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The Daily Dose1

At the bottom of the first post on this blog is a widget that contains links to recent blog posts by other USV team members. Many USV folks blog regularly and this widget surfaces those posts to all of you and everyone who visits the various blogs of the USV team members. Other than me, there are a few other USV team members who blog regularly; Albert, Nick, and Bethany are the most prolific writers at USV. Andy and Brad are the best writers but we don’t get a lot of production out of them. Since the start of the year, Bethany, who runs USV’s portfolio network, has produced a dozen blog posts, on topics like Hamilton In Puerto Rico, Nostalgia Creep In A High Growth Company, How To Measure A VC Firm’s Platform Efforts, and a lot more. I am just one window into USV and the VC/startup world in general. I encourage those who are interested in this stuff to seek out other voices as well. Right now, Bethany is one fire. You should check her blog out.

Unpacking Decentralized Governance in the Blockchain Era

Source: On January 10 2019, I made a presentation at the Blockstack “Decentralizing The World” event in Hong Kong. I’m posting my entire presentation as speaker notes. You can also see the slideshare link below. INTRO Good morning and thank you Blockstack for inviting me to this special event to talk about the Layers of Decentralized Governance, and greetings to Hong Kong and its tech community. I must confess, this is my first trip to your wonderful city, and I wished I had come earlier. DISCLOSURES First, by way of disclosures, I am involved in a number of activities in this sector, whether I’m invested in or advising companies, these are the key one. Some of you know me as the author of The Business Blockchain, the first book to explain the blockchain in a business language. Actually, that book has now been translated into 10 languages, and the first language was the simplified Chinese, published by CITIC, and the 2nd and 3rd were Japanese and Korean, so the Asian interest is very strong. Let me make a 2nd confession. We know very little about decentralization, let alone governance models behind them. Today, in this field, there is a lot more theory than practice, and there are a number of experiments that are dominating. And that makes it exciting to observe and follow. We are still newbies in trying to apply, learn, push the envelope, fail, stumble, iterate and we are eager to show that decentralization has a future. DECENTRALIZATION AS RAISON D’ETRE Of course, decentralization has a future. It’s the raison d’être of the blockchain. The blockchain is the best tool we have today, to implement a future where decentralization can flourish. STONE AGE You know, the stone age didn’t end for a lack of stones. So, if you think of centralization as being the opposite of decentralization and where are mostly today, we can’t wait for centralization to die, before embarking on decentralization. We must let decentralization take control of its own destiny. CENTRAL SYSTEMS FLAWS There is a school of thought that believes that for a every centralized business that exists today, there is probably a decentralized version of the same that offers a new set of benefits the central version didn’t have. One could argue – there is nothing wrong with central systems,- think Web-based businesses mostly, but also some monopolies that share the same characteristics, as a starting point. And some of them have grown to be quite large and influential in our lives. The challenge is that many of these central systems or businesses have developed flaws as they grew. Some of them are perceived to be unfair, corrupt, untrustworthy, evil, abusive, inefficient, expensive, or useless. The reality is that- few of these systems don’t have at least one of these flaws. INCENTIVES TO MOVE So, because of these flaws as weaknesses, these systems are giving us an incentive to move to decentralization. But the incentive must be strong for users to move. There is a psychology of change that is prevailing here, and it goes like this: People are risk-averse in the domain of gains, and they are risk-seeking in the domain of losses. Let me repeat it. People are risk-averse in the domain of gains, and they are risk-seeking in the domain of losses. This means that- you aren’t going to move users or people to try something new if they are currently happy with what they are using, and you just tell them it is “better”. But if someone is currently experiencing a loss, a pain, a defect, a deprivation, or something negative, and you come in and propose to them a solution that doesn’t give them these pains or losses, the motivation to move are much greater and they would gladly do it. Example- if it is sunny outside, and I approach someone offering them a better shirt than the one they are wearing, they probably won’t be willing to switch it, but if it’s raining and cold outside, and you’re standing there, wet and shivering, and I come to you, and offer you an umbrella or a coat, even if they aren’t the best umbrella or the coolest coat, you will probably agree to take them in order to reduce your suffering. So, you can’t just say – we’re going to have a decentralized twitter, decentralized facebook, decentralized messaging, etc. just because it’s decentralized. Right now, the best value proposition the blockchain has for this, is that the data is stored on decentralized network that can’t be easily taken down or hacked, and they are censorship resistant, so the government can’t ask for that data, and the companies that run them can’t abuse what they do with that data, because they don’t really own it. So, the users that you will mostly attract and that will gladly move to a decentralized solution are ones who have suffered a loss or are not happy with the current system they are using. Question- How many of you have been personally the victim of a data breach caused by a company where you use their service? Ok, of those of you that raised their hands, keep your hands up only IF you were caused some material harm, so please lower your hands if there was no harm that you know of. See – we haven’t been hit so much yet such that the pain to move away from the Facebooks and other systems is not that great. But if we were hit, we would move in spades. DECENTRALIZATION UNUSUAL BEAST Decentralization is an unusual beast. DECENTRALIZATION IDEAL And getting to decentralization is full of compromises. Decentralization maximalists want everything to be on-chain, including the governance aspects. You could say that in an ideal world, we’d have everything decentralized and on-chain, but that world doesn’t exist today. Except the DAO, and it crashed. Let’s be careful with everything being on-chain. For example, blockchain transactions are irreversible by design. But decision-making wants optionality and flexibility. You cannot replace human judgement with automated logic which is what smart contracts are. So, we need to design the right balance between different degrees of decentralizations and on-chain vs. off-chain linkages. And that is btw the essence of a good design for blockchain architecture. DECENTRALIZATION AS COMMUNITIES Decentralization and open source projects are communities. They are a living organism. Success will be directly related to the vibrancy and well functioning of the community that is behind them. Peter Hintjens has written a book called Social Architecture: Building Online Communities, where he names the 20 tools covering all aspects of a community, and the way you use that toolbox is to either measure an existing community or to design a community to help you focus your efforts to where it will be most useful. All of these apply to the blockchain decentralization projects, protocols, platforms and products that are being conceived today. More specifically, I’d like to draw attention to a few of these characteristics that we must pay attention to (in bold): –        Strong missions – the stated reason for the group’s existence –        Free entry – how easy it is for people to join the group –        Transparency – how openly and publicly decisions are made –        Free contributors – how far people are paid to contribute –        Full remixability – how far contributors can remix each others’ work –        Strong protocols – how well the rules are written, and Good protocols let strangers collaborate without up-front agreement. –        Fair authority – how well the rules are enforced –        Non-tribalism – how far the group claims to own its participants –        Self-organization – how far individuals can assign their own tasks –        Tolerance – how the group embrace conflicts –        Measurable success – how well the group can measure its progress –        High scoring- how the group rewards its participants –        Decentralization – how widely the group is spread out (here it looks like the author is thinking of “being distributed” as the key factor) –        Free workspaces – how easy it is to create new projects –        Smooth learning – how easy it is to get started and keep learning –        Regular structure – how regular and predictable the overall structure is –        Positivity – how far the group is driven by positive results –        Sense of humor – how seriously the group takes itself –        Minimalism – how much excess work the group does –        Sane funding – how the group survives economically SIMULTANEOUS IMPACT See, the blockchain excels when its impact is being applied simultaneously along the 4 dimensions that it is supposed to address: Technical, Business, Social and Legal. If you only tinker with one of these variables, and ignore the others, your success will be more limited, and that applies not just to the implementation parts, but also for the motivation to get there. You could get away with tackling 3 of the 4 aspects, but 4 will get you covered the best. DEFENSE MECHANISM Decentralization, when it’s well implemented is a defense mechanism. It becomes less vulnerable to attacks and offers protection for privacy, security and autonomy. GOVERNANCE SEGMENTS So let’s dive into the governance aspects and cover the landscape, as I see it. Let’s answer the question: where are we applying governance? The reason for this segmentation is that – there is No One Size Fits All. Each one of these segments presents a different set of challenges, drivers and considerations. Blockchains is where a lot of activity has been, but we should think of the emerging Peer-to-Peer networks as another important segment. An example is OpenBazaar, a decentralized protocol for e-commerce. These typically have a built-in protocols as their engine of sorts, but there is also another category – Protocols and these are sometimes not requiring their own P2P network, but they are to be implemented on top of existing blockchains. Example 0x which runs on the Ethereum blockchain. A 4th category that is emerging is everything seen as a Dapp/App or Platform. And finally, the last frontier of decentralization (arguably), using the blockchain as a tool for social and political change. DIFFERENT PRIORITIES So this is my Toolbox list for Decentralized Governance, the layers to think about, and they are different for each segment. So, if you are a blockchain, you want to optimize for preventing Sybil attacks and a sound consensus process that never fails. If you are a P2P Network, the priority shifts to installation, self-incentivization and the economics viability of the network. Protocols – It’s about adoption, nurturing the ecosystem, and providing value to it. Dapps/Apps/Platforms – Network effects to guarantee success, development of the platforms, and support. Socio-Political Change – Inclusiveness, Fairness, Wealth distribution. DIVERSE STAKEHOLDERS So, once you have focused on these priorities, the other big factor is – Who are the stakeholders that will be interested in defining or participating in your governance. And this list is important. As a reference point, the current governance of companies today includes the board, the company’s management, and the shareholders mostly. But in the world of the blockchain, that list expands and includes new elements such as users, developers, regulators, node operators and even influencers as governance participants in addition to the investors and organizations. And even under these categories, there are new elements- the organizations we are seeing now are Foundations/Councils and in the investor category, we have token holders, not just equity owners. Users also are token holders and they can vote with their token to influence the future of decentralized organizations. Today, users vote with their buying power or they voice their dissatisfaction, but that’s an indirect participation. MAPPING SEGMENTS TO STAKEHOLDERS Now, if you put all of this together, what do we have. Think of this matrix where you have on one side the various stakeholders, and on the other the type of decentralization construct you are targeting, and in the middle the Toolbox priority list. So you need to optimize your governance to cover these aspects, without making it more complicated than necessary. EXPERIMENTATIONS At the beginning of my talk, I said that we are living in a period where there is a lot of experimentation today with blockchain governance models. Here is a list of some of the interesting tools that are being tried: Liquid democracy – Form of democracy where the electorate has the option of vesting voting power in delegates instead of voting directly themselves. And they can withdraw it too. (Example of application is D-POS blockchains, Delegated Proof of Stake) Quadratic voting – Popularized by Glen Weyl in his book Radical Markets (a favorite book of Vitalik Buterin), it’s a form of decision-making where participants cast their preference and intensity of preference. Voters are given a budget to vote, say 10 votes, and they can elect to use 5 of these votes for 1 issue, and the rest on others, so you are voting with a weighting factor. Futarchy – Form of government proposed by economist Robin Hanson, in which elected officials define measures of national wellbeing, and prediction markets are used to determine which policies will have the most positive effect. Token Curated Registries – Pioneered by Mike Goldin at ConsenSys, is a way to curate lists with intrinsic economic incentives for the token holders to curate the list’s contents judiciously. Foundations, Councils and Associations are additional forms of governance structures being added to the experimentation mix. EXAMPLES 0x – Trying to gradually decentralize the evolution of the 0x protocol ZCash  – Aiming to find the right balance between ZCash the founding entity and the foundation. Aragon – Is itself a governance tool, at the heart of which is a set of smart contracts that are coding actions on-chain. They have a governance process too. Melonport – Here the focus is on Councils that steer the direction. Blockstack – Recently announced their march towards decentralization in October and are in the process of doing it. None of these are perfect. All are trying to a few things, and will be expected to iterate and make changes to things that don’t work, but they are some of the leading examples. Everyone is trying to eat their own dog food, or a version of it. If it doesn’t kill them, then it must be good. But the dog food may not taste the same …. ARE WE DECENTRALIZED YET? There was a website that put this chart together. It was an attempt to visualize the various blockchains in terms of the decentralization aspects such as the number of nodes, voting powers, number of wallets, …. These were not perfect, but it’s a good attempt- at least asking the right question. DECENTRALIZATION APPLIANCE It is becoming easier and easier to become part of the decentralized future. Of course, if you’re technical you can download the DAppNode to connect your computer to blockchains such as Ethereum or Bitcoin (maybe later Blockstack?). But you can also buy a cheap box, the decentralization appliance and you just plug it in and it’s always connected. Almost like a TV is always there to receive the signals. Starting price is $400. DILEMMA – WE ARE STILL DEFINING DECENTRALIZATION Some blockchains who don’t fully espouse the ideal decentralization architecture of Bitcoin or Ethereum try to water it down, and define decentralization in their own terms, so they focus on the Peer to Peer aspect of transactions validations. GOVERNANCE AS TOOL – NOT WEAPON So if you want to experiment with decentralized governance, let it be a tool, and not a weapon. When you look at some of the unfortunate contentious forks that have happened, that’s the equivalent of a separation from the original projects. Do not hide under the pretext that open source projects are not real companies and that decentralization ethos has to take over above all common sense. GOVERNANCE vs. GOVERNING The role of governance is to ensure that there is good governing. Think of the Queen of England vs. the Prime Minister. The Queen doesn’t really govern. She ensures the prime minister is governing properly according to the UK constitution. 12 ISSUES AND CHALLENGES In Closing, let me highlight some thoughts to keep in mind, and ones that I believe in. Token isn’t always neededIn decentralization, economic incentives matterIt is not just about votingDecision-making by consensus is not idealCommunities alone shouldn’t governPremature decentralization of governance Does Code = Governance?Transparency / Openness in Self-governanceOne size doesn’t fit allLarge gap in governance UI’s (it is still very technical to participate)Legal and moral aspects of unstoppable P2P networks (who is responsible?) Obsession with self-governance (DAO was not a standard) Decentralized governance doesn’t have to be complicated. It needs to be simple, embedded and reliable. Some software tools and products being developed as decentralized solutions may not have a strong case for being that way. Many of them are just discrete capabilities that have a given functionality, so decentralization governance for them would be a detriment, rather than a benefit. We must always ask what the purpose of governance is. SMALL PROBLEMS FIRST “In decentralized systems, problems can be solved early and when they are small.” (quote from Nassim Taleb from his book, Skin in the Game) THE BIG PICTURE Let’s keep in mind that the big picture is the blockchain economy, which includes a direction towards decentralized data, content, storage, computation and protocols. It also includes a set of transactional functionality related to work, rewards, earnings and spendings; and it is meant to target any industry, including the future of nations, law, and government. BETTER FUTURE Hopefully, the blockchain can lead us to a new world that is better than the current one, just as the web has brought many benefits to our lives in the past 25 years. THANK YOU

VA Was “Taken Advantage Of” by Paying Billions in Fees, Secretary Says

The Trump Administration The 45th President and His Administration Inside Trump’s VA Investigating Trump’s Promises to America’s Veterans Veterans Affairs Secretary Robert Wilkie acknowledged on Wednesday that his agency got a bad deal in paying nearly $2 billion in fees to companies responsible for booking veterans with private doctors. “The department, I admit, was taken advantage of because of the hasty nature that took place when the program was put together,” Wilkie testified at a joint hearing of the House and Senate veterans committees. Wilkie was responding to lawmakers’ questions about an investigation published this week by ProPublica and PolitiFact into the Veterans Choice Program. The program, which began in 2014, was supposed to give veterans a way around long waits in the VA. But veterans using the Choice Program still had to wait longer than allowed by law. And according to ProPublica and PolitiFact’s analysis of VA data, the two companies hired to run the program took almost $2 billion in fees, or about 24 percent of the companies’ total program expenses. Wilkie avoided blaming the companies directly, and he instead faulted Congress for giving the VA only three months to launch the program. Asked by Rep. Beto O’Rourke, D-Texas, to specify who took advantage of the VA, he said, “We were forced to take what we could get to implement a law based on the timeline created by that act.” Wilkie and his deputies who joined him at the hearing said the problems identified in the article occurred in the past and would be addressed when the VA rolls out a permanent replacement for the Choice Program in June. But lawmakers said they’re concerned the VA’s new program, created by a recent law called the Mission Act, could repeat the earlier mistakes on an even larger scale. Stay Informed Get ProPublica’s Daily Digest. “This is why it’s so vitally important that the Mission Act, which will guide future coordination of care, be executed efficiently and thoughtfully,” said the departing House veterans committee chairman, Rep. Phil Roe, R-Tenn. “Are you going to need more time? I’d rather keep doing exactly what we’re doing and implement it a month later than have this thing fall on its face.” The VA’s acting health chief, Steven L. Lieberman, said the department has made improvements so that the fees are no longer as high as those documented by ProPublica and PolitiFact. You can read more here about how we did our analysis. We had asked the VA to respond to our estimates before we published, but an agency spokesman declined to comment. After the hearing, we asked the spokesman again but haven’t heard back. We also spoke with Lieberman directly and asked him to provide his figures; he said he’d consider it. At the hearing, Lieberman said the administrative costs would decrease when the VA awards new contracts, known as the Community Care Network, to run the permanent program. The VA started accepting bids for those new contracts two years ago but repeatedly missed its deadlines to award them — and it still hasn’t. Despite the delays, Lieberman said, “We’re really pleased with how our contracting has been going.” The officials at the hearing said they expect to award the new contracts in February and March, which is already a month later than they were planning as of September. Rep. Elizabeth Esty, D-Conn., noted that the timeline had changed from what officials had previously told lawmakers, and Roe remarked that March would be even less time before the new program starts than the contractors had in 2014. “That’s less than 90 days from the time this thing goes live,” Roe said. “I remember very well in 2014 the fiasco that occurred there.” Until the new contracts are in place, the VA is relying on one of the old contractors, TriWest Healthcare Alliance. The VA expanded TriWest’s contract to the entire country in October, despite a criminal investigation of the company for “wire fraud and misused government funds” arising from its work on the Choice Program, according to court records. The company said it’s cooperating with investigators. Read More The VA’s Private Care Program Gave Companies Billions and Vets Longer Waits Trump wants to supersize a program that spent almost a quarter of its funds on overhead. Nevertheless, Wilkie expressed support for TriWest. “TriWest is the bridge to the expansion of our program through the Community Care Networks, and I am confident that given the governance structure that we have in place that we will be able to reach reach those goals,” he said. “I will also say that if at any time I don’t think we can, I will be up here posthaste to make sure that that we inform the Congress of that contingency.” TriWest said in a statement that it has worked closely with the VA to improve the Choice program. TriWest did not dispute ProPublica and PolitiFact’s estimated overhead rate, which used total costs, but suggested an alternate calculation, using an average cost, that yielded a rate of 13 percent to 15 percent. The other Choice Program contractor, Health Net, didn’t answer requests for comment. Sen. Jon Tester of Montana, the ranking Democrat on the Senate veterans committee, raised alarm about how the administrative fees could swell even more as the VA expands private care under the Mission Act. “Extrapolate this out a little bit,” Tester said. “If it costs more to be in the private sector, if admin costs are higher, benefits are going to be cut.” Tester accused the VA of defying Congress’ intent by using the Mission Act to dramatically expand the number of veterans going to the private sector. As ProPublica previously reported, President Donald Trump is planning to use his State of the Union address to unveil new criteria for shifting veterans to private doctors. Tester complained that VA officials wouldn’t present their plans in writing and quoted cost estimates that varied considerably between briefings. “Some of the VA estimates indicate the costs will be less than what we spent on Choice but would make a greater percentage of veterans eligible for community care referrals,” Tester said. “That doesn’t make sense.” Lawmakers from both parties including Sen. John Boozman, R-Ark., and Rep. Mark Takano, D-Calif. — pressed Wilkie on the budget impact of making more veterans eligible for private care. Wilkie resisted their requests to discuss his plans until they’re approved by the White House. “Senator, I expect to be up here as soon as the president approves the recommendations that I give him,” Wilkie told Boozman. Democrats warned that the combination of high administrative costs and wider eligibility for private care will lead to starving the VA’s own hospitals. Read More The Shadow Rulers of the VA How Marvel Entertainment chairman Ike Perlmutter and two other Mar-a-Lago cronies are secretly shaping the Trump administration’s veterans policies. “My ongoing concern, and this article demonstrates that, is that we are in the process of dismembering the VA — taking resources away from the VA, putting it into the private sector,” Sen. Bernie Sanders, I-Vt., said as he entered ProPublica and PolitiFact’s article into the official record. “I fear this is nothing short of a steady march toward the privatization of the VA. … It’s going to happen piece by piece by piece until over a period of time there’s not much in the VA to provide the quality care that our veterans deserve.” Takano, who will become chairman of the House panel in January, vowed to keep a close watch on this issue. “If VA fails to implement these access standards properly, or if VA makes them too broad, then the number of veterans receiving expensive private health care in the community will increase exponentially, undermining veterans’ health care and creating an unsustainable strain on VA resources,” he said in a statement after the hearing. “We cannot allow that to happen. VA must get this right the first time.” Takano also told Wilkie that he expects the VA to provide more information about the trio of Trump associates at the president’s Mar-a-Lago resort who ProPublica revealed were exerting extensive sway on the department. “We also need to know more about the reported outsized influence a group of advisers may have had on your decisions,” he said. “VA should not be subject to outside influence or the whims of individuals or interests who cannot be held accountable and who did not have veterans’ best interests in mind.” See the Series Inside Trump’s VA Investigating Trump’s Promises to America’s Veterans Help us investigate: Do you know what’s going on at the VA? Are you a VA employee or a veteran who receives VA benefits and services? Contact Isaac Arnsdorf at 917-512-0256 or [email protected] Here’s how to send tips and documents to ProPublica securely. For more coverage, read ProPublica’s previous reporting on the VA. Filed under: The Trump Administration Politics

More Data On VC’s Big Year In 20181

Last week I wrote about and linked to the PWC/CB Insights round up of venture investing in 2018. Well less than a week later Crunchbase is out with its own data on 2018. The Crunchbase numbers are much bigger, they report about $330bn of global deal volume. But otherwise the trends are roughly the same. Flattening deal volumes and amounts raised in the early stage market with massive expansion in the late stage market. Make no bones about it, there is a lot of money in the venture capital ecosystem right now.

More Data On VC’s Big Year In 2018

Last week I wrote about and linked to the PWC/CB Insights round up of venture investing in 2018. Well less than a week later Crunchbase is out with its own data on 2018. The Crunchbase numbers are much bigger, they report about $330bn of global deal volume. But otherwise the trends are roughly the same. Flattening deal volumes and amounts raised in the early stage market with massive expansion in the late stage market. Make no bones about it, there is a lot of money in the venture capital ecosystem right now.