Regulators, CEXs, and the Unstoppability of Decentralized Networks: A Deeper Dive

The game of cat and mouse between regulators and Centralized Exchanges (CEXs) continues to draw attention. But what lies beyond this struggle?

After all, CEXs don't define Web3 on their own; they're just part of the process. As we move forward, we must ask ourselves: what will happen when regulators realize they can't halt certain networks?

Even if we don't see a dummy attacking a chain by spending millions, bigger players may try it one day. Guess who might these players be. If decentralized networks are truly borderless, decentralized & censorship-resistant, enforcement becomes insignificant after all, right?

However, it is essential to analyze the networks that we are betting on for the future. If all the technology, developments, and funds are backed by a single company or foundation, there exists a significant single-point failure that could stop these networks.

One crucial factor in the resilience of a network is its structure: is it more like a spider or a starfish?

Spider-like networks, upon losing their head (central control), are basically dead. On the other hand, starfish-like networks lack a central point of failure. If you cut one of its arms, it grows into a new starfish.

The books "The Fall of Nations" and "The Starfish and the Spider" offer insightful analogies for analyzing these network structures. They explore the reasons for the fall of the great Inca and Aztec empires and why similar methods of conquering didn’t work on the Apache tribes.

Apaches, unlike Aztecs or Incas, didn’t have rich cities, architecture, settlements, or art. However, they were a decentralized society, with no kings. Catalysts and common virtues formed small circles or groups. A good example of a catalyst in the crypto space is Satoshi, which is one of the reasons Bitcoin has remained resilient until today.

To be unstoppable, a system must be adaptive and agile. The Apaches, after experiencing Spanish destruction, swiftly embraced nomadic life, evading conquest for two centuries, while the Incas and Aztecs were conquered in less than two years. This shows how decentralization rendered them unstoppable.

However, starfish structures aren't undefeatable. Various strategies can challenge their resilience: reshaping the ideology only based on ROI, centralizing and controlling the head (potentially by governments), pushing the retail to consolidate into a single chain that appears like a starfish but is in fact a spider, or joining the decentralization movement like companies such as Toyota, Mitsubishi, and Sony have done by embracing Astar Network on Polkadot.

But does every network need to launch fully decentralized?

Several experimental approaches have shown that an immediate distribution of all tokens to the community at launch can lead to decision-making failure and halt progression. Thus, a phased approach seems more practical for the evolution of decentralization:

• Early stages: Semi-Centralized. Initially, a core team or charismatic founder drives the project's direction (e.g., Vitalik in Ethereum, Gavin Wood in Polkadot) for focus, coherence, and progress.
• Growth Stage: Gradual Decentralization. As the project develops, it gradually decentralizes decision-making power.
• Maturity Stage: Achieving Unstoppability. Eventually, once the network reaches a certain level of maturity and stability, it can transition to a fully decentralized model, like Bitcoin.

Taking Polkadot as an example, it has on-chain governance and treasury. After years of development and testing of the fully decentralized government model on Kusama, Polkadot’s full control will be given to the token holders.

This is not a pseudo governance that pretends to be a DAO. It’s probably the most sophisticated governance model on any major network. While it may not be optimal, Polkadot’s infrastructure is flexible and can adapt and optimize without needing to fork the chain.

There are risks in every venture, but as the saying goes, "everyone needs a Gandalf." In Polkadot's case, there's a sweet spot. The Fellowship - a guide for development and network changes without wielding power over the network.

Polkadot's core development heavily depends on Parity & W3F. But even if Parity and W3F are gone, with 40+ parachain teams and 150+ substrate builder teams, the network can operate and grow by leveraging its on-chain treasury which holds $230M worth of DOT. [1]

Moreover, every year Polkadot’s blockchain academy trains 70 individuals, 30+ of whom join the ecosystem as core devs.

Polkadot has a recognized founder/catalyst: Gavin Wood, who developed Ethereum, released EVM, and pioneered the Web3 concept, started Polkadot. But Gavin’s shift from CEO to Chief Architect led to misinterpretations, seen by some as an indication of uncertainty.

However, to become unstoppable, a true catalyst who starts a movement and inspires people must let it go when the time comes. This may be the most challenging part, as such figures often gradually drift towards centralization, believing it benefits the network.

In conclusion, it is essential to look closer when we consider an organization or a network as a starfish. The devil is in the details, and we might be betting on a spider instead of a starfish.