Lighthouse DAO Profile picture
Aug 1 22 tweets 13 min read
The way we're distributing value in web3 is flawed.
🧵
Tokens are poorly designed and apply the same backwards financial incentives and power structures of tradfi and web2 to web3.

Here’s what this looks like and maybe a framework to fix it.
Tokens endow financial value and voting rights in the same way that shares do in tradfi.

While dapps and protocols may be technically decentralized, their control and value are as concentrated as companies and capital structures in tradfi.

Example👇
Consider the Nakamoto coefficient (# w/ >50% control) in Compound, Uniswap and ENS is 8, 11 and 18 respectively.

Their Gini coefficients (wealth dist., 1=unequal) of token holders is >0.97 (compared with ~0.85 in the US).

arxiv.org/pdf/2204.01176…

Maybe this isn't the way?
Let's break down stakeholders in a decentralized community:

💵 Investors = holders of a community's token
👷 Contributors = members contributing skills and time
🧑‍💻 Users = consumers of goods and services produced
If we label these groups, we'd get segments that look like this.

Which groups does it make sense to incentivize?
Do the same incentives work for everyone?
Wen token?

More on this in a sec. But let's look at the tools and incentives we use right now.
Some incentives are contrived or gameable:

📈 Limited supply through staking, locking, etc.
🎟 Arbitrary value distribution (airdrops, whitelists, raffles, etc.)
👀 Being early or clever (OG buyers, mint and cash out at ATH, 2017 ICO boom, arbitragers, etc.)
Other incentives are productive:

🏪 Provide utility by building and selling goods or services to users with real problems
💸 Token emissions and payments to people that are active, engaged and productive
I'm hoping that web3 communities will be more efficient, meritocratic and sustainable than companies. To get there, communities must:

🥅 Set a direction
⚖️ Understand what stakeholders value
🏗 Reflect on how to align them
🚀 Use decentralization to move in that direction
Before we continue, we need to agree on a few things though...

🎯 Different communities value different things
🙈 Accounting for anonymity is necessary
⛓ Trusted relationships should be verifiable on-chain
❤️ Value is not just financial
Queue “attestations.” WTF is an attestation?

An attestation is an on-chain transaction consisting of a public or verifiable set of information (i.e. data) agreed upon by two or more parties.

I'll cover data storage, ownership and web3 privacy in another thread.
Why do attestations matter?

In pseudonymous, public web3, what you do is who you are.

A DAO may attest to your work and its quality or a defi dapp to a user's HODL volume and duration.

But attestations aren’t good or bad. They just represent things that happened.
We can attest to your code's quality from on a Github pull request, to the stability you create in a LP, that your tweet was ❤️ by @VitalikButerin or that you were present on a DAO call.

All of these have no inherent value, but given a context, they may take on value.
So what is value?

Value is a score, agreed upon by competent members, assigned on a scale for a given metric.

Score = points assigned to attestation
Members = community-chosen stewards
Scale = value range (tweet vs. a pull request)
Metric = evaluation axis

Wen token?
Wen TOKENS?!

Tokens will take on a wide range of roles beyond finance.

We'll have hundreds of types of NFTs for identity, membership, access and so much more.

Native tokens will be split from governance, and we'll see thousands of reputation systems with their own tokens.
I mean how dumb would it be...

🤦‍♂️ if you trusted someone based on their wealth?
🤦‍♂️ if you earned a governance token that you had to sell to pay for rent and food?
🤦‍♂️ if you took a total stranger at his word?

Some examples of useful tokens 👇
Reputation - superficial, infinitely inflationary non-transferable tokens (NTTs)

repNTTs work like points and can be used for many cases like signaling airdrops, role or team assignment or social status.

They reflect a combination of participation, quality and acknowledgement.
Governance - revokable and proportionately rebased NTTs

govNTTs reallocate based on proportional values of a set of attestation scores, diluting inactive members out of power.

Used as a voting weight say in SPL 2-token gov, they boost say a poorer, but valuable member's voice.
Credentials - non-transferrable NFTs that point to a set of attestations

credNFTs prove or reveal a selected, relevant set of underlying data.

@Sismo_eth does this in zero-knowledge for identity and credentials, while @UnlockProtocol uses these for gated membership.
repNTTs and govNTTs dilute inactive members, making room for newcomers and allowing older ones to step back gracefully.

When used with @Superfluid_HQ or @streamflow_fi, social constructs like transparent payroll, retirement or unemployment are possible at a community micro-level
repNTTs and govNTTs make web3 communities stickier than web2 companies.

You'd need to give up a lot to start over. Making contribution and status symbiotic with community may be the way.

Money is the most rational incentive, but it is not the only incentive.

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