This piece is a summary of my complete 14-page analysis available here.

Introduction

Decred is a digital currency that’s trying to solve blockchain governance. It aims to be an autonomous currency, managed by its community (the coin holders).

Due to its origins Decred is highly regarded by developers from Bitcoin, Litecoin and Monero. Decred’s proposal has attracted and is attracting many talented developers, which makes its technical foundations solid. Full story available here.

Background

Decred (DCR) mined its first block in February 2016 and had a team of highly talented developers from its inception (like JZ from Decred, David Hill, Alex & Jake Yocom-Piatt, etc.).

The initial idea was simple: to create a DAO (Decentralised Autonomous Organisation) where token holders would have a say in the coin’s governance (a vote for staking their coins) while keeping the network safe with a Proof-of-work mining/ algorithm.

Decred max supply is capped like Bitcoin’s at 21 million coins. Unlike Bitcoin, the reward decreases every 6144 blocs (a bloc is supposed to be mined every 5 minutes so roughly every 21 days) so there is no “halving event”. Here’s the chart of Decred supply’s inflation:

The mining reward is split into 3 as follows:

60% goes to the PoW miner who found the block

30% goes to PoS voters on that block (6% to each of the 5 voters randomly picked up from the ticket pool)

10% goes to the development subsidy (for financing on-going and future developments)

The project is currently led by Company 0 but a project called Politea intends to decentralise Decred’s leadership and fund management 100% on-chain (switch toward a fully DAO).

Features

Decentralised governance

Users can make public proposals to improve on the protocol directly on-chain and it will be open for votes from the community (Decred ticket holder). That feature is called Politeia.

Self funded project

No crappy ICO, no pre-sale, no behind closed doors deals although there was a pre-mine these coins were either airdropped or sold to the dev (not given for free). It is now managed with the development subsidy (10% of each bloc mined).

Hybrid mining algorithm Proof of Work / Proof of Stake

Coin holders have a direct say in the direction of the project through staking and PoW miners validate the transactions (although they don’t have the censorship power they have on other cryptocurrencies thanks to the hybrid mining algorithm PoW / PoS).

Fast and efficient way to reach consensus

The built-in voting system makes consensus super easy and fast.

Super secure & resilient

Due to the hybrid mining mechanism (Proof of Work & Proof of Stake), Decred is incredibly resistant to 51% attack.

Potential use cases / applications

Decred was started with a single objective in mind: fixing the governance model of Bitcoin. From the first bloc mined early on 2016 to now, Decred successfully implemented its governance mechanism, which was battle tested for major milestones (hard fork, adoption of DIPs — Decred Improvement Proposals, on-chain voting, etc.). That decentralised governance could bring tons of good things like:

Custodian services

Thanks to an upcoming update (SPV Wallet Support), Decred will have full P2P wallet services, decentralised exchange and Atomic Swaps. Considering it also has on-chain governance and high resistance to sensitive attack vectors like 51% attacks, Decred has all it takes to make it a great (decentralised) custodian platform.

Store of Value / Gold standard of crypto

The problem with many other coins lies in the decision making process. These issues are leading to more and more forks over time, and therefore value is leaking out of these projects into the forks. Decred’s fork resistance might make it one of the most stable cryptocurrency in the space.

Decentralised fund management

Politeia will allow decentralised control of funds and creation of smart contracts to manage each individual fund.

Polls, voting

Companies and individuals, but also countries could use smart contracts and Politeia to run decentralised censorship-resistant polls or votes.

Cross-blockchain decentralised exchange

By using both lightning network and atomic swaps the upcoming Decred’s DEX will allow trading of virtually any crypto-currency. Much better than current ERC20 based DEX who can only allow trading of ETH based tokens.

ICO Killer / Funding Decentralised Applications (dApps)

Just build your dApp and ask for the compensation in your Politeia’s proposal. If it’s deemed worthy by the community then you’ll get your funding. Potentially a new dawn for decentralised funding.

Potential concerns

I don’t have major concerns with DECRED with its current implementation and governance but issues may emerge. Here are my main concerns that could be problematic for the coin’s future:

Not gaining enough mainstream adoption

Cons: No users = no success = no value. The issue is also shared by 99% of the blockchain based projects as of date.

Pros: Decred’s team has delivered on schedule since 2016, the team is growing strong, they don’t make lofty claims so the fundamentals look solid. In 2018, 2 major investment funds declared their interest in Decred (Placeholder VC and BlueYard Capital) so There seems to be a trend toward adoption.

Slowly evolving into an oligarchy

Cons: Decred’s current governance model relies on users staking their coins (by purchasing tickets) in order to get a vote. The more coins you have the more weight your decisions carry. That model could slowly be evolving into an oligarchy.

Pros: I’ve run an analysis based on a brillant post from Balaji S. Srinivasan trying to quantify decentralisation through the use of the GINI coefficient (the lower the coefficient, the more equal the coin’s distribution amongst holders). 2 things emerged from the analysis: 1/ Decred’s GINI coefficient has been decreasing (from 0,833 in July 2017 down to 0,820 as of date) and 2/ Decred’s actually looking very good when compared to other (older & younger) coins:

Source: For Japan, UK & the US, I used their GINI coefficient, as referenced in this Wikipedia post. For Bitcoin, Bitcoin Cash, Litecoin, Dash and Dodge I used this post by Balaji S. Srinivasan but considered a lower threshold (instead of $500k in his analysis I used roughly $100) based on the data on bitinfocharts.com. For Decred, I used proprietary analysis based on this data.

Being the Opera of cryptos

Cons: Decred’s development is fast, so is adoption of new tech on the platform. But having the first mover advantage doesn’t mean you’ll win the war and Opera proved that multiple times by being the first to implement most of browser’s killing features (like tabs) yet (almost) no-one’s using it. Another example in the crypto space would be Byteball, it has implemented most of the features that makes the top 10 coins super valuable (like smart contract based on a DAG, prevision market, decentralised insurance, etc. and they actually work on Byteball whereas they are quite often as the prototype stage at best on the top coins) but no-one is using it as well.

Pros: No positive comment available for that issue.

Ability to truly decentralise fund management

Cons: Switching from a man-managed fund to a fully decentralised DAO can be tricky (no way to roll back a hack with a fully decentralised system for example).

Pros: Thanks to the in-built decentralised governance system, even if everything goes sideways, the community can always decide (vote) to hard-fork the issue(s).

Managing deep community disagreements

Cons: Just because a consensus was met doesn’t mean the minority will bend the knee. What if Decred’s community start splitting like Bitcoin’s.

Pros: No positive comment available for that issue.

Conclusion

Current valuation of Decred ($35 / coin) implies a total market worth roughly a quarter of a Billion USD. It’s hard to quantify the value of on-chain governance but I like to see Decred as a protocol for on-chain governance. If we refer to Joel Monegro’s post (about the aggregation of value on fat protocols on blockchains) then it’s safe to assume that value should accrue more on fat protocols than it does on dapps (built on-top of these protocols):

Value capture in the protocol layer; Source: http://www.usv.com/blog/fat-protocols

If we apply that logic to existing “protocol tokens” (tokens built on-top of an existing blockchain but who tend to be a protocol on their own) like 0x or MakerDAO we see that their marketcap is roughly equal to Decred’s implying that they are either massively overvalued or Decred is overwhelmingly undervalued.

If we dig a bit deeper (but this is just my personal opinion) we can see other tokens experiencing with on-chain governance or decentralised governance like Tezos or EOS and they are respectively valued 3 times to 13 times more than Decred. Knowing that Decred already have many functioning features (which is not yet the case of the previously mentioned coins), I would say that Decred is a potentially good niche investment at current price.

From my analysis I think that Decred is also one of the best-in-class projects out there when it comes to governance. And if we consider that governance will be one of the main challenges ahead in crypto, one can definitely think that value will accrue around well governed coins, and especially Decred.

Decred is not a coin for short term gains as they are not playing the pump & dump game, so don’t expect a x10 profit overnight. BUT they are publishing awesome tech at very good pace, so once most of the tech is live (mostly Politeia) and some proposals start getting some traction (first dApps hopefully) I think we will see massive attention brought to Decred. All it takes are a couple successful dApps to get it into the tens of Billion USD coins (like EOS or Tezos), so I’m quite bullish on Decred on the long term. However, I would advise you to take that statement with a grain of salt, as current crypto dynamics are quite bearish (the coin isn’t listed on major exchanges, bear market is sucking money from the alts to Bitcoin and institutional money isn’t coming to Decred anytime soon).

My final word would be this: maybe you can get a better entry point later on but if you have the nerves to potentially handle a 50% drop or more you should definitely consider Decred, as I’m quite optimistic on current valuation being pretty low.