One of the first organizations I heard about in the token engineering space was the Commons Stack. It wasn’t really a company per se, it was more of an organization, one that, like most blockchain layer 1 projects, was spread throughout the globe with no center.
Remember the 2016 DAO that forked Ethereum? Some of the Commons Stack members were involved there too.
Anyway, the Commons Stack is a community designing a type of decentralized autonomous organization called a Commons. A Commons organization uses new token engineering concepts to make donating to public goods more than just a donation.
Wait but why
Let’s take a short break from all this new age blockchain stuff to come back to the real world. Society, or should I say, the current economy, doesn’t really reward certain things for the value they provide.
The environment, for example, is constantly being abused. Most plastic isn’t really recycled, but is marketed as being recyclable so consumers will continue buying it. Think your electronic devices are being recycled? Think again, it gets shipped by the container into other countries’ landfills. Nobody’s got time to separate the components into their reusable raw materials, and even if they did, how could they compete with the rate finished products are being produced? Oceans are being polluted, forests cut down, you name it. And it’s just cheaper to keep doing so – the economic incentive is to continue abusing the environment.
Open source software is another thing that is constantly undervalued and abused, unless a successful capitalist company chooses to sponsor its development (because it relies heavily on it). Amazon is well known for hosting open source software, profiting heavily from it, and not giving back to the software project. And while I was working at a fintech startup, the Theo de Raadt (of OpenSSH, OpenBSD) came calling. Apparently he was looking to save fees on donations.
Imagine, the author of the world’s most secure OS and software that everybody uses to control servers, in a financial state where he has to worry about transaction fees.
I could go on, but this dynamic arises because of 2 things:
- making money generally involves controlling a scarce resource, making sure nobody else has access to it, and thereby charging money for it – hence patents, research silos, walled gardens, closed behaviour and abuse of free resources. After all, if there’s something free that you can do anything with, you’d just take it, right?
- There are many types of intangible values – reputation, power, trust, stability, the happiness of a community, the health of an environment/ecosystem, animal welfare. And you can’t put a number on any of these. We can only describe one type of value – monetary, and this disfigures our humanity and makes us do terrible things.
The Idea Behind a Commons
Funding: Augmented Bonding Curve
Much like Bitcoin, having your own token can serve as funding and denote membership. If you do work for the Bitcoin network, you get rewarded in BTC; if you do work for a Commons, you get paid in its token, let’s call it CTOKEN.
Since this is too important to trust humans with, we let a program handle the problem of token supply, just like Bitcoin. It sits on a blockchain and thus is tamper-resistant. We call it a bonding curve.
What a Bonding Curve Does
- When you put in USD, the bonding curve creates new CTOKEN, thus increasing the total supply.
- When you want to take out USD, the bonding curve destroys (“burns”) that CTOKEN, thus decreasing the total supply.
So it converts from one form of value (USD) to another (CTOKEN), except that it also decides the price of CTOKEN based on a curve. Besides determining the supply and converting a form of value, it also solves the problem of matchmaking when someone wants to buy and there’s no one willing to sell/vice versa.
USD coming into the Bonding Curve is split into 2 pools:
- Funding pool: pays the people running the Commons
- Collateral/reserve pool: if someone wants to sell his tokens, pay him USD from this pool
As you can see, the reserve/collateral pool backs the value of the token. If you sell your CTOKEN to the bonding curve, it will destroy (“burn”) the CTOKEN and you’ll get USD back. Specifically, you’ll get more USD back than the next person who sells after you, because it is a Bonding Curve after all, and the collateral pool is simply a fraction of all the money that ever got invested in the Commons.
The combination of the bonding curve and these two pools is called an Augmented Bonding Curve.
Those who have tokens can vote. Those who have more tokens have more voting power. But what if your vote on a particular proposal’s power also increased over time, discouraging people from switching at the very last minute? This is called Conviction Voting.
In the Commons, people vote (using CTOKEN) on which projects should receive how much funding (also denoted in CTOKEN). And yes, you can vote on yourself, to say that you should receive funding!
Test Driving the Concept: The TE Commons
Of course, there is a need to test if such an organization would work, and how people might game the system! That’s the Token Engineering Commons, a Commons that funds projects in the Token Engineering space.
Here’s how it should play out
- Donors put money into the TE Commons, and get TEC from the bonding curve.
- Donors vote upon projects using TEC, and projects receive that TEC as funding. To actually pay themselves, they sell the TEC for USD, but not all of it! Why? So that they can vote for themselves in the future, to steer funds their way!
- End result: the price of the token gets pushed up (remember the bonding curve), and for project owners, it is a fine balance between retaining enough voting power and getting enough funds.
But this is just the worst case scenario.
What if an economy formed around the TEC token, giving it extra value beyond voting rights?
Let’s go back in time. In the beginning there was Bitcoin. Developers poured their time into it, but there was nobody paying them. Instead, if you ran the Bitcoin node (participated), you had a chance of being paid in BTC. That was all you got! Within that niche group of people, Bitcoin had some value – worth a pizza, maybe. Outside of that circle, Bitcoin was worthless. Today projects still pay with their own coin. If you work for Decred, for example, you will only get paid in DCR, funded from the 10% mining split.
As outside people slowly started to perceive Bitcoin as having value, projects like Ethereum launched ICOs. Now, the Ethereum Foundation has 2 kinds of reserves: BTC and ETH, and it can sell both for fiat to pay its developers. ETH used to be worthless, just 5 USD. Today the Ethereum Foundation can send ETH around to fund projects because it’s worth 400 USD.
Today, people in economically unstable countries already perceive Bitcoin as digital gold – they transact in it every day. Wall Street in particular is starting to see Bitcoin as a great store of value that retains its purchasing power even as more USD is printed.
One day, perhaps Ethereum will be perceived as digital oil – something you need to buy to power your interactions with web3 apps. Sure, Web 2.0 was free – but not really, you were paying for it with your privacy, and those companies won’t have an incentive to care about you when they get big enough. Just look at Google, Apple, Amazon, Facebook.
Much of this, of course, has to do with perception, selling yourself, being able to convince people to join your project. Decred or Litecoin or any other coin with a fixed supply and healthy consensus mechanism could also be a store of value, and you can hold DeFi, ICOs or STOs or whatever they’re called today on Tezos, EOS, aeternity, NEO, NEM etc as well. But people flock to Bitcoin because it was the first, has the largest community, investment and hashpower behind it. Same for Ethereum.
What could people perceive a Commons Token as? I have no idea – but as you can see, the future is going to be a strange one.