Why Community Matters

The decentralized finance (DeFi) industry continues to evolve. With its growth comes the democratization of wealth, increased accessibility of financing for global citizens, and greater market transparency and innovation for the benefit of all participants.

DeFi is unique in a number of elements: its ability to disintermediate core services, its code-is-law foundation, and—the focus of this blog piece—the inclusion of a “community” around different protocols and social movements.

The concept of community itself in Web3 is murky, if not controversial. Community is cited as the source of strength, and even a moat, for many high profile projects. It is also dismissed by commentators as a marketing ploy or cheap gimmick.

This educational blog post was written to explore this abstract topic. What does community mean in the Web3 context? How can on-chain participants—both individuals as well as teams building their own projects—approach this concept?

The Essence of Community in Crypto

Let us start with a general definition. “Community” typically refers to a group of individuals who share common interests, values, or goals and who interact within a shared environment to exchange knowledge, provide mutual support, and work towards collective objectives.

In the context of DeFi and blockchain technology, “community” specifically refers to the network of users, developers, investors, and enthusiasts who collaborate and communicate to foster innovation, adoption, and or a sense of belonging within that ecosystem.

Different communities can grow around a Web3 initiative. Often times, the type of community that results depends on whether whether the initiative is a specific technology, a brand name (e.g. branded DAOs), an artistic project (e.g. NFT collections), a video game, or a governing body.

These seemingly disparate examples do share some common characteristics. Such Web3 groups tend to congregate in a shared platform, typically a Discord server or Telegram group. Within those platforms, community members may discuss the latest progress of the project(s) they are following, propose or coordinate contributive efforts, and even engage in casual past-times such as competitions and games.

The early crypto communities that grew around Bitcoin and Ethereum played pivotal roles in establishing the ethos of community-centric development within the blockchain space.

Bitcoin, the first cryptocurrency, emerged not just as a technological innovation, but as a movement. Its community was formed by tech enthusiasts, libertarians, and individuals who believed in the vision of a decentralized, peer-to-peer form of money. This foundational community set the precedent for open-source development, transparency, and collective problem-solving. As a result, several community members wrote articles about Bitcoin and started to pioneer their own projects in the space—giving birth to DeFi as a whole.

Ethereum, following in Bitcoin’s footsteps, expanded the scope of what blockchain technology could achieve with smart contracts, thereby attracting a diverse community of developers, thinkers, and visionaries. Together, these communities fostered environments where ideas could be freely exchanged, projects could be collaboratively developed, and new members could be educated and integrated. This ethos of collaboration and shared purpose accelerated the development and adoption of these technologies, and established a template for how future crypto projects and DeFi initiatives would mobilize and engage their communities to drive growth.

Spiritual and Psychological Aspects of Community

While social media and smartphone applications promise to connect us more than ever, headlines of a rising loneliness epidemic and associated health risks abound. This startling trend underscores how essential it is for individuals to have a third place: a social environment where individuals can gather and interact for community, conversation, and camaraderie—distinct from the social environments of home (the first place) and work (the second place).

Crypto communities—online and offline—offer a meaningful third place where individuals can connect through shared contributions to Web3 initiatives, mutual celebration and support of larger crypto movements, and meaningful participation and exploration of the blockchain ecosystem.

One can argue that these communities are critical to building a greater sense of personal identity through collaborative and goal-driven rituals, in addition to preserving morale throughout market volatility. Among other positive outcomes, healthy and meaningful participation in crypto communities can improve personal growth, learning, and mental well-being.

• Belonging and Identity: Within Web3 communities, members find not only a platform for shared hobbies and interests, but also a social fabric that resonates with their personal beliefs. A shared belief in principles such as autonomy and open source technology, for example, are empowering commitments which can foster a strong collective identity. Discussion, collaboration, and communal decision-making help to reinforce one’s sense of belonging to a group.
• Mentorship: Crypto communities can foster well-being by offering an environment where experienced members share their knowledge and insights with newcomers. Supportive relationships can accelerate the learning curve for newcomers and cultivate a sense of confidence and communal acceptance among new joiners.
• More Connected User Experiences: Crypto communities can also humanize the user support offered by a project team or contributors. Support can range from personal interactions with community mangers to direct conversations to project leaders and founders. These personal experiences can make for meaningful memories and even long-term connections for community members.

Crypto communities are where individuals from various backgrounds and levels of expertise come together to share ideas, experiences, and support one another. A friendly, intimate environment can foster a sense of mutual understanding and belonging among community members, making the complex, isolating journey into Web3 more accessible and engaging.

How Community Impacts Governance and Decentralization

Community consensus plays a critical role in the decision-making processes driving decentralized projects. Community involvement is meant to ensure that changes reflect the collective will and best interests of all stakeholders, which is essential for maintaining trust, security, and stability of the initiative.

Decentralized governance models, particularly those driven by DAOs, represent a fundamental shift in how decisions are made for various ecosystems. DAOs operate on the principles of transparency, inclusivity, and collective decision-making, leveraging blockchain technology to facilitate secure and decentralized governance processes. At their core, DAOs are essentially smart contracts that encode the rules of the organization and execute decisions automatically based on the outcomes of community votes, minimizing the need for a central authority or trusted third party.

Consider the following case studies of two high-profile DAOs and the role community plays in their operations:

MakerDAO

As one of the earliest pioneers of decentralized governance, MakerDAO oversees the Maker Protocol, which issues the DAI stablecoin.

Governance is conducted through the Maker Governance Framework, where MKR holders propose and vote on changes to the protocol. These changes can include adjustments to risk parameters, upgrades to the system, or decisions about how the DAI Savings Rate is set. Votes are directly tied to a participant’s MKR amount, embedding their stakeholder interest into the protocol’s outcomes. This model has proven effective in ensuring the stability of DAI against its peg to the US dollar, demonstrating how decentralized decision-making can manage a complex financial system.

Pyth Network DAO

The Pyth Network is a specialized oracle solution for delivering trusted and verifiable market data to blockchain applications. The Pyth oracle network includes institutional and decentralized data providers, smart contract protocol developers, and stakeholders who contribute to the network’s operation and reliability.

The launch of Pyth Network’s permissionless mainnet empowers the Pyth DAO to actively engage and participate in major protocol matters through on-chain governance. Pyth Governance can relate to proposals ranging from the size of oracle update fees to the reward distribution mechanism for data providers to major software upgrades to the on-chain program across Pyth-supported blockchains.

On-chain governance is designed to enable a unified approach to decision-making in the Pyth Network community, involving various stakeholders like decentralized applications, capital market infrastructural providers, and DeFi participants.

Both examples highlight the effectiveness of decentralized governance models in fostering community participation, ensuring transparency and aligning the interests of all stakeholders towards the collective success of the project. Through thoughtful community consensus mechanisms, these models offer blueprints for managing decentralized networks in a democratic and efficient manner.

How Community Enhances Utility and Adoption

Community can also play a pivotal role in the adoption of Web3 projects as a positive force for evangelism and grassroots educational initiatives.

Enthusiastic community members are known to take it upon themselves to spread word about projects they believe in: they may share personal research, customer experiences, and even their own community anecdotes to friend groups and even the wider public. These movements can widens the reach of a Web3 protocol or initiative to new audiences and help articulate a project’s value proposition. Community-driven initiatives, such as user-generated content, tutorials, meetups, and online discussions can all help foster a welcoming, helpful community that attracts like-minded members.

Consider another example of a community-driven initiative: On November of 2021, ConstitutionDAO was formed as a Web3 community to purchase an original copy of the US Constitution in a Sotheby’s auction. Through viral posts on X and earned media, the group ultimately raised over $47 million in ETH, giving rise to eye-catching headlines. While they ultimately lost the bid to the Constitution and subsequently disbanded, ConstitutionDAO remains a telling example of how a community’s rallying cry can bring about attention from Web3 and even mainstream media.

Challenges and Considerations of Community

Although definitions may vary, Web3 communities are typically categorized by netizens as ‘healthy’ or ‘toxic’. One can characterize a ‘healthy’ crypto community by a number of ideal attributes: active, organic participation by community members; transparency from involved stakeholders; mutual respect among community members; open dialogue and opportunities for collaboration; and the possibility for submitting public, constructive feedback to help guide the project. It is worth noting that these community values are conducive to second-order outcomes such as diversity of thought, inclusivity, and a shared sense of purpose and integrity among community members.

Building and maintaining a community that fits these standards can be challenging. Common obstacles to healthy community building include:

• Token Distribution: Perceptions of unfair token distributions or centralization in ownership and voting power can discourage wider community participation, as the majority of members may feel their contributions or votes have little impact on the project’s direction.
• Governance Disputes: Disagreement on key decisions or the direction of the project can lead to factionalism, reducing the overall cohesion and effectiveness of the community. These disputes often stem from differing visions, interests, or interpretations of the project’s principles. If not managed properly, disagreements can hinder progress, slow down decision-making, and even lead to forks of the project.
• Fraudsters and Malicious Actors: Bad actors may try and infiltrate a community to raid or damage a project. Common attack vectors include eroding project credibility (smearing, ‘FUD’ campaigns), exploiting community members (scams, phishing), protocol exploits (zero-day hacks, social engineering), and governance exploits (voting in malicious proposals, treasury raiding). Combating fraud requires vigilance, education, and robust security measures.
• Misinformation: In worst case scenarios, Web3 communities can fall prey to deception and misinformation campaigns. The motivations for can range from zero-sum thinking, attachment to personal enrichment, or general tribalism. Thoughtful community-led coordination on educational initiatives, combined with a refreshed commitment to the core principles of the project, are some of the most effective ways countering disinformation campaigns.

As a final note on this topic, it is important for community managers and ambassadors to be aware of these realities: these negative factors are direct determinants of ‘toxic’ community environments, as they discourage genuine participation and divert focus from the project’s core objectives.

Building and Nurturing Crypto Communities

This exploratory article ends with some positive notes on best practices for Web3 projects looking to build and nurture healthy communities.

Establishing a shared ambition that the community perceives as credible, valuable, and worthwhile is the essential starting point for community building. Important first steps therefore include establishing clear community guidelines, promoting transparency as part of internal and external processes, and championing open communication between stakeholders. Over time, it is recommended that projects implement robust conflict resolution mechanisms to facilitate decentralized decision-making.

There are a myriad ways to translate this strategic template to effective tactics. Here are some ideas for community managers to integrate across social channels:

• Foster Open Communication: Create multiple channels for dialogue, from open forums to regular public events like AMAs to keep the community informed and engaged.
• Implement Inclusive Governance: Involve the community in decision-making processes through voting mechanisms or meaningful feedback collection to ensure that members feel their voices are heard.
• Promote Transparency: Share regular, clear updates on project development, challenges, and successes. Transparency builds trust and keeps the community aligned with the project's goals.
• Recognize and Reward Contributions: Acknowledge and reward active community members for their contributions: examples include public recognition and exclusive access to events and product features.
• Encourage Education and Learning: Provide resources, workshops, and discussions that empower community members with knowledge about the project’s technology and the broader ecosystem.
• Cultivate a Positive Culture: Establish and enforce clear community guidelines to promote respect, inclusivity, and constructive interactions.
• Provide Robust Support: Offer timely support to address community member inquiries and concerns.

The Future of Crypto Communities

As the blockchain industry continues to evolve, the countless communities supporting the wider ecosystem will evolve as well. Nevertheless, some aspects of community building in Web3 remain constant.

The collective power of these communities extends beyond technological innovation: it can bring about societal and cultural transformations to the way we use and build on the Internet. Through decentralized governance, shared knowledge, and collective action, crypto communities have the potential to challenge traditional financial system and empower individuals globally to retake control of their financial lives.

The Pyth Network community is a great place to start such a journey. Join the official Pyth Network Discord and stay up to date on X.

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