, I think people feel it a lot more at the app layer. When you’re building a cutting-edge DeFi app and you have to talk to five people to make a decision and now 50 people to make a decision. You really feel it at that level.

Haseeb (00:38:12):

Oh yeah. I mean, we saw it last week with the Compound hack or not hack, but yeah, Compound bug, I should say. Most protocols, if they had introduced a bug and they saw that people were starting to drain the assets that were vulnerable. Admin key, jump in, lock the contracts. Everything’s good. Push a hotfix. Compound cannot do that because Compound has no admin key. Everything has to go through governance. Governance has a time lock. Everything takes a fucking week and it sucks for situations like this. It’s great for everything else, but situations like this, it’s absolutely terrible.

Haseeb (00:38:49):

It does mean that, look, if the SEC comes to Compound Labs and says, “Hey, Compound is bad. Turn it off.” It’s like, “Well, we can put in a governance proposal, but I can’t guarantee that governance will decide to shut off Compound.” So, it helps obviously tremendously in that respect. But when it comes to things like this, it’s kind of shitty.

Tom (00:39:09):

No, again, I really liked the declining marginal utility centralization argument. How do you view it, though, in the context of trying to target the world’s builders, developers, creatives. You obviously want to go from Synthetix, which is Kain to Synthetix with thousands of people in it. But you’re running two train tracks here. You’re, one, getting more decentralized so you get more people involved, more ideas, more growth to drive the project forward. But on the flip side, you obviously have that risk of does it really matter on that side? But now we’re talking about more decentralization of the hierarchy versus decentralization of a protocol or app, which I guess we should probably bucket.

Haseeb (00:39:50):

Right, right. So that’s a good point you bring up, which is that sometimes the value of decentralization is getting more people into the brain trust, getting more people to come in, put their eyes on this, work on this, et cetera. Now, to be clear, just open sourcing your code gives you some of that. It gives you the eyes and the attention, if you actually have something useful that people care about.

Haseeb (00:40:12):

But here’s another thing that I think is also part of the decentralization legend, let’s call it, or the decentralization kind of fairy tale, which is that most projects that do decentralize or try to decentralize, even when they have people coming in from the community, a lot of those people are very low quality. They don’t necessarily help. They don’t have the technical chops or-

Tom (00:40:36):

Very part time.

Haseeb (00:40:37):

They’re very part time. Sometimes they even hurt you. Sometimes, like in the case of SushiSwap, which we saw a couple of weeks ago, sometimes they’re even malicious and you have to vet, “Okay. Is this person who’s coming in trying to contribute to our code, actually trying to drop some kind of vulnerability that they’re later going to exploit.” All of this, open source has had this problem for a very, very long time, way before crypto, which is that, most of the time, even when you make something open source, very seldom do that many people actually come to help you. Most of the time, people are actually oftentimes more difficult to actually manage all these outside contributors are all very part time than it is to just do it yourself.

Haseeb (00:41:16):

So, no. That’s not true for everybody. There are some projects like Yearn, where community really comes together and a team kind of autonomously forms it and starts governing the entire project. But for a lot of projects that go through that decentralization curve, they find themselves like, “Okay, we’re still really the only people working on this, even though we’ve taken all the steps that everyone told us to take, but the people who are showing up are not actually able to contribute to this protocol.”

Tom (00:41:44):

I see, but if you invest in a project building on Ethereum, Solana, I keep using a DeFi app as an example just to make this easy, but what is your advice to the team when they say, “Hey, Haseeb. We want to scale this project. We want to get 50 people involved, whether they be internal, external, maybe 500 people. How do you go about helping them navigate decentralizing their project hierarchy decision-making, everything that goes into that?

Haseeb (00:42:11):

So, it depends a lot, depends a lot, depends a lot on the stage, depends a lot on the type of project, depends a lot on the DNA of the team. The first thing is notice who’s already helping you. Who’s already active in your discord? Who’s already contributing to issues on GitHub? Try to find ways to bring more attention to the things that you’re doing. Start blogging about the technical problems you’re facing. Start tweeting about it. Start doing more building in public and attracting people to how dynamic your ecosystem is.

Haseeb (00:42:40):

Until you really have a healthy set of contributors starting to decentralize, go through the steps of decentralization. “Okay, great. Now things go through governance. Now things do this. Now things do that.” It’s kind of window dressing until you actually have a broad set of ecosystem participants. That’s okay. There are kind of legal and regulatory reasons why that may make sense for you to do is because it’s important for the project to actually be past that threshold of decentralization. But, in terms of the practical ways in which it helps your governance. Governance only gets improved with good governors.

Haseeb (00:43:14):

And this is the thing that Angela Walch often points out, which she sometimes rails against crypto people. I think it’s sometimes fair, sometimes she goes too far. But one of the things that she points out, which I think is very fair is that being decentralized or having decentralized governance, it’s still people. It’s still people who are clicking the buttons and reading the proposals and arguing on the forums and deciding how this thing gets governed. The question is which people and how do you attract those people?

Haseeb (00:43:45):

And the really hard problem in crypto, in making something decentralized is not getting a snapshot and getting a Compound Bravo and doing this thing and that thing. The really hard part is getting the right people to the table to give a fuck about your project and to want to help you govern it. That’s what’s hard. And that’s where you should be focusing your work and attention. The actual mechanical part of how do you build the infrastructure to then start delegating that decision-making. That is a much easier conversation.

Tom (00:44:15):

How do you think incentives play into that? You never want to pay people to take part in a vote. You want people to vote or decide based on their feelings for the project, maybe their stake. But I mean, we just run into the age-old problem of we see in crypto and outside crypto is that some people have large stakes and some people may have no stakes and have the right ideas. It’s very hard to incentivize those people to take part. And frankly, even if you want to incentivize those people to take part, it’s hard to get that through the protocol or the governance that exists to then pay them in a timely fashion. How do you think incentives play into all those?

Haseeb (00:44:51):

So, I think, I agree with you that very naive user incentives so far have not really worked. However, I think a lot of people have this perception that, if governance were to work correctly, then you have massive voter turnout and people will be very engaged in all the different DOWS that they’re participating in. That’s what it would look like for in store.

Tom (00:45:11):

So utopian.

Haseeb (00:45:12):

Yeah, exactly. I think that’s bullshit. I don’t think that’s what it looks like when governance works.

Tom (00:45:15):

I agree.

Haseeb (00:45:16):

I think if you look at the real world. You’re probably an owner of many different things in the S&P 500, but you don’t show up to any of the board meetings. You don’t pay attention-

Tom (00:45:29):

Never do it.

Haseeb (00:45:29):

… to what’s going on or what is happening in corporate governance. You delegate. You delegate to people who specialize in understanding what’s going on in that particular domain. Separation of concerns, specialization, comparative advantage. That’s the fucking foundation of economics. So, I think the answer to governance is very straightforward. It’s delegation, and being able to develop economies where people who get delegated to get some kind of reward for actively participating in governance and Maker is moving towards the model. They actually already have this model and I think it’s a good model for what other protocols should aspire to, which is that you can delegate to kind of protocol politicians who will decide to vote in one way or another. It’s basically like proxy advisors and those delegates get rewarded for the degree to which they’re participating in the protocol. Not much. It’s pretty tiny, but for people who are actually delegates, it’s worthwhile if they can get to scale. And that feels to me like just obviously the right model.

Tom (00:46:35):

Yeah. I mean, just taking the VC angle, I always want incentives at play. If I delegate to somebody, I’m happy to reward them with a percentage of how well the project does. But I mean, that’s hard, because you have to judge how much they influence that, how well the project’s done. You don’t want it to be a short-term pump situation. I think it’s a ways out, but I agree with you. I mean, you have to delegate. I mean, even within a fund, I mean, no one person can know every play. It’s just too much information. It’s too much … Frankly, it’s just outside people’s, what they’re interested in sometimes.

Haseeb (00:47:09):

That’s right.

Tom (00:47:09):

So, it is very hard to do that the right way, I think. But I think if you lean into it, it works well, but it just takes so much mutual understanding and respect from the people that you’re delegating to and understanding where they’re smarter. And I don’t think people are really good at that.

Haseeb (00:47:24):

Yeah. I think we’re still in the early innings of figuring out these delegation markets and these kind of protocol politicians. But I think these things are only going to get more developed in the coming years.

Tom (00:47:36):

No, no. I’m with you. So, Haseeb, closing out kind of the whole discussion here, let’s say we’re a couple of years out. We have a DOWS that you’re a part of. Let’s say you even started it. What does that look like in practically decentralizing? And I know that we kind of went through this example earlier with Synthetix and others, but if you had to start a project from the beginning. I’ll let you take it. Whether it be a DeFi app, whether it be layer 1, what would your approach to decentralization be? And I guess what would you do much different than what you’ve seen or what you’ve seen failed in the past?

Haseeb (00:48:16):

Let’s see here.

Tom (00:48:16):

It’s a tough one. You’ve got to start a whole project and find-

Haseeb (00:48:18):

Yeah. I got to start a whole project. So I’m not going to worry about what my project is. Probably something dumb.

Tom (00:48:25):

It more so comes down to how DOWS communicate differently, what the difference would be in the future on how they communicate, how they organize, how they decide versus how they do today.

Haseeb (00:48:34):

Right. So the first thing I think is that I actually don’t think the early stages of projects are going to look that different a few years from now than they look today. I think the difference is really going to be in the later stages. It’s almost like asking the question, if you imagine startups during the dot-com boom, how are they going to be different from startups 15 years later? We can actually answer that question now. We know what startups look like in the year 2015. And the answer is that they look mostly similar. Obviously the tools are different. They move a little bit faster. They have better, more robust language to describe growth hacking and CAC and blah, blah, blah. Everything is a lot more systematic, but most of the changes are in the later stages.

Haseeb (00:49:18):

It’s like when Facebook is the $5 billion company or the $20 billion company or $500 billion company, that’s when you start to see that the notions around corporate governance, the notions around conflicts of interest, the notions around all these different things that you think should happen in the competent stewardship of a company start to become more real and we develop better and better best practices around them. The same thing I think is what we’re going to see in DOWS.

Haseeb (00:49:45):

In the early stages. It’s going to look pretty similar. It’s going to be a small group of people who are moving pretty fast. We’re cutting corners, and we’re trying to build something that people want. And I don’t think it’s going to look that different in the very early stages. I think the question is going to be, once you get to product market fit, what is the playbook for how you decentralize this thing, bring in more protocol, politicians, get a more robust set of governance frameworks around something. I think we’re going to have much better tools. Things will be much more verticalized. Things are going to be much more automated. There’s going to be better discovery. There’s not going to be five different pieces of software you use. There’s going to be just one or two, and it’s going to be … In traditional companies, there are these guys who are just on 20 boards and it’s like, okay. There’s a set of suspects who I know I can go to and be like, “Yo, I want a board member. And you’re somebody who knows a lot about CPG, so I want you on my board to represent CPG.”

Haseeb (00:50:43):

We are going to have the equivalent for that in crypto, where, as a protocol, you can put out a thing and say, “Hey, I want Gauntlet to participate and be a delegate in my protocol and start participating in governance,” or, “I want Lev from Symbolic to come and participate and I’m going to put out a bounty the same way that a company pays a board member. I’m going to put out a bounty, like, “Pay this political politician, just start participating in the governance of my protocol.” And again, you’re going to see all these things just become much more streamlined and less ad hoc, less random, less kind of like, “Oh, well, this person was interested in this, so they’re here,” and almost want to say more transactional than they are today.

Tom (00:51:23):

No, that’s really cool to think about. I mean, so I agree with you on delegation. I agree with you on the declining marginal utility of decentralization, too. The only thing I’m wondering about is let’s take the utopian view. You have Facebook built on Ethereum and all the users are the owners, yada, ya. Do you think that there’s ever a world in which all of these users are viewing their home feed, seeing what all their friends are doing, and then update number four is vote on this change to the UI to change the car from blue to yellow. Do you ever see a world where a mass amount of users are actually the ones voting on governance or do you think that might be too utopian?

Haseeb (00:52:04):

I think it’s very possible, but I think in very limited circumstances. So, what you’re describing is basically like a referendum and many democracies have the notion of doing a referendum. They’re very rare and they tend to be for kind of big, kind of effect everybody sort of moments of like Brexit or California. California is kind of crazy. They have their own set of neuroses about it but-

Tom (00:52:32):

Totally different country.

Haseeb (00:52:33):

Yeah. It’s a totally different country. So, I think there may be moments where it’s like, “Hey, Facebook is thinking about winding down this thing and changing it to be this,” and, “We want everybody to give us feedback on this.” But most of the things that decentralized Facebook is going to do is like, “Ah, you probably don’t care. We’re just going to appoint a few delegates and delegates will decide what happens here.”

Haseeb (00:52:56):

So, I think it may be a point of where there’s such a political firestorm that it’s like, “Okay, we’re going to go to our real bosses, the token holders and we’re going to ask every single token holder to participate.” But of course the difference is, in crypto, because we don’t really have democracies and this is again, another thing that people tend to allied a little bit when they talk about decentralization, is they always talk about a decentralized protocol as though it’s a democracy and it’s not. It’s a plutocracy. How often is it really important to say, “Yo, let’s go to the real people, the whales and see what the whales think.” To actually do a coin vote for everybody involved basically means that you’re trying to get the whales to directly vote on something instead of getting delegates to make what they think is the best decision based on who’s in front of them. So, I don’t think it’s going to be that common, but it’s certainly possible in principle.

Tom (00:53:50):

Yeah, no. That’s interesting. I mean, the reason I ask is because a lot of the DeFi apps today, I mean, outside of the gaming apps, I mean, a lot of the users have pretty much aligned to the developers. We use Compound, we can hop on discord and probably reach Leshner at some point. I don’t know if we’re at a point where DeFi is around in the world where we have users who are disconnected from, I guess, the creation of the projects, obviously they’re not creating it, but we’re not at the phase yet. We’re not at the Facebook-level stage where the users are totally disconnected. And understanding how they would take part in governance is interesting. But the referendum idea you raised, I mean, that’s live. I mean, that’s a good idea.

Haseeb (00:54:29):

Yeah. Although you and I are fairly politically connected within crypto, so it’s easy for us to go and be like, “Hey, Leshner,” or, “Hey, Hayden. Something’s going on. I want some help.” If you’re a rando in crypto, I don’t think you can get access to those people.

Tom (00:54:46):

Yeah. That’s fair.

Haseeb (00:54:48):

No. To be clear, I think we are already there in a place where, if you’re a rando in crypto, you’re kind of on your own.

Tom (00:54:54):

Yeah. It is. It is harder. It was a lot easier a couple of years ago.

Haseeb (00:54:57):

Yeah. A couple years ago. A couple of years ago was a lot easier. There was order of magnitude fewer people in this space. And so, yeah-

Tom (00:55:03):

No. [crosstalk 00:55:04].

Haseeb (00:55:03):

… but I think that has changed.

Tom (00:55:07):

Last kind of question for you on this, Haseeb. Have you seen any projects pursue … I mean, I’m sure you’ve seen a lot of projects that have crossed your desk in the VC side that focus on decentralization solely and maybe just missed their whole target market and product. But are there any projects that you’ve seen progressively decentralize and just straight up fail?

Tom (00:55:27):

I guess I’m psychologically wondering here, do you ever look at a CEO or a founder and say, “Hey, is this guy the leader I want who can progressively decentralize or does this guy we have way too much control from the get-go? He’s a dictator. He’s never going to open this up.” Are those things that you look at when you’re kind of DDing a founder?

Haseeb (00:55:48):

It’s not straightforward how to DD somebody who can progressively decentralize. It’s kind of what’s-

Tom (00:55:54):

That’s a good call. [crosstalk 00:55:55]-

Haseeb (00:55:55):

Yeah. It’s like, what does that mean and also how would you know?

Tom (00:55:59):

[crosstalk 00:55:59]. Yeah.

Haseeb (00:55:59):

How would you know, because also very few people have done it and most people have never done it before, obviously. So it’s hard to know what that looks like. If anything, honestly, what I look for is the opposite, is like, can this person make this thing super centralized and just run the show? Because that’s actually rare. That’s something that’s hard to find. So, if somebody can be that benevolent dictator for life early on, and then eventually find their way to become more of a backdrop to the project.

Haseeb (00:56:29):

I think like GOON, Avalanche is a good example of that. He’s somebody who for the first time I met him, I was like, “This guy is going to be one hell of a religious leader. If he puts together a layer 1, he can absolutely galvanize people around himself.” And that’s the rare property, finding people who care a lot about decentralization and they will sing pans to how important decentralization is. That’s actually pretty easy to find but somebody who can just fucking execute, that’s most of what you need in order to get something off the ground. So there are many projects that we have seen and that some of which we backed that tried to be very decentralized in the very beginning. And it didn’t matter because they didn’t work. They just died.

Haseeb (00:57:11):

I don’t necessarily want to call out particular projects, because I feel like it’s kind of a dick move, but yes, it has definitely happened and it’s enough that it’s obvious when it does happen that it’s like, “Why are you guys so focused on decentralizing? You have no users.”

Tom (00:57:27):

Yeah, no. I’m totally with you. It’s also pretty interesting. Look at founders like … I’ll take Andy from Fractional as an example. Obviously Fractional is pretty centralized. I think it’s sub-10 people right now, but he’s a guy that’s so out there in the community every day. And I honestly, when I met him, I thought that’d be a huge benefit. People say, “Oh, you’re wasting time on Twitter.” I’m like, “Absolutely not. This is the best thing this guy could do is grow a community.”

Haseeb (00:57:49):

Right. Right.

Tom (00:57:49):

But he’s able to be so active in the community that he’s able to siphon all of that into product updates. It’s like, people indirectly have a voice. I mean, that’s the same with every project, but you have to have a founder that’s receptive to that stuff and to be able to implement it. And it’s hard to find. Finding a religious cult leader that can execute. I’m in every time, to your point.

Haseeb (00:58:10):

That’s right. That’s right. And how many people do you see complaining about OPENC being centralized?

Tom (00:58:15):

Oh God. I mean, I feel like people don’t love OPENC, but I mean-

Haseeb (00:58:20):

Well, yeah. Yeah. No. I mean-

Tom (00:58:22):

No, and to your point, I love that it’s centralized and what they’ve built. It’s a pillar of the NFT community, but, I mean, on the flip side, I mean, anybody I talk to just has issues with it somewhere.

Haseeb (00:58:33):

Well, look. It’s eBay now and everybody … Once it takes over everything, it’s like Facebook. All you’re going to do is complain about Facebook all the time and it’s the most used app in America. So, that’s kind of the sign.

Tom (00:58:45):

[crosstalk 00:58:45].

Haseeb (00:58:46):

It’s got inside, like you’re married to it now, that you can just sit around and complain about it all day.

Tom (00:58:51):

Yeah, you’re right. I mean, we’re talking about earlier stage projects, it’s easy to reach the founders. I just hate pulling up Twitter and seeing Joe Schmoe who hustled his whole life lose all of his NFTs because open SIERRA dropped him something or he has in view of one. It’s not OPENC’s fault, honestly. But, it’s annoying to see, but other conversation.

Haseeb (00:59:12):

It is. It is. It is. Well, so you were saying earlier about the things that you agreed on me about it to this podcast. What did you disagree with me about doing that post?

Tom (00:59:24):

I guess I disagree on the extreme examples, like government coming after crypto. I mean, I think decentralization will be extremely important there. I think they’re going to go after the ones that are just easier to get. I mean, US government wakes up tomorrow. Who are they going to go after? Solana or Ethereum? I love Solana. We’re investors. Anatoly is an amazing guy, but I mean, let’s be honest. What’s easier to take down?

Haseeb (00:59:43):

Yeah. So when you say, “US government goes after,” what are you imagining?

Tom (00:59:48):

That’s a good question. I mean, to be honest, I think I got it wrong. I was of the view a couple of years ago that, “Hey, they’ll 51% attack us. They’ll buy a bunch of miners. They’ll kidnap Vitalik,” or something like that. I mean, today, you’re totally right. They’ll go after people on the IRS side. They’ll go after people for screwing around with their taxes. They’ll go after people at the corporate level or block the UI. But I don’t know what a total government crackdown looks like. And to be honest, maybe since I don’t, it kind of proves your point that it’s maybe not as much of a concern.

Haseeb (01:00:19):

Well, we’ve seen two so far or we seen a few, not just two. We’ve seen India and China being the most prominent examples. And, in both cases, there was no 51% attack. There was no targeting the founders of any of these projects. It was all just, again, it was mostly applied at the corporate level and at the banking level.

Haseeb (01:00:37):

The thing about governments is that they use the tools they have. They’re not very creative when it comes to trying to accomplish their goals. And so, in that sense, even look at EOS. If you’re worried about Solana, you should be really fucking worried about EOS. EOS got away with a slap on the wrist. EOS settled with the SEC without admitting wrongdoing and without registering as a security. EOS is not a security. It’s done. It’s over.

Tom (01:01:03):

They got off. Yeah. They got off. They’re [crosstalk 01:01:03].

Haseeb (01:01:03):

They’re never going to register. So, if EOS is not a security, why would you be worried about Solana?

Tom (01:01:08):

Yeah. I guess let’s take it a step further, though. Let’s go to a world where there’s no more governments. Let’s go to a world where we’re a hundred percent [inaudible 01:01:18] totally crypto.

Haseeb (01:01:20):

Well, I’m not sure I want to go to that world, but okay.

Tom (01:01:22):

[crosstalk 01:01:22].

Haseeb (01:01:22):

As long as you’re with me, I’m down.

Tom (01:01:24):

No, no. That’s fine. I’m there. [crosstalk 01:01:26].

Haseeb (01:01:26):

Where are we? Are we in a raft? Are we on an island? Where are we?

Tom (01:01:29):

We’re on a beach.

Haseeb (01:01:30):

We’re on a beach.

Tom (01:01:31):

We’re looking at the world that used to be. There’s no more governments. There’s no more … It’s not the [crosstalk 01:01:34].

Haseeb (01:01:34):

So, what is there? What is there?

Tom (01:01:38):

Oh, that’s a good question. I mean, just the metaverse like [crosstalk 01:01:41].

Haseeb (01:01:41):

There’s just the metaverse. Okay.

Tom (01:01:43):

We pay for independent security. [crosstalk 01:01:46]-

Haseeb (01:01:45):

How are we eating? Where’s the food coming from?

Tom (01:01:48):

Yeah. No. You’re right. This is a long form example. It probably doesn’t make too much sense, but in that world, does decentralization matter more? If existing governments become less and less relevant, does decentralization become more important and more secure to people? And I’d probably say, “Yes,” but again, I don’t know what that world looks like.

Haseeb (01:02:12):

That’s such a hard question. I think it depends on decentralization of what. It seems likely that if governments actually were to disappear, that decentralized networks would take over some of the roles that governments traditionally provides. In which case for those types of functions, decentralization would be very important because decentralization is one of the features that gives you robustness.

Haseeb (01:02:39):

That being said, there are obviously many things for which decentralization doesn’t matter or is not that important. And the metaverse is a good example, like gaming. Axie Infinity obviously is highly centralized in that it has a fucking game developer and if that game developer gets deleted, then the game’s over. There’s no more … People don’t really want to play Axie Infinity anymore if the game is not going to continue to evolve.

Haseeb (01:03:05):

So, there’s a sense in which we don’t really have a clear enough picture for what types of things can exist in a purely decentralized way. And also what do we mean by decentralization? Can we imagine a world where there are decentralized people developing a game? Kind of. We can sort of imagine that. It seems plausible in principle, but we’ve never seen it. There’s never been a game that was developed by decentralized people. Would it be much worse?

Tom (01:03:33):

It’s like old Loot Squad, but, I mean, it’s a huge concern.

Haseeb (01:03:36):

Yeah. Plausibly, it’d be quite a lot worse than it’s central. It’s hard to create Fortnite or a Ubisoft game, like a AAA game. It’s very hard to do that in a decentralized way because you need hundreds of people, you need all these environmental 3D designers who are all working together and doing all this stuff, licensing IP and blah, blah, blah. How do you going to do all that in a decentralized way? We don’t know. We don’t have a clear picture of it.

Haseeb (01:03:57):

But in principle, it’s possible it could be done. It would just require much better coordination tools, much better primitives for building all these things. So, I think I agree with you that if governments did disappear, some things would need to be very, very decentralized to take place of many of the services that governments traditionally provide, but I don’t think it’d be true for everything.

Tom (01:04:20):

I don’t even know if it’s in our lifetime, man. Tech moves fast, but I feel like that would be another world.

Haseeb (01:04:26):

Yeah. To be clear, I don’t think governments are going away.

Tom (01:04:29):

Oh, yeah, no. Me, either. I don’t think they’re going away any time soon. Yeah. [crosstalk 01:04:33].

Haseeb (01:04:32):

Okay. Okay. You ask Balaji, Balaji will tell you. He’s pretty sure they’re going to get dissolved.

Tom (01:04:35):

Hope they’ll have them on some time with you and we could debate it.

Haseeb (01:04:39):

Yeah. Absolutely, man.

Tom (01:04:39):

But, see? This is awesome, man. I definitely think people should check out your posts. I haven’t done many philosophical-type podcasts, so I’m glad that we could kind of break the ice with this one. It’s super interesting.

Haseeb (01:04:52):

I enjoyed it. It was fun.

Tom (01:04:53):

I added a link to your posts as well and it’s just fun as hell to talk to you about this stuff.

Haseeb (01:04:56):

Likewise, man. This is great.

Tom (01:04:58):

Haseeb, thanks so much for coming on, man.

Haseeb (01:05:00):

Appreciate it. See you, Tom.

Show Notes: 

(00:00:00) – Introduction.

(00:01:32) – Overview of Dragonfly Capital. 

(00:02:05) – Inspiration for the post “Why Decentralization Isn’t as Important as You Think”.

(00:04:07) – Haseeb’s stance on decentralization. 

(00:06:37) – Haseeb’s thoughts on progressive decentralization.

(00:09:02) – The purpose of decentralization.

(00:12:00) – Haseeb’s thoughts on quantifying decentralization.

(00:13:46) – What if Vitalik kept control of Ethereum. 

(00:16:50) – The decentralization trade-off for layer-1s. 

(00:23:04) – Why projects cannot compete on being decentralized. 

(00:27:18) – Censorship on layer-1s. 

(00:29.01) – Adverse situations with nation-states.

(00:35:21) – The declining marginal utility of being decentralized.

(00:39:09) – Haseeb’s thoughts on decentralization bringing in more human capital. 

(00:41:44) – Helping a team navigate decentralization as a VC.

(00:44:15) – The part incentives play in decentralization.  

(00:47:37) – How Haseeb would structure a DAO.

(00:51:33) – Haseeb’s thoughts on mass governance.

(00:55:07) – Judging founders as an investor. 

(00:59:13) – What Tom disagrees with in Haseeb’s post.

(01:01:09) – Imagining decentralization in a world without governments.