Private venture capital firm Andreessen Horowitz has just helped demystify the three most important components of successful crypto-businesses.
A new report released by the California-based VC firm sheds light on how crypto businesses developing decentralized applications (dapps) for smart contract platforms can more reliably achieve long-term success.
Fit the market, not assumptions
The first of these core components is the product and market fit. In line with this, crypto businesses must develop products for a ready and willing target market, rather than trying to force adoption.
Moreover, the VC firm believes there needs to be a way for the team behind the project to quickly test hypotheses, make adjustments to the core code and rapidly adjust the product to better fit the market if needed—such as by including admin privileges in any smart contract code.
Andreessen Horowitz also warns against forcing decentralization, arguing that it is fine for a core team to drive product decisions, but that this must be completely transparent. Although it can be tempting to offload product decisions to the community, Andreessen Horowitz argues that strong leadership in the early stages is often necessary for decentralized projects.
Get the community involved
Despite these remarks, in order to achieve long-term success, Andreessen Horowitz believes that crypto businesses should gradually cede control of decentralized projects to the community.
Founders might want to consider running an open-source project, investing in good documentation, as well as providing incentives for third-party developers. Over time, this can allow the community to grow increasingly involved in project operations, and further promotes decentralization.
However, crypto businesses will need to consider different models to properly incentivize the community, since it is unlikely anybody will continue working on a project that provides no financial benefits. As such, crypto businesses might want to consider distributing project tokens or dapp usage fees to contributors.
Become truly decentralized
So far, Andreessen Horowitz has highlighted the importance of market fit, careful leadership decisions and community involvement in successful crypto businesses. However, the third tenet is arguably the most difficult to achieve.
The VC firm argues that crypto businesses need to achieve complete decentralization and become self-sustaining. To achieve this, crypto businesses need to complete the transition from an application managed by a leadership team to one where active contributors vote on future developments.
This, Andreessen Horowitz believes, will only be possible for projects that have a sufficient number of active contributors, and a suitable way to incentivize these contributors for the long term. And that’s easier said than done.