When Public Goods Meet Private Capital, DevCos Must Change

Executive Summary

Imagine if the board of directors had to approve every budget and decision in the company. Even $1B+ token protocols rely on ambiguous, vote-driven funding processes for their core teams. Is your protocol a public utility or a startup? Right now, most are trying to be both—and failing at both. We’ll examine where this model breaks, using real DAO forum debates and DevCo failures as evidence.

Introduction

Many layer-1 blockchain projects have grappled with internal tensions between their core development teams or companies (“DevCo”) and decentralized governance bodies (community DAOs or foundations). These tensions often arise from overlapping responsibilities, unclear boundaries between development and governance, and the push-and-pull between decentralization ideals and commercial or managerial realities. Below, we explore several prominent case studies where such issues have played out publicly, highlighting debates over who controls protocol upgrades, who manages treasuries, and how much influence a centralized entity should have in ostensibly decentralized networks.

Ethereum – The DAO Fork and Fund Recovery Debates

The 2016 DAO Fork: Ethereum’s earliest governance crisis came with The DAO hack in 2016. After a major exploit drained a community-run investment DAO of ~$60M in ETH, Ethereum’s leaders (notably the Ethereum Foundation and core devs) backed a controversial hard fork to reverse the theft. This move – effectively altering the ledger to bail out DAO token holders – prompted intense debate about blockchain immutability vs. governance intervention​. A portion of the community rejected the fork as violating decentralization principles and continued on the original chain as Ethereum Classic​. The schism illustrated the governance design problem: even in a “leaderless” system, someone (in this case, core developers and the Foundation) made a far-reaching decision, blurring the lines between technical coordination and policy-making.

EIP-999 and Parity Funds: A second Ethereum saga underscored the DevCo vs. community dynamic. In 2017, a bug in a Parity Technologies multi-sig wallet contract froze $239 million worth of ETH belonging to Parity and its clients. Parity (a key Ethereum client developer) pushed for EIP-999, a code change to unfreeze those funds. This proposal ignited heated infighting among stakeholders over whether devs should rescue lost funds.

Many in the community opposed what they saw as a special-interest “bailout” for a dev company. When rumors spread that the Ethereum leadership might quietly accept EIP-999 despite community objections, one observer vented on social media: “The Parity bailout EIP was just stealth 'accepted' by the Ethereum Foundation despite community rejection… Ethereum is completely centralized.”​. In the end, EIP-999 was tabled, and the funds remained locked, affirming a rough consensus that no single DevCo should control protocol rules. However, the episode revealed how a development company’s interests (recovering lost funds) could conflict with community values, and how unclear it was who held ultimate decision authority. It highlighted Ethereum’s ongoing challenge: balancing a strong core of developers (needed for innovation) with mechanisms to check their power.

Tezos – Foundation Feud and Launch Delays

Tezos, a self-amending blockchain, offers a stark example of governance breakdown before the network even launched. After Tezos’ $232M ICO in 2017 (one of the largest at the time), a bitter feud erupted between the project’s founders, Arthur and Kathleen Breitman, and the president of the Tezos Foundation, Johann Gevers​. Under Tezos’ structure, the Swiss-based Foundation held the ICO funds and was supposed to support development, while the Breitmans (through their company DLS) controlled the source code. Tensions flared when the Breitmans accused Gevers of mismanagement and “self-dealing” and demanded his removal​. Gevers fired back that the founders were trying to “control the foundation as if it were their own private entity,” bypassing its independent mandate​. The struggle — complete with lawyers and leaked letters — caused costly launch delays and even sparked class-action lawsuits. In early 2018, Gevers eventually stepped down, and Tezos launched its beta net shortly after. This case exposed the hazards of an unclear separation of concerns: the DevCo (the Breitmans’ firm) and the Foundation had overlapping authority and no agreed governance process to resolve disputes. The result was a very public power struggle that nearly derailed the project​. Tezos did implement on-chain governance for protocol upgrades once live, but its pre-launch governance crisis remains a cautionary tale about establishing clear roles and accountability between founders and foundations.

EOS – Community Revolt Against Block.one

EOS emerged in 2018 with a novel delegated proof-of-stake governance model and was spearheaded by Block.one, the for-profit company that built the software and conducted EOS’s $4B ICO. Touted as a decentralized platform, EOS nonetheless relied heavily on Block.one’s ongoing support and its huge token stake. By 2020–21, frustration in the EOS community had reached a boiling point over Block.one’s perceived inaction in ecosystem development. In a dramatic turn, community leaders formed the EOS Network Foundation (ENF) (led by Yves La Rose) in 2021, essentially to take over network stewardship from Block.one. La Rose openly accused Block.one’s leaders of “negligence and fraud,” declaring the community would “distance the blockchain from Block.one’s centralized control.”​

A flashpoint came when Block.one moved to transfer 45 million EOS tokens (worth about $196M) it still controlled to a new venture. The ENF pushed back hard, asserting that Block.one had failed its “social contract” to support EOS and thus no longer deserved those tokens​. As La Rose explained, Block.one believed it still owned the vested tokens, but “the network, through consensus, believes the opposite”​. Backed by enraged community members (some calling Block.one a scam that reneged on promises), ENF threatened protocol-level action – even hinting at forking the code to cancel Block.one’s token allocation. One anonymous community member captured the sentiment: “Just delete them. There’s no good compromise for EOS.”

In the end, the EOS community did move to sever ties with Block.one. In late 2021, EOS block producers voted to stop vesting payments to Block.one entirely, effectively “defunding” the original developer​. EOS forged ahead under community control (through the ENF), while Block.one exited the ecosystem. The EOS saga demonstrates a DAO/community asserting itself over a founding DevCo. Roles that were poorly defined in the beginning (Block.one as both major token-holder, core developer, and supposed steward) became contested, and the community took drastic measures to resolve the conflict. The measurable outcome was a complete power transfer – a community-led foundation now drives EOS development, and a once influential DevCo has been shown the door.

Steem to Hive – A Hostile Takeover and a Community Fork

When a blockchain’s governance processes are ambiguous, even outright takeovers can occur. Steem, a social blockchain launched in 2016, learned this the hard way. Steem was originally backed by Steemit Inc., a private company that created the core software and held a vast “ninja-mined” stake of about 80% of STEEM tokens at launch. Steemit Inc had informally promised not to use that stake against the community’s interests, but there was no on-chain enforcement​. Tensions simmered for years as users feared the influence of that premine. In early 2020, Steemit Inc was acquired by Tron’s Justin Sun, and the situation exploded. Without warning, Sun announced plans to essentially integrate Steem into the Tron network, which Steem’s grassroots community vehemently opposed​.

Anticipating that Sun might use Steemit’s giant token stash to dominate Steem’s delegated governance (witness voting), the Steem community (led by its elected witnesses) took an extraordinary step: they pushed a “soft fork” (v0.22.2) to freeze Steemit Inc’s tokens from voting or transferring​. This temporary code change, justified as a protective measure, was a bold assertion of community-over-corporate control. Sun initially responded with an open letter and talks – but then retaliated decisively. In March 2020, Sun enlisted major exchanges (who held lots of STEEM in custody) to vote out the existing community witnesses and replace them with his own choices, using customer deposits to swing the vote​. This move, widely denounced as a governance attack, gave Sun’s faction control over Steem’s consensus. He labeled the ousted community witnesses “hackers,” framing his coup as restoring order​.

The community refused to concede. Realizing that the chain’s governance was now effectively centralized under Sun, a large portion of Steem’s users and developers opted to fork the blockchain. They created a new chain called Hive in March 2020 (via Hard Fork 23), which copied the Steem ledger but excluded Sun and his allies from the initial airdrop​. In other words, the community fork deleted the Steemit Inc stake on the new network and started fresh. Hive quickly gained listings and became the new home for most of Steem’s DApps and users​. Meanwhile, on “old” Steem, Sun’s team began censoring posts and accounts that were pro-Hive or critical of his takeover​ – reinforcing the community’s fears that Steem under Sun was no longer a free, decentralized platform.

This dramatic episode showed the clash of commercialization and decentralization in stark terms. A well-capitalized outsider (DevCo) attempted to leverage a poorly-structured governance system to seize control, and the only defense for true decentralization was a community-led fork. The measurable consequences were significant: Steem’s market cap and usage plummeted under controversy, whereas Hive’s network – born from the governance rebellion – today carries forward the original community’s ethos. The Steem/Hive saga underscores the importance of clearly delineating governance in code and social contract. Without it, a powerful actor can co-opt a project (even one calling itself a DAO), and the community’s recourse may be only to vote with their feet (or their forks).

Zcash – Funding Debates and a “Friendly Fork”

Even when outright conflict is avoided, tensions can simmer in how a project balances decentralization with ensuring ongoing development. Zcash, a privacy-focused L1, went through an intense governance debate in 2019 over its future funding. From launch, Zcash allocated a portion of block rewards to a “Founder’s Reward” – funding the Electric Coin Company (ECC, the main Zcash dev firm led by Zooko Wilcox) and early backers – but this was set to expire after 4 years. As the 2020 sunset approached, the community had to decide: should Zcash introduce a new development fund (a Dev Fund) extending block reward subsidies to ECC and the Zcash Foundation? This question proved highly contentious. For ECC and the non-profit Zcash Foundation, continued funding was seen as a lifeline to keep improving the protocol amid increasing regulatory scrutiny on privacy coins​. For others in the community, however, extending the Dev Fund broke an early promise that Zcash’s founder tax was strictly limited; they saw it as a credibility issue and a deviation from decentralization ideals​.

Over months of public forum debates, community polling, and multiple proposal iterations, Zcash holders (via the Zcash Foundation’s community panel) narrowly approved a new funding plan. The adopted scheme (enacted in the “Canopy” network upgrade) allocates 20% of mining rewards for several more years – split between ECC, the Foundation, and a grants pool – instead of ending the founder rewards entirely​. This decision resolved immediate funding fears, but not without drama: the process was described as a “months-long – and often contentious – campaign”​ that exposed rifts in the community. Notably, a faction strongly opposed to any continued developer tax launched Ycash, a “friendly fork” of Zcash, in July 2019​. Ycash inherited Zcash’s code but honored the original promise by removing any ongoing founder rewards. While Ycash remained a niche offshoot, its creation was symbolic – a protest against perceived creeping centralization in Zcash governance​.

The Zcash funding debates showed how even a well-defined DevCo–community relationship (ECC and the Zcash Foundation are separate and had a public negotiation process) can become contested when money and control are on the line. Community members raised concerns about conflicts of interest, questioning if ECC’s influence on setting the funding agenda was too strong. Indeed, one Zcash Foundation board member resigned in protest, arguing for greater community say. In the end, Zcash found a compromise to continue funding development without a single entity in charge of the whole pie. The episode’s measurable outcomes included not just the new Dev Fund but also heightened accountability measures – ECC agreed to more transparency and accountability to the community for the funds it receives. Zcash’s experience underscores that sustaining development in a decentralized project often forces hard governance choices. If responsibilities between a DevCo and a community aren’t clearly defined (or if expectations differ), trust can erode quickly, even without a full-on crisis.

Cosmos – Community Veto of the Atom 2.0 Plan

In 2022, the Cosmos Hub (the first Cosmos blockchain) faced a governance showdown that highlighted tension between core developers’ vision and community consent. Core Cosmos contributors (including co-founder Ethan Buchman) proposed “Atom 2.0,” an ambitious new whitepaper and roadmap for the Hub. It aimed to dramatically expand Cosmos Hub’s role via new features and tokenomics changes – notably, a large upfront mint of ATOM tokens to fund a community treasury (for development and ecosystem investment), coupled with changes to ATOM’s issuance schedule​.

Essentially, the plan sought to bootstrap new capabilities by front-loading resources to developers and strategists, after years of relatively minimal Cosmos Hub monetary expansion. While many agreed with the broad vision, the scope of the proposal raised alarms. Community members on Cosmos forums felt Atom 2.0 was too broad, lacked clarity, and concentrated too much power and funding in one sweep​.

. Some likened it to a government bill packed with unrelated measures – “good and bad in the same bill to sneak things through”, as one user wrote​.

When Proposal #82 (to adopt the Atom 2.0 whitepaper) went up for a binding on-chain vote in October 2022, debate was intense and turnout was high (over 73% of ATOM supply voted)​.

. The result was a stunning rebuke to the core team’s plan: although ~47.5% voted Yes, a blocking minority of 37.4% voted “NoWithVeto,” which not only counts as a supercharged No but also causes the proposal’s deposit to be burned​. This easily crossed the 33.4% veto threshold, officially rejecting the proposal. It was one of the most controversial votes in Cosmos history – one analysis called it a “hotly contested” referendum that became the Hub’s “most controversial proposal ever”​. In discussions, community members expressed worry that Atom 2.0’s token changes and new programs were being pushed too hastily by insiders. Even Cosmos’s original architect, Jae Kwon, emerged as a critic, arguing the plan strayed from Cosmos’s ethos. The outcome forced the team to go back to the drawing board. Subsequent governance efforts have broken the Atom 2.0 vision into smaller, more digestible proposals (addressing treasury usage, a Cosmos Hub constitution, etc.), which the community can evaluate one by one.

The Cosmos Hub case is a prime example of decentralized governance checking a kind of “DevCo” initiative. Here, the DevCo isn’t a single company but a coalition of core developers and affiliated organizations who authored the plan. Their proposal would have given them significant new resources and influence (via managing the newly minted ATOM treasury). The community asserted itself by saying, “Not so fast.” This does not mean Cosmos developers acted in bad faith – in fact, many Atom 2.0 ideas had broad support in principle​ – but it illustrates the healthy tension inherent in shared governance. If responsibilities and powers are not agreed upon, even well-meaning core teams can overstep what the community is ready to accept. The measurable consequence here was the veto itself – a rare instance of token holders definitively striking down a major initiative – which ultimately reinforced the legitimacy of Cosmos’s governance process. It sent a signal that even visionary developers must collaborate with, not dictate to, the token-holder community.

Cardano – Early Rift Between Foundation and Developers

Cardano is often cited for its structured governance approach (with a foundation, a core development firm, and an enterprise arm all separate by design). Yet it, too, suffered from a governance crisis in its early days due to poorly defined roles. In 2018, just a year after Cardano’s launch, a feud broke out between IOHK (Input Output Hong Kong, Charles Hoskinson’s development company), together with Emurgo (the venture arm) on one side, and the Cardano Foundation (a Swiss nonprofit meant to promote Cardano) on the other. IOHK and Emurgo accused the Cardano Foundation – and specifically its then chairman, Michael Parsons – of “lack of performance” and stagnation. Hoskinson and Emurgo’s CEO Ken Kodama published an open letter in October 2018 airing a long list of grievances: the Foundation had “no KPIs or public strategy documents,” “no clear public plan,” and lacked transparency in how it used its funds​. More explosively, the letter suggested the Foundation was overstepping its mandate, even claiming Cardano’s trademark and trying to control who got to speak for Cardano – moves IOHK characterized as a power grab.

The open letter was essentially a public ultimatum: it demanded Parsons’ resignation and that the Foundation “subject itself to Swiss authorities” for an audit of its conduct. IOHK and Emurgo even threatened a “coup” of sorts – proposing to take over the Foundation’s duties if things didn’t change. They announced that their companies were “committed to taking over its role” and would establish a decentralized foundation governed as a DAO by 2020 if necessary​ [. This was a remarkable instance of a DevCo (actually two companies) attempting to oust an independent foundation due to alleged incompetence and centralization of its own. The community largely sided with IOHK/Emurgo as frustrations with the Foundation had been mounting. Shortly after, Michael Parsons did step down as chairman under pressure. The Foundation was restructured with new leadership, avoiding an outright takeover by the companies – though IOHK and Emurgo did step in to fill many gaps in the interim.

Cardano’s early governance spat shows that even a tripartite governance model can fail if one pillar falters. There was supposed to be clear separation: IOHK writes the code, Emurgo drives adoption, the Foundation handles community and oversight. But with an underperforming Foundation and no formal accountability mechanism until things reached a head, the lines blurred. IOHK felt it had to play watchdog (despite being a contractor itself), and the community had to trust a centralized intervention to fix the “decentralized” body. The measurable outcome was a leadership change and, arguably, a more robust Foundation thereafter. It also accelerated Cardano’s plans for on-chain governance (the upcoming Voltaire era) to ensure the community can directly enforce accountability. This case reinforces a common theme: without clarity and accountability, the governance layer itself can become the weakest link, overshadowing any protocol-level decentralization.

Conclusion

Across these examples – Ethereum, Tezos, EOS, Steem, Zcash, Cosmos, Cardano – we see recurring patterns. Early on, many projects rely on a central team or company for vision and execution. Tensions arise when that central authority is either too heavy-handed or, conversely, when a supposed steward isn’t doing enough (or doing the wrong things). Debates over funds and upgrades become proxy battles over control. Who gets to decide a hard fork? Who manages a giant ICO war chest or block reward stream? Can the community veto the core devs’ grand plans? These questions have led to hard-fought outcomes: chain splits, loss of funds, reputational hits, and governance reforms.

A key lesson is that decentralized governance is messy but crucial. Projects where the lines between DevCo and DAO are blurry often pay a price – whether in community schisms or erosion of trust. By contrast, when roles are well-defined and the community has real leverage (e.g. Cosmos’s on-chain voting, Zcash’s use of community panels, Ethereum’s cultural norm of broad consensus), conflicts can be managed or resolved without implosion. For a forthcoming blog post focused on Bitcoin, these case studies provide valuable context. Bitcoin’s governance (or lack thereof) is an outlier in its minimalism. Understanding how other networks handled (or mishandled) DevCo–community relations will inform the discussion of whether Bitcoin could benefit from any formal governance structures or if its lean, off-chain approach remains its greatest strength.