How to Demystify the Risk of Web3 by@Rumyi
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How to Demystify the Risk of Web3

by Muhammad HameedJuly 12th, 2022
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In decentralized open-source software (OSS) high risk is inherent but the risk can be greatly reduced with ethical transparency. Lack of transparency can cloud the waters making it hard to properly access if the right team is on the right mission. The lack of transparency clouds deep resources such as coordination alignment between the chosen protocol, and the protocol management/team fit. There is no transparency without ethics. Without ethics, there is only the illusion of transparency which opposes innovation, creative sovereignty, and public goods.

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In open-source software, transparency holds the key to the next phase of innovation. In decentralized open-source software (OSS), high risk is inherent but the risk can be greatly reduced with ethical transparency.

Transparency is a principle that has taken the backseat to OSS's newly found popularity. The overall appearance of transparency has become easier to procure. Just create a Discord group, and “voila” you are transparent.

We live in an age where you can have anything delivered to your doorstep in minutes. Yet, ethics and transparency remain elusive in government and economics. But there is no transparency without ethics. Decentralized open-source software teaches us that without ethics, there is only the illusion of transparency.

The illusion of transparency opposes innovation, creative sovereignty, and public goods. Learning to calculate the risk inherent in low to zero-transparent firms and/or organizations can be extremely difficult. This becomes a little less difficult once you're behind the curtain.

Projects that are not NFT native, but have NFTs as the newest protocol feature, should show the behaviors of increased transparency. When the lack of transparency guides innovation and engineering, an efficient march towards success is highly unlikely.

Web3 contractors and practitioners should be aware of not letting the opportunity to exercise their dynamic skillsets blind their intuition to do solid due diligence. Passing on an opportunity is more likely a blessing than a setback in the long run. This saves time and resources. Especially when it comes to legal resources.

Legal resources may be limited and untested when it comes to Web3 contractual agreements. It is often not possible to address business entities offshore and in foreign provinces. So, relations require trust that, once severed, can come back to haunt even the most successful venture.

Transparency May Be the Most Disruptive and Far-Reaching Innovation to Come Out of Social Media - Paul Gillin

Transparency is not just a Web3 fantasy catchword useful in Discord groups but in some ecosystems, it has become that way. Transparency has become elusive to many projects that have raised what is considered a significant amount of runway funding (over 5 Million). Judging transparency from the inside out is, of course, in hindsight and can be dangerously too late.

But nevertheless, it offers a unique opportunity to see why transparency is critical in open-source software and why. That lack of respect for transparency is similar to drilling holes in the bow of a ship.

Blockchains building utility protocols with clear funding can often separate themselves from the pack because of their fund-raising successes. They can seem normal and legitimate from multiple well-packaged angles. Misaligned incentives, for example, the perceived negative value alignment that was arguably a factor in ICO culture added weight to ICO participants' ventures in an already strained high-risk game. Risk is all but inherent in decentralized open source technology.

There is no need to add risk for the sake of adding risk. The lack of transparency clouds deep resources such as coordination alignment between the chosen protocol, and the protocol management/team fit. Lack of transparency can cloud the waters making it hard to properly access if the right team is on the right mission.

What I learned; I failed to understand that the transparency of a team and its venture can only be as clear as the leadership's understanding of the community it is serving, and the journey and landscape it is traveling. It is impossible for a team to exercise transparency when it has no idea where it is going. In this case, all the resources in the world can't resolve the lack of intuitive leadership. When founders can see no further than their own hands, new resources become a burden and quickly become an insult to injury to a floundering team fueled by resource scarcity and fear of failure.

Transparency Is a New Public Good.

In the previous, less-innovational business culture, transparency was a luxury offered to the public on restricted terms. Today, and in the future, transparency is a core principle of ethics like privacy, sensor resistance, and sovereign identity.

Consider transparency as not sitting around in a closed room waiting for something to happen but rather opening all the windows and doors once a day to let in the sunlight and fresh air.

Cecil Graham: What is a cynic?

Lord Darlington: A man who knows the price of everything, and the value of nothing.

Cecil Graham: And a sentimentalist, my dear Darlington, is a man who sees an absurd value in everything and doesn’t know the market price of any single thing.”

Let's consider the case of a floundering ICO that has raised 14 million dollars in 2-3 years, pre-covid. Now, it’s being eaten alive by inflation, lack of leadership, and depreciating transparency. Poor leadership favors the lack of transparency which stifled innovation and culture that depreciates information economics. In this use case, the lack of transparency significantly increases the risk of the venture across its entire business canvas.

In this case, a conservative burn rate only delays the sinking ship. Poor transparency adds insult to the risk, mooring a sinking ship further and further out to sea. A dying vessel is bound to make poor decisions on its way to the bottom of the sea; an example is breaching contracts with contracted employees in an attempt to leverage its lack of transparency to save capital.

For example, ICOs have a history of demonstrating misalignment when it comes to resources, innovation, and capital. This value culture misalignment can be tracked to its lack of incentives for progress and poor allocation of resources within the organization. Poorly led organizations will use transparency as a marketing tool rather than for leveraging transparency to improve ethics, quality assurance, and resource coordination.

Red Flags When Calculating Risk Versus Transparency.

It is a critical mistake to not objectively evaluate the ethics, transparency, and risk of a firm or organization.

Slippery when not transparent.One way to objectively evaluate leadership is through the lens of an investor. An angel investor to be more exact. A few questions you can reflect on to evaluate a venture and decide if it's a floundering ICO with lackluster leadership.

Risk Signals to Consider

  • How much is the team leveraging inflated market sentiment, such as ICOs, etc.?
  • Does the venture have real traction in comparison to the funds it has raised and burned through already?
  • Is there a real culture within the team or does the team feel forced, do most of the team operate off FOF (fear of failure), and fear of firing?
  • A team that has raised over 5 million or more should have clear roles defined.

Would You Invest in the Management, and if So Why or Why Not.

Here, are some red flags that the lack of transparency is hindering or outweighing the calculated risk; is it clear the leadership is muddling its way around the intended industry with lots of useless meetings and zoom calls, leadership has a prehistoric take on marketing, has its success leveraged on a few large corporate names; door-to-door salesman theory on business that is neither effective nor efficient?

Is there a clear road map beyond graphics and labels and biased marketing press campaigns? How efficient is the team at accomplishing protocol community-fit? Is the engagement in Discord deserving of a project that has raised XY and is (x)yrs old.

Wealth, Talent, and Knowledge.

Converting knowledge and experience into wisdom is alchemy. Web3 practitioners will have to master this conversion science to efficiently navigate risk. As a contractor, the risk you are exposed to dealing with a startup is high no matter what. To lower your risk, I recommend you request that your first 3 months are interim to feel out the position and evaluate your fit.

Next, negotiate up to three months' pay in escrow and the first month's pay compensated with the first week of work. Still, it won't completely alleviate rug pulls, but it will lessen the likelihood, being they have monetary value invested. Web3 startups have unique cultures and some can be surprisingly backward, like a Web2 feel with a buzzcut.