Long before the invention of Bitcoin, the computerized world has become dependent on open source developers. Some pieces of code such as Internet browsers, operating systems, and code libraries have become so essential that it is unanimously agreed upon that they should not be controlled by a single company, who might charge exorbitant fees for their usage, withhold the software from certain users for any reason, or do other nefarious things with the code.
With the advent of cryptocurrencies and decentralized finance (DeFi), open source development has become more important than ever. However, there is a noticeable lack of professional developers in DeFi. As a result, many emerging DeFi platforms go live as largely untested garage enterprises. Oftentimes, new DeFi smart contracts can attract millions of dollars in locked value, although there has been next to no auditing.
For example, the DeFi platform YAM encountered a small but critical bug in their code, which led to massive loss of funds only a few days after the platform was launched. The platform was rushed and it’s smart contracts were never audited. While DeFi’s approach to breakneck innovation is certainly a good thing, developers lack the right tools to avoid critical mistakes and monetary incentives are a big part of this equation.
The nature of non-profit open source development has it that the initiators of DeFi projects often cannot expect their inventions to generate significant revenue. It is thus very difficult to find professional developers and auditors. While volunteer work is an absolute must-have in a world that is becoming more and more dependent on code, there is a lot of money at stake in DeFi.
Sadly, developers are seeing very little from this money. As an investor, would you entrust a DeFi platform with your money, knowing that it was hacked together in a few days by developers who have no monetary incentive for the platform to succeed?
Current Revenue Streams
For individual open source developers, there currently is little money to be made in DeFi. Most blockchain projects are either funded by various high-dollar development funds run by the big blockchain platforms, or through venture capital. While venture capitalists typically require their funded projects to be profit-oriented, blockchain development funds are often not optimal for DeFi projects.
These funds usually incentivize development on a specific blockchain as part of their ecosystem building. This leads to DeFi projects often becoming mere copy-cats of existing DApps on Ethereum, with no real innovation. Also, this incentivizes only the development of complete user-facing DApps.
What is needed is a more granular revenue stream that is oriented towards individuals. A single developer who can solve a difficult problem in an elegant way can often generate more value to a blockchain ecosystem than a full-fledged DeFi DApp, but oftentimes, coders who develop these building blocks either don’t have the connections that allow them to turn them into a complete DApp, or they simply do not have an interest in doing so.
Ongoing development Incentives on the Radix Network
Enter Radix. Radix DLT is the first layer 1 blockchain solution specifically built with DeFi in mind, featuring a highly scalable and sharded blockchain network that does not break the atomic composability requirement DeFi services have.
(The author is an ambassador for the Radix DLT)
Just a few weeks ago, Radix introduced their developer royalties system, which self-incentivizes professional open source development within the Radix ecosystem. Instead of smart contracts, Radix runs on “components”, which are essentially modular building-block primitives for financial applications, from which more elaborated DeFi platforms can be constructed.
When a developer adds a component to the Radix component catalog, they may set a royalty that is automatically charged whenever the component is used, for example when the component is instantiated by a DeFi platform, or when it is being imported inside any other component. These royalties are charged automatically upon any transaction that uses the component, similarly to gas fees.
This unleashes the power of a free market economy on open source development. Coders will be incentivized to develop useful and well-functioning components, as using the components increases their coder’s revenue. This in turn incentivizes the coder to develop more useful components or to construct more sophisticated components which, albeit being used less often and in a very specific manner, incur larger royalties.
Radix Components exemplified
In order to make this more lively, think about ERC-20 as an example. ERC-20 is a template smart contract that standardizes how fungible tokens are supposed to behave on the Ethereum blockchain. As such, the ERC-20 contract is one of the most important and widely used code modules on Ethereum.
Another example is a standardized smart contract for token vesting. Many blockchain projects, DeFi or not, need to implement a functionality that locks up tokens for a specified amount of time. An example for a Radix component could be a function that locks tokens up and releases all tokens at once after a specified amount of time. Since Radix components are modular, this component could be refined more by adding a function that releases tokens gradually over time.
As long as developers have the ability to charge royalties on standardized modules like these, they would have a strong incentive to keep developing these modules, if they can be useful. It would also incentivize coders to reuse this standard in building more sophisticated components that allow for more complex functionalities.
The modular nature of Radix components also adds a layer of security. Components are defined in a purely functional way and translated to a finite state machine language. This avoids some of the pitfalls of imperative, Turing-complete smart contract languages such as Solidity. Components that stand the test of time and prove their usefulness and then move on to become the building blocks for complex applications.
Summary
At the current time, open source blockchain developers are often not rewarded for their time and effort. This is especially the case for individual coders who develop granular modules that are essential to other projects, such as DeFi Dapps. Somehow, we need to find a revenue stream that rewards these developers for their hard work.
Especially when it comes to DeFi and other non-profit blockchain projects, royalties can be a much-needed game-changer. With their developer royalties system, Radix creates a free market for modular components that is self-incentivizing and allows for ongoing funding of professional open source development.