Strategy and cryptocurrencies - The secrets of the investment fund behind Uniswap and Compound

If you follow crypto news, you’ve probably seen the name Andreessen Horowitz or the acronym a16z come up. The investment fund has become one of the major players in crypto project funding, including early investments in Uniswap and Compound. In two recent blog posts, a16z shared its vision for the governance of crypto projects, as well as its program of delegating votes within the protocols in which the fund invests.

The governance of crypto projects according to Andreessen Horowitz

For Andreessen Horowitz, the governance of crypto projects must be decentralized:

“Crypto protocols are meant to be governed by decentralized communities. Not because it’s more efficient or important for ideological reasons, but because it’s necessary to realize their core value proposition: the underlying protocols will continue to work as intended and remain open to anyone who wants to use or develop them, without the rules changing without their knowledge.”

Andreessen Horowitz blog post

For the investment fund, decentralization is therefore neither a matter of efficiency nor ideology, but an absolute necessity without which crypto projects will not reach their full potential. Indeed, decentralized systems are not known for being particularly efficient. Nevertheless, their value lies in the fact that they prevent a single or central entity from controlling the destiny of the individuals who use its product or service.

In order to achieve the holy grail of decentralization, a16z proposes three implementations. Delegate voting rights to virtuous actors, create grant programs, and reward early adopters.

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The investment fund describes itself as a strong supporter of vote delegation. However, delegation carries with it significant responsibilities. Therefore, we should look for the following characteristics in delegatees:

  • Alignment. The delegate must have the objectives of the protocol at heart and must not have any conflict of interest.
  • Commitment. It is important that the entity have a lasting commitment to the success of the protocol.
  • Independence. Whoever receives the delegation must be independent (financially and operationally) of the delegator.
  • Expertise. It is important to know what the vote is about before making a decision. It would be inconsistent to delegate a vote on a DeFi protocol to a person who has never interacted with the decentralized finance ecosystem.

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Becoming a delegate for Andreessen Horowitz is now possible

In its second blog post, a16z presented its voting delegation program. Remember that this is a purely voluntary delegation of voting rights associated with tokens and not a delegation resulting from aDelegated Proof of Stake (DPoS

) consensus system.

The publication Open Sourcing Our Token Delegating Program

” provides resources and criteria for proper delegation to achieve an optimal level of decentralization.

These resources include legal agreements as well as a set of criteria that a16z has developed to assess whether a given company or organization is a good candidate for delegation.

<img width=”798″ height=”842″ src=”//www.w3.org/2000/svg’%20viewBox=’0%200%20798%20842’%3E%3C/svg%3E” alt=’Andreessen Horowitz Token Delegation Breakdown for Compound and Uniswap Projects.” /><img width=”798″ height=”842″ src=”https://yellowrocketagency.com/wp-content/uploads/2021/08/image-63..png” alt=”Breakdown of Andreessen Horowitz’s token delegation for Compound and Uniswap projects.” />Distribution of Andreessen Horowitz’s token delegation – Source: a16z

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The company has already delegated the voting rights of tokens it owns such as those in Compound and Uniswap

. It began this process by distributing voting rights to a handful of startups. Then, the investment fund expanded the list of beneficiaries to include nonprofits and universities. Now, a16z wants to make its delegation program truly decentralized by opening it to the public.

Grants and rewards drive decentralization

With the rising price of digital assets, most large-scale projects have significant cash

on hand.

For a16z, these funds are a good way to promote decentralization by supporting development initiatives outside the project.

On the one hand, the creation of grant programs allows us to tap into the hidden talent around the world. On the other hand, it reduces dependence on the original development team. Both of these elements necessarily promote the technical decentralization of a protocol.

Finally, the distribution of tokens to users would be one of the factors of success and decentralization. Andreessen Horowitz takes the example of Uniswap and Coumpound, both of which generously rewarded their first users in 2020. A year later, these projects are at the top of the DeFi food chain

.

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