This article uses information and slides from DXdao Contributor and Founder of Level K John Kelleher’s presentation at 0xhack: watch “DXdao: The Emerging Decentralized Tech Stack”
The internet you’re used to using today is called Web2. Web2 is dominated by large, opaque, and centrally controlled corporations including Google, Facebook, and Amazon. These corporations dictate how you can use their services. Google changed its search algorithm so your website no longer shows up? Tough luck. Facebook leaked your personal information again? They might pay a small fine. Selling something you made on Amazon? If they see you’re making money, they can steal your idea and sell their own knock-off version.
“The Bitcoin Whitepaper will go down in history with the Magna Carta”
Web3 presents an entirely new paradigm of decentralized, uncensorable, and transparent applications. Decentralized and permissionless peer-to-peer networks put power in the hands of the many instead of the hands of the few. Bitcoin, which was created in 2009, was the proof-of-concept for this emerging technology. As John Kelleher explains, the Bitcoin whitepaper will “Go down in history with the Magna Carta” because of the revolutionary technology it introduced.
While Bitcoin pioneered crypto technology, Ethereum, which went live in 2015, has become the dominant blockchain for decentralized applications (DApps). Unlike Bitcoin, Ethereum allows smart contracts, which are written in Solidity and form the foundation of DApps. DApp users pay fees, called “gas”, to use the blockchain’s distributed computational power. The Ethereum blockchain is immutable, similar to Bitcoin, which means that — unless there’s a 51% attack or other rare cases — transactions on the blockchain are permanent and can never be reversed. Neither Bitcoin or Ethereum have ever suffered from a known 51% attack, and the planned Ethereum 2.0 upgrade would make any 51% attack on Ethereum more difficult.
Smart contracts deployed on Ethereum are backed by the same immutability: if the contract is sound and cannot be altered, then it will always remain so, keeping the funds locked within safe. This is the new kind of trust Web3 provides: Trust in transparent, decentralized systems instead of reliance on opaque, centrally controlled corporations. Web3 means that you no longer need to rely on the Web2 corporations which turn you and your data into the product to sell advertisements.
Web3 is “doing to all kinds of web services what Bitcoin did to money”
Many Web3 services don’t even require an account to use — just an Ethereum wallet. Using Aave, Maker, or Compound, users can deposit digital money into a smart contract on the Ethereum blockchain to earn interest or take out a collateralized loan. Unlike your bank that earns interest on loans backed by your deposit, yet only pays you a measly 0.01%, you’ll keep most to all of the interest earned on your deposits. The highly competitive, open nature of Ethereum where anyone can create their own similar application or fork of these lending protocols ensures that most of the profits flow to the users, not the lending protocol itself.
Web3 isn’t just disrupting the banking industry, Web3 is disrupting every Web2 monopoly. In addition to the disruption shown above, Facebook, Twitter and Whatsapp have Web3 competition from Status, a DXdao partner; Peakd, and Minds. Emergent Web3 technologies often start off centralized because they’re developed by a single development team. Then, as they develop further they become increasingly decentralized, often giving some control to early users through an airdrop of a governance token. This approach was popularized by Uniswap and has since been followed by countless DApps. Another example is The Graph, a protocol that provides access to data on an open marketplace, which is currently adding more nodes to increase decentralization.
The revolution is here: How Web3 aligns incentives and removes middlemen
DApps operating in the Web3 space face positive pressure to become more decentralized as users flock from centralized services to decentralized ones. This pressure also comes from investors in the DApp’s governance token. Developers working on DApps sometimes disappear or move on to work on other projects, and if the DApp isn’t sufficiently decentralized when this happens it can result in a total loss of value for investors. Decentralization mitigates this risk because even if the developer team leaves, the community of governance token holders will be able to continue operating the DApp. Uniswap, for example, has immutable smart contracts running on Ethereum and decentralized governance. So even if the entire Uniswap team and Uniswap’s website both disappeared tomorrow, Uniswap would keep running on Ethereum, and the Uniswap token could still be used for governing the protocol. If the developer team behind a centralized application quits, on the other hand, the centralized application they created will become unusable as the centrally controlled services it was built on become inaccessible, causing investors to lose most or all of their investment. Decentralization also helps ensure that the team behind the DApp can’t create more tokens for themselves, or another token that dilutes value away from investors. In this way, the purely selfish motives of investors seeking to protect their investment align with the creation of a more open, decentralized web.
Another Web 3 incentive alignment comes from how users of DApps are made into investors. Airdrops of tokens to early users of Uniswap, 1Inch, The Graph, and many more DApps gave control over these protocols to their early users. Uniswap users who added liquidity to the protocol were rewarded with Uniswap tokens, too. This mechanism is called “liquidity mining” or “yield farming,” and it rewards users with ownership tokens based on how much they’ve deposited into a DApp. Many other DApps like Compound, Sushi, and Mirror Protocol have similar programs. Non-financial DApps like Akash, an Amazon AWS competitor, can use a different method of marketplace subsidization to reward users. Web2 tech startups, on the other hand, first need to exchange equity for cash from an investor before spending to acquire users. Then, Web2 user acquisition is done indirectly through paid ADs on another Web2 company like Google or Facebook. Instead, Web3 startups give governance tokens directly to users, cutting out both the Web2 investor middleman and the Web2 advertising middleman! Instead of you and your data being the product, you and your fellow users become the owners. This is the Web3 revolution.
DXdao is at the forefront of the Web3 revolution
As John Kelleher explains, “DXdao is pushing the envelope on deployment of decentralized applications.” DXdao owns the ENS names for each of its applications, which reduces reliance on centralized domain hosts. To ensure verifiability, a reproducible hash of each build is created by the Dev team to ensure that the same build is being used on the ENS name. Anyone can then deploy that build using IPFS, which is a technology that allows people to store data and information in a decentralized way. Despite DXdao’s progress in decentralization, the DAO is still limited by some centralized services. For example, web browsers do not yet support accessing DXdao’s .eth domains directly, so DXdao uses a .link service, which is why DXdao’s address is DXdao.eth.link. DXdao also maintains a Twitter, Discord, and Telegram, in addition to the decentralized Keybase and DAOtalk forum.
DXdao contributors are generous with their time, and often give feedback on budding decentralized applications. DXdao also provides grants and funding through the recently created DXventures. DXventures proposals are first made on DXdao’s forum, DAOtalk.org, and then voted on Alchemy, DXdao’s decentralized governance platform. DXventure’s recently passed a proposal to give a $100,000 grant to Opolis.
DXdao’s existing products consist of:
- Omen: Decentralized prediction market platform
- Swapr: Governance-enabled automated-market maker
- Mesa: Open source interface for Gnosis Protocol, a decentralized exchange
DXdao-partnered Web3 projects include:
- Radicle: Decentralized Github. DXdao is working closely with them as their platform is developed. Radicle represents a huge upgrade in decentralization that will give DXdao direct, on-chain control over software updates.
- Almonit: Decentralized blogging. Almonit received a grant from DXdao, and is working on an alternative to Medium that will allow for governance by internet-native organizations.
- Status: Decentralized encrypted messaging and browser. As outlined in DXdao’s partnership article, Status browser “Allows ENS domains like https://omen.eth/ to resolve directly to the IPFS hosted site. This eliminates the need for third party services, making DXdao’s products easily accessible from the Status decentralized browser.”
Join DXdao, and take part in the Web3 revolution!
Getting started is as easy as introducing yourself in the DXdao Discord. As you learn more about DXdao, you can browse and comment on the forum, where you can have a say about every important decision DXdao is facing. DXdao is also looking for developers, so if you think you have what it takes don’t hesitate to introduce yourself!
If you are building your own project in the web3/DAO/DeFi space, talk to DXventures.
About DXdao: DXdao is a decentralized collective that builds and governs DeFi products. DXdao was spawned in May 2019 through a collaboration between Gnosis and DAOstack. Reputation (REP) is voting power in DXdao, and DXD is the financial token with a claim on profit from DXdao products.