• Consensus 2023 guests discussed the issue of ‘decentralization theater’ in DeFi projects, emphasizing the importance of genuine decentralization in the development of Web3.
• The term ‘decentralization theater’ refers to projects pretending to be more decentralized than they actually are.
• An example of decentralization theater is a DeFi protocol establishing a non-profit foundation with the power to hold tokens, write governance proposals and advise the project.
What Is Decentralization Theater?
Decentralization theater is a term that emerged in the early days of decentralized finance (DeFi) which suggests a project is pretending to be more decentralized than it actually is. One example is a DeFi protocol establishing a non-profit foundation to hold its native tokens, write governance proposals and advise the project – often confusing users and regulators alike.
The Arbitrum Foundation Incident
The term became relevant in April when the community behind the Ethereum layer 2 network Arbitrum accused the Arbitrum Foundation of fudging its very first governance vote with $1 billion worth of ARB tokens on the line. The foundation had already moved the tokens into its coffers, making an upcoming vote to “ratify” the move really just retroactive permission.The vote was ultimately scrapped, and the foundation vowed to become more transparent going forward.
Are DAOs Doomed To ‘Decentralization Theater’?
This incident raised concerns over whether DAOs are doomed to fall prey to decentralization theater in future projects as well, with some experts arguing that there needs to be greater clarity about who has control over such systems if true decentralization is ever achieved. At Consensus 2023, many industry leaders expressed similar worries about how these issues may play out in future projects and emphasized that genuine decentralization must be taken seriously if Web3 is ever going to reach its potential.
True Decentralized Governance
Some attendees at Consensus 2023 argued that true decentralized governance should involve multiple stakeholders making decisions through some form of consensus system or voting mechanism – rather than relying on one centralized entity or group for all decision-making power. This would ensure that any changes made would have been vetted by multiple parties before being implemented, thereby avoiding any potential centralizing issues or inconsistencies between different opinions within an organization or group running a particular project.
The debate around decentralization theater will likely continue for some time as new protocols emerge and develop; however, it’s clear that developers need to take genuine decentralization seriously if they want their projects to succeed beyond short-term gains alone. Only then can we expect real progress towards realizing Web3’s full potential as an ecosystem capable of providing global financial access without needing third parties or intermediaries involved along every step of the way.