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VC-Funded Web3 Projects Can't Deliver on Decentralization Promises

Venture capital centralizes Web3 in a Web2 kind of way

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Web3 venture capital (VC) firms love to talk about decentralization. Unfortunately, they aren't big on actual decentralization. Like this post on decentralized social networks, they champion projects like DeSo and Lens as shining examples of decentralization when those projects are funded by VC money. Any project funded by VC money, of course, is anything but decentralized.

Let's take Lens, for example.

What Is the Lens Protocol?

In the introduction to the social graph's documentation, they use all the right language:

It is designed to empower creators to own the links between themselves and their community, forming a fully composable, user-owned social graph. The protocol is built from the ground up with modularity in mind, allowing new features and fixes to be added while ensuring immutable user-owned content and social relationships.

Sounds great, doesn't it? Designed to empower creators. Creators own the links between themselves and their communities. Check. It forms a fully composable, user-own social graph. Check. Built from the ground up, with modularity. Check. And it ensures immutable user-owned content and social relationships. Check, and check.

So, what's the problem?

Lens is funded by a $15 million capital raise with injections from venture firms IDEO CoLab Ventures, General Catalyst, Variant and Blockchain Capital, several DAOs including Global Coin Research, and individual angel investors such as Uniswap CEO Hayden Adams, OpenSea co-founder Alex Atallah, entrepreneur Balaji Srinivasan, best known for his free book The Network State, Sandbox co-founder Sébastien Borget, and Polygon co-founder Sandeep Nailwal. Ironically, Lens is built on the Polygon network.

As I've stated elsewhere, when VC money is involved, the true owners of the product are the investors funding the development. Sure, users own their accounts and relationships. That's a step up from Facebook, X, and TikTok. But it's still a far cry removed from actual decentralization.

2 Necessary Layers of Decentralization

There are different layers of decentralization. We can ascertain that by studying the definition and types of decentralization. Merriam-Webster defines decentralization as

the dispersion or distribution of functions and powers

As an example, the U.S. federal government is decentralized. There are three distinct functions of government distributed across three branches: Executive, Legislative, and Judicial. The latter two are further decentralized due to their makeup. The Legislative branch of government, for instance, consists of two chambers, a Senate and a Congress. The Senate is comprised of two members of each state in the union while Congress consists of elected representatives based on districts distributed across the country. The Judicial branch of government consists of various levels of courts, both local and regional, and a Supreme Court allowing for the litigation of legal authority so that no one judicial body dictates the application of law in all cases. The Executive branch alone is centralized.

Note that this decentralization takes place at the human level of government. The technological layer of government is governed entirely differently.

When it comes to tech-based social communities, decentralization is flip-flopped. The tech layer is decentralized and the human layer is not. Such is the case with so-called social networks like DeSo and Lens.

Lens is under the guided development of Aave Labs. Aave is an open-source protocol built on the Ethereum blockchain. However, scrutiny of the company's Crunchbase profile reveals that, at the company level, it isn't so open source. Consider:

  • It's a private equity firm located in London, England

  • It is a "for-profit" company

  • And among its employees are a chief compliance officer, chief executive officer, director of human resources, senior vice president of product and design, and several other positions that can only exist in a centralized hierarchy such as a traditional corporation.

DeSo has a similar structure. Calling itself a "first layer-1 blockchain built from the ground up to decentralize social media and scale storage-heavy apps to billions of users", its website boasts of being backed by "proven investors". These include Polychain Capital, Winklevoss Capital, Sequoia, Andreessen Horowitz, Coinbase, and others. Again, it's decentralized at the technology layer while remaining centralized at the human layer.

That's not to say that these firms and their social media applications don't have anything good to offer users. I'm not saying that at all. But let's quit saying they are "decentralized" when they are only partially decentralized.

Does Decentralization Have a Future?

As I point out in Web3 Social, the Internet began as a decentralized Department of Defense asset. It transitioned into a decentralized commercial network of network in the 1980s only to have the World Wide Web developed as a layer on top of that network further hastening the commercial aspects of the technology. Since then, the Web3 has grown into a patch of walled gardens and branded silos. Decentralization is a relic of the past.

Web3 social networks such as Lens and DeSo promise to bring back that all-important feature of decentralization to the internet and World Wide Web, but to the VCs that own them, decentralization is nothing more than a buzzword. Their true aim is to profit from that buzzword by doling out its benefits in small doses.

Of course, as Seth Godin has warned us, all marketers are liars. Okay, that's harsh. Let's call them storytellers. One sure way to know what motivates the marketing behind projects like Lens and DeSo is to examine the stories they tell against facts. DeSo, for instance, says ...

In this paper, we introduce DeSo, short for "decentralized social" the first and only blockchain custom-built from the ground up to power and scale a new category of decentralized social applications to one billion users.

The first? Seriously? DeSo's founder didn't get the seed of his idea until 2019, a full three years after the launch of Steemit.

Steemit was the first layer-1 blockchain with a social media application and a native cryptocurrency. It launched in 2016. After a major controversy, the blockchain forked into Hive, which is its own layer-1 blockchain with its own social media application, a native cryptocurrency, and a bevy of layer-2 tokens.

While Steemit has since morphed into a centralized property under the aegis of Justin Sun's Tron, Hive remains decentralized in both the technology layer and the human layer, unlike DeSo and Lens. What that means is no single individual or entity is controlling the blockchain, and certainly no single individual or entity owns it. Detractors will often point to the Decentralized Hive Fund and its distributions as evidence of centralization into the hands of a few projects, but that's a disenguous stretch of logic. Hive can certainly be improved, but it is the most decentralized Web3 social network I've seen and I've been watching them since 2018.

One more thing about Hive: It's never accepted VC money, keeping it untainted from investors who want to control development. On Hive, developers control development, and because it is a layer-1 blockchain, that means development is decentralized.

While I applaud anyone interested in building a social network of the future that promises decentralization and its associated benefits, not all such claims are on target. I'm a bit disgruntled that Web3 social media isn't any more developed than it is. Nevertheless, I'm holding out hope that a social network of the future will come along and improve upon what Steemit started and Hive has carried on. So far, that hasn't happened.

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#decentralization#web3#social media#web3 social media#venture capital#deso#lens#creators#facebook#x#tiktok#aave#crunchbase#steemit#hive#internet#world wide web#seth godin
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