Kaal claims by topic: risk-and-incentives, page 3

779 atomic, individually citable claims from the published work of Wulf A. Kaal tagged risk-and-incentives.

Trust between counterparties in decentralized systems can only limitedly be assured by smart contracts, because the contract cannot verify the underlying qualities or future conduct of the parties. 2019
Smart contracts leave counterparty information asymmetries unresolved: the tenant of a smart property cannot fully know whether the landlord is providing a worthy property, and the landlord cannot know in advance how likely the tenant is to destroy the premises. 2019
In more complex smart contracts the counterparties cannot fully know whether the contract will do what it was programmed to do, or whether it will contain bugs or follow a logic the parties did not anticipate. 2019
Even small and simple smart contracts often contain bugs that trigger unforeseeable consequences, so contract simplicity is not by itself a guarantee of correct execution. 2019
Reputation used as a metric and store of value does not lead to centralization because it must be earned, it can be lost, and it cannot be converted into a fungible store of value exchangeable for goods. 2019
Insurance underwriting as currently organized imposes significant costs and inefficiencies and erects high barriers to entry, and it provides no democratized access to the underwriting process or collective decision making on risk. 2019
In the traditional insurance structure, financial distress or bankruptcy of an individual underwriter harms consumers, who lose the protection of their insurance contract and must seek new coverage. 2019
Tokens in the proposed DAO function as reputation because an agent's proportional token holdings will grow over time only if that agent follows sound and successful underwriting practices. 2019
Insurance premia are treated as revenue of the entire DAO rather than of the underwriters who wrote the policy, and are shared among DAO participants; consequently the value of a token is a function of the DAO's expected future cash flows. 2019
Because newly minted reward tokens go only to agents who stake tokens on policies, passive holders are diluted over time, which pushes agents toward active underwriting while still permitting passive investment. 2019
A breach by the underwriters of a policy does not amount to a default by the DAO, and under normal market conditions a well designed DAO should experience very few breaches if any. 2019
Unlike prior token research, the purpose of issuing tokens here is not only to raise capital but also to give owners the opportunity and incentive to develop the DAO's business. 2019
In the DAO structure, provided an adequate token encumbrance system is in place, each agent is individually responsible for the payouts on the policies that agent underwrote, so the burden of holding adequate capital shifts from the entity to each individual agent. 2019
Aggregate capital under the DAO structure is lower than under a traditional corporate insurer only if the incremental risk that contingent underwriting liabilities add to agents' private portfolios is small enough; the reduction is conditional, not automatic. 2019
The burden of maintaining sufficient liquidity to meet claims does not rest on the DAO but on the individual underwriters that make it up. 2019
Because each underwriter sizes capital against the risk of that underwriter's overall portfolio, and underwriting can be diversifying for a non traditional participant, the sum of the underwriters' incremental Values at Risk may be less than the Value at Risk of a single insurance firm writing the same contracts. 2019
How much capital an underwriter holds is ultimately a matter of personal risk preference, and an underwriter willing to tolerate fluctuations in token holdings need provide only for expected losses. 2019
Barring highly adverse market conditions, the DAO's ability to mint and sell tokens on demand functions as capital on tap and protects the DAO from default and bankruptcy. 2019
In the proposed design, bad business decisions by one underwriter need not impact other underwriters or the DAO, because losses from underestimating the insured risk fall purely on that underwriter so long as the staked tokens cover the claim. 2019
Trust requirements in the DAO are minimized by appropriately designed economic incentives rather than by intermediary reputation or regulation. 2019
The proposed DAO design is likely to lower barriers to entry in insurance, since non traditional firms and even individual investors can buy tokens at auction and then either underwrite with them or hold them passively. 2019
What the authors call a breach on a particular insurance contract does not necessarily imply any losses for the consumer, so underwriter breach and consumer harm are decoupled in this design. 2019
Machine learning improves portfolio diversification by searching for instruments that are uncorrelated with each other and that still match the requirements of the target risk profile. 2019
Repeated use of the same data set by data scientists creates an overfitting risk: the training model overfits the test set, which limits the performance of the applied model on a different dataset. 2019
Requiring data scientists to stake a cryptocurrency on their own predictions is a workable remedy for overfitting, because the stake expresses confidence in live performance and lets the fund select the optimal model. 2019
Moral hazard in hedge fund lending persists even when the lender is fully informed, because high enforcement costs can make prevention too costly for the lender. 2019
LTCM was diversified across markets but not across strategy, so its positions failed together; market level diversification does not imply strategy level diversification. 2019
Conventional risk models understated LTCM's losses because the models were estimated during more stable periods and therefore did not describe behavior under stress. 2019
The same leverage that produced LTCM's high returns magnified its losses, so leverage is a symmetric amplifier rather than a one directional source of performance. 2019
Before its collapse LTCM held roughly $4.8 billion in capital while controlling $160 billion in stocks and bonds, with derivatives of a notional value of $1 trillion. 2019
Hedge fund disclosure to counterparties and investors relies on balance sheet concepts that are uninformative about the actual nature of market risk and credit risk exposures. 2019
LTCM reached systemically dangerous size because banks lent to it without regard to repayment capacity, and in doing so the banks endangered their own existence. 2019
Banks continue to find hedge fund business desirable because hedge funds take risks other participants will not, borrow heavily and pay a premium for borrowing, which sustains the lending relationship despite its dangers. 2019
Additional direct limitations on hedge funds spill over onto other private investment pools such as venture capital funds and structured financings, which do not present the same systemic risk concerns. 2019
Indirect regulation minimizes regulatory expense by relying on the private sector risk practices of counterparties and creditors, producing an equilibrium between regulatory cost and regulatory attainment. 2019
Indirect regulation asks banks to fully assess the risk they incur from hedge fund counterparties, but that assessment is often dubious at best because of the opacity of hedge fund activity. 2019
Any risk assessment of hedge funds as counterparties is necessarily incomplete, because there is no common measure for calculating leverage and exposure and because fund trading strategies are dynamic. 2019
Competition among creditor banks undermines indirect regulation, because competing banks compromise on important elements of the risk management process and agree to overly generous credit conditions. 2019
Banks can restrain borrower risk taking because they can credibly threaten to cut off future lending, a disciplinary tool other intermediaries lack. 2019
The Basel framework serves indirect hedge fund regulation by aligning regulatory capital requirements more closely with underlying risks and by giving banks and supervisors several options for assessing capital adequacy. 2019
The Basel Framework reduces systemic risk by regulating bank credit standards, which indirectly constrains hedge fund leverage and makes credit markets safer. 2019
Market discipline, internal ratings and supervisory review under the Basel Framework change bank lending practice and disclosure, which in turn lowers hedge fund leverage and mitigates moral hazard of the kind seen at LTCM. 2019
Indirect regulation makes ex post opportunism by hedge funds less likely because the financial intermediaries, not just the funds, stand to lose reputation and market position if their counterparty risk evaluation proves insufficient. 2019
The internal ratings based approach reduces information asymmetry because internal ratings capture supplementary borrower information that external credit assessors cannot reach and cover a broader range of borrowers. 2019
Extreme illiquidity combined with the herd mentality of crypto investors systematically benefits speculators, because it lets apparent scarcity materialize out of nowhere precisely when investors are about to decide, prompting misinformed buy and sell decisions. 2019
Mass adoption fails at the user level: the average user will not identify, research, and purchase diverse sets of tokens even where those tokens would create value, because the existing cryptocurrency market structure is simply too cumbersome. 2019
Non speculator lay people will not use cryptocurrencies for daily consumption, groceries, or banking transactions unless the value of the currency is stable; stability is a precondition of ordinary consumer use, not merely a convenience. 2019
Merchant adoption of stable cryptocurrencies turns on a concrete threshold: merchants pay 2.9 percent to credit card companies on non cash transactions, so any medium of exchange costing less than 2.9 percent benefits merchants, who can pass the saving to consumers as a discount. 2019
Near instant settlement with stable cryptocurrencies removes counterparty risk, and the resulting reduction in counterparty risk boosts consumer confidence and increases transactional certainty relative to systems like Visa that take five to seven business days to pay merchants. 2019
Distributing newly minted coins to shareholders, as Basis planned, is exploitable: shareholders can collude to hold their new money and drive the price up, which triggers further minting that benefits the colluders. 2019
In a blockchain cryptocurrency, transaction taxes should be set to match the cost of running the network, meaning the cost of incentivizing enough nodes for the desired level of decentralization plus the cost of maintaining the coin's stability. 2019
Blockchain users are likely to demand zero transaction fees while failing to notice holding fees below about 3 percent annually, which a USD peg institutes implicitly through a comparable inflation target. 2019
Commonly held expressions of organizational values are essential to designing and implementing any governance structure and are far more important in decentralized organizations, which inherently have less motivational structure than centralized hierarchies. 2019
The authors recommend an SDAO governance design coordinated through reputation-weighted democratic governance, whose core objective is to create incentives that lead independent and selfish actors to collaborate productively toward a common goal. 2019
Blockchain technology incentivizes direct transactions between creator and consumer, including compensation, which eliminates the need for intermediation. 2020
Both dominant ideologies fail in symmetrical ways: capitalism produces inequity, inequality, monopolies, and other market failures, while socialism has incentive design defects in which hard work is not effectively rewarded and external costs are largely ignored. 2020
A DAO realigns the otherwise disparate interests of principals and agents because all participants in the DAO share the same goal, which reduces behavior contrary to the interests of the organization. 2020
A DAO focus on the value enhancement of fungible tokens can produce short termism and lead the organization to ignore ethical and governance issues. 2020
Parties may try to limit remedies to DAO assets through private agreements, but if the DAO faces a tort suit such an agreement is unlikely to be upheld. 2020
Overcoming attempts by rational and opportunistic internal and external constituents to game a DAO's governance design requires a duality of incentives, in which actors improve their own utility while their actions simultaneously benefit the whole institution over the long run. 2020
DAO designs at the beginning of the 2020s did not effectively master the duality of incentives that a workable DAO governance design requires. 2020
Paying DevDAO salaries in fungible stable tokens in proportion to members' non fungible reputation scores makes the economic benefit indirect, which removes corruptive elements and makes the governance design more attack resistant and stable over the long run. 2020
DevDAO member reputation is inflationary by design, so that non use, meaning failure to stake reputation tokens or to vote, causes value depreciation, which incentivizes action and makes liveness faults less likely. 2020
ICO sale terms are not fixed at launch: promoters can alter the smart contract to change the sales rules mid course during an offering, a risk factor for retail investors that has no analogue in a registered offering. 2020
Anonymity in decentralized networks imposes a specific design constraint: system architects need a special skillset to navigate the limits that anonymity places on system design, and that skillset remains very rare in the early 2020s. 2020
Token design must be treated as an iterative process in which data collection and flexibility in core design parameters are essential, because prior crypto economic assumptions routinely turn out to be suboptimal once the network grows and user preferences change. 2020
The focus on value enhancement of fungible tokens can drive short termism in DAOs and cause ethical and governance issues to be ignored. 2021
If DAO members do not formalize a legal structure for their entity, courts are very likely to impose one on them, which is a serious risk of DAO membership. 2021
Default general partnership treatment would hold every stakeholder of a DAO liable for any debts or legal actions the DAO faces, exposing known participants to regulatory enforcement and civil actions. 2021
Private agreements that limit remedies to DAO assets are unlikely to be upheld if the DAO faces a tort suit. 2021
Effective institutional governance requires a duality of incentives, namely incentives for actors to improve their own utility while their actions simultaneously benefit the whole institution over the long run, in order to defeat rational and opportunistic attempts to game the design. 2021
When fungible assets are the dominant incentive design in the governance of a DAO with identifiable actors, rational and opportunistic internal and external participants will typically attempt to corrupt that governance design for their own gain. 2021
Reputation voting has two advantages over one token one vote: it is non fungible, which avoids corruptive elements, and it aligns incentives for members individually and for the institution as a whole at the same time. 2021
Paying members indirectly, through a fungible stable salary proportional to non fungible reputation, removes corruptive elements and makes the governance design more attack resistant and more stable over the long run. 2021
Member reputation is inflationary by design, so non staking of reputation tokens or non voting leads to value depreciation, which incentivizes action and makes liveness faults less likely. 2021
No static set of rules can perfectly reflect the will of a group without leaving loopholes that adversaries exploit to profit at the majority's expense, and this produces a permanent arms race between policing and those who push the rules to their limit. 2021
Allowing periodic opportunities for renegotiation lets players escape the grim trigger trap, but it does not improve outcomes overall because it creates new incentives to defect and then gamble on talking one's way out of the punishment. 2021
If the decentralized economy is constructed as a zero-sum game, cooperation becomes impossible because the only feasible long-term strategy is maximal extraction, and participants are incentivized to play the most ruthless strategies available against their counterparties. 2021
Marketing a consensus algorithm as correct by construction is false advertising, because such proofs establish resistance only to the attacks the theorists considered reasonable at the time, not to all possible attacks. 2021
Since no algorithm can be perfectly secure in all circumstances, protocol developers should redirect effort from proving algorithms correct to building a governance process that updates the algorithm as network circumstances change, rewarding protocol improvement with meaningful reputation instead of leaving attack as the profitable option. 2021
Paying contributors in reputation tokens rather than fees, and then distributing all fees as a periodic reputation weighted salary, defeats the sockpuppet attack because splitting a holding across many accounts yields exactly the same share of fees. 2021
Because the Folk Theorems rule out a perfect reward system, the design goal for a DAO should be reduced to making it easier for members to help the group than to hurt it, with members themselves incentivized to police bad actors to protect their own profits. 2021
The social media coordination function remains largely flawed and corruptible because the incentive design underlying social proof is suboptimal. 2021
Rating systems on centralized marketplaces are actively gamed: new Amazon sellers are solicited by sock puppet operators offering to inflate their ratings and attack competitors. 2021
Social networks grow exponentially more powerful through the network effect, but they are stifled by the centralized ownership and governance of the Web 2.0 companies that run them; governing decentralized information flow requires decentralized incentive designs. 2021
If a peer to peer network were decentrally owned by its users, its algorithms could be open source and still remain safe, because the network could reward members for policing exploitation instead of relying on a centralized company to keep the algorithm opaque. 2021
The incentive design in which originators of TCP requests pay the bill failed to solve web hosting costs, because the Tragedy of the Commons asserted itself and porn and pirated file sharing, sometimes set up by the ISPs themselves to game the payment design, consumed available bandwidth. 2021
The Apache Foundation's minimal governance works only because its members are not competing for power and money within the organization, which limits how far the model can be transferred to for profit settings. 2021
Earlier centralized companies defeated more decentralized peer to peer platforms because of the technology of the time and the incentive design built into capitalist civilization: consumer devices could not match industrial upload speeds, centralized firms had the incentive to polish user interfaces, and economies of scale made central bureaucracy worth negotiating. 2021
Existing decentralized filesharing networks cannot guarantee the availability of unpopular files such as personal files, whereas centralized cloud services guarantee availability for a fee. 2021
Anonymity should be balanced rather than absolute: a member's power to broadcast should be tied to a pseudonymous account carrying meaningful and valuable reputation that is lost when the broadcasting power is abused. 2021
Without the ability to rely on proven custody providers, mainstream and legacy institutional investors are restrained from making digital asset investments for legal or business reasons. 2021
Self-custody of securities declined in prevalence after the Stock Market Crash of 1929 because investors recognized how inherently risky the bearer certificate system was. 2021
Traditional custody has become highly concentrated, with four large banks holding roughly $114 trillion in assets under custody at the end of the first quarter of 2018, and barriers to entry make it likely that this concentration continues. 2021
Centralized cryptocurrency exchanges require users to hand over their assets and then act as custodian, issuing what are essentially IOUs for users to trade with on the platform. 2021
Because a wallet provider or exchange that has custody of a digital asset gains full control over transactions, hacking a digital asset exchange is equivalent to robbing a bank: the attacker obtains valuable cryptocurrency that can be cashed out. 2021
Cold wallets typically lack the multisig feature that is common in hot storage, so the single employee acting as agent for a corporation may be the only access point to the corporate digital assets. 2021
Operational risk is inherently high in custody services because of the high volume of transactions processed daily, and those risks are magnified in a global custody operation running around the clock across different markets. 2021
Information security infrastructure and controls to mitigate hacking, theft, and fraud must be enhanced when maintaining custody of digital assets, because digital assets have unique technical characteristics. 2021
Every risk in a digital custody operation should carry both a preventative and a detective control, layered so that if some controls fail others remain to reduce the risk. 2021
Insurance coverage among digital asset service providers is far from universal: 46 percent of surveyed service providers reported not being insured against any risks. 2021
Credit risk is low in digital asset transactions because the transactions are made instantaneously, which removes the counterparty performance window that generates credit risk in traditional custody. 2021
Because of human shortcomings, bounded rationality, incomplete foresight, and information asymmetries, it is impossible for principals to contract for every possible action or inaction of the agent so as to induce the agent to act in the principal's best interest. 2021
The DAO focus on enhancing the value of fungible tokens can produce short termism and can cause ethical and governance issues to be ignored, even as it frees non-performance reputational penalties from racial and cultural bias. 2021
At the beginning of the 2020s no forum existed that could support truly decentralized software development with a sufficient incentive design. 2021
Conflicts of interest and counterparty risks are absent on a decentralized exchange because proprietary trading intermediaries such as market makers and centralized third-party operators cannot inject themselves into a transaction. 2021
Even though the creator of a DEX plays a limited role in its evolution, the code that provides the exchange's operational rules may still be subject to the centralized control of certain developers, and a completely open source DEX with no ongoing developer involvement remains untested. 2021
Automation and the absence of a human backstop in compliance, back office, and settlement create new risks to market integrity on decentralized exchanges, including wash trading, frontrunning, and insider trading. 2021
As each form of decentralization empowers heightened proliferation of the other forms, individuals perceive more opportunities for changes in consumer behavior, silent withdrawal, disengagement, and defiance of the established centralized order. 2021
Improved incentive design is necessary but not sufficient for decentralization: better decentralized incentive designs can accelerate adoption, yet design alone will not produce the decentralization of business and society, because adoption depends on society's acceptance and use of the technology. 2021
Effective institutional governance, human or machine, requires a duality of incentives in which actors improve their own utility while their actions benefit the whole institution over the long run, and without that duality rational and opportunistic constituents will game the governance design. 2021
Firms that fare worst under disruptive innovation share a myopic short-term focus on shareholder value maximization, because emphasis on share price and financial metrics obscures the question of whether the firm remains relevant. 2021
The social media coordination function is still largely flawed because the incentive design underlying social proof is suboptimal; decentralized technology solutions can take over that coordination function and improve it. 2021
Open source contribution is governed by a cost-benefit calculation rather than pure altruism: the volunteer's opportunity costs of forgone paid work must be offset by satisfaction, autonomy, peer recognition, skill acquisition, or downstream commercial opportunity. 2021
An optimally incentivized democratic decision-making tool would make separation movements in open source less likely, because voters who know the process rewards truth-seeking are more likely to accept an adverse outcome; emerging decentralization technology makes such a tool theoretically feasible. 2021
Member default on premia is a major inefficiency in chit funds, with estimates that a large share of subscribers have defaulted at least once recently and a substantial share have defaulted after winning an auction. 2021
Reputation must be grounded to be meaningful, so reputation tokens should be minted only when policy premia enter the group, reputation should dictate power, and fees should be shared through reputation weighted salaries. 2021
Because underwriting mints new reputation tokens, passive holders see their proportional ownership in the DAO fall over time, which is designed to incentivize agents to underwrite actively while still allowing passive investors to earn income. 2021
Reputation changes the incentive structure of a decentralized organization from a single stage, zero sum game into a repeated positive sum game, which is why the authors treat reputation as the key to effective decentralized governance. 2021
Recording every action on a blockchain does not by itself defeat corruption, because more information does not ensure more productive collaboration; members must additionally be motivated to behave correctly and to police corrupt behavior. 2021
When currency is the entire proximal goal of a transaction, all participants naturally behave as selfishly as possible and exploit any opportunity for individual profit at the group's expense, which makes cash profit a bad immediate incentive for both business and government. 2021
The main problem with all current peer to peer governance structures is the lack of proper incentivization: participants are not motivated to improve the whole organization over the long term, so they game the system for short term personal profit. 2021
A reputational system formally linked to profits makes members forward thinking and cooperative, counteracting the tendency of competition to separate them, and it also motivates members to self police their own past investments. 2021
It does not matter what a DAO architect intends, because the resulting rules of the game are what tell players what to value; governance parameters therefore determine the organization's actual values regardless of stated intent. 2021
Keeping decentralized networks running productively requires a dynamic design with checks and balances combined with the incentive design insights of game theory. 2021
Reputation rather than money is the proper motivator of good behavior in business and governance, because properly accounting for reputation switches incentives from short-term zero-sum thinking to long-term positive-sum behavior. 2021
Banking performs the necessary function of absorbing the risk of less secure but more efficient small transactions, which are then bundled before a more expensive but secure transaction is made with the central bank. 2021
Keeping a decentralized organization aligned in pursuit of its goals requires providing something more valuable than money, namely reputation, following the Maghribi traders' example. 2021
Human middlemen have an incentive not to entirely eliminate the corruption they are paid to overcome, which is one reason they become falsely identified with the friction itself. 2021
Because DAO performance assessment is based on optimizing fungible token value rather than on hierarchical or political processes, the focus on token value enhancement can lead to short termism and may cause ethical and governance issues to be ignored. 2021
In a rigid competitive hierarchy governed by secular laws, internal corruption arises because each member's optimal strategy is to push the written rules to their limit, while externally any change in the problems the group faces can find the hierarchy unready. 2021
When a law is written down rigorously, specifying precisely what is acceptable and unacceptable, competition obliges people to find the most efficient behavior available inside those rules, which is typically behavior located right at the boundary of what is permissible. 2021
Because a transcendental value is by definition not rigorously formalizable, people organizing around an eternally unobtainable ideal without clear boundaries are less likely to probe the boundaries of acceptable behavior. 2021
Giving the Apaches cattle in 1917 succeeded where military force had failed because the valuable assets created a zero-sum battle over resources between lineages, generating the internal competition necessary to produce a hierarchy of power over the disbursement of resources and property. 2021
The authors accept Brafman and Beckstrom's thesis that the best way to convert a decentralized organization into a centralized one is to introduce the profit motive, since money supplies a focal point for internal competition. 2021
Good ideas will fail to be implemented unless the reward structure is balanced, because people rarely keep working idealistically toward group goals while rent seekers at the top split the rewards unfairly. 2021
Adding reputation to the contracting game converts it from a single-stage zero-sum game into a repeated positive-sum game in which the rest of the community becomes relevant, because reputation is a future-oriented commodity that pays off with the promise of future contracts. 2021
The more hierarchical the code review process and the more barriers to entry it imposes, the lower the quality of the resulting code. 2021
In hierarchical legacy review processes the first reviewer's output gets the highest priority and follow on reviewers add only minor upgrades, so the collective of reviewers is not incentivized to find flaws and optimize the code as a collective work product. 2021
The code review industry is dominated by a cartel formed by the top five code audit firms, and that cartel creates high barriers to entry for new players in the code review market. 2021
Universal access combined with a public bidding price discovery methodology creates low barriers to entry in the code review market, because anyone can join the CRDAO by submitting high quality code reviews through the CRDAO portal. 2021
Crowd review and policing votes by the CRDAO collective filter out idiosyncratic reviewer preferences, because reviewers who submit highly idiosyncratic reviews would have to fear slashing and loss of standing in the community. 2021
Lower cost early feedback from the CRDAO enables risk taking by development teams that wish to move quickly through governance and upgrade processes, which in turn enables accelerated growth and scaling of experimentation. 2021
The CRDAO governance framework is the decentralized governance framework developed by Craig Calcaterra and Wulf Kaal, further enhanced and implemented by the code review DAO, and CRDAO members get paid to participate in that governance. 2021
Existing legal incentives in many jurisdictions produce so called Zombie Charities, with the consequence that donative intent often cannot be optimally fulfilled. 2021
Because boards and donors seek to preserve endowments rather than spend them, funds accrue tax free long after the donor has taken the deduction, which runs counter to the spirit of the rules governing charitable deductions and may contribute to harmful inefficiency. 2021
Although the five percent annual payout is only a legal minimum for foundations under 2021 law, many boards treat five percent as the default rule, which entrenches minimal disbursement. 2021
In contrast to existing legacy structures that incentivize delay and hoarding, and depending on the respective DAO design, DAOs are incentivized to release the endowed assets immediately once the work for the donation has been finished. 2021
Voting associate salaries are paid in fungible tokens pro rata to each associate's non fungible reputation score at the point of payment, which creates second order economic effects and indirect economic incentives in the DAO. 2021
Reputation staking serves the common good because the more the aggregated individual reputation of all voting associates increases, the more the overall value of the DAO increases and the more the DAO creates value enhancing outcomes for sponsors and the associate community at large. 2021
The design decreases the likelihood of individual and, in turn, community liveness fault, because non use of existing reputation at the individual level leads to inflationary devaluation of that reputation. 2021
Decentralized systems invert the collectivist tradeoff: rather than demanding that individuals sacrifice personal fulfilment for the group, they prioritize personal fulfilment because it produces the unique inputs and innovation that raise the collective wisdom of the group. 2021
Capitalism and socialism each fail in characteristic ways: capitalism produces inequities, monopolies, and other market failures, while socialism suffers incentive design failures in which hard work is not effectively rewarded and external costs are largely ignored. 2021
Elected representatives are incentivized to maintain their own power of office rather than to vote for outcomes reflecting the presumptive wishes and needs of their constituents. 2021
Unlike their centralized predecessors, decentralized technologies enable, for the first time in history, improved incentive designs that help overcome the insufficiencies in the voting outcomes of representative democracies. 2021
The conveniences and benefits of centralized algorithmic automation carry risks to humanity that cannot be fully quantified, and decentralized systems can counteract those downsides and threats. 2021
The quantification and algorithmic optimization of human thought, feeling, and action can produce an optimization of humans that is too complex for humans to understand without the data driven algorithmic aids themselves. 2021
Big data and algorithmic data analytics enable centralized algorithmically automated systems such as Google, Facebook, and Amazon to know individuals' political preferences better than the individuals themselves. 2021
In its ultimate state, algorithmic automation negates human input in data systems altogether, because human bounded rationality creates inefficiencies and the human condition yields suboptimal outputs even when algorithmically optimized. 2021
High intermediary fees in legacy payment systems make transacting economically viable only at higher transaction volumes, thereby creating barriers to entry that decentralized payment systems do not impose. 2021
The final 2021 Casper testnet used perceived validator node uptime as its single rewarding requirement. 2021
Validators who learned they would receive no reward shut down their nodes rather than waiting for the incentivization phase to end, so a reward scheme that visibly excludes participants loses their contribution immediately. 2021
Uptime based reward policies invite Sybil style abuse: on the original Casper testnet single persons ran fifteen or more validator nodes to exploit cloud provider promotions and the DEVxDAO rewards policy, extracting rewards without contributing to the validator group. 2021
The Shasper canary network is designed as an experimental environment for developer teams that want to move fast and innovate, or to prepare deployments destined for the Casper Network. 2021
By balancing validator stakes against reputation, HSPoS reaches an equilibrium of incentives in which validators are motivated both to succeed economically as validators and to participate actively in decentralized governance. 2021
HSPoS earns validator node reputation through a mechanism that is decoupled from the ordinary monetary system of incentive rewards. 2021
The Shasper network extends the Casper testnet in a way that benefits community experimentation and creates significant developer incentives that help retain talent for the Casper network. 2021
Only one in one hundred token opportunities returns a large multiple such as 100x, 30x or 10x, which Kaal lists as a core risk factor for running a DAO investment club. 2021
Without access to a network of core expertise, early stage investments in the digital asset industry are rarely successful. 2021
Reputation non fungible token staking removes counterparty risk because the desire to preserve and increase reputation scores dominates DAOIC decision making, making bad actors less likely to appear since their reputation would inevitably suffer. 2021
In the theoretical model, the incentive design of decentralized reputation staking governance aligns the individual with the group so tightly that the agent cannot gain personally at the expense of the principal. 2021
If the public fails to purchase the capped amount of a token opportunity, the DAOIC must sacrifice its own liquidity and buy the remaining part of the sale, so firm commitment underwriting turns a collective misjudgment of public demand into a capital obligation. 2021
Misjudging the public commitment portion of a firm underwriting engagement would neutralize the liquidity the DAOIC previously gained through reputation staking. 2021
Shifting policy so that all returns on purchases are minted into fungible reputation tokens paid proportional to reputation holdings instantiates the shift from capital to reputation and functions as a form of best efforts underwriting on a token opportunity. 2021
If the DAOIC is perceived as having a market impact, it could significantly increase corruptive influences from other market players, which in turn increases the likelihood of regulatory intervention, so market neutrality is in the DAOIC's long term interest. 2021
Lack of liquidity is one of the biggest problems in the traditional venture capital ecosystem, and the traditional VC model disincentivizes generating early profits because capital is locked in for an extended period of time. 2021
Deal evaluation and risk assessment in traditional venture capital is fraught with inaccuracies and suboptimal incentives. 2021
None of the standard VC deal evaluation criteria reflect how a prospective deal may correlate with a deal already held in the capitalist's investment portfolio. 2021
Because venture capitalists typically want to cash out their gains five to ten years after the initial investment, they play an active role in directing portfolio companies toward a merger, acquisition, or public offering, which can carry significant downsides for those companies and their products. 2021
The typical VC fee based compensation structure can lead to serious shortcomings, including excessive fundraising, suboptimal investments, misevaluation, and overfunding of portfolio companies during a fund's holding period. 2021
The hybrid smart contracting model is defective because VCs are partially incentivized to fund and stake only the best deals while staking on less optimal deals that the market mostly funds, which undermines their long term reputation accumulation. 2021
The incentives that undermine long term success of the hybrid model can be mitigated by mandating that staking on deals requires capital commitments, while allowing VCs to lower their capital commitments and increase their staking over time. 2021
A better system emphasizes reputation by prohibiting capital investment into portfolio companies after an initial minting of reputation in proportion to incoming capital. 2021
In the non custodial DAO investment club model all of the return on purchase is minted into fungible reputation tokens that get paid as reputation salaries following decentralized governance, which provides the best incentive alignment for members and the highest potential return for all involved. 2021
The collective wisdom of DAO investment club members helps hedge against purchase risk, and because decentralized governance with loosely and tightly coupled votes will very likely make all tightly coupled votes unanimous, no member loses reputation NFTs. 2021
A DAO that relies on a centralized oracle will eventually be exploited, because the people controlling the oracle will become aware of their power over automated contract triggers and, given the competitive nature of capitalism, are right to take advantage of it. 2021
Robust decentralized oracles do not yet exist despite well funded proposals, because decentralized oracles are themselves DAOs and therefore inherit the same missing incentive structure, governance processes, and history that all DAOs suffer from. 2021
Until decentralized oracle protocols are secure and robustly enacted, projects should rely on centralized oracles while keeping the network's monetary value below the level at which the centralized newsfeed would gain an incentive to manipulate the data. 2021
A central authority is perfectly well incentivized to ignore minor problems that only partially eat into its profits, so long as it maintains ultimate control of those profits, which is why platform level abuses persist under centralized ownership. 2021
Reviewers in a news review DAO will give honest reviews despite being paid fees, because the reputational system rewards members mostly on the basis of future fees rather than present ones. 2021
The solution to the game theory problem of getting a player to freely give up intellectual property at one stage of a repeated game is to guarantee a reward at a future stage by fostering a culture that acknowledges past contributions, so players seek future fame by distributing their work in the present. 2021
Reviewing through references enables punishment and reward in DAOs, which shifts members' motivation away from immediate rewards toward the future and encourages delayed gratification and sacrifice for the good of the group. 2021
Reputation, not money, is the proper incentive for motivating the most efficient cooperation and long-term stability in business. 2021
Reputation converts a transaction from a single-stage zero-sum game into a repeated positive-sum game by holding out the promise of future business opportunities, so the value created is the improved reputation of both parties. 2021
The failure of many DAOs to date is traceable to their reliance on the good will of network members rather than on engineered incentives. 2021
DAOs are free to organize as they choose, and those that fail to find the right incentives for productive behavior will certainly go extinct, because the feedback loop that includes customers outside the DAO punishes unproductive DAOs by loss of fees. 2021
In hierarchical structures where members are siloed and have few formal connections across tiers, letting service providers create the regulations produces moral hazard, because the provider has an incentive to weaken standards and regulations. 2021
Reputation has lost much of its meaning during the current institutional disruption: people in dying fields cash in on reputations built over previous generations in a fire sale mentality, and reputation itself is becoming a suspect concept. 2021
Without the promise of improving reputation, a zero-sum mentality dominates a contractual arrangement and each party's best strategy becomes exerting the absolute minimum effort while still technically fulfilling the contract, which destroys the business atmosphere. 2021
A society that levels material outcomes completely undermines its own equity: eliminating all individual reward crushes the meritocratic instinct, power is allocated inefficiently to those who cannot use it well, and the next generation cannot produce as much to share. 2021