Thread by @jessewldn

Minimizing governance is a goal of crypto protocols, but for necessary & subjective inputs/decisions, leadership can be more efficient than voting.

@c_spelliscy & I explored how crypto founders might continue to lead, alongside compliant user ownership.

variant.fund/leadership-in-…

tl;dr

Where a network is sufficiently similar to a cooperative, its possible a team can launch a token and decentralize ownership, while continuing to lead their project—without fear of violating securities regulations.

IANAL and this post does not provide a comprehensive legal analysis.

We are flagging this argument for further consideration in the hopes that crypto teams will consider them with their own counsel :)

So first, the problem:

Many crypto startups have successfully made their users into owners via Progressive Decentralization.

But many founding teams feel compelled to step back from their projects once a token is live, to reduce risk that it will be deemed a security.

This offers an opportunity to decentralize decision making, while providing an open source tool to the community.

That said, when a founding team steps away, users risk the loss of their institutional knowledge and efficient leadership.

Flat decision making can slow progress.

So how can founding teams stay involved, and continue to steward the overarching goals of a great user experience and consumer protection?

Build *like* a co-op—not literally incorporated as such, but functionally equivalent.

Many networks unknowingly share similarities that might allow for the argument that, like cooperatives, user ownership is not to be mistaken for a security.

For those willing to make tradeoffs that optimize for strong leadership, this elective could be a viable path.

So what are key characteristics/tradeoffs co-ops make that crypto might consider?

1/ Democratized decision making

This means token-holders having *equal* votes in selecting leadership or making decisions about protocol upgrades. 1 person, 1 vote—so yes, KYC.

2/ Limit token transfer and focus on utility, not price.

Incidental appreciation is OK, but there should be no expectation of profit.

It might help to limit tokens transfers to other members who intended to *use* the service, e.g. @NexusMutual's whitelisted AMM exchange.

3/ Allocate earnings on the basis of patronage/contribution

Many networks already allow for a variation of this principle by, for instance, allowing tokenholders to be compensated by lending or staking their tokens, or for developer contributions.

4/ Rely on financial contributions from members...

Cooperatives generally cannot sell equity in their organizations but they can raise through member contributions, and other means.

5/ Provide consistent disclosure of project information

The most important factor in the Schaden Test, which is employed by courts when considering the “efforts of others” is access to information. The more accessible, the better the arg that the instrument isnt a security.

Ownership is an experience, with lots of design space.

For consumers, some form of KYC may be fine (its the status quo for most platforms)

And perhaps illiquidity is a feature, or at very least, tolerable in exchange for premium utility & long-term incentive alignment.

This model will not be for everyone! It may not even work for most!

But for founders building in The Ownership Economy its an interesting thought experiment on how to continue to lead development, while simultaneously pursuing user ownership to build network effects.

Thanks to @BrianBrooksOCC for conversations that inspired this post and Jonathan Dotan, @ntnsndr, @ammori, @jchervinsky, @HughKarp, @djuricjel, @acameronhuff, @jasonsomensatto, @johndneufeld, Sam Zadeh, and the Blockchain Association for input.