Most Decentralised Crypto Projects
A fully decentralised blockchain is the Holy Grail for Web3. Today I dive into the top 5 most decentralised crypto projects.
When researching a project, one of the most critical factors to assess before investing is the level of decentralisation. Today I will look at the top crypto projects through the lens of decentralisation and provide fresh data and statistics.
So, what is decentralization, and why is it so important? As defined in the Oxford dictionary, decentralisation is the transfer of control of an activity or organization to several local offices or authorities rather than one single one.
Decentralisation is one of the fundamental pillars that Web3 is being built on. There are several major benefits to implementing a model of decentralisation…
No single point of failure
Reduced corruption
Promotes equality amongst participants
Financial inclusivity
However, there are some drawbacks to full decentralisation. You may be familiar with the Scalability Trilemma which defines that a project can be either
A-Scalable and Secure OR
B-Scalable and Decentralised OR
C-Secure and Decentralised
Every project in the space is trying to solve the trilemma and deliver a solution that can satisfy all 3 criteria without compromising. I believe that whoever can solve this first will be a huge winner and a market leader for the next bull run.
Decentralisation is more like a sliding scare rather than a binary yes/ no answer. As @coinbureau outlined in their video, there are 5 layers of decentralisation to consider
Developer layer
Coin/ token layer
Infrastructure layer
Blockchain layer
External layer
I won’t dive into all 5 of these today, as this deserves a longer form research article. However, I want to focus just on the ‘Blockchain layer’.
youtube.com/watch?v=9ybYhv_VFaE…
The Nakamoto Co-efficient is a popular way to quantify a blockchains level of decentralisation. It was first proposed by Balaji S. Srinivasan in 2017. https://news.earn.com/quantifying-decentralization-e39db233c28e
The Nakamoto Coefficient represents the number of validators (nodes) that would have to collude together to successfully slow down or block any respective blockchain from functioning properly. The higher the Nakamoto Coefficient means the more decentralised.
For proof of work (Bitcoin)- the generally accepted measure is 51% of nodes. For proof of stake (ETH 2.0 and other layer 1s), the generally accepted measure is a minimum of 34% of validators (greater than one third).
I have pored through various data sources to pull together the table below for 12 of the top crypto projects (as of 09/09/2022).
Staked value and staking ratio are from https://stakingrewards.com as of 9th Sep 2022. For the sake of direct comparison to the PoS chains, I have included both the Bitcoin 34% and the 51% levels. As you can see, $BTC is still the king of decentralisation.
Polkadot - $DOT was definitely a surprise packet coming in 2nd place. However, it is clear that Gavin Wood and the team are focused on decentralisation as one of their top priorities when you look through documentation and interviews.
Solana- $SOL was also interesting coming in 3rd. The project has been under pressure this year after a number of outages in their blockchain. However, they do have a large and diversified validator pool and have some huge institutional backing. Notwithstanding, the project has some centralisation concerns around transaction storage, infrastructure and reliability.
Determining the ETH 2.0 coefficient was a bit tricky as each node can run multiple validators (32 ETH minimum stake). To determine the minimum number of nodes to gain 34% stake, I looked at the Nansen dashboard for all ETH2 deposits. Lido finance = 30.6% of all staked ETH. The latest information I could find from Lido stated in a blog post that they had 29 independent node operators (June 5th). To get to the 34%, you only need one additional node operator from Coinbase or Kraken. Total = approx. 30 nodes.
blog.lido.fi/additions-to-ethereum-node-operator-set-wave-4/… I must admit, the centralisation around Lido deposits is a bit of a concern, but Lido is well aware of this and have indicated they are working actively on the ‘roadmap to decentralisation’.
Avalanche $AVAX sneaks into the top 5 with a solid score of 29.
I want to give big props to THORChain coming in equal fifth but with a much smaller total staked value and validator count. The project is laser focused on decentralisation and you can see this coming through in their approach.
None of these blockchains are perfect and there are certainly chinks in the decentralisation armour. However, it is extremely promising to see so many great projects that are actively working on improving their decentralisation.
Sources I used to gather data