The Decentralization Equation

So I assume it looks like a weighted equation, like, you know, 30% depends on the number of miners or people interacting with the network, plus this other piece counts for 10%, and the output is a percentage. How does the actual equation look like?

Yeah, so the output is, yeah, ranges between 0 and 1. It's standardized, and there's one A metric that we are designing for measuring the dispersion of information within the system. And then another one that's designed to capture the dispersion of decision-making authority.

Right, back up the 2 axes.

So it's basically 2 metrics that take into account a number of dimensions and try to, in a very refined way, look at authority dispersion in a way that's comparable for every network.

And this is without taking into account the goal of the entity. So not thinking about, oh, this wants to be very scalable or whatever. It's just pure decentralization depending on 2 axes, which is information and decision-making.

Absolutely.

Sums it up on authority.

Okay.

Let me, what are some of the findings? So have you already had some outputs yet or are you still redefining how the models work? Can you share anything with us?

I cannot share like a league table yet of the most or the least dispersed networks out there.

But we're gonna get there.

But we are getting there.

Excited.

And I'm hoping that by the summer we will have data collected on the top layer 1 blockchains out there. And so I think once we have these data, we will be able to examine things that a lot of people want to know more about in the industry. So let's say I know exactly over time How how much decentralization there actually is in Bitcoin versus Ethereum versus Polkadot versus Solana versus etc. Now I can use this data to measure the impact of authority dispersion on market capitalization, on how much innovation there is, on how many developers have been attracted to the ecosystem, on how many complementers have decided to build a dApp on top. of the ecosystem, et cetera, right? So once we have the data, we can look at really what that thing that we call decentralization, that's very abstract, that's a bit of a buzzword, we can now start to measure it and we can try to understand how it actually implicates other things that we really care about.

I mean, I assume it's going to be very hard to draw a causational relationship though, right? Because we have a sample size of like what, 4 or 5 blockchains that are really, we can compare. I mean, there's more, right? But the same—

We have a few dozens and we have potentially weekly data time series. So we may have sufficient amount of data points to start to touch upon some of these relationships. Whether we will be able to make a, you know, have a study that goes beyond correlational analysis to touch upon causality is a question for later. I'm going to lose my sleep over this 6 months from now, but thanks for I'm sorry. Give me a heads up. But yes, it will be tricky to analyze the relationships causally, but we'll do our best and we have some techniques that we can use to do that. So we'll see how that goes depending on the quality of the data we get, basically.

And then do you hope that people maybe read the study and can take decisions based on the findings? What could be, for instance, a finding? Like, what's your thesis? What do you expect we're going to see, for instance, decentralization, especially when it comes to information or decision-making, will lead to a particularly fruitful environment of early-stage startups. Is that the kind of parallel that you want to draw or what kind of thesis do you have?

Yeah, so I have many. I can pick one that I think is fundamental to managing digital platforms in general, which is if you want to have a successful platform, you need to attract not just frontline users, but complementors. So complementors are like third parties that will come and they will develop valuable additional services that will make your platform more appealing. So if your platform is a video game console, you wanna make sure that you're attracting video game studios who will develop games that will work with the console because that's how you're gonna get more users, right? So same thing works with blockchain platforms and any kind of digital platform. whereby you want to attract developers that are gonna build dApps on top of your layer 1 or layer 2 that will make the platform itself more appealing to users. So, okay, imagine now you can have a very decentralized platform where a lot of people can provide input to make decisions and everybody has access to all the information, all the code is open source and all that stuff, right? Or you can have a very centralized platform where you have like basically a couple of co-founders who are setting the rules about what kind of dApp is allowed or not allowed. And there's basically a review and a process, and not everybody is allowed to build on top, right? So the question is, which of the 2 scenarios is gonna be more appealing for complementers in the context of digital platforms that are powered by blockchain? And you might imagine that at first, when you have a lot of top-down decision-making, the rules are going to be very clear. And that can be appealing for complementors, for developers in the short term, because they know exactly what's happening and they know what to expect. So they might like it at first, right? So you might be able to attract a lot of them in the short term. But if you think more about the long term, it could be that the more decentralized design becomes more appealing because it mitigates one thing that developers really care about, which is platform risk, which is the possibility for the platform to suddenly change the rules of the game in a way That becomes a lot more favorable for the platform, and a lot less favorable for developers.