Token Economics

  1. Civil’s decentralization goals mean they seek to enable a more direct, transparent relationship between journalists and citizens, while using blockchain to also strengthen protections for journalists against censorship and intellectual property violations. 2. To ensure that its marketplace would produce a diverse array of quality journalism from day one, The Civil Media Company has allocated $1MM USD in grants to support a “First Fleet” of more than 100 full-time, veteran journalists across approximately 18 newsrooms. 3. Newsrooms will be able to accept compensation from the communities they serve in any currency preferred by the end consumer (e.g. USD, EUR via credit cards; ETH, CVL via web wallets).


Why did Steem’s token incentives not work as well as expected? I had this question for quite some time. Steemit is one example where I feel incentivized community can promote bad effects rather than good. Is it poor consensus mechanism purely based on voting model or powerful actors or what really caused steemit not work?


Didn’t civil fail to pay journalists??


This is what the Civil CEO Matt Iles said:
“We didn’t promise anyone tokens would be worth any specific amount,” he told CoinDesk. “Anytime we discussed potential token value with newsrooms, we made it clear we were making estimates and that there was risk involved.”

Civil never said that the ICO will be a 100% success for sure and only pays journalists with tokens. ZigZag, one of the newsrooms at Civil, got paid partially in fiat and partially in CVL.


interesting point. What are potential ways that MakerDAO could generate economic value? Also, do you the chances of Ether being a base commodity decrease when MakerDAO moves to a multi-collateral approach?


I would say that it depends on how MakerDAO’s stablecoins are used in the wider ecosystem, which is not yet well established. Based on the uses/discussions we can be currently (page 12-13 of the following StableCoin report present useful discussion ), MakerDAO could be used:

  1. For getting longer exposure to Ether – A borrower wanting to get longer exposure to Ether could deposit Ether as collateral in the MakerDAO system to borrow Dai in return, which can be subsequently be used to purchase more Ether at an exchange. This could be desirable because the borrower expects the value to go up in the future, and the MakerDAO system allows the borrower to access leverage, and realise gains from appreciation with minimal investment.

Value Added: If the Ether does indeed appreciate, this adds wealth to the borrower which can subsequently be used to purchase other goods. Alternatively, the long exposure can be used to hedge against assets which are either uncorrelated or negatively correlated to the price of Ether –protection against future uncertainty could be seen as a value add as well. This does however require Ether’s price/value to settle on fundamentals (currently not the case), so that decision making does not dissolve into a pure betting exercise.

  1. As Universal Medium of Exchange – Some businesses may find it expensive to accept payments in fiat, especially if cross border payments are concerned - crypto currencies have been cited as solutions to stimulate international trade. Traditional businesses at present would take a significant risk accepting cryptocurrencies as a medium of exchange due to the significant volatility of this asset class. As a stable coin, under the right conditions, Dai could serves as a medium of exchange that allows merchants to transact with more consumers.

Value Added: Costs add friction to transactional exchanges, so its absence will encourage stimulate trade, which adds value to both the merchant and the end consumer.

  1. To allow DApps to distribute value – Existing Decentralised Applications could also require a price stable currency to enable exchanges between DApp participants.

Value Added: The mechanism through which value is added to end participants would be same as that of a universal medium of exchange. However, the prevalence of stablecoins could also encourage investment in DApps (which require price stable assets as a pre-requisite) - this will enable formation, and consumption of new set digital goods and services, so the value added could potentially be greater.

I would also distinguish between

  • value being consumed privately
  • value being consumed by ecosystem as a whole
  • value that contributes towards human welfare

…and these would need to be considered separately, and may not always be aligned. E.g.:

If we take use case 1, borrowers could argue that the opportunity to get longer exposure to Ether, irrespective of whether if creates wealth or not, is a service a service they get value from privately, and the system lower the barriers to access capital which allows them to get exposure.

This can, however, encourage speculators, who subsequently utilise the new found leverage to generate buying demand on Ether which drives up prices, and move it further away from its fundamentals. Ultimately, as the price corrects, and Ether comes tumbling down, the reputational damage suffered can create knock on impact on other unrelated DApp projects. These may either have relied on Ether for funding and suddenly see their capital diluted, or find harder it to obtain new funding from investors who become more risk averse. This generates negative value for the wider ecosystem, and the net welfare impact generated by MakerDAO remains uncertain. This phenomenon has already been observed, even prior to MakerDAO’s emergence.

The general framework does have a lot in common with the narrative that explains asset bubbles, and especially the 2008 financial crisis. Growth of financial innovation (e.g. complex securities such as CDOs, CMOs) that predated the crisis generated an unsustainable credit boom which was heavily invested in existing real estate, and caused prices to accelerate sharply in developed nations. When the real asset prices (and the debt that fuelled it) proved unsustainable, the subsequent debt overhang resulted in prolonged recessions that economies are still struggling to recover from.

On Ether as the dominant commodity money: I think that Ether’s chances of establishing itself as the commodity money of choice would depend less on MakerDAO’s approach to managing collateral, and more on Ether’s tendency to retain its purchasing power. If it serves as a good store of value, it could dominate the reserve composition even after MakerDAO adopts a multi-collateral approach.


ha, yes. this is fascinating.

yes, fair point.

Question for you: Hasu has recently written an article stating that Maker is actually a decentralized and very efficient version of centralized lending services. Don’t you think this is another way (and perhaps a primary way) that MakerDAO generates economic value?


Could you share some background? What were Steem’s token incentives, and how did they fail to live up to expectations? Were the expectations well formed?


I am perceiving economic value at slightly more macro level.

MakerDAO operates as bank which allows borrowers to borrow price stable and potentially liquid assets by depositing collateral in return. I would say that a bank does not generate economic value purely from lending money. If the money lent subsequently generates greater purchasing power that lasts in perpetuity (i.e., it is permanent), and allows borrowers to acquire more goods than otherwise would have been feasible, the acquisition of goods create utility for the borrowers which generates economic value. If subsequently the borrower is not able to pay back (e.g., their income never would have afforded them the loan, or the goods in the first place), subsequent hardship will negate any economic value initially generated (I would again mention that the mortgage crisis illustrates this phenomenon well).

I make this distinction because it is difficult to judge how MakerDAO’s will play out, although the risks it can generate are more obvious:

  • On one hand, borrowers acquiring Dai may have found it difficult to liquidate or transact with Ether in the first place, and maybe Dai, as a more stable asset can grow to be accepted by merchants. Borrowing Dai against Ether (or other non liquid assets, once MakerDAO adopts a multicollateral approach), may allow the borrower to now acquire goods that they could not have done with less liquid assets.
  • On the other hand, if the borrower instead uses the Dai to purchase more Ether, there is a risk of entering into a vicious cycle which ends up with the borrower acquiring a highly leveraged position that will be difficult to recover from.


This is what I found from Steemit blue paper! ( so far I have only read white papers :smile:)

Steem provides a scalable blockchain protocol

  1. For publicly accessible and immutable content, along with a fast and fee-less digital token (called STEEM)
  2. Which enables people to earn the currency by using their brain (what can be called “Proof-of-Brain”).

Steemit token has primarily two features.

The first is a pool of tokens dedicated to incentivizing content creation and curation (called the “rewards pool”).

The second is a voting system that leverages the wisdom of the crowd to assess the value of content and distribute tokens to it.

Tokens come from The Rewards Pool
In order to understand what the Rewards Pool is, one first needs to understand that tokens are produced differently in DPoS blockchains than they are in PoW blockchains. In traditional PoW blockchains, tokens are produced regularly but randomly distributed to the people whose machines are performing work (“miners”).
Different from PoW-only cryptocurrencies, tokens in Steem are generated at a fixed rate of one block every three seconds. These tokens get distributed to various actors in the system based on the defined rules of the blockchain. These actors, such as content creators, witnesses, and curators, compete in specialized ways for the tokens. Unlike the traditional PoW means of distribution, where miners are competing over raw computing power, the actors in the Steem network are incentivized to compete in ways that add value to the network.

Of the supply of new tokens created by the Steem blockchain every year, 75% of those tokens compose the “rewards pool” which are distributed to content creators and content curators. 15% are distributed to vested token holders, and 10% are distributed to Witnesses, the block producers cooperating inside Steem’s DPoS consensus protocol.

The users that take time to evaluate and vote on content are playing an important role in distributing the currency to the users who are adding the most value. The blockchain rewards both of these activities relative to their value based on the collective wisdom of the crowd collected through the stake-weighted voting system.

Steem operates on the basis of one-STEEM, one-vote. Under this model, individuals who have contributed the most to the platform, as measured by their account balance, have the most influence over how contributions are scored.

Steem only allows members to vote with STEEM when it is committed to a 13 week vesting schedule called Steem Power. Under this model, members have a financial incentive to vote in a way that maximises the long term value of their STEEM.

Steem Blockchain Dollars (SBD)

In order to help bridge the gap between more traditional fiat money systems which mainstream users are used to, and the cryptocurrency tokens which they are awarded through the platform, a new currency called Steem Blockchain Dollars (SBD) was created. SBD tokens are designed to be pegged closely to one USD, so that users who receive them can know approximately how much they are worth in “real dollar” terms. SBD tokens also offer a relatively stable currency for users to hold if they are looking to preserve their account value relative to USD.

Even with all the good intentions of a decentralized, tokenized community for content creation and curation Steemit ended up cultivating a loud and non-representative group of get-rich-quick schemers, idealistic anarchists, and true scammers. They even had ‘vote bots’ which are automated Steem accounts that have a ton of tokens invested as “Steem Power,” which takes 13 weeks to withdraw. Users can send them money in exchange for Steem upvotes, which allocate large steem rewards to their posts. In other words, when you use a vote bot, you spend money to receive an upvote that (in theory) is worth more than you spend. It’s a scam, plain and simple. Send money, receive more money, no effort required.

This medium post summarizes all those flaws Steemit failed to prevent.

Do you think Steemit can correct their token economics, specifically payout distribution and what do you think would be some of the adjustments they should make?


makes sense to me. so you’re suggesting it’s unclear whether Maker’s lending services will produce real economic value or not, yet. thanks for explaining :ok_hand:


Some background would on Civil would be very helpful. Some questions that spring to mind:

What is the functional purpose of this token in the Civil ecosystem? (E.g., Are they rewards for publishing content? )And why would token holders attach value to these tokens specifically (e.g, are there any reasons for thinking that the same outcome could be achieved without use of tokens? Or via a centralised service provider instead of on a public network?)


According to Civil founder Matthew Iles: “Everyone who owns tokens will become a member of the Civil community, and will get the right to vote on the principles enshrined in the constitution and the adjudication of disputes.”

zareef1992’s Q: “And why would token holders attach value to these tokens specifically (e.g, are there any reasons for thinking that the same outcome could be achieved without use of tokens? Or via a centralised service provider instead of on a public network?)”

According to Civil founder Matthew Iles: "It has the potential to help realign the incentives that underlie the journalism business. Instead of having to cater to billionaire owners or a hedge fund, newsrooms like Popula can be supported directly by members paying with Civil tokens. Those tokens can also be used by newsrooms to pay writers (although that’s not a requirement).

The idea behind these incentives is that good and honest journalism will be rewarded, and fake or malicious journalism will be penalized. In addition to those benefits, the “distributed ledger” that is the core of a cryptocurrency is open and transparent, so that every transaction can be seen by all, and everyone who uses it has their own copy. That makes it difficult to tamper with, or at least makes it obvious when it has been."


Concur with you. Crypto’s inherent economic nature will always attract profit-seekers using different loopholes and ways to derive profit without providing value. Especially with the lack of standard and regulations and technological maturity … Therefore will need more talented good people to outplay the “snakes”.


This is an interesting point. I had a couple of follow up questions:

  1. Is there strong evidence to indicate that newsrooms (more generally, instead of as an exception) cater to views/interests of billionaire owners or hedge funds as opposed to the consumers of news, or what the interests of these owners or hedge funds are?
  2. If the newsrooms are now being paid by the token owners, does that not redirect the bias from that held by “hedge funds/billionaire owners”, to those held by the “citizens”? Does civil have any mechanisms in place to ensure token holders themselves are free from any adverse biases ?

On 1, I find some evidence to the contrary, so will challenge that claim.

Claim: Newsrooms in the US generally tend to cater to the interests of their owners, or hedge funds that finance them, and civil token can be used to better align the interest of newsrooms and consumers of news**

Analysis: The following research by Stanford economists attempted to identify drivers of “ideological slants” that newspapers demonstrate.

  • They developed a slant index which measures “the frequency with which newspapers use language that would tend to sway readers to the right or to the left on political issues”, and “focus on newspapers’ news (rather than opinion) content, because of its centrality to public policy debates and its importance as a source of information to consumers.”
  • They estimated consumer demand for newspaper, in which “a consumer’s utility from reading a newspaper depends on the match between the newspaper’s slant” - this is done using zip code-level data on newspaper circulation, which shows that, e.g., right-wing newspapers circulate relatively more in zip codes with a higher proportion of Republicans, even within a narrowly defined geographic market.
  • “Treating newspapers as local monopolists”, they “compute the slant that each newspaper would choose if it independently maximized its own profits. Variation in slant across newspapers is strongly related to the political makeup of their potential readers and thus to our estimated profit-maximizing points.” - This suggests newspapers are indeed catering to what their consumers demand from them
  • They “find little evidence that the identity of a newspaper’s owner affects its slant. After controlling for geographic clustering of newspaper ownership groups, the slant of co-owned papers is only weakly (and statistically insignificantly) related to a newspaper’s political alignment. Direct proxies for owner
    ideology, such as patterns of corporate or executive donations to political parties, are also unrelated to slant” - This suggests that newspapers are not heavily influenced by the political views of the owners

Based on the evidence, I do not think Civil is solving a relevant problem here.


  • One could argue that there is media bias in specific jurisdictions which tend to reinforce the political ideologies that are already held by consumers. This would makes it difficult for consumers to have a more balanced view which would have been a more pertinent value add. I would be keen to learn if Civic attempts to address that problem instead.
  • One could also challenge the relevance of newspaper circulation given the continued growth of digital media. It would also be interesting to learn if Civic attempts to direct news traffic in a specific way.

Stake: Challenge - 50 CRED


zareef’s Q1. Is there strong evidence to indicate that newsrooms (more generally, instead of as an exception) cater to views/interests of billionaire owners or hedge funds as opposed to the consumers of news, or what the interests of these owners or hedge funds are? A1. Yes. According to Institutional Investor: “Since 2010 hedge funds and private equity firms have been targeting legacy media companies. The investors acquire newspapers at low prices, then cut costs in the hope of selling at better multiples. But the state of the news business hasn’t improved, leading some firms to continue making cuts, leaving fewer and fewer reporters in place.” Another evidence by the New York Times “Today, members of a new Gilded Age are again in control of many of the country’s most venerable media outlets. Only now, it is tech entrepreneurs, casino magnates and hedge fund billionaires who are seizing control of the press, simply by writing a check.”

Q2. If the newsrooms are now being paid by the token owners, does that not redirect the bias from that held by “hedge funds/billionaire owners”, to those held by the “citizens”? Does civil have any mechanisms in place to ensure token holders themselves are free from any adverse biases? A2 Yes, that’s why Civil has similar mechanisms as TruStory. Everybody in the community who has CVL tokens can stake/vote if a news on Civil is true or not. They also have “the Civil Constitution, which is sort of their code of standards and ethics. If anyone in the community of token-holders feels that a news organization does not meet the standards in the constitution, […] they can challenge that newsroom by staking tokens and that triggers a vote.” According to Coindesk “After a newsroom is started, token holders can challenge any newsroom’s adherence to the constitution at any time, but they’ll have to stake a lot of tokens, which they might not get back should they be proven wrong, to do so. Other token holders will be able to vote their tokens in these challenges.”

FYI: It’s Civil, not Civic. Civic is a cybersecurity blockchain startup.


Claim : Bitcoin’s adoption rate as a universal medium of exchange in UK and US is still trivial

Ahead of the analysis, it is important qualify what “trivial” adoption rates constitutes. The analysis assumes in order for the adoption rate to not be considered as trivial:

  1. Major retailers (e.g., measured by sales volumes, brand recognition) should accept bitcoin as a form of payment, or use it as a bridge currency to settle payments
  2. Proportion of transaction volumes settled by in bitcoin must be comparable to competitor payment forms (e.g, transactions that are settled in fiat)


1. A submission by Bank of England to Treasury Select Committee that “No major UK high street or online retailer accepts Bitcoin, although there are around 500 independent shops that may do – an average of less than one per town. Only a handful of the top 500 US online retailers accept Bitcoin.”
2. By deduction, given independent shops will capture a small portion of total fiat payments, Bitcoin payments are not yet high compared to other forms of payment.
3.. At a macro level, a survey (released January 2019) conducted by BIS (bank which governs central banks globally) reveals no central banks reported any significant or wider public use of cryptocurrencies for either domestic or cross-border payments in their jurisdictions.

My Stake: BACK Claim - 50 CRED


Claim: Once block rewards turn 0 (when bitcoin exceeds its issuance limit), to make it uneconomical for block producers to engage in a double spend attack, the average transaction fees must amount to 8.3%.

Source: BIS - Beyond the doomsday economics of cryptocurrencies in proof of work -


  • Bank for International Settlements (BIS) is a central bank owned by 60 central banks around the world, and aims to enforce monetary and financials stability globally - it regularly releases research papers on matters that they deem relevant to their cause.`
  • In January 2019, they released a paper titled, “BIS - Beyond the doomsday economics of cryptocurrencies in proof of work” which discussed the economics how bitcoin achieves “payment finality” - a gurantee that a payment will not be reversed, especially unethically - a critical attribute that enforces trust in payment systems
  • As part of the discussion, the paper presents a model to showcase that a double spending attack, which repudiates payment finality, can be profitable, and therefore only under certain conditions can the double spend attack be prevented, and the reliability of the payment system be enforced. These conditions are important for a user of bitcoin payemnt system as they need to be aware of the rules under which the system can be deemed as reliable
  • One such condition they propose is that, once block rewards cease, the average transaction fees (average transaction cost as a percentage of transaction amount) must amount to 8.3% (under certain set of assumptions) to make it uneconomical for block producers to engage in a double spend attack,

I will argue that the condition used to derive transaction amount, which assumes that dishonest miner can double spends all transactions in the block (irrespective of whether if he/she owns all private keys in that block), is incorrect - these do not generally negate the overall conclusions of the paper, but rather only generate incorrect numbers for transaction fees needed to prevent double spend attacks - this can present an overly negative view for bitcoin payment system. A range of assumptions have been laid out in the paper to support this claim - i present only relevant assumptions below, and analyse those which can be deemed as incorrect.


To come to the conclusion, the paper presents the equlibrium conditiions that must exist in bitcoin market. In particular:

  1. Equilibrium condition for honest miners: If we assume mining process is competitive, miners will continue to mine until they break even, and the average expenses of computational work equal block rewards plus transaction fees (i.e., revenues from mining)


image- Equation 1

  1. Equilibrium condition for disincentiving double spend attacks from dishonest miner: This requires a bit more context. A user of the bitcoin system would would want to prevent double spend attacks if they wish to deem the payment system is reliable. Miners can engage in double spend attacks by investing in enough computational power such that they are mining on the longest chain (the mechanics of why this is this the case are relayed in the paper), and will continue to attack as long as the benefits of attacking outweigh the gains.
  • The benefits to a miner from engaging in a double spend attack are 1) the amount of bitcoin double spent and 2) the mining revenues (block rewards + transaction fees) gained from validating the block which had the double spend transaction.
    image - Equation 2

  • Conversely, the cost of an attack are the cost of electricity consumed in generating substantial computational power (to be able to present the longest chain), and the potential loss in value realised if bitcoin price falls following a double spend attack. Assuming the the equipment generating computational power can be rented:
    image - Equation 3

  • Since the dishonest miner must also compete with other miners, we must assume that , in the event of an attack, the cost of computational power must be at least equal to cost born by other miners to break even, and hence equations 1 and 3 must hold at the same time. Inserting Equation 1 into 3 makes it:
    image - Equation 4

  • Finally, a miner is disincentivised from attacking if Cost>Gain. If we rearrange equations 2 and 4, this means:
    image - Equation 5
    The above illustrates that the total mining revenues (which are the transaction fees, when block rewards become 0)
    gained by honest miners (i.e., the cost of forgery) must be sufficiently high to discourage dishonest miners from investing in rented equipment to out compete them.

  • Rearranging above equation further, and taking some addtional minor assumptions, Equation 5 can be allow us to focus on the transaction fees as a percentage of transaction amounts needed to sustain double spend attacks:
    image - Equation 6

  • Assuming some values about above parameters then allows the paper to conclude that the right hand side of above equation, which is being defined as the average transaction fees, needs to be greater that 0.083 (8.3%) to make it greater than the gain from an attack, and thereby to make it uneconomical for a dishonest miner to double spend.

Challenge: In this above equation, to qualify the right hand side of the equation as “average transaction fees”, one must that assume the amount double spent is equal to the amount of all bitcoins in the “dishonest” block (i.e., the block which has a double spend transaction). However:

  • Successfully completing a double spend attack will require other miners to form consensus around the dishonest miners chain.
  • Formation of consensus around a blockchain requires all the miners to firstly agree that the transactions in the block are all valid even before they check that chain is the longest.
  • A transaction will be deemed valid if, at a minimum, the underlying bitcoins are being spent by the owners of those bitcoins (those who own private keys).
  • If a dishonest miner attempts to double spend transactions using bitcoins to which he/she does not have private keys, the transaction will be rejected by all other miners even if the amount of computational work performed on it is greater than the rest (i.e., even if it were the “longest chain”)
  • To successfully complete a double spend attack, a rational dishonest miner, therefore, will only attempt to double spend transactions in the block to which he has a private key, which may be a small proportion of the total transactions in the block.

The average transaction fee in above equation should therefore be defined as percentage of transaction fees a percentage of amount that was double in the “dishonest” block, as opposed to total amount in the “dishonest” block

Status: Challenge Claim - 50 CRED


Why is that? How is that assumption implicit in the equation?


For the left hand side to be considered as “average transaction fees”, the numerator and denominator will need to be associated with the same set of transactions. The numerator is associated with all transactions in the block (as they have been defined as total mining revenues from mining a block). I therefore concluded that the denominator is associated with all transactions in the block as well. It is implicit in the commentary that follows the condition, as well as from commentary shared in the executive summary:

From commentary on condition:

From Executive Summary: