Discussions on the token economics of TruStory and related projects
Thanks for creating this thread Priyatham – The following post represents my preliminary thoughts on some of the foundational requirements of the TruStory token, from an economic standpoint.
As context for this post, the following article provides a fantastic framework for thinking about value capture mechanics for tokens. https://firstname.lastname@example.org/a-deductive-valuation-framework-for-cryptocurrencies-a6bfa085a8b6
TL;DR A token whose only purpose is payment will have a high velocity (effectively acting as working capital), and as a result its value will trend to near zero. In the long-run, value capture in crypto-protocols will predominantly accrue to token(s) that best embody the properties of sound money, in a winner take all or winner take most distribution.
With the above in mind, I’d like to kickstart a discussion in this thread on the TruStory token economics:
Premise 1) The TruStory token needs to retain some meaningful amount of value if the token is going to act as an incentive for users to contribute resources (e.g., valuable and truthful content) to the TruStory network.
Premise 2) For the TruStory token to retain a meaningful amount of value over the long-term, some meaningful number of users must receive a value from holding the token, a value that is equal to, or greater than the value of holding the token/tokens that best embody sound money.
Stated broadly, and with the above premises in mind, one could describe the strength of a token’s value capture mechanism as ‘the extent to which the combined incentives associated with holding the token exceed the value of holding the soundest available money’.
Examining today’s landscape of existing protocols and their token economic models, I believe that the Augur prediction market and its associated token, REP, provides a useful case study for thinking about how the TruStory token could capture and retain value long term. The REP token economic model incentivizes “ truth-telling as a service ”, in a similar fashion to how I imagine the TruStory community would want its token to operate.
Augur is a "work" token, and work tokens typically entitle token stakers to perform work that serves the function of the network, and to receive compensation for properly performing the work. In the Augur prediction market, the work being performed by REP token stakers, is correct reporting on real-world events for the purpose of settling prediction markets ("bets") created by users of the platform. By correctly reporting outcomes, REP token stakers receive compensation proportional to the number of tokens staked (i.e., more at stake + reporting truthfully = greater economic reward). By the same token (pun intended) stakers who incorrectly report outcomes will have their staked tokens slashed (i.e., more at stake + reporting untruthfully = greater economic penalty). Provided that there are sufficient rewards associated with staking REP and truthfully reporting outcomes, the Augur network ought to be capable of becoming a decentralized source of truth, and an unstoppable prediction market!
It remains an open question, whether over the long term, the incentives to hold REP will outweigh the tendency for value to flow to the soundest available money. But my broad prediction is that a well-structured work token can capture sufficient value, so to act as an incentive and facilitate the smooth functioning of the network. Keep in mind that work token incentives can go beyond the direct economic benefit one receives for performing work, and include incentives such as gaining power and influence, bolstering one’s reputation as a source of truth, and ensuring the security/reliability of the network.
As described above, I believe the Augur (REP) model is a useful construction for helping us think about key questions associated with the operation of the TruStory network and token:
- What service or value are users of the TruStory network paying for?
- What behaviors do we need to incentivize, for the TruStory network to operate effectively in a decentralized manner?
- What behaviors do we need to disincentivize?
- How do we incentivize the good behaviors?
- How do we disincentivize the bad behaviors?
- What durable incentives exist to hold (rather than merely transact with) the TruStory token?
To conclude, my primary goal in this post is to highlight the fact that:
- the TruStory token must capture some meaningful amount of value, in order to be an effective incentive capable of facilitating the correct operation of the network; and
- simply issuing a token, is no guarantee that a meaningful amount of value will accrue to the token in the long-run, even if the network’s utilization is relatively high .
It’s important to mention that in addition to the work token model, there are alternative value capture mechanisms (e.g., token burning), which may prove to be promising models for tokens to accrue meaningful value. It’s also important to realize that there are key differences between the service being performed on the TruStory network, and that of the Augur network, and that these differences will probably necessitate a unique value capture model to facilitate “truth-telling as a service” on the TruStory network (more on this later). This post merely scratches the surface, and I look forward to exploring this fascinating problem space with the rest of the TruStory community.