Web3 Opinion Leaders and Power: Creating Consensus

Article Author: Dryden Brown

Article Compiled by: Block unicorn

Thanks to Vitalik Buterin, Tarun Chitra, Sreeram Kannan, Arthaud Mesnard, Maxwell Tabarrok, and Robert Drost for their feedback.

Cryptocurrencies face a threat to decentralization, which is the process of transferring power from direct leaders to opinion leaders; opinion leaders influence the voting preferences of token holders. There are fewer opinion leaders because they have influence across projects. Therefore, when a project decentralizes governance, it actually centralizes power across the industry. This makes cryptocurrencies more vulnerable to attacks and control, as it only takes capturing a few individuals, and their distribution can be expanded or restricted by the owners of the social platforms they use. If we can understand these decentralization risks, we can mitigate them. Ultimately, we should create a regulatory environment that promotes the long-term development and growth of the industry.

Why Decentralize?

Cryptocurrency projects always start with centralized governance, initiated by a vision that is attempted to be realized by a personal or team-led direct leader who makes decisions about strategy and resource allocation.

Typically, part of the strategy or product design involves issuing tokens. Tokens are often a liquid, tradable claim on a share of the value created by the project. Decentralization refers to the process by which direct leaders transfer decision-making power (authority) from themselves to their token holders. Token holders vote on what the project should do: strategy and resource allocation.

So, why do direct leaders decentralize when issuing tokens? Decentralization brings certain costs to an organization—slower decision-making by lower-level personnel who are not accountable for poor decisions, which is why companies do not operate this way. These costs are felt throughout the industry. Kevin Owocki, a direct leader who left Gitcoin, later returned to describe a broader trend of "founder return" to address the organizational dysfunction caused by decentralization. As the impetus for governance reform grew, Rune Christensen of MakerDAO wrote in 2022: "Governance processes and political dynamics… do not align with the practical realities of effectively handling complex real-world financial transactions."

Projects often decentralize because it is a regulatory requirement for issuing tokens, which is an implicit provision of the Howey Test. The Howey Test determines that most coins are considered securities if they claim value from a "common enterprise" (direct leaders and teams). If tokens are deemed securities, it brings significant regulatory burdens and expenses for direct leaders and teams. Beyond the functional product possibilities that tokens can achieve, decentralization also brings the following benefits that affect the decentralization decision-making process:

1. Liquidity for early holders; less market scrutiny than stock markets and regulation; cheaper than IPOs.

2. Unlocks new ownership demand through liquid capital markets, increasing funding availability and project value; less market and regulatory scrutiny than traditional finance (tradfi) stock markets; cheaper than IPOs.

3. Distributing tokens to customers, suppliers, etc., using tokens as a customer acquisition cost (CAC) and retention strategy for teams building on the protocol; lower costs and fewer restrictions compared to IPOs.

4. Token issuers can stop working after the token is successful and enjoy the benefits of the token issuance.

These benefits are real. Despite some skepticism in the industry, the ultimate rationale for decentralization can lead them to understand that blindly mimicking Bitcoin's decentralization can accumulate brand value and thus achieve legitimacy. Delegation is often seen as noble, but in reality, it is often just an excuse to abdicate responsibility for economic motives.

Projects choose to decentralize because, according to U.S. regulatory requirements, there is a strong economic incentive to do so, which also brings them legitimacy; however, they must bear the costs of decreased organizational efficiency within the project and pay the price for the concentration of power across the industry.

Manufacturing Public Opinion

When projects decentralize, direct leaders are ostensibly handing power to token holders, but is that the reality? No—decentralization transfers power from direct leaders to opinion leaders.

Elections cannot accurately express voter preferences because, in a democratic system, voters are more willing to delegate power to opinion leaders. Opinion leaders are those who influence voters' perceptions of the project because they are seen as more knowledgeable about the project, industry, or topic than the voters, making their views and recommendations more weighty, perhaps wiser, and certainly more legitimate. Opinion leaders are often former direct leaders, but sometimes they are current or former direct leaders of another project. Empowered by the trust of token holders, opinion leaders control the flow of information that influences voter preferences. By controlling information, opinion leaders determine voting outcomes; sometimes opinion leaders have explicit power through formal representative systems. Typically, first-layer chains (L1) like Ethereum have robust off-chain governance systems (e.g., EIPs) that allow for thorough discussion before voting, but the vote formally decides the fate of proposed changes.

This dynamic is famously described in Noam Chomsky and Edward Herman's "Manufacturing Consent." They argue that mass media is a propaganda tool of the U.S. government, controlling the flow of information and thus determining voting outcomes. Today, a broader network of independent opinion leaders is emerging on social media, but they still feel the pressure of political power. Moreover, independent opinion leaders are subject to the influence of direct leaders, who control the social media platforms they use to disseminate their views. If social media platforms were to decentralize, this issue would be exacerbated. Elon Musk demonstrates the potential of direct leadership as someone who can break free from the influence of opinion leaders.

Adversarial actors seeking to harm a project or industry will operate outside the project's internal logic (Byzantine participants)—they will not attempt to steal money or tokens but will seek to create chaos to establish a fundamental problem: industry dysfunction and potential collapse. If crypto is gaining zero-sum political power from some actor, this response is rational.

The lesson is: if an adversarial actor (perhaps a hostile government or other inconsistent interest groups) wants to control crypto, they will:

1. Incentivize project decentralization (with financial or social capital).

2. Encourage opinion leader centralization (potentially leveraging social platforms).

3. Collaborate with influential opinion leaders to affect important projects.

This is much easier than manipulating the teams of these projects because opinion leaders have cross-project influence. The result of decentralization is a more vulnerable industry with clear fatal weaknesses.

The Fate of Projects: Vibrant or on the Brink of Collapse

Ethereum is formally decentralized, but it is an active leading project: it is actively led by a group of highly legitimate opinion leaders, including its founder, Vitalik. There is almost no cross-project influence because the core development team has not left a power vacuum. It is hard to find a non-Ethereum opinion leader that Ethereum people take seriously. In the broader Ethereum ecosystem, Layer 2 expansions are heavily influenced by Ethereum core developers; given that their decentralization primarily stems from a deep association with the underlying blockchain network (L1), this seems inevitable. This highlights a potential attack vector on Layer 2 expansion schemes, which could lead to the L1 network becoming less active.

Dead leading projects are those decentralized projects whose founders are no longer involved and have truly retired. This leaves a power vacuum within the project, making it susceptible to external influence.

Dead leading projects are hard to revive, and projects led by opinion leaders are difficult to transform. There is little motivation to execute the necessary transformations to achieve significant second or third phases, as competing for social capital within the project as a new potential active leader is a challenging process, with no clear mechanism to obtain economic incentives equivalent to CEO-level work, namely tokens; a simpler approach is to simply launch a new project.

Paths Threatening Project Growth

Many projects share a Bitcoin-like ultimate vision: an autonomous, immutable system running forever on the internet. It is worth taking some time to appreciate the cyberpunk style and historical achievements of these systems, but guiding a project to lofty heights requires leadership—if the history of technology teaches us anything, it is that new projects using new technologies will replace old projects, especially if there is no highly legitimate leader to address Christensen-style disruptions. Decentralizing too early is not the path to eternity—it is the path to faster extinction.

Opinion leader-led projects find it difficult to achieve significant success in later stages of development (second or third phases), creating more opportunities for newcomers. Imagine if Facebook decentralized to Facebook Protocol after achieving market fit (or reaching 1 billion DAU); META would not be an $800 billion company because opinion leaders would not guide token holders to vote in favor of the "overpriced" Instagram acquisition, nor would they invest in metaverse technology. Only a direct leader with the legitimacy of Mark Zuckerberg could make paradoxical decisions. In a Facebook Protocol world, Instagram would gain user attention from Facebook's core product, while Oculus might be actively developing metaverse technology, building its own empire. Meanwhile, Facebook Protocol would gradually decline. This is not inherently a bad thing, but it does indicate that premature decentralization can hinder project growth. An unfinished mission is a frustrating sight, but from a more practical perspective, smaller outcomes mean higher capital costs for the industry. Venture capital firms are willing to take risks on "expensive" deals in areas with significant outcomes.

Recruiting for decentralized projects becomes more challenging, as they are less likely to make bold strategic decisions, leading potential recruits to choose to become founders. Projects with such high legitimacy are so rare that the social capital they convey outweighs the obvious economic incentives of starting new projects using new technologies. The Ethereum Foundation's recruitment has been very successful—they may earn more by launching new L1s like Avalanche or Solana—but EF is an exception.

Premature decentralization leads to more projects (which is good), but smaller outcomes and higher capital costs for the industry (which is bad).

Conclusion

Please reflect deeply on the costs of decentralization for projects and the entire industry. Vitalik once wrote, "It is good for small things to be centrally controlled, while central control of great things is frightening." And the greatest thing in the crypto industry is the industry itself. We should not allow crypto to head towards a place that may concentrate power and be controlled by opposing opinion leaders, especially under the guise of the noble ideals that this industry was created upon.

We need to be able to create tokens without excluding direct leadership. Great things are built over time by outstanding leaders with authoritative power and the courage to take bold actions. To achieve the benefits of tokenization without misleading decentralization, we need to create a favorable regulatory environment. By doing so, we will be able to achieve greater outcomes, lower crypto capital costs, and drive further growth in the industry. More importantly, we will enhance the industry's resilience to risks, eliminating a potential attack vector that we often overlook—namely, that malicious actors can exploit excessive decentralization to harm the crypto industry.