In last week’s Twitter Spaces AMA, a question arose about our decision to prioritize the implementation of the governance module over the NFT lending module. While we addressed this during the call, we feel it’s useful to delve deeper into the topic to clarify why we consider this to be an important step.
From the inception of Paribus, one of our key priorities has been the rapid decentralization of the platform and the establishment of a democratic governance system. We firmly believe in the power of community, and having witnessed numerous failures of centralized organizations in the recent past, we feel the platform must fully embody the principles of decentralization.
There are two other reasons behind our decision to prioritize decentralization before releasing the NFT module: market conditions and regulatory considerations. With the prevailing belief that the current bear market will persist for the next few months, there’s no immediate pressure from the market to implement the NFT module.
By using some of this additional time to focus on governance, we can dedicate our efforts to ensuring sufficient testing, implementation, and fine-tuning of our strategy. We’ve witnessed other projects experience challenges in transitioning to a Decentralized Autonomous Organization (DAO) and aim to avoid the same pitfalls.
A particular area of interest for us is addressing the issue of large token holders, commonly called “whales,” exerting excessive influence over decision-making. To mitigate this concern, we’re researching a quadratic voting approach that could be used in the future.
The successful implementation of a decentralized governance model is still a moving target in crypto. Therefore, we need to devote sufficient time and resources to getting it right before the next bull run when market conditions and the numbers of new people entering the space will rapidly change.
The other reason decentralization is a priority is due to regulators’ approach worldwide. As we’ve seen over the past few weeks, regulators can significantly impact a project’s ability to operate within certain territories or even list on some exchanges.
Decentralization is a hot topic in regulatory discussions regarding whether a token represents a digital commodity or a security. Coinbase CEO Brian Armstrong outlined four critical factors used to determine the listing of a token on the exchange: the presence of an initial token offering in exchange for investment, control, and operation by a centralized entity, an expectation of profit without utility, and profits derived primarily from the efforts of others.
The degree of decentralization a project exhibits is crucial in addressing these issues and transforming tokens from securities to commodities. This is illustrated by the concept of safe harbor, which is being explored as a potential regulatory approach in the United States. This would allow projects to register as security-type projects without being subject to the full weight of securities laws. They would then have a fixed timeframe to transition into commodities by becoming sufficiently decentralized.
Whatever the outcome of the present regulatory battle within the US, it’s clear that decentralization will be a fundamental requirement for many projects to ensure their long-term growth and success. Although the SEC rules won’t apply directly to us, they will affect us indirectly regarding the exchanges we can list on and the access we’ll have to different customers in the future.
It is important to note that alongside the current Mainnet v1 iteration of Paribus, we are also developing the Paribus Pro platform to cater to advanced and institutional clients. In both cases, demonstrating robust regulatory compliance will significantly contribute to our long-term objectives.
By successfully implementing our governance module, it will be apparent that a central entity doesn’t control the platform. The primary utility of the PBX token will shift towards staking for voting on governance proposals. At the same time, the platform’s growth will stem from an increasing number of different people’s usage of the protocol.
As time progresses and the crypto market faces greater regulation, paving the way for mainstream adoption, decentralized governance will become indispensable. As such, we are proactively embracing the situation rather than resisting this inevitable shift.
For all of these reasons, we’ve prioritized developing our governance module, and we’re looking forward to sharing more details as we move closer to launching it. In the meantime, we’re continuing to develop the many other strands of Paribus in parallel with the governance module. Although the months ahead look uncertain and volatile in the markets, we’re confident our approach will yield the best long-term results.
