DECENTRALIZATION

Wait, isn't a SaaS model centralized? How is this a decentralized oracle network (DON)?

Yes. Initially, Assembly is centralized. But Assembly is designed to decentralize over time organically. Launching with a SaaS model cold-starts a sustainable economic flywheel by building a community and transforming data into stored value. Because the community is built on nodes, it does not require an IEO, ICO, or AirDrop.

The problem with an IEO, ICO, or AirDrop is twofold. One is that those models are securities. This requires compliance with SEC regulations. A SaaS model is self-funding, so it can operate without compliance issues. The other challenge is that IEOs, ICOs, and AirDrops rely on economic incentives that do not align with the needs of Assembly. Those models create false scarcity to generate economic value in the protocol. By contrast, Assembly creates stored value in the protocol by transforming data people want into something useful that can be monetized.

Capitalizing a protocol

Practically speaking, the challenge most protocols face is raising capital to fund development and cold-start a sustainable economic model with a community.

The solution adopted by most projects is to sell tokens to early investors at pennies or less. Then deploy capital to build a community (not technology) to sell those tokens. Incentives are deployed, like staking and inflation, to attract buyers. As noted, though, that’s a security. But more to the point, assuming an honest and sincere effort by the protocol founders, the only hope is that the protocol finds a sufficient use case to justify the token's value before the number of people willing to purchase the token runs out. That’s a shadow of a Ponzi scheme: Early investors sell tokens that have increased in value by selling to later investors that pay more, and so forth.

To be fair, founders seek investors (basically venture capital) because founders need to raise capital. But aside from the security regulation aspect and the Ponzi-like echoes, this approach introduces arbitrage incentives over value-building incentives. Namely, founders and early employees want a return on sweat equity, investors want a return on investment, and traders want to arbitrage.

For decentralized systems, these incentives emphasize immediate financial gains over long-term technology development: Those who can acquire early tokens cheaply have every incentive to pump and dump. More problematically, the incentive to pump and dump is even faster than with investments in traditional startups, combined with less regulatory oversight or informal checks by the marketplace. Finally, the incentives obfuscate control over the protocol. The power of acquiring massive amounts of tokens as quickly as possible is critical for governance. But governance is hidden (behind wallets), which creates a boiling sea of unregulated plutocracy with, ironically, no transparency.

SaaS is self-funding

A SaaS model (combined with a nonprofit entity) avoids these challenges. Assembly combines a sustainable revenue model with a nonprofit entity. The goal is to be sustainable as a technology-forward platform instead of a fintech-forward. A SaaS model introduces a standardized format for data and policies to make that data accessible.

The crucial element is focusing on using a data standard as the means to cold-start a community, not an economic model. Building a community committed to standardizing and publishing data creates stored value. It also nurtures a community that relies on contributions by its members —deploying more nodes has network effects and does not require new community members to spend more to buy out old community members. And finally, it sets a natural path toward decentralization. As a standard emerges, control decentralizes. In that regard, it might be akin to Bitcoin’s proof of work miners.

But in the end, this approach basically substitutes the incentives associated with investing in early-stage companies with community incentives to promote a decentralized oracle network, i.e., building over profit.

The SaaS model does this in several ways.

First, a freemium mechanic allows anyone to join and build. This opens the door for journalists, civic technologists, and nonprofits to build tools for social good.

Second, the community is maximized because the UX layer enables anyone —even those that are not crypto-savvy or software developers —to participate. A data scientist that might not know crypto very well is an immediate expert on Assembly.

And third, the open-source design does not limit nodes to Assembly. Assembly is a DON: Others can launch nodes using the standard. Once a standard has been adopted, competitors can emerge —SaaS or otherwise.

That’s when decentralization begins. At that point, Assembly has to compete with any other entity on the network.