Governance

Software systems have largely been governed by the companies that operate them.

The Washington Post reports that Twitter has been suspending more than a million accounts a day recently.

That certainly is necessary given all of the fake accounts, bots, spammers, and worse plaguing Twitter.

Twitter, the company, is making those determinations.

Twitter the company governs Twitter the software.

But that doesn’t have to be the case.

Back in 2007, a few years too early :), my partner Brad argued on usv.com that governance was the next big thing in software.

I suspect Brad was right, but maybe a decade and a half or possibly two decades too early in making that call.

One of the many interesting ideas that have emerged from the crypto sector is the idea of decentralized governance.

Decentralized governance can be implemented in many ways but the basic idea is that the token holders will control the operation of the software system.

The 0X decentralized exchange protocol is an interesting case in point.

They way 0X works is that companies build “relays” on top of the 0X protocol and operate decentralized exchanges on it.

Our portfolio company Coinbase operates a relay on top of 0x called Paradex.

Now imagine you are Paradex and 0X wants to make a change to the protocol that you don’t like.

If you hold a significant amount of 0X tokens, you can vote against that change.

Think about the Bitcoin miners. They would probably like to have the ability to weigh in on the roadmap for Bitcoin, but they do not.

Many crypto projects have either implemented a form of decentralized governance or have committed to doing so in their white papers.

And I am certain that we will start to see the benefits, and challenges, of a community governing a software system instead of a company.

And I believe we will see that start to play out in the coming years.

And then what? Well the basis of competition may shift from functionality to values as Brad predicted at the end of that post:

Is there a basis for competition beyond the governance systems underlying these services? If pressed, I would guess it will be values. It might be possible for two equally effective governance systems to compete by internalizing different values. One could perhaps embrace openness and diversity at the cost of some efficiency and the other could be optimized for efficiency for a more homogeneous set of users and interests.