Token Economy

Contextual Citation

Dick Bryan:

"Innovation of measurement in the crypto economy may actually hold the key to the measurement problems in the more established capital markets. The problem in the conventional markets is that they are being asked to measure things that don’t readily fit into the conventional accounting categories. But the crypto economy is not shackled by those conventional categories, and so can develop the devices to ‘measure the unmeasurable’."

(https://medium.com/econaut/valuation-crisis-and-crypto-economy-39c5b7e373af)

Description

By Irving Wladawsky-Berger:

"A blockchain-based token economy has emerged, driven by the explosive growth in the value and variety of those cryptoassets. Let me say a few words about some of the more significant assets.

Cryptocurrencies. In only a decade, bitcoin has become a secure, decentralized payment system that requires no trusted intermediary; a store of value now worth hundreds of billions of dollars, and, potentially, a reserve currency for the fast growing global cryptoasset market.

Platforms. Blockchain platforms are designed to enable the development of distributed applications based on the concept of smart contracts, which are essentially software programs that mimic the logic of a business agreement. Ethereum is the leading blockchain-based platform technology, which has boosted the value of its associated Ether cryptocurrency.<

Security tokens. Initial Coin Offerings have emerged as a means of raising capital for startup projects by going directly to investors, thus avoiding the costs and delays of dealing with the regulatory compliance of traditional intermediaries like VCs, banks and stock exchanges. ICOs democratize the ability of projects to crowdfund themselves by issuing tokenized securities, but their current lack of regulations increases the risks to investors.

Natural asset tokens. In much the way that financial assets can be tokenized, one can tokenize real-world physical assets, including carbon, clean air and water. Such natural assets are essential for life and foundational to the economy, but they’ve largely remained immune from market-based forces. “This has led to overuse and exploitation of these resources,” the Tapscotts write. The token economy could help us address the tragedy by aligning incentives with a common and collective goal, such as reducing carbon emissions.

Stablecoins. Bitcoin and similar cryptocurrencies have been generally quite volatile, partly because they’re not backed by real-world assets. But this is not a property of cryptoassets in general. It’s possible to design cryptocurrencies whose overriding objective is to maintain the same value over time by pegging themselves to some underlying assets, be they fiat currencies or physical assets." (https://blogs.wsj.com/cio/2018/08/03/the-emergence-of-a-blockchain-based-token-economy/)

Discussion 1

Michel Bauwens:

There are a huge number of interesting facets to the token economy, which are of interest to commoners.

The token economy represents a synthesis between market and the commons. Token projects are generally open source and rely on peer production communities of contributors, i.e. the commons is a core aspect of these projects. However, at the same time, the open source and commons efforts are entirely geared towards the market for its valuation and income. At the same time, the tokens can be distributed differently, so that contributors and workers can be rewarded in more fair ways than in classic market systems, since tokens can be reserved for all kinds of contributions. A token economy is a competency network, that is substantially outside the entreprise and wage system. At the very least, it represents a new form of capitalism, in which participating entreprises are part of a larger system outside of their control. The ecosystem of contributors is the core, not the participating entreprises, and many participants are not waged workers nor formal companies. The advantages of a token economy are thus multiple: 1) more independence from existing powerful institutions 2) more fluidity in input and output, which functions as a multiple stakeholder ecosystem 3) a better share for participating labor. There are also disadvantages, 1) the commons and open source are subsumed to market valuation 2) new forms of oligarchy (concentrated token holdings, miners, big capital providers) co-exist along with distribution and older power players, as big companies and banks find a role in the new ecosystem 3) the forms of governance are most often inspired by market economics and the properly human governance models are generally weak; 4) the absense of regulation and institutions means labor often operates outside of the protective umbrealla of the socialized state functions. Industrial state-based capitalism reached some kind of equilibrium when a powerful labor movement succeeded in achieving a compromise under the model of the welfare state, which started unraveling in the 80s. At the very least, we should be thinking about a new balance between capital and labor. But more substantially, we can think about how these new forms of distributed capitalism, can be made to work for the commons. In such systems, the market could still serve for the distribution of certain goods and services, but the commons would set the framework, in the interest of fairness and sustainability. The good news is that many of the tools being invented and pioneered in the token economy, can indeed be tweaked to serve more ecological and social purposes.

A Token is an Organization ... and a Commons!

Rutger van Zuidam:

"A token ecosystem is more than a blockchain or “coins”. It is an information (also value) carrier. An economic structure where multiple parties, often with conflicting interests, coordinate their actions coherently — without any formal organization in the conventional sense of the word. All coordination is literally encoded in the protocol, including the governing and regulatory aspects. Compare it to traffic rules and laws.

This has given rise to a whole new area of economics: token economics; a mix of micro economics, game theory and behavioral economics. Again, the hard work has to be done before the coding starts. What are the goals of the ecosystem, what are the actors involved, what are their motives and goals and what rules and incentives do we need to align all these different actors and interests?

This is not so much about software engineering. This is about engineering complex systems. It’s about creating interconnected collaborative communities. Once launched, a token ecosystem can be a self regulating organization. No one is in charge, and it is owned by itself. We know relatively little of the needs of this kind of organizations. Should it have a specific legal framework? It’s own regulatory framework? What kind of standards will it adopt or reject and why? How will it fund itself? How will it fund its changes? Which changes? The fact that these organizations are digital and (thus) borderless makes answering these questions even more difficult. But that doesn’t mean there is no way forward. On the contrary, there is so much of this in the making right now and we can only find out how it works by actually putting this to work.

Blockchains and Tokens are Part of the Digital Commons

One of the most interesting aspects of open blockchains especially, is that something (code, data, protocols) has come into existence that is not owned by any private or public entity. It is not unique in this respect — there is a long tradition of Public Domain and Open Source software, and there is a large amount of digital content in the Creative Commons. But still, it is relatively rare that valuable resources are created, maintained and upgraded outside the scope of both the state and the private sector. It seems to defeat the economic law that is known as “the tragedy of the commons”.

The commons, of course, refers to the pre-industrial communal meadows that existed throughout Europe. But the commons never really vanished, in Europe. Many institutions, from building unions in Britain to vinicultural co-ops in France to the “waterschappen” (polder and dike authorities) in the Netherlands have strong communal characteristics. One could say that the commons are deeply rooted in European culture.

In the digital domain, the commons have been brought up as an alternative to what has been dubbed data capitalism, platform capitalism or even surveillance capitalism. Because of the strong network effects in the digital economy, markets have a tendency towards monopolies. By putting infrastructure, protocols and certain data in the commons, one can create “fat protocols” (UPDATE: These are more precisely described as Application Layer Protocols, as suggested by sebnem), so that a much larger part of the network value falls to the community — and private companies can offer their services in competition on top of that, without fear of monopolization.

To sum it all up: #commonization

… we have learned that the real value of blockchain and tokens lies in the possibility to “commonize” important parts of the digital infrastructure. At the most fundamental level, we are talking about only a handful of entities: value, identity, maybe two or three more. One level higher, we envision things like a commonized infrastructure for energy, for payment systems, for supply chains, for pension rights, for consent, and many, many more (we can build protocols on top of these protocols). Each new protocol a fresh market with opportunities for business to deliver value. We know, by and large, what we want to build. Ecosystems. Complex systems that are antifragile because of their decentralized nature, that thrive in unpredictable conditions. We take our inspiration from nature itself." (https://medium.com/@rutgervz/blockchain-and-tokenization-beyond-the-hype-8bacd3c43481)

Discussion 2

What is the reason for building the Token Economy?

Akseli Virtanen:

"The idea that innovations in funding break open existing knowledge is not new. Myron Scholes, the co-founder of the Black Scholes options pricing formula, contends in his Nobel prize speech that debt and equity are historically specific modes of existence that enable least-cost means of funding activities and that, with time, new categories of funding would arise (along with new attributes).

The rise of joint stock company and stock markets in 1840s transformed capitalism. By then capitalist enterprise had reached a stage of growth that required large scale investment beyond the capacity of rich owners (private companies/partnerships). The revolution started in Britain, where the two-century-old legislation that had banned joint stock companies as purely speculative, disruptive ventures was repealed. With the change of law large quantities of investment capital could now be mobilised and ownership could be sold in small parcels, and those parcels traded in a secondary market — the stock exchange. This changed capitalism from being about the discretion of a rich elite into a calculative logic, with industry run by professional managers and where shareholders’ desire for financial returns impose a direct discipline on management strategy. This development was associated with the replacement in business of gold by paper money (credit) and, with investment in technology, came incorporation of labour into the logic of capital, in the creation of what Marx called ‘relative surplus value’. A whole new “mode of production” was born.

Cryptographically enabled distributed economic-organizational systems, aka “tokens”, are currently changing again the conventions of economic organization.

How is value created, captured, distributed and exchanged, what is money, how people incorporate into production, are changing as radically as the first generation internet changed the way we communicate and relate to the presence of others.

What are tokens? What is issued at an ICO, what becomes owned? Are tokens equity? Central bank money? Private bank debt? Or something else? Are they a gift, a bid, a gamble? If Scholes is right that financial instruments are historically specific, then are the categories of money and asset simply limited in their ability to give us paradigms through which to think about tokens? Perhaps tokens are more like derivatives (purchases of risk exposure, not just asset ownership), designable so that people risk together, not individually. Perhaps the issuance of tokens is best understood as crowdfunding, or investment banking, or building a collective. What are tokens? Why are they important? What can they do?

What, after all, is the reason for building the token economy? Finance is moving beyond a discretely delineated category of money as an ‘independent’ measure of the ‘real’ economy. With financial innovation, many assets acquire the liquidity of ‘money’, and as a consequence the distinction between money and other assets is breaking down. The sociality of money starts to reveal itself: fiat currency codifies a certain system of accounting, ownership and distribution. Money is a social relation, not only a technical mechanism. Cryptotokens are about exploring and re-engineering that sociality, building alternatives in service of a different economy. The question of how to do economy differently takes on new weight when it becomes possible to create answers; that is the fundamental value of token economy. Opening economy as a design question."

(https://medium.com/econaut/cryptoeconomics-working-sessions-at-nyu-stern-24a60d99d243)

The long-term value of tokens

Dick Bryan:

"Long-term token values will be determined by three factors:

• The current valuation of a token business

• Projections of the future positions of that business

• The level of ‘speculation’ on crypto assets and financial assets generally

We know that the third factor is impossible to explain. It depends on what Keynes called ‘animal spirits’. It is likely that speculation will remain high, for this is an immature market with rapid new entry in a sector of the capital market with widely-appreciated potential but low levels of technical comprehension. It makes valuation difficult, but it is unavoidable.

The second factor is also impossible to know with certainty. We know that the emerging landscape of cryptographically enabled distributed economic and social systems is changing exponentially, and that there will be some extraordinary success stories and some dismal failures. But we cannot yet know which is which. There is a proposition that, in this dimension, tokens be equated with call options: the right to participate in/own an as yet unknown future. It is an important insight, although our capacity to value the option is also limited. Critical to pricing options is quantifying the volatility of the underlying asset and the time to maturity. We cannot yet model volatility, and we cannot know the time horizons of success.

But the first factor can potentially be known for crypto tokens that exist to produce something: an accountable, measurable value of some kind. This is an area where many token launches are vague, if not entirely silent. But it is the one domain in which current tokens can and should be critically valued. We face the danger that too many coin issuances are pitching an idea, but without nominating means to measure/validate its success.

A thought experiment: the ECSA economy proposes to define and measure value as it has never before been measured. We want to measure value in terms of social contribution, not contribution only to profit. We want to measure produced social benefits, and most of them do not make conventionally-defined profits. Recognising the existence of these contributions is not new. Measuring them in terms of a new unit of account is new. But is it possible?

The measurement process is important if we would like to report to the public, each year, estimates of the value of output created within ECSA. Our thinking right now is that financial markets place a value on this production. In combination with available data like the quantum of tokens in circulation and the balance sheets of ECSA, we believe that the ‘market’ will be able to assess the fundamental current value of ECSA. This is critical for the market needs this information to make clear evaluation of the current value of ECSA tokens."

(https://medium.com/econaut/valuation-crisis-and-crypto-economy-39c5b7e373af)

Token as a Derivative and a Gift

Draft 'ECSA ECONOMIC IDEAS' [1] from May 2018

• TOKEN AS A DERIVATIVE AND A GIFT. On inalienable circulation of objects

By Benjamin Lee, ECSA Advisor (Prof. of Anthropology and Philosophy, The New School, NYC):

"This working draft builds upon two extremely provocative lines of thought by members of ECSA, Dick Bryan and Akseli Virtanen’s resetting of the cryptoeconomics agenda and Brian Massumi and Erin Manning’s 99 Theses on Revaluation of Value. Both try to provide a framework for understanding what Dick and Akseli call “cryptoeconomics”. Dick and Akseli provide some of the intellectual landscape needed for any future discussion of cryptocurrencies while Brian and Erin provide guidelines for the construction of a future social imaginary for cryptotokens, particularly as being developed now by ECSA. Of course, each draws upon the tools of their training, the political economist-finance theorists providing an exciting overview of both traditional economic and current cryptocurrency thinking, while Brian and Erin apply their path breaking work on “affect theory” to the problem of the quantitative subsumption of the creative potential of cryptocurrencies in contemporary capitalism.

I’m going to take a slightly different route.

My thinking comes out of the work on volatility that I’m doing with Emanuel Derman (dir.,Financial engineering program, Columbia University; former Dir. Quantitative strategies, Goldman Sachs) and Ackbar Abbas (prof., comp.lit., UCI). As Dick and Akseli point out, most of the economic thinking about cryptocurrencies focuses on their role as money; 99 Theses differs from many of these accounts by placing the discussion in the non-standard context - for economists! - of Marx’s theory of money and capital (without emphasizing the labor theory of value), pointing out that M-C-M’ describes how capitalism subsumes both economic and social processes for the production of surplus value.

I’d like to build off of Brian’s discussion of Marx, especially using the interpretation of Moishe Postone, to suggest that cryptotokens, especially conceived more broadly as cryptographically enabled decentralized economic-organizational systems, should be thought of introducing a new type of social relationship, which will ultimately turn out to have the properties of a derivative; prematurely thinking about the potential of cryptotokens as money may cause us to overlook the magnitude of the social breakthrough on which the success of any cryptocurrency depends. Instead, we might indulge in leap of imagination: what are the effects of introducing a form of social mediation that is unforgeable, continuously updated, publicly distributed, and that in principle everyone has access to?

I also want to say that these ideas are preliminary and very much in formation. But this is what draws me to ECSA. We are feeding each other’s creativity and imagination in economic thinking. It turns economy into a place of creation.

I wrote a longish review of 99 Theses that isn’t completely wrong, but it is incomplete — I kind of ran out of steam at the end, especially when I hit Brian’s speculations about Peirce and the continuum hypothesis. However in my mind the starting point for thinking about cryptotokens is what kind of social relationships are created by a non-forgeable, distributed ledger that records social relationships even as it disintermediates them. It’s not a face-to-face exchange relationship, but a species of what Michael Warner and others have called “stranger mediation,” which is presupposed by a range of social categories of modernity from nationalism (“we, the people”) to markets; it’s a fundamental assumption in Simmel and the cultural politics of the Frankfurt School in which, as Moishe Postone has pointed out, relative surplus value (not absolute surplus value) becomes the dominant form of social mediation characterized by an accelerating temporal dynamic. The contemporary form of “stranger mediated” social relationships would include the internet, and cryptotokens’ use of randomness (i.e, volatility) makes it less like standard accounts of money and more like derivatives (which price volatility and take as their model the randomness of Brownian motion).

Several people in our group have suggested that derivatives might make a good framework for understanding cryptotokens. What I would like to suggest is that derivatives provide an interesting framework to understand the neglected social dimensions of cryptotokens because they can be traced back to the “gift,” which anthropologists argue is the fundamental social relationship out of which more complex ones are built. The derivative is not only the immanent realization of (what Marx called) relative surplus value but it also antedates the simple form of value, which is where Marx’s account of money begins.

The Marxist story is usually told as a trajectory that starts with the simple form of value, moves through the money dialectic, and ends with M-C-M’ (the transformation of Money into Commodities into More Money); in relative surplus value the excess M’ is produced by technological competition and innovation. Finance capital is seen as non-productive and derivative finance is thus “fictitious” or “speculative” capital” as are cryptocurrencies. Derivatives are not seen as the culmination of any systematic line of development but are assigned marginal status from the standpoint of production even as their notional value is now over ten times global GDP.

However, overlooked in most commentaries about money and capital in Marx is a short section in chapter two where Marx talks about societies such as the “Indian commune” or “Inca state” that do not have “alienable exchange,” which is a condition for commodity exchange in the simple form of value. But such societies are what anthropologists call “gift societies” in which the circulation of objects is not the free exchange of things among individuals in a “relationship of reciprocal isolation and foreignness” but among “dividuals” whose relationships are performatively created by the exchanges themselves. In such societies, things exchanged partake of the “substance” of the exchangers and are not viewed as independent of the agents involved (food exchange in caste systems in India, for example) as they are in the exchange of commodities in the simple form of value.

But as Pierre Bourdieu showed, gifts are “commensurated” by the later return of “counter-gifts”; people and groups build up “portfolios” of social claims and obligations, which need to be maintained and exercised before they begin to lose their value. Since these claims and obligations are often overlapping, and involve different payoffs and expirations, there is an “art” to giving and receiving gifts that lie at the heart of “primitive economies”; these systems of exchange become elaborated into inter-tribal cultural economies such in the kula of the Trobriands or the potlatch of the Kwakiutal, to name two of the more famous examples.

Instead of the exchange of objects that were thought to be independent of their “owners” (alienable exchange), in gift societies the objects exchanged were integral parts of relationships with others, a part of yourself or spirit that circulated among consociates and kin (or even enemies as in the case of witchcraft). In the famous Kula ring, Kula valuables were circulated for purposes of accruing status and prestige and sharply distinguished from objects that could be bartered and exchanged. Kula valuables did not serve any economic function but rather established the framework of meaning for its participating societies, which consisted of eighteen relatively isolated island communities held together by networks of differential status. The circulating valuables established framework of status and prestige that modulated a social system of affects and emotions that encompassed the whole Kula despite its dispersed populations—both the consociates who lived on the same island and those whom one might never meet—a precursor to the “stranger mediation” of modern societies in which the people that make up a social collectivity may never know or have contact with one another.

While Marx’s money dialectic gave a picture that started with simple exchange and ended with money as mediating a totality of value that it created, his comments about alienability indicate mistakenly that the precursor to money as a medium of exchange and store of value would be the “alienable” objects circulated via barter and exchange, and not Kula valuables or their inalienable counterparts in gift societies. Marx even states that the “exchange of commodities begins where communities have their boundaries, at their points of contact with other communities” and only work inwards from the margins. Since gift givers and takers were not seen as independent of the social relationships in which they were embedded, anthropologists of India and Melanesia developed the term “dividuals” (which Deleuze independently coined) to contrast with the autonomous “individuals” of capitalism. In such societies, “gifts” would not function as medium of exchange or unit of account, but rather as indices of sociability that give meaning to what is happening as it happens. In the case of the Kula, the circulating valuables keep the Kula operating by creating a shared framework of status and prestige across the island communities that ranks and aligns the various groups and determines the appropriate social relations between them, including those in barter. The flow of affective sentiments subsumes the economic by defining the social groups that barter and exchange.

Gift societies circulate objects as “archives” of value without direct alienable exchange; as Bourdieu points out, there is an interval between the gift and its return; simultaneous return is considered an insult. The simple form of value collapses the interval into the event of exchange. The Kula shows that the functions normally associated with money as unit of account, medium of exchange, and store of value can be separated; the alienable exchange of commodities in the simple form of value begins to bring all these separate functions together, which will result in the “money form”. Kula valuables are neither a medium of exchange nor a unit of account but could be said to be a store of value that indexes the structure of groups and their history, which are enacted and updated in ritual and myth. The cycles of ritualized gift giving are the social modulations of affect driven by culturally specific “sentiments” such as honor and “face.” The circulating valuables not only subsume “economic” exchanges under affective modulations of social values such as honor (sensibilities embodied in what Bourdieu called “habitus”) but also act as updatable frameworks of meaning that constitute who is “in” or “out.” In Outline of a Theory of Practice, Bourdieu shows how Kabyle society is organized around a constant flow of ordinary gifts (cooked foods such as “couscous with a bit of cheese”) punctuated by the extraordinary gifts of major festivals (weddings and births), all organized around nif or the point (“nose”) of honor, which acted as the “affect modulator” for the whole system.

Can we extend these insights about “money” in pre-capitalist societies to our present situation?

Much of the excitement around cryptotokens is the possibility of creating a “society” organized around decentralized access to money and information. In gift societies, even as they were organized around qualitative intensities and “played” with the differentials of intensive magnitudes, social reproduction depended upon asymmetries of information, status, and power: power and status were based on differential access to information, often encoded in valuable objects (the precursors to money) such as the famous cowrie shells of the Kula ring or the copper "jewelry" of the Kwakiutl. These valuable objects were not only distinguished from those exchanged in barter (for which the Trobriands had a special term, gimwali) but were also embodiments of the value system that organized the Kula, i.e. it held the various groups together in a system of differential circulation and exchange.

In his reanalysis of the gift, Bourdieu suggests that the meaning and value of a gift is conferred by its countergift, which can’t be immediate because that would be an insult. Gifts are contingent upon their expiration—their value is fixed via a ritualized “retro-performativity” in which the value of the gift offered is conferred by the gift returned (Elie Ayache would argue for a similar “backwards performativity” for the pricing of options). Gifts are thus pre-monetary contingent claims and obligations—i.e. derivatives. In this sense derivatives antedate money as a form of social mediation—whole systems of ritualized exchange are built around gift exchange, as Mauss catalogued in his class, The Gift.

We can thus interpret Marx as having a proto-form of the derivative in the gift that antedates the money dialectic. At the end of the trajectory of money and capital lies the financial derivative; the immanent realization of relative surplus value is the derivative, or perhaps more precisely, the option (not the forward or future). The connection between the derivative and relative surplus value is that they share the property of convexity and involve arbitrage, which absolute value does not. The difference between absolute and relative surplus value is one of the major theses of Poston’s Labor, Time, and Domination, which focuses almost exclusively on the social effects of the “treadmill” dynamic of relative surplus value as it spreads as a social mediation. Absolute surplus value is linear in structure with a constant relation between labor time and value; the more one works the more value produced. However, relative surplus value being innovation driven is convex (the payoff for a successful innovation is far more than its costs, hence has an asymmetric positive payoff) and subject to an arbitrage structure. When an innovation first appears, there are two “prices”-–that of the innovation and the socially necessary labor time of competing commodities—an arbitrage opportunity that the capitalist takes advantage of. Convexity and arbitrage combine in Black-Scholes to price a new form of abstraction, volatility as opposed to the directional risk. Portfolio theory and CAPM are linear (covariance is linear), whereas Black-Scholes doesn't even have the expected return of the stock as a parameter, only its volatility. This suggests that by tracing out the interplay between the convexity of relative surplus value and its arbitrage, the immanent potential of relative surplus value is the non-arbitrage, convex structure of the derivative. If this argument is correct, then rather than derivative finance being "fictitious" it is rather the immanent realization of capital itself.

If the derivative is both the “primitive” social form of circulation and the immanent realization of capital, then it is not money that is at the heart of thinking though the social implications of cryptotokens. We won’t understand their social potential if we think of them as simply forms of money. It’s implicit in the language of cryptotokens, which require “coin offerings” before they can function as monies. But where does this sociality reside that must be invoked for any coin to succeed? Could we develop a coin to measure its own possibility of success? Instead of thinking about thinking about coins, perhaps we have to ask what are the social implications of the distributed ledger at the heart of cryptotokens? A non-forgeable distributed ledger that contains its own updateable history and removes the middle-man is a new type of social relationship that isn’t present in the dividualized non-alienable gift circulation systems that anthropologists once studied in which the status of “big men,” chiefs, and gods provided the engine of social circulation. What is the effect of introducing a form of social mediation that is unforgeable, publicly distributed, and that everyone in principle has access to? What would happen if the mediations that created and held together social groups did not rely upon asymmetries of knowledge and information but were instead like the protocols embedded in cryptocurrencies that moved social groups towards creating decentralized processes of potentially universally shared, transparent, and symmetric information and knowledge? Social reproduction would not be organized around certain groups having privileged access to "valuable" information, but rather everyone having access to the same information. And, as ECSA plans, everyone having access to the capabilities of designing and issuing these engines of social circulation. Imagine issuing your own rituals.

Cryptocurrencies apply this distributed ledger to monetized transactions, but its logic could be applied to other areas of non-monetized exchange. Imagine elections or histories “written and ratified from below”—what would the official Chinese dynastic histories look like if they were written in the form a distributed ledger that was continuously updated and confirmed by the “people”? Randy Martin gave the example of the development of skateboarding in LA during the early seventies as a form of qualitatively “risking together,” which spread rapidly as a way for people to enjoy themselves when they couldn’t surf. With the invention of polyurethane wheels skateboarders faced the question of whether they should commercialize—how did they turn their new way of qualitatively exploring volatility into a technological innovation that would bring in the profits of their quantitative subsumption under capitalism? As Brian and Erin raise the question, how do we “ward away” the premature quantitative subsumption of qualitatively based creativities to create a holding environment in which creativity and innovation can flourish? How do we develop measures of the circulation and expansion of intensive magnitudes that can be converted or exchanged for outside “monies” when the participants decide that is necessary or desireable?" (https://docs.google.com/document/d/1DBnJG4_0MWdNkitMk2r89FjJxCVoNr1SshC3vLmLF9M/edit)

How App Tokens Changed the Life of the Developer Working Class

Richard Burton:

"A month of work for the protocol (Ethereum) has completely changed my life. I am free to travel the world and work on whatever I want. It is hard to overstate the mental freedom afforded by having a cash buffer and not having to work all the time to make ends meet. It has had a profound effect on my mental health and freed me up to do the best work of my life. The people who built this protocol took a chance on me and I am incredibly grateful.

Vitalik and his team gave birth to a protocol that over 7,000 people committed to. They effectively held an IPO for their protocol at the start of the project. Since then, thousands more have got involved by trading Ether, writing code, and helping the protocol to flourish.

- "Bitcoin is not just a protocol or money, it’s a new business model for Open Source Software. Prior to Bitcoin, you had to raise money, write software, distribute your product, build a business model, and work towards liquidity. Angels, VCs, salespeople and bankers guided you the entire way, through a maze of tolls and controls."

Naval Ravikant saw this coming months before the Ether sale. The coins that protocols distribute to contributors are like shares in a company. The key difference is that these shares are not locked up by startup founders and venture capitalists.

There are a thousand nightmarish stories about startup employees not being able to afford to exercise their stock options and missing out on millions of dollars. Alex MacCaw and I wrote about this problem in 2013 after seeing many of our friends go through the stressful process of trying to borrow money to buy the stock they had earnt.

The current stock option system is totally broken. It forces people to stay at companies longer than they want to in the hope that a liquidity event is just around the corner.

App Coins are totally different from stock options. I was paid for my month’s work and I was rewarded for my belief in the protocol at an early stage. There was no cliff, no vesting schedule, no liquidation preferences, no VC ratchets, no exercise window, just coins. I helped the Ethereum team when they had no money and they rewarded me for that.

The moment I decided to move on to a freelance job, I was free to do so. I didn’t have to stick around in the hope that I would make some huge pile of money in the future.

This model is going to completely change the war for talent. If you’re a smart engineer, you can go and join a rocketship startup and work crazy hours. Alternatively, you can head over to Thailand, live cheaply, and work for App Coins.

...

Protocol creators need your help: They need people to write clear documentation, teachers to help people learn, designers to work on the user interfaces, customer support staff to handle the swelling inboxes, investors to raise capital, and a whole range of other talent to help them build a successful protocol. It doesn’t matter if you don’t write code—you can still contribute.

...

Protocols will follow the startup power law: millions will be started and only a few hundred will change the world forever.

...

In the future, billions of people will be working for a protocol. They will define themselves by the protocols they work for and how much they can contribute.

...

Protocolism might be the solution we need. It harnesses human ingenuity and distributes the benefits far and wide. It can help us build an economy for the 99%.

When a startup succeeds, a handful of people get insanely wealthy. When a protocol succeeds, thousands of people profit. In the future, the great protocols could lift millions of people out of poverty."

(https://medium.com/balance-io/the-people-and-their-protocols-dce03bb5b704)

Research

... on Tokenomics and platform economics, by Kelsie Nabben et al. :

"Summary: Many DAOs are governed through tradeable tokens. ‘Token economics’ or ‘tokenomics’ is a term given to the economic incentives entrenched within a token’s smart contract or protocol, and the particular fiscal and monetary policies DAOs may implement for these tokens through governance. Additional research on tokenomics can help expose the limitations and tradeoffs of tokens and coin-voting as a mechanism for governance.

Tokenomics relies on the same first principles as platform economics, as designers aim to imbue their tokens with ‘utility’ to satisfy regulatory constraints. Utility most commonly takes the form of facilitating transactions within a platform economy; the supply side provides a service, the demand side provides the service, and the token is incorporated as a tool to facilitate transactions between actors who are not assumed to trust each other.

Another common consideration is how to initialize token supply across actors contributing labor and capital prior to token release; the initial coin offering (ICO) craze led to large distributions of tokens to founders and investors. A second wave of projects followed the Fair Launch principle which emphasized all stakeholders starting on an equal playing field. When considering systems where tokens are used for voting, it is especially important to consider the initial token distribution.

One of the most exciting but also most challenging intersections between DAOs and tokens is the concept of a dynamic supply token: tokens which do not have a fixed total supply but rather have rule systems and parameterized smart contracts which determine how they are created and destroyed. The term “governance surface” was first used to describe the set of rules governing the parameters of the RAI token (Zargham and Nabben, 2022). Other large DAOs, such as MakerDAO, actually govern parameters which directly and indirectly determine the supply of tokens, and risk borne by token holders.

Tokens are commonly traded on secondary markets such as decentralized exchanges, and the prices on these exchanges impact those tokens effectiveness both in their roles as platform economy enablers and as skin-in-the-game for governance. Mechanisms such as constant function market makers, dex aggregators and bonding curves are used to provide liquidity, and in ideal settings reduce volatility (Zargham, Paruch, et al., 2020; Zargham, Shorish, et al., 2020).

Additional economic incentives associated with tokens are subsidies and grants. Subsidies generally target increased adoption and involve distributing tokens to server providers and/service consumers. The concept of yield farming involves users jumping from token to token engaging precisely to capture these subsidies. Curve pioneered the concept of gauge weights where their DAO votes on how to allocate their subsidies across various pools. This kicked off a process wherein a DAO emerged to capture controlling interest in another DAO. In the Balancer DAO, users faced down and eventually came to a compromise with a whale who insisted on placing high gauge weights on a pool they controlled in order to capture subsidies. While grants are notably less complex than programmatic subsidies, they most directly surface the relationship between DAOs and traditional challenges in treasury management and public finance. Unsurprisingly, a class of ‘protocol politicians’ has emerged to attempt to steer decision-making, especially financially impactful decision making in DAOs.

Due to the prevalence of DAOs with a tradeable governance token, token design cannot be cleanly separated from governance. Indeed, governance tokens are often used (perhaps more often used) for speculation rather than for their intended governance functions. Many authors have raised various critiques of token-based governance [CITE vitalik, nathan, others]. Thus, a key question of tokenomics as applied to DAOs is how to prevent governance tokens from becoming an end in themselves. How can DAOs distinguish between voting rights and other considerations?

But for the foreseeable future, many DAOs will still be funded and governed by a form of token-based governance; DAOs with tokens have proven to be an effective mechanism to raise capital for enterprise operations.

Given this, a number of questions arise:

What’s the right way to do token distributions, both the initial distribution as well as ongoing distributions? Tokens tend to be heavily concentrated in the hands of initial founders, which leads to centralization and gives contributors less buy-in.

What is the right way to distribute / manage tokens in a given treasury? a lot of DAOs seem to have just one token, so one sees huge fluctuations in the value of these treasuries, which is problematic. Can hybrid models, which use a mix of transferrable and soul-bound tokens, provide the benefits of marketable tokens while minimizing the downsides?

DAOs hold financial assets (digital or real) in collective ownership for future use and disbursement. How can principles of optimal capital management and portfolio diversification developed from principles of modern finance (e.g. Markowitz and Miller, Fama and French, et al) apply to DAOs? Note that this question is tightly coupled with legal questions of liability, ownership, and legal / fiduciary responsibilities that vary depending on the DAO’s particular legal structure (Wright 2021)"

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More information

The Book

* Book: Token Economy: How the Web3 Reinvents the Internet. By Shermin Voshmgir. Token Kitchen, ; Blockchain Hub Berlin, 2019-2020.

URL = https://github.com/sherminvo/TokenEconomyBook [3]

“Second edition, first amended printing, Nov 2020. The first edition was published by BlockchainHub Berlin https://blockchainhub.net in June 2019 under the title “Token Economy: How Blockchain & Smart contracts revolutionize the Economy” and had two amended editions.

Read for free on Github: https://github.com/sherminvo/TokenEconomyBook/wiki