Crypto and decentralization: Variant’s view

If you spend time with crypto people, a word you will hear a lot is decentralization. The word describes a form of governance, but it also stands for much more than that—it’s an ideal to which every blockchain project is supposed to aspire and has taken on a near-religious status. And that can be a problem.

I was reminded of this when talking to Jesse Walden, cofounder of VC fund Variant, which has just hired prominent crypto lawyer Jake Chervinsky to help the firm and its 30 or so portfolio companies navigate the perilous regulatory waters for U.S. blockchain projects. The pair said this task often involves designing a process of “progressive decentralization.”

The term reflects the reality that nothing is decentralized out of the gate and that the process should take place gradually. “A persistent issue in the space is that teams try to speed run the first two steps—building a product and then decentralizing. It’s critical for many products to have leadership out of the gate while seeking product-market fit,” Walden told me.

It’s refreshing to hear such talk. After years of covering crypto startups, it’s been frustrating to watch projects repeatedly try to claim they are decentralized when obviously they are not—or to spin up decentralization arrangements not because their product would benefit, but because they are trying to check a legal box. Their motives for doing this are rarely informed by a Satoshi-like ideal, but rather a desire to get rich quickly by dumping some sort of crappy token on the market.

I was also glad to hear Walden say that some projects are simply not fit for decentralization at all, and to acknowledge that, historically, “corporations and democracies are the best structures we have come up with for human decision-making.” This sort of pragmatism and maturity has too often been lacking in an industry where “decentralization” is too often invoked to justify poor product design and to conceal ulterior motives.

This doesn’t mean, of course, that building projects without a central gatekeeper or authority is impossible. Bitcoin proved this long ago, and, as Walden pointed out to me, there are other recent successful examples of decentralization such as the giant DeFi platform Uniswap. Satoshi’s vision is very much alive, and people are achieving it—though doing so is a much harder task than most people will admit, and one that shouldn’t even be attempted in some blockchain projects where centralized control is the only practical solution.

More broadly, my conversation with Variant was a welcome reminder that, even as the media digs in for weeks of wall-to-wall coverage of Sam Bankman-Fried’s trial, the crypto industry is still building away. And speaking of SBF, I found time to write a proper review of Michael Lewis’s Going Infinite—a book that is poised to tarnish the famous writer’s legacy but that also contains many new details that are essential reading for anyone who follows this industry closely. Have a great weekend.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

DECENTRALIZED NEWS

Binance’s share of spot-market trading has fallen to 34% from 55% in January, and has declined for seven straight months, in part, due to the elimination of many zero-fee promotions. (Bloomberg)

A group of FTX employees discovered the exchange’s “back door” that let Bankman-Fried’s hedge fund trade without losses but were forced out after reporting it. (WSJ)

JPMorgan warned that Ethereum has become more centralized a year after the blockchain switched to proof-of-stake, potentially making it more vulnerable to oligopoly or hackers. (CoinDesk)

Hardware maker Ledger laid off 12% of its staff, a decision that comes shortly after analytics firm Chainalysis cut headcount by 15%. (Bloomberg)

Authorities seized two private jets valued at more than $28 million from Sam “I drive a used Toyota” Bankman-Fried. (Fortune)