The most existential question in crypto: what will be the relationship between tokens and communities?

At stake: can DAOs bring virtue back to scaled organization? Or will they accelerate the economics-only mentalities that have been corroding society?

A way-too-long-🧵👇
Why the knife’s edge? Money and communities typically mix poorly.

(Not all networks need to be communities; some are purely economic & production-oriented and that's fine. This is for those that aspire to maintain values beyond economic self-interest.)
First, the😞unhappy (and unpopular) path:

Tokens insert market-mentalities into every group, which crowds out all non-financial motivations.

Every community evolves into a profit-maximizing network; all ‘community’ values are eroded; economic self-interest spreads ever-further.
Why might tokens crowd out other values?

Humans are motivated by different factors in different contexts.
Markets are governed by self-interest, mediated by money.
Communities and cultures are governed by reputation, value-alignment and norms.

They often can't co-exist.
Introducing new incentives changes our framing & activates different motivations.

A famous ex: an Israeli school added fines for late pickups-->late pickups skyrocketed. The $ fine crowded out the guilt that had made more parents on-time before and implicitly condoned tardiness.
Another ex: are you more likely to help a neighbor move if they (a) ask as a favor, or (b) offer $25?

Likely A. The $ introduced in B reframes it from a social interaction to a market one, and $25 may not be enough to be 'worth it.' The neighborly instinct is crowded out.
(Though if the neighbor offered to supply good beer we're much more likely to jump to help. This may be a key pattern -- more later)
These are not isolated cases. Economic, community and cultural motivations are highly interactive, complex, and powerful. Incentives frequently backfire because this isn't well enough understood.

Aside: I highly recommend anyone interested in this read…)
What does this mean for communities and how they should view tokens?

Dee Hock, founder of Visa (a pioneering decentralized organization), provides a better warning than I can:
Done rashly, introducing tokens will turn communities into markets.

While markets are seen as efficient, this would be a huge loss for both community values and effectiveness.
First, values/ethics:

Markets erode morality, and not just in predictable ways.

Researchers tested subjects’ willingness to kill mice, first in a base scenario then in market framing. Predictably, kill rates rose dramatically.…
More troubling: when subjects were then switched back to the original non-market framing, they were far more likely to kill the mice than originally.

The market framing, once introduced, stuck. Once market mentalities crowd out other motivators, we can’t just go back.
Even if we care only about efficiency markets are likely a step down from community in many cases.

We constantly confuse "things we can measure" with "things that have value." We make changes that destroy hard-to-explain value in the name of order, attribution, and neat models.
An ex from “Seeing Like a State," as reviewed by SlateStarCodex:

“An intact forest might be more productive than an evenly-spaced rectangular grid of Norway spruce, but it was harder to legislate rules for, or assess taxes on.” The forest was wiped out for less-effective grids
This pattern repeats everywhere in all kinds of logically centralized organizations.

It is behind national identity systems (for tax collection), bureaucratic reporting structures in large companies, and pre-planned cities with perfect structure and zero vitality.
“The centralized state wanted the world to be “legible”, ie arranged in a way that made it easy to monitor and control...And so we gradually transitioned from systems that were messy but full of fine-tuned hidden order, to ones that were barely-functional but really easy to tax.”
Communities are full of deep intrinsic motivation and hidden order. Not all of them can be plotted, attributed, measured.

Tokens can add legibility and direct incentives. But they can also wipe out far more powerful organizing principles in the process.
Will attempts to quantify and reward community activity crowd out the non-financial motivations that make a community so valuable and productive in the first place?

Again Dee Hock says it better than I can:
The nightmare would be that DAOs do rise, only to accelerate the dominance of shareholder return over all other values.

They are efficient and open to all -- but for what? What makes sense for financial networks is not necessarily good for non-economic relationships.
Imagine tokenizing a relationship with a spouse. Cleaning is worth X; cooking is worth Y.

The result might be 'fair' and efficient. It would also eliminate every chance to build trust, understanding, appreciation. It would turn an intimate relationship into an economic one.
Communities are many-person relationships. Tokenizing communities could lead to more fair and effective coordination. But will it eventually erode the trust, shared values, and culture that let the community form - and would help it get through any hard times?
If all this seems doomsday, consider that there is very recent precedent in social media.

FB and Twitter began by democratizing communication. Only over time did we realize the true impact: all speech became performative - every message and post an opportunity to build status.
Tokens begin by giving communities incentive powers. Over time, might they turn all our groups economic? Will every interaction be only a chance to build wealth?

It depends on whether tokens can be more than financial - can they represent or co-exist with other motivations?
That takes us to a happier😄scenario: communities preserve their values AND use tokens to coordinate at scale better than co's or govts ever could.

Value-driven communities could become the world's most powerful coordinators, enabling us to optimize for more than economic gain.
This is definitely possible, and powerful.

Ethereum has maintained community value alongside economic power. Smaller ones like @FWBtweets too.

But it’s hard and early, and it will get much harder over time as the values at stake grow and the original believers are diluted.
The key (I think): the community must remain stronger than the economic rewards. And not in a soft, aspirational way.

There must be more motivation and agency built into the community (layer0) than there is economic motivation built into the cryptoeconomics (layer1).
If economics motivations and accessibility become stronger than the community values, behaviors will begin to skew towards pure economic maximization.

As prices increase and the network of stakeholders grows faster than the original community, this gets extremely likely.
And remember that even a little economic incentive can switch participants from social to economic frames, crowding out other motivations.

So how can community values be preserved with more strength than the economic layer?
I’m not sure. But my hypothesis is that one promising route is to create cognitive separations between the community motivations and the measurable, economic reward.

Like the neighbor persuading you to help them move with beer instead of with money.
There can be rewards in a community, they just have to be designed in a way that they don’t trigger members into a “market mindset.”

What might this look like? A few ideas:
1. Make community tokens look less like money.

Non-fungibility, non-transferability, limited liquidity, penalties for norm violations could all work. The token can still hold value, but is less likely to attract value-dilutive speculators or be viewed as a purely economic asset
2. Maintain subjectivity: in access to the community, decisions within it, rewards.

Keeping governance in the ‘social layer’ rather than on-chain could preserve the importance of reputation, norms, and communication - things that make it a community rather than economic bloc.
3. Fit token distribution to community goals.

Some communities should aim for less decentralization. Token concentration in the founders + earliest members may preserve early values. In a world of many overlapping communities, diversity of influence is good. Leaders matter.
4. Bundle with products/services

@lennysan’s paid newsletter unlocks access to a community that is frankly more valuable than the content. It’s all subscribers: curious product builders. If the community itself were paid it would likely be full of networkers and headhunters.
Communities that successfully ossifying their values strongly enough will be able to use tokens to achieve incredible things: orgs with global scale, ultra low coordination costs, fully aligned incentives, and intrinsic + extrinsic motivators in pursuit of shared values/goals.
As @vitalik said, “even a billion dollars of capital cannot compete with a project having a soul.”

Preserving both will be incredibly hard, and incredibly powerful for those who do.…
I am HUGELY bullish on DAOs, and communities using tokens generally. This paradigm could change the world.

But it’s far from a given and IMO there are very real dangers and big (and interesting) questions that deserve more share of voice.
If 15 years from now we’ve collateralized our communities, monetized our reputations, and turned every digital interaction into a transaction, then we might all be wealthier but we’ll be a hell of a lot worse off.
That’s not an impossible outcome if we’re not careful. 10 years ago the dominant narrative around Facebook was that it had created connection and opportunity all over the globe.

Let’s not be Facebook.
Let’s experiment and see what works in preserving and extending communities without undermining them.

Move fast and test things, but not break them. Some failures can’t be easily reversed.
Tokenized communities can be the most value-driven & effective organizations we’ve ever had.

To realize that we need to be extremely intentional about ‘social capital.’ Representing it too much like financial capital may erode its power rather than capture leverage & influence.
DAOs are likely to be the ‘killer app’ of crypto and outcompete traditional institutions.

Whether they are a force for good or for economic gain depends on whether the design favors preserving and advance community values, or capturing value for the community.
Thanks to the many who unwittingly inspired these thoughts with their writing or work. Any useful ideas are stolen from them; all flaws are mine.
@BanklessHQ @jbrukh @jeffemmett @ptrwtts @Cooopahtroopa @Bradley_Miles_ @rabbithole_gg

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More from @dazuck

19 Jun 20
"The more one writes about identity, the more the word becomes a term for something that is as unfathomable as it is all-pervasive," wrote the pschologist who coined "identity crisis"

We wrote Demistifying Digital ID to lend some clarity

TLDR Thread 👇
Identity is not 1 product. It is the many challenges related to how a product, service or network manages its relationship with users.

This includes auth, KYC, access permission, data, dozens more.

It is the intersection, not the union, of these user-related capabilities Image
Each of these challenges has their own solutions and options. They are not the same.

But they share a common thread - they make up your relationship with your user, your management of it, and your users’ experience of your product and how it fits into the others they use.
Read 16 tweets

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