How do centralized teams building crypto projects decentralize?

Frustrated by how spread out information about corporate structures was, I mapped out how a few high-profile projects have transitioned from company to foundation. The governance mechanisms they’ve put in place in the process serve as precedent for those who follow and raise questions of their own. As an outsider (and definitely not a journalist), I relied on news articles, blog posts, Twitter threads, and conversations with individuals to help me piece these diagrams together. Feedback and corrections welcome.

I’ve also highlighted in each diagram which governance questions are still outstanding or warrant further discussion. Here’s a sample:

  • What kinds of business models fit into this decentralized ecosystem? Should founding teams make money from initial conditions (creating the projects themselves) or from businesses that rely on others in the ecosystem?
  • How do you set up an independent foundation? Who should be on the board of the foundation?
  • How do you prevent self-dealing from foundations to companies (via grants) while ensuring that the foundation acts in the best interest of the project?
  • Should governance be parameterized at the smart contract level (of the project) or at the legal entity level? Are there other ways to set initial conditions?
  • Lastly – and perhaps, most importantly – who decides who decides? Who gets to answer these questions, in aggregate and on a per project basis?

In each diagram, boxes represent entities and arrows represent cashflows. Sources are listed below each diagram. Without further ado:

ZCash

ZCash is one of the most high profile projects in the space whose governance questions have been made transparent within the community. In summary, the ZCash Protocol initially had a Founders’ Reward (FR) backed into the protocol, but the FR is set to expire sometime in 2020/2021. The FR funded the Electric Coin Company, which then financed itself with some cash by selling a portion of its future FR to investors. These same investors then set up the ZCash Foundation with a portion of this FR cashflow, as well as a ZCash Dev Fund.

There has been some re-negotiation of the portion of the FR that is given to ECC vs. the ZCash Dev Fund, and this re-negotiation will itself need to be re-negotiated once the FR expires. Once the FR expires, how should ECC be funded? How should the ZCash Dev Fund be funded?

Tezos

Tezos had one of the most notable ICOs (the headline figure of “$232 million” has been widely circulated), with payment made in BTC and ETH. These funds (in BTC and ETH) were locked in the Tezos Foundation until the board was willing to purchase “Dynamic Ledger Solutions” from Arthur and Kathleen Breitman in exchange for a portion of these proceeds. As the prices of BTC/USD and ETH/USD fluctuated, this was delayed – perhaps the board of the Tezos Foundation was too independent. How could the creators of Tezos (its source code) have set up an independent foundation without leaving ICO funds hostage to an independent board?

Melon

Melon has a transparent, yet complicated, governance mechanism. After designing the underlying technology for Melon, Melonport AG ceded control over the project to the Melon Council, which has the ability to make grants to projects that want to build on top of Melon. These grants are funded by up to 80% of the annual MLN inflation pool, with the remaining 20% compensating a sub-group of the Melon Council, the Melon Technical Council (MTC). The MEB has not yet been established and seems to be more of an “upper house” in bicameral systems, with its decision-making power focused on membership rather than grant allocation.

While Melonport AG was dissolved and is thus no longer in charge of Melon, giving that responsibility to the Melon Council, it appointed the initial members of the MTC and let the Melon Council set its own governing statutes (which also discuss control over membership). This structure is an interesting counterpoint against the Tezos model – Melonport AG seems to have transferred governance of the Melon project to an independent organization without leaving it hostage to an unfriendly entity. In light of this structure, which initial conditions should a founding project set, and which should it let the resulting foundation set?