The way software products are built is changing. No more are the days where 3 friends lock themselves away in a secret garage to build the next big thing. Instead the trend is for people from all over the world to contribute in an open environment from the beginning.
This shift is already in full swing and is commonly referred to as open source projects. However, the financing piece has been missing which has resulted in open source projects often being more prone to bugs, less user-ready, and constantly sacrificing due to lack of funding. However, this is changing.
The ICO model began this transformation. At its core the ICO model simply monetises open source projects. Now that many open source projects have a large amount of funding, we need to ask the question, is this funding sustainable? The short answer is no, not at all.
Just like the traditional way, investors pour money into a project solely to grow it to a point where they can extract more money than they put in. This creates an unsustainable model we have seen over an over again.
A project is funded millions of dollars. They build a cool product and offer amazing benefits and customer service to initial users. Then it gets big and all the benefits and service disappear and the product slowly deteriorates. Sure it still be making money and attracting new users, but the user experience continues to decline and its brand image slowly tarnishes.
Why does this happen? Because investors do not care about the company, they care about making more money than they put in and continuously syphon off profits into their own pockets rather than re-investing.
This may work well in the old world, but we are in the new age where decentralised applications and organisations are the future. This model is downright unsustainable for the decentralised model where ongoing success relies on user engagement and contributions.
To understand this, you need to think about how companies were built in the past and how they are being built now.
Previously, someone would have an idea and someone would fund it. These are the only people with the potential to make serious money in the future (the founders and the initial investors). As the company grew and generated more revenue, it would not be proportionately allocated to all the contributors, instead a large portion of the value is taken out of the product ecosystem and moved into the pockets of the founders and investors. Maybe this model made sense because the earliest investors took on the most risk and the founders sacrificed everything for their vision.
But now times have changed. Great projects are built collaboratively with great communities and anyone can invest in an innovative idea thanks to the ICO model that does not have investment requirements such as being an accredited investor. Since this model involves many people being involved in the success of a project from day 0 it does not make sense for value to be extracted by the founders and investors. Instead value should be retained within the product ecosystem.
What this means is that everyone has a say in where the value is allocated. Instead of revenue going to a centralised company whose executives decide where to distribute it to. All revenue is placed into a type of financial-DAO which everyone in the community can vote on the use of the funds. This results in an environment where the collective good outweighs personal gain. No possible outcomes are explicitly just for personal gain when the only possible outcomes have to be agreed upon by a majority of the community.
Greed is the root of all evils, yet humans inherently are greedy. So the only way to eliminate this risk of personal greed, is by removing the possibility for an individual or small group to have control over finances for a greater community.
This model of retaining value within an ecosystem enables decentralised organisations to operate in perpetuity. There is no reliance on a centralised team to control the finances, attract new users, patch bugs, or develop new features. Instead money is held in a DAO indefinitely and can be allocated to where it is needed, when it is needed. This also reduces wasteful spending, there is no fixed burn rate which largely consists of salaries. Instead money is allocated to a task that is needed and then paid out once completed.