{ "name": "Kaal Corpus Failure Mode Index", "description": "Claims describing how a design, mechanism, or remedy fails, and under what conditions. Each entry links to a claim record with a verbatim source quote and a citation string.", "count": 2037, "families": 55, "distinct_specific_names": 2004, "bulk": "https://wulfkaal.github.io/claims/all.jsonl", "modes": [ { "failure_family": "recentralization-drift", "count": 123, "url": "https://wulfkaal.github.io/failures/by-name/recentralization-drift.json", "specific_names": [ "Adaptive lag of centralized hierarchy", "Algorithmic autocracy from data control", "Asset-induced centralization", "Blockchain governance centralization", "Brittleness of rigid hierarchy", "Centennial collapse of centralized hierarchy", "Centralization S Curve Decline", "Centralized Decentralization Market", "Centralized Design Inheritance", "Centralized Substrate Ceiling", "Centralized foundation governance", "Centralized market for decentralization services" ], "example": "As blockchain use grows, node operation will eventually require special equipment affordable only by large corporations in the existing legal infrastructure, creating the possibility of dangerous centralization and a threat to anonymity." }, { "failure_family": "regulatory-lag", "count": 102, "url": "https://wulfkaal.github.io/failures/by-name/regulatory-lag.json", "specific_names": [ "APA rulemaking drag", "Accelerated regulatory sine curve", "Collingridge dilemma", "Ex parte prohibition information blockade", "Ex post trial-and-error rulemaking breakdown", "Ex-post trial-and-error rulemaking cannot anticipate innovation", "Expedited crisis rulemaking", "Expedited rulemaking under crisis timing", "Inability to identify beneficial innovation", "Inaccurate and delayed regulatory timing", "Information lag in rulemaking", "Information timing gap in rulemaking" ], "example": "For different structural reasons in each country, corporate law in both Germany and the United States has little to say about the problem of excessive risk." }, { "failure_family": "rule-obsolescence-and-ossification", "count": 96, "url": "https://wulfkaal.github.io/failures/by-name/rule-obsolescence-and-ossification.json", "specific_names": [ "Category mismatch between technology and law", "Ceremonial Monetary Instruments", "Deferred suboptimality correction cycle", "Fossilization of legal relationships", "Governance adjustment overload", "Institutional lag of democratic structures", "Limits of legally created trust", "NIE Governance Superfluity", "Obsolescence of Price and Quantity Controls", "Purpose-built hierarchy outliving its purpose", "Revision process cannot track innovation", "Revision treadmill" ], "example": "Morrison's transactional test could prove relatively short lived because it is rooted in geography while an increasing number of securities transactions defy geographical boundaries." }, { "failure_family": "enforcement-gap", "count": 80, "url": "https://wulfkaal.github.io/failures/by-name/enforcement-gap.json", "specific_names": [ "Attack-induced decentralization", "Boundary probing under codified law", "Decapitation strategy failure", "Escalating policing costs", "Formal rule subversion (Folk Theorem)", "Group structures excluded from voluntary reorganization", "Incompleteness of static rule sets", "Instrument-specific rule misses strategy-level risk", "Judicial invalidation unwinds registration", "Juror competence and bias in decentralized adjudication", "Letter-of-the-law rule gaming", "ODR and DDR fail New York Convention due process" ], "example": "The quality problems in Delaware adjudication mean it is not a foregone conclusion that the bundled product of statutes plus specialized courts leads to optimal results." }, { "failure_family": "valuation-and-pricing-failure", "count": 62, "url": "https://wulfkaal.github.io/failures/by-name/valuation-and-pricing-failure.json", "specific_names": [ "Audit Stamp Premium", "DAO insolvency with negative token value", "Hype Driven Market Discounts Technical Merit", "Insolvency from sharp decline in policy issuance", "Intermediation Overpricing", "Intermediation overpricing", "Margin increase remedy constrained by demand response", "Open source token cloning", "Priced but flawed review", "Soros attack on the peg", "Stamp of approval premium", "Valuation disputes over bridge bank consideration" ], "example": "Broker quotes are an unreliable fallback for valuation: they can be hard to obtain and can vary by 20 to 30 percent for instruments such as mortgage-backed securities, which makes accurate valuation of those securities difficult." }, { "failure_family": "research-design-limitation", "count": 62, "url": "https://wulfkaal.github.io/failures/by-name/research-design-limitation.json", "specific_names": [ "Anonymity versus descriptive depth tradeoff", "Biomimicry Experimentation Deficit", "Cost offset inference in tension with fee practice", "DSGE Friction Obsolescence", "Demand Side Descriptive Failure", "Evidence Free Token Design", "Literature blind spot on regulation", "Low explanatory power of linear specification", "Marshallian Cross Dissolution", "Missing Normative Apparatus", "Missing generation side", "Nashian idealization" ], "example": "State Blue Sky investment adviser registration exemptions are not by themselves sufficient to explain retailization or to justify the absence of data on it; they only indicate theoretically how previously unqualified investors could gain access to hedge funds." }, { "failure_family": "measurement-and-metric-failure", "count": 56, "url": "https://wulfkaal.github.io/failures/by-name/measurement-and-metric-failure.json", "specific_names": [ "Asset class blind SIFI designation", "Backward looking risk models miss future tail events", "Balance sheet leverage mismeasurement", "Benchmark absence blocks performance assessment", "Centralized Measurement Single Point of Failure", "Conflated resolution signal", "Existing default risk signals failed in the crisis", "Fungible Measure Blind to Expertise", "Idiosyncratic reviewer preference", "Monitoring Lag Blindness", "National Accounts Blind Spot", "National Accounts Invisibility" ], "example": "Regulating on the basis of retailization would not currently be justifiable, because retailization cannot be quantified with any degree of certainty and regulation premised on speculation without proof or data validation would probably produce inadequate results." }, { "failure_family": "reputation-system-gaming", "count": 56, "url": "https://wulfkaal.github.io/failures/by-name/reputation-system-gaming.json", "specific_names": [ "Absent reputation layer", "Discontinuous reputation update", "Meta-reputation aristocracy", "Partial necessity implementation", "Pollyanna feedback bias", "Reflection dominance", "Reflection layer dominance", "Reputation gaming through selective staking", "Reputation monopoly", "Ungrounded reflection validators", "Value threshold breach", "absent citation verification layer" ], "example": "Because no conceivable way exists to permanently hide an arbiter's reputation from the arbiter in an open system, the corruption risk created by high reputation arbiters becoming valued counselors for disputants is an insoluble problem with the authors' own proposal." }, { "failure_family": "collective-action-and-coordination-failure", "count": 55, "url": "https://wulfkaal.github.io/failures/by-name/collective-action-and-coordination-failure.json", "specific_names": [ "Absent generation layer", "Adversarial market collapse", "Decentralized inefficiency under threat", "Domestic contingent capital reform stalls without external mandate", "Execution dominance", "First mover problem in contingent capital regulation", "Generation dominance", "HDCA exhaustion", "Inclusivity Efficiency Tradeoff", "One-shot anonymous defection", "Possibility-space degradation", "Private ordering does not yield governance-improving designs" ], "example": "Enacting the proposed German Corporation Act amendments that would give contingent capital securities a statutory basis would require substantial changes across other areas of German law, and is unlikely to be achieved unless European Union law requires it and the standards are internationally recognized." }, { "failure_family": "staking-and-incentive-misalignment", "count": 53, "url": "https://wulfkaal.github.io/failures/by-name/staking-and-incentive-misalignment.json", "specific_names": [ "Asymmetric Payoff for Net Negative Ventures", "DAO extinction by fee loss", "Generation not internalized", "Incentive Duality Failure", "Monodimensional gamification", "No Incentive to Find Flaws", "Nothing at Stake Voting", "Off-protocol generation", "Quantity-only reward", "Reliance on good will", "Smart contract zero-sum trap", "Strategic breach when token value falls below claim" ], "example": "Compensating arbitrators by the number of cases they hear gives litigants a substantial role in shaping the system but may yield decisions so eager to please all parties that they lack decisiveness, sound reasoning and value as precedent." }, { "failure_family": "agency-cost-and-managerial-opportunism", "count": 50, "url": "https://wulfkaal.github.io/failures/by-name/agency-cost-and-managerial-opportunism.json", "specific_names": [ "Agent Expropriation Of Firm Reputation", "Breach triggered by shift in DAO prospects", "CoCo pay as compensation supplement only", "Control rights fail against ex post opportunism", "Erosion of professional trust", "Extrinsic motivation principal agent spiral", "Fee driven incentive distortion", "Fee structure unjustified by net of fee performance", "Fiduciary duties insufficient against large payoffs", "Governance-blind CoCo compensation designs", "High fees paired with underperformance", "Inside debt has no solvency preserving mechanism" ], "example": "European lawyers may advise clients to incorporate at home simply because those lawyers do not want to deal with the courts and lawyers of another Member State, which suppresses cross border incorporation independently of statute quality." }, { "failure_family": "governance-participation-collapse", "count": 50, "url": "https://wulfkaal.github.io/failures/by-name/governance-participation-collapse.json", "specific_names": [ "Corruption of delegated voting", "DAO washing and robo voting decay", "Democratic Legitimacy Deficit of Code", "Egalitarian voting expertise deficit", "Exclusion of edge reviewers", "Exit only control, delayed by listing", "Governance latency in traditional models", "Homogeneity Suppresses Decentralization Benefits", "Hype dissipation of fundraiser DAOs", "Liveness fault from participant inaction", "Quota and participation requirements in work-to-earn", "Silent majority voting deficit" ], "example": "Existing proposals for implementing contingent capital do not explain how they would address the information asymmetries and principal and agent problems that may lie at the core of the credit crisis." }, { "failure_family": "ai-oversight-and-alignment-gap", "count": 47, "url": "https://wulfkaal.github.io/failures/by-name/ai-oversight-and-alignment-gap.json", "specific_names": [ "Adversarial feedback provider incentives", "Algorithmic Collusion", "Algorithmic Collusion Risk", "Closed model opacity", "Compound RLHF failure", "Explainable RL immaturity", "Helpfulness harmlessness tension", "Human unintelligibility of algorithmic optimization", "Inevitable corruption of unsupervised coded automation", "Majority capture of the reward model", "Overspecific human guidance", "Unquantifiable risk of centralized automation" ], "example": "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." }, { "failure_family": "adoption-and-usability-barrier", "count": 43, "url": "https://wulfkaal.github.io/failures/by-name/adoption-and-usability-barrier.json", "specific_names": [ "Analog Habit Persistence", "CBDC Threat Misreading", "Certainty Craving Dogmatism", "Constitutional adoption barrier", "Curricular lag in law schools", "Curriculum Adaptation Lag", "Design Only Adoption Fallacy", "General solicitation nonadoption", "Ideological Noncooperation of the Crypto Community", "Interface driven earnings loss", "Knowledge transmission model obsolescence", "Missing Requester Interfaces" ], "example": "Arbitration of corporate governance disputes has not emerged in the United States because arbitration is at best the next best alternative to Delaware, and a second place finish does not justify the investment needed to design a workable arbitration framework." }, { "failure_family": "investor-protection-gap", "count": 43, "url": "https://wulfkaal.github.io/failures/by-name/investor-protection-gap.json", "specific_names": [ "Both remedies for sales pressure underperform", "Diversification loss from the retreat to venture funding", "False transfer of prior fund experience", "No liquidity preference in insolvency", "No performance premium for added risk", "Nonexistent hedge fund investor remedy", "Private fund risk without private fund reward", "Regulatory halo effect", "Reserve token dilution", "Retail access to private fund risk without suitability gate", "Return replication shortfall", "Revlon tiering defect" ], "example": "Existing international proposals and guidelines on hedge fund valuation fail because they do not adequately distinguish between retail and qualified investors, and as of 2009 no legislature has issued an exhaustive set of rules addressing the factors that cause inaccurate valuation." }, { "failure_family": "definitional-ambiguity", "count": 43, "url": "https://wulfkaal.github.io/failures/by-name/definitional-ambiguity.json", "specific_names": [ "Absence of bright line verification standard", "Ambiguity, bad definitions, aggregation difficulty", "Ambiguous questions and definitions", "Ambiguous reporting requirements", "BaFin substance over form reclassification", "Counterparty definitions unclear to filers", "Form PF design defects", "Indeterminate reasonable steps standard", "Indeterminate statutory cross reference in Article 51", "Interpretation dependent RAUM drives thresholds", "Interpretive slack in RAUM propagates into designation thresholds", "RAUM definition requires filer interpretation" ], "example": "Law generally declines to adopt a general principle barring managers from incurring risk above a defined standard because such a standard is hard to define; corporate law instead insulates managers' risk decisions through the business judgment rule." }, { "failure_family": "scalability-and-throughput-limit", "count": 42, "url": "https://wulfkaal.github.io/failures/by-name/scalability-and-throughput-limit.json", "specific_names": [ "Centralized supply shortfall", "Communication cost dominance", "Compute scaling wall", "On-chain voting inefficiency", "Prohibitive manual workload of per transaction fee settlement", "Quadratic attention cost", "Redundancy cost multiplication", "Review Latency Rework", "Review latency obsolescence", "Sampling versus clustering trade off", "Suboptimal layer 1 lock-in", "blockchain throughput bottleneck" ], "example": "Traditional per transaction fee models failed because settlement and calculation created a prohibitive amount of work that made such operations very difficult to execute; blockchain technology overcomes all of these restrictions." }, { "failure_family": "innovation-chilling", "count": 41, "url": "https://wulfkaal.github.io/failures/by-name/innovation-chilling.json", "specific_names": [ "Constitutional Exclusivity Lock In", "Micro task platform bottleneck on AI", "Missing Protected Experimentation Space", "People Coin Innovation Lag", "Permanent technological transition", "Permanent transition uncertainty", "Platform limits as AI bottleneck", "Proceduralization of legal solutions", "Process design that undermines innovation", "Regulation SHO hedging constraint", "Regulatory Retrofit Neutralizer", "Regulatory uncertainty drag" ], "example": "Limiting the use of hard-to-value assets and complex financial products is very unlikely to have positive effects, because the implicit inhibition of financial innovation would probably limit investors' use of hedging products and interfere with economic expansion." }, { "failure_family": "data-quality-and-comparability", "count": 40, "url": "https://wulfkaal.github.io/failures/by-name/data-quality-and-comparability.json", "specific_names": [ "Acknowledged data gaps", "Deal flow data unavailability", "Defect to use matching reveals assessment risk", "Defective inputs to stage one screen", "Error propagation from filer uncertainty to regulator conclusions", "Error propagation from filings to designation", "Estimates and assumptions substitute for measurement", "Filer error anomalies", "Human error in manual fee calculation", "Inaccurate regulatory data undermines systemic risk assessment", "Inconsistent adviser responses", "Mandated data collection creates evaluation problems" ], "example": "The SEC has not standardized the disclosures required in Form PF, and there is evidence that Form PF requirements rest on an inconsistent use of industry terms, which can in turn produce inconsistent and contradictory data reporting." }, { "failure_family": "supervisory-capacity-gap", "count": 39, "url": "https://wulfkaal.github.io/failures/by-name/supervisory-capacity-gap.json", "specific_names": [ "Absent institutional capacity for data-driven anticipation", "Constrained information sharing between regulators", "False positive regulatory resource waste", "No going-concern reorganization path for German banks", "Political complexity paralysis", "Political confusion under complexity", "Recovery-plan deadline unusable under time pressure", "Shareholder valuation proceedings slow bank reorganization", "Under-resourced charity regulator", "Underfunded supervision leaves a monitoring void", "Undersized and slow-to-mobilize resolution fund", "advice-beyond-lawyer-competence" ], "example": "Conducting judicial proceedings through interpreters is cumbersome and confusing and creates a perceived bias in favor of litigants and lawyers fluent in the language of the proceedings, which is a barrier to exporting adjudication." }, { "failure_family": "board-and-oversight-failure", "count": 38, "url": "https://wulfkaal.github.io/failures/by-name/board-and-oversight-failure.json", "specific_names": [ "Absent quality controls", "Control Vacuum Under Concentration", "Minimum payout becomes the default", "Reviewer Logic Imposition", "Reviewer Myopia", "Reviewer anchoring", "Reviewer preference imposition", "Single board oversight failure", "Tax free cash hoarding", "Untailored compliance program", "activism-insufficiency", "board as missed feedback channel" ], "example": "Independent administrators and valuation committees do not solve the independence problem for startup funds, because a majority of hedge funds in their startup phase try to keep overheads down and so may have independence problems precisely when independence is most crucial." }, { "failure_family": "liquidity-and-market-structure-failure", "count": 37, "url": "https://wulfkaal.github.io/failures/by-name/liquidity-and-market-structure-failure.json", "specific_names": [ "Capital call liquidity drag", "Capital lock up illiquidity", "Centralized power accumulation degrading liquidity", "Conservative calibration destroys liquidity provision", "DEX liquidity and price discovery deficit", "DEX liquidity deficit", "Demand Side Collapse in Impact Markets", "Endowment Deployment Lag", "Liquidity Gain Neutralization", "Mandated issuance without a market", "No Purchaser Listing Failure", "Overcollateralization Penalty" ], "example": "The German ABCP conduit model, which financed long term American mortgage loans with short term paper and pocketed the spread, was profitable only for as long as new buyers for the short term paper could be found, so the model collapsed the moment institutional buyers withdrew." }, { "failure_family": "plutocratic-capture", "count": 37, "url": "https://wulfkaal.github.io/failures/by-name/plutocratic-capture.json", "specific_names": [ "Cheap small cap launch capture", "Early whale supply capture", "External governance takeover", "Fungible Asset Governance Corruption", "Fungible governance capture", "Majority power capture", "Majority rule minority discrimination", "Minority stakeholder governance capture", "One Token One Vote Plutocracy", "One token one vote proportional control", "Polarizing outcomes of one token one vote", "Priority Hijacking by Large Donors" ], "example": "Because rulemaking is subject to regulatory cycles and to a classic collective action problem, rules are generally not enacted at the moment appropriate information for rulemaking becomes available." }, { "failure_family": "cold-start-and-bootstrapping", "count": 36, "url": "https://wulfkaal.github.io/failures/by-name/cold-start-and-bootstrapping.json", "specific_names": [ "Absent revenue to offset platform costs", "Alternative funder idiosyncrasy", "Chicken and egg dependency", "Inadequate alternative funding", "Legacy capital formation shortfall", "Missing Credential Tracking", "Missing Prerequisite Infrastructure", "Missing baseline infrastructure behind ICO promises", "Missing complementary institutions", "Missing institutional layer for decentralized business", "Partial institutional build-out", "Reputation voting bootstrap deadlock" ], "example": "The two sources that finance Delaware's bundled package, franchise taxes and legal fees for local counsel, might not be as lucrative for a European Member State, so the expensive package of statutes plus adjudication may have no viable funding model." }, { "failure_family": "disclosure-ineffectiveness", "count": 36, "url": "https://wulfkaal.github.io/failures/by-name/disclosure-ineffectiveness.json", "specific_names": [ "Aggregation destroys informational value", "Complexity-blind disclosure policy", "Compliant disclosure that still fails to inform", "Comprehension gap", "Demystification without risk reduction", "Disclosure regime outpaced by product complexity", "Disclosure saturation does not produce understanding", "Generic disclosure rules blunt the discipline effect", "Prospectus may not meet the statutory adequacy standard", "Sanitized disclosure degrades systemic risk data", "Undisclosed co-investment allocation", "Unreviewed and unrated whitepaper disclosure" ], "example": "More disclosure does not always mean better governance, because the information provided may be hard to assess and evaluate." }, { "failure_family": "jurisdictional-conflict", "count": 35, "url": "https://wulfkaal.github.io/failures/by-name/jurisdictional-conflict.json", "specific_names": [ "Domicile-less funds and jurisdictional indeterminacy", "Jurisdictional Tax Assertion Drag", "Jurisdictional non-capture", "Limits of unilateral AI regulation", "Mutual recognition collapses national buffer discretion", "National bridge bank residency requirement conflicts with EU law", "National-only crisis measures cannot reach cross-border operations", "Territorial Integrity Constraint", "Uncoordinated cross-border resolution of a single SIFI", "anonymity-voids-personal-jurisdiction", "autonomy-defeats-jurisdiction", "centralized regulation of a supranational market" ], "example": "Even if the ECJ has embraced the incorporation theory, Member States can still frustrate Type B regulatory competition through tax law, capital market law, listing requirements and other mechanisms, so the seat theory may retain de facto dominance." }, { "failure_family": "harmonization-and-standardization-failure", "count": 34, "url": "https://wulfkaal.github.io/failures/by-name/harmonization-and-standardization-failure.json", "specific_names": [ "Harmonization defeated by jurisdictional arbitrage", "Harmonization eradicates innovative outliers", "Harmonization misconstrues blockchain ethos", "Harmonized rules lag technical evolution", "Illusory national discretion above the recognition ceiling", "Inconsistent due diligence legal standards", "Issuer Based Regulatory Bifurcation", "Missing dispute resolution and compliance standards", "No applicable due diligence standards", "Nominal confluence", "One size fits all credit risk policy prescriptions", "One size fits all law reduces systemic resilience" ], "example": "The Societas Europaea has drawn a less than enthusiastic initial reaction, plausibly because its rules are the product of years of negotiation and political compromise rather than a response to market forces." }, { "failure_family": "compliance-cost-and-barrier-to-entry", "count": 34, "url": "https://wulfkaal.github.io/failures/by-name/compliance-cost-and-barrier-to-entry.json", "specific_names": [ "ATS compliance cost barrier", "Best execution burden asymmetry", "Clarification generates its own uncertainty and cost", "Clarification generates uncertainty and cost", "Compliance cost entry barrier", "Compliance cost pass-through to investors", "Disproportionate burden on smaller advisers", "Formally identical rules with divergent practical burden", "MiCA non-compliance exposure", "Non-systemic banks pay for a fund they cannot draw on", "Regressive compliance burden", "Regulatory barriers to entry for small firms" ], "example": "Applying section 10(b) and Rule 10b-5 together with the fraud on the market theory substantially increases the potential liability of issuers and can lead to questionable results, which is why EU jurisdictions may not want that rule applied to their securities markets." }, { "failure_family": "legal-personality-and-liability-gap", "count": 34, "url": "https://wulfkaal.github.io/failures/by-name/legal-personality-and-liability-gap.json", "specific_names": [ "AI liability gap", "AI liability gap from absent legal personality", "Contractual remedy cap fails in tort", "Court-imposed entity form", "DAO accountability gap", "No Recourse for Flawed Reviews", "No client recourse", "Unenforceability of smart contracts under existing contract law", "Unlimited joint and several DAO liability", "Unlimited partner liability", "anonymity as substitute for legal registration", "consumer protection blocks DAO limited liability" ], "example": "Because artificial intelligence is not recognized as a subject of law in national or international law, it has no legal personality and therefore cannot be personally liable for damages it causes." }, { "failure_family": "smart-contract-rigidity", "count": 34, "url": "https://wulfkaal.github.io/failures/by-name/smart-contract-rigidity.json", "specific_names": [ "Automated self help violates mandatory remedy rules", "Codeless Human Backstop Gap", "Immutability blocks judicial modification", "Incomplete contracting in code", "Irreversible self execution rigidity", "Loophole exploitation under rigid coded terms", "No appeal or mitigation in automated enforcement", "asymmetric encumbrance abuse", "backstop-absent-guarantee-failure", "cancel-out-on-unanticipated-events", "cancel-out-on-unfulfilled-parameters", "code-is-law-absolutism" ], "example": "Breach of a smart contract is arguably not even possible, because the contract simply will not execute if a parameter is not fulfilled." }, { "failure_family": "incumbent-resistance-to-adoption", "count": 33, "url": "https://wulfkaal.github.io/failures/by-name/incumbent-resistance-to-adoption.json", "specific_names": [ "Acquisition Capture of Decentralized Competitors", "Efficiency Gain Perpetuation of Incumbents", "Goodwill dependence of decentralized systems", "Government capture of decentralized voting", "Incumbent inability to innovate perpetually", "Incumbent resistance to blockchain-enabled services", "Incumbent underinvestment in disruption", "Path dependence blocks compensation redesign", "Sustaining and disruptive technology conflation", "Technology erodes the 2 and 20 fee model", "Traditional VC digital asset disadvantage", "Traditional VC funding insufficiency" ], "example": "Path dependencies in United States executive compensation culture could make it difficult to lower overall executive pay or to add new design elements such as contingent convertible bonds." }, { "failure_family": "human-judgment-displacement", "count": 32, "url": "https://wulfkaal.github.io/failures/by-name/human-judgment-displacement.json", "specific_names": [ "Algorithmic Sovereign Displacing Elections", "Analytics Driven Choice Narrowing", "Behavioral Institutional Domain Loss", "Centralized Algorithmic Automation", "Dataism denies value of human input", "Displacement of junior legal work", "Elimination of the human element", "Hierarchy Without Cognitive Justification", "Keynesian Transmission Failure", "Node Diversity Collapse", "Recommendation asymmetry as social control", "Systematic underperformance versus human managers" ], "example": "Disruptive innovation in law renders obsolete many and probably most of the traditional legal skills and characteristics that law schools currently cultivate." }, { "failure_family": "ai-model-and-training-failure", "count": 31, "url": "https://wulfkaal.github.io/failures/by-name/ai-model-and-training-failure.json", "specific_names": [ "Distribution shift brittleness", "GNN adversarial vulnerability", "Homogeneous graph assumption", "Overfitting from repeated reuse of the same data set", "Plausibility Truth Orthogonality", "Restricted legal dataset access", "Scale Without Quality", "Small Dataset Overfitting", "Sparse reward learning failure", "Training data bias amplification", "Western training data bias", "absent reliability guarantee" ], "example": "Repeated use of the same dataset by data scientists creates an overfitting risk: the training model fits the test set so closely that its performance on a different dataset degrades." }, { "failure_family": "other", "count": 29, "url": "https://wulfkaal.github.io/failures/by-name/other.json", "specific_names": [ "Developer blindness to business and ethical context", "Ethical collectivism corrupts reason", "asymmetric-regulation", "asymmetric-regulation-costs", "bailout-induced-monitoring-failure", "broker-location-loophole", "ccrm-free-riding", "depositary-withdrawal", "derivatives-exception-to-morrison", "foreign-operations-deterrence", "inconsistent-conduct-and-effects-application", "jurisdiction-only-drafting-error" ], "example": "Asymmetric hedge fund regulation, in which Dodd-Frank and the AIFM Directive regulate banks and hedge funds separately and differently, is counterproductive." }, { "failure_family": "inequality-and-access-divide", "count": 29, "url": "https://wulfkaal.github.io/failures/by-name/inequality-and-access-divide.json", "specific_names": [ "Banking gate on micro task labor", "Banking prerequisite exclusion", "Expertise Network Exclusion", "Fee driven barriers to entry in legacy payments", "Fee driven wage suppression", "Identity gate on registration", "Labeled Data Access Asymmetry", "Liquidity mining regressivity", "Non-Eroding Compute Advantage", "Rate suppression from redundancy", "Redistribution Window Closure", "Redundancy Financed by Worker Pay" ], "example": "Diversity training, diversity performance evaluations, and grievance procedures did not change workforce composition." }, { "failure_family": "consensus-and-protocol-attack", "count": 28, "url": "https://wulfkaal.github.io/failures/by-name/consensus-and-protocol-attack.json", "specific_names": [ "51 percent control attack", "Fork Induced Double Spend Reemergence", "Untested security-by-design claim", "attack-surface-expansion", "birthday problem vote equivocation", "block author seed capture", "blockchain-security-overconfidence", "charity-dao-attack-exposure", "classical-cryptography-obsolescence", "cryptographic-obsolescence", "fair exchange impossibility", "false-security-proof" ], "example": "The hidden voting scheme depends on the choice of symmetric encryption protocol: a poorly chosen protocol exposes the platform to a birthday problem attack in which malicious voters submit an encrypted key that can be decrypted in two different ways, letting them retroactively choose their vote." }, { "failure_family": "information-asymmetry", "count": 27, "url": "https://wulfkaal.github.io/failures/by-name/information-asymmetry.json", "specific_names": [ "Analyst opacity", "Blindness to information at the edge", "Contested track record problem for new managers", "Deliberate Price Opacity", "Early liquidity without information", "Generative-Quality Failure", "Go anywhere opacity", "Network Bound Deal Selection", "Opacity Enables Insider Deals", "Price opacity", "Startup self censorship", "Underwriter Screening Free Ride And Lemons Problem" ], "example": "Contingent capital offers only limited protection against information asymmetries, principal and agent conflicts, and collective action problems, so it cannot by itself prevent economic failure." }, { "failure_family": "fraud-and-misconduct", "count": 25, "url": "https://wulfkaal.github.io/failures/by-name/fraud-and-misconduct.json", "specific_names": [ "Bounty hunter defection", "Carbon Credit Execution Failure", "DAO concentration among largest rug pulls", "Founder cash-out at public expense", "Insider backrunning of a scheduled buyback", "Perceived Market Impact Invites Corruption And Regulation", "Ponzi and rug pull degeneration", "Privileged insider control of keys and code", "Rug pull", "Rug pull attributed to missing decentralized governance", "Rug pull share of illicit crypto revenue", "Speculative Influx and Fraud Chasm" ], "example": "Under strong institutional and cultural forces, decision makers in financial institutions tend to compartmentalize their lives and disconnect their moral reasoning from their conduct in the workplace, so that even a leader with strong personal values can engage in questionable conduct." }, { "failure_family": "regulatory-arbitrage", "count": 24, "url": "https://wulfkaal.github.io/failures/by-name/regulatory-arbitrage.json", "specific_names": [ "Asymmetric compliance burden", "Credit migration outside the banking perimeter", "Regulatory arbitrage blocks contingent capital adoption", "Regulatory arbitrage by disruptive firms", "Regulatory arbitrage from divergent national approaches", "Regulatory disconnect driven offshoring", "Rule-limit exploitation", "Same risk, different investor gate", "Static rule gaming", "Threshold gaming to avoid registration", "Uncoordinated bail-outs breed regulatory arbitrage", "client-counting-safe-harbor-loophole" ], "example": "The Commodity Exchange Act family and friends exemption allows a qualifying manager to trade options and futures for fifteen individuals who need not be sophisticated or qualified investors, which circumvents accredited investor standards and admits retail investors into hedge funds." }, { "failure_family": "sybil-and-identity-attack", "count": 24, "url": "https://wulfkaal.github.io/failures/by-name/sybil-and-identity-attack.json", "specific_names": [ "Anonymity dilution at scale", "Anonymity driven attack surface", "Anonymity driven opportunism raises transaction costs", "Anonymity-enabled attacks", "Anonymous trolling friction", "Equal salary sockpuppet exploit", "Fee and KYC pseudo-defense", "Identity verification tradeoff", "Inevitable sockpuppet exposure", "Sockpuppet attack", "Sockpuppet attack on Web of Trust", "Sockpuppet attack on web-of-trust vouching" ], "example": "Centralized platforms cannot simply drop identity verification, because they need it to keep malicious actors from abusing the network and to ensure work quality; this is the tradeoff a staking based design is meant to dissolve." }, { "failure_family": "trigger-design-failure", "count": 21, "url": "https://wulfkaal.github.io/failures/by-name/trigger-design-failure.json", "specific_names": [ "CoCo trigger design failure", "Expanded supervisory powers deter voluntary petitions", "Index trigger invites manipulation and forced bankruptcy", "Late conversion cannot recapitalize a firm already in resolution", "Management capture of trigger design", "No self-monitoring under regulatory triggers", "Ownership blind trigger design", "Premature conversion dissipates the capital injection", "Regulatory discretion trigger uncertainty", "Trigger manipulation for cheap stock", "Trigger metric manipulation and staleness", "Underdeveloped CCS design features and triggers" ], "example": "If conversion of contingent capital securities is triggered too early, before a real financial need for an equity injection exists, the expected financial impact of that injection may dissipate." }, { "failure_family": "systemic-risk-transmission", "count": 20, "url": "https://wulfkaal.github.io/failures/by-name/systemic-risk-transmission.json", "specific_names": [ "Bail-in raises and destabilizes bank funding", "Counterparty overexposure to private funds", "Cross-holding of contingent capital among competitors", "Full collateral value lending collapses capital under margin calls", "Underwriter insolvency passes through to consumers", "ccs-cross-holdings", "central-bank-ccs-purchases", "consolidation induced systemic risk", "correlated-risk-from-central-bank-purchases", "correlated-risk-profiles", "counterparty risk blind spot", "diversification breakdown under stress" ], "example": "A country whose bankers do not embrace intentional risk taking is still exposed to risk, both through the collateral effects of intentional risk taking abroad and through unintentional risk taking at home, so domestic cultural restraint is not a sufficient safeguard." }, { "failure_family": "sample-and-selection-bias", "count": 17, "url": "https://wulfkaal.github.io/failures/by-name/sample-and-selection-bias.json", "specific_names": [ "Cognitive bias in screening", "Confidentiality driven nonresponse", "Private fund survey nonresponse", "executed-agreement-selection-bias", "false-inference-from-live-experiments", "incomplete-response-data", "industry-opacity-limits-sample-size", "public-information-bias", "publication selection bias", "regulatory-avoiders-unobservable", "sample-size-does-not-fix-bias", "selection bias from small survey samples" ], "example": "Post-1998 hedge fund regulatory proposals were misdirected because LTCM was unique among its peers in leverage, position size, and market-making ability, so the proposals mostly addressed LTCM as a single case rather than the range of issues affecting all hedge funds." }, { "failure_family": "regulatory-capture-and-incumbent-advantage", "count": 16, "url": "https://wulfkaal.github.io/failures/by-name/regulatory-capture-and-incumbent-advantage.json", "specific_names": [ "Incumbent weaponization of rulemaking", "Incumbent weaponization of the regulatory process", "Self-regulation moral hazard", "cartel capture of quality controls", "committee-driven-incumbent-capture", "funding-capture-of-standard-setters", "incumbent distortion of fact selection", "incumbent-appropriation-of-open-code", "premature-agency-termination", "reform entrenches incumbents", "regulatory abdication to private interpretation", "regulatory blind spot in private standard setting" ], "example": "The Dodd-Frank Act is notable for what it omits: it does not break up the largest banks, does little to help smaller and regional banks compete, and because compliance is burdensome and expensive may actually have raised the barrier to entry into financial services." }, { "failure_family": "privacy-and-surveillance-risk", "count": 16, "url": "https://wulfkaal.github.io/failures/by-name/privacy-and-surveillance-risk.json", "specific_names": [ "Gradient leakage in federated learning", "Identity disclosure weakening", "IoT scale as trust liability", "broker-dealer identity disclosure", "centralized data honeypot", "crisis ratchet in surveillance", "cross-border-data-compliance-gap", "cross-border-node-storage-noncompliance", "decentralized audit opacity", "erosion of individual data control", "identity-exposure-of-producers", "immutability-versus-erasure" ], "example": "Blockchain creates a data protection paradox: the technology itself offers strong privacy protection, yet storing blockchain data across a global network of nodes will often violate specific consumer protection rules and directives in individual jurisdictions." }, { "failure_family": "transition-and-migration-risk", "count": 15, "url": "https://wulfkaal.github.io/failures/by-name/transition-and-migration-risk.json", "specific_names": [ "Business Model Incoherence", "Compounding Institutional Dissolution", "Hardfork Upgrade Cost", "Legacy integration cost", "VC competitive displacement by token offerings", "abrupt-consensus-transition-destabilization", "cost and uncertainty of principles based transition", "displacement-of-existing-legal-services", "hybrid-coding-obsolescence", "ipo-termination-of-shareholder-agreement", "isolated-infrastructure-reform", "loss of the settlement grace period" ], "example": "The downsides of principles based regulation are a costly and time consuming transition from rules based regulation, uncertainty, and compliance problems that follow from that uncertainty." }, { "failure_family": "interoperability-and-fragmentation", "count": 15, "url": "https://wulfkaal.github.io/failures/by-name/interoperability-and-fragmentation.json", "specific_names": [ "Fragmented and duplicative private equity administration", "Infrastructure Interdependence Collapse", "Isolated protocol inefficiency", "Protocol Silo Proliferation", "agency data siloing", "closed-ecosystem-unsustainability", "cloud-induced application siloing", "consensus-negates-interoperability", "interoperability-deficit", "interoperability-failure-kills-projects", "multi-ledger duplication", "perpetual-chain-contention" ], "example": "The current legal and administrative processes that support private equity are time consuming, expensive, lack transparency, and involve lengthy, duplicative, and fragmented investment and administrative processes." }, { "failure_family": "short-termism", "count": 15, "url": "https://wulfkaal.github.io/failures/by-name/short-termism.json", "specific_names": [ "Exit driven short termism", "Fungible token short-termism", "activist-induced volatility cascade", "fungible token short termism", "long-termism initiative failure", "mercenary shareholder capture", "metrics-driven relevancy blindness", "metrics-driven-irrelevance", "profitable irrelevance", "quarterly reporting feedback loop", "short-termism obscures relevancy", "short-termism-obscures-relevancy" ], "example": "A focus on quarterly earnings and short-term stock price performance distracts an organization from identifying the strategies that would keep the firm relevant, which is why financially successful companies can still lose their market." }, { "failure_family": "smart-contract-bug-and-exploit", "count": 14, "url": "https://wulfkaal.github.io/failures/by-name/smart-contract-bug-and-exploit.json", "specific_names": [ "DAO code exploit", "DAO code flaw exploit", "blind approval", "bugs-in-simple-contracts", "dao-code-exploit", "dao-code-vulnerability", "smart contract exploit", "technology-risk-exposure", "unauthorized-veto-provision-unenforceable", "unmitigated-contract-risk", "unquantifiable technology risk", "unverifiable-code-behavior" ], "example": "The DAO failed because of fundamental flaws in its own code, which allowed hackers to move one third of its funds to a subsidiary account, showing that governance built entirely on smart contracts inherits the defects of its code." }, { "failure_family": "custody-and-key-loss", "count": 14, "url": "https://wulfkaal.github.io/failures/by-name/custody-and-key-loss.json", "specific_names": [ "Irrevocability of decentralized errors", "Irrevocability of error under code-is-law", "cold storage retrieval latency", "combined custody and brokerage role", "custody gap blocks institutional entry", "exchange IOU substitution for asset ownership", "exchange honeypot", "hot wallet exposure", "irrecoverable private key loss", "no written loss allocation policy", "ownership surrender as price of access", "single agent key person risk" ], "example": "In a truly decentralized system any mistake, such as a stolen or lost password or a programming bug, is permanent and irrevocable." }, { "failure_family": "moral-hazard-and-bailout-expectation", "count": 13, "url": "https://wulfkaal.github.io/failures/by-name/moral-hazard-and-bailout-expectation.json", "specific_names": [ "Bail-out expectation removes the loss threat and skews risk incentives", "Bailout expectation suppresses creditor monitoring", "Prescriptive regime destabilization", "Regulatory crowding out of private monitoring", "anticipated-bailout-risk-shift", "bailout-cost-externalization", "governance-controls-ineffective-in-sifis", "guarantee-induced-leverage", "monitoring-neglect-through-reliance-on-design", "moral-reasoning-crowd-out", "retroactive-charge-legitimizes-bailout", "risk-incentive-reinforcement" ], "example": "The incentive effects of corporate governance controls may not operate in systemically important financial institutions, because managers and owners who anticipate a bailout commitment adjust their risk preferences upward." }, { "failure_family": "token-transferability-defect", "count": 13, "url": "https://wulfkaal.github.io/failures/by-name/token-transferability-defect.json", "specific_names": [ "Capital reputation duality dilution", "Forced RNFT Liquidation On Undersubscription", "Fungible token governance as common failure denominator", "Lockup versus token economic flexibility tradeoff", "Reputation Exit Illiquidity", "app-specific-token-lock-in", "lockups erase the early liquidity advantage of ICOs", "purchasable governance token attack surface", "retroactive-restriction-on-nonconsenting-shares", "traceability breakdown at the smelting stage", "transaction-value-exceeds-fee-base", "vote buying through tradable governance tokens" ], "example": "Hardcoded lockup periods can protect token holders against supply side induced devaluation, but they also decrease the token economic flexibility the promoter team needs to raise additional funds, so the remedy trades investor protection against issuer financing capacity." }, { "failure_family": "oracle-and-input-corruption", "count": 12, "url": "https://wulfkaal.github.io/failures/by-name/oracle-and-input-corruption.json", "specific_names": [ "Code cannot govern tangible performance", "Governance Attack Vector in Funding Oracles", "Oracle and governance dependency of escrow enforcement", "centralized-oracle-capture", "centralized-oracle-defeat", "immature-decentralized-oracles", "off-chain equity verification burden", "oracle-feed-outage", "top-down reform inertia", "unavoidable contract bugs", "unverifiable food integrity claims", "unverified-edge-information" ], "example": "Top-down corporate governance reform measures rarely, if ever, produce genuine change in the governance or culture of firms, and are commonly met with indifference, skepticism, or hostility from management." }, { "failure_family": "disclosure-cost-and-burden", "count": 10, "url": "https://wulfkaal.github.io/failures/by-name/disclosure-cost-and-burden.json", "specific_names": [ "Public disclosure would erode strategy value", "destruction of restructuring balance of power", "form-pf-ambiguity", "judge only access invites access demands", "outsourcing-overhead", "reporting-system-mismatch", "reporting-threshold-bunching", "simplification-burden", "strategy replication through disclosure", "undeterminable-counterparty-exposure" ], "example": "Requiring hedge funds to supply risk and valuation data in a simplified format would in fact impose a significant burden on the industry, since simplification requirements would raise transaction costs, require pre-screening, and possibly additional staff." }, { "failure_family": "environmental-and-resource-cost", "count": 6, "url": "https://wulfkaal.github.io/failures/by-name/environmental-and-resource-cost.json", "specific_names": [ "Binding Constraint Cascade", "Consensus by Redundancy Waste", "Consensus by redundancy", "Generative Substrate Exhaustion", "proof-of-work-energy-externality", "proof-of-work-energy-waste" ], "example": "Proof of work mining carries significant externalities: the authors estimate that the total energy cost of running the global network of computers solving proof of work puzzles was around 700 million US dollars per year before publication." } ], "failures": [ { "id": "kaal:claim:617681-003", "url": "https://wulfkaal.github.io/claims/617681-003", "family": "harmonization-and-standardization-failure", "name": "politically-negotiated-legal-product", "claim": "The Societas Europaea has drawn a less than enthusiastic initial reaction, plausibly because its rules are the product of years of negotiation and political compromise rather than a response to market forces.", "conditions": [ "the SE as of 2004, shortly before it entered into force" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:617681-004", "url": "https://wulfkaal.github.io/claims/617681-004", "family": "jurisdictional-conflict", "name": "collateral-law-circumvention", "claim": "Even if the ECJ has embraced the incorporation theory, Member States can still frustrate Type B regulatory competition through tax law, capital market law, listing requirements and other mechanisms, so the seat theory may retain de facto dominance.", "conditions": [ "Member States willing to use adjacent bodies of law to deter reincorporation" ], "topics": [ "economics", "regulatory-failure" ] }, { "id": "kaal:claim:617681-011", "url": "https://wulfkaal.github.io/claims/617681-011", "family": "enforcement-gap", "name": "bundled-product-suboptimality", "claim": "The quality problems in Delaware adjudication mean it is not a foregone conclusion that the bundled product of statutes plus specialized courts leads to optimal results.", "conditions": [ "U.S. corporate law and Delaware in particular" ], "topics": [ "economics" ] }, { "id": "kaal:claim:617681-014", "url": "https://wulfkaal.github.io/claims/617681-014", "family": "supervisory-capacity-gap", "name": "interpreter-mediated-adjudication", "claim": "Conducting judicial proceedings through interpreters is cumbersome and confusing and creates a perceived bias in favor of litigants and lawyers fluent in the language of the proceedings, which is a barrier to exporting adjudication.", "conditions": [ "Member States whose courts do not conduct proceedings in English" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:617681-015", "url": "https://wulfkaal.github.io/claims/617681-015", "family": "jurisdictional-conflict", "name": "language-lock-out", "claim": "Member States unwilling to incur the rule switching costs of conducting judicial proceedings in English could be precluded from marketing their corporate charters in other Member States that do not share their language.", "conditions": [ "English being the only language widely understood throughout the EU" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:617681-016", "url": "https://wulfkaal.github.io/claims/617681-016", "family": "enforcement-gap", "name": "civil-law-adjudication-discount", "claim": "The weak link in a bundled package offered by a civil law Member State is likely to be its system of adjudication rather than its statute.", "conditions": [ "civil law Member States marketing corporate law to investors used to common law systems" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:617681-019", "url": "https://wulfkaal.github.io/claims/617681-019", "family": "agency-cost-and-managerial-opportunism", "name": "advisor-home-bias", "claim": "European lawyers may advise clients to incorporate at home simply because those lawyers do not want to deal with the courts and lawyers of another Member State, which suppresses cross border incorporation independently of statute quality.", "conditions": [ "European legal education and practice, where procedural differences across Member States are large" ], "topics": [ "law-and-legal-systems", "education-and-practice", "risk-and-incentives" ] }, { "id": "kaal:claim:617681-021", "url": "https://wulfkaal.github.io/claims/617681-021", "family": "cold-start-and-bootstrapping", "name": "missing-revenue-model", "claim": "The two sources that finance Delaware's bundled package, franchise taxes and legal fees for local counsel, might not be as lucrative for a European Member State, so the expensive package of statutes plus adjudication may have no viable funding model.", "conditions": [ "European Member States with tax systems built around taxing operations within their borders" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:617681-023", "url": "https://wulfkaal.github.io/claims/617681-023", "family": "jurisdictional-conflict", "name": "perceived-judicial-bias-premium", "claim": "Fear of judicial bias operates through risk premiums: because investors and managers are uncertain how foreign judges will behave and may assume the worst, they price a decision to incorporate in another Member State higher.", "conditions": [ "bounded rationality and incomplete information about foreign judges" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:617681-025", "url": "https://wulfkaal.github.io/claims/617681-025", "family": "jurisdictional-conflict", "name": "conflict-of-laws-escalation", "claim": "Conflict of laws problems become more complex and pose a much greater threat to the entire system of regulatory competition once a jurisdiction markets its corporate law as a separate product under Type B competition.", "conditions": [ "Type B regulatory competition under the incorporation theory" ], "topics": [ "economics", "law-and-legal-systems" ] }, { "id": "kaal:claim:617681-027", "url": "https://wulfkaal.github.io/claims/617681-027", "family": "jurisdictional-conflict", "name": "doctrinal-recharacterization", "claim": "Member States can avoid at least part of the result in Centros and Inspire Art by recharacterizing what used to be corporate law as creditor protection law, provided the recharacterized rule does not discriminate against foreign corporations.", "conditions": [ "non discriminatory national measures" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:617681-028", "url": "https://wulfkaal.github.io/claims/617681-028", "family": "jurisdictional-conflict", "name": "home-law-overreach", "claim": "To the extent judges are biased toward expansively interpreting the reach of their own Member State's corporate law, corporations may unexpectedly be bound by rules of the state of incorporation on subject matter they believed lay outside corporate law.", "conditions": [ "adjudication by courts of the Member State of incorporation" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:617681-030", "url": "https://wulfkaal.github.io/claims/617681-030", "family": "enforcement-gap", "name": "delayed-enforcement", "claim": "For cross border enforcement the critical question is not whether a judgment will be enforced in another Member State but when: eventual enforcement is insufficient if a party has time to remove assets, and delayed injunctions can be worthless.", "conditions": [ "EU Member States that generally do enforce each other's judgments" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:617681-031", "url": "https://wulfkaal.github.io/claims/617681-031", "family": "supervisory-capacity-gap", "name": "judicial-learning-deficit", "claim": "Because the judiciary in many European jurisdictions is a specialized career entered shortly after university and without significant private practice experience, European judges lack the practice background that facilitates learning to adjudicate complex corporate disputes.", "conditions": [ "most EU Member States other than the United States model of lateral judicial appointment" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:617681-032", "url": "https://wulfkaal.github.io/claims/617681-032", "family": "enforcement-gap", "name": "absent-corrective-mechanism", "claim": "Error correction is weak for Member State corporate law adjudication: national legislatures are unlikely to intervene unless judicial error affects domestic interests, so managers and investors would rather face slow learning judges in their home country.", "conditions": [ "EU level intervention being slow and therefore a weak deterrent" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:617681-034", "url": "https://wulfkaal.github.io/claims/617681-034", "family": "harmonization-and-standardization-failure", "name": "delaware-import-nonviability", "claim": "None of the Delaware based solutions, whether importing bundled or unbundled Delaware law, is likely to be viable for Europe.", "conditions": [ "the four options canvassed: Delaware charters, partial copying, wholesale statutory copying, and copying statutes plus case law" ], "topics": [ "law-and-legal-systems", "governance-design" ] }, { "id": "kaal:claim:617681-035", "url": "https://wulfkaal.github.io/claims/617681-035", "family": "jurisdictional-conflict", "name": "forum-selection-as-covert-opt-out", "claim": "Choosing another Member State's courts as the forum can silently strip substantive rights: if the forum state treats an unavailable remedy such as money damages as procedural and refuses to hear the claim, the charter has opted out of substantive law of the state of incorporation that ordinarily could not be waived.", "conditions": [ "Member States such as Germany that limit or deny money damages in internal affairs disputes" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:617681-037", "url": "https://wulfkaal.github.io/claims/617681-037", "family": "staking-and-incentive-misalignment", "name": "split-the-difference-arbitration", "claim": "Compensating arbitrators by the number of cases they hear gives litigants a substantial role in shaping the system but may yield decisions so eager to please all parties that they lack decisiveness, sound reasoning and value as precedent.", "conditions": [ "conventional arbitration in which litigants select and pay arbitrators" ], "topics": [ "risk-and-incentives", "law-and-legal-systems" ] }, { "id": "kaal:claim:617681-038", "url": "https://wulfkaal.github.io/claims/617681-038", "family": "adoption-and-usability-barrier", "name": "second-best-investment-gap", "claim": "Arbitration of corporate governance disputes has not emerged in the United States because arbitration is at best the next best alternative to Delaware, and a second place finish does not justify the investment needed to design a workable arbitration framework.", "conditions": [ "United States, where Delaware's adjudication system commands high confidence" ], "topics": [ "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:617681-040", "url": "https://wulfkaal.github.io/claims/617681-040", "family": "enforcement-gap", "name": "precedent-deficit-in-arbitration", "claim": "One objection to arbitration of corporate governance disputes holds in Europe as in the United States: arbitration as ordinarily used yields little relevant precedent.", "conditions": [ "arbitration as it is used in most commercial contexts" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:617681-041", "url": "https://wulfkaal.github.io/claims/617681-041", "family": "supervisory-capacity-gap", "name": "expertise-defeated-by-language", "claim": "Expert judges in national courts who cannot understand the arguments of lawyers before them or read documents written in another language may not be experts at all, so the American model of state appointed expert corporate judges does not transfer to multilingual Europe.", "conditions": [ "Europe, in contrast with the single language United States" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:617681-042", "url": "https://wulfkaal.github.io/claims/617681-042", "family": "enforcement-gap", "name": "unenforceable-charter-arbitration-clause", "claim": "Unless the Member State of incorporation specifically provides in its corporate statute that arbitration is permissible when allowed in the charter or a shareholders agreement, investors run the risk that courts refuse to enforce the arbitration provision.", "conditions": [ "closely held corporations may rely on a shareholders agreement instead of the charter" ], "topics": [ "law-and-legal-systems", "governance-design" ] }, { "id": "kaal:claim:1428387-002", "url": "https://wulfkaal.github.io/claims/1428387-002", "family": "valuation-and-pricing-failure", "name": "unreliable-broker-quotes", "claim": "Broker quotes are an unreliable fallback for valuation: they can be hard to obtain and can vary by 20 to 30 percent for instruments such as mortgage-backed securities, which makes accurate valuation of those securities difficult.", "conditions": [ "where recent transaction prices and marketable bids and offers are not readily available" ], "topics": [ "securities-law", "economics" ] }, { "id": "kaal:claim:1428387-003", "url": "https://wulfkaal.github.io/claims/1428387-003", "family": "investor-protection-gap", "name": "undifferentiated-guidance", "claim": "Existing international proposals and guidelines on hedge fund valuation fail because they do not adequately distinguish between retail and qualified investors, and as of 2009 no legislature has issued an exhaustive set of rules addressing the factors that cause inaccurate valuation.", "conditions": [ "as of the time of writing, 2009" ], "topics": [ "economics" ] }, { "id": "kaal:claim:1428387-009", "url": "https://wulfkaal.github.io/claims/1428387-009", "family": "valuation-and-pricing-failure", "name": "manager-self-valuation", "claim": "Because net asset value drives subscriptions, redemptions, performance calculations, advertising, and fees, managers who both manage and value the portfolio have both an incentive and the ability to inappropriately over-value their portfolios.", "conditions": [ "where the manager performs or controls valuation", "where NAV is the basis for fees and performance figures" ], "topics": [ "risk-and-incentives", "economics" ] }, { "id": "kaal:claim:1428387-010", "url": "https://wulfkaal.github.io/claims/1428387-010", "family": "board-and-oversight-failure", "name": "startup-independence-gap", "claim": "Independent administrators and valuation committees do not solve the independence problem for startup funds, because a majority of hedge funds in their startup phase try to keep overheads down and so may have independence problems precisely when independence is most crucial.", "conditions": [ "hedge funds in their startup phase" ], "topics": [ "innovation", "economics" ] }, { "id": "kaal:claim:1428387-011", "url": "https://wulfkaal.github.io/claims/1428387-011", "family": "valuation-and-pricing-failure", "name": "nominal-independence", "claim": "Outsourcing valuation to an independent administrator can be nominal rather than real: the administrator may lack the understanding of complex securities products needed to value the positions, so the manager remains in charge of valuation even though the function has formally been externalized.", "conditions": [ "where positions involve complex securities products", "where the administrator is paid by the hedge fund manager" ], "topics": [ "economics" ] }, { "id": "kaal:claim:1428387-012", "url": "https://wulfkaal.github.io/claims/1428387-012", "family": "valuation-and-pricing-failure", "name": "expertise-adverse-selection", "claim": "There is an adverse selection problem in independent valuation: an administrator who actually had the knowledge and understanding of complex instruments required for the task would probably be incentivized to use that expertise in a more profitable setting instead.", "conditions": [ "for administrators valuing highly complex instruments" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:1428387-013", "url": "https://wulfkaal.github.io/claims/1428387-013", "family": "valuation-and-pricing-failure", "name": "stale-quote-valuation", "claim": "Valuing thinly traded assets with exchange quotes is unsound because the price for less frequently traded assets may not indicate fair market value at the time of valuation, yet nearly a quarter of surveyed funds relied exclusively on such quotes.", "conditions": [ "thinly traded or infrequently traded assets" ], "topics": [ "defi", "economics", "empirical-evidence" ] }, { "id": "kaal:claim:1428387-015", "url": "https://wulfkaal.github.io/claims/1428387-015", "family": "sample-and-selection-bias", "name": "single-case-regulation", "claim": "Post-1998 hedge fund regulatory proposals were misdirected because LTCM was unique among its peers in leverage, position size, and market-making ability, so the proposals mostly addressed LTCM as a single case rather than the range of issues affecting all hedge funds.", "conditions": [ "regulatory proposals issued in the aftermath of the LTCM near-collapse" ], "topics": [ "private-funds" ] }, { "id": "kaal:claim:1428387-016", "url": "https://wulfkaal.github.io/claims/1428387-016", "family": "valuation-and-pricing-failure", "name": "post-crisis-blind-spot", "claim": "The regulatory proposals that appeared soon after LTCM did not adequately take valuation problems into account.", "conditions": [ "regulatory proposals issued shortly after the LTCM collapse" ], "topics": [ "economics", "private-funds" ] }, { "id": "kaal:claim:1428387-017", "url": "https://wulfkaal.github.io/claims/1428387-017", "family": "valuation-and-pricing-failure", "name": "retail-valuation-gap", "claim": "Although regulators and legislatures in many jurisdictions recognize that hedge fund issues affect retail investors, they have so far not addressed valuation and its interplay with retail investors.", "conditions": [ "as of 2009, across the surveyed jurisdictions" ], "topics": [ "economics" ] }, { "id": "kaal:claim:1428387-019", "url": "https://wulfkaal.github.io/claims/1428387-019", "family": "research-design-limitation", "name": "insufficient-explanation", "claim": "State Blue Sky investment adviser registration exemptions are not by themselves sufficient to explain retailization or to justify the absence of data on it; they only indicate theoretically how previously unqualified investors could gain access to hedge funds.", "conditions": [ "as an explanatory account of the retailization phenomenon" ], "topics": [ "securities-law", "empirical-evidence" ] }, { "id": "kaal:claim:1428387-020", "url": "https://wulfkaal.github.io/claims/1428387-020", "family": "regulatory-arbitrage", "name": "exemption-circumvention", "claim": "The Commodity Exchange Act family and friends exemption allows a qualifying manager to trade options and futures for fifteen individuals who need not be sophisticated or qualified investors, which circumvents accredited investor standards and admits retail investors into hedge funds.", "conditions": [ "where the fund manager qualifies for the families and friends CTA registration exemption" ], "topics": [ "defi" ] }, { "id": "kaal:claim:1428387-022", "url": "https://wulfkaal.github.io/claims/1428387-022", "family": "agency-cost-and-managerial-opportunism", "name": "agent-incomprehension", "claim": "Moral hazard is worsened when the financial products traded are so complex that the agents, mostly on the buy side, do not entirely understand them and trade for the principal on the basis of incomplete and asymmetric information.", "conditions": [ "where instruments are highly complex", "buy side agents in particular" ], "topics": [ "risk-and-incentives", "disclosure" ] }, { "id": "kaal:claim:1428387-024", "url": "https://wulfkaal.github.io/claims/1428387-024", "family": "agency-cost-and-managerial-opportunism", "name": "unmonitorable-rating-agent", "claim": "The issuer-buyer relationship and the incentives inside it are unlikely to be able to adequately control the principal-agent relationship between issuer and rating agency so as to ensure accurate ratings.", "conditions": [ "under the issuer-pays rating model for CDOs" ], "topics": [ "compliance", "ai-and-agents", "corporate-governance" ] }, { "id": "kaal:claim:1428387-029", "url": "https://wulfkaal.github.io/claims/1428387-029", "family": "innovation-chilling", "name": "innovation-inhibition", "claim": "Limiting the use of hard-to-value assets and complex financial products is very unlikely to have positive effects, because the implicit inhibition of financial innovation would probably limit investors' use of hedging products and interfere with economic expansion.", "conditions": [ "where regulators respond to systemic risk by restricting instrument use" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:1428387-030", "url": "https://wulfkaal.github.io/claims/1428387-030", "family": "investor-protection-gap", "name": "wealth-as-sophistication-proxy", "claim": "Unless an investor's business is primarily to invest in hard-to-value assets, that investor's sophistication cannot be assumed regardless of personal wealth.", "conditions": [ "for investments in hard-to-value assets and complex financial instruments" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1428387-031", "url": "https://wulfkaal.github.io/claims/1428387-031", "family": "investor-protection-gap", "name": "threshold-raising-futility", "claim": "Raising the Regulation D numerical tests by adding an investable assets requirement would probably not address how to remedy investors' lack of understanding of hard-to-value assets.", "conditions": [ "under the SEC proposal to add a 2.5 million dollar investments requirement" ], "topics": [ "securities-law", "reputation" ] }, { "id": "kaal:claim:1428387-032", "url": "https://wulfkaal.github.io/claims/1428387-032", "family": "disclosure-ineffectiveness", "name": "disclosure-without-comprehension", "claim": "More disclosure does not always mean better governance, because the information provided may be hard to assess and evaluate.", "conditions": [ "where disclosed valuation and risk data is complex" ], "topics": [ "disclosure", "governance-design" ] }, { "id": "kaal:claim:1428387-033", "url": "https://wulfkaal.github.io/claims/1428387-033", "family": "supervisory-capacity-gap", "name": "regulator-staffing-gap", "claim": "Mandatory risk disclosure to the SEC would probably fail on staffing grounds, because professionals capable of understanding hedge fund risk data would be disincentivized to use that knowledge for supervision rather than economic gain, finding the private sector far more lucrative.", "conditions": [ "where the regulator must interpret data on hard-to-value assets and complex instruments" ], "topics": [ "securities-law", "disclosure", "risk-and-incentives" ] }, { "id": "kaal:claim:1428387-034", "url": "https://wulfkaal.github.io/claims/1428387-034", "family": "disclosure-cost-and-burden", "name": "simplification-burden", "claim": "Requiring hedge funds to supply risk and valuation data in a simplified format would in fact impose a significant burden on the industry, since simplification requirements would raise transaction costs, require pre-screening, and possibly additional staff.", "conditions": [ "where the SEC prescribes a simplified reporting format" ], "topics": [ "disclosure", "economics", "securities-law", "risk-and-incentives" ] }, { "id": "kaal:claim:1428387-036", "url": "https://wulfkaal.github.io/claims/1428387-036", "family": "regulatory-arbitrage", "name": "threshold-gaming", "claim": "A retail investor asset threshold would be gamed: managers would be incentivized to keep retail assets under the applicable threshold, thereby keeping the fund in the existing regulatory scheme without implementing additional retail investor protection.", "conditions": [ "where regulation is triggered by a retail asset threshold" ], "topics": [ "regulatory-failure", "risk-and-incentives" ] }, { "id": "kaal:claim:1428387-037", "url": "https://wulfkaal.github.io/claims/1428387-037", "family": "investor-protection-gap", "name": "retail-only-targeting", "claim": "Regulation targeted only at retail investors is misdirected, because incomplete and asymmetric information, bounded rationality, and moral hazard make it difficult even for professional and semi professional investors to discern the characteristics of highly complex instruments and hard-to-value assets.", "conditions": [ "for highly complex financial instruments and hard-to-value assets" ], "topics": [ "risk-and-incentives", "disclosure" ] }, { "id": "kaal:claim:1428387-038", "url": "https://wulfkaal.github.io/claims/1428387-038", "family": "investor-protection-gap", "name": "numeracy-threshold-failure", "claim": "Recent SEC proposals to toughen the numerical wealth requirements for hedge fund investing fail, because they do not ascertain the appropriate level of sophistication or adequate understanding of highly complex financial instruments.", "conditions": [ "SEC proposals to amend Regulation D wealth thresholds" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:1428387-040", "url": "https://wulfkaal.github.io/claims/1428387-040", "family": "measurement-and-metric-failure", "name": "speculation-based-regulation", "claim": "Regulating on the basis of retailization would not currently be justifiable, because retailization cannot be quantified with any degree of certainty and regulation premised on speculation without proof or data validation would probably produce inadequate results.", "conditions": [ "as of 2009, absent data quantifying retail participation in hedge funds" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:1664809-003", "url": "https://wulfkaal.github.io/claims/1664809-003", "family": "jurisdictional-conflict", "name": "unpredictable-jurisdictional-test", "claim": "The Second Circuit's conduct and effect test was too unpredictable, and a clear rule keyed to the location of the securities transaction would be more predictable for issuers and investors.", "conditions": [ "cases where the location of conduct and the location of the transaction diverge" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:1664809-004", "url": "https://wulfkaal.github.io/claims/1664809-004", "family": "jurisdictional-conflict", "name": "global-arbiter-effect", "claim": "Allowing foreign plaintiffs to sue foreign defendants in US courts over securities purchased and sold in foreign countries would turn the United States into the global arbiter of securities fraud allegations.", "conditions": [ "foreign cubed litigation permitted in US courts" ], "topics": [ "law-and-legal-systems", "securities-law" ] }, { "id": "kaal:claim:1664809-016", "url": "https://wulfkaal.github.io/claims/1664809-016", "family": "regulatory-arbitrage", "name": "regulatory-arbitrage-by-forum-choice", "claim": "For European jurisdictions the extraterritorial application of US law creates confusion and legal uncertainty and makes it harder to regulate private parties who engage in regulatory arbitrage by taking their litigation to the United States when convenient.", "conditions": [ "European jurisdictions whose parties can access US courts" ], "topics": [ "law-and-legal-systems", "regulatory-failure", "compliance" ] }, { "id": "kaal:claim:1664809-018", "url": "https://wulfkaal.github.io/claims/1664809-018", "family": "compliance-cost-and-barrier-to-entry", "name": "inflated-issuer-liability", "claim": "Applying section 10(b) and Rule 10b-5 together with the fraud on the market theory substantially increases the potential liability of issuers and can lead to questionable results, which is why EU jurisdictions may not want that rule applied to their securities markets.", "conditions": [ "securities markets subjected to US antifraud litigation" ], "topics": [ "law-and-legal-systems", "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:1664809-020", "url": "https://wulfkaal.github.io/claims/1664809-020", "family": "jurisdictional-conflict", "name": "forced-export-of-us-law", "claim": "Section 7216 could have the opposite effect of forcefully exporting US law onto other jurisdictions including Europe, even though it would be preferable for other nations to decide for themselves whether to have a class action litigation system.", "conditions": [ "countries that have deliberately declined to adopt class action litigation" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:1664809-022", "url": "https://wulfkaal.github.io/claims/1664809-022", "family": "jurisdictional-conflict", "name": "dual-regime-uncertainty", "claim": "Overlapping regulation and inconsistent legal rules create uncertainty, so that individual board members of European companies and their attorneys will not know which legal rules apply or what effects those rules may have.", "conditions": [ "companies exposed to more than one regulatory regime" ], "topics": [ "law-and-legal-systems", "corporate-governance", "compliance" ] }, { "id": "kaal:claim:1664809-032", "url": "https://wulfkaal.github.io/claims/1664809-032", "family": "compliance-cost-and-barrier-to-entry", "name": "litigation-cost-pass-through", "claim": "If Congress enacts section 7216, EU investors will on the whole probably earn a lower return on their investments than they otherwise would, because the substantial costs the US litigation system imposes on EU companies will be passed on to investors.", "conditions": [ "enactment of section 7216", "costs of US litigation borne by EU issuers" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:1664809-034", "url": "https://wulfkaal.github.io/claims/1664809-034", "family": "investor-protection-gap", "name": "true-conflict-of-laws", "claim": "If US law requires disclosure of information that another country's law prohibits from being disclosed, whether for privacy or other reasons, there could be a true conflict of law and a credible case that the United States is in breach of international law.", "conditions": [ "a genuine incompatibility between US disclosure duties and foreign prohibitions" ], "topics": [ "disclosure", "consensus-and-security" ] }, { "id": "kaal:claim:1664809-035", "url": "https://wulfkaal.github.io/claims/1664809-035", "family": "jurisdictional-conflict", "name": "diplomatic-friction", "claim": "Section 7216 could be one more impediment to good diplomatic relations if the United States is perceived as establishing its courts as international courts in securities matters with universal jurisdiction.", "conditions": [ "perception by European governments of US judicial overreach" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:1664809-036", "url": "https://wulfkaal.github.io/claims/1664809-036", "family": "jurisdictional-conflict", "name": "counterproductive-unilateralism", "claim": "Exporting and imposing rules through extraterritorial reach could be counterproductive not only for US diplomacy but also for international cooperation in combating securities fraud, whereas cooperative mutual adjustment between the US and the EU is the better course.", "conditions": [ "cross-border securities fraud enforcement" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:1558614-001", "url": "https://wulfkaal.github.io/claims/1558614-001", "family": "disclosure-ineffectiveness", "name": "hidden guarantee exposure", "claim": "German banks' exposure to CDO risk ran through credit enhancement and liquidity guarantees given to off balance sheet conduits, and because that exposure was often kept out of their accounting the inherent risk only surfaced once the CDO market collapsed.", "conditions": [ "banks guaranteeing conduits located outside German banking supervision", "guarantee exposure not consolidated into bank accounts" ], "topics": [ "risk-and-incentives", "systemic-risk", "disclosure" ] }, { "id": "kaal:claim:1558614-002", "url": "https://wulfkaal.github.io/claims/1558614-002", "family": "liquidity-and-market-structure-failure", "name": "maturity mismatch funding run", "claim": "The German ABCP conduit model, which financed long term American mortgage loans with short term paper and pocketed the spread, was profitable only for as long as new buyers for the short term paper could be found, so the model collapsed the moment institutional buyers withdrew.", "conditions": [ "long term assets funded by short term asset backed commercial paper", "sponsor bank provides credit enhancement and liquidity to the conduit" ], "topics": [ "defi", "risk-and-incentives", "systemic-risk" ] }, { "id": "kaal:claim:1558614-005", "url": "https://wulfkaal.github.io/claims/1558614-005", "family": "definitional-ambiguity", "name": "undefinable risk standard", "claim": "Law generally declines to adopt a general principle barring managers from incurring risk above a defined standard because such a standard is hard to define; corporate law instead insulates managers' risk decisions through the business judgment rule.", "conditions": [ "outside the scope of rules that constrain specific named types of risk" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:1558614-007", "url": "https://wulfkaal.github.io/claims/1558614-007", "family": "board-and-oversight-failure", "name": "corporate law abdication", "claim": "The business judgment rule can be read not as a balanced middle ground but as excessively deferential to management, signaling that corporate law is ceding risk regulation to targeted rules aimed at particular risks in particular institutions.", "conditions": [ "offered as an alternative reading to the middle ground account of the rule" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:1558614-011", "url": "https://wulfkaal.github.io/claims/1558614-011", "family": "systemic-risk-transmission", "name": "imported risk exposure", "claim": "A country whose bankers do not embrace intentional risk taking is still exposed to risk, both through the collateral effects of intentional risk taking abroad and through unintentional risk taking at home, so domestic cultural restraint is not a sufficient safeguard.", "conditions": [ "open financial systems with cross border bank activity" ], "topics": [ "risk-and-incentives", "systemic-risk", "dynamic-regulation" ] }, { "id": "kaal:claim:1558614-015", "url": "https://wulfkaal.github.io/claims/1558614-015", "family": "agency-cost-and-managerial-opportunism", "name": "misaimed conflict focus", "claim": "German corporate law's historical focus on conflicts between controlling and minority shareholders leaves it poorly equipped to address managerial abuse of power, including excessive risk taking by managers.", "conditions": [ "systems where ownership is concentrated and the central conflict is shareholder against shareholder" ], "topics": [ "corporate-governance", "risk-and-incentives" ] }, { "id": "kaal:claim:1558614-017", "url": "https://wulfkaal.github.io/claims/1558614-017", "family": "regulatory-lag", "name": "corporate law silence on risk", "claim": "For different structural reasons in each country, corporate law in both Germany and the United States has little to say about the problem of excessive risk.", "conditions": [], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:1558614-018", "url": "https://wulfkaal.github.io/claims/1558614-018", "family": "board-and-oversight-failure", "name": "slow co-determined board", "claim": "Codetermination makes the German supervisory board's decision making more cumbersome, so a co determined Aufsichtsrat may not respond quickly enough to fast moving events such as an escalation of portfolio risk or a liquidity crisis.", "conditions": [ "corporations large enough to trigger employee representation on the supervisory board", "employee representatives may also carry union political objectives" ], "topics": [ "corporate-governance", "compliance", "defi", "governance-design" ] }, { "id": "kaal:claim:1558614-020", "url": "https://wulfkaal.github.io/claims/1558614-020", "family": "board-and-oversight-failure", "name": "uninformed independent director", "claim": "Director independence does not produce effective risk monitoring: as the failure of independent director oversight at Lehman Brothers and other large U.S. financial firms shows, independent directors cannot monitor risk when managers, accountants and lawyers keep them in the dark.", "conditions": [ "U.S. style independence defined by lack of financial ties to the company", "information flow to the board controlled by insiders" ], "topics": [ "corporate-governance", "disclosure", "compliance", "risk-and-incentives" ] }, { "id": "kaal:claim:1558614-021", "url": "https://wulfkaal.github.io/claims/1558614-021", "family": "systemic-risk-transmission", "name": "counterparty risk blind spot", "claim": "Because U.S. companies historically financed themselves through markets rather than through each other, U.S. managers are less attuned to risks accumulating at other firms, a blind spot that mattered once swaps and other complex instruments made firms directly vulnerable to each other's conditions.", "conditions": [ "applies once counterparty exposure through swaps and complex instruments becomes significant" ], "topics": [ "risk-and-incentives", "economics", "compliance" ] }, { "id": "kaal:claim:1558614-023", "url": "https://wulfkaal.github.io/claims/1558614-023", "family": "enforcement-gap", "name": "waste standard too narrow", "claim": "Because U.S. law frames the inquiry around corporate waste, and most risk taking does not meet the waste standard, showing that a decision was hazardous or excessively risky is not enough to rebut the business judgment rule in the United States.", "conditions": [ "U.S. courts presume absence of corporate waste and ask only whether that presumption is rebutted" ], "topics": [ "risk-and-incentives", "corporate-governance", "law-and-legal-systems" ] }, { "id": "kaal:claim:1558614-025", "url": "https://wulfkaal.github.io/claims/1558614-025", "family": "board-and-oversight-failure", "name": "charter exculpation loophole", "claim": "The U.S. requirement that directors act on an informed basis is watered down because many states permit charter provisions exculpating directors from liability for breach of the duty of care, including the duty to act on an informed basis.", "conditions": [ "states with exculpation statutes such as Delaware, Illinois and New Jersey" ], "topics": [ "corporate-governance", "law-and-legal-systems" ] }, { "id": "kaal:claim:1558614-027", "url": "https://wulfkaal.github.io/claims/1558614-027", "family": "board-and-oversight-failure", "name": "no oversight duty for business risk", "claim": "In In re Citigroup the Delaware Court of Chancery refused to extend the Caremark oversight duty, which concerns monitoring for illegal conduct, into oversight liability for business risk, so an inability to predict the future and an incorrect evaluation of business risk are not breaches of a director's oversight responsibilities.", "conditions": [ "Delaware law; derivative claims premised on subprime exposure", "oversight liability requires showing the directors knew they were not discharging their duties or consciously disregarded them" ], "topics": [ "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:1558614-028", "url": "https://wulfkaal.github.io/claims/1558614-028", "family": "disclosure-ineffectiveness", "name": "incoherent EU disclosure", "claim": "The EU's Market Abuse, Transparency, Markets in Financial Instruments and Prospectus Directives improved European securities regulation but still do not mandate coherent and comprehensive disclosure, leaving issuers free to disclose in disparate ways.", "conditions": [ "European Union as of 2010, with no central securities agency and no centralized filing system" ], "topics": [ "securities-law", "disclosure" ] }, { "id": "kaal:claim:1558614-029", "url": "https://wulfkaal.github.io/claims/1558614-029", "family": "disclosure-ineffectiveness", "name": "complexity defeats disclosure", "claim": "Routine engagement in highly complex transactions lets public companies conceal risky transactions from investors and even from their own directors, which is a structural weakness in the supposedly rigorous U.S. disclosure regime.", "conditions": [ "companies whose ordinary business consists of highly complex transactions" ], "topics": [ "disclosure", "corporate-governance" ] }, { "id": "kaal:claim:1558614-030", "url": "https://wulfkaal.github.io/claims/1558614-030", "family": "disclosure-ineffectiveness", "name": "innovation outruns disclosure", "claim": "The more a country leads in financial innovation, the more exposed its disclosure regime is to misrepresentation and fraud, which makes the U.S. regime more vulnerable than Germany's despite being formally stricter.", "conditions": [ "assumes U.S. financial innovation runs ahead of German financial innovation" ], "topics": [ "innovation", "disclosure", "securities-law" ] }, { "id": "kaal:claim:1558614-033", "url": "https://wulfkaal.github.io/claims/1558614-033", "family": "board-and-oversight-failure", "name": "survival blind judicial review", "claim": "U.S. courts applying the business judgment rule give little or no weight to the overall health of the company or to whether the risk jeopardizes the company's very existence, so managers are permitted to incur most of the risks they wish to incur.", "conditions": [], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:1558614-034", "url": "https://wulfkaal.github.io/claims/1558614-034", "family": "supervisory-capacity-gap", "name": "double failure of U.S. risk control", "claim": "The U.S. approach left both of its risk controls ineffective: the securities disclosure regime failed to prevent the 2008 financial crisis, while the expansive business judgment rule that permitted the risk taking in the first place survived the crisis unchanged.", "conditions": [], "topics": [ "disclosure" ] }, { "id": "kaal:claim:1558614-037", "url": "https://wulfkaal.github.io/claims/1558614-037", "family": "regulatory-capture-and-incumbent-advantage", "name": "reform entrenches incumbents", "claim": "The Dodd-Frank Act is notable for what it omits: it does not break up the largest banks, does little to help smaller and regional banks compete, and because compliance is burdensome and expensive may actually have raised the barrier to entry into financial services.", "conditions": [], "topics": [ "systemic-risk", "economics" ] }, { "id": "kaal:claim:1908473-003", "url": "https://wulfkaal.github.io/claims/1908473-003", "family": "trigger-design-failure", "name": "premature-trigger-dissipation", "claim": "If conversion of contingent capital securities is triggered too early, before a real financial need for an equity injection exists, the expected financial impact of that injection may dissipate.", "conditions": [ "Trigger fires absent genuine need for equity capital and additional voting shareholders" ], "topics": [ "contingent-capital" ] }, { "id": "kaal:claim:1908473-004", "url": "https://wulfkaal.github.io/claims/1908473-004", "family": "trigger-design-failure", "name": "late-trigger-insufficiency", "claim": "If conversion from debt to equity is triggered too late, the institution may already be in the resolution stage, and conversion at that point may not supply enough equity to produce the intended financial improvement.", "conditions": [ "Institution has already entered the resolution stage when conversion occurs" ], "topics": [ "contingent-capital", "systemic-risk" ] }, { "id": "kaal:claim:1908473-010", "url": "https://wulfkaal.github.io/claims/1908473-010", "family": "information-asymmetry", "name": "limited-protection-scope", "claim": "Contingent capital offers only limited protection against information asymmetries, principal and agent conflicts, and collective action problems, so it cannot by itself prevent economic failure.", "conditions": [], "topics": [ "disclosure", "ai-and-agents", "corporate-governance", "institutional-design", "contingent-capital" ] }, { "id": "kaal:claim:1908473-011", "url": "https://wulfkaal.github.io/claims/1908473-011", "family": "governance-participation-collapse", "name": "unaddressed-agency-problems", "claim": "Existing proposals for implementing contingent capital do not explain how they would address the information asymmetries and principal and agent problems that may lie at the core of the credit crisis.", "conditions": [ "Assumes information asymmetries and principal agent problems were central causes of the crisis" ], "topics": [ "disclosure", "ai-and-agents", "corporate-governance", "contingent-capital" ] }, { "id": "kaal:claim:1908473-012", "url": "https://wulfkaal.github.io/claims/1908473-012", "family": "liquidity-and-market-structure-failure", "name": "hybrid-rating-penalty", "claim": "Because contingent capital is a hybrid instrument that pays fixed returns while bearing equity like risk, it may receive low or no ratings, attract a much smaller investor base, and carry higher funding costs.", "conditions": [ "Holds while rating methodologies for hybrid contingent instruments remain unsettled" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:1908473-013", "url": "https://wulfkaal.github.io/claims/1908473-013", "family": "harmonization-and-standardization-failure", "name": "tier-1-definition-divergence", "claim": "Letting national regulators keep their existing Tier 1 capital definitions creates a collective action problem: countries with stricter definitions appear to have less capital and thinner cushions than countries with broader ones.", "conditions": [ "Applies where EU wide harmonization of the Tier 1 definition is absent" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1908473-014", "url": "https://wulfkaal.github.io/claims/1908473-014", "family": "moral-hazard-and-bailout-expectation", "name": "anticipated-bailout-risk-shift", "claim": "The incentive effects of corporate governance controls may not operate in systemically important financial institutions, because managers and owners who anticipate a bailout commitment adjust their risk preferences upward.", "conditions": [ "Applies to institutions considered too big to fail" ], "topics": [ "risk-and-incentives", "systemic-risk", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:1908473-015", "url": "https://wulfkaal.github.io/claims/1908473-015", "family": "moral-hazard-and-bailout-expectation", "name": "risk-incentive-reinforcement", "claim": "Switching to contingent capital financing may reinforce rather than reduce risk incentives, and whether the risk incentives generated by contingent capital outweigh its risk reduction potential remains unresolved.", "conditions": [ "Turns on the design features of the securities and on how much control equity holders retain after conversion" ], "topics": [ "risk-and-incentives", "contingent-capital" ] }, { "id": "kaal:claim:1908473-020", "url": "https://wulfkaal.github.io/claims/1908473-020", "family": "liquidity-and-market-structure-failure", "name": "issuance-volume-cost", "claim": "Requiring financial institutions to sell high volumes of contingent capital securities, on the order of four to nineteen percent of risk weighted assets, could raise pricing pressure and increase their cost of funding.", "conditions": [ "Applies at the issuance volumes contemplated by the EU Commission working document" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1908473-021", "url": "https://wulfkaal.github.io/claims/1908473-021", "family": "regulatory-arbitrage", "name": "regulatory-arbitrage", "claim": "Without a degree of international convergence in contingent capital rules, regulatory arbitrage could undermine the establishment of contingent capital as an integral part of financial markets.", "conditions": [ "Assumes jurisdictions legislate contingent capital independently of one another" ], "topics": [ "regulatory-failure", "contingent-capital" ] }, { "id": "kaal:claim:1908473-022", "url": "https://wulfkaal.github.io/claims/1908473-022", "family": "systemic-risk-transmission", "name": "write-down-concentration-effect", "claim": "Although the EU debt write-down proposal gives regulators certainty and discretion, it could produce greater market uncertainty, raise costs, and have the unintended effect of increasing the size of financial institutions.", "conditions": [ "Applies to the debt write-down element of the EU Commission proposal" ], "topics": [ "systemic-risk", "contingent-capital" ] }, { "id": "kaal:claim:1908473-023", "url": "https://wulfkaal.github.io/claims/1908473-023", "family": "trigger-design-failure", "name": "index-trigger-manipulation", "claim": "A dual trigger that relies on a financial institution index gains from its use of market prices but is vulnerable to index manipulation and to bondholders attempting to force the institution into bankruptcy.", "conditions": [ "Applies to dual price trigger designs that include a sector or system index component" ], "topics": [ "contingent-capital", "economics" ] }, { "id": "kaal:claim:1908473-026", "url": "https://wulfkaal.github.io/claims/1908473-026", "family": "jurisdictional-conflict", "name": "trigger-manipulation-asset-stripping", "claim": "Sequential triggers invite manipulation of the triggering events and abusive practices such as asset stripping near bankruptcy, a risk the contract or corporate charter can counter by imposing a mandatory holding period on contingent capital securities.", "conditions": [ "Holding period could be extended until after bankruptcy" ], "topics": [ "private-funds" ] }, { "id": "kaal:claim:1908473-034", "url": "https://wulfkaal.github.io/claims/1908473-034", "family": "trigger-design-failure", "name": "voting-rights-premium-cost", "claim": "A substantial voting rights increase at the second trigger could raise the cost of contingent capital securities, with issuers demanding premiums that push primary issuance toward institutional investors interested in the change of control possibility.", "conditions": [ "Especially where the voting rights increase can reach the level of change of control" ], "topics": [ "economics", "institutional-design" ] }, { "id": "kaal:claim:1908473-038", "url": "https://wulfkaal.github.io/claims/1908473-038", "family": "definitional-ambiguity", "name": "prepack-vote-invalidation", "claim": "Because the Bankruptcy Code does not define adequate information, prepackaged plans risk inadequate disclosure, creditor challenge, and unusable prepetition votes that force the case into the longer ordinary Chapter 11 confirmation procedure.", "conditions": [], "topics": [ "disclosure" ] }, { "id": "kaal:claim:1908473-040", "url": "https://wulfkaal.github.io/claims/1908473-040", "family": "trigger-design-failure", "name": "strategic-maneuvering-distortion", "claim": "Strategic maneuvering by creditors before a bankruptcy filing or during plan negotiations could distort the incentive structure the sequential trigger proposal depends on.", "conditions": [ "Strategic behavior can arise equally at the conversion stage and at the voting rights increase" ], "topics": [ "risk-and-incentives", "contingent-capital" ] }, { "id": "kaal:claim:1806252-004", "url": "https://wulfkaal.github.io/claims/1806252-004", "family": "other", "name": "asymmetric-regulation", "claim": "Asymmetric hedge fund regulation, in which Dodd-Frank and the AIFM Directive regulate banks and hedge funds separately and differently, is counterproductive.", "conditions": [ "US and EU hedge funds operate in the same markets with similar strategies" ], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:1806252-005", "url": "https://wulfkaal.github.io/claims/1806252-005", "family": "other", "name": "protectionist-backlash", "claim": "The AIFM Directive could create incentives for regulatory arbitrage and could provoke retaliatory action by countries outside the European Union.", "conditions": [ "non-EU funds and managers face restricted access to EU markets" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:1806252-006", "url": "https://wulfkaal.github.io/claims/1806252-006", "family": "other", "name": "asymmetric-regulation-costs", "claim": "Regulating entities that operate in the same markets under asymmetric rules creates legal uncertainty and significant transaction costs.", "conditions": [ "entities compete in the same markets" ], "topics": [ "law-and-legal-systems", "economics" ] }, { "id": "kaal:claim:1806252-008", "url": "https://wulfkaal.github.io/claims/1806252-008", "family": "other", "name": "regulator-resource-shortfall", "claim": "If regulators lack the resources to protect against systemic risk, hedge fund regulation could be futile.", "conditions": [ "regulators are given a systemic risk mandate they lack capacity to execute" ], "topics": [ "systemic-risk", "risk-and-incentives", "securities-law", "private-funds", "compliance" ] }, { "id": "kaal:claim:1806252-009", "url": "https://wulfkaal.github.io/claims/1806252-009", "family": "other", "name": "regulator-information-leakage", "claim": "Regulators who obtain hedge funds' proprietary information could inadvertently pass it to third parties, and because that information is highly valuable to competitors in the same markets, such leakage could undermine trading strategies and the long-term viability of hedge funds.", "conditions": [ "mandatory disclosure of trading positions and strategies to regulators" ], "topics": [ "disclosure", "private-funds" ] }, { "id": "kaal:claim:1806252-013", "url": "https://wulfkaal.github.io/claims/1806252-013", "family": "other", "name": "bailout-induced-monitoring-failure", "claim": "Because banks expect to be bailed out with taxpayer funds, they may have less incentive to monitor their hedge fund lending activities, even though hedge funds are not themselves counterparties in government bailouts.", "conditions": [ "governments are presumed willing to bail out banks" ], "topics": [ "risk-and-incentives", "systemic-risk", "compliance" ] }, { "id": "kaal:claim:1806252-014", "url": "https://wulfkaal.github.io/claims/1806252-014", "family": "other", "name": "ccrm-free-riding", "claim": "Systemic risk and financial market stability are public goods, so individual banks free ride on other banks' hedge fund credit risk management and are not incentivized to adequately monitor or limit their own hedge fund risk exposure.", "conditions": [], "topics": [ "risk-and-incentives", "systemic-risk", "economics" ] }, { "id": "kaal:claim:1806252-019", "url": "https://wulfkaal.github.io/claims/1806252-019", "family": "other", "name": "depositary-withdrawal", "claim": "Because the AIFM Directive exposes depositaries to strict liability in certain circumstances, depositaries must weigh the risks and benefits of serving EU alternative investment funds, and a negative assessment would harm the depository business and, implicitly, hedge funds.", "conditions": [ "AIFM Directive retains elements of strict depositary liability", "depositaries reassess whether to serve alternative investment funds in the European Union" ], "topics": [ "law-and-legal-systems", "private-funds" ] }, { "id": "kaal:claim:1806252-020", "url": "https://wulfkaal.github.io/claims/1806252-020", "family": "other", "name": "retaliatory-escalation", "claim": "Discrimination against non-EU jurisdictions under the AIFM Directive could provoke retaliatory action, and retaliation combined with a lack of intra-European cooperation could damage the European financial services industry and the whole European economy.", "conditions": [ "obstacles to EU market access for non-EU funds and managers persist" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1806252-028", "url": "https://wulfkaal.github.io/claims/1806252-028", "family": "other", "name": "non-exclusive-lending-relationship", "claim": "A standard objection to indirect regulation is that counterparty credit risk management will not work effectively unless the lending bank has an exclusive relationship with the hedge fund that lets it control the relationship.", "conditions": [ "a hedge fund borrows from more than one bank, so no single bank sees its overall risk exposure" ], "topics": [ "risk-and-incentives", "compliance" ] }, { "id": "kaal:claim:1806252-032", "url": "https://wulfkaal.github.io/claims/1806252-032", "family": "investor-protection-gap", "name": "wealth-as-sophistication-proxy", "claim": "The numerical wealth requirements used to define qualified hedge fund investors fail as a regulatory device, because investors who meet the wealth thresholds do not always have the knowledge, understanding, and sophistication needed to invest in highly complex financial instruments.", "conditions": [ "accredited investor standards under Regulation D and PFIARA" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1806252-033", "url": "https://wulfkaal.github.io/claims/1806252-033", "family": "other", "name": "unforeseeable-compliance-target", "claim": "Requiring advisers to adopt written policies to prevent and detect securities law violations presumes those violations are foreseeable, yet because Dodd-Frank substantially changed securities law, the foreseeability of potential violations is itself further curtailed.", "conditions": [ "PFIARA requires written compliance policies just after Dodd-Frank changed the underlying law" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:1765901-002", "url": "https://wulfkaal.github.io/claims/1765901-002", "family": "other", "name": "inconsistent-conduct-and-effects-application", "claim": "Before Morrison, U.S. courts refused to adopt a bright line rule for the extraterritorial reach of Section 10(b), and the resulting case by case conduct and effects analysis was applied inconsistently.", "conditions": [ "pre-Morrison case law", "foreign-cubed securities litigation" ], "topics": [ "law-and-legal-systems", "securities-law" ] }, { "id": "kaal:claim:1765901-003", "url": "https://wulfkaal.github.io/claims/1765901-003", "family": "other", "name": "listing-based-reading-of-morrison", "claim": "The plaintiffs' reading that Section 10(b) covers transactions anywhere in any security of a class listed on a U.S. exchange is inconsistent with Morrison, because the opinion turns on the location of the transaction and on the holding that Section 10(b) has no extraterritorial application.", "conditions": [ "dually listed securities", "transactions executed on a foreign exchange" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1765901-008", "url": "https://wulfkaal.github.io/claims/1765901-008", "family": "other", "name": "plaintiff-haven-effect", "claim": "Permitting Section 10(b) suits over dually listed securities traded outside the United States would undermine Morrison's own policy rationale, because it would interfere with the laws of other countries and turn the United States into a haven for plaintiffs' lawyers suing over foreign exchange purchases.", "conditions": [ "dually listed securities", "purchases on foreign exchanges" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:1765901-010", "url": "https://wulfkaal.github.io/claims/1765901-010", "family": "other", "name": "reference-security-equivalence-fallacy", "claim": "The Porsche swap transactions were not the functional equivalent of a transaction on a U.S. securities exchange, but neither were they the functional equivalent of a transaction on a German exchange, contrary to the implication of Judge Baer's opinion.", "conditions": [ "over-the-counter security-based swap agreements" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1765901-011", "url": "https://wulfkaal.github.io/claims/1765901-011", "family": "other", "name": "reference-security-only-location-test", "claim": "The economic reality of swap agreements does not justify fixing the location of the transaction in every case solely by reference to the market where the reference security trades, even though Judge Baer was right that the Porsche swaps were not U.S. transactions.", "conditions": [ "privately negotiated swap agreements", "application of Morrison to derivatives" ], "topics": [ "economics" ] }, { "id": "kaal:claim:1765901-012", "url": "https://wulfkaal.github.io/claims/1765901-012", "family": "other", "name": "private-transaction-location-gap", "claim": "Morrison provides no clear parameters for classifying privately negotiated transactions as domestic or foreign, because the case involved publicly traded securities and never reached the question.", "conditions": [ "privately negotiated securities and derivative transactions" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:1765901-013", "url": "https://wulfkaal.github.io/claims/1765901-013", "family": "other", "name": "single-party-presence-test", "claim": "If the presence of a single U.S. party sufficed to locate a privately negotiated derivative transaction in the United States, U.S. parties could sue in U.S. courts regardless of other factors such as where the counterparties were located.", "conditions": [ "privately negotiated derivative transactions", "a one party location test" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1765901-014", "url": "https://wulfkaal.github.io/claims/1765901-014", "family": "other", "name": "party-location-indeterminacy", "claim": "Locating a private transaction by the location of the parties is often unworkable, because the parties are frequently institutions simultaneously present in the United States and abroad, and individual parties are often in transit.", "conditions": [ "private transactions in conventional securities", "institutional and mobile parties" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1765901-016", "url": "https://wulfkaal.github.io/claims/1765901-016", "family": "other", "name": "broker-location-loophole", "claim": "Treating the U.S. location of a broker as making the securities purchase domestic would circumvent most of the Morrison holding, since a foreign buyer of foreign securities could invoke U.S. law simply by routing the order through a U.S. broker.", "conditions": [ "orders placed through U.S. brokers for execution on foreign exchanges" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:1765901-019", "url": "https://wulfkaal.github.io/claims/1765901-019", "family": "other", "name": "third-party-swap-exposure", "claim": "Porsche could be exposed to substantial U.S. sanctions even though neither its own common stock nor Volkswagen's traded in the United States, solely because of swap agreements to which Porsche was not a party.", "conditions": [ "derivative contracts referencing foreign traded shares", "foreign issuers with no U.S. listing" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:1765901-020", "url": "https://wulfkaal.github.io/claims/1765901-020", "family": "other", "name": "derivatives-exception-to-morrison", "claim": "If Section 10(b) were held to reach swap agreements based on stocks traded outside the United States, plaintiffs' attorneys would use that holding as precedent to limit Morrison broadly, and other courts might create a general exception for U.S. derivative contracts referencing non-U.S. securities.", "conditions": [ "appellate reversal of the Porsche dismissal", "U.S. derivative contracts referencing foreign securities" ], "topics": [ "law-and-legal-systems", "securities-law" ] }, { "id": "kaal:claim:1765901-023", "url": "https://wulfkaal.github.io/claims/1765901-023", "family": "other", "name": "jurisdiction-only-drafting-error", "claim": "On its face Section 929P(b) of the Dodd-Frank Act addresses only the jurisdiction of the district courts and does not expand the geographic scope of the substantive provisions of U.S. securities law.", "conditions": [ "suits brought by the SEC or the Department of Justice", "the enacted text as distinct from legislative history" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:1765901-028", "url": "https://wulfkaal.github.io/claims/1765901-028", "family": "other", "name": "unilateral-enforcement-risk", "claim": "Section 929P(b) risks complications where the SEC proceeds unilaterally in situations in which coordinated enforcement with foreign regulators would be more effective, for example insider trading cases involving exchanges whose home regimes do not recognize comparable insider trading rules.", "conditions": [ "unilateral SEC enforcement over foreign exchange transactions" ], "topics": [ "securities-law", "compliance", "institutional-design" ] }, { "id": "kaal:claim:1765901-029", "url": "https://wulfkaal.github.io/claims/1765901-029", "family": "other", "name": "perceived-governance-encroachment", "claim": "Expanded SEC enforcement under the Dodd-Frank provision runs a serious risk of being perceived as an encroachment on the corporate governance of foreign companies.", "conditions": [ "expanded extraterritorial enforcement by the SEC or DOJ" ], "topics": [ "governance-design", "corporate-governance", "securities-law", "compliance" ] }, { "id": "kaal:claim:1765901-030", "url": "https://wulfkaal.github.io/claims/1765901-030", "family": "other", "name": "foreign-operations-deterrence", "claim": "Overuse of the Dodd-Frank extraterritorial enforcement provision by the SEC or the DOJ could deter foreign companies from having U.S. operations.", "conditions": [ "frequent extraterritorial enforcement under Section 929P(b)" ], "topics": [ "securities-law", "compliance" ] }, { "id": "kaal:claim:2061166-001", "url": "https://wulfkaal.github.io/claims/2061166-001", "family": "jurisdictional-conflict", "name": "Uncoordinated cross-border resolution of a single SIFI", "claim": "Where bank resolution regimes are not coordinated across jurisdictions, the same systemically important financial institution can be handled in opposite ways: it might petition for reorganization under German law and emerge leaner and more competitive, while its United States operations are liquidated under the Boxer Amendment of the Dodd-Frank Act.", "conditions": [ "SIFIs with operations in multiple countries", "absent coordination and convergence of resolution regimes" ], "topics": [ "systemic-risk", "regulatory-failure" ] }, { "id": "kaal:claim:2061166-004", "url": "https://wulfkaal.github.io/claims/2061166-004", "family": "jurisdictional-conflict", "name": "National-only crisis measures cannot reach cross-border operations", "claim": "Purely national crisis measures proved ineffective during the financial crisis because they could not reach cross-border banking operations or contain contagion, as the failures of Lehman Brothers, Fortis, the Icelandic banks, Northern Rock and Hypo Real Estate Holding demonstrated.", "conditions": [ "bank failures with cross-border operations", "2007 to 2009 financial crisis" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:2061166-005", "url": "https://wulfkaal.github.io/claims/2061166-005", "family": "regulatory-arbitrage", "name": "Uncoordinated bail-outs breed regulatory arbitrage", "claim": "Because most national crisis responses took the form of public bail-outs adopted without broad international consensus, they increased the threat of international regulatory arbitrage and damaged the global competitiveness of national financial markets.", "conditions": [ "crisis-era emergency measures adopted without international coordination" ], "topics": [ "systemic-risk", "regulatory-failure", "institutional-design" ] }, { "id": "kaal:claim:2061166-006", "url": "https://wulfkaal.github.io/claims/2061166-006", "family": "jurisdictional-conflict", "name": "Mutual recognition collapses national buffer discretion", "claim": "Mutual recognition of countercyclical capital buffers hollows out the national discretion the Commission proposal appears to grant: the financially strongest Member States with the largest financial sectors will effectively set the buffer size for smaller Member States whose institutions do business there.", "conditions": [ "countercyclical buffers up to the 2.5 percent mutual recognition ceiling", "institutions with branches or subsidiaries in the buffer-setting Member State" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2061166-007", "url": "https://wulfkaal.github.io/claims/2061166-007", "family": "harmonization-and-standardization-failure", "name": "Illusory national discretion above the recognition ceiling", "claim": "Even the residual national discretion to set countercyclical buffers between 2.5 and 5 percent is misleading, because a Member State such as the United Kingdom is unlikely to sustain a 5 percent buffer while Germany requires only 2.5 percent and thereby hands German banks a competitive advantage.", "conditions": [ "buffers set above the 2.5 percent mutual recognition ceiling", "competing national banking sectors, especially where the state holds bank ownership stakes" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2061166-008", "url": "https://wulfkaal.github.io/claims/2061166-008", "family": "definitional-ambiguity", "name": "Indeterminate statutory cross reference in Article 51", "claim": "The authors identify a drafting defect in the proposed CRD IV Regulation: the distinction drawn by financial institution in Article 51(a) is ambiguous and the cross reference to the institution referred to in point (a) of Article 87 is unclear and indeterminate, so the provision requires clarification or amendment.", "conditions": [ "Article 51 of the proposed CRD IV Regulation as drafted" ], "topics": [ "contingent-capital", "law-and-legal-systems" ] }, { "id": "kaal:claim:2061166-010", "url": "https://wulfkaal.github.io/claims/2061166-010", "family": "moral-hazard-and-bailout-expectation", "name": "Bail-out expectation removes the loss threat and skews risk incentives", "claim": "Reliance on public bail-outs, unaccompanied by any threat that management, shareholders and creditors would share significant losses, created an asymmetric incentive for excessive risk taking by financial institutions.", "conditions": [ "Germany and the United States during the height of the financial crisis", "where insolvency was not a credible threat" ], "topics": [ "risk-and-incentives", "systemic-risk" ] }, { "id": "kaal:claim:2061166-011", "url": "https://wulfkaal.github.io/claims/2061166-011", "family": "supervisory-capacity-gap", "name": "No going-concern reorganization path for German banks", "claim": "Before the 2010 reform, the German regulatory intervention regime for financial institutions contained no procedure that would have reliably permitted a bank to be operated as a going concern during the financial crisis.", "conditions": [ "German law prior to the Financial Institution Reorganization Act entering into force on January 1, 2011" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:2061166-012", "url": "https://wulfkaal.github.io/claims/2061166-012", "family": "supervisory-capacity-gap", "name": "Shareholder valuation proceedings slow bank reorganization", "claim": "The German provision allowing appropriate compensation of shareholders whose rights are impaired can defeat the statute's own purpose, because time is of the essence in bank reorganization and the appointment of a court-appointed expert to value shareholder claims may significantly slow the procedure.", "conditions": [ "reorganization procedure under the German Financial Institution Reorganization Act", "where shareholders' rights are permanently impaired by the plan" ], "topics": [ "systemic-risk", "corporate-governance", "economics" ] }, { "id": "kaal:claim:2061166-013", "url": "https://wulfkaal.github.io/claims/2061166-013", "family": "enforcement-gap", "name": "Group structures excluded from voluntary reorganization", "claim": "The German voluntary reorganization procedure has a structural gap: groups of financial institutions, financial holding groups and conglomerates cannot petition for protection under it, even though these are precisely the entities that qualify as systemically important and pose the highest risk to market stability on failure.", "conditions": [ "voluntary reorganization procedure under the German Financial Institution Reorganization Act", "not applicable to the involuntary procedure initiated by the supervisor under the German Banking Act" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:2061166-014", "url": "https://wulfkaal.github.io/claims/2061166-014", "family": "definitional-ambiguity", "name": "Unmeasurable market confidence standard", "claim": "Because German law fixes no threshold conditions or determining factors for market reception or market confidence, the systemic relevance and contagion determinations that turn on those factors can never be made in a reliable and objective manner.", "conditions": [ "determination of systemic threat under the German Banking Act" ], "topics": [ "systemic-risk", "risk-and-incentives", "economics", "law-and-legal-systems" ] }, { "id": "kaal:claim:2061166-015", "url": "https://wulfkaal.github.io/claims/2061166-015", "family": "trigger-design-failure", "name": "Expanded supervisory powers deter voluntary petitions", "claim": "Because the amendments to the German Banking Act sharply increase the supervisor's intervention powers, the prospect that any systemically important bank would voluntarily petition under the German stabilization or reorganization procedure is remote at best.", "conditions": [ "systemically important banks in Germany", "after the increase of BaFin intervention powers, which also reach groups, financial holdings and conglomerates" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:2061166-016", "url": "https://wulfkaal.github.io/claims/2061166-016", "family": "supervisory-capacity-gap", "name": "Recovery-plan deadline unusable under time pressure", "claim": "The supervisor's discretion to set a deadline for a recovery plan before issuing a transfer order is unlikely ever to be exercised in practice, because in a crisis time will be of the essence to prevent contagion.", "conditions": [ "asset transfer to a bridge bank under the German Banking Act", "crisis conditions with contagion risk" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:2061166-017", "url": "https://wulfkaal.github.io/claims/2061166-017", "family": "valuation-and-pricing-failure", "name": "Valuation disputes over bridge bank consideration", "claim": "Requiring only that consideration be commensurate with the value of transferred assets invites frequent and significant disputes over valuation, a problem compounded when the consideration consists of shares in the bridge bank, whose own value must then also be assessed.", "conditions": [ "asset transfers to a bridge bank under the German Banking Act", "consideration paid in shares of the transferee entity" ], "topics": [ "systemic-risk", "economics" ] }, { "id": "kaal:claim:2061166-018", "url": "https://wulfkaal.github.io/claims/2061166-018", "family": "compliance-cost-and-barrier-to-entry", "name": "Non-systemic banks pay for a fund they cannot draw on", "claim": "The German bank levy is internally inconsistent because financial institutions without systemic relevance must contribute to the reorganization fund yet are ineligible to receive support payments from it.", "conditions": [ "German reorganization fund financed by a levy on all German banks" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:2061166-019", "url": "https://wulfkaal.github.io/claims/2061166-019", "family": "supervisory-capacity-gap", "name": "Undersized and slow-to-mobilize resolution fund", "claim": "The German reorganization fund's maximum volume of 70 billion euros may not suffice in a financial crisis, and the availability of those funds and the time needed to raise them are an even greater concern than the ceiling itself.", "conditions": [ "German reorganization fund under the Restructuring Fund Law" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:2061166-020", "url": "https://wulfkaal.github.io/claims/2061166-020", "family": "jurisdictional-conflict", "name": "National bridge bank residency requirement conflicts with EU law", "claim": "The German Banking Act requirement that a bridge bank have its head office inside Germany is of highly questionable compatibility with European Union law, specifically the principle of free movement of capital under Article 63 TFEU.", "conditions": [ "bridge bank transferee requirements under the German Banking Act" ], "topics": [ "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:2061166-024", "url": "https://wulfkaal.github.io/claims/2061166-024", "family": "systemic-risk-transmission", "name": "Bail-in raises and destabilizes bank funding", "claim": "Implementing the European Commission's debt write-down proposal has the potential to increase funding costs for financial institutions and to make their funding more volatile.", "conditions": [ "statutory bail-in regime as proposed by the Commission" ], "topics": [ "systemic-risk", "contingent-capital" ] }, { "id": "kaal:claim:2061166-026", "url": "https://wulfkaal.github.io/claims/2061166-026", "family": "collective-action-and-coordination-failure", "name": "Domestic contingent capital reform stalls without external mandate", "claim": "Enacting the proposed German Corporation Act amendments that would give contingent capital securities a statutory basis would require substantial changes across other areas of German law, and is unlikely to be achieved unless European Union law requires it and the standards are internationally recognized.", "conditions": [ "proposed amendments to Sections 192, 194 and 221 of the German Corporation Act" ], "topics": [ "contingent-capital", "law-and-legal-systems" ] }, { "id": "kaal:claim:2061166-028", "url": "https://wulfkaal.github.io/claims/2061166-028", "family": "liquidity-and-market-structure-failure", "name": "Mandated issuance without a market", "claim": "Mandating the issuance of contingent capital does not guarantee that a viable market in contingent capital securities will develop.", "conditions": [ "mandatory minimum issuance requirements imposed by regulators" ], "topics": [ "contingent-capital", "economics", "defi" ] }, { "id": "kaal:claim:2061166-029", "url": "https://wulfkaal.github.io/claims/2061166-029", "family": "systemic-risk-transmission", "name": "Cross-holding of contingent capital among competitors", "claim": "Building critical mass in the contingent capital securities market could require banks and other financial institutions to buy their competitors' contingent capital securities, which would raise ethical, antitrust and incentive concerns.", "conditions": [ "where non-bank demand is insufficient to absorb issuance volumes" ], "topics": [ "contingent-capital", "reputation", "economics", "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2061166-031", "url": "https://wulfkaal.github.io/claims/2061166-031", "family": "trigger-design-failure", "name": "Premature conversion dissipates the capital injection", "claim": "A trigger that fires too early wastes the equity injection: conversion occurs without a real need for capital or additional voting shareholders, and the effect of the injection may have dissipated by the time it is actually needed.", "conditions": [ "contingent capital converting on a trigger set too far from distress" ], "topics": [ "contingent-capital" ] }, { "id": "kaal:claim:2061166-032", "url": "https://wulfkaal.github.io/claims/2061166-032", "family": "trigger-design-failure", "name": "Late conversion cannot recapitalize a firm already in resolution", "claim": "A trigger that fires too late is equally useless: by then the financial institution may already be in the resolution stage, and conversion at that point will not supply enough equity to turn the company around.", "conditions": [ "contingent capital converting only at or near the point of non-viability" ], "topics": [ "contingent-capital", "systemic-risk" ] }, { "id": "kaal:claim:2061166-033", "url": "https://wulfkaal.github.io/claims/2061166-033", "family": "trigger-design-failure", "name": "Index trigger invites manipulation and forced bankruptcy", "claim": "Dual trigger proposals draw their central strength from reliance on market prices, but the index leg is a major disadvantage because it can create incentives to manipulate the index or to force an entity into bankruptcy before conversion occurs.", "conditions": [ "dual trigger designs combining a firm stock price trigger with a financial institutions index trigger" ], "topics": [ "contingent-capital", "economics" ] }, { "id": "kaal:claim:2061166-037", "url": "https://wulfkaal.github.io/claims/2061166-037", "family": "collective-action-and-coordination-failure", "name": "First mover problem in contingent capital regulation", "claim": "Convergence of contingent capital standards is impeded by a first mover problem: single jurisdictions hesitate to impose contingent capital requirements before they know how competing jurisdictions and their financial institutions will structure their own rules.", "conditions": [ "jurisdictions whose banks compete internationally" ], "topics": [ "contingent-capital", "economics" ] }, { "id": "kaal:claim:2061166-038", "url": "https://wulfkaal.github.io/claims/2061166-038", "family": "regulatory-arbitrage", "name": "Regulatory arbitrage blocks contingent capital adoption", "claim": "Without a degree of similarity and convergence in bank resolution and contingent capital rules, regulatory arbitrage will work against establishing contingent capital as an integral part of financial markets.", "conditions": [ "absent international convergence of resolution and contingent capital rules" ], "topics": [ "regulatory-failure", "contingent-capital", "economics" ] }, { "id": "kaal:claim:2097160-001", "url": "https://wulfkaal.github.io/claims/2097160-001", "family": "agency-cost-and-managerial-opportunism", "name": "Governance-blind CoCo compensation designs", "claim": "Early European initiatives to put contingent convertible bonds into executive pay lack governance-improving designs; contingent convertible bonds with an early conversion trigger should be used in executive compensation instead.", "conditions": [ "systemically important financial institutions", "executive compensation packages" ], "topics": [ "contingent-capital", "corporate-governance", "governance-design", "systemic-risk" ] }, { "id": "kaal:claim:2097160-005", "url": "https://wulfkaal.github.io/claims/2097160-005", "family": "collective-action-and-coordination-failure", "name": "Private ordering does not yield governance-improving designs", "claim": "Market solutions and private ordering alone are unlikely to produce contingent capital designs that improve corporate governance in SIFIs, because privately negotiated sales so far have not produced governance-sensitive designs.", "conditions": [ "market for contingent convertible bonds still in its infancy" ], "topics": [ "risk-and-incentives", "contingent-capital", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:2097160-006", "url": "https://wulfkaal.github.io/claims/2097160-006", "family": "research-design-limitation", "name": "Spot contract blindness to relational elements", "claim": "Analyzing executive compensation as a single contract between an executive agent and a corporate principal fails, because it ignores the informal relational element of the principal agent relationship that often overshadows the legal terms of the agreement.", "conditions": [ "executive compensation contracts", "classical contract model or spot contract model" ], "topics": [ "ai-and-agents", "corporate-governance" ] }, { "id": "kaal:claim:2097160-007", "url": "https://wulfkaal.github.io/claims/2097160-007", "family": "agency-cost-and-managerial-opportunism", "name": "Control rights fail against ex post opportunism", "claim": "Control rights in executive compensation contracts cannot sufficiently constrain ex post opportunism by executives, because of incomplete information, information asymmetry, bounded rationality, limited foresight, and transaction costs.", "conditions": [ "principal agent relationship under incomplete contracting" ], "topics": [ "ai-and-agents", "corporate-governance" ] }, { "id": "kaal:claim:2097160-010", "url": "https://wulfkaal.github.io/claims/2097160-010", "family": "agency-cost-and-managerial-opportunism", "name": "Lapsing award destroys the liquidation value stake", "claim": "Because the Barclays award falls away rather than converting, it does not create a fixed claim giving managers a stake in the firm's liquidation value, and therefore it does not lower agency cost.", "conditions": [ "contingent capital awards that lapse instead of converting" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:2097160-011", "url": "https://wulfkaal.github.io/claims/2097160-011", "family": "agency-cost-and-managerial-opportunism", "name": "CoCo pay as compensation supplement only", "claim": "A contingent capital award to executives without a conversion feature yields only limited governance improvement and only limited incentive to lower risk-taking; in its current form it operates as a mere compensation supplement.", "conditions": [ "contingent capital awards without conversion into equity" ], "topics": [ "contingent-capital", "risk-and-incentives", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:2097160-012", "url": "https://wulfkaal.github.io/claims/2097160-012", "family": "agency-cost-and-managerial-opportunism", "name": "Insufficient volume for dilution or recapitalization", "claim": "Contingent convertible bonds issued to executives are typically too small in volume to dilute investors' equity holdings or to supply a meaningful equity infusion during a crisis, so copying investor CoCo designs for executive pay produces suboptimal outcomes.", "conditions": [ "contingent convertible bonds issued only to executives", "volumes smaller than investor issuances" ], "topics": [ "contingent-capital" ] }, { "id": "kaal:claim:2097160-014", "url": "https://wulfkaal.github.io/claims/2097160-014", "family": "trigger-design-failure", "name": "Regulatory discretion trigger uncertainty", "claim": "Regulatory triggers generate the highest level of uncertainty and can produce ad hoc regulatory decisions and adverse market responses, so they are not the best option for contingent convertible bonds in executive compensation.", "conditions": [ "triggers left to regulatory discretion" ], "topics": [ "contingent-capital", "economics" ] }, { "id": "kaal:claim:2097160-015", "url": "https://wulfkaal.github.io/claims/2097160-015", "family": "trigger-design-failure", "name": "No self-monitoring under regulatory triggers", "claim": "Regulatory triggers insufficiently incentivize executives to lower risk, because executives would not have to self-monitor and adjust their own risk-taking preferences in order to avoid the trigger.", "conditions": [ "conversion decided by regulators rather than by an automatic institution-specific term" ], "topics": [ "contingent-capital", "compliance", "risk-and-incentives" ] }, { "id": "kaal:claim:2097160-016", "url": "https://wulfkaal.github.io/claims/2097160-016", "family": "trigger-design-failure", "name": "Trigger metric manipulation and staleness", "claim": "Market-based trigger measures are vulnerable to market manipulation and bank runs, while accounting-based measures are updated too infrequently to respond adequately in a financial crisis.", "conditions": [ "institution-specific automatic triggers keyed to market or accounting metrics" ], "topics": [ "contingent-capital", "economics", "systemic-risk" ] }, { "id": "kaal:claim:2097160-020", "url": "https://wulfkaal.github.io/claims/2097160-020", "family": "moral-hazard-and-bailout-expectation", "name": "Bailout expectation suppresses creditor monitoring", "claim": "Ordinary SIFI creditors have suboptimal incentives to monitor management because they implicitly expect that the government will provide bailout funding given the nature of the entity.", "conditions": [ "systemically important financial institutions carrying implicit government guarantees" ], "topics": [ "compliance", "risk-and-incentives", "systemic-risk" ] }, { "id": "kaal:claim:2097160-023", "url": "https://wulfkaal.github.io/claims/2097160-023", "family": "measurement-and-metric-failure", "name": "Existing default risk signals failed in the crisis", "claim": "Existing default risk signals were inadequate: CAMEL ratings and credit default swap pricing did not suffice to signal default risk at Lehman Brothers, Bear Stearns, or Merrill Lynch.", "conditions": [ "the 2008 to 2009 financial crisis" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2097160-026", "url": "https://wulfkaal.github.io/claims/2097160-026", "family": "incumbent-resistance-to-adoption", "name": "Path dependence blocks compensation redesign", "claim": "Path dependencies in United States executive compensation culture could make it difficult to lower overall executive pay or to add new design elements such as contingent convertible bonds.", "conditions": [ "United States executive compensation practice" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:2097160-027", "url": "https://wulfkaal.github.io/claims/2097160-027", "family": "trigger-design-failure", "name": "Trigger manipulation for cheap stock", "claim": "Executives paid in contingent convertible bonds have an opportunistic reason to manipulate the triggering event, because conversion at a depressed price before or during a crisis hands them cheap stock.", "conditions": [ "executives compensated with contingent convertible bond instruments", "payoff from conversion is substantial" ], "topics": [ "contingent-capital", "corporate-governance" ] }, { "id": "kaal:claim:2097160-028", "url": "https://wulfkaal.github.io/claims/2097160-028", "family": "agency-cost-and-managerial-opportunism", "name": "Fiduciary duties insufficient against large payoffs", "claim": "Where rules and regulatory guidance are absent, fiduciary duties are the only constraint on executives, and existing fiduciary duties could prove insufficient to limit opportunism and abuse when the payoff is substantial.", "conditions": [ "no rules or regulatory guidance on contingent convertible bond design and issuance", "substantial payoff to executives" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:2097160-030", "url": "https://wulfkaal.github.io/claims/2097160-030", "family": "trigger-design-failure", "name": "Management capture of trigger design", "claim": "If executives influence the drafting of their own trigger, opportunism within the bounds of fiduciary duty will produce suboptimal early triggers and increase the potential for abuse, because executives can use the trigger to obtain cheap stock during a crisis.", "conditions": [ "executives involved in the executive compensation and trigger design process" ], "topics": [ "contingent-capital" ] }, { "id": "kaal:claim:2097160-032", "url": "https://wulfkaal.github.io/claims/2097160-032", "family": "agency-cost-and-managerial-opportunism", "name": "Inside debt has no solvency preserving mechanism", "claim": "The governance benefits of traditional inside debt, incentive optimization and reduced agency costs, all depend on the entity remaining solvent, and inside debt supplies no mechanism of its own to ensure that solvency.", "conditions": [ "inside debt without a conversion feature, such as pensions and deferred compensation" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:2097160-038", "url": "https://wulfkaal.github.io/claims/2097160-038", "family": "trigger-design-failure", "name": "Ownership blind trigger design", "claim": "Trigger designs that work well in institutions with the traditional mix of debt-holders and shareholders may be suboptimal once executives themselves hold contingent convertible bonds.", "conditions": [ "executives hold debt instruments in the form of contingent convertible bonds" ], "topics": [ "contingent-capital", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:2029983-007", "url": "https://wulfkaal.github.io/claims/2029983-007", "family": "harmonization-and-standardization-failure", "name": "wrong-harmonious-rule", "claim": "Harmonization can fail on the merits: the harmonious rule may be the wrong rule for the problem it addresses, or it may become the wrong rule later as circumstances change.", "conditions": [ "most acute in fast evolving areas such as financial regulation" ], "topics": [ "economics", "law-and-legal-systems" ] }, { "id": "kaal:claim:2029983-008", "url": "https://wulfkaal.github.io/claims/2029983-008", "family": "harmonization-and-standardization-failure", "name": "harmonization-political-impossibility", "claim": "Harmonization is politically unattainable absent either a central authority able to preempt the law of many jurisdictions or a single jurisdiction with enough economic clout to impose its rules on others, which makes harmonization especially difficult beyond national borders.", "conditions": [ "cross border harmonization", "no supranational preemptive authority exists" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2029983-009", "url": "https://wulfkaal.github.io/claims/2029983-009", "family": "harmonization-and-standardization-failure", "name": "rogue-jurisdiction-defection", "claim": "Harmonization invites its own defeat by creating an incentive for rogue jurisdictions to attract, into their legal systems, the private actors who do not agree with the harmonized rule.", "conditions": [ "applies even within organized communities of jurisdictions such as the European Union" ], "topics": [ "regulatory-failure", "institutional-design" ] }, { "id": "kaal:claim:2029983-010", "url": "https://wulfkaal.github.io/claims/2029983-010", "family": "jurisdictional-conflict", "name": "unstable-geographic-borders", "claim": "Defined geographic borders for securities transactions, the overarching assumption behind Morrison, are an unstable basis for limiting the extraterritorial reach of either private litigation or government regulation.", "conditions": [ "securities transactions whose location is contestable", "applies to both private suits and regulatory enforcement" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2029983-012", "url": "https://wulfkaal.github.io/claims/2029983-012", "family": "jurisdictional-conflict", "name": "enforcement-threat-as-settlement-leverage", "claim": "Bifurcation lets a party to a disputed offshore transaction reintroduce U.S. law into the civil liability regime by threatening to involve the SEC or DOJ unless the other party offers an attractive settlement.", "conditions": [ "transaction located outside the United States", "Section 929P enforcement remains available" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2029983-013", "url": "https://wulfkaal.github.io/claims/2029983-013", "family": "enforcement-gap", "name": "no-private-right-offshore", "claim": "Because Section 929P did not restore private rights of action, the most powerful weapon in plaintiffs' arsenal, the fraud-on-the-market theory in class actions, is thwarted wherever the transaction took place outside the United States.", "conditions": [ "private class actions over non-U.S. transactions", "SEC and DOJ actions remain possible" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2029983-015", "url": "https://wulfkaal.github.io/claims/2029983-015", "family": "jurisdictional-conflict", "name": "no-mans-land-transaction", "claim": "Geographic tests create the risk of a no man's land transaction: defendants may persuade the courts of every jurisdiction that the transaction took place outside their borders, leaving the transaction governed by no law and with no available forum.", "conditions": [ "transactions whose geographic location is ambiguous", "courts in all candidate jurisdictions apply geographic tests" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2029983-016", "url": "https://wulfkaal.github.io/claims/2029983-016", "family": "enforcement-gap", "name": "opt-in-class-size-ceiling", "claim": "Without an opt-out mechanism, European class sizes will likely be substantially smaller than their U.S. counterparts, which in turn depresses settlement amounts and damages awards.", "conditions": [ "European collective procedures that require plaintiffs to opt in" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2029983-018", "url": "https://wulfkaal.github.io/claims/2029983-018", "family": "enforcement-gap", "name": "no-european-substitute", "claim": "Despite signs of movement in that direction, there is as yet no genuine European substitute for the U.S. securities class action brought under the fraud-on-the-market theory.", "conditions": [ "as of the article's 2012 assessment of European collective procedures" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2029983-019", "url": "https://wulfkaal.github.io/claims/2029983-019", "family": "supervisory-capacity-gap", "name": "kapmug-administrative-burden", "claim": "The German KapMuG does not relieve trial judges of deciding the legal issues in every individual case, so it remains administratively burdensome even though its model case judgment binds the trial courts.", "conditions": [ "German model case proceedings for capital markets claims" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2029983-024", "url": "https://wulfkaal.github.io/claims/2029983-024", "family": "research-design-limitation", "name": "fee-precedent-not-generalizable", "claim": "The Converium fee holding is a weak predictor of Dutch practice because lead counsel's work in that case was performed largely within the American legal system and by U.S. law firms, so it remains to be seen whether a case litigated in Dutch courts without U.S. exposure would yield a comparable fee structure.", "conditions": [ "cases litigated in Dutch courts without exposure to the U.S. legal system" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2029983-028", "url": "https://wulfkaal.github.io/claims/2029983-028", "family": "compliance-cost-and-barrier-to-entry", "name": "foundation-requirement-burden", "claim": "The WCAM requirement that a court approved foundation pursue the action makes the Dutch regime more burdensome than the U.S. system, which requires only a lead plaintiff and class approval.", "conditions": [ "Dutch collective proceedings under the WCAM" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2029983-029", "url": "https://wulfkaal.github.io/claims/2029983-029", "family": "investor-protection-gap", "name": "small-case-settlement-gap", "claim": "The WCAM's structural limits could reduce the number of successful settlements: while the largest cases such as Shell and Fortis give plaintiffs enough leverage to force large settlements, smaller cases may not be successfully settled in Dutch courts.", "conditions": [ "smaller claims with limited settlement leverage" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2029983-031", "url": "https://wulfkaal.github.io/claims/2029983-031", "family": "rule-obsolescence-and-ossification", "name": "geography-based-test-obsolescence", "claim": "Morrison's transactional test could prove relatively short lived because it is rooted in geography while an increasing number of securities transactions defy geographical boundaries.", "conditions": [ "transactions off organized exchanges and on exchanges that cross borders" ], "topics": [ "citation-and-knowledge", "securities-law" ] }, { "id": "kaal:claim:2029983-032", "url": "https://wulfkaal.github.io/claims/2029983-032", "family": "regulatory-arbitrage", "name": "manipulable-transaction-location", "claim": "The Second Circuit's Absolute Activist test, locating a transaction where title transfers or irrevocable liability is incurred, is easy to manipulate: parties can arrange for irrevocable liability to arise outside the United States, for example by conditioning liability on approval by an agent located abroad.", "conditions": [ "private securities transactions off organized exchanges" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2029983-036", "url": "https://wulfkaal.github.io/claims/2029983-036", "family": "supervisory-capacity-gap", "name": "limited-judicial-capacity", "claim": "U.S. courts have only a limited capacity to integrate parties' choice of law into a post-Morrison regime for defining transaction location, and adding variables raises the risk of inconsistent case law across districts and circuits.", "conditions": [ "absent a clear mandate in Morrison and given the statutory bar on opting out" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2029983-037", "url": "https://wulfkaal.github.io/claims/2029983-037", "family": "jurisdictional-conflict", "name": "chosen-law-not-applied", "claim": "A contract selecting non-U.S. securities law can fail entirely: if the chosen jurisdiction's courts decline jurisdiction because the transaction did not clear there or the parties lack a local presence, the contract may as a practical matter mean that no law applies.", "conditions": [ "the chosen foreign jurisdiction must actually accept jurisdiction and apply its law", "one party may be better informed about this risk than the other" ], "topics": [ "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:2150377-003", "url": "https://wulfkaal.github.io/claims/2150377-003", "family": "regulatory-arbitrage", "name": "client-counting-safe-harbor-loophole", "claim": "The client counting safe harbor, which let an adviser count a pooled entity rather than each investor as a single client, allowed advisers to manage large amounts of securities indirectly for several hundreds of investors across multiple hedge funds while remaining outside registration and supervision.", "conditions": [ "under the 1985 safe harbor as broadened in 1997", "before the Dodd-Frank Act repealed the private adviser exemption" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2150377-004", "url": "https://wulfkaal.github.io/claims/2150377-004", "family": "definitional-ambiguity", "name": "guidance-by-no-action-letter", "claim": "Before Dodd-Frank the perimeter of hedge fund regulation was set by SEC no-action letters on client counting and by courts that gave very limited and sometimes contradictory guidance, so compliance rested on an unstable and uncertain base rather than on rules.", "conditions": [ "the period between the 1968 Merrill Lynch action and the 1985 safe harbor rule", "advisers seeking to stay exempt from securities regulation" ], "topics": [ "law-and-legal-systems", "securities-law", "private-funds" ] }, { "id": "kaal:claim:2150377-006", "url": "https://wulfkaal.github.io/claims/2150377-006", "family": "enforcement-gap", "name": "arbitrary-rulemaking-vacatur", "claim": "The SEC's 2004 attempt to reach hedge fund advisers failed as a matter of administrative law: in July 2006 the D.C. Circuit vacated the hedge fund rule in Goldstein v. SEC as an instance of arbitrary rulemaking, because the SEC had no authority to define a term the Advisers Act left undefined.", "conditions": [ "SEC rulemaking under the Investment Advisers Act", "where the statutory term client is not otherwise defined" ], "topics": [ "securities-law", "dynamic-regulation" ] }, { "id": "kaal:claim:2150377-008", "url": "https://wulfkaal.github.io/claims/2150377-008", "family": "regulatory-arbitrage", "name": "exemptions-swallow-the-rules", "claim": "Because Title IV's registration exemptions are broad enough to threaten the rule they qualify, the Dodd-Frank Act deliberately gives the SEC rulemaking authority to keep the exemptions from swallowing the rules.", "conditions": [ "exemptions for private fund advisers, venture capital advisers, and foreign private advisers under Title IV" ], "topics": [ "dynamic-regulation", "securities-law", "regulatory-failure" ] }, { "id": "kaal:claim:2150377-013", "url": "https://wulfkaal.github.io/claims/2150377-013", "family": "sample-and-selection-bias", "name": "industry-opacity-limits-sample-size", "claim": "The hedge fund industry's concern with confidentiality and privacy is itself an obstacle to empirical research: it made obtaining a substantial effective sample size for this study difficult, independent of the survey design.", "conditions": [ "surveys of hedge fund managers", "questions touching firm or client financial status" ], "topics": [ "empirical-evidence", "research-methods", "disclosure", "law-and-legal-systems" ] }, { "id": "kaal:claim:2150377-015", "url": "https://wulfkaal.github.io/claims/2150377-015", "family": "disclosure-ineffectiveness", "name": "mandated-disclosure-not-publicly-accessible", "claim": "Mandated disclosure does not automatically produce usable public data: although Form ADV requires advisers to disclose chief compliance officer contact information, the SEC dataset omitted it and contained no e-mail addresses, so researchers could not reach the officers responsible for compliance.", "conditions": [ "the IARD dataset and filed Form ADVs as of 2012" ], "topics": [ "private-funds", "disclosure", "empirical-evidence", "research-methods" ] }, { "id": "kaal:claim:2150377-016", "url": "https://wulfkaal.github.io/claims/2150377-016", "family": "sample-and-selection-bias", "name": "selection-bias-corrections-backfire", "claim": "The standard remedies for selection bias are not reliably corrective: simulation studies show that many techniques used to prevent selection bias problems have mixed success rates, can worsen rather than improve estimates, and may skew results under ordinary circumstances.", "conditions": [ "statistical corrections for sample selection bias in social research" ], "topics": [ "research-methods", "empirical-evidence", "law-and-legal-systems" ] }, { "id": "kaal:claim:2150377-017", "url": "https://wulfkaal.github.io/claims/2150377-017", "family": "research-design-limitation", "name": "no-usable-control-group", "claim": "A treatment and control design is unavailable for studying registration effects, because managers who did not have to register have no exposure to the treatment and therefore cannot generate informative responses about its effects.", "conditions": [ "survey research on the effects of mandatory registration", "where the treatment is exposure to the registration requirement itself" ], "topics": [ "empirical-evidence", "research-methods" ] }, { "id": "kaal:claim:2150377-018", "url": "https://wulfkaal.github.io/claims/2150377-018", "family": "sample-and-selection-bias", "name": "regulatory-avoiders-unobservable", "claim": "Managers who avoided registration by restructuring, for example by changing organizational form or assets under management, are practically and administratively very difficult to identify, so the population that adapted away from the rule remains largely unobservable to researchers.", "conditions": [ "identification of advisers who altered structure or AUM to avoid registration" ], "topics": [ "regulatory-failure", "securities-law" ] }, { "id": "kaal:claim:2150377-028", "url": "https://wulfkaal.github.io/claims/2150377-028", "family": "disclosure-cost-and-burden", "name": "reporting-threshold-bunching", "claim": "Where the Form PF quarterly reporting threshold does influence behavior, it distorts fund size downward: a majority of the advisers who take the threshold into account plan to stay under $1.5 billion in assets under management, and some would close funds to new investors to do so.", "conditions": [ "the 19.54% of respondents who would take the Form PF threshold into account" ], "topics": [ "private-funds", "regulatory-failure", "empirical-evidence" ] }, { "id": "kaal:claim:2150377-033", "url": "https://wulfkaal.github.io/claims/2150377-033", "family": "compliance-cost-and-barrier-to-entry", "name": "registration-raises-barriers-to-entry", "claim": "Respondents identified the creation of barriers to entry as an industry level effect of the registration and disclosure requirements, because the rules make the market environment for private funds less attractive to new entrants.", "conditions": [ "respondent projections for the private fund industry over five years", "survey Question 5 response clusters" ], "topics": [ "risk-and-incentives", "private-funds", "empirical-evidence", "compliance" ] }, { "id": "kaal:claim:2150377-034", "url": "https://wulfkaal.github.io/claims/2150377-034", "family": "compliance-cost-and-barrier-to-entry", "name": "startup-capital-threshold-quadrupled", "claim": "The compliance burden has raised the minimum viable scale for launching a hedge fund: an adviser reports that the capital needed to start a fund in New York rose from roughly $25 to $50 million to at least $100 million because of the increased cost of compliance with the registration and disclosure requirements.", "conditions": [ "startup hedge funds in New York", "single respondent account highlighted by the Author" ], "topics": [ "risk-and-incentives", "innovation", "compliance", "empirical-evidence" ] }, { "id": "kaal:claim:2150377-035", "url": "https://wulfkaal.github.io/claims/2150377-035", "family": "research-design-limitation", "name": "pre-effective-date-surveys-measure-expectations", "claim": "Prior surveys of hedge fund manager expectations left the central questions unanswered because they were fielded before the registration effective date and used substantially smaller samples, so they measured anticipation rather than experience.", "conditions": [ "surveys conducted before March 30, 2012", "including the EisnerAmper and Rothstein Kass studies" ], "topics": [ "empirical-evidence", "research-methods" ] }, { "id": "kaal:claim:2150377-039", "url": "https://wulfkaal.github.io/claims/2150377-039", "family": "disclosure-ineffectiveness", "name": "disclosure-sanitization", "claim": "Mandatory reporting does not guarantee informative reporting: anecdotal evidence indicates that advisers can present the information required in Forms ADV and PF in ways that in effect flatten out and sanitize the disclosures.", "conditions": [ "anecdotal evidence, the level of sanitizing cannot be verified" ], "topics": [ "private-funds", "disclosure", "compliance", "risk-and-incentives", "systemic-risk" ] }, { "id": "kaal:claim:2150377-040", "url": "https://wulfkaal.github.io/claims/2150377-040", "family": "disclosure-ineffectiveness", "name": "sanitized-disclosure-defeats-systemic-risk-monitoring", "claim": "If advisers sanitize their Form ADV and Form PF filings, the disclosures become less useful for FSOC and SEC evaluation and undermine the very determination of systemic risk posed by private funds that the reporting regime was built to enable.", "conditions": [ "to the extent disclosures are in fact sanitized, which the Author states cannot be verified" ], "topics": [ "systemic-risk", "risk-and-incentives", "disclosure", "private-funds" ] }, { "id": "kaal:claim:1998455-001", "url": "https://wulfkaal.github.io/claims/1998455-001", "family": "moral-hazard-and-bailout-expectation", "name": "bailout-cost-externalization", "claim": "Government bailouts of systemically important financial institutions create strong incentives for those institutions to externalize the cost of their risk taking onto taxpayers.", "conditions": [ "where governments provide bailout funding to systemically important financial institutions" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:1998455-002", "url": "https://wulfkaal.github.io/claims/1998455-002", "family": "moral-hazard-and-bailout-expectation", "name": "guarantee-induced-leverage", "claim": "The implicit guarantees contained in a bailout multiply the incentives for systemically important financial institutions to increase leverage, because those guarantees make debt cheaper than equity.", "conditions": [ "where market participants expect governments to bail out systemically important firms" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:1998455-003", "url": "https://wulfkaal.github.io/claims/1998455-003", "family": "systemic-risk-transmission", "name": "correlated-risk-profiles", "claim": "Because governments prioritize the rescue of systemically important financial institutions over other entities, those institutions are incentivized to adopt similar risk profiles and to correlate their risks.", "conditions": [ "where governments visibly prioritize SIFI bailouts because of systemic implications" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:1998455-012", "url": "https://wulfkaal.github.io/claims/1998455-012", "family": "trigger-design-failure", "name": "premature-conversion", "claim": "Converting contingent capital securities prematurely, while the institution can still operate without an equity injection, dissipates the benefit: the injection is no longer available at the later moment when the institution cannot obtain other funding.", "conditions": [ "where the trigger fires before the institution has exhausted other funding sources" ], "topics": [ "contingent-capital" ] }, { "id": "kaal:claim:1998455-013", "url": "https://wulfkaal.github.io/claims/1998455-013", "family": "trigger-design-failure", "name": "late-conversion", "claim": "Converting contingent capital securities too late makes the capital injection superfluous, because by that stage the institution may face unresolvable difficulties that a capital injection can only marginally soften, and conversion may not suffice once the institution has entered resolution.", "conditions": [ "where the trigger fires after the institution's difficulties have become unresolvable", "especially once the institution has entered the resolution stage" ], "topics": [ "contingent-capital", "systemic-risk" ] }, { "id": "kaal:claim:1998455-014", "url": "https://wulfkaal.github.io/claims/1998455-014", "family": "systemic-risk-transmission", "name": "standalone-contingent-capital-insufficiency", "claim": "Contingent capital by itself, without additional measures and supplemental corporate governance improvements, may not prevent firm failure; its real potential unfolds only when it supplements other corporate governance improvements.", "conditions": [ "where contingent capital is deployed as a standalone regulatory tool" ], "topics": [ "contingent-capital", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:1998455-015", "url": "https://wulfkaal.github.io/claims/1998455-015", "family": "harmonization-and-standardization-failure", "name": "tier-1-definitional-divergence", "claim": "Divergent national definitions of Tier 1 capital produce a distortion: financial institutions in countries with stricter definitions that exclude contingent capital appear to hold less capital and thinner capital cushions than institutions in countries with broader definitions, and investors may read that appearance as a negative attribute.", "conditions": [ "absent harmonized EU wide or international standards for Tier 1 capital" ], "topics": [ "regulatory-failure", "systemic-risk", "contingent-capital" ] }, { "id": "kaal:claim:1998455-016", "url": "https://wulfkaal.github.io/claims/1998455-016", "family": "moral-hazard-and-bailout-expectation", "name": "monitoring-neglect-through-reliance-on-design", "claim": "If a market evolves in which contingent capital designs appear to provide sufficient protection against systemic risk and contagion, decision makers may come to rely on the design of those securities and neglect their own role as monitors.", "conditions": [ "theoretical possibility flagged by the author", "presupposes CCS designs that appear protective" ], "topics": [ "contingent-capital", "compliance", "consensus-and-security", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:1998455-017", "url": "https://wulfkaal.github.io/claims/1998455-017", "family": "moral-hazard-and-bailout-expectation", "name": "moral-reasoning-crowd-out", "claim": "Contingent capital rules could contribute to overriding the moral reasoning of decision makers, in which case contingent capital would actually increase, not reduce, risk incentives for institutions that are too big to fail.", "conditions": [ "where decision makers operate under an illusion of heightened protection", "where the underlying contingent capital design is flawed" ], "topics": [ "contingent-capital", "risk-and-incentives", "systemic-risk" ] }, { "id": "kaal:claim:1998455-018", "url": "https://wulfkaal.github.io/claims/1998455-018", "family": "moral-hazard-and-bailout-expectation", "name": "governance-controls-ineffective-in-sifis", "claim": "Regular corporate governance controls may not work in systemically important financial institutions, because those institutions are considered too big to fail and their leaders, anticipating a bailout commitment, are incentivized to shift their risk preferences upwards.", "conditions": [ "where the institution is treated as too big to fail and a bailout is anticipated" ], "topics": [ "governance-design", "corporate-governance", "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:1998455-019", "url": "https://wulfkaal.github.io/claims/1998455-019", "family": "moral-hazard-and-bailout-expectation", "name": "risk-incentive-reinforcement", "claim": "Switching to contingent capital financing could reinforce rather than dampen risk incentives, and these distorted risk incentives are a drawback of contingent capital issuances.", "conditions": [ "where the issuing institution is already treated as too big to fail", "the author notes these drawbacks are unlikely to materialize in the near term given the nascent market" ], "topics": [ "contingent-capital", "risk-and-incentives", "systemic-risk" ] }, { "id": "kaal:claim:1998455-020", "url": "https://wulfkaal.github.io/claims/1998455-020", "family": "systemic-risk-transmission", "name": "ccs-cross-holdings", "claim": "A mandatory contingent capital issuance regime induces institutions to buy their competitors' securities to satisfy regulatory obligations rather than for economic reasons, and the resulting cross holdings among systemically important institutions undermine the ability of contingent capital to limit systemic risk and contagion.", "conditions": [ "under a regime requiring mandatory CCS issuance", "where SIFIs are permitted to purchase each other's CCS" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:1998455-021", "url": "https://wulfkaal.github.io/claims/1998455-021", "family": "governance-participation-collapse", "name": "reciprocal-voting-passivity", "claim": "Where institutions hold each other's contingent capital and share similar risk profiles, they will be hesitant after conversion to vote for necessary organizational changes at a competitor or otherwise exercise their voting rights, because they are similarly exposed and may face reciprocal voting power.", "conditions": [ "where SIFIs hold similar risk profiles and CCS positions in similarly exposed entities", "especially where cross holdings are reciprocal" ], "topics": [ "governance-design", "corporate-governance", "systemic-risk" ] }, { "id": "kaal:claim:1998455-022", "url": "https://wulfkaal.github.io/claims/1998455-022", "family": "agency-cost-and-managerial-opportunism", "name": "adversarial-competitor-voting", "claim": "Absent cross holdings, the opposite conflict arises: institutions holding a competitor's converted contingent capital could be tempted to exercise their voting rights against the interests of that competitor.", "conditions": [ "where a SIFI holds a competitor's CCS without a reciprocal position", "after a conversion to equity has been triggered" ], "topics": [ "governance-design", "contingent-capital", "corporate-governance" ] }, { "id": "kaal:claim:1998455-029", "url": "https://wulfkaal.github.io/claims/1998455-029", "family": "trigger-design-failure", "name": "private-ordering-welfare-shortfall", "claim": "The social welfare maximization potential of contingent capital securities is lower if their design features are left entirely to private ordering, because private parties do not necessarily structure those features with a view toward the common good, the avoidance of future bailouts, or the limitation of systemic risk and contagion.", "conditions": [ "where regulators leave CCS design features entirely to industry groups and private parties" ], "topics": [ "risk-and-incentives", "contingent-capital", "dynamic-regulation" ] }, { "id": "kaal:claim:1998455-030", "url": "https://wulfkaal.github.io/claims/1998455-030", "family": "fraud-and-misconduct", "name": "moral-compartmentalization", "claim": "Under strong institutional and cultural forces, decision makers in financial institutions tend to compartmentalize their lives and disconnect their moral reasoning from their conduct in the workplace, so that even a leader with strong personal values can engage in questionable conduct.", "conditions": [ "where industry, institutional and peer pressure shape decision making" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:1998455-036", "url": "https://wulfkaal.github.io/claims/1998455-036", "family": "systemic-risk-transmission", "name": "central-bank-ccs-purchases", "claim": "If central banks were to purchase contingent capital securities issued by systemically important institutions in the primary or secondary market as part of monetary policy, the prospect of internalizing bank failure costs would be undermined, and primary market purchases could also undermine market participants' confidence in these instruments.", "conditions": [ "where central banks are permitted to purchase CCS issued by SIFIs" ], "topics": [ "systemic-risk", "contingent-capital", "tokenomics" ] }, { "id": "kaal:claim:1998455-037", "url": "https://wulfkaal.github.io/claims/1998455-037", "family": "systemic-risk-transmission", "name": "correlated-risk-from-central-bank-purchases", "claim": "Combining the existing prioritization of bailouts for systemically important institutions with central bank purchases of their contingent capital in a given jurisdiction would further incentivize those institutions to adopt similar risk profiles and correlate their risks.", "conditions": [ "in a jurisdiction where both bailout prioritization and central bank CCS purchases occur" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:1998455-039", "url": "https://wulfkaal.github.io/claims/1998455-039", "family": "moral-hazard-and-bailout-expectation", "name": "retroactive-charge-legitimizes-bailout", "claim": "An outright retroactive charge for government subsidies or for actions taken by regulators could backfire, because it would legitimize the bailout and perpetuate its socially suboptimal consequences.", "conditions": [ "where the counter-subsidy takes the form of a retroactive charge on bailout recipients" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-001", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-001", "family": "enforcement-gap", "name": "signalling failure of an unreachable liability standard", "claim": "The nearly insurmountable standard for liability in oversight cases in the United States undermines the signalling of the expected standard of conduct, and this could have long-term implications for American corporate law.", "conditions": [ "United States, Delaware corporate law", "oversight or duty to monitor claims" ], "topics": [ "corporate-governance", "law-and-legal-systems", "governance-design" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-003", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-003", "family": "board-and-oversight-failure", "name": "guidance vacuum from an incoherent oversight doctrine", "claim": "Without a workable duty of oversight, corporate directors who seek to comply with the oversight duty lack meaningful guidance about the conduct expected of them.", "conditions": [ "doctrine of oversight remains immature and incoherent" ], "topics": [ "corporate-governance", "law-and-legal-systems", "governance-design" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-004", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-004", "family": "board-and-oversight-failure", "name": "capacity limits of part-time outside directors", "claim": "Because directors serve part-time as outsiders, it is unreasonable to expect them to have the knowledge, capacity, and expertise needed to monitor effectively the business affairs of large and increasingly complex corporations.", "conditions": [ "large and complex modern corporations", "outside directors serving part time" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-008", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-008", "family": "enforcement-gap", "name": "signal undercut by unattainable liability threshold", "claim": "Delaware's signalling of expected conduct is undermined when the state simultaneously imposes a near insurmountable standard for liability in cases involving breaches of the duty of oversight.", "conditions": [ "Delaware as the signalling jurisdiction", "oversight breach claims" ], "topics": [ "corporate-governance", "law-and-legal-systems" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-010", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-010", "family": "board-and-oversight-failure", "name": "under-informed directors take excessive risk", "claim": "Directors who are inadequately informed about the expected standard of conduct will underestimate their personal liability exposure and engage in riskier behavior than is desirable for the company itself.", "conditions": [ "directors depend on counsel for fiduciary duty guidance" ], "topics": [ "risk-and-incentives", "corporate-governance", "law-and-legal-systems", "disclosure", "governance-design" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-022", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-022", "family": "board-and-oversight-failure", "name": "liability increase insufficient to cure oversight limits", "claim": "Increased liability is no panacea and cannot alone adequately address the central shortcomings of the duty of oversight and of corporate governance in the United States, because heightened liability does not give part-time outside directors the capacity to monitor complex corporations.", "conditions": [ "large and increasingly complex corporations", "directors serving part time as outsiders" ], "topics": [ "law-and-legal-systems", "corporate-governance", "governance-design" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-023", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-023", "family": "rule-obsolescence-and-ossification", "name": "path dependency blocking liability reform", "claim": "Cost increases and path dependencies may make it nearly impossible to relax the close to insurmountable standard for liability in oversight cases.", "conditions": [ "United States corporate law", "existing liability regime already entrenched" ], "topics": [ "law-and-legal-systems", "corporate-governance" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-024", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-024", "family": "board-and-oversight-failure", "name": "failure of oversight enhancement as a governance strategy", "claim": "The author endorses the conclusion that attempts to enhance oversight in the United States may fail and that emphasizing improved oversight as a means of enhancing corporate governance could be ill-advised.", "conditions": [ "United States corporate governance" ], "topics": [ "corporate-governance", "governance-design" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-026", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-026", "family": "regulatory-lag", "name": "crisis driven rulemaking producing suboptimal governance", "claim": "Governance adjustments made through stable rules in reaction to a systemic shock can result in suboptimal governance outcomes, market volatility, and economic loss.", "conditions": [ "reforms enacted in the immediate aftermath of a crisis" ], "topics": [ "regulatory-failure", "economics" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-027", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-027", "family": "rule-obsolescence-and-ossification", "name": "reforms fitted only to the crisis at hand", "claim": "Governance adjustments are often enacted merely to address the problem perceived in the given market environment and the then existing economic conditions, without regard to possible future developments.", "conditions": [ "crisis driven governance reform" ], "topics": [ "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-028", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-028", "family": "regulatory-lag", "name": "regulatory sine curve of enactment and dilution", "claim": "Following enactment, governance adjustments are often later repealed or diluted, and anticipation of future developments plays no significant role in the top down approach to regulation.", "conditions": [ "top down regulatory approach" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-029", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-029", "family": "rule-obsolescence-and-ossification", "name": "obsolescence of stable rules in evolving markets", "claim": "The economic conditions and the corresponding requirements for optimal and stable rules are constantly evolving, so rules fixed at one moment lose their fit over time.", "conditions": [ "evolving market environments" ], "topics": [ "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:kaal-2013-acomparativeperspectiveo-035", "url": "https://wulfkaal.github.io/claims/kaal-2013-acomparativeperspectiveo-035", "family": "board-and-oversight-failure", "name": "insufficiency of court decisions and stable rules for oversight", "claim": "Using court decisions and stable rules to make the oversight role more robust could be insufficient, whereas contractual and quasi law forms of dynamic governance could help improve the duty of oversight.", "conditions": [ "directors are outsiders working part time", "increasing complexity of modern corporations" ], "topics": [ "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:2273857-001", "url": "https://wulfkaal.github.io/claims/2273857-001", "family": "regulatory-lag", "name": "post-crisis rule retraction cycle", "claim": "Governance adjustments enacted via stable rules in reaction to financial crises are inevitably followed by relaxation, revision, and retraction of those rules.", "conditions": [ "applies to rules enacted as a reaction to financial crises" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2273857-006", "url": "https://wulfkaal.github.io/claims/2273857-006", "family": "research-design-limitation", "name": "scholarly neglect of regulatory cyclicality", "claim": "The existing literature on financial regulation has not adequately addressed the underlying causes and consequences of cyclical regulation.", "conditions": [], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:2273857-007", "url": "https://wulfkaal.github.io/claims/2273857-007", "family": "regulatory-lag", "name": "absence of anticipatory rulemaking", "claim": "Initiatives for sustainable financial regulation are largely missing, because anticipation of unknown future contingencies and preemption of possible future crises play no significant role either in the current regulatory framework or in the literature on financial regulation.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2273857-010", "url": "https://wulfkaal.github.io/claims/2273857-010", "family": "rule-obsolescence-and-ossification", "name": "cost of perpetual rule revision", "claim": "A regulatory framework that relies exclusively on stable and presumptively optimal rules cannot adequately address future challenges, and the amendments, revisions, and retractions such a framework generates create substantial transaction costs and uncertainty.", "conditions": [ "framework relies exclusively on stable rules" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2273857-011", "url": "https://wulfkaal.github.io/claims/2273857-011", "family": "rule-obsolescence-and-ossification", "name": "reactive rule obsolescence", "claim": "Rules established in reaction to financial crises inevitably fail to soften, curtail, or preempt the effects of financial crises, because reactive rules are tailored to the economic and regulatory issues existing at the time of enactment and ignore possible future contingencies.", "conditions": [ "rules enacted reactively after a crisis" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:2273857-016", "url": "https://wulfkaal.github.io/claims/2273857-016", "family": "regulatory-lag", "name": "shock conditions for rulemaking", "claim": "The aftermath of a financial crisis creates shock conditions that constitute a suboptimal environment for rulemaking.", "conditions": [ "period immediately following a financial crisis" ], "topics": [ "dynamic-regulation", "regulatory-failure", "economics" ] }, { "id": "kaal:claim:2273857-023", "url": "https://wulfkaal.github.io/claims/2273857-023", "family": "enforcement-gap", "name": "post-crisis oversight decay", "claim": "Once crises recede, regulatory oversight diminishes as societies and markets return to their prior equilibrium, and this dichotomy causes reform legislation and deregulatory legislation to be enacted in quick succession.", "conditions": [ "after markets return to normalcy" ], "topics": [ "institutional-design", "economics" ] }, { "id": "kaal:claim:2273857-026", "url": "https://wulfkaal.github.io/claims/2273857-026", "family": "rule-obsolescence-and-ossification", "name": "cyclical rulemaking cost", "claim": "The cyclical nature of public rulemaking under incomplete information and bounded rationality is costly and produces suboptimal regulatory outcomes with long-term implications for financial markets and the economy.", "conditions": [ "rulemaking conducted cyclically under incomplete information" ], "topics": [ "risk-and-incentives", "regulatory-failure" ] }, { "id": "kaal:claim:2273857-027", "url": "https://wulfkaal.github.io/claims/2273857-027", "family": "regulatory-lag", "name": "systemic risk unaddressable by cyclical rules", "claim": "Regulatory cycles make it nearly impossible to address financial regulatory concerns adequately, and systemic risk in particular is difficult to address if rules are enacted in a cyclical and reactive format.", "conditions": [ "rules enacted cyclically and reactively" ], "topics": [ "systemic-risk", "risk-and-incentives", "regulatory-failure" ] }, { "id": "kaal:claim:2273857-030", "url": "https://wulfkaal.github.io/claims/2273857-030", "family": "enforcement-gap", "name": "regulator commitment failure", "claim": "In the absence of crises the intensity of regulation diminishes, because regulators cannot commit to long-term regulatory strategies and instead fall back on private strategies such as self-regulation to overcome resource constraints.", "conditions": [ "non-crisis periods", "regulators facing resource constraints" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2273857-031", "url": "https://wulfkaal.github.io/claims/2273857-031", "family": "rule-obsolescence-and-ossification", "name": "inevitable regulatory contraction", "claim": "The regulatory expansion that follows crises inevitably leads to amendments, revisions, and retractions of the previously established rules.", "conditions": [ "rules created during post-crisis regulatory expansion" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2273857-032", "url": "https://wulfkaal.github.io/claims/2273857-032", "family": "enforcement-gap", "name": "non-enforcement of controversial provisions", "claim": "Both the Sarbanes-Oxley Act and the Dodd-Frank Act were amended and revised, and some of their most controversial provisions were never enforced.", "conditions": [ "United States federal securities and financial regulation" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2273857-033", "url": "https://wulfkaal.github.io/claims/2273857-033", "family": "enforcement-gap", "name": "de facto retraction through non-enforcement", "claim": "Section 307 of Sarbanes-Oxley, the attorney up-the-ladder reporting mandate, has gone effectively unenforced: there is no evidence that the SEC ever charged an attorney with a violation of that section, even though lawyers were inevitably aware of executive misconduct in numerous instances.", "conditions": [ "SEC enforcement practice under Section 307 of SOX" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2273857-034", "url": "https://wulfkaal.github.io/claims/2273857-034", "family": "regulatory-capture-and-incumbent-advantage", "name": "regulatory abdication to private interpretation", "claim": "The SEC never actually interpreted Section 402 of Sarbanes-Oxley and instead merely acquiesced in a law firm memorandum interpreting the provision, so private entities in effect fulfilled the SEC's statutory mandate.", "conditions": [ "Section 402 of SOX, the prohibition on issuer credit to directors and officers" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2273857-035", "url": "https://wulfkaal.github.io/claims/2273857-035", "family": "enforcement-gap", "name": "informal retraction of politically motivated rules", "claim": "The SEC's failure to interpret Section 402 of Sarbanes-Oxley, while not a formal retraction, shows that Section 402 is another instance of politically motivated rulemaking that later has to be scaled back.", "conditions": [ "rules enacted under post-crisis political pressure" ], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2273857-036", "url": "https://wulfkaal.github.io/claims/2273857-036", "family": "regulatory-lag", "name": "retraction of politically expedient rules", "claim": "The partial repeal of Section 404 of Sarbanes-Oxley through the Dodd-Frank Act illustrates that broad rules enacted during times of political expediency are often later retracted.", "conditions": [ "broad rules enacted under political expediency" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2273857-038", "url": "https://wulfkaal.github.io/claims/2273857-038", "family": "regulatory-lag", "name": "post-crisis easing of constraints", "claim": "The Jumpstart Our Business Startups Act exemptions for emerging growth companies from Section 404(b), from say-on-pay, and from pay ratio disclosure illustrate the post-crisis easing of constraints imposed on the financial services industry.", "conditions": [ "emerging growth companies under the JOBS Act" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2273857-039", "url": "https://wulfkaal.github.io/claims/2273857-039", "family": "regulatory-lag", "name": "phase mismatch between regulation and crises", "claim": "In the current regulatory environment the relationship between the regulatory sine curve and the common elements of banking and financial crises is suboptimal, because regulatory activity only begins its ascent once bank failures are already increasing.", "conditions": [ "current regulatory framework without dynamic elements" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:2273857-045", "url": "https://wulfkaal.github.io/claims/2273857-045", "family": "research-design-limitation", "name": "scholarly neglect of dynamic elements", "claim": "Although some regulators use the term dynamic regulation in the context of SEC exemptive powers, the literature on financial regulation mostly ignores dynamic elements for regulation.", "conditions": [], "topics": [ "dynamic-regulation", "securities-law", "citation-and-knowledge" ] }, { "id": "kaal:claim:2273857-053", "url": "https://wulfkaal.github.io/claims/2273857-053", "family": "regulatory-lag", "name": "regulatory timing failure", "claim": "The core problem for financial regulation is timing: governance improvements are not enacted before crises when they are most needed, because the collective action problem makes financial regulation mostly reactive and tied to business cycles.", "conditions": [], "topics": [ "institutional-design", "regulatory-failure" ] }, { "id": "kaal:claim:2273857-054", "url": "https://wulfkaal.github.io/claims/2273857-054", "family": "supervisory-capacity-gap", "name": "centralized information reliance", "claim": "Financial rulemaking often relies on centralized rather than decentralized information, which is a further defect of the existing framework.", "conditions": [], "topics": [ "decentralization", "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2273857-060", "url": "https://wulfkaal.github.io/claims/2273857-060", "family": "trigger-design-failure", "name": "CoCo trigger design failure", "claim": "Contingent capital triggers have significant design limitations: accounting based triggers may not respond adequately in financial crises because they are updated too infrequently, while market based triggers are susceptible to market manipulation and bank runs.", "conditions": [ "accounting based institution specific triggers", "market based institution specific triggers" ], "topics": [ "contingent-capital", "economics", "regulatory-failure" ] }, { "id": "kaal:claim:2273857-061", "url": "https://wulfkaal.github.io/claims/2273857-061", "family": "supervisory-capacity-gap", "name": "prosecutorial expertise gap", "claim": "Prosecutors negotiating deferred prosecution agreements may lack the expertise needed to negotiate high level corporate governance changes such as personnel changes and internal corporate and compliance procedures.", "conditions": [ "deferred prosecution agreements negotiated by prosecutors" ], "topics": [ "compliance", "governance-design", "corporate-governance", "regulatory-failure" ] }, { "id": "kaal:claim:2267560-004", "url": "https://wulfkaal.github.io/claims/2267560-004", "family": "regulatory-lag", "name": "static rulemaking infrastructure outpaced by change", "claim": "The institutional infrastructure for rulemaking was designed for a relatively stable society and stable economic and market environments, and it therefore fails to keep pace with rapidly evolving and increasingly complex modern markets.", "conditions": [ "rapid societal, market, and financial innovation" ], "topics": [ "institutional-design", "dynamic-regulation" ] }, { "id": "kaal:claim:2267560-005", "url": "https://wulfkaal.github.io/claims/2267560-005", "family": "regulatory-lag", "name": "suboptimal rulemaking under incomplete information", "claim": "Rulemaking conducted under conditions of incomplete information and bounded rationality produces suboptimal outcomes that require costly rule revisions, retractions, and additional rulemaking.", "conditions": [ "information is systematically incomplete", "actors are boundedly rational" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2267560-006", "url": "https://wulfkaal.github.io/claims/2267560-006", "family": "regulatory-lag", "name": "ex-post information acquisition in trial-and-error rulemaking", "claim": "Trial-and-error rulemaking is suboptimal because participating actors acquire the necessary information ex-post, only after rules have turned out to be suboptimal, rather than increasing the availability of relevant information ex-ante.", "conditions": [], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2267560-009", "url": "https://wulfkaal.github.io/claims/2267560-009", "family": "rule-obsolescence-and-ossification", "name": "self-reinforcing suboptimal institutional arrangements", "claim": "Rules with suboptimal characteristics are themselves the product of institutional arrangements and reinforce those suboptimal institutional arrangements and rulemaking processes, creating a self-perpetuating feedback loop.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2267560-010", "url": "https://wulfkaal.github.io/claims/2267560-010", "family": "rule-obsolescence-and-ossification", "name": "decay of optimal governance solutions over time", "claim": "Even institutional arrangements that produce optimal governance solutions generate solutions that become suboptimal over time, necessitating rule revision, updating, and revocation.", "conditions": [ "passage of time and changing circumstances" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2267560-011", "url": "https://wulfkaal.github.io/claims/2267560-011", "family": "rule-obsolescence-and-ossification", "name": "non-adaptable rules entrench suboptimal institutions", "claim": "Rules that lack adaptability to future states of the world reinforce the very institutions and processes that produce suboptimal outcomes.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2267560-014", "url": "https://wulfkaal.github.io/claims/2267560-014", "family": "collective-action-and-coordination-failure", "name": "unplanned planning under holistic social engineering", "claim": "The centralized planning of the holistic social engineer forces him to fall back on piecemeal improvisation and to engage in unintended actions, producing the phenomenon of unplanned planning.", "conditions": [ "holistic or utopian approach to regulatory reform" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:2267560-019", "url": "https://wulfkaal.github.io/claims/2267560-019", "family": "rule-obsolescence-and-ossification", "name": "instability of optimal regulatory solutions", "claim": "NIE acknowledges that transaction costs, imperfect information, and bounded rationality influence the rulemaking process, with the consequence that even optimal solutions to regulatory problems become unstable and suboptimal over time.", "conditions": [], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:2267560-020", "url": "https://wulfkaal.github.io/claims/2267560-020", "family": "rule-obsolescence-and-ossification", "name": "retrospective-only learning in rulemaking", "claim": "In the conventional NIE learning process, the requirements for rules and their adaptability to future states become clear only after stable and presumptively optimal rules have already emerged as suboptimal, so anticipation of future developments plays no role and learning is confined to learning from mistakes.", "conditions": [ "conventional, non-dynamic learning process" ], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2267560-025", "url": "https://wulfkaal.github.io/claims/2267560-025", "family": "information-asymmetry", "name": "public rulemaker information deficit", "claim": "Public rulemakers rely on stable and presumptively optimal rules because they lack necessary, comparable, decentralized, and institution-specific information.", "conditions": [], "topics": [ "dynamic-regulation", "decentralization" ] }, { "id": "kaal:claim:2267560-026", "url": "https://wulfkaal.github.io/claims/2267560-026", "family": "regulatory-lag", "name": "lagging congressional studies", "claim": "Congressional studies do not remedy regulators' informational disadvantage because they mostly follow after Congress has already identified concerns and may not provide real-time relevant information before regulatory action is necessary.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2267560-033", "url": "https://wulfkaal.github.io/claims/2267560-033", "family": "agency-cost-and-managerial-opportunism", "name": "failure of comprehensive contracting", "claim": "Opportunistic behavior, transaction costs, and bounded rationality undermine comprehensive contracting, so contracting parties do not specify all of their respective obligations ex-ante because anticipating all contingencies is too costly.", "conditions": [], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:2267560-035", "url": "https://wulfkaal.github.io/claims/2267560-035", "family": "rule-obsolescence-and-ossification", "name": "cost and infeasibility of postponed rulemaking", "claim": "The learning process in incomplete contract theory can be improved because experimentation with different rules, rule revision, and additional rulemaking create significant transaction costs, and postponing rulemaking until sufficient information is available may not always be possible or desirable.", "conditions": [], "topics": [ "economics" ] }, { "id": "kaal:claim:2267560-036", "url": "https://wulfkaal.github.io/claims/2267560-036", "family": "regulatory-lag", "name": "politically timed rather than information timed rulemaking", "claim": "Rules, especially in financial regulation, are mostly enacted when it is politically opportune rather than when appropriate information for rulemaking is available.", "conditions": [ "financial regulation in particular" ], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2267560-037", "url": "https://wulfkaal.github.io/claims/2267560-037", "family": "regulatory-capture-and-incumbent-advantage", "name": "special interest dominance in rulemaking", "claim": "A classic collective action problem controls rulemaking: smaller and better organized special interest groups usually dominate latent groups such as dispersed investors in the competition to shape rules.", "conditions": [], "topics": [ "institutional-design", "regulatory-failure", "dynamic-regulation" ] }, { "id": "kaal:claim:2267560-042", "url": "https://wulfkaal.github.io/claims/2267560-042", "family": "regulatory-lag", "name": "illusory information sufficiency from path dependence", "claim": "Assessing the sufficiency of information by rulemakers alone can lead to suboptimal results because path dependencies may lead decision-makers to believe they control sufficient information for rulemaking when in fact they do not.", "conditions": [ "sufficiency of information assessed by rulemakers alone" ], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2267560-043", "url": "https://wulfkaal.github.io/claims/2267560-043", "family": "measurement-and-metric-failure", "name": "no point-in-time optimum for feedback generated information", "claim": "The availability of information generated through the dynamic feedback process cannot be optimized at any given point in time, because the feedback effect is intended to perpetually reinforce itself.", "conditions": [], "topics": [ "institutional-design", "dynamic-regulation" ] }, { "id": "kaal:claim:2267560-044", "url": "https://wulfkaal.github.io/claims/2267560-044", "family": "agency-cost-and-managerial-opportunism", "name": "inability to adapt to unforeseen contingencies", "claim": "Parties in the incomplete contract model cannot adapt to unforeseen contingencies because they cannot specify ex-ante how those contingencies will be met, and transactions may be foregone or become too expensive if participants cannot rely on efficient and equitable adaptation.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2348463-002", "url": "https://wulfkaal.github.io/claims/2348463-002", "family": "disclosure-ineffectiveness", "name": "marginal deterrence from disclosure threat", "claim": "Under the regulatory framework in place at the time of writing, the threat that hedge funds' systemic risk filings could be publicly disclosed through the bankruptcy process will affect hedge funds' tactics and their role in distressed investing only marginally.", "conditions": [ "current regulatory framework as of 2013 to 2014", "Form PF disclosures not yet standardized by the SEC" ], "topics": [ "systemic-risk", "disclosure", "risk-and-incentives", "private-funds" ] }, { "id": "kaal:claim:2348463-007", "url": "https://wulfkaal.github.io/claims/2348463-007", "family": "data-quality-and-comparability", "name": "inconsistent industry terminology in Form PF", "claim": "The SEC has not standardized the disclosures required in Form PF, and there is evidence that Form PF requirements rest on an inconsistent use of industry terms, which can in turn produce inconsistent and contradictory data reporting.", "conditions": [ "Form PF as promulgated and in effect at the time of writing" ], "topics": [ "private-funds", "systemic-risk", "disclosure", "risk-and-incentives" ] }, { "id": "kaal:claim:2348463-010", "url": "https://wulfkaal.github.io/claims/2348463-010", "family": "enforcement-gap", "name": "inconsistent judicial application of old Rule 2019", "claim": "Old Bankruptcy Rule 2019 was applied inconsistently in practice, with courts interpreting it with a high degree of variability both across and within jurisdictions.", "conditions": [ "period before the 2011 revision of Rule 2019" ], "topics": [ "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:2348463-012", "url": "https://wulfkaal.github.io/claims/2348463-012", "family": "definitional-ambiguity", "name": "residual uncertainty after rule revision", "claim": "Revised Rule 2019 clarifies some of the ambiguities of the old rule, but uncertainty and confusion about its application remain inevitable.", "conditions": [ "Revised Rule 2019 as effective December 1, 2011" ], "topics": [ "systemic-risk", "law-and-legal-systems", "disclosure" ] }, { "id": "kaal:claim:2348463-014", "url": "https://wulfkaal.github.io/claims/2348463-014", "family": "definitional-ambiguity", "name": "ambiguous definition of represents", "claim": "The definition of representation in Revised Rule 2019 leaves it unclear whether attorneys who merely monitor a bankruptcy case for a client, without soliciting or advocating a position before the court, represent those clients for disclosure purposes.", "conditions": [ "attorneys retained to monitor rather than advocate", "Revised Rule 2019 definitions of represents and disclosable economic interest" ], "topics": [ "systemic-risk", "disclosure" ] }, { "id": "kaal:claim:2348463-019", "url": "https://wulfkaal.github.io/claims/2348463-019", "family": "data-quality-and-comparability", "name": "stale filed disclosure data", "claim": "Under both the bankruptcy and the systemic risk disclosure regimes, filed data carries a serious risk of being out of date and less accurate at the time it is analyzed than when it was disclosed, partly because of the lag needed to collect data before filing.", "conditions": [ "any analysis of data filed under Revised Rule 2019 or Form PF" ], "topics": [ "private-funds", "systemic-risk", "disclosure" ] }, { "id": "kaal:claim:2348463-022", "url": "https://wulfkaal.github.io/claims/2348463-022", "family": "data-quality-and-comparability", "name": "unreliable systemic risk data", "claim": "Form PF disclosures have not been standardized, and anecdotal evidence indicates that the SEC and the FSOC may be working with contradictory, misleading, inaccurate, and incomplete systemic risk data.", "conditions": [ "Form PF filings made under the initial implementation stages" ], "topics": [ "private-funds", "systemic-risk", "research-methods", "risk-and-incentives" ] }, { "id": "kaal:claim:2348463-023", "url": "https://wulfkaal.github.io/claims/2348463-023", "family": "enforcement-gap", "name": "non enforcement of Form PF obligations", "claim": "Because the SEC is still working out the appropriate use of Form PF and still improving the form and its instructions, its enforcement division is unlikely to open investigations into alleged misreporting or failures to report.", "conditions": [ "period while Form PF remains unstandardized" ], "topics": [ "private-funds", "securities-law", "compliance", "risk-and-incentives" ] }, { "id": "kaal:claim:2348463-025", "url": "https://wulfkaal.github.io/claims/2348463-025", "family": "disclosure-ineffectiveness", "name": "disclosure rule drives parties into the shadows", "claim": "Revised Rule 2019 may in effect produce less overall disclosure of creditor activities in the bankruptcy process and push bankruptcy creditors into the shadows, the opposite of the transparency the revision sought.", "conditions": [ "if the rule reaches only parties who appear publicly in court or serve on official committees", "groups that negotiate a plan without appearing in court" ], "topics": [ "systemic-risk", "disclosure" ] }, { "id": "kaal:claim:2348463-028", "url": "https://wulfkaal.github.io/claims/2348463-028", "family": "disclosure-ineffectiveness", "name": "generic disclosure mismatch with bankruptcy needs", "claim": "Form PF disclosures in their existing format are too generic to be appropriately applied in bankruptcy, but accumulated experience with the form and standardization of its items could yield less generic disclosures that become increasingly relevant to bankruptcy over time.", "conditions": [ "Form PF as designed at the time of writing", "assumes future SEC standardization" ], "topics": [ "private-funds", "systemic-risk", "disclosure" ] }, { "id": "kaal:claim:2348463-032", "url": "https://wulfkaal.github.io/claims/2348463-032", "family": "disclosure-cost-and-burden", "name": "judge only access invites access demands", "claim": "Restricting Form PF data to the eyes of the bankruptcy judge alone would create problems in the litigation process, because opposing parties may demand access to the same information.", "conditions": [ "judge-only access design" ], "topics": [ "law-and-legal-systems", "disclosure" ] }, { "id": "kaal:claim:2348463-033", "url": "https://wulfkaal.github.io/claims/2348463-033", "family": "data-quality-and-comparability", "name": "generic data fails to reveal investor motives", "claim": "Because systemic risk disclosures are far more generic and are not tailored to any specific distressed investment, importing them into bankruptcy would improve only marginally the information available about the motives of distressed securities investors.", "conditions": [ "Form PF disclosures in their current generic form" ], "topics": [ "private-funds", "systemic-risk", "disclosure" ] }, { "id": "kaal:claim:2348463-034", "url": "https://wulfkaal.github.io/claims/2348463-034", "family": "disclosure-ineffectiveness", "name": "disclosure fails to curb influence or misuse", "claim": "Systemic risk disclosures in the bankruptcy process would also not significantly change or limit hedge funds' influence in that process, nor would they protect against the misuse of confidential information.", "conditions": [ "Form PF disclosures in their current form" ], "topics": [ "private-funds", "disclosure", "systemic-risk" ] }, { "id": "kaal:claim:2348463-035", "url": "https://wulfkaal.github.io/claims/2348463-035", "family": "disclosure-cost-and-burden", "name": "strategy replication through disclosure", "claim": "Increased disclosure obligations let so-called pilot fish emulate hedge funds' investment strategies and positions, which makes those positions more expensive to build and strips systematic bargaining strength from the negotiation process.", "conditions": [ "markets where competitors can observe and copy disclosed positions", "illiquid distressed debt markets" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:2348463-036", "url": "https://wulfkaal.github.io/claims/2348463-036", "family": "disclosure-cost-and-burden", "name": "destruction of restructuring balance of power", "claim": "There is a real risk that increased disclosure through Form PF would destroy the balance of power in the restructuring process.", "conditions": [ "if Form PF data were introduced into the bankruptcy process" ], "topics": [ "private-funds", "disclosure" ] }, { "id": "kaal:claim:2348463-037", "url": "https://wulfkaal.github.io/claims/2348463-037", "family": "supervisory-capacity-gap", "name": "evaluative capacity gap for systemic risk data", "claim": "Bankruptcy judges and the parties to a bankruptcy case may be unable to adequately evaluate Form PF data pertaining to a creditor, which limits the usefulness of that data in bankruptcy.", "conditions": [ "Form PF data as currently structured", "SEC and FSOC themselves have not established how to evaluate the data" ], "topics": [ "private-funds", "systemic-risk" ] }, { "id": "kaal:claim:2348463-038", "url": "https://wulfkaal.github.io/claims/2348463-038", "family": "data-quality-and-comparability", "name": "generic and outdated data yields no improvement", "claim": "Using generic and possibly outdated systemic risk data in the bankruptcy process would not improve hedge funds' bankruptcy practices in the near term.", "conditions": [ "near term, before standardization of Form PF", "Form PF information can be out of date immediately after filing" ], "topics": [ "private-funds", "systemic-risk" ] }, { "id": "kaal:claim:2337268-015", "url": "https://wulfkaal.github.io/claims/2337268-015", "family": "regulatory-arbitrage", "name": "exemption structuring around client count thresholds", "claim": "The pre Dodd-Frank exemption for advisers with fewer than fifteen clients failed as a regulatory boundary because most hedge fund advisers deliberately designed their operations and legal structures to fit within it and thereby escape SEC registration and supervision.", "conditions": [ "hedge fund advisers before the enactment of Title IV in 2010" ], "topics": [ "securities-law", "regulatory-failure", "private-funds" ] }, { "id": "kaal:claim:2337268-040", "url": "https://wulfkaal.github.io/claims/2337268-040", "family": "enforcement-gap", "name": "no implied private right of action under the IAA", "claim": "Enforcement of the IAA's prohibited transactions provision is limited because the Supreme Court in Transamerica Mortgage Advisors, Inc. v. Lewis held that a violation of that provision does not support an implied private right of action.", "conditions": [ "violations of the IAA prohibited transactions provision" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2337268-041", "url": "https://wulfkaal.github.io/claims/2337268-041", "family": "enforcement-gap", "name": "reliance on public enforcement only", "claim": "With private enforcement foreclosed, enforcement of the IAA's prohibited transactions provision depends entirely on injunctive relief, administrative sanctions, and criminal prosecution, all of which require public actors to move.", "conditions": [ "enforcement against violations of the prohibited transactions provision" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2317580-001", "url": "https://wulfkaal.github.io/claims/2317580-001", "family": "definitional-ambiguity", "name": "amorphous fiduciary duty doctrine", "claim": "The traditional fiduciary duty doctrine is one of the most amorphous concepts in the law, and its indeterminacy produces confusion, inconsistency, and cases with problematic outcomes.", "conditions": [ "traditional judicially developed fiduciary duty doctrine" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:2317580-002", "url": "https://wulfkaal.github.io/claims/2317580-002", "family": "enforcement-gap", "name": "unreachable oversight liability threshold", "claim": "The liability standard for breach of fiduciary duty is set so high that courts rarely find directors in violation, because only a board's sustained or systematic failure to exercise oversight can produce liability.", "conditions": [ "director oversight liability under Caremark and its progeny" ], "topics": [ "corporate-governance", "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:2317580-008", "url": "https://wulfkaal.github.io/claims/2317580-008", "family": "definitional-ambiguity", "name": "federal statutes fail to clarify fiduciary duties", "claim": "Sarbanes-Oxley and the Dodd-Frank Act have influenced and shaped fiduciary duties, but they have not necessarily improved or clarified them.", "conditions": [ "federal legislative responses to financial crises" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:2317580-027", "url": "https://wulfkaal.github.io/claims/2317580-027", "family": "board-and-oversight-failure", "name": "pre-CIA immunity for boards in illegal marketing cases", "claim": "Boards are consistently held not liable for their companies' illegal marketing efforts even though federal law prohibits off-label marketing, but a board that certifies compliance with a CIA is certifying that the company properly monitors its sales teams' promotional activities, so CIAs contractually expand the applicable legal standard.", "conditions": [ "off-label marketing cases", "boards subject to CIA certification requirements" ], "topics": [ "economics", "corporate-governance", "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:2317580-030", "url": "https://wulfkaal.github.io/claims/2317580-030", "family": "board-and-oversight-failure", "name": "routine pleading stage dismissal of duty of care claims", "claim": "Outside the CIA context, oversight claims are the most difficult theory in corporation law on which to win judgment, and courts dismiss duty of care cases routinely at the pleading stage.", "conditions": [ "derivative suits alleging lack of oversight", "demand futility pleading requirements" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2317580-037", "url": "https://wulfkaal.github.io/claims/2317580-037", "family": "research-design-limitation", "name": "limited transferability of CIAs beyond health care", "claim": "Because CIAs have so far been used predominantly in the health care industry, and because that industry has a public or quasi-public good character, the application of CIAs outside health care could be limited, and without broader application their impact on corporate law may be limited as well.", "conditions": [ "CIAs concentrated in the health care sector", "industries lacking a public good character" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2389416-010", "url": "https://wulfkaal.github.io/claims/2389416-010", "family": "research-design-limitation", "name": "Literature blind spot on regulation", "claim": "Because hedge funds developed under little or no regulatory supervision before the Dodd-Frank Act, the existing hedge fund performance literature largely fails to assess the implications of hedge fund regulation.", "conditions": [ "pre Dodd-Frank Act hedge fund performance literature" ], "topics": [ "private-funds" ] }, { "id": "kaal:claim:2389416-019", "url": "https://wulfkaal.github.io/claims/2389416-019", "family": "research-design-limitation", "name": "Low explanatory power of linear specification", "claim": "The linear regression models are jointly valid on the F-statistic but their explanatory power measured by R-squared remains very limited, with R-squared values of roughly 0.003 to 0.014.", "conditions": [ "linear models with and without the AUM dummy" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:2389416-029", "url": "https://wulfkaal.github.io/claims/2389416-029", "family": "regulatory-arbitrage", "name": "Threshold gaming to avoid registration", "claim": "The Dodd-Frank Act registration threshold creates incentives strong enough that some advisers opt out of registration and disclosure by strategically changing their AUM size to stay below $150 million.", "conditions": [ "advisers with AUM floating around the $150 million threshold" ], "topics": [ "regulatory-failure", "risk-and-incentives" ] }, { "id": "kaal:claim:2389416-032", "url": "https://wulfkaal.github.io/claims/2389416-032", "family": "research-design-limitation", "name": "Short observation window", "claim": "The study's most important limitation is data availability: the preliminary findings rest on only ten months of hedge fund adviser earnings data.", "conditions": [ "earnings data from January 2012 to October 2012" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-005", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-005", "family": "rule-obsolescence-and-ossification", "name": "decay of presumptively optimal rules", "claim": "Because transaction costs, imperfect information, and bounded rationality shape the rulemaking process, even solutions that are optimal at enactment become unstable and suboptimal over time.", "conditions": [ "rules are enacted as stable and presumptively optimal" ], "topics": [ "economics", "institutional-design", "risk-and-incentives" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-007", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-007", "family": "regulatory-lag", "name": "waiting for sufficient information is not feasible", "claim": "A core tenet of incomplete contract theory, that rulemakers should act only when sufficient information becomes available, is often politically, economically, and practically undesirable or impossible.", "conditions": [], "topics": [ "dynamic-regulation", "economics" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-008", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-008", "family": "plutocratic-capture", "name": "timing mismatch between information and enactment", "claim": "Because rulemaking is subject to regulatory cycles and to a classic collective action problem, rules are generally not enacted at the moment appropriate information for rulemaking becomes available.", "conditions": [], "topics": [ "institutional-design", "dynamic-regulation" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-009", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-009", "family": "rule-obsolescence-and-ossification", "name": "costly and ineffective ex post experimentation", "claim": "Experimentation with different rules under the current framework of stable rulemaking carries substantial costs of rule revision and enactment, and there is evidence that this framework does not protect against systemic shocks and financial crises.", "conditions": [ "current framework of stable and presumptively optimal rules" ], "topics": [ "economics", "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-010", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-010", "family": "regulatory-lag", "name": "false confidence in information sufficiency", "claim": "In the current model of stable rulemaking, path dependencies lead rulemakers to act on a boundedly rational assumption that they already control sufficient information for rulemaking.", "conditions": [ "stable rulemaking without feedback processes" ], "topics": [ "risk-and-incentives", "dynamic-regulation" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-013", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-013", "family": "rule-obsolescence-and-ossification", "name": "self reinforcing stable rule framework", "claim": "The existing framework of stable and presumptively optimal rules is self reinforcing: it perpetuates rulemaking processes that produce stable presumptively optimal rules and therefore keeps generating costly rule revision, updating, and revocation.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-015", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-015", "family": "regulatory-lag", "name": "ex post only information acquisition", "claim": "The trial and error approach to rulemaking structurally prevents rulemakers from obtaining relevant information ex ante, before rules are enacted.", "conditions": [], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-016", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-016", "family": "rule-obsolescence-and-ossification", "name": "shortcomings are internal to the framework", "claim": "The shortcomings of the existing rulemaking framework cannot be adequately addressed from within that framework, because its structure rests on the assumption that rules ought to be stable and presumptively optimal.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-021", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-021", "family": "rule-obsolescence-and-ossification", "name": "reactive backward looking correction", "claim": "Traditional forward looking corporate governance systems adopt backward looking perspectives only after stable and optimal rules have emerged as suboptimal and require replacement or amendment.", "conditions": [ "traditional stable and presumptively optimal rulemaking infrastructure" ], "topics": [ "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-027", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-027", "family": "enforcement-gap", "name": "ineffective preemptive remediation", "claim": "The effectiveness of existing preemptive remedial measures is in question, because the majority of governmental contracts are executed only after those measures have already proved unsuccessful.", "conditions": [], "topics": [ "compliance" ] }, { "id": "kaal:claim:kaal-2014-dynamicregulationviagove-034", "url": "https://wulfkaal.github.io/claims/kaal-2014-dynamicregulationviagove-034", "family": "enforcement-gap", "name": "low success rate of self remediation", "claim": "Preemptive remedial measures have a low success rate, as evidenced by the fact that more than 60 percent of deferred and non prosecution agreements executed between 1993 and 2013 refer to preemptive remedial measures that preceded them.", "conditions": [ "D/NPAs executed between 1993 and 2013" ], "topics": [ "empirical-evidence", "compliance", "institutional-design" ] }, { "id": "kaal:claim:2447306-003", "url": "https://wulfkaal.github.io/claims/2447306-003", "family": "disclosure-cost-and-burden", "name": "undeterminable-counterparty-exposure", "claim": "Form PF's counterparty credit exposure requirement is difficult to satisfy at the source, because the exposure is highly sensitive information that individual fund managers often cannot readily determine.", "conditions": [ "Form PF counterparty credit exposure disclosures" ], "topics": [ "private-funds", "disclosure" ] }, { "id": "kaal:claim:2447306-004", "url": "https://wulfkaal.github.io/claims/2447306-004", "family": "data-quality-and-comparability", "name": "garbage-in-policy-out", "claim": "If advisers' allegations that Form PF disclosures cannot be answered other than by guessing are correct, then the SEC's capacity to evaluate the data is compromised, and regulation built on incomplete and misleading data will itself be questionable.", "conditions": [ "conditional on the accuracy of anecdotal reports from advisers" ], "topics": [ "private-funds", "systemic-risk", "risk-and-incentives", "securities-law" ] }, { "id": "kaal:claim:2447306-006", "url": "https://wulfkaal.github.io/claims/2447306-006", "family": "measurement-and-metric-failure", "name": "opacity-blocks-measurement", "claim": "High quality private fund data is scarce because the industry's entrenched interest in confidentiality combined with decades of regulatory exemption from registration and transparency requirements left no reservoir of comparable disclosure to study.", "conditions": [ "empirical research on the private fund industry" ], "topics": [ "economics", "private-funds", "empirical-evidence", "research-methods" ] }, { "id": "kaal:claim:2447306-007", "url": "https://wulfkaal.github.io/claims/2447306-007", "family": "sample-and-selection-bias", "name": "sample-size-does-not-fix-bias", "claim": "Enlarging the sample does not cure selection bias in non-statistical sampling: a bigger sample neither compensates for the bias of non-statistical techniques nor guarantees that the sample is representative.", "conditions": [ "non-statistical or haphazard sampling techniques" ], "topics": [ "empirical-evidence", "research-methods" ] }, { "id": "kaal:claim:2447306-022", "url": "https://wulfkaal.github.io/claims/2447306-022", "family": "disclosure-cost-and-burden", "name": "form-pf-ambiguity", "claim": "Asked what the SEC should fix first, respondents named the burdensome nature and the ambiguity of Form PF as the most pressing issues, not the substance of what is disclosed.", "conditions": [ "responses to survey Question 9" ], "topics": [ "private-funds", "empirical-evidence", "securities-law" ] }, { "id": "kaal:claim:2447306-024", "url": "https://wulfkaal.github.io/claims/2447306-024", "family": "definitional-ambiguity", "name": "overbroad-leverage-definition", "claim": "Form PF's definition of leverage is overinclusive: respondents reported that it is inappropriately constructed and sweeps in funds that use neither leverage nor derivative securities.", "conditions": [ "responses to follow-up survey Question 6b(ii)" ], "topics": [ "private-funds", "empirical-evidence", "securities-law" ] }, { "id": "kaal:claim:2447306-025", "url": "https://wulfkaal.github.io/claims/2447306-025", "family": "definitional-ambiguity", "name": "raum-interpretive-instability", "claim": "Regulatory assets under management is an unstable reporting concept: commenters split evenly on whether Form PF's RAUM questions required them to interpret the term in order to answer.", "conditions": [ "responses to survey Question 19" ], "topics": [ "private-funds", "empirical-evidence" ] }, { "id": "kaal:claim:2447306-027", "url": "https://wulfkaal.github.io/claims/2447306-027", "family": "regulatory-lag", "name": "section-1c-guidance-gap", "claim": "Where SEC guidance failed, the failure was localized: respondents who found guidance inadequate pointed predominantly to Form PF Section 1c, Item B, which concerns information about the reporting fund.", "conditions": [ "respondents who rated SEC guidance inadequate", "responses to survey Question 13b" ], "topics": [ "securities-law", "private-funds", "disclosure", "empirical-evidence" ] }, { "id": "kaal:claim:2447306-030", "url": "https://wulfkaal.github.io/claims/2447306-030", "family": "definitional-ambiguity", "name": "flexibility-breeds-confusion", "claim": "Regulatory flexibility can backfire: a category of respondents reported that the flexibility the SEC provides is not useful precisely because it is unclear and generates confusion.", "conditions": [ "minority of respondents to survey Question 7a(ii)", "low overall response rate to this question" ], "topics": [ "private-funds", "securities-law", "compliance" ] }, { "id": "kaal:claim:2447306-032", "url": "https://wulfkaal.github.io/claims/2447306-032", "family": "disclosure-cost-and-burden", "name": "reporting-system-mismatch", "claim": "For a substantial minority, existing systems fail Form PF for a specific reason: 34.78 percent of respondents said their internal reporting systems were insufficient because the required answers demand further analysis and calculation beyond what the systems already produce.", "conditions": [ "responses to survey Question 15 and follow-up 15b" ], "topics": [ "disclosure", "private-funds", "compliance", "empirical-evidence" ] }, { "id": "kaal:claim:2447306-035", "url": "https://wulfkaal.github.io/claims/2447306-035", "family": "disclosure-cost-and-burden", "name": "outsourcing-overhead", "claim": "Working with a service provider imposes its own costs: filers reported that the arrangement requires investing time and money to develop interaction processes and bearing the burden of supplying the provider with the underlying information.", "conditions": [ "respondents who used a service provider", "responses to survey Question 11b(ii)" ], "topics": [ "private-funds", "compliance", "empirical-evidence" ] }, { "id": "kaal:claim:2447306-037", "url": "https://wulfkaal.github.io/claims/2447306-037", "family": "data-quality-and-comparability", "name": "incomparable-performance-metrics", "claim": "Form PF fund performance metrics are not accurate or comparable across filers, because reporting entities employ different calculation methodologies to produce them.", "conditions": [ "Form PF Item C, Question 17 on reporting fund performance" ], "topics": [ "disclosure", "private-funds", "empirical-evidence" ] }, { "id": "kaal:claim:2447306-044", "url": "https://wulfkaal.github.io/claims/2447306-044", "family": "research-design-limitation", "name": "short-run-cost-horizon", "claim": "The study's cost findings are bounded to the short run: the data cannot establish what it will cost the private fund industry to keep completing and filing Form PF annually or quarterly over time.", "conditions": [ "data collected during a six month period after the initial filing deadline" ], "topics": [ "compliance", "private-funds", "empirical-evidence" ] }, { "id": "kaal:claim:2486570-002", "url": "https://wulfkaal.github.io/claims/2486570-002", "family": "research-design-limitation", "name": "anecdotal-evidence-base", "claim": "Prior scholarship on the corporate governance effects of non and deferred prosecution agreements rests largely on anecdotal evidence and individual case studies rather than on systematic evidence, which is why its conclusions about those effects are unreliable.", "conditions": [], "topics": [ "empirical-evidence", "research-methods", "compliance", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:2486570-006", "url": "https://wulfkaal.github.io/claims/2486570-006", "family": "enforcement-gap", "name": "unproven-compliance-adoption", "claim": "Existing corporate criminal liability combined with the absence of clear Department of Justice standards for charging businesses can push organizations to adopt unproven compliance programs and generate other inefficiencies.", "conditions": [ "holds where DOJ charging standards remain vague" ], "topics": [ "compliance", "law-and-legal-systems" ] }, { "id": "kaal:claim:2486570-007", "url": "https://wulfkaal.github.io/claims/2486570-007", "family": "enforcement-gap", "name": "corporate-death-penalty-overstated", "claim": "The authors contest the conventional wisdom that a corporate criminal indictment amounts to a corporate death penalty, pointing to recent guilty pleas in which BNP Paribas paid a record fine and Credit Suisse kept its investment banking license.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2486570-009", "url": "https://wulfkaal.github.io/claims/2486570-009", "family": "enforcement-gap", "name": "supplemental-guidance-ineffective", "claim": "The McCallum Memorandum failed as a corrective because it only supplemented rather than replaced the Thompson Memorandum and did little if anything to curb the widespread use of attorney client and work product privilege waivers in deferred prosecution agreements.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2486570-010", "url": "https://wulfkaal.github.io/claims/2486570-010", "family": "enforcement-gap", "name": "waiver-loophole-persists", "claim": "The McNulty Memorandum did not resolve the privilege waiver problem because it still left prosecutors ample opportunity to treat a corporate defendant's unwillingness to waive attorney client privilege as bearing on cooperation, and its attorney's fees provision had similar shortcomings.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2486570-014", "url": "https://wulfkaal.github.io/claims/2486570-014", "family": "data-quality-and-comparability", "name": "document-recording-gap", "claim": "Where coded categories such as cooperating, disclosure, and internal review fall well short of 100 percent of the sample, the shortfall may reflect a gap in what the agreements record rather than a real absence of those corporate actions, so the coded frequencies understate actual conduct.", "conditions": [ "applies to categories whose coded frequency is not near 100 percent" ], "topics": [ "research-methods", "open-source-and-code", "empirical-evidence" ] }, { "id": "kaal:claim:2486570-023", "url": "https://wulfkaal.github.io/claims/2486570-023", "family": "board-and-oversight-failure", "name": "insufficient-board-incentives", "claim": "Because the board changes mandated by non and deferred prosecution agreements consist largely of additional reporting obligations and committee reform rather than removal of officers or directors, those reforms alone may not create sufficient incentives for boards and management to improve governance and avoid execution of an agreement.", "conditions": [], "topics": [ "corporate-governance", "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:2486570-025", "url": "https://wulfkaal.github.io/claims/2486570-025", "family": "board-and-oversight-failure", "name": "preemptive-remediation-insufficient", "claim": "Because 63.47 percent of the sampled agreements were executed even after the corporation had already instituted preemptive remedial measures, the current quantity, quality, comprehensiveness, and effectiveness of those preemptive measures may be insufficient to prevent an agreement.", "conditions": [], "topics": [ "compliance", "governance-design", "corporate-governance", "empirical-evidence" ] }, { "id": "kaal:claim:2486570-027", "url": "https://wulfkaal.github.io/claims/2486570-027", "family": "compliance-cost-and-barrier-to-entry", "name": "generic-compliance-advice-fails", "claim": "Generic industry advice on building an effective compliance program cannot work in practice because it is written to apply to many firms at once while no two companies are sufficiently alike for general guidance to be effective.", "conditions": [], "topics": [ "compliance" ] }, { "id": "kaal:claim:2486570-034", "url": "https://wulfkaal.github.io/claims/2486570-034", "family": "enforcement-gap", "name": "reform-does-not-stick", "claim": "Because non and deferred prosecution agreements typically run for a limited term, it remains unclear whether the governance reforms they impose survive in the long term.", "conditions": [ "applies because N/DPAs have a limited duration" ], "topics": [ "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:2486570-035", "url": "https://wulfkaal.github.io/claims/2486570-035", "family": "enforcement-gap", "name": "settlement-not-reform", "claim": "If corporate wrongdoing is not in fact caused by deficient corporate governance, then the governance reform imposed through a non or deferred prosecution agreement is merely a method of settlement rather than a lasting reform effort.", "conditions": [ "holds where the wrongdoing has no identifiable governance cause" ], "topics": [ "governance-design", "citation-and-knowledge" ] }, { "id": "kaal:claim:2486570-036", "url": "https://wulfkaal.github.io/claims/2486570-036", "family": "enforcement-gap", "name": "remedy-scale-mismatch", "claim": "The underlying corporate governance problems in United States corporations may be more severe than non and deferred prosecution agreements are capable of adequately addressing.", "conditions": [], "topics": [ "governance-design", "corporate-governance", "compliance" ] }, { "id": "kaal:claim:2486570-037", "url": "https://wulfkaal.github.io/claims/2486570-037", "family": "sample-and-selection-bias", "name": "executed-agreement-selection-bias", "claim": "The governance trends reported in this study apply only to corporations that actually executed an agreement, so because a disproportionately large number of corporations self correct or self report instead, the findings may capture only the tip of the iceberg.", "conditions": [ "sample restricted to corporations that executed an N/DPA" ], "topics": [ "empirical-evidence", "research-methods", "disclosure" ] }, { "id": "kaal:claim:2389423-005", "url": "https://wulfkaal.github.io/claims/2389423-005", "family": "compliance-cost-and-barrier-to-entry", "name": "prohibitive administrative cost below the $100 million AUM threshold", "claim": "Below $100 million in initial assets under management, the administrative cost of running a hedge fund in a post Dodd-Frank environment could be prohibitive.", "conditions": [ "hedge fund advisers with initial AUM below $100 million", "post Dodd-Frank regulatory environment" ], "topics": [ "risk-and-incentives", "private-funds" ] }, { "id": "kaal:claim:2389423-008", "url": "https://wulfkaal.github.io/claims/2389423-008", "family": "systemic-risk-transmission", "name": "consolidation induced systemic risk", "claim": "A surplus of larger private fund advisers holding correspondingly larger amounts of assets under management could increase systemic risk, so a regulation that consolidates the industry may work against its own systemic risk objective.", "conditions": [ "if Title IV compliance cost drives consolidation toward larger advisers" ], "topics": [ "systemic-risk", "risk-and-incentives", "private-funds" ] }, { "id": "kaal:claim:2389423-019", "url": "https://wulfkaal.github.io/claims/2389423-019", "family": "research-design-limitation", "name": "outlier sensitivity of least squares regression", "claim": "Least squares linear regression is non-robust to outliers: in the presence of outliers its predictions can be dragged toward the outliers and the variance of the estimates can be artificially inflated.", "conditions": [ "least squares linear regression applied to samples containing outliers" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:2389423-021", "url": "https://wulfkaal.github.io/claims/2389423-021", "family": "research-design-limitation", "name": "indeterminacy of weights in weighted least squares", "claim": "Weighted least squares regression depends on estimated weights, and contrary to the theory behind the method the exact weights are almost never determinable in real applications such as this study.", "conditions": [ "real world applications of weighted least squares regression" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:2389423-022", "url": "https://wulfkaal.github.io/claims/2389423-022", "family": "sample-and-selection-bias", "name": "selection bias from small survey samples", "claim": "Selection bias is a valid concern in this study because of the lower sample sizes available for Models 1 through 5.", "conditions": [ "regression models 1 through 5 in this study", "survey based samples" ], "topics": [ "empirical-evidence", "research-methods" ] }, { "id": "kaal:claim:2389423-035", "url": "https://wulfkaal.github.io/claims/2389423-035", "family": "sample-and-selection-bias", "name": "small sample limitation", "claim": "The findings of this study are based on limited data and a small sample size, so additional research is required to fully investigate the impact of Title IV on the private fund industry.", "conditions": [ "survey sample of 94 respondents from a population of 1,264 advisers" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:2470008-001", "url": "https://wulfkaal.github.io/claims/2470008-001", "family": "data-quality-and-comparability", "name": "Reliance concentrated on weakest data", "claim": "The SEC data collected from private fund advisers feeds every stage of the FSOC's systemic risk assessment, and the FSOC leans most heavily on precisely those disclosure items that are the most problematic.", "conditions": [ "private fund advisers reporting under SEC Form PF", "FSOC systemic risk assessment of nonbank financial companies" ], "topics": [ "private-funds", "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2470008-002", "url": "https://wulfkaal.github.io/claims/2470008-002", "family": "data-quality-and-comparability", "name": "Upstream data error propagates to risk assessment", "claim": "Accuracy and consistency problems in the SEC's private fund data collection can impair the FSOC's ability to evaluate the systemic risk posed by private fund advisers.", "conditions": [ "data collected through Form PF", "FSOC evaluation of nonbank systemic risk" ], "topics": [ "systemic-risk", "risk-and-incentives", "private-funds", "dynamic-regulation" ] }, { "id": "kaal:claim:2470008-003", "url": "https://wulfkaal.github.io/claims/2470008-003", "family": "data-quality-and-comparability", "name": "Mandated data collection creates evaluation problems", "claim": "Prior studies and anecdotal evidence indicate that the data collection mandated by Form PF could itself create problems for the FSOC when it evaluates hedge fund systemic risk.", "conditions": [ "hedge fund systemic risk evaluation by FSOC" ], "topics": [ "private-funds", "systemic-risk", "empirical-evidence", "risk-and-incentives" ] }, { "id": "kaal:claim:2470008-004", "url": "https://wulfkaal.github.io/claims/2470008-004", "family": "definitional-ambiguity", "name": "Ambiguous questions and definitions", "claim": "Even though the private fund industry broadly accepted Form PF, the form's core problems for the SEC are the ambiguity of several questions, advisers' disagreement with the definition of funds, and correspondingly insufficient SEC guidance.", "conditions": [ "Form PF as implemented by the SEC", "registered private fund advisers" ], "topics": [ "private-funds", "securities-law", "disclosure", "compliance" ] }, { "id": "kaal:claim:2470008-022", "url": "https://wulfkaal.github.io/claims/2470008-022", "family": "data-quality-and-comparability", "name": "Inconsistent adviser responses", "claim": "The SEC itself reports that the consistency of investment advisers' responses on Form PF is not ensured and may be questionable.", "conditions": [ "Form PF filings as analyzed by SEC staff" ], "topics": [ "private-funds", "securities-law", "disclosure" ] }, { "id": "kaal:claim:2470008-023", "url": "https://wulfkaal.github.io/claims/2470008-023", "family": "data-quality-and-comparability", "name": "Non comparable filing methodologies", "claim": "Advisers take different approaches and make different assumptions when completing Form PF, which the SEC identifies as a further challenge to the usability of the data.", "conditions": [ "Form PF filings by registered private fund advisers" ], "topics": [ "private-funds", "securities-law" ] }, { "id": "kaal:claim:2470008-024", "url": "https://wulfkaal.github.io/claims/2470008-024", "family": "data-quality-and-comparability", "name": "Filer error anomalies", "claim": "The SEC's initial analysis of Form PF data turned up anomalies attributed to filer error, which prompted SEC concern about the quality of the information private fund advisers report.", "conditions": [ "early Form PF filing cycles" ], "topics": [ "private-funds", "securities-law", "disclosure" ] }, { "id": "kaal:claim:2470008-025", "url": "https://wulfkaal.github.io/claims/2470008-025", "family": "data-quality-and-comparability", "name": "Remedies insufficient to restore confidence", "claim": "Expanding the uses of Form PF data remains difficult so long as there is insufficient confidence in the accuracy of what advisers report, notwithstanding SEC efforts to improve quality through interpretive FAQs and curative amendments.", "conditions": [ "current state of Form PF data accuracy", "SEC remedial measures limited to FAQs and curative amendments" ], "topics": [ "private-funds", "securities-law", "disclosure" ] }, { "id": "kaal:claim:2470008-027", "url": "https://wulfkaal.github.io/claims/2470008-027", "family": "data-quality-and-comparability", "name": "Acknowledged data gaps", "claim": "The FSOC itself conceded that available data was insufficient when it tried to identify the activities of the twenty largest United States fund managers as possible sources of systemic risk.", "conditions": [ "FSOC 2013 annual report", "counterparty risk, leverage, repo, securities lending, and separate accounts" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2470008-028", "url": "https://wulfkaal.github.io/claims/2470008-028", "family": "definitional-ambiguity", "name": "Ambiguity, bad definitions, aggregation difficulty", "claim": "The substantive defects in Form PF data are the ambiguity of several key questions, inaccurate definitions paired with insufficient SEC guidance, and difficulty aggregating the required information.", "conditions": [ "Form PF as filed by private fund advisers" ], "topics": [ "private-funds", "securities-law" ] }, { "id": "kaal:claim:2470008-029", "url": "https://wulfkaal.github.io/claims/2470008-029", "family": "definitional-ambiguity", "name": "Widespread filer disagreement with definitions", "claim": "More than forty percent of respondents in a prior study disagreed with the definitions or instructions in Form PF.", "conditions": [ "survey respondents in the author's prior private fund disclosure study" ], "topics": [ "private-funds", "empirical-evidence", "compliance" ] }, { "id": "kaal:claim:2470008-030", "url": "https://wulfkaal.github.io/claims/2470008-030", "family": "definitional-ambiguity", "name": "RAUM definition requires filer interpretation", "claim": "The Form PF definition of Regulatory Assets under Management is the leading example of a definition that forced filers to interpret what they were required to report.", "conditions": [ "RAUM reporting under Form PF" ], "topics": [ "private-funds", "disclosure" ] }, { "id": "kaal:claim:2470008-031", "url": "https://wulfkaal.github.io/claims/2470008-031", "family": "definitional-ambiguity", "name": "Counterparty definitions unclear to filers", "claim": "The interpretation Form PF demands generated particular concern among filers about the definition of counterparties and about counterparty performance measures.", "conditions": [ "Form PF counterparty reporting items" ], "topics": [ "risk-and-incentives", "private-funds", "disclosure" ] }, { "id": "kaal:claim:2470008-033", "url": "https://wulfkaal.github.io/claims/2470008-033", "family": "data-quality-and-comparability", "name": "Defective inputs to stage one screen", "claim": "Because several core Form PF questions feeding the FSOC's stage one threshold screen are themselves defective, the FSOC's systemic risk assessment process could be compromised.", "conditions": [ "FSOC stage one threshold assessment", "reliance on Form PF questions with identified defects" ], "topics": [ "systemic-risk", "private-funds", "risk-and-incentives" ] }, { "id": "kaal:claim:2470008-034", "url": "https://wulfkaal.github.io/claims/2470008-034", "family": "definitional-ambiguity", "name": "Interpretation dependent RAUM drives thresholds", "claim": "Because the FSOC uses RAUM related valuations directly and indirectly to set stage one thresholds, and because RAUM requires substantial filer interpretation, it is questionable whether the FSOC can use that Form PF data effectively and sustainably for systemic risk evaluations and SIFI designations.", "conditions": [ "stage one thresholds computed from RAUM related asset valuations", "Form PF Questions 8, 9, 13, 44, 46, and 58" ], "topics": [ "private-funds", "systemic-risk" ] }, { "id": "kaal:claim:2470008-035", "url": "https://wulfkaal.github.io/claims/2470008-035", "family": "data-quality-and-comparability", "name": "Weakest data drives interconnectedness finding", "claim": "The Form PF counterparty questions most affected by filer interpretation, Questions 22 and 23, are the very ones the FSOC uses in stage two to determine the interconnectedness of private funds.", "conditions": [ "FSOC stage two analysis of interconnectedness" ], "topics": [ "private-funds", "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2470008-036", "url": "https://wulfkaal.github.io/claims/2470008-036", "family": "data-quality-and-comparability", "name": "Estimates and assumptions substitute for measurement", "claim": "Widespread filer disagreement with Form PF definitions implies that a large share of filers are uncertain how to answer, which raises the possibility that they complete the form with estimates and varied assumptions.", "conditions": [ "filers who disagreed with Form PF definitions or instructions" ], "topics": [ "private-funds", "disclosure" ] }, { "id": "kaal:claim:2470008-037", "url": "https://wulfkaal.github.io/claims/2470008-037", "family": "data-quality-and-comparability", "name": "Error propagation from filings to designation", "claim": "If the FSOC relies on inaccurate Form PF data in its systemic risk assessment, its work on private funds may itself be erroneous.", "conditions": [ "FSOC reliance on Form PF data subject to inaccuracies" ], "topics": [ "systemic-risk", "private-funds", "risk-and-incentives" ] }, { "id": "kaal:claim:2470008-038", "url": "https://wulfkaal.github.io/claims/2470008-038", "family": "data-quality-and-comparability", "name": "Reporting issues affect assessment", "claim": "Private fund advisers reporting under Form PF encountered issues that could affect the FSOC's systemic risk assessment, but the author does not claim that the FSOC is unable to fulfill its congressional mandate.", "conditions": [ "scope limited to the effects of Form PF reporting issues" ], "topics": [ "private-funds", "systemic-risk", "risk-and-incentives", "disclosure" ] }, { "id": "kaal:claim:2470008-039", "url": "https://wulfkaal.github.io/claims/2470008-039", "family": "data-quality-and-comparability", "name": "Defect to use matching reveals assessment risk", "claim": "Matching the identified Form PF defects against the FSOC's specific uses of that data suggests possible inaccuracies in the FSOC's systemic risk assessment process, although the author disclaims scientific or empirical precision for the analysis.", "conditions": [ "method of matching known data defects to documented FSOC uses", "no claim of empirical precision" ], "topics": [ "research-methods", "private-funds", "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2629451-025", "url": "https://wulfkaal.github.io/claims/2629451-025", "family": "research-design-limitation", "name": "cost-imposition-hypothesis-unsupported", "claim": "The authors reject Hypothesis 1: they find no evidence that the market reacts negatively to the N/DPA announcement and the start of the term and positively to the end of the term, contrary to the cost-imposition view of N/DPAs.", "conditions": [ "94 firm sample, three event dates" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2629451-028", "url": "https://wulfkaal.github.io/claims/2629451-028", "family": "enforcement-gap", "name": "post-term-governance-reversion", "claim": "The negative market reaction at the end of the N/DPA term is the market acknowledging that suboptimal governance practices are likely to resume once the term expires.", "conditions": [ "post-expiration windows in Figures 4 and 4a" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:2629451-034", "url": "https://wulfkaal.github.io/claims/2629451-034", "family": "sample-and-selection-bias", "name": "survivorship-bias-excludes-highest-impact-ndpas", "claim": "The study's results may be biased toward low impact N/DPAs, because firms that were acquired, merged, or went bankrupt as a result of an N/DPA had to be dropped for lack of public trading data, and those are precisely the highest impact cases.", "conditions": [ "applies to any stock price study of N/DPAs relying on continuous trading data" ], "topics": [ "empirical-evidence", "research-methods" ] }, { "id": "kaal:claim:2629451-035", "url": "https://wulfkaal.github.io/claims/2629451-035", "family": "sample-and-selection-bias", "name": "small-sample-limitation", "claim": "The findings rest on a small sample and limited data, so they should be treated as provisional pending replication on a larger set of publicly traded N/DPA firms.", "conditions": [ "94 firm sample, 59 firms at the end of term event" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:2715083-012", "url": "https://wulfkaal.github.io/claims/2715083-012", "family": "investor-protection-gap", "name": "Nonexistent hedge fund investor remedy", "claim": "Hedge fund investors have almost no statutory remedy: the regime establishing a hedge fund investor's rights is severely limited, nearly to the point of nonexistence, in the United States and in the offshore jurisdictions where many hedge funds are chartered.", "conditions": [ "United States, Cayman Islands, and British Virgin Islands" ], "topics": [ "private-funds", "compliance" ] }, { "id": "kaal:claim:2715083-013", "url": "https://wulfkaal.github.io/claims/2715083-013", "family": "harmonization-and-standardization-failure", "name": "Nominal confluence", "claim": "The author stipulates the term nominal confluence: legal requirements that are formally identical for mutual and hedge fund managers but that operate in materially different ways in practice, so formal legal convergence overstates actual convergence.", "conditions": [ "applies where the same statute or rule governs both fund types" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2715083-014", "url": "https://wulfkaal.github.io/claims/2715083-014", "family": "compliance-cost-and-barrier-to-entry", "name": "Formally identical rules with divergent practical burden", "claim": "Identical rules diverge in practice because the two vehicle types are structured, operated, and run as businesses differently; the Investment Advisers Act applies to both, yet its obligations are far more onerous for mutual fund managers.", "conditions": [ "Investment Advisers Act obligations", "registered mutual fund advisers compared with hedge fund advisers" ], "topics": [ "private-funds", "compliance" ] }, { "id": "kaal:claim:2715083-015", "url": "https://wulfkaal.github.io/claims/2715083-015", "family": "compliance-cost-and-barrier-to-entry", "name": "Best execution burden asymmetry", "claim": "Best execution is a leading instance of nominal confluence: the obligation is nominally the same, but it is far more complicated and burdensome for the mutual fund manager than for the hedge fund adviser.", "conditions": [ "best execution obligations for trades directed to brokers" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2715083-017", "url": "https://wulfkaal.github.io/claims/2715083-017", "family": "investor-protection-gap", "name": "Return replication shortfall", "claim": "Alternative mutual funds generally cannot deliver the same absolute returns as hedge funds, a shortfall some attribute to the lighter touch regulation and better incentives available to hedge funds.", "conditions": [ "comparison of registered alternative funds with unregistered hedge funds" ], "topics": [ "private-funds", "risk-and-incentives" ] }, { "id": "kaal:claim:2715083-019", "url": "https://wulfkaal.github.io/claims/2715083-019", "family": "board-and-oversight-failure", "name": "Single board oversight failure", "claim": "The traditional mutual fund governance model, in which one board serves multiple discrete funds within a sponsor's group, is subject to significant oversight challenges.", "conditions": [ "traditional single board mutual fund complexes" ], "topics": [ "governance-design", "private-funds", "corporate-governance" ] }, { "id": "kaal:claim:2715083-023", "url": "https://wulfkaal.github.io/claims/2715083-023", "family": "agency-cost-and-managerial-opportunism", "name": "Side-by-side management conflict", "claim": "The inherent conflict of interest facing an adviser who simultaneously runs a mutual fund and a hedge fund is an important limiting factor on the continued rise of side-by-side management.", "conditions": [ "side-by-side management of a mutual fund and a hedge fund by the same adviser" ], "topics": [ "corporate-governance", "risk-and-incentives" ] }, { "id": "kaal:claim:2715083-024", "url": "https://wulfkaal.github.io/claims/2715083-024", "family": "enforcement-gap", "name": "Subadviser regulatory gap", "claim": "The subadvisory route leaves a regulatory gap: none of the mutual fund manager's obligations, such as daily valuation, public and SEC reporting, or independent boards, reach the private fund adviser serving as subadviser.", "conditions": [ "private fund managers subadvising a mutual fund, subfund, or account" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2715083-026", "url": "https://wulfkaal.github.io/claims/2715083-026", "family": "measurement-and-metric-failure", "name": "Asset class blind SIFI designation", "claim": "FSOC's SIFI designation framework does not distinguish between mutual and hedge funds, even though evidence indicates designation would have disparate effects on the two asset classes.", "conditions": [ "FSOC three stage nonbank SIFI designation process", "12 C.F.R. 1310 app. A" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2715083-033", "url": "https://wulfkaal.github.io/claims/2715083-033", "family": "adoption-and-usability-barrier", "name": "General solicitation nonadoption", "claim": "The JOBS Act reform underdelivers on its own terms: because investor verification under Rule 506(c) is legally uncertain, hedge fund advisers have better incentives to launch retail alternative funds than to use their new freedom to advertise.", "conditions": [ "Rule 506(c) offerings after the general solicitation ban was lifted", "also driven by path dependencies and peer pressure" ], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:2715083-035", "url": "https://wulfkaal.github.io/claims/2715083-035", "family": "innovation-chilling", "name": "Regulation SHO hedging constraint", "claim": "Amendments to Regulation SHO may deny mutual fund advisers certain hedging techniques, making it less likely that mutual funds can attract retail investors who are looking for alternative investment exposure.", "conditions": [ "stocks subject to significant downward price pressure under amended Regulation SHO" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2816408-004", "url": "https://wulfkaal.github.io/claims/2816408-004", "family": "compliance-cost-and-barrier-to-entry", "name": "industry-burden-claim-unsupported", "claim": "The evidence contradicts the private fund industry's claim that private fund adviser registration under the Dodd-Frank Act negatively affects private fund performance.", "conditions": [ "US private fund advisers", "2010 to 2015" ], "topics": [ "private-funds" ] }, { "id": "kaal:claim:2816408-019", "url": "https://wulfkaal.github.io/claims/2816408-019", "family": "disclosure-ineffectiveness", "name": "no-detectable-regulatory-effect-on-returns", "claim": "Across an array of robustness tests, the requirements introduced by the Dodd-Frank Act create no significant effect on private fund performance, with all reported RD p-values above the 5% level.", "conditions": [ "RD results reported in Table 6", "entire sample and March 2012 estimates" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:2816408-027", "url": "https://wulfkaal.github.io/claims/2816408-027", "family": "research-design-limitation", "name": "single-date-rd-identification-weakness", "claim": "A single point in time RD design anchored to March 30, 2012 is inadequate on its own because advisers could and did register before the deadline, funds near the $150 million threshold could choose between registered adviser and exempt reporting adviser status, and self-reported Morningstar AUM is not calculated the same way as the SEC's RAUM.", "conditions": [ "broad RD design in Part IV", "Morningstar self-reported AUM" ], "topics": [ "research-methods", "private-funds" ] }, { "id": "kaal:claim:2831040-002", "url": "https://wulfkaal.github.io/claims/2831040-002", "family": "rule-obsolescence-and-ossification", "name": "rulemaking ossification", "claim": "Although the extent and causes of rulemaking ossification remain empirically uncertain, increased legal and evidentiary burdens on regulatory authorities are the consensus explanation for the slowdown in agency rulemaking.", "conditions": [ "United States federal and state agency rulemaking" ], "topics": [ "systemic-risk", "dynamic-regulation" ] }, { "id": "kaal:claim:2831040-003", "url": "https://wulfkaal.github.io/claims/2831040-003", "family": "regulatory-lag", "name": "Collingridge dilemma", "claim": "Regulators face a two ended timing trap: at the early stage of an innovation they lack information about its possible impact, and at the later stage the innovation is entrenched, so regulatory change becomes far more costly for innovating corporations.", "conditions": [ "disruptive innovation across a product cycle" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:2831040-004", "url": "https://wulfkaal.github.io/claims/2831040-004", "family": "regulatory-lag", "name": "political gridlock in rulemaking", "claim": "Systemic factors widen the divergence between regulation and innovation, including the political and ideological structures of the rulemaking process and the political gridlock of a two party system that impedes the passing of legislation.", "conditions": [ "two party legislative systems" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2831040-005", "url": "https://wulfkaal.github.io/claims/2831040-005", "family": "regulatory-lag", "name": "APA rulemaking drag", "claim": "The most widely recognized drawbacks of traditional rulemaking under the Administrative Procedure Act are its lack of speed, its cumbersomeness, and the volume of litigation generated by its notice and comment procedures.", "conditions": [ "United States APA notice and comment rulemaking" ], "topics": [ "dynamic-regulation", "law-and-legal-systems" ] }, { "id": "kaal:claim:2831040-006", "url": "https://wulfkaal.github.io/claims/2831040-006", "family": "regulatory-lag", "name": "legal certainty trap", "claim": "The pacing problem is partly a byproduct of the goal of legal certainty: because regulation is designed to be a durable source of predictability, rulemaking driven by legal certainty cannot keep pace as innovation accelerates.", "conditions": [ "accelerating innovation" ], "topics": [ "law-and-legal-systems", "dynamic-regulation" ] }, { "id": "kaal:claim:2831040-007", "url": "https://wulfkaal.github.io/claims/2831040-007", "family": "regulatory-lag", "name": "ex post rulemaking blindness", "claim": "Facts based, ex post, trial and error rulemaking cannot anticipate the regulatory issues created by innovation, so rulemakers may never recognize, or may recognize only much too late, which new regulatory demands apply to a given innovation.", "conditions": [ "ex post trial and error rulemaking in the existing regulatory framework" ], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2831040-008", "url": "https://wulfkaal.github.io/claims/2831040-008", "family": "rule-obsolescence-and-ossification", "name": "stable rule bias", "claim": "Rulemakers rely almost exclusively on stable and presumptively optimal rules meant to be permanent solutions, and that reliance ignores the ever changing rule environment driven by exponential growth in technology and innovation.", "conditions": [], "topics": [ "innovation", "dynamic-regulation" ] }, { "id": "kaal:claim:2831040-009", "url": "https://wulfkaal.github.io/claims/2831040-009", "family": "regulatory-lag", "name": "regulation obsolete on arrival", "claim": "Formal rulemaking in the existing regulatory infrastructure is almost always too time consuming, because product innovation moves fast enough that regulations covering an innovative product are obsolete before they are finalized.", "conditions": [ "formal rulemaking directed at fast moving innovative products" ], "topics": [ "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2831040-010", "url": "https://wulfkaal.github.io/claims/2831040-010", "family": "rule-obsolescence-and-ossification", "name": "contingency blindness of stable rules", "claim": "An existing regulatory infrastructure built on stable and presumptively optimal rules is largely incapable of addressing the ever increasing unknown future contingencies associated with disruptive innovation.", "conditions": [ "disruptive innovation" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2831040-011", "url": "https://wulfkaal.github.io/claims/2831040-011", "family": "regulatory-lag", "name": "update mistaken for reform", "claim": "Introducing a regulatory update where genuine regulatory reform is needed can deteriorate the relationship between regulation and innovation, because innovation driven by changing values and societal norms calls for reform rather than incremental updating.", "conditions": [ "innovation driven by shifting values and societal norms" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2831040-012", "url": "https://wulfkaal.github.io/claims/2831040-012", "family": "regulatory-lag", "name": "sub optimal existing framework", "claim": "The existing regulatory framework is sub optimally equipped to remedy both existing and future regulatory challenges associated with exponential innovation, which is the first premise for integrating dynamic elements into the regulation of innovation.", "conditions": [ "exponential innovation" ], "topics": [ "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2831040-015", "url": "https://wulfkaal.github.io/claims/2831040-015", "family": "regulatory-lag", "name": "static remedies for a dynamic problem", "claim": "The three core law and technology proposals for the pacing problem, regulation via the judiciary, early stage regulation of innovation, and principles based regulation, all have practical limitations and none of them uses dynamic regulatory elements.", "conditions": [], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2831040-016", "url": "https://wulfkaal.github.io/claims/2831040-016", "family": "regulatory-lag", "name": "judicial remedy insufficiency", "claim": "Addressing the regulatory issues created by innovation outpacing law through the judiciary is insufficient in the face of exponential innovation, because increasing evidence shows courts cannot sufficiently counterbalance the shortcomings of the legislative system.", "conditions": [ "exponential innovation" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2831040-017", "url": "https://wulfkaal.github.io/claims/2831040-017", "family": "rule-obsolescence-and-ossification", "name": "courts as suspension system for change", "claim": "The doctrine of stare decisis and judicial adherence to precedent decided decades or centuries earlier mean the court system is structurally a suspension system for rapid change, built to supply stability and predictability rather than speed.", "conditions": [ "common law court systems bound by precedent" ], "topics": [ "law-and-legal-systems", "institutional-design" ] }, { "id": "kaal:claim:2831040-018", "url": "https://wulfkaal.github.io/claims/2831040-018", "family": "regulatory-lag", "name": "litigation latency", "claim": "Litigation in the court system can take years, which increases the likelihood that courts will not react in a timely manner, much less in real time, to exponential innovation.", "conditions": [ "exponential innovation" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2831040-022", "url": "https://wulfkaal.github.io/claims/2831040-022", "family": "regulatory-lag", "name": "early intervention rarely happens", "claim": "Despite the consensus favoring it, early regulatory intervention in innovation is rare in practice, and regulation mostly fails to keep pace as the innovation evolves and as understanding and use of the technology spreads.", "conditions": [], "topics": [ "innovation" ] }, { "id": "kaal:claim:2831040-023", "url": "https://wulfkaal.github.io/claims/2831040-023", "family": "regulatory-lag", "name": "early stage information deficit", "claim": "Early regulatory intervention is subject to massive information asymmetries and associated regulatory uncertainty because the early stage of an innovation often provides insufficient information about its possible risks and benefits.", "conditions": [ "early stage innovation" ], "topics": [ "disclosure", "risk-and-incentives" ] }, { "id": "kaal:claim:2831040-024", "url": "https://wulfkaal.github.io/claims/2831040-024", "family": "regulatory-lag", "name": "closed window for late stage change", "claim": "In the later stages of more matured innovation it is often not possible to alter the regulatory status quo, which closes the window that early intervention proposals depend on.", "conditions": [ "matured innovation" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2831040-027", "url": "https://wulfkaal.github.io/claims/2831040-027", "family": "transition-and-migration-risk", "name": "cost and uncertainty of principles based transition", "claim": "The downsides of principles based regulation are a costly and time consuming transition from rules based regulation, uncertainty, and compliance problems that follow from that uncertainty.", "conditions": [ "a shift from rules based to principles based regulation" ], "topics": [ "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:2831040-030", "url": "https://wulfkaal.github.io/claims/2831040-030", "family": "regulatory-lag", "name": "comprehensive knowledge precondition", "claim": "The pace of innovation is incompatible with existing regulatory approaches that demand comprehensive knowledge as a precondition for regulatory action, because innovation is too decentralized, too fast, and too pervasive.", "conditions": [ "regulatory approaches conditioned on comprehensive prior knowledge" ], "topics": [ "governance-design", "citation-and-knowledge", "decentralization" ] }, { "id": "kaal:claim:2831040-031", "url": "https://wulfkaal.github.io/claims/2831040-031", "family": "regulatory-lag", "name": "missing national foresight mechanism", "claim": "The United States lacks an anticipatory system at the national level because no mechanism exists for bringing foresight and policymaking into an effective relationship.", "conditions": [ "United States national government" ], "topics": [ "governance-design", "institutional-design" ] }, { "id": "kaal:claim:2831040-036", "url": "https://wulfkaal.github.io/claims/2831040-036", "family": "rule-obsolescence-and-ossification", "name": "self reinforcing suboptimal rulemaking", "claim": "Rules operate as a feedback effect on the rulemaking process itself: rules with suboptimal characteristics result from institutional arrangements and then reinforce those suboptimal arrangements, and stable presumptively optimal rules reinforce an institutional structure that perpetuates stability in rules.", "conditions": [], "topics": [ "institutional-design", "dynamic-regulation" ] }, { "id": "kaal:claim:2748096-010", "url": "https://wulfkaal.github.io/claims/2748096-010", "family": "data-quality-and-comparability", "name": "pre-crisis data gap", "claim": "Any conclusion that hedge funds contributed to the financial crisis of 2007-2008 is circumstantial or anecdotal, because the data needed to test it, on leverage, counterparty relations, AUM, and portfolio holdings, were not collected for any substantial period before the crisis.", "conditions": [ "applies to retrospective assessment of the 2007-2008 crisis", "SEC systemic risk data collection began only after Title IV of the Dodd-Frank Act" ], "topics": [ "systemic-risk", "research-methods", "risk-and-incentives", "citation-and-knowledge" ] }, { "id": "kaal:claim:2748096-011", "url": "https://wulfkaal.github.io/claims/2748096-011", "family": "measurement-and-metric-failure", "name": "opacity blocks direct measurement", "claim": "The opacity of the hedge fund shadow banking system blocks direct measurement of hedge funds' role in the crisis, leaving researchers with indirect measures extracted from existing data rather than primary pre-crisis sources.", "conditions": [ "absence of access to primary pre-crisis hedge fund data" ], "topics": [ "disclosure", "systemic-risk", "research-methods", "risk-and-incentives" ] }, { "id": "kaal:claim:2748096-012", "url": "https://wulfkaal.github.io/claims/2748096-012", "family": "systemic-risk-transmission", "name": "gradual collapse defeats contagion channel", "claim": "The contagion story, in which hedge fund losses spread to other financial institutions and undermine systemic stability, is counterbalanced in practice because hedge fund collapses are rarely sudden and almost always unfold in incremental steps over a long period.", "conditions": [ "describes observed hedge fund collapse dynamics rather than theoretical models" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2748096-015", "url": "https://wulfkaal.github.io/claims/2748096-015", "family": "supervisory-capacity-gap", "name": "misdirected regulatory focus", "claim": "Pre-crisis regulatory attention was misallocated: although Bernanke identified failure to manage counterparty risk as the primary cause for concern, the SEC and the Senate Banking Committee concentrated on hedge fund transparency instead.", "conditions": [ "U.S. regulatory response between the 1998 LTCM failure and the 2007-2008 crisis" ], "topics": [ "risk-and-incentives", "disclosure" ] }, { "id": "kaal:claim:2748096-021", "url": "https://wulfkaal.github.io/claims/2748096-021", "family": "systemic-risk-transmission", "name": "fire-sale externality", "claim": "When hedge funds simultaneously liquidate positions and reduce leverage, leverage generates a fire-sale externality that raises systemic risk, arising when a fund must sell assets it regards as drastically undervalued in order to meet margin calls or redemption requests.", "conditions": [ "simultaneous deleveraging across funds", "binding margin calls or redemption requests" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2748096-023", "url": "https://wulfkaal.github.io/claims/2748096-023", "family": "systemic-risk-transmission", "name": "diversification breakdown under stress", "claim": "Strategy diversification does not insulate the hedge fund industry from systemic risk: returns across different hedge fund strategies were more correlated during the financial crisis of 2007-2008 than before it, so the industry can pose systemic risk despite investing across a broad spectrum of assets and strategies.", "conditions": [ "periods of market stress", "evidence drawn from the 2007-2008 crisis" ], "topics": [ "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2748096-028", "url": "https://wulfkaal.github.io/claims/2748096-028", "family": "enforcement-gap", "name": "SIFI threshold underinclusion", "claim": "The SIFI designation regime does not reach hedge funds in practice: because the asset threshold is set high, at $50 billion or more in aggregate total consolidated assets, hedge funds are unlikely to be designated as systemically important financial institutions.", "conditions": [ "U.S. SIFI designation under the Dodd-Frank Act", "$50 billion aggregate total consolidated asset threshold" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:2748096-034", "url": "https://wulfkaal.github.io/claims/2748096-034", "family": "measurement-and-metric-failure", "name": "alpha overstatement from omitted correlation risk", "claim": "Traditional risk-adjusted alphas underestimate hedge fund risk: once correlation risk is controlled for, previously observed significant hedge fund alphas disappear, which makes correlation risk a systematic risk factor for hedge fund returns.", "conditions": [ "cross-sectional analysis of individual hedge fund returns" ], "topics": [ "risk-and-incentives", "research-methods" ] }, { "id": "kaal:claim:2748096-035", "url": "https://wulfkaal.github.io/claims/2748096-035", "family": "measurement-and-metric-failure", "name": "skill premium vanishes under liquidity risk", "claim": "Once liquidity risk is incorporated into the analysis, the superior performance previously attributed to predictability in managerial skills disappears in hedge fund portfolios.", "conditions": [ "hedge fund portfolios formed on predictability in managerial skill" ], "topics": [ "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:2748096-036", "url": "https://wulfkaal.github.io/claims/2748096-036", "family": "measurement-and-metric-failure", "name": "serial correlation understates measured risk", "claim": "Risk measures that are not adjusted for serial correlation in hedge fund returns can considerably underestimate the true extent of both individual and systemic hedge fund risk, so empirical work in this area must account for autocorrelation.", "conditions": [ "applies to empirical studies of hedge fund returns" ], "topics": [ "research-methods", "risk-and-incentives", "economics" ] }, { "id": "kaal:claim:2748096-037", "url": "https://wulfkaal.github.io/claims/2748096-037", "family": "measurement-and-metric-failure", "name": "unidentified residual sector", "claim": "Systemic risk rankings that place a loosely defined other financial services sector above banking and insurance are of limited use, because the analysis does not clearly identify the firms included in that category even though a substantial portion of them may be hedge funds.", "conditions": [ "applies to CoVaR based sector rankings of systemic risk contribution" ], "topics": [ "systemic-risk", "research-methods", "risk-and-incentives" ] }, { "id": "kaal:claim:2808132-002", "url": "https://wulfkaal.github.io/claims/2808132-002", "family": "regulatory-lag", "name": "Ex post trial-and-error rulemaking breakdown", "claim": "Ex post facts-based, trial-and-error rulemaking combined with stable and presumptively optimal rules often produces suboptimal regulatory outcomes, and those outcomes are no longer sustainable in an environment of exponential disruptive innovation.", "conditions": [ "existing regulatory framework relying on stable and presumptively optimal rules", "environment of exponential disruptive innovation" ], "topics": [ "dynamic-regulation", "regulatory-failure", "innovation" ] }, { "id": "kaal:claim:2808132-003", "url": "https://wulfkaal.github.io/claims/2808132-003", "family": "regulatory-lag", "name": "Information timing gap in rulemaking", "claim": "In an environment of exponential disruptive innovation, the information rulemakers need is less likely to materialize soon enough for traditional rulemaking to be effective, regulatory issues become more complex, and unknown future contingencies increase substantially.", "conditions": [ "exponential rather than incremental innovation", "traditional information-dependent rulemaking processes" ], "topics": [ "regulatory-failure", "innovation", "dynamic-regulation" ] }, { "id": "kaal:claim:2808132-004", "url": "https://wulfkaal.github.io/claims/2808132-004", "family": "regulatory-lag", "name": "Regulatory process overwhelm", "claim": "Exponential disruptive innovation has the potential to overwhelm the existing regulatory process entirely, not merely to strain it.", "conditions": [ "exponential rates of innovation", "existing institutional rulemaking infrastructure" ], "topics": [ "innovation", "regulatory-failure" ] }, { "id": "kaal:claim:2808132-007", "url": "https://wulfkaal.github.io/claims/2808132-007", "family": "incumbent-resistance-to-adoption", "name": "Incumbent underinvestment in disruption", "claim": "A market leader's failure to invest in disruptive technologies often results in an abrupt loss of market dominance and frequently in total replacement in that market.", "conditions": [ "incumbent firms facing disruptive rather than sustaining technologies" ], "topics": [ "innovation", "economics" ] }, { "id": "kaal:claim:2808132-008", "url": "https://wulfkaal.github.io/claims/2808132-008", "family": "incumbent-resistance-to-adoption", "name": "Sustaining and disruptive technology conflation", "claim": "Market leaders, successful institutions, and managers fail specifically when they do not distinguish sustaining technologies from disruptive technologies.", "conditions": [ "established firms with existing customer bases and mainstream market orientation" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2808132-009", "url": "https://wulfkaal.github.io/claims/2808132-009", "family": "legal-personality-and-liability-gap", "name": "AI liability gap", "claim": "Because artificial intelligence is not recognized as a subject of law in national or international law, it has no legal personality and therefore cannot be personally liable for damages it causes.", "conditions": [ "current national and international legal frameworks", "autonomous AI acting without supervision" ], "topics": [ "ai-and-agents", "law-and-legal-systems" ] }, { "id": "kaal:claim:2808132-010", "url": "https://wulfkaal.github.io/claims/2808132-010", "family": "regulatory-arbitrage", "name": "Asymmetric compliance burden", "claim": "When disruptive firms do not comply with existing rules or effectively create their own exemptions because the existing framework does not reach them, public policy goals can be undermined and incumbent firms that remain subject to the rules suffer severe competitive disadvantages.", "conditions": [ "disruptive products or services outside existing regulatory categories", "no appropriate replacement rules available" ], "topics": [ "regulatory-failure", "economics", "compliance" ] }, { "id": "kaal:claim:2808132-011", "url": "https://wulfkaal.github.io/claims/2808132-011", "family": "regulatory-capture-and-incumbent-advantage", "name": "Incumbent weaponization of rulemaking", "claim": "Incumbent firms facing a perceived threat from disruptive innovation may respond by using the existing regulatory process itself to create obstacles that prevent disruptive firms from competing.", "conditions": [ "incumbents already burdened by existing rules", "disruptive entrants operating outside or partly outside those rules" ], "topics": [ "regulatory-failure", "innovation" ] }, { "id": "kaal:claim:2808132-012", "url": "https://wulfkaal.github.io/claims/2808132-012", "family": "supervisory-capacity-gap", "name": "Political complexity paralysis", "claim": "The political system is less likely to be able to resolve the challenges of disruptive innovation because the increasing complexity of innovation-driven regulatory issues causes confusion among political and policy makers about rapidly emerging change.", "conditions": [ "rapidly emerging and technically complex disruptive change" ], "topics": [ "economics", "innovation" ] }, { "id": "kaal:claim:2808132-013", "url": "https://wulfkaal.github.io/claims/2808132-013", "family": "regulatory-lag", "name": "Inability to identify beneficial innovation", "claim": "The existing regulatory infrastructure cannot sufficiently distinguish beneficial innovation from harmful innovation and therefore cannot harness the beneficial kind.", "conditions": [ "existing regulatory infrastructure without dynamic or anticipatory elements" ], "topics": [ "regulatory-failure", "innovation" ] }, { "id": "kaal:claim:2808132-014", "url": "https://wulfkaal.github.io/claims/2808132-014", "family": "innovation-chilling", "name": "Permanent transition uncertainty", "claim": "Rulemakers' inability to address disruptive innovation will generate high levels of legal uncertainty and inconsistency that inhibit innovation during technological transition, and technological transition is likely to become a permanent state, so the inhibiting effect becomes permanent too.", "conditions": [ "age of continuous disruptive innovation", "fragmented multi-agency regulatory structures" ], "topics": [ "law-and-legal-systems", "innovation" ] }, { "id": "kaal:claim:2808132-015", "url": "https://wulfkaal.github.io/claims/2808132-015", "family": "regulatory-lag", "name": "Ex parte prohibition information blockade", "claim": "The current regulatory framework lacks any mechanism that anticipatorily informs rulemakers of beneficial innovative ideas, and because the rulemaking process prohibits ex parte communications and integrates cross-industry brainstorming poorly, the process may actually undermine innovation.", "conditions": [ "notice and comment rulemaking under the existing administrative framework" ], "topics": [ "innovation", "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2808132-017", "url": "https://wulfkaal.github.io/claims/2808132-017", "family": "regulatory-lag", "name": "Late or absent recognition of regulatory need", "claim": "Because facts-based rulemaking does not anticipate the regulatory issues created by innovation, rulemakers may realize far too late, or never, what new regulatory demands a given innovation generates.", "conditions": [ "age of exponential innovation", "purely reactive facts-based rulemaking" ], "topics": [ "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2808132-021", "url": "https://wulfkaal.github.io/claims/2808132-021", "family": "regulatory-lag", "name": "Timing dilemma of premature versus delayed regulation", "claim": "Regulatory timing under disruptive innovation is a two-sided failure: regulating too early risks inhibiting innovation, while withholding regulation too long risks harm to consumers and markets once regulatory inertia sets in around the disruptive product or service.", "conditions": [ "disruptive products or services not yet settled in the market" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2808132-022", "url": "https://wulfkaal.github.io/claims/2808132-022", "family": "rule-obsolescence-and-ossification", "name": "Rulemaking ossification", "claim": "Formal rulemaking is simply too time-consuming for an environment of disruptive innovation; the speed of product innovation alone makes formal rulemaking in the existing infrastructure unworkable.", "conditions": [ "formal and notice and comment rulemaking in the existing regulatory infrastructure", "rapid product innovation cycles" ], "topics": [ "dynamic-regulation", "systemic-risk", "regulatory-failure" ] }, { "id": "kaal:claim:2808132-023", "url": "https://wulfkaal.github.io/claims/2808132-023", "family": "rule-obsolescence-and-ossification", "name": "Rule obsolescence before enactment", "claim": "Because formal rulemaking takes months and often years, regulators are still processing the previous product launch while new products reach the market, and new regulations pertaining to an innovative product can be obsolete before they are finalized.", "conditions": [ "multi-month or multi-year regulatory procedures", "fast product launch cycles" ], "topics": [ "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2808132-024", "url": "https://wulfkaal.github.io/claims/2808132-024", "family": "regulatory-lag", "name": "Political pressure trigger requirement", "claim": "Because it lacks anticipatory capabilities, the existing regulatory system only addresses regulatory issues ex post, and then only if core constituents are burdened enough to generate sufficient political pressure for lawmakers to act.", "conditions": [ "existing regulatory infrastructure built on stable and presumptively optimal rules" ], "topics": [ "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2808132-025", "url": "https://wulfkaal.github.io/claims/2808132-025", "family": "regulatory-lag", "name": "Expedited crisis rulemaking", "claim": "Evidence exists that the suboptimal ex post timing of rulemaking in the existing regulatory infrastructure regularly forces expedited rulemaking, which in turn produces suboptimal regulatory outcomes.", "conditions": [ "crisis-driven and post-crisis legislative episodes", "existing regulatory infrastructure" ], "topics": [ "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2808132-026", "url": "https://wulfkaal.github.io/claims/2808132-026", "family": "rule-obsolescence-and-ossification", "name": "Uniform stable-rule response", "claim": "Despite their insufficient anticipatory capabilities and known downsides, stable and presumptively optimal rules remain the uniform response to perceived regulatory issues.", "conditions": [ "existing regulatory framework" ], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2808132-027", "url": "https://wulfkaal.github.io/claims/2808132-027", "family": "rule-obsolescence-and-ossification", "name": "Revision treadmill", "claim": "The current process of rule revisions, amendments, and repeals used to correct the inevitable shortcomings of stable rules is costly and time-consuming, and in the authors' estimation it cannot keep track of future innovations and their corresponding regulatory needs.", "conditions": [ "existing regulatory framework relying on ex post rule revision", "accelerating pace of innovation" ], "topics": [ "regulatory-failure", "innovation" ] }, { "id": "kaal:claim:2808132-028", "url": "https://wulfkaal.github.io/claims/2808132-028", "family": "rule-obsolescence-and-ossification", "name": "Stable rules as root cause", "claim": "The collective action problem of rulemaking, the problems of trial-and-error rulemaking, and the problems of regulatory cycles derive largely from the nature of stable and presumptively optimal rules themselves, not from unrelated institutional defects.", "conditions": [ "regulatory regimes whose outcomes are stable rather than adaptive" ], "topics": [ "institutional-design", "dynamic-regulation" ] }, { "id": "kaal:claim:2808132-034", "url": "https://wulfkaal.github.io/claims/2808132-034", "family": "regulatory-lag", "name": "Inaccurate and delayed regulatory timing", "claim": "A core problem for most regulation is its inaccurate and delayed timing, which follows from the collective action problem of regulation, path dependencies, and political inertia rather than from any single institutional defect.", "conditions": [ "most regulation in the existing framework", "regulation that follows business cycles rather than preceding crises" ], "topics": [ "institutional-design", "regulatory-failure" ] }, { "id": "kaal:claim:2808132-037", "url": "https://wulfkaal.github.io/claims/2808132-037", "family": "data-quality-and-comparability", "name": "Deal flow data unavailability", "claim": "Venture capital deal flow, meaning the totality of potential deals and business plans screened by venture capitalists, would provide the optimal assessment of innovation trends, but that data is not available, so realized investment allocations must be used as a second-best proxy.", "conditions": [ "current data availability from commercial venture capital databases" ], "topics": [ "innovation", "research-methods" ] }, { "id": "kaal:claim:2808132-045", "url": "https://wulfkaal.github.io/claims/2808132-045", "family": "regulatory-arbitrage", "name": "Regulatory disconnect driven offshoring", "claim": "The decline in later stage robotics and drone investment rounds in the United States does not indicate stalled technological development; companies relocate later stage development to other countries because of the regulatory disconnect that exists in the United States.", "conditions": [ "robotics and drones industry", "United States regulatory environment after 2011" ], "topics": [ "innovation", "regulatory-failure" ] }, { "id": "kaal:claim:2808132-046", "url": "https://wulfkaal.github.io/claims/2808132-046", "family": "measurement-and-metric-failure", "name": "Venture capital signal divergence from market valuation", "claim": "The authors concede that the trend for venture-capital-financed technology companies to stay private and the market undervaluation of formerly venture-capital-financed companies mean the innovation potential identified by venture capital finance allocation may not always be shared by the market at large.", "conditions": [ "long-term market valuation of venture-capital-financed innovation", "companies remaining private rather than listing" ], "topics": [ "economics", "innovation" ] }, { "id": "kaal:claim:2808132-047", "url": "https://wulfkaal.github.io/claims/2808132-047", "family": "supervisory-capacity-gap", "name": "False positive regulatory resource waste", "claim": "Even if regulators could obtain the depth of information needed for anticipatory rulemaking, acting on venture capital signals risks wasting scarce regulatory resources, because venture capital funds make many investments that do not succeed and companies still incubating may raise no clear regulatory issues.", "conditions": [ "anticipatory regulatory action based on venture capital data alone", "portfolio companies still in incubation" ], "topics": [ "innovation", "dynamic-regulation" ] }, { "id": "kaal:claim:2808132-049", "url": "https://wulfkaal.github.io/claims/2808132-049", "family": "supervisory-capacity-gap", "name": "Absent institutional capacity for data-driven anticipation", "claim": "No regulatory processes or data evaluation capabilities currently exist that could carry out the cross-validated analyses and support the anticipatory regulatory action the authors propose.", "conditions": [ "as of 2016 in the United States regulatory system" ], "topics": [ "institutional-design", "dynamic-regulation" ] }, { "id": "kaal:claim:2808132-050", "url": "https://wulfkaal.github.io/claims/2808132-050", "family": "regulatory-lag", "name": "Regulated entities outrunning regulation", "claim": "Companies that received venture capital investments have outrun and continue to outrun regulation and regulatory efforts, and they drive innovation trends in the United States and abroad.", "conditions": [ "venture-capital-backed companies in the United States and abroad, 2005 through 2015" ], "topics": [ "innovation", "dynamic-regulation", "empirical-evidence" ] }, { "id": "kaal:claim:2808132-051", "url": "https://wulfkaal.github.io/claims/2808132-051", "family": "regulatory-lag", "name": "Suboptimal regulatory response rates", "claim": "Existing regulatory processes are suboptimally equipped to address the challenges of exponential disruptive innovation, and the notice and comment procedures of the Administrative Procedure Act and the SEC illustrate the resulting suboptimal regulatory response rates.", "conditions": [ "notice and comment rulemaking under the APA and at the SEC", "regulatory challenges presented by venture-capital-backed companies" ], "topics": [ "empirical-evidence", "regulatory-failure" ] }, { "id": "kaal:claim:2811718-003", "url": "https://wulfkaal.github.io/claims/2811718-003", "family": "disclosure-ineffectiveness", "name": "questionnaire template gaming", "claim": "Before the financial crisis of 2008 to 2009, the standard AIMA and MFA due diligence questionnaire templates were often deployed defensively: managers used the old versions to steer investors away from questions that would have exposed weaknesses in the managers' controls.", "conditions": [ "pre financial crisis practice", "template based questionnaires edited by the manager" ], "topics": [ "regulatory-failure", "disclosure" ] }, { "id": "kaal:claim:2811718-005", "url": "https://wulfkaal.github.io/claims/2811718-005", "family": "harmonization-and-standardization-failure", "name": "standards vacuum in private fund due diligence", "claim": "Almost no guidance exists on the standards applicable to private fund investor due diligence, so despite the growing importance of due diligence in capital formation and in litigation the industry is left mostly to its own devices to ensure adequate standards.", "conditions": [ "United States private fund industry", "as of 2016" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2811718-006", "url": "https://wulfkaal.github.io/claims/2811718-006", "family": "harmonization-and-standardization-failure", "name": "best practice materials do not supply legal standards", "claim": "The existing resources fail on both sides: industry materials describe best practices without setting out the legal requirements for private fund due diligence, and the available case law provides only marginal guidance.", "conditions": [ "United States", "resources available as of 2016" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2811718-013", "url": "https://wulfkaal.github.io/claims/2811718-013", "family": "definitional-ambiguity", "name": "term ambiguity limits keyword measurement", "claim": "The Form ADV analysis is limited because the term due diligence carries multiple possible meanings, so counts of the term cannot by themselves distinguish among those meanings.", "conditions": [ "keyword based counting of the phrase due diligence in Form ADV II filings" ], "topics": [ "research-methods", "private-funds" ] }, { "id": "kaal:claim:2811718-020", "url": "https://wulfkaal.github.io/claims/2811718-020", "family": "enforcement-gap", "name": "scienter gap for incompetent due diligence", "claim": "Deficient due diligence does not create securities fraud liability unless it is intentional or highly reckless; conduct that is merely negligent or professionally incompetent falls short of the scienter requirement.", "conditions": [ "securities fraud claims under section 10(b) and Rule 10b-5", "PSLRA pleading standard" ], "topics": [ "securities-law", "law-and-legal-systems" ] }, { "id": "kaal:claim:2811718-021", "url": "https://wulfkaal.github.io/claims/2811718-021", "family": "investor-protection-gap", "name": "industry standard shortfall does not plead scienter", "claim": "Failing to check publicly available documentation on an investment is irresponsible but insufficient to plead fraudulent intent, and failing to perform due diligence commensurate with industry standards is inadequate to plead scienter.", "conditions": [ "securities fraud pleading", "Matana v. Merkin and In re Bayou Hedge Fund Litigation" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:2811718-026", "url": "https://wulfkaal.github.io/claims/2811718-026", "family": "fraud-and-misconduct", "name": "fee for diligence never performed", "claim": "Funds of funds claimed to select the best managers through skilled due diligence and charged standard 2 and 20 fee structures for that service, while in reality depositing the vast majority of their capital into Madoff's opaque fund.", "conditions": [ "Madoff feeder funds and funds of funds before December 2008" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2811718-027", "url": "https://wulfkaal.github.io/claims/2811718-027", "family": "agency-cost-and-managerial-opportunism", "name": "delegated diligence collapse", "claim": "Madoff's reliance on large feeder funds created a massive industry of investor due diligence lawsuits, because those funds collected high advisory fees as due diligence experts yet caused large numbers of investors to lose their investments.", "conditions": [ "post 2008 Madoff related litigation" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2811718-028", "url": "https://wulfkaal.github.io/claims/2811718-028", "family": "information-asymmetry", "name": "diligence impossible where manager blocks access", "claim": "Because Madoff overtly disallowed scrutiny of his secretive and unconventional practices, it was impossible for feeder funds such as Rye to perform the due diligence they had represented to investors.", "conditions": [ "Madoff feeder funds", "In re Tremont" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2811718-029", "url": "https://wulfkaal.github.io/claims/2811718-029", "family": "investor-protection-gap", "name": "hindsight second guessing fails", "claim": "Claims in which investors use hindsight to second guess due diligence practices often fail, even when the manager was clearly incompetent.", "conditions": [ "securities fraud claims", "South Cherry Street" ], "topics": [ "securities-law", "law-and-legal-systems" ] }, { "id": "kaal:claim:2811718-031", "url": "https://wulfkaal.github.io/claims/2811718-031", "family": "fraud-and-misconduct", "name": "due diligence theater", "claim": "Advertising an elaborate multi limb due diligence process is no evidence that it was applied: Madoff's asset management advisers FIM Limited and FIM Advisers touted what sounded like above industry standards yet applied none of them to Madoff's firm and admitted as much.", "conditions": [ "In re Bernard L. Madoff Investment Securities LLC", "Kingate feeder funds" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:2811718-032", "url": "https://wulfkaal.github.io/claims/2811718-032", "family": "investor-protection-gap", "name": "unwritten and inexpert diligence process", "claim": "Expert testimony identifies recurring failures in private fund due diligence, including the absence of any written policy or process to ensure compliance and reliance on individuals with little or no experience, particularly with the particulars of hedge funds.", "conditions": [ "expert reports in the surveyed litigation record" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2811718-034", "url": "https://wulfkaal.github.io/claims/2811718-034", "family": "definitional-ambiguity", "name": "inconsistent legal standards", "claim": "The legal standards applicable to private fund investor due diligence are somewhat inconsistent and suboptimal and merit clarification.", "conditions": [ "United States case law from 1995 to 2015" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2811718-040", "url": "https://wulfkaal.github.io/claims/2811718-040", "family": "enforcement-gap", "name": "regulator declines to set effectiveness standard", "claim": "Despite bringing enforcement actions over misrepresentations about due diligence, the SEC has not taken a rigid enforcement position on whether particular due diligence industry practices are effective, and has merely acknowledged that practices became more robust after the financial crisis.", "conditions": [ "SEC enforcement posture as of 2016" ], "topics": [ "securities-law", "compliance", "law-and-legal-systems" ] }, { "id": "kaal:claim:2714974-006", "url": "https://wulfkaal.github.io/claims/2714974-006", "family": "definitional-ambiguity", "name": "Undefined statutory term defeats agency rulemaking", "claim": "The SEC's 2004 hedge fund adviser registration rule failed in court because the agency lacked authority to define the term client, which the Investment Advisers Act had not otherwise defined, and the D.C. Circuit in Goldstein vacated the rule as arbitrary rulemaking.", "conditions": [ "applies to rulemaking under the Investment Advisers Act of 1940" ], "topics": [ "dynamic-regulation", "securities-law" ] }, { "id": "kaal:claim:2714974-008", "url": "https://wulfkaal.github.io/claims/2714974-008", "family": "data-quality-and-comparability", "name": "Unobtainable counterparty exposure data", "claim": "Some of the most sensitive Form PF disclosures are not readily obtainable by the funds themselves: counterparty credit exposure often cannot be determined by individual fund managers, which makes the reporting requirement burdensome in practice.", "conditions": [ "applies to Form PF counterparty credit exposure reporting" ], "topics": [ "private-funds", "disclosure", "risk-and-incentives", "compliance" ] }, { "id": "kaal:claim:2714974-012", "url": "https://wulfkaal.github.io/claims/2714974-012", "family": "definitional-ambiguity", "name": "Ambiguous reporting requirements", "claim": "The most pressing problem with Form PF identified by the majority of SEC registered hedge fund advisers is not the volume of data but the ambiguity of the data reporting requirements themselves.", "conditions": [ "based on survey responses from SEC registered hedge fund advisers" ], "topics": [ "private-funds", "disclosure", "empirical-evidence" ] }, { "id": "kaal:claim:2714974-014", "url": "https://wulfkaal.github.io/claims/2714974-014", "family": "board-and-oversight-failure", "name": "Untailored compliance program", "claim": "Adopting a generic compliance program is not sufficient under Rule 206(4)-7: advisers that fail to specifically tailor their compliance program to their own business have incurred large penalties in SEC enforcement.", "conditions": [ "applies to funds subject to Rule 206(4)-7" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2714974-015", "url": "https://wulfkaal.github.io/claims/2714974-015", "family": "disclosure-ineffectiveness", "name": "Undisclosed co-investment allocation", "claim": "Co-investment arrangements become problematic when a fund grants a co-investment opportunity in exchange for a future or increased fund commitment and the practice is not adequately disclosed, especially where the fund's governing documents would prohibit the allocation.", "conditions": [ "applies where limited partners are also co-investors", "turns on adequacy of disclosure and the fund's governing documents" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:2714974-018", "url": "https://wulfkaal.github.io/claims/2714974-018", "family": "definitional-ambiguity", "name": "Absence of bright line verification standard", "claim": "New Rule 506(c) creates uncertainty for hedge fund advisers considering general solicitation and general advertising, because the SEC required reasonable steps to verify accreditation without supplying a bright line rule for the content of such solicitation.", "conditions": [ "applies to Regulation D offerings under Rule 506(c) after September 23, 2013" ], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:2714974-019", "url": "https://wulfkaal.github.io/claims/2714974-019", "family": "incumbent-resistance-to-adoption", "name": "Unused deregulatory permission", "claim": "Although the JOBS Act rules freed hedge fund managers to advertise, talk to reporters, and speak at conferences from September 23, 2013, very few managers actually engage in these less restrictive communications with potential investors.", "conditions": [ "applies to the period after Rule 506(c) took effect" ], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:2714974-020", "url": "https://wulfkaal.github.io/claims/2714974-020", "family": "compliance-cost-and-barrier-to-entry", "name": "Verification liability chills use of Rule 506(c)", "claim": "The investor verification requirement defeats the purpose of the Rule 506(c) liberalization: fearing liability for investor misrepresentations of personal wealth, most hedge funds raising money from individuals continue to use old Rule 506 rather than Rule 506(c).", "conditions": [ "applies to funds raising capital from individual investors" ], "topics": [ "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:2714974-021", "url": "https://wulfkaal.github.io/claims/2714974-021", "family": "definitional-ambiguity", "name": "Indeterminate reasonable steps standard", "claim": "Until the SEC finalizes verification rules and gives a clear, comprehensive definition of the reasonable steps an issuer must take, issuers cannot determine at the time of sale whether their verification attempts made general solicitation permissible.", "conditions": [ "conditional on the absence of finalized SEC verification guidance" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:2714974-022", "url": "https://wulfkaal.github.io/claims/2714974-022", "family": "investor-protection-gap", "name": "Both remedies for sales pressure underperform", "claim": "Neither obvious remedy for the increased sales pressure created by the Rule 506 amendment works well: added disclosure obligations such as filing all Rule 506 sales documents with FINRA or the SEC may burden issuers inappropriately, while litigation based enforcement may not reach all offenders equally or appropriately.", "conditions": [ "applies to private placements where commissions exceed those on other investments" ], "topics": [ "compliance", "disclosure" ] }, { "id": "kaal:claim:2714974-026", "url": "https://wulfkaal.github.io/claims/2714974-026", "family": "measurement-and-metric-failure", "name": "Balance sheet leverage mismeasurement", "claim": "Direct regulation of hedge fund leverage collapses on the details because balance sheet leverage is not an adequate measure of risk and would push funds into off-balance sheet avoidance strategies.", "conditions": [ "applies to proposals for direct leverage regulation" ], "topics": [ "regulatory-failure", "research-methods", "risk-and-incentives" ] }, { "id": "kaal:claim:2714974-027", "url": "https://wulfkaal.github.io/claims/2714974-027", "family": "liquidity-and-market-structure-failure", "name": "Conservative calibration destroys liquidity provision", "claim": "Alternative risk measures such as value at risk have severe measurement problems, so any direct regulation of leverage would be set conservatively and would substantially limit hedge funds' ability to provide market liquidity.", "conditions": [ "applies to direct regulation of hedge fund leverage" ], "topics": [ "risk-and-incentives", "defi", "economics", "research-methods" ] }, { "id": "kaal:claim:2714974-028", "url": "https://wulfkaal.github.io/claims/2714974-028", "family": "moral-hazard-and-bailout-expectation", "name": "Regulatory crowding out of private monitoring", "claim": "Direct regulation of hedge fund leverage increases moral hazard costs, because lenders and counterparties relax their own vigilance once they rely on government rules to constrain fund risk taking.", "conditions": [ "applies where government rules substitute for private monitoring" ], "topics": [ "risk-and-incentives", "economics", "compliance" ] }, { "id": "kaal:claim:2714974-029", "url": "https://wulfkaal.github.io/claims/2714974-029", "family": "moral-hazard-and-bailout-expectation", "name": "Prescriptive regime destabilization", "claim": "Any prescriptive regulatory regime for hedge funds risks leaving the financial system less stable rather than more stable, because counterparties relax vigilance when they believe authorities are monitoring and constraining fund risk taking.", "conditions": [ "applies to prescriptive position reporting and monitoring regimes" ], "topics": [ "risk-and-incentives", "compliance" ] }, { "id": "kaal:claim:2714974-033", "url": "https://wulfkaal.github.io/claims/2714974-033", "family": "disclosure-ineffectiveness", "name": "Aggregation destroys informational value", "claim": "A system in which hedge funds submit position information to an authority that aggregates and publishes it cannot address liquidity risk, because protecting proprietary information requires so much aggregation that the resulting information loses value to market participants.", "conditions": [ "applies to position reporting regimes that publish aggregated data" ], "topics": [ "disclosure", "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:2714974-034", "url": "https://wulfkaal.github.io/claims/2714974-034", "family": "disclosure-ineffectiveness", "name": "Demystification without risk reduction", "claim": "A public database of nonproprietary hedge fund information might demystify the industry, but it would not address the central policy concern that opacity creates liquidity risk.", "conditions": [ "applies to public databases limited to nonproprietary information" ], "topics": [ "disclosure", "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:2714974-040", "url": "https://wulfkaal.github.io/claims/2714974-040", "family": "compliance-cost-and-barrier-to-entry", "name": "Compliance cost entry barrier", "claim": "Higher compliance costs from hedge fund regulation can create barriers to entry for new market entrants and can accelerate consolidation of the hedge fund industry.", "conditions": [ "follows from increased compliance costs under the Dodd-Frank Act" ], "topics": [ "risk-and-incentives", "compliance" ] }, { "id": "kaal:claim:2739479-002", "url": "https://wulfkaal.github.io/claims/2739479-002", "family": "enforcement-gap", "name": "Vacated rule reversion", "claim": "The SEC's 2004 attempt to require hedge fund adviser registration failed: after the D.C. Circuit vacated the rule in Goldstein v. SEC, the overwhelming majority of private fund advisers that had registered under the 2004 requirements deregistered.", "conditions": [ "SEC rulemaking under the Investment Advisers Act before Dodd-Frank", "after the 2006 Goldstein decision" ], "topics": [ "securities-law", "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2739479-009", "url": "https://wulfkaal.github.io/claims/2739479-009", "family": "compliance-cost-and-barrier-to-entry", "name": "Regressive compliance burden", "claim": "Smaller private funds spend more on compliance than larger ones, both as a share of AUM and relative to operating costs, which means increasing regulatory scrutiny falls disproportionately on smaller funds.", "conditions": [ "private fund advisers subject to Dodd-Frank compliance obligations", "compliance measured as share of AUM and of operating costs" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2739479-011", "url": "https://wulfkaal.github.io/claims/2739479-011", "family": "regulatory-arbitrage", "name": "Credit migration outside the banking perimeter", "claim": "Because the Dodd-Frank Act discouraged banks from growing too large and made bank lending harder, private funds and other alternative lenders filled the resulting void by financing small and medium sized businesses that traditional banks no longer served.", "conditions": [ "United States lending markets after Dodd-Frank", "small and medium sized business borrowers" ], "topics": [ "systemic-risk", "private-funds", "defi", "regulatory-failure" ] }, { "id": "kaal:claim:2739479-014", "url": "https://wulfkaal.github.io/claims/2739479-014", "family": "incumbent-resistance-to-adoption", "name": "Unused deregulatory option", "claim": "Lifting the ban on general solicitation and general advertising was a significant formal change for private funds, but the new advertising opportunities are being taken up only reluctantly, and uncertainty about investor verification rules together with specific restrictions makes advertising by private fund advisers unlikely for the foreseeable future.", "conditions": [ "Rule 506(c) offerings after the September 2013 effective date", "private fund and private equity advisers" ], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:2739479-017", "url": "https://wulfkaal.github.io/claims/2739479-017", "family": "sample-and-selection-bias", "name": "Private fund survey nonresponse", "claim": "Survey research on private fund advisers is structurally constrained because these advisers traditionally oppose publicity and hold a strong preference for confidentiality and privacy, which makes a substantial effective sample size difficult to obtain.", "conditions": [ "survey research on registered private fund advisers" ], "topics": [ "empirical-evidence", "research-methods", "private-funds", "law-and-legal-systems" ] }, { "id": "kaal:claim:2739479-028", "url": "https://wulfkaal.github.io/claims/2739479-028", "family": "research-design-limitation", "name": "Cost offset inference in tension with fee practice", "claim": "The finding that advisers size AUM around regulatory cost is in tension with anecdotal evidence, since only a minority of private investment funds pay expenses out of the management fee at all.", "conditions": [ "private fund expense allocation practice", "survey inference about the AUM decision" ], "topics": [ "empirical-evidence", "private-funds" ] }, { "id": "kaal:claim:2739479-034", "url": "https://wulfkaal.github.io/claims/2739479-034", "family": "compliance-cost-and-barrier-to-entry", "name": "Compliance cost pass-through to investors", "claim": "Passing compliance costs through to reporting funds applies those costs against the funds' trading revenues, which produces an overall adverse impact on fund earnings and so shifts the burden of regulation onto investors.", "conditions": [ "funds subject to adviser expense pass-through terms" ], "topics": [ "compliance", "private-funds" ] }, { "id": "kaal:claim:2739479-040", "url": "https://wulfkaal.github.io/claims/2739479-040", "family": "compliance-cost-and-barrier-to-entry", "name": "Regulatory barriers to entry for small firms", "claim": "Barriers to entry for small firms are becoming an increasing problem in the private fund industry under the evolving post-Dodd-Frank legal environment, with references to such barriers rising from 24 percent of respondents in 2012 to 33 percent in 2015.", "conditions": [ "small private fund market entrants", "2012 and 2015 survey responses about the next five years" ], "topics": [ "risk-and-incentives", "compliance", "economics" ] }, { "id": "kaal:claim:2732915-006", "url": "https://wulfkaal.github.io/claims/2732915-006", "family": "sample-and-selection-bias", "name": "Confidentiality driven nonresponse", "claim": "Because private fund advisers prefer confidentiality and generally oppose publicity, most do not respond to survey questions, which makes obtaining a substantial effective sample size for survey studies of this industry difficult.", "conditions": [ "survey research targeting private fund advisers" ], "topics": [ "empirical-evidence", "research-methods", "private-funds" ] }, { "id": "kaal:claim:2732915-007", "url": "https://wulfkaal.github.io/claims/2732915-007", "family": "research-design-limitation", "name": "Anonymity versus descriptive depth tradeoff", "claim": "Guaranteeing complete anonymity is essential to obtaining a sufficient response rate from private fund advisers, but that guarantee prevents a broader descriptive statistical analysis of the sample.", "conditions": [ "survey studies of private fund advisers who fear identification" ], "topics": [ "empirical-evidence", "research-methods" ] }, { "id": "kaal:claim:2732915-008", "url": "https://wulfkaal.github.io/claims/2732915-008", "family": "enforcement-gap", "name": "Judicial invalidation unwinds registration", "claim": "After the D.C. Circuit vacated the SEC's 2004 hedge fund adviser registration rule in Goldstein v. SEC, the overwhelming majority of private fund advisers who had registered under that rule deregistered.", "conditions": [ "private fund advisers registered under the SEC 2004 rule", "after the 2006 Goldstein decision" ], "topics": [ "securities-law", "dynamic-regulation" ] }, { "id": "kaal:claim:2732915-012", "url": "https://wulfkaal.github.io/claims/2732915-012", "family": "data-quality-and-comparability", "name": "Undeterminable counterparty exposure data", "claim": "Form PF required disclosures of counterparty credit exposure constitute sensitive information that individual fund managers often cannot readily determine, which makes that reporting requirement hard to satisfy.", "conditions": [ "Form PF counterparty credit exposure items" ], "topics": [ "private-funds", "disclosure" ] }, { "id": "kaal:claim:2732915-023", "url": "https://wulfkaal.github.io/claims/2732915-023", "family": "compliance-cost-and-barrier-to-entry", "name": "Disproportionate burden on smaller advisers", "claim": "Up to $100,000 in additional Dodd-Frank compliance cost is a significant imposition on a smaller private fund adviser, whereas larger and mid sized advisers can absorb it relatively easily or pass it on to clients, so the burden of Title IV is size dependent.", "conditions": [ "anecdotal evidence supplementing the survey results", "distinguishes smaller advisers from larger and mid sized advisers" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:2732915-038", "url": "https://wulfkaal.github.io/claims/2732915-038", "family": "compliance-cost-and-barrier-to-entry", "name": "Regulatory cost as entry barrier", "claim": "The long-term effect of the Dodd-Frank Act on the private investment fund industry is likely to be characterized by increasing additional expenses and associated barriers to entry for new market entrants.", "conditions": [ "inference from respondent forecasts for the next five years" ], "topics": [ "risk-and-incentives", "economics" ] }, { "id": "kaal:claim:2732915-040", "url": "https://wulfkaal.github.io/claims/2732915-040", "family": "compliance-cost-and-barrier-to-entry", "name": "Clarification generates uncertainty and cost", "claim": "The same SEC implementation and clarification of Dodd-Frank registration and reporting requirements that helps the industry comply also creates uncertainty and higher costs for it, so continuing rule development cuts both ways.", "conditions": [ "continuing SEC amendment of rules and reporting forms after Title IV" ], "topics": [ "dynamic-regulation", "securities-law", "compliance", "private-funds" ] }, { "id": "kaal:claim:2811729-001", "url": "https://wulfkaal.github.io/claims/2811729-001", "family": "disclosure-ineffectiveness", "name": "Disclosure regime outpaced by product complexity", "claim": "The proliferation of unconstrained mutual funds calls into question whether the retail investor protections built into the Investment Company Act of 1940 remain effective.", "conditions": [ "U.S. registered open-end investment companies", "unconstrained credit strategies sold to retail investors" ], "topics": [ "private-funds" ] }, { "id": "kaal:claim:2811729-005", "url": "https://wulfkaal.github.io/claims/2811729-005", "family": "regulatory-arbitrage", "name": "Same risk, different investor gate", "claim": "The investor eligibility line has become arbitrary in the credit space: private funds implementing substantially the same investment strategy as a fixed income unconstrained mutual fund, and carrying substantially the same risks, may be sold only to high net worth and sophisticated investors through private placements.", "conditions": [ "fixed income focused unconstrained mutual funds compared with credit private funds" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:2811729-008", "url": "https://wulfkaal.github.io/claims/2811729-008", "family": "investor-protection-gap", "name": "No performance premium for added risk", "claim": "Unconstrained mutual funds have not delivered superior performance: Morningstar data for funds with three years of investing history offer no evidence that they outperform mutual funds in comparable asset classifications.", "conditions": [ "unconstrained mutual funds with at least three years of investing history" ], "topics": [ "private-funds", "empirical-evidence" ] }, { "id": "kaal:claim:2811729-009", "url": "https://wulfkaal.github.io/claims/2811729-009", "family": "agency-cost-and-managerial-opportunism", "name": "High fees paired with underperformance", "claim": "Average unconstrained mutual fund performance over the three years preceding the study was lower than the return on the ten-year Treasury, and poor performance was often accompanied by high fees and increased credit risk.", "conditions": [ "three-year period preceding the study" ], "topics": [ "risk-and-incentives", "private-funds" ] }, { "id": "kaal:claim:2811729-010", "url": "https://wulfkaal.github.io/claims/2811729-010", "family": "information-asymmetry", "name": "Analyst opacity", "claim": "The complexity of unconstrained mutual fund trading has grown to the point that even leading professional analysts struggle to assess these funds' portfolios and their performance.", "conditions": [ "professional fund research analysts evaluating unconstrained funds" ], "topics": [ "disclosure", "economics" ] }, { "id": "kaal:claim:2811729-011", "url": "https://wulfkaal.github.io/claims/2811729-011", "family": "information-asymmetry", "name": "Go anywhere opacity", "claim": "The go anywhere features of unconstrained mutual funds impede a retail investor's ability to ascertain and understand what the fund is invested in and what risks those investments carry.", "conditions": [ "retail investors relying on fund disclosures" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:2811729-012", "url": "https://wulfkaal.github.io/claims/2811729-012", "family": "data-quality-and-comparability", "name": "No comparative yardstick", "claim": "Three features make it uniquely challenging for retail investors to evaluate the risks of unconstrained mutual funds: the lack of standard benchmarks, the recent emergence of the fund type, and the diversity and complexity of the strategies and risk exposures involved.", "conditions": [ "retail investors evaluating unconstrained mutual fund securities" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:2811729-014", "url": "https://wulfkaal.github.io/claims/2811729-014", "family": "enforcement-gap", "name": "Uncapped synthetic leverage", "claim": "The SEC's interpretation of Section 18 leaves a mutual fund subject to no statutory limitation or cap on its ability to borrow through the use of derivative instruments, provided the fund adheres to its asset segregation obligations.", "conditions": [ "mutual funds using derivatives under SEC Section 18 guidance as of 2016" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2811729-015", "url": "https://wulfkaal.github.io/claims/2811729-015", "family": "enforcement-gap", "name": "Instrument-specific rule misses strategy-level risk", "claim": "Proposed Rule 18f-4 would be highly limited in mitigating liquidity and other risks in an unconstrained mutual fund portfolio, because material leverage, counterparty, and liquidity risks in such a fund can arise from investments in a range of non-derivative instruments that the rule does not reach.", "conditions": [ "proposed Company Act Rule 18f-4 as proposed in December 2015", "unconstrained mutual funds with broad investment authority" ], "topics": [ "defi", "risk-and-incentives", "dynamic-regulation", "securities-law" ] }, { "id": "kaal:claim:2811729-027", "url": "https://wulfkaal.github.io/claims/2811729-027", "family": "investor-protection-gap", "name": "Private fund risk without private fund reward", "claim": "Unconstrained mutual funds take on private fund-like risk without a corresponding return advantage: private funds' incentives and investment flexibility help explain their performance advantage over mutual funds, but the performance record of unconstrained mutual funds is less clearly distinguished from that of other mutual funds.", "conditions": [ "comparison of unconstrained mutual funds with private funds and conventional mutual funds" ], "topics": [ "risk-and-incentives", "private-funds" ] }, { "id": "kaal:claim:2811729-029", "url": "https://wulfkaal.github.io/claims/2811729-029", "family": "disclosure-ineffectiveness", "name": "Compliant disclosure that still fails to inform", "claim": "Reliance on prospectuses and other disclosures by an unconstrained mutual fund that in all material respects complies with the Company Act may be insufficient to protect retail investors.", "conditions": [ "unconstrained mutual funds in full compliance with the Company Act", "retail investors relying on prospectus disclosure" ], "topics": [ "disclosure", "securities-law" ] }, { "id": "kaal:claim:2811729-030", "url": "https://wulfkaal.github.io/claims/2811729-030", "family": "disclosure-ineffectiveness", "name": "Comprehension gap", "claim": "It is questionable whether retail investors typically have the experience or training to fully appreciate the risks disclosed in unconstrained mutual fund prospectuses.", "conditions": [ "average retail investors reading unconstrained fund prospectuses" ], "topics": [ "disclosure", "securities-law" ] }, { "id": "kaal:claim:2811729-031", "url": "https://wulfkaal.github.io/claims/2811729-031", "family": "disclosure-ineffectiveness", "name": "Disclosure saturation does not produce understanding", "claim": "The broad investment authority of unconstrained mutual fund managers exposes retail investors to fluid trading and investing patterns that the average retail investor is unlikely to sufficiently appreciate, regardless of the nature and quantum of disclosure, so additional disclosure cannot close the gap.", "conditions": [ "retail investors in funds whose managers hold broad go anywhere authority" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:2811729-032", "url": "https://wulfkaal.github.io/claims/2811729-032", "family": "measurement-and-metric-failure", "name": "Benchmark absence blocks performance assessment", "claim": "Because an unconstrained mutual fund's performance is typically not assessed against any established benchmark, the retail investor must evaluate the fund without the contextual information routinely available for mutual funds pursuing more traditional credit strategies.", "conditions": [ "unconstrained funds that decline to adopt a benchmark" ], "topics": [ "economics", "disclosure" ] }, { "id": "kaal:claim:2811729-033", "url": "https://wulfkaal.github.io/claims/2811729-033", "family": "investor-protection-gap", "name": "Regulatory halo effect", "claim": "Retail investors may be led to believe that unconstrained mutual funds are safe relative to other fixed income mutual funds precisely because they are marketed, offered, and regulated as mutual funds, a risk that is unique to retail investors in these funds.", "conditions": [ "retail investors purchasing unconstrained funds through mutual fund channels" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2811729-034", "url": "https://wulfkaal.github.io/claims/2811729-034", "family": "investor-protection-gap", "name": "False transfer of prior fund experience", "claim": "A retail investor's experience investing in traditional mutual funds is likely to be a poor indicator of whether that investor will understand the risks of investing in an unconstrained mutual fund.", "conditions": [ "retail investors extrapolating from prior traditional mutual fund experience" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2811729-036", "url": "https://wulfkaal.github.io/claims/2811729-036", "family": "investor-protection-gap", "name": "Statutory protections misaligned with actual fund risk", "claim": "The Company Act's retail investor protection policies do not take sufficiently into account the investment strategy and risk attributes that unconstrained mutual funds share with private funds.", "conditions": [ "Investment Company Act protections as applied to unconstrained mutual funds" ], "topics": [ "private-funds" ] }, { "id": "kaal:claim:2811729-037", "url": "https://wulfkaal.github.io/claims/2811729-037", "family": "enforcement-gap", "name": "Regulator inaction despite identified risk", "claim": "Given the risks to retail investors of investing in complex unconstrained mutual funds and the SEC's own concern about the retailization of private funds, it is unclear why the SEC has not acted to enhance protections for retail purchasers of unconstrained mutual fund shares.", "conditions": [ "SEC regulatory posture as of 2016" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:2811729-039", "url": "https://wulfkaal.github.io/claims/2811729-039", "family": "disclosure-ineffectiveness", "name": "Complexity-blind disclosure policy", "claim": "The SEC continues to rely on disclosure as the means of mitigating investor risk from unconstrained and other mutual funds irrespective of the complexity of those funds' portfolios and strategies.", "conditions": [ "SEC disclosure policy for mutual funds as of 2016" ], "topics": [ "disclosure", "securities-law" ] }, { "id": "kaal:claim:2811729-040", "url": "https://wulfkaal.github.io/claims/2811729-040", "family": "disclosure-ineffectiveness", "name": "Prospectus may not meet the statutory adequacy standard", "claim": "The absence of any current requirement to present unconstrained portfolio risks in detail raises the question whether unconstrained mutual fund prospectuses provide the adequate, accurate, and explicit information required by Section 1(b)(1) of the Company Act.", "conditions": [ "unconstrained mutual fund prospectuses under existing disclosure requirements" ], "topics": [ "securities-law", "disclosure" ] }, { "id": "kaal:claim:2740477-001", "url": "https://wulfkaal.github.io/claims/2740477-001", "family": "rule-obsolescence-and-ossification", "name": "Unsustainable ex post trial and error rulemaking", "claim": "Ex post trial and error rulemaking built on stable and presumptively optimal rules produces suboptimal regulatory outcomes that are no longer sustainable once disruptive innovation grows exponentially.", "conditions": [ "environment of exponential disruptive innovation", "existing regulatory framework of stable rules" ], "topics": [ "dynamic-regulation", "innovation", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-002", "url": "https://wulfkaal.github.io/claims/2740477-002", "family": "regulatory-lag", "name": "Information lag in rulemaking", "claim": "Under exponential disruptive innovation the information rulemakers need arrives too late for trial and error rulemaking to be effective, regulatory issues grow more complex, and unknown future contingencies in the rulemaking process increase substantially.", "conditions": [ "exponential rates of disruptive innovation" ], "topics": [ "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-003", "url": "https://wulfkaal.github.io/claims/2740477-003", "family": "regulatory-lag", "name": "Regulatory process overwhelmed", "claim": "Exponential disruptive innovation has the potential to overwhelm the existing regulatory process outright, not merely to strain it.", "conditions": [], "topics": [ "innovation", "regulatory-failure", "dynamic-regulation" ] }, { "id": "kaal:claim:2740477-007", "url": "https://wulfkaal.github.io/claims/2740477-007", "family": "legal-personality-and-liability-gap", "name": "AI liability gap from absent legal personality", "claim": "Artificial intelligence cannot be held personally liable for damage it causes because national and international law do not currently recognize it as a subject of law, so compensation must be forced through existing provisions never designed for it.", "conditions": [ "current state of national and international law", "damage caused by autonomous AI" ], "topics": [ "ai-and-agents", "law-and-legal-systems" ] }, { "id": "kaal:claim:2740477-008", "url": "https://wulfkaal.github.io/claims/2740477-008", "family": "rule-obsolescence-and-ossification", "name": "Category mismatch between technology and law", "claim": "Disruptive innovative technology frequently does not fit the legal categories created by recalcitrant regulatory structures, so the classification problem itself is a source of regulatory failure.", "conditions": [], "topics": [ "law-and-legal-systems", "innovation", "systemic-risk" ] }, { "id": "kaal:claim:2740477-009", "url": "https://wulfkaal.github.io/claims/2740477-009", "family": "regulatory-arbitrage", "name": "Regulatory arbitrage by disruptive firms", "claim": "When disruptive firms do not comply with existing rules or write their own exemptions because no appropriate rules exist, consumer protection and public safety goals are undermined and incumbent firms still bound by the rules suffer severe competitive disadvantages.", "conditions": [ "disruptive products or services that fall outside or evade the existing regulatory framework" ], "topics": [ "regulatory-failure", "innovation" ] }, { "id": "kaal:claim:2740477-010", "url": "https://wulfkaal.github.io/claims/2740477-010", "family": "regulatory-capture-and-incumbent-advantage", "name": "Incumbent weaponization of the regulatory process", "claim": "Incumbent firms facing the competitive disadvantage created by disruptive entrants respond by using the existing regulatory process itself to build obstacles to competition, which converts rulemaking into an instrument of incumbent protection.", "conditions": [ "incumbents perceive a threat from disruptive firms", "incumbents remain subject to rules the entrants avoid" ], "topics": [ "regulatory-failure", "innovation" ] }, { "id": "kaal:claim:2740477-011", "url": "https://wulfkaal.github.io/claims/2740477-011", "family": "supervisory-capacity-gap", "name": "Political confusion under complexity", "claim": "The rising complexity of innovation driven regulatory issues confuses political and policy makers about rapidly emerging disruptive change, which makes a coherent political and policy solution to those challenges less likely.", "conditions": [ "rapidly emerging and complex disruptive change" ], "topics": [ "economics", "innovation" ] }, { "id": "kaal:claim:2740477-012", "url": "https://wulfkaal.github.io/claims/2740477-012", "family": "innovation-chilling", "name": "Uncertainty induced innovation chilling", "claim": "Rulemakers' inability to address the regulatory issues raised by disruptive innovation will generate high levels of legal uncertainty and inconsistency, and that uncertainty inhibits innovation during technological transition periods.", "conditions": [ "technological transition periods" ], "topics": [ "law-and-legal-systems", "innovation", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-013", "url": "https://wulfkaal.github.io/claims/2740477-013", "family": "innovation-chilling", "name": "Permanent technological transition", "claim": "Technological transition will be a permanent state in the age of disruptive innovation, so the uncertainty and inconsistency caused by rulemakers' inability to react in time is a standing condition rather than a transitional cost.", "conditions": [], "topics": [ "law-and-legal-systems", "innovation", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-014", "url": "https://wulfkaal.github.io/claims/2740477-014", "family": "regulatory-lag", "name": "No anticipatory information channel to rulemakers", "claim": "The current regulatory framework contains no mechanism that succinctly and anticipatorily informs rulemakers of beneficial innovative ideas, which is the specific informational gap the article proposes to fill.", "conditions": [ "notice and comment rulemaking under the existing framework" ], "topics": [ "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-015", "url": "https://wulfkaal.github.io/claims/2740477-015", "family": "innovation-chilling", "name": "Process design that undermines innovation", "claim": "The existing rulemaking process prohibits ex parte communications and insufficiently integrates brainstorming and ideas across industries, and therefore may actually undermine innovation rather than merely lag behind it.", "conditions": [ "formal notice and comment rulemaking" ], "topics": [ "dynamic-regulation", "innovation", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-016", "url": "https://wulfkaal.github.io/claims/2740477-016", "family": "regulatory-lag", "name": "Missing precondition for trial and error rulemaking", "claim": "Ex post trial and error rulemaking requires as a precondition that information about optimized rule requirements becomes available, and in an age of exponential innovation that information may never materialize or may arrive too late for the method to work.", "conditions": [ "exponential rates of innovation" ], "topics": [ "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-018", "url": "https://wulfkaal.github.io/claims/2740477-018", "family": "rule-obsolescence-and-ossification", "name": "Governance adjustment overload", "claim": "If rulemakers cannot adequately protect their constituents through stable and presumptively optimal rules, then regulatory supplements that facilitate anticipatory rulemaking are justified.", "conditions": [ "exponential growth of technology and innovation", "rulemakers unable to protect constituents with stable rules" ], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2740477-019", "url": "https://wulfkaal.github.io/claims/2740477-019", "family": "regulatory-lag", "name": "Timing dilemma of early versus late regulation", "claim": "Regulatory timing under disruptive innovation is a two sided risk: regulate too early and innovation is inhibited, withhold regulation too long and consumers and markets are harmed once regulatory inertia has formed around the disruptive product or service.", "conditions": [ "regulation of a disruptive product or service" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2740477-020", "url": "https://wulfkaal.github.io/claims/2740477-020", "family": "regulatory-lag", "name": "Rulemaking one product cycle behind", "claim": "Formal rulemaking is simply too time consuming for disruptive innovation: the speed of product innovation lets a new product reach the market while a rulemaking that takes months or years is still processing the previous product launch.", "conditions": [ "formal rulemaking in the existing regulatory infrastructure", "high speed of product innovation" ], "topics": [ "dynamic-regulation", "systemic-risk" ] }, { "id": "kaal:claim:2740477-021", "url": "https://wulfkaal.github.io/claims/2740477-021", "family": "rule-obsolescence-and-ossification", "name": "Rules obsolete on arrival", "claim": "New regulations aimed at an innovative product can be obsolete before they are finalized.", "conditions": [ "formal rulemaking timelines of months to years" ], "topics": [ "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2740477-022", "url": "https://wulfkaal.github.io/claims/2740477-022", "family": "regulatory-lag", "name": "Political pressure trigger requirement", "claim": "Because it lacks anticipatory rulemaking capability, the existing regulatory system addresses issues only ex post, and only once they have materialized and burdened core constituents enough to generate political pressure on lawmakers.", "conditions": [ "issues must materialize and burden core constituents before action" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:2740477-023", "url": "https://wulfkaal.github.io/claims/2740477-023", "family": "regulatory-lag", "name": "Expedited rulemaking under crisis timing", "claim": "Evidence shows that the suboptimal ex post timing of rulemaking regularly forces expedited rulemaking, and expedited rulemaking itself produces suboptimal regulatory outcomes.", "conditions": [], "topics": [ "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-024", "url": "https://wulfkaal.github.io/claims/2740477-024", "family": "rule-obsolescence-and-ossification", "name": "Deferred suboptimality correction cycle", "claim": "Accepting suboptimal rules temporarily buys rule certainty and predictability but guarantees a later cycle of revision, amendment, and repeal, so rulemakers trade short term certainty for a costly correction process.", "conditions": [ "rulemakers knowingly accept suboptimalities tied to unknown future contingencies" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2740477-025", "url": "https://wulfkaal.github.io/claims/2740477-025", "family": "rule-obsolescence-and-ossification", "name": "Revision process cannot track innovation", "claim": "The current process of rule revisions, amendments, and repeals used to fix the inevitable shortcomings of stable rules is costly, time consuming, and in the authors' estimation cannot keep track of future innovations and the regulatory needs they create.", "conditions": [], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:2740477-026", "url": "https://wulfkaal.github.io/claims/2740477-026", "family": "regulatory-lag", "name": "Accelerated regulatory sine curve", "claim": "Exponential innovation will intensify the frequency of the regulatory sine curve, because rulemakers are still trying to comprehend the regulatory demands of the last wave of innovation while the next wave is already in full force.", "conditions": [ "exponential rates of innovation" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2740477-030", "url": "https://wulfkaal.github.io/claims/2740477-030", "family": "regulatory-lag", "name": "Reactive procyclical regulation", "claim": "Regulation is mostly reactive and follows business cycles rather than preempting crises, because of the collective action problem of regulation, path dependencies, and political inertia, so rules arrive when governance improvements are least available.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2740477-032", "url": "https://wulfkaal.github.io/claims/2740477-032", "family": "rule-obsolescence-and-ossification", "name": "Self reinforcing suboptimal rulemaking loop", "claim": "The existing framework for optimal rules is self reinforcing: it perpetuates rulemaking processes that produce more optimal rules requiring costly revision, updating, and revocation, so suboptimal rules and suboptimal processes reproduce each other.", "conditions": [], "topics": [ "institutional-design", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-038", "url": "https://wulfkaal.github.io/claims/2740477-038", "family": "measurement-and-metric-failure", "name": "Venture capital signal not validated by the market", "claim": "The authors concede a limitation of their own proposal: the innovation potential identified by venture capital finance allocation may not always be shared by the market at large.", "conditions": [ "technology companies increasingly staying private", "market undervaluation of formerly venture capital financed companies" ], "topics": [ "innovation", "law-and-legal-systems", "economics" ] }, { "id": "kaal:claim:2740477-039", "url": "https://wulfkaal.github.io/claims/2740477-039", "family": "regulatory-lag", "name": "Regulatory lag behind venture capital", "claim": "Venture capital has outrun regulation and regulation is now too slow to react, and that lag itself damages the process.", "conditions": [], "topics": [ "innovation", "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:2740477-040", "url": "https://wulfkaal.github.io/claims/2740477-040", "family": "innovation-chilling", "name": "SEC micromanagement slowing venture capital", "claim": "The notice and comment procedures of the SEC are too slow, and the SEC's outdated micromanagement of markets is itself slowing down venture capital.", "conditions": [ "United States securities regulation" ], "topics": [ "securities-law", "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2959730-007", "url": "https://wulfkaal.github.io/claims/2959730-007", "family": "information-asymmetry", "name": "Contested track record problem for new managers", "claim": "New managers increasingly face contested track records, meaning the new firm cannot get a consensus from the manager's old employer about the manager's track record with that employer.", "conditions": [ "first time managers spinning out of a prior employer" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:2959730-011", "url": "https://wulfkaal.github.io/claims/2959730-011", "family": "agency-cost-and-managerial-opportunism", "name": "Fee structure unjustified by net of fee performance", "claim": "In the Buffett and Seides wager on net of fee returns, the passive S&P 500 index position produced a 7.1% compounded annual return after nine years against 2.2% for the five hedge funds of funds, evidence that industry performance does not justify the 2/20 fee structure.", "conditions": [ "nine years into the ten year 2008 to 2017 wager", "returns measured net of fees" ], "topics": [ "private-funds" ] }, { "id": "kaal:claim:2959730-023", "url": "https://wulfkaal.github.io/claims/2959730-023", "family": "interoperability-and-fragmentation", "name": "Fragmented and duplicative private equity administration", "claim": "The current legal and administrative processes that support private equity are time consuming, expensive, lack transparency, and involve lengthy, duplicative, and fragmented investment and administrative processes.", "conditions": [ "private equity deal administration prior to blockchain adoption" ], "topics": [ "private-funds", "economics", "disclosure", "blockchain" ] }, { "id": "kaal:claim:2959730-030", "url": "https://wulfkaal.github.io/claims/2959730-030", "family": "scalability-and-throughput-limit", "name": "Prohibitive manual workload of per transaction fee settlement", "claim": "Traditional per transaction fee models failed because settlement and calculation created a prohibitive amount of work that made such operations very difficult to execute; blockchain technology overcomes all of these restrictions.", "conditions": [ "fee models requiring manual reconciliation and settlement" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2959730-031", "url": "https://wulfkaal.github.io/claims/2959730-031", "family": "data-quality-and-comparability", "name": "Human error in manual fee calculation", "claim": "Manual per transaction fee calculation and settlement is prone to human error, and these errors are removed through the use of blockchain technology.", "conditions": [ "fee calculation and settlement performed manually" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2998033-004", "url": "https://wulfkaal.github.io/claims/2998033-004", "family": "legal-personality-and-liability-gap", "name": "smart-contract-unenforceability", "claim": "Smart contracts face a legal enforceability risk: they may be attacked as void and unenforceable, because contract law rules on formation, interpretation, conditions and remedies were not written for coded agreements and require substantive adjustment.", "conditions": [ "applies under contract law regimes that have not been amended to recognize smart contracts" ], "topics": [ "smart-contracts", "law-and-legal-systems" ] }, { "id": "kaal:claim:2998033-005", "url": "https://wulfkaal.github.io/claims/2998033-005", "family": "privacy-and-surveillance-risk", "name": "cross-border-node-storage-noncompliance", "claim": "Blockchain creates a data protection paradox: the technology itself offers strong privacy protection, yet storing blockchain data across a global network of nodes will often violate specific consumer protection rules and directives in individual jurisdictions.", "conditions": [ "applies where consumer protection or data protection rules impose jurisdiction specific storage requirements" ], "topics": [ "consensus-and-security", "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:2998033-006", "url": "https://wulfkaal.github.io/claims/2998033-006", "family": "incumbent-resistance-to-adoption", "name": "incumbent-resistance-to-adoption", "claim": "Blockchain enabled services should expect the same incumbent resistance that sharing platforms encountered, so technical viability will not by itself produce rapid market acceptance.", "conditions": [ "applies where incumbents are challenged by a new way of delivering an existing service or product" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2998033-007", "url": "https://wulfkaal.github.io/claims/2998033-007", "family": "smart-contract-bug-and-exploit", "name": "dao-code-exploit", "claim": "The DAO failed because of fundamental flaws in its own code, which allowed hackers to move one third of its funds to a subsidiary account, showing that governance built entirely on smart contracts inherits the defects of its code.", "conditions": [ "applies to organizations whose governance and asset control rest entirely on open source smart contract code" ], "topics": [ "dao", "governance-design", "smart-contracts" ] }, { "id": "kaal:claim:2998033-008", "url": "https://wulfkaal.github.io/claims/2998033-008", "family": "innovation-chilling", "name": "regulatory-recognition-gap", "claim": "The absence of regulatory recognition of blockchain technology is itself a source of harm: it creates significant uncertainty, hinders cross industry implementation, and undermines infrastructure conversion via blockchain.", "conditions": [ "describes the state of US regulation as of 2017" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2998033-011", "url": "https://wulfkaal.github.io/claims/2998033-011", "family": "legal-personality-and-liability-gap", "name": "false-judgment-proof-assumption", "claim": "Managers of funds that exist only as smart contracts in cyberspace, with no foreign or domestic domicile, cannot assume they are judgment proof; the more likely outcome is that they must comply with more regulations, not fewer, because every node location can trigger a jurisdiction.", "conditions": [ "applies to funds constituted entirely through smart contracts on a public blockchain such as Ethereum" ], "topics": [ "law-and-legal-systems", "smart-contracts", "compliance" ] }, { "id": "kaal:claim:2998033-017", "url": "https://wulfkaal.github.io/claims/2998033-017", "family": "enforcement-gap", "name": "crypto-tax-underreporting", "claim": "Cryptocurrency gains are massively underreported to the IRS: despite Bitcoin rising from under twenty dollars in 2013 to over twelve hundred dollars in 2017, the IRS received only around 900 Form 8949 filings indicating crypto gain or loss over four years.", "conditions": [], "topics": [ "disclosure", "tokenomics", "compliance" ] }, { "id": "kaal:claim:2998033-021", "url": "https://wulfkaal.github.io/claims/2998033-021", "family": "ai-model-and-training-failure", "name": "overfitting-in-repeated-dataset-use", "claim": "Repeated use of the same dataset by data scientists creates an overfitting risk: the training model fits the test set so closely that its performance on a different dataset degrades.", "conditions": [ "applies to adaptive data analysis where the same data set is used repetitively" ], "topics": [ "ai-and-agents", "risk-and-incentives" ] }, { "id": "kaal:claim:3002908-001", "url": "https://wulfkaal.github.io/claims/3002908-001", "family": "innovation-chilling", "name": "regulatory-recognition-gap", "claim": "The absence of regulatory recognition of blockchain technology is itself a source of harm: it creates significant uncertainty for the blockchain community and undermines the evolution of the crypto economy.", "conditions": [ "applies to the period before any dedicated blockchain legislation or case law existed in the US and the EU" ], "topics": [ "blockchain", "economics", "law-and-legal-systems" ] }, { "id": "kaal:claim:3002908-003", "url": "https://wulfkaal.github.io/claims/3002908-003", "family": "innovation-chilling", "name": "innovation-chilling-uncertainty", "claim": "Regulatory uncertainty in this transitional era actively frustrates blockchain innovation rather than supplying the secure framework in which blockchain applications could flourish.", "conditions": [ "holds during the transitional period in which a new foundational technology is spreading and its outcomes remain uncertain" ], "topics": [ "innovation", "blockchain" ] }, { "id": "kaal:claim:3002908-004", "url": "https://wulfkaal.github.io/claims/3002908-004", "family": "regulatory-lag", "name": "unpredictability-blocks-rulemaking", "claim": "Regulators cannot draft specific blockchain regulation because the risks, opportunities, and concrete outcomes of blockchain in reshaping financial markets are unpredictable.", "conditions": [ "applies to attempts at drafting new technology specific regulation while the technology is still evolving" ], "topics": [ "dynamic-regulation", "economics", "blockchain" ] }, { "id": "kaal:claim:3002908-005", "url": "https://wulfkaal.github.io/claims/3002908-005", "family": "jurisdictional-conflict", "name": "jurisdictional-nonapplicability", "claim": "Jurisdiction over the public blockchain does not exist within the present doctrinal infrastructure for jurisdiction, and in practice the blockchain cannot be regulated or governed because it is decentralized and autonomous.", "conditions": [ "applies to public, permissionless blockchains rather than private or consortium ledgers with an identifiable operator" ], "topics": [ "law-and-legal-systems", "blockchain", "decentralization" ] }, { "id": "kaal:claim:3002908-006", "url": "https://wulfkaal.github.io/claims/3002908-006", "family": "jurisdictional-conflict", "name": "location-based-jurisdiction-failure", "claim": "Traditional jurisdictional tests fail for blockchain because the concepts of location and presence do not apply: the blockchain has no location, physical or electronic, and no single node holds the entire chain.", "conditions": [], "topics": [ "law-and-legal-systems", "blockchain" ] }, { "id": "kaal:claim:3002908-007", "url": "https://wulfkaal.github.io/claims/3002908-007", "family": "enforcement-gap", "name": "noncompliant-anonymous-participants", "claim": "Enforcement against the blockchain is unlikely to work because it is maintained and owned by a distributed group of anonymous users worldwide who would not likely recognize or comply with any legal authority.", "conditions": [], "topics": [ "compliance", "decentralization", "law-and-legal-systems" ] }, { "id": "kaal:claim:3002908-008", "url": "https://wulfkaal.github.io/claims/3002908-008", "family": "regulatory-lag", "name": "absent-judicial-guidance", "claim": "As of publication, no American or European court had recognized blockchain technology or scrutinized its applications, leaving it unclear how courts will treat the technology.", "conditions": [ "as of the article's publication in 2017", "based on searches of US federal and state case law and of Italian, French, Dutch, UK, German, and EU court databases" ], "topics": [ "law-and-legal-systems", "blockchain" ] }, { "id": "kaal:claim:3002908-009", "url": "https://wulfkaal.github.io/claims/3002908-009", "family": "privacy-and-surveillance-risk", "name": "immutability-versus-erasure", "claim": "The immutability and permanent recording built into blockchain technology may be the root of legal difficulties in European countries that recognize a right to be forgotten or comparable privacy rights.", "conditions": [ "applies in jurisdictions recognizing a right to erasure, notably the EU under the General Data Protection Regulation" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3002908-011", "url": "https://wulfkaal.github.io/claims/3002908-011", "family": "regulatory-lag", "name": "sec-guidance-vacuum", "claim": "Despite early cautioning and a call for action from its own commissioners, the SEC has not addressed core issues pertaining to the recognition of blockchain technology applications in finance.", "conditions": [ "as of publication in 2017" ], "topics": [ "securities-law", "tokenomics", "dao" ] }, { "id": "kaal:claim:3002908-013", "url": "https://wulfkaal.github.io/claims/3002908-013", "family": "regulatory-lag", "name": "tax-guidance-gap", "claim": "The IRS confined its virtual currency position to transactions in convertible virtual currency, which leaves the tax treatment of crypto limited partnership interests unaddressed.", "conditions": [ "under IRS Notice 2014-21" ], "topics": [ "private-funds" ] }, { "id": "kaal:claim:3002908-014", "url": "https://wulfkaal.github.io/claims/3002908-014", "family": "enforcement-gap", "name": "crypto-tax-underreporting", "claim": "Crypto gains are being massively underreported: despite Bitcoin rising from under twenty dollars in 2013 to over twelve hundred dollars in 2017, the IRS received only about 900 Forms 8949 indicating crypto gain or loss over four years.", "conditions": [ "US federal tax reporting, four year window ending 2017" ], "topics": [ "compliance", "disclosure" ] }, { "id": "kaal:claim:3002908-019", "url": "https://wulfkaal.github.io/claims/3002908-019", "family": "adoption-and-usability-barrier", "name": "legacy-system-drag", "claim": "Private investment funds entered the blockchain sector earlier than other financial players, yet because of legacy systems in private fund infrastructure the proportion of funds investing in blockchain is still small.", "conditions": [ "as of 2017" ], "topics": [ "innovation", "blockchain" ] }, { "id": "kaal:claim:3002908-028", "url": "https://wulfkaal.github.io/claims/3002908-028", "family": "research-design-limitation", "name": "underdetermined-legacy-explanation", "claim": "The authors undercut their own legacy systems explanation: legacy systems in the EU should theoretically create the same barriers, and there is no reason to believe US legacy systems are more of an obstacle than European ones.", "conditions": [], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3002908-031", "url": "https://wulfkaal.github.io/claims/3002908-031", "family": "smart-contract-bug-and-exploit", "name": "technology-risk-exposure", "claim": "Because American funds lean on smart contracting, they have a better opportunity to launch disruptive blockchain implementations, but they may also experience a higher rate of failure from greater exposure to technological risk.", "conditions": [ "conditional on American funds continuing to emphasize smart contracting over conservative crypto asset strategies" ], "topics": [ "risk-and-incentives", "smart-contracts", "innovation" ] }, { "id": "kaal:claim:3002908-032", "url": "https://wulfkaal.github.io/claims/3002908-032", "family": "measurement-and-metric-failure", "name": "unnormalized-country-comparison", "claim": "Raw country level counts overstate American leadership: normalizing by population shows roughly 7.5 million people per blockchain fund in the United States against roughly 2.8 million in the United Kingdom, so the distribution across countries is more even than the map suggests.", "conditions": [ "43 US funds against a population of roughly 321 million; 23 UK funds against roughly 65 million" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:3002908-033", "url": "https://wulfkaal.github.io/claims/3002908-033", "family": "sample-and-selection-bias", "name": "public-information-bias", "claim": "The absence of Luxembourg funds from the dataset is most likely an artifact of unavailable public information rather than evidence that Luxembourg funds do not invest in blockchain.", "conditions": [ "applies to the article's own dataset construction from public and contacted sources" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:3002908-034", "url": "https://wulfkaal.github.io/claims/3002908-034", "family": "sample-and-selection-bias", "name": "incomplete-response-data", "claim": "The dataset is incomplete by construction: the 120 fund advisers sampled did not answer all questions and the authors were often unable to obtain information on all questions.", "conditions": [ "applies to the article's hand coded sample of 120 private investment fund advisers" ], "topics": [ "research-methods", "empirical-evidence" ] }, { "id": "kaal:claim:3071378-008", "url": "https://wulfkaal.github.io/claims/3071378-008", "family": "innovation-chilling", "name": "regulatory-grey-area-uncertainty", "claim": "The lack of maturity of blockchain technology has slowed its integration into the corporate world, and the absence of a legal framework leaves the whole industry operating in a grey area of the law, which introduces uncertainty and a new level of volatility.", "conditions": [ "before Congress adopts a policy on the treatment of blockchain services" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:3071378-009", "url": "https://wulfkaal.github.io/claims/3071378-009", "family": "legal-personality-and-liability-gap", "name": "smart-contract-unenforceability", "claim": "Even where a smart contract reflects the underlying bargain between the parties, lawyers may argue that smart contracts are void and unenforceable under the law.", "conditions": [ "existing contract law doctrine applied to code-based agreements" ], "topics": [ "smart-contracts", "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:3071378-010", "url": "https://wulfkaal.github.io/claims/3071378-010", "family": "privacy-and-surveillance-risk", "name": "cross-border-data-compliance-gap", "claim": "Although blockchain technology itself offers genuine data and privacy protection, storing blockchain data across a global network of nodes often will not comply with specific consumer protection rules, directives, and guidelines.", "conditions": [ "global node distribution under jurisdiction-specific consumer protection regimes" ], "topics": [ "consensus-and-security", "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:3071378-011", "url": "https://wulfkaal.github.io/claims/3071378-011", "family": "incumbent-resistance-to-adoption", "name": "incumbent-resistance-to-adoption", "claim": "Judging by the legal issues that arose around sharing platforms, blockchain-enabled sharing services will likely not be accepted quickly or without resistance from incumbents challenged by new ways of delivering a service or product.", "conditions": [ "services that displace incumbent delivery models" ], "topics": [ "economics", "blockchain" ] }, { "id": "kaal:claim:3071378-012", "url": "https://wulfkaal.github.io/claims/3071378-012", "family": "smart-contract-bug-and-exploit", "name": "dao-code-vulnerability", "claim": "The DAO failed because its code had not yet been perfected: hackers took a third of the DAO tokens and transferred them to another account, and that hack together with other technological limitations led to the demise of the DAO.", "conditions": [ "The DAO, launched May 2016 on Ethereum" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:3071378-015", "url": "https://wulfkaal.github.io/claims/3071378-015", "family": "measurement-and-metric-failure", "name": "subjective-promotion-criteria-distortion", "claim": "Promotion to high level executive positions turns on subjectively assessed skillsets such as leadership, personality, judgment, attitude and initiative, and these facially objective criteria can be distorted with relative ease.", "conditions": [ "high level executive promotions assessed on subjective criteria" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3071378-018", "url": "https://wulfkaal.github.io/claims/3071378-018", "family": "inequality-and-access-divide", "name": "diversity-training-ineffectiveness", "claim": "Diversity training, diversity performance evaluations, and grievance procedures did not change workforce composition.", "conditions": [ "corporate diversity programs studied in the cited research" ], "topics": [ "education-and-practice" ] }, { "id": "kaal:claim:3071378-023", "url": "https://wulfkaal.github.io/claims/3071378-023", "family": "board-and-oversight-failure", "name": "groupthink-from-homogeneity", "claim": "A corporation that lacks diversity and allows group thinking will struggle to identify issues because it needs a fresh perspective, which harms the corporation long term by reducing its ability to identify its own strengths and weaknesses.", "conditions": [ "boards and corporations without diverse membership" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:3071378-028", "url": "https://wulfkaal.github.io/claims/3071378-028", "family": "board-and-oversight-failure", "name": "minority-director-stigmatization", "claim": "Minority board members are expected to bring in minority clientele, so where the corporation's product is not used by minorities the minority director is perceived as a failure, which stigmatizes minority board members and damages their careers.", "conditions": [ "corporations whose products are not used by minority consumers" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:3071378-029", "url": "https://wulfkaal.github.io/claims/3071378-029", "family": "board-and-oversight-failure", "name": "minority-director-overextension", "claim": "Because a small group of minorities serves on a large number of boards, corporations in fact lose the diversity of viewpoints they were seeking when appointing a minority board member.", "conditions": [ "overextended minority directors sitting on many boards" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:2992962-001", "url": "https://wulfkaal.github.io/claims/2992962-001", "family": "legal-personality-and-liability-gap", "name": "party-identification-impossibility", "claim": "The existing legal infrastructure cannot address the legal challenges presented by crypto transaction disputes, because it is impossible to consistently identify the parties to a dispute arising from crypto transactions on the blockchain.", "conditions": [ "public blockchains where parties transact anonymously" ], "topics": [ "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:2992962-003", "url": "https://wulfkaal.github.io/claims/2992962-003", "family": "enforcement-gap", "name": "governance-vacuum-mistrust", "claim": "If the jurisdictional means necessary for conflict resolution mechanisms covering Ethereum blockchain based smart contracting are absent, consumers will mistrust the new technology, and that mistrust can undermine the evolution of the blockchain based crypto economy.", "conditions": [ "Ethereum blockchain based smart contracting" ], "topics": [ "reputation", "law-and-legal-systems", "economics", "smart-contracts" ] }, { "id": "kaal:claim:2992962-004", "url": "https://wulfkaal.github.io/claims/2992962-004", "family": "enforcement-gap", "name": "enforcement-impracticability", "claim": "Personal jurisdiction technically still applies to parties transacting in encrypted distributed smart contracts, but the practicability of enforcement is impossible because physical identifiers are separated from the encrypted distributed contracts.", "conditions": [ "parties anonymized through public-key encryption and virtual private networks" ], "topics": [ "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:2992962-005", "url": "https://wulfkaal.github.io/claims/2992962-005", "family": "jurisdictional-conflict", "name": "autonomy-defeats-jurisdiction", "claim": "Even if every user and supporter of the blockchain and their locations were known, it would still not be possible to exercise jurisdiction in the traditional meaning of the word, because the system operates largely autonomously.", "conditions": [ "autonomously run public blockchains" ], "topics": [ "ai-and-agents", "law-and-legal-systems", "compliance", "decentralization", "blockchain" ] }, { "id": "kaal:claim:2992962-007", "url": "https://wulfkaal.github.io/claims/2992962-007", "family": "environmental-and-resource-cost", "name": "proof-of-work-energy-externality", "claim": "Proof of work mining carries significant externalities: the authors estimate that the total energy cost of running the global network of computers solving proof of work puzzles was around 700 million US dollars per year before publication.", "conditions": [ "proof of work consensus, before publication of the article in 2017" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:2992962-011", "url": "https://wulfkaal.github.io/claims/2992962-011", "family": "jurisdictional-conflict", "name": "registration-does-not-yield-jurisdiction", "claim": "Uniform Law Commission style registration of virtual currency businesses may give courts more information about registered businesses, but jurisdiction over the parties to a smart contract remains largely elusive because smart contracting is distributed and global.", "conditions": [ "the draft Uniform Regulation of Virtual Currency Business Act as released in July 2017" ], "topics": [ "law-and-legal-systems", "smart-contracts" ] }, { "id": "kaal:claim:2992962-013", "url": "https://wulfkaal.github.io/claims/2992962-013", "family": "jurisdictional-conflict", "name": "anonymity-voids-personal-jurisdiction", "claim": "Proving personal jurisdiction over smart contracting parties by physical presence, domicile or place of business, consent, or minimum contacts becomes impossible, because none of these elements are known of the parties to a smart contract.", "conditions": [ "smart contracts where parties are anonymized by public-key encryption and VPNs" ], "topics": [ "law-and-legal-systems", "smart-contracts" ] }, { "id": "kaal:claim:2992962-014", "url": "https://wulfkaal.github.io/claims/2992962-014", "family": "enforcement-gap", "name": "unenforceable-statutory-grant", "claim": "Even if a state or the federal government passed a law granting a court authority over blockchain smart contract disputes, it is hard to see how the court could in fact exercise that authority short of limiting access to the internet itself.", "conditions": [ "anonymous parties transacting on public blockchains" ], "topics": [ "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:2992962-016", "url": "https://wulfkaal.github.io/claims/2992962-016", "family": "smart-contract-rigidity", "name": "no-breach-no-remedy", "claim": "Breach of a smart contract is arguably not even possible, because the contract simply will not execute if a parameter is not fulfilled.", "conditions": [ "fully self executing smart contracts on Ethereum" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:2992962-017", "url": "https://wulfkaal.github.io/claims/2992962-017", "family": "enforcement-gap", "name": "code-not-interpretable-by-courts", "claim": "Because smart contracts are coded for computer programming rather than for a human observer, courts may not be able to hypothesize a reasonable human's interpretation of a given smart contract.", "conditions": [ "contract interpretation disputes over coded smart contracts" ], "topics": [ "law-and-legal-systems", "smart-contracts" ] }, { "id": "kaal:claim:2992962-018", "url": "https://wulfkaal.github.io/claims/2992962-018", "family": "smart-contract-rigidity", "name": "immutability-blocks-remedies", "claim": "To institute traditional remedies where a smart contract transaction disadvantages one of the parties, courts would have to change the blockchain, and that is computationally and practically impossible.", "conditions": [ "transactions already executed and added to an immutable blockchain" ], "topics": [ "law-and-legal-systems", "smart-contracts" ] }, { "id": "kaal:claim:2992962-019", "url": "https://wulfkaal.github.io/claims/2992962-019", "family": "enforcement-gap", "name": "legitimacy-deficit-of-legacy-courts", "claim": "Real world court decisions on smart contract disputes, even where attainable, may not carry the same legitimacy and authority for the parties as intra-blockchain dispute resolution mechanisms.", "conditions": [], "topics": [ "law-and-legal-systems", "blockchain", "governance-design", "systemic-risk" ] }, { "id": "kaal:claim:2992962-020", "url": "https://wulfkaal.github.io/claims/2992962-020", "family": "enforcement-gap", "name": "coerced-programmer-cannot-override-majority", "claim": "Even if courts were given authority to order changes to smart contract code, a programmer coerced by a court could not override the will of the majority of anonymous international blockchain users to make an effective change.", "conditions": [ "decentralized blockchains maintained by an anonymous global user majority" ], "topics": [ "consensus-and-security", "compliance" ] }, { "id": "kaal:claim:2992962-026", "url": "https://wulfkaal.github.io/claims/2992962-026", "family": "transition-and-migration-risk", "name": "hybrid-coding-obsolescence", "claim": "The benefits of coding existing law into smart contracts are only temporary, because as smart contracting evolves over time fewer smart contracting solutions will have a real world equivalent.", "conditions": [ "over the course of smart contracting's evolution" ], "topics": [ "smart-contracts", "law-and-legal-systems" ] }, { "id": "kaal:claim:2992962-027", "url": "https://wulfkaal.github.io/claims/2992962-027", "family": "enforcement-gap", "name": "anonymity-defeats-embedded-law", "claim": "Without strong external pressure from existing regulatory structures and a distributed jurisdiction responsive to that pressure, the anonymity of smart contracting will ultimately undermine the coding of existing legal rules into smart contracts.", "conditions": [ "anonymous parties transacting through Ethereum and virtual private networks" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:2992962-030", "url": "https://wulfkaal.github.io/claims/2992962-030", "family": "smart-contract-rigidity", "name": "inevitable-smart-contract-imperfection", "claim": "Problems with smart contracts are inevitable because of subjectivity in human relationships, bounded rationality of coders and contracting parties, incomplete foresight, incomplete information, and opportunistic behavior.", "conditions": [ "commercial smart contracting between human parties" ], "topics": [ "risk-and-incentives", "smart-contracts" ] }, { "id": "kaal:claim:2992962-031", "url": "https://wulfkaal.github.io/claims/2992962-031", "family": "recentralization-drift", "name": "storage-growth-centralization", "claim": "As blockchain use grows, node operation will eventually require special equipment affordable only by large corporations in the existing legal infrastructure, creating the possibility of dangerous centralization and a threat to anonymity.", "conditions": [ "blockchains with eternal storage and rapidly growing size" ], "topics": [ "decentralization", "economics" ] }, { "id": "kaal:claim:2992962-033", "url": "https://wulfkaal.github.io/claims/2992962-033", "family": "disclosure-ineffectiveness", "name": "unreasoned-decisions-undermine-legitimacy", "claim": "Aragon appears not to post even a summary of its arbiters' reasoning, which may cause the losing party to second guess the legitimacy of the entire Aragon dispute resolution mechanism.", "conditions": [ "the Aragon Network dispute resolution design as described in its whitepaper" ], "topics": [ "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:2992962-034", "url": "https://wulfkaal.github.io/claims/2992962-034", "family": "supervisory-capacity-gap", "name": "arbiter-expertise-deficit", "claim": "Without judge expertise in the subject matter of a smart contract dispute, user confidence in effective and fair conflict resolution is undermined, which reduces confidence in crypto transactions as a whole and can undermine the evolution of the crypto economy.", "conditions": [ "dispute resolution systems that select judges at random from all users, such as Aragon" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2992962-035", "url": "https://wulfkaal.github.io/claims/2992962-035", "family": "staking-and-incentive-misalignment", "name": "majority-reward-incentive-distortion", "claim": "The economic incentive for Aragon judges to follow the more popular vote, since judges keep their bond only if they voted with the majority, calls into question whether the mechanism delivers effective, non arbitrary, and fair dispute resolution.", "conditions": [ "the Aragon bond and majority reward mechanism, despite anonymous voting" ], "topics": [ "risk-and-incentives", "governance-design", "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:2992962-036", "url": "https://wulfkaal.github.io/claims/2992962-036", "family": "compliance-cost-and-barrier-to-entry", "name": "notary-layer-transaction-costs", "claim": "Because of the fees attached to its extra verification layer, the OpenBazaar dispute resolution mechanism creates substantial transaction costs that pure Ethereum based self executing smart contracts avoid.", "conditions": [ "Ricardian contracts that attach a notary to every contract" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2992962-039", "url": "https://wulfkaal.github.io/claims/2992962-039", "family": "reputation-system-gaming", "name": "insoluble-arbiter-reputation-corruption", "claim": "Because no conceivable way exists to permanently hide an arbiter's reputation from the arbiter in an open system, the corruption risk created by high reputation arbiters becoming valued counselors for disputants is an insoluble problem with the authors' own proposal.", "conditions": [ "open reputation systems for anonymous arbiters" ], "topics": [ "reputation", "decentralization" ] }, { "id": "kaal:claim:2957645-002", "url": "https://wulfkaal.github.io/claims/2957645-002", "family": "regulatory-lag", "name": "Ex-post trial-and-error rulemaking cannot anticipate innovation", "claim": "Facts-based, ex-post, trial-and-error rulemaking cannot anticipate the regulatory issues created by innovation, so rulemakers may not realize, or may realize far too late, what new regulatory demands a given innovation generates.", "conditions": [ "regulation of innovative products and markets", "existing regulatory framework built on stable rules" ], "topics": [ "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2957645-003", "url": "https://wulfkaal.github.io/claims/2957645-003", "family": "rule-obsolescence-and-ossification", "name": "Rules obsolete before finalization", "claim": "Formal rulemaking in the existing regulatory infrastructure is too time consuming, and the speed of product innovation frequently renders regulations pertaining to an innovative product obsolete before those regulations are even finalized.", "conditions": [ "environments of exponential or rapid product innovation", "formal notice and comment style rulemaking" ], "topics": [ "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2957645-004", "url": "https://wulfkaal.github.io/claims/2957645-004", "family": "rule-obsolescence-and-ossification", "name": "Stable rules cannot absorb unknown future contingencies", "claim": "The existing regulatory infrastructure, resting on stable and presumptively optimal rules, is largely incapable of addressing the unknown future contingencies associated with disruptive innovation.", "conditions": [ "regulation confronting disruptive innovation", "reliance on stable and presumptively optimal rules" ], "topics": [ "innovation", "dynamic-regulation" ] }, { "id": "kaal:claim:2957645-019", "url": "https://wulfkaal.github.io/claims/2957645-019", "family": "supervisory-capacity-gap", "name": "Underfunded supervision leaves a monitoring void", "claim": "Regulators are often unable to supervise financial institutions effectively because of insufficient public funding, and contingent capital securities could help fill the void that this supervisory incapacity leaves.", "conditions": [ "supervisory agencies operating under funding constraints" ], "topics": [ "contingent-capital", "systemic-risk" ] }, { "id": "kaal:claim:2957645-031", "url": "https://wulfkaal.github.io/claims/2957645-031", "family": "trigger-design-failure", "name": "Underdeveloped CCS design features and triggers", "claim": "Most of the design features of contingent capital securities and their triggering events remain underdeveloped, yet despite these shortcomings such securities could still help regulators anticipate regulatory needs in real time through feedback effects and improved information.", "conditions": [ "state of contingent capital design as of the time of writing" ], "topics": [ "contingent-capital", "dynamic-regulation", "institutional-design" ] }, { "id": "kaal:claim:3067615-013", "url": "https://wulfkaal.github.io/claims/3067615-013", "family": "incumbent-resistance-to-adoption", "name": "Venture capital innovation deficit", "claim": "The disruption of venture capital by ICOs is in part self-inflicted: venture capital funds continuously invested in innovation while insufficiently innovating their own business model, leaving them exposed to a more efficient financing tool.", "conditions": [ "venture capital industry financing highly innovative start-ups" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3067615-017", "url": "https://wulfkaal.github.io/claims/3067615-017", "family": "cold-start-and-bootstrapping", "name": "Legacy capital formation shortfall", "claim": "Given the advantages of ICOs, traditional regulated IPOs and venture capital funds increasingly fail to adequately capitalize crypto and legacy ventures driven by new economic paradigms.", "conditions": [ "ventures driven by new economic paradigms, including crypto ventures" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3067615-018", "url": "https://wulfkaal.github.io/claims/3067615-018", "family": "investor-protection-gap", "name": "Unconstrained use of ICO proceeds", "claim": "The 2012 to 2017 ICO model allowed cryptocurrencies to be raised through a token sale without any conditions, landmark requirements, or security measures to protect investors, so that in essence promoters could use ICO proceeds as they pleased.", "conditions": [ "ICO models prevailing between 2012 and 2017" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:3067615-019", "url": "https://wulfkaal.github.io/claims/3067615-019", "family": "investor-protection-gap", "name": "Token holder governance void", "claim": "Token holders, unlike shareholders in the traditional corporate infrastructure, cannot vote for or against directors or nominate directors, so ordinary ICO investors have no governance channel and simply must trust the promoters and their business intent.", "conditions": [ "typical ICO token structures", "ordinary investors as distinct from institutional pre-sale investors" ], "topics": [ "governance-design", "corporate-governance", "tokenomics" ] }, { "id": "kaal:claim:3067615-020", "url": "https://wulfkaal.github.io/claims/3067615-020", "family": "governance-participation-collapse", "name": "Exit only control, delayed by listing", "claim": "The only real control power available to token holders is the decision to hold or sell their tokens, and even that exit right may be unavailable until the token is fully listed on an exchange.", "conditions": [ "typical ICO token structures", "period before full exchange listing" ], "topics": [ "tokenomics", "defi" ] }, { "id": "kaal:claim:3067615-021", "url": "https://wulfkaal.github.io/claims/3067615-021", "family": "investor-protection-gap", "name": "Unfulfilled product promise", "claim": "Crypto platforms typically launch an ICO when they have only an intangible product based on a basic crypto idea, so token holders invest in the future promise of an idea, and while that works for core infrastructure products such as Ethereum, most other platforms struggle to fulfill that promise.", "conditions": [ "crypto platforms other than core infrastructure products" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3067615-022", "url": "https://wulfkaal.github.io/claims/3067615-022", "family": "cold-start-and-bootstrapping", "name": "Absent revenue to offset platform costs", "claim": "Associated with the lack of an existing product is the inability of most crypto platforms to generate revenue to offset costs the way traditional businesses do, since they typically have neither employees who create and advertise a product nor customers who generate revenue.", "conditions": [ "crypto platforms organized as foundations" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3067615-023", "url": "https://wulfkaal.github.io/claims/3067615-023", "family": "investor-protection-gap", "name": "Reserve token dilution", "claim": "Because the token supply is controlled by ICO promoters who must reserve tokens for future funding needs, token holders can be diluted by later issuance of reserve tokens and their token value can be diminished without any ability to protect themselves against such events.", "conditions": [ "platforms that reserve tokens for future funding needs" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3067615-024", "url": "https://wulfkaal.github.io/claims/3067615-024", "family": "token-transferability-defect", "name": "Lockup versus token economic flexibility tradeoff", "claim": "Hardcoded lockup periods can protect token holders against supply side induced devaluation, but they also decrease the token economic flexibility the promoter team needs to raise additional funds, so the remedy trades investor protection against issuer financing capacity.", "conditions": [ "tokens subject to hardcoded lockup periods" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3067615-025", "url": "https://wulfkaal.github.io/claims/3067615-025", "family": "information-asymmetry", "name": "Early liquidity without information", "claim": "ICOs provide the highest possible liquidity for investors at the very beginning of a platform's lifecycle, before the reporting, accounting, and legal infrastructure that gives the investing public assurance of underlying business success, so investors trade on very limited information and volatility of the tokens and the whole cryptocurrency market increases.", "conditions": [ "ICOs occurring at the beginning of a crypto business lifecycle" ], "topics": [ "defi", "disclosure", "risk-and-incentives" ] }, { "id": "kaal:claim:3067615-026", "url": "https://wulfkaal.github.io/claims/3067615-026", "family": "valuation-and-pricing-failure", "name": "Open source token cloning", "claim": "Because token offerings are built on open source code, the utility of an issued token can at any time be recreated in another token with essentially identical features at marginal cost, so investors cannot rely on the implicit promise that promoters and developers will increase the value of the acquired token rather than launch a duplicate.", "conditions": [ "token offerings based on open source software" ], "topics": [ "open-source-and-code", "tokenomics", "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:3067615-027", "url": "https://wulfkaal.github.io/claims/3067615-027", "family": "investor-protection-gap", "name": "Weak legal protection for open source code", "claim": "Legacy businesses own their code and can sue competitors who copy it, whereas open source crypto start-ups rely only on licenses, and this weaker incentive structure makes ICO investments riskier.", "conditions": [ "open source crypto start-ups compared to legacy code-owning businesses" ], "topics": [ "open-source-and-code", "risk-and-incentives" ] }, { "id": "kaal:claim:3067615-028", "url": "https://wulfkaal.github.io/claims/3067615-028", "family": "investor-protection-gap", "name": "No liquidity preference in insolvency", "claim": "On bankruptcy or termination of the platform, token holders typically have no liquidity preference and no recourse at all once debt holders and outside creditors are satisfied, so unlike a venture capital seed investor with at least a simple liquidity preference, they typically lose everything they invested.", "conditions": [ "bankruptcy or termination of the promoter's business or platform" ], "topics": [ "defi", "systemic-risk", "innovation", "risk-and-incentives" ] }, { "id": "kaal:claim:3067615-029", "url": "https://wulfkaal.github.io/claims/3067615-029", "family": "innovation-chilling", "name": "Regulatory void and legal uncertainty", "claim": "The lack of a regulatory framework creates significant legal uncertainty in the ICO market, and because cryptocurrencies are censorship-resistant and arguably regulation-resistant by design, that uncertainty may sooner or later lead the Securities and Exchange Commission to declare ICOs illegal.", "conditions": [ "ICO market as of November 2017", "United States securities regulation" ], "topics": [ "law-and-legal-systems", "securities-law" ] }, { "id": "kaal:claim:3067615-030", "url": "https://wulfkaal.github.io/claims/3067615-030", "family": "disclosure-ineffectiveness", "name": "Unreviewed and unrated whitepaper disclosure", "claim": "ICOs are not subject to predefined regulatory procedures: whitepapers do not follow prospectus disclosure guidelines, are not reviewed or audited by any authority, and are not subject to any form of rating of the new entrepreneurial initiative.", "conditions": [ "ICO market as of November 2017" ], "topics": [ "securities-law", "disclosure" ] }, { "id": "kaal:claim:3067615-033", "url": "https://wulfkaal.github.io/claims/3067615-033", "family": "investor-protection-gap", "name": "Zombie ICO", "claim": "Zombie ICOs, which have little chance of creating a successful market for their tokens, became increasingly common in 2017 and are identifiable by their inability to answer core questions about the problem solved, the allocation of proceeds, the viability of the product, and the team's business experience.", "conditions": [ "ICO market in 2017" ], "topics": [ "securities-law", "economics" ] }, { "id": "kaal:claim:3067615-034", "url": "https://wulfkaal.github.io/claims/3067615-034", "family": "investor-protection-gap", "name": "Uncapped raise without underlying product", "claim": "An ICO that proposes an uncapped raise without an underlying product is a very serious red flag, because uncapped raises are perceived by the crypto community as greedy and raise investor uncertainty about the valuation of the platform or product being bought.", "conditions": [ "ICOs without an underlying product" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:2939127-001", "url": "https://wulfkaal.github.io/claims/2939127-001", "family": "adoption-and-usability-barrier", "name": "education-skillset-mismatch", "claim": "The core lawyer characteristics and skillsets produced by the existing legal education and regulatory framework are incompatible with what the practice of law in the 21st century demands.", "conditions": [ "existing law school curricula and bar regulatory frameworks", "21st century practice conditions shaped by disruptive technology" ], "topics": [ "law-and-legal-systems", "education-and-practice", "innovation" ] }, { "id": "kaal:claim:2939127-002", "url": "https://wulfkaal.github.io/claims/2939127-002", "family": "human-judgment-displacement", "name": "obsolescence-of-traditional-legal-skills", "claim": "Disruptive innovation in law renders obsolete many and probably most of the traditional legal skills and characteristics that law schools currently cultivate.", "conditions": [ "areas of practice exposed to disruptive innovation in law" ], "topics": [ "law-and-legal-systems", "education-and-practice", "innovation" ] }, { "id": "kaal:claim:2939127-003", "url": "https://wulfkaal.github.io/claims/2939127-003", "family": "incumbent-resistance-to-adoption", "name": "innovation-reluctance-of-leading-firms", "claim": "Even the law firms that are best at finding innovative solutions for clients remain reluctant to fully adopt Legal Tech innovations, so quality of client service does not predict willingness to adopt.", "conditions": [ "law firms and in-house legal departments as of 2017" ], "topics": [ "law-and-legal-systems", "innovation", "education-and-practice" ] }, { "id": "kaal:claim:2939127-008", "url": "https://wulfkaal.github.io/claims/2939127-008", "family": "transition-and-migration-risk", "name": "displacement-of-existing-legal-services", "claim": "The decentralization of law pursued by Legal Tech startups has broad repercussions for the legal profession, the first of which is that existing legal services are rendered increasingly irrelevant or are replaced outright by Legal Tech.", "conditions": [ "legal services amenable to online delivery, matching, AI review, or blockchain settlement" ], "topics": [ "decentralization", "law-and-legal-systems" ] }, { "id": "kaal:claim:2939127-009", "url": "https://wulfkaal.github.io/claims/2939127-009", "family": "human-judgment-displacement", "name": "junior-lawyer-displacement", "claim": "Legal Tech applications will soon perform most of the work junior lawyers do, and will do so without the human elements that produce imprecision, flaws, inaccuracies, potential lawsuits, and delay; junior legal professionals and support staff are therefore the first casualties.", "conditions": [ "high volume, standardizable junior lawyer tasks", "near future relative to 2017" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2939127-010", "url": "https://wulfkaal.github.io/claims/2939127-010", "family": "incumbent-resistance-to-adoption", "name": "lost-capacity-for-agile-reinvention", "claim": "Legal Tech startups will force the legal profession to innovate perpetually, a demand that overextended and cumbersome legal organizations which have lost the capacity for agile reinvention cannot easily meet.", "conditions": [ "incumbent legal organizations with traditional hierarchical structures" ], "topics": [ "law-and-legal-systems", "education-and-practice", "innovation", "institutional-design" ] }, { "id": "kaal:claim:2939127-012", "url": "https://wulfkaal.github.io/claims/2939127-012", "family": "incumbent-resistance-to-adoption", "name": "inside-the-box-training-constraint", "claim": "Redesigning legal doctrine around sharing and decentralized peer to peer platforms demands out of the box thinking from a profession whose members were trained, both in law school and across their careers, to think inside the box.", "conditions": [ "lawyers trained in conventional law school and practice environments" ], "topics": [ "law-and-legal-systems", "education-and-practice", "economics" ] }, { "id": "kaal:claim:2939127-024", "url": "https://wulfkaal.github.io/claims/2939127-024", "family": "adoption-and-usability-barrier", "name": "blockchain-immaturity", "claim": "The world of blockchain and smart contracting has clearly not reached maturity, which is the first of several technological and legal limitations facing blockchain and smart contracts.", "conditions": [ "state of the technology as of 2017" ], "topics": [ "blockchain", "smart-contracts" ] }, { "id": "kaal:claim:2939127-026", "url": "https://wulfkaal.github.io/claims/2939127-026", "family": "legal-personality-and-liability-gap", "name": "smart-contract-unenforceability", "claim": "Because the legal origin of smart contracting is unsettled, lawyers may argue that smart contracts are void and unenforceable under the law even where the smart contract accurately reflects the parties' underlying agreement.", "conditions": [ "smart contracts assessed under existing contract law doctrine" ], "topics": [ "smart-contracts", "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:2939127-028", "url": "https://wulfkaal.github.io/claims/2939127-028", "family": "privacy-and-surveillance-risk", "name": "cross-border-node-storage-noncompliance", "claim": "Although blockchain technology itself offers unprecedented data and privacy protection, storing blockchain data across a global network of nodes often will not comply with the consumer protection rules, directives, and guidelines of particular jurisdictions.", "conditions": [ "global node distribution of blockchain data", "jurisdiction specific consumer protection and data rules" ], "topics": [ "blockchain", "consensus-and-security", "compliance", "law-and-legal-systems" ] }, { "id": "kaal:claim:2939127-029", "url": "https://wulfkaal.github.io/claims/2939127-029", "family": "incumbent-resistance-to-adoption", "name": "incumbent-resistance-to-adoption", "claim": "The legal disputes already generated by sharing platforms indicate that future blockchain enabled sharing services will not be accepted quickly or without resistance from incumbents whose service or product delivery is challenged.", "conditions": [ "blockchain enabled sharing services entering markets with entrenched incumbents" ], "topics": [ "blockchain", "economics" ] }, { "id": "kaal:claim:2939127-030", "url": "https://wulfkaal.github.io/claims/2939127-030", "family": "smart-contract-bug-and-exploit", "name": "dao-code-exploit", "claim": "Fundamental flaws in the DAO's code let hackers move one third of its total funds to a subsidiary account, and that hack together with further technological limitations destroyed the DAO initiative.", "conditions": [ "the DAO as launched in May 2016 on Ethereum" ], "topics": [ "dao", "smart-contracts", "governance-design" ] }, { "id": "kaal:claim:2939127-033", "url": "https://wulfkaal.github.io/claims/2939127-033", "family": "supervisory-capacity-gap", "name": "advice-beyond-lawyer-competence", "claim": "Exponentially increasing disruptive innovation will lead clients to routinely bring legal professionals problems that those lawyers cannot fully understand, inside a legal framework that does not always supply clear or helpful answers.", "conditions": [ "worldwide acceleration of disruptive innovation" ], "topics": [ "law-and-legal-systems", "education-and-practice", "innovation" ] }, { "id": "kaal:claim:2939127-035", "url": "https://wulfkaal.github.io/claims/2939127-035", "family": "collective-action-and-coordination-failure", "name": "traditional-toolkit-obsolescence", "claim": "The traditional legal tool kit worked adequately when innovation cycles were long, but where innovation is exponential it is regularly out of touch with the radically different needs of a decentralized world and often produces disastrous outcomes.", "conditions": [ "exponential rather than long innovation cycles", "decentralized technological environments" ], "topics": [ "law-and-legal-systems", "education-and-practice", "decentralization", "innovation" ] }, { "id": "kaal:claim:2939127-036", "url": "https://wulfkaal.github.io/claims/2939127-036", "family": "incumbent-resistance-to-adoption", "name": "professional-underestimation-of-legal-tech", "claim": "Most lawyers and law industry representatives underestimate the implications of emerging Legal Tech.", "conditions": [ "law firm and corporate lawyers in Asia, Europe, and the United States" ], "topics": [ "law-and-legal-systems", "education-and-practice", "innovation" ] }, { "id": "kaal:claim:2998097-002", "url": "https://wulfkaal.github.io/claims/2998097-002", "family": "definitional-ambiguity", "name": "Undefined statutory term defeats agency rulemaking", "claim": "The 2004 registration rule failed in court because the term client was not defined in the Investment Advisers Act, leaving the SEC without authority to fix its meaning, and the D.C. Circuit vacated the rule in Goldstein as arbitrary rulemaking.", "conditions": [ "United States", "Goldstein v. SEC, July 2006" ], "topics": [ "securities-law", "private-funds", "dynamic-regulation" ] }, { "id": "kaal:claim:2998097-003", "url": "https://wulfkaal.github.io/claims/2998097-003", "family": "systemic-risk-transmission", "name": "Full collateral value lending collapses capital under margin calls", "claim": "Because banks and brokers had let LTCM borrow the full value of its collateral, LTCM's 4.8 billion dollars in capital dissipated quickly once banks began making margin calls.", "conditions": [ "LTCM, 1998", "100 percent collateral lending by banks and brokers" ], "topics": [ "defi" ] }, { "id": "kaal:claim:2998097-004", "url": "https://wulfkaal.github.io/claims/2998097-004", "family": "systemic-risk-transmission", "name": "Counterparty overexposure to private funds", "claim": "Banks overexposed themselves to private investment fund lending, which allowed LTCM and similar funds to grow significantly and led banks as counterparties to put their own existence at risk.", "conditions": [ "banks lending to private investment funds", "pre 1998 lending practices" ], "topics": [ "systemic-risk", "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:2998097-005", "url": "https://wulfkaal.github.io/claims/2998097-005", "family": "harmonization-and-standardization-failure", "name": "One size fits all credit risk policy prescriptions", "claim": "Post LTCM proposals for clearer credit risk strategies and credit risk management policies at financial intermediaries were inappropriately applied across the whole range of business models and lacked concrete implementation elements.", "conditions": [ "post LTCM regulatory proposals", "author's critique beginning in 2005" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2998097-006", "url": "https://wulfkaal.github.io/claims/2998097-006", "family": "measurement-and-metric-failure", "name": "Backward looking risk models miss future tail events", "claim": "Stress tests, Value at Risk, and Monte Carlo scenarios imposed on financial intermediaries that lend to private investment funds necessarily rely on historical data, so they are of limited value as indicators of high risk sensitivity to future events.", "conditions": [ "risk models used by intermediaries exposed to private funds" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2998097-007", "url": "https://wulfkaal.github.io/claims/2998097-007", "family": "harmonization-and-standardization-failure", "name": "Harmonization defeated by jurisdictional arbitrage", "claim": "Proposals to improve close-out netting agreements and to harmonize standard documentation across jurisdictions are likely to run into jurisdictional arbitrage and national protectionism.", "conditions": [ "cross border regulatory harmonization proposals after LTCM" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:2998097-012", "url": "https://wulfkaal.github.io/claims/2998097-012", "family": "disclosure-cost-and-burden", "name": "Public disclosure would erode strategy value", "claim": "The private fund industry's central fear about Form PF was not the filing itself but eventual publicity: if the disclosures ever became public, competitors could reverse engineer fund strategies and largely eliminate managers' ability to generate absolute returns.", "conditions": [ "Form PF disclosures held confidentially by the SEC" ], "topics": [ "private-funds", "disclosure" ] }, { "id": "kaal:claim:2998097-013", "url": "https://wulfkaal.github.io/claims/2998097-013", "family": "data-quality-and-comparability", "name": "Unanswerable disclosure items", "claim": "Some Form PF disclosure requirements are not answerable as designed, because counterparty credit exposure is sensitive information that individual private fund managers often cannot readily determine.", "conditions": [ "Form PF counterparty credit exposure items" ], "topics": [ "private-funds", "disclosure" ] }, { "id": "kaal:claim:2998097-014", "url": "https://wulfkaal.github.io/claims/2998097-014", "family": "disclosure-ineffectiveness", "name": "Sanitized disclosure degrades systemic risk data", "claim": "Because advisers and third party service providers can flatten out and sanitize the information disclosed in Forms ADV and PF, the resulting disclosures may be less useful to the FSOC and the SEC in determining the systemic risk posed by private funds.", "conditions": [ "Forms ADV and PF disclosures", "level of sanitizing could not be verified in the study" ], "topics": [ "disclosure", "private-funds", "systemic-risk", "research-methods", "risk-and-incentives" ] }, { "id": "kaal:claim:2998097-016", "url": "https://wulfkaal.github.io/claims/2998097-016", "family": "compliance-cost-and-barrier-to-entry", "name": "Clarification generates its own uncertainty and cost", "claim": "The SEC's efforts to clarify and optimize the post Dodd-Frank framework cut both ways: they supported industry compliance with the revised standards while simultaneously creating uncertainty and higher costs for the industry.", "conditions": [ "SEC implementation and clarification of Title IV registration and reporting rules" ], "topics": [ "securities-law", "compliance" ] }, { "id": "kaal:claim:2998097-018", "url": "https://wulfkaal.github.io/claims/2998097-018", "family": "compliance-cost-and-barrier-to-entry", "name": "Scale economies in compliance as barrier to entry", "claim": "Because Title IV compliance costs bring increasing returns to scale and therefore favor larger firms, Title IV may create barriers to entry for smaller private fund advisers, forcing them out of the market or into consolidation with other advisers.", "conditions": [ "smaller private fund advisers", "if Title IV compliance costs bring increasing returns to scale" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2998097-021", "url": "https://wulfkaal.github.io/claims/2998097-021", "family": "data-quality-and-comparability", "name": "Inaccurate regulatory data undermines systemic risk assessment", "claim": "The SEC's private fund data collection encountered accuracy and consistency problems that hampered the FSOC's ability to evaluate the systemic risk of private funds.", "conditions": [ "SEC data collection under Title IV", "FSOC systemic risk assessment" ], "topics": [ "systemic-risk", "risk-and-incentives", "private-funds" ] }, { "id": "kaal:claim:2998097-022", "url": "https://wulfkaal.github.io/claims/2998097-022", "family": "data-quality-and-comparability", "name": "Regulator leans hardest on the weakest data items", "claim": "The FSOC relied most heavily on some of the most problematic disclosure items the SEC collects, even though SEC data played a crucial role at every stage of its systemic risk assessment of private funds.", "conditions": [ "FSOC systemic risk assessment of private funds", "post Dodd-Frank Form PF data" ], "topics": [ "systemic-risk", "private-funds", "risk-and-incentives", "disclosure" ] }, { "id": "kaal:claim:2998097-023", "url": "https://wulfkaal.github.io/claims/2998097-023", "family": "definitional-ambiguity", "name": "Form PF design defects", "claim": "Form PF data suffer from core shortcomings: ambiguity in several key questions, inaccurate definitions with correspondingly insufficient SEC guidance, and difficulty aggregating the required information.", "conditions": [ "Form PF as implemented after the Dodd-Frank Act" ], "topics": [ "private-funds", "securities-law" ] }, { "id": "kaal:claim:2998097-024", "url": "https://wulfkaal.github.io/claims/2998097-024", "family": "definitional-ambiguity", "name": "Interpretive slack in RAUM propagates into designation thresholds", "claim": "Several core Form PF questions that feed the FSOC's stage one threshold assessment are defective, most importantly because the definition of RAUM required substantive interpretation by the filers themselves.", "conditions": [ "FSOC stage one threshold assessment", "Form PF valuation questions tied to RAUM" ], "topics": [ "private-funds", "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:2998097-025", "url": "https://wulfkaal.github.io/claims/2998097-025", "family": "data-quality-and-comparability", "name": "Error propagation from filer uncertainty to regulator conclusions", "claim": "If the FSOC relies on Form PF data that is subject to inaccuracies, because uncertain filers complete the form using estimates and assumptions, then the FSOC's own work on private funds may in turn be subject to errors.", "conditions": [ "over 40 percent of surveyed filers disagreed with Form PF definitions or instructions" ], "topics": [ "systemic-risk", "private-funds", "risk-and-incentives" ] }, { "id": "kaal:claim:2998097-027", "url": "https://wulfkaal.github.io/claims/2998097-027", "family": "disclosure-ineffectiveness", "name": "Generic disclosure rules blunt the discipline effect", "claim": "The threat of public disclosure of systemic risk filings through the bankruptcy process only marginally affected hedge funds' tactics and their role in distressed investing, because disclosure obligations under the Dodd-Frank Act remained generic and unstandardized.", "conditions": [ "at the time of the study", "before the SEC standardized systemic risk disclosure requirements" ], "topics": [ "disclosure", "private-funds" ] }, { "id": "kaal:claim:2998097-028", "url": "https://wulfkaal.github.io/claims/2998097-028", "family": "harmonization-and-standardization-failure", "name": "No applicable due diligence standards", "claim": "Despite the rising relevance of investment due diligence and increasing due diligence litigation, the private fund industry is largely left to its own devices to ensure adequate due diligence standards.", "conditions": [ "private fund investor due diligence", "United States, since the 2008 to 2009 financial crisis" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2998097-030", "url": "https://wulfkaal.github.io/claims/2998097-030", "family": "harmonization-and-standardization-failure", "name": "Inconsistent due diligence legal standards", "claim": "The legal standards applicable to private fund investor due diligence are somewhat inconsistent and suboptimal and merit clarification.", "conditions": [ "private fund investor due diligence litigation record, 1995 to 2015" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2998097-038", "url": "https://wulfkaal.github.io/claims/2998097-038", "family": "investor-protection-gap", "name": "Retail access to private fund risk without suitability gate", "claim": "The proliferation of unconstrained mutual funds calls into question the effectiveness of retail investor protections under the Investment Companies Act of 1940, because shares in funds that carry private fund strategies and risks may be bought by retail investors with limited or no investment experience.", "conditions": [ "unconstrained mutual funds sold to retail investors", "United States" ], "topics": [ "private-funds" ] }, { "id": "kaal:claim:2998097-040", "url": "https://wulfkaal.github.io/claims/2998097-040", "family": "incumbent-resistance-to-adoption", "name": "Technology erodes the 2 and 20 fee model", "claim": "Blockchain technology enables managers to charge per-transaction fees, which undermines the existing 2 and 20 fee model, because it allows fully automated allocation of the correct fee to each executed trade without manual reconciliation or settlement.", "conditions": [ "blockchain enabled private investment funds" ], "topics": [ "blockchain", "smart-contracts" ] }, { "id": "kaal:claim:2834531-002", "url": "https://wulfkaal.github.io/claims/2834531-002", "family": "legal-personality-and-liability-gap", "name": "liability gap for autonomous systems", "claim": "Because neither national nor international law recognizes artificial intelligence as a subject of law, AI has no legal personality and therefore cannot itself be held liable for the damages it causes.", "conditions": [ "under the legal frameworks in force as of 2017" ], "topics": [ "ai-and-agents", "law-and-legal-systems" ] }, { "id": "kaal:claim:2834531-003", "url": "https://wulfkaal.github.io/claims/2834531-003", "family": "data-quality-and-comparability", "name": "big data validity illusion", "claim": "Increasing the quantity of data does not dissolve the foundational methodological problems of data: construct validity, measurement, reliability, and data dependencies remain the same regardless of how much data is collected.", "conditions": [ "where big data is used as a basis for analysis or inference" ], "topics": [ "research-methods", "empirical-evidence" ] }, { "id": "kaal:claim:2834531-005", "url": "https://wulfkaal.github.io/claims/2834531-005", "family": "regulatory-lag", "name": "rulemaking timeframe inadequacy", "claim": "The time frame for rulemaking in the existing regulatory infrastructure is largely inadequate to address the regulatory challenges created by disruptive innovation.", "conditions": [ "notice and comment rulemaking in the existing regulatory infrastructure", "technologies developing at exponential rates" ], "topics": [ "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2834531-006", "url": "https://wulfkaal.github.io/claims/2834531-006", "family": "regulatory-lag", "name": "regulator chases the last product", "claim": "The speed of product innovation allows a new product to reach the market while formal rulemaking, which takes months and often years of procedure, is still occupied with the previous product launch.", "conditions": [ "formal rulemaking in the existing regulatory infrastructure" ], "topics": [ "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2834531-007", "url": "https://wulfkaal.github.io/claims/2834531-007", "family": "regulatory-lag", "name": "obsolescence at promulgation", "claim": "New regulations addressed to an innovative product can be obsolete before they are even finalized.", "conditions": [ "rules aimed at products subject to rapid innovation cycles" ], "topics": [ "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:2834531-008", "url": "https://wulfkaal.github.io/claims/2834531-008", "family": "regulatory-lag", "name": "inability to identify beneficial innovation", "claim": "The existing regulatory infrastructure cannot sufficiently distinguish beneficial innovation from other innovation, and therefore cannot harness it.", "conditions": [], "topics": [ "dynamic-regulation", "innovation", "institutional-design" ] }, { "id": "kaal:claim:2834531-009", "url": "https://wulfkaal.github.io/claims/2834531-009", "family": "definitional-ambiguity", "name": "uncertainty from permanent transition", "claim": "Because technological transition is becoming a permanent state rather than an episode, rulemakers' inability to address the regulatory issues created by disruptive innovation will generate high levels of legal uncertainty and inconsistency.", "conditions": [ "age of continuous disruptive innovation", "existing rulemaking framework" ], "topics": [ "law-and-legal-systems", "innovation", "dynamic-regulation" ] }, { "id": "kaal:claim:2834531-010", "url": "https://wulfkaal.github.io/claims/2834531-010", "family": "regulatory-lag", "name": "missing anticipatory information channel", "claim": "The current regulatory framework contains no mechanism that informs rulemakers of beneficial innovative ideas succinctly and in advance, so regulators learn about innovation only after the fact.", "conditions": [], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:2834531-011", "url": "https://wulfkaal.github.io/claims/2834531-011", "family": "research-design-limitation", "name": "no adequate sample at the time of decision", "claim": "Establishing the facts about a new technology is often impossible in practice because there is no adequate sample or other reliable data on the effects of that technology yet.", "conditions": [ "early stage or emerging technologies" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:2834531-012", "url": "https://wulfkaal.github.io/claims/2834531-012", "family": "regulatory-capture-and-incumbent-advantage", "name": "incumbent distortion of fact selection", "claim": "The identification of which facts count as relevant or irrelevant can be distorted by the concerns of entrenched interests that find the new technology commercially threatening.", "conditions": [ "where incumbents face competitive displacement by the technology" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:2834531-013", "url": "https://wulfkaal.github.io/claims/2834531-013", "family": "regulatory-lag", "name": "unsettled and politicized factual basis", "claim": "The relevant facts on which regulation rests are never going to be obvious or settled, so the regulation of any disruptive new technology will always be reactive and built on an uncertain and politicized factual basis.", "conditions": [ "disruptive new technologies" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2834531-014", "url": "https://wulfkaal.github.io/claims/2834531-014", "family": "innovation-chilling", "name": "success defined as catastrophe avoidance", "claim": "Regulators too often define success negatively, as the avoidance of catastrophe, which makes regulatory experimentation unattractive to them.", "conditions": [ "where regulators are exposed to criticism for adverse outcomes" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2834531-015", "url": "https://wulfkaal.github.io/claims/2834531-015", "family": "innovation-chilling", "name": "criticism avoidance drives precaution", "claim": "Because regulators seek to avoid grounds for criticism, they inevitably adopt an overly cautious posture, which is what the precautionary principle amounts to in practice.", "conditions": [], "topics": [ "risk-and-incentives", "innovation" ] }, { "id": "kaal:claim:2834531-016", "url": "https://wulfkaal.github.io/claims/2834531-016", "family": "innovation-chilling", "name": "regulation access disconnect", "claim": "Regulatory caution produces a systematic disconnect between the regulation of an innovation and the commercial and consumer ability to access it.", "conditions": [ "from the perspective of entrepreneurs and consumers" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2834531-017", "url": "https://wulfkaal.github.io/claims/2834531-017", "family": "regulatory-lag", "name": "recklessness or paralysis dichotomy", "claim": "Faced with disruptive innovation, regulators believe their only options are reckless action, meaning regulation without sufficient facts, or paralysis, meaning doing nothing; in that bind caution beats risk and the precautionary principle becomes the default.", "conditions": [ "constant, complex and disruptive technological innovation" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2834531-018", "url": "https://wulfkaal.github.io/claims/2834531-018", "family": "innovation-chilling", "name": "caution as status quo entrenchment", "claim": "Regulatory caution is not neutral: it functions to reinforce the status quo, with the result that new technologies struggle to reach the market in a timely or efficient manner.", "conditions": [], "topics": [ "economics", "innovation" ] }, { "id": "kaal:claim:2834531-022", "url": "https://wulfkaal.github.io/claims/2834531-022", "family": "regulatory-lag", "name": "wrong facts under time pressure", "claim": "Time pressure produces two distinct fact failures: the facts about a new technology may simply not exist yet, or regulators may select the wrong, contested, or irrelevant facts as the basis of regulation.", "conditions": [ "conditions of incessant and accelerating technological change" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:2834531-023", "url": "https://wulfkaal.github.io/claims/2834531-023", "family": "regulatory-capture-and-incumbent-advantage", "name": "rule capture through fact selection", "claim": "In the Airbnb case, the selection of the relevant facts and the residency rule that followed from it benefit vested interests, most obviously the hotel industry that stands to lose from Airbnb's competition.", "conditions": [ "short term rental rules requiring hosts to reside in the property" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2834531-024", "url": "https://wulfkaal.github.io/claims/2834531-024", "family": "regulatory-lag", "name": "false factual premise", "claim": "The premises on which regulation of a new technology is built may not be facts at all, or at least not the most relevant facts about that innovation, as the assumption that Airbnb hosts are simply chasing easy money illustrates.", "conditions": [ "regulation of platform based innovations such as Airbnb" ], "topics": [ "economics" ] }, { "id": "kaal:claim:2834531-026", "url": "https://wulfkaal.github.io/claims/2834531-026", "family": "information-asymmetry", "name": "regulator consumer preference gap", "claim": "There is a systematic disconnect between the facts regulators identify as important and the actual experience and wishes of most consumers.", "conditions": [ "regulatory debates over platform services such as Uber" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2834531-027", "url": "https://wulfkaal.github.io/claims/2834531-027", "family": "regulatory-lag", "name": "structural rather than capture failure", "claim": "The problem is not regulator bad faith: the acceleration of innovation cycles means that selecting the relevant facts is difficult even under the best conditions and with the best intentions, while simply waiting is likely to bring further complications and criticism.", "conditions": [ "accelerating innovation cycles", "independent of agency capture" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:2834531-028", "url": "https://wulfkaal.github.io/claims/2834531-028", "family": "regulatory-lag", "name": "post truth paralysis", "claim": "The post truth diagnosis is self defeating as a basis for regulation: if there is no objective basis on which to act, the conclusion is inertia or reproduction of the status quo, which is precisely the regulatory paralysis the diagnosis purports to describe.", "conditions": [ "if the skeptical post fact account of regulation is accepted" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:2834531-040", "url": "https://wulfkaal.github.io/claims/2834531-040", "family": "definitional-ambiguity", "name": "principles that change after the fact", "claim": "The principle based approach has a shortcoming the authors concede: it is usually impossible to comply with principles that could change after the fact, and the approach may let regulators promulgate fact based laws and rules through the backdoor.", "conditions": [ "from the perspective of regulated companies operating under principles" ], "topics": [ "compliance", "dynamic-regulation" ] }, { "id": "kaal:claim:3017612-004", "url": "https://wulfkaal.github.io/claims/3017612-004", "family": "board-and-oversight-failure", "name": "director-discretion-sterilization", "claim": "Shareholder agreement terms that limit board authority are vulnerable to invalidation, and the dominant judicial rationale is that such agreements tie the hands of directors and make it impossible for them to exercise discretion over the matters the agreement settles.", "conditions": [ "provisions that encroach on the directors' statutory authority to manage the business and affairs of the corporation" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:3017612-008", "url": "https://wulfkaal.github.io/claims/3017612-008", "family": "transition-and-migration-risk", "name": "ipo-termination-of-shareholder-agreement", "claim": "A shareholder agreement authorized under MBCA Section 7.32 ceases to be effective once the corporation's stock is listed on a national securities exchange or regularly traded in a dealer maintained market, so the going public event terminates the arrangement.", "conditions": [ "MBCA jurisdictions", "corporation becomes publicly traded" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3017612-009", "url": "https://wulfkaal.github.io/claims/3017612-009", "family": "legal-personality-and-liability-gap", "name": "non-unanimous-agreement-falls-outside-7-32", "claim": "MBCA Section 7.32 requires unanimity, so agreements that bind only a block of shareholders rather than all of them cannot rely on that section and must find authorization elsewhere.", "conditions": [ "agreements seeking MBCA Section 7.32 protection" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3017612-013", "url": "https://wulfkaal.github.io/claims/3017612-013", "family": "legal-personality-and-liability-gap", "name": "non-self-executing-voting-arrangement", "claim": "Voting arrangements are not self executing: their existence does not relieve the corporation of observing the legal formalities of director and shareholder action.", "conditions": [ "voting trusts, pooling agreements, and irrevocable proxies" ], "topics": [ "governance-design", "risk-and-incentives" ] }, { "id": "kaal:claim:3017612-015", "url": "https://wulfkaal.github.io/claims/3017612-015", "family": "agency-cost-and-managerial-opportunism", "name": "director-self-interest-blocks-corporate-claims", "claim": "Corporate claims frequently go unpursued because the decision to sue rests with directors who are often the wrongdoers themselves, which is why shareholders resort to derivative actions.", "conditions": [ "injury is to the corporation rather than to shareholders individually" ], "topics": [ "compliance", "corporate-governance" ] }, { "id": "kaal:claim:3017612-022", "url": "https://wulfkaal.github.io/claims/3017612-022", "family": "investor-protection-gap", "name": "consent-does-not-waive-fiduciary-claim", "claim": "Contractual consent to a cash out does not extinguish fiduciary claims: a minority shareholder who agreed to receive cash for shares may still challenge the merger as a breach of fiduciary duty.", "conditions": [ "close corporations", "merger structured to eliminate a minority shareholder", "Third Circuit in Coleman v. Taub" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:3017612-024", "url": "https://wulfkaal.github.io/claims/3017612-024", "family": "token-transferability-defect", "name": "retroactive-restriction-on-nonconsenting-shares", "claim": "Transfer restrictions cannot be imposed on shareholders who did not consent: Delaware refuses to allow them unless the holders are parties to the agreement or voted for the restriction, and courts have refused to apply restrictions retroactively to nonconsenting shares.", "conditions": [ "Delaware and states following the same rule", "previously issued shares" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3017612-027", "url": "https://wulfkaal.github.io/claims/3017612-027", "family": "enforcement-gap", "name": "executory-buy-sell-avoided-in-bankruptcy", "claim": "A buy-sell agreement survives bankruptcy more reliably when it is not merely executory: because bankruptcy trustees may void executory agreements, an agreement that obliges both the shareholders and the entity to buy and sell is more likely to be enforced.", "conditions": [ "shareholder becomes insolvent or enters bankruptcy" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:3017612-028", "url": "https://wulfkaal.github.io/claims/3017612-028", "family": "investor-protection-gap", "name": "standstill-disenfranchisement-of-nonparties", "claim": "Standstill agreements defraud shareholders who are not parties to them in two distinct ways: by violating the shareholder's right to the best available merger or transaction and by discouraging unsolicited tender offers in which a significant control premium could be realized.", "conditions": [ "standstill agreements binding only some shareholders", "applying the Schreiber v. Carney definition of fraud" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3017612-029", "url": "https://wulfkaal.github.io/claims/3017612-029", "family": "agency-cost-and-managerial-opportunism", "name": "management-entrenchment-through-standstill", "claim": "Standstill agreements entrench management and can lead a company into stagnation, so they may operate prejudicially on shareholders' property rights.", "conditions": [ "standstill agreements restricting voting" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3017612-033", "url": "https://wulfkaal.github.io/claims/3017612-033", "family": "enforcement-gap", "name": "agreement-omitted-from-charter", "claim": "Shareholders frequently fail to place their agreements in the charter or bylaws, sometimes through ignorance or inadvertence and sometimes deliberately, because charters are public records and the parties prefer not to expose their arrangement to outsiders.", "conditions": [ "closely held corporations" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3017612-034", "url": "https://wulfkaal.github.io/claims/3017612-034", "family": "smart-contract-bug-and-exploit", "name": "unauthorized-veto-provision-unenforceable", "claim": "Absent explicit statutory authorization, many courts have refused to enforce veto provisions contained in shareholder agreements, which is why such provisions should be implemented through charter or bylaw amendment.", "conditions": [ "states without statutes specifically authorizing shareholder control agreements", "veto or supermajority provisions" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3017612-037", "url": "https://wulfkaal.github.io/claims/3017612-037", "family": "enforcement-gap", "name": "speculative-damages-inadequate-remedy", "claim": "Damages are usually an inadequate remedy for breach of a shareholder agreement because they are too speculative, even where the aggrieved shareholder holds a direct cause of action.", "conditions": [ "breach of a valid shareholder agreement" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3017612-038", "url": "https://wulfkaal.github.io/claims/3017612-038", "family": "enforcement-gap", "name": "denial-of-specific-performance-nullifies-agreement", "claim": "Because damages rarely provide an adequate remedy for breach of a shareholder agreement, refusing specific enforcement amounts in substance to declaring the agreement invalid.", "conditions": [ "suits to enforce shareholder voting agreements" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:2922176-004", "url": "https://wulfkaal.github.io/claims/2922176-004", "family": "short-termism", "name": "metrics-driven relevancy blindness", "claim": "A focus on quarterly earnings and short-term stock price performance distracts an organization from identifying the strategies that would keep the firm relevant, which is why financially successful companies can still lose their market.", "conditions": [ "listed companies are particularly prone to overweighting financial metrics" ], "topics": [ "risk-and-incentives", "corporate-governance" ] }, { "id": "kaal:claim:2922176-005", "url": "https://wulfkaal.github.io/claims/2922176-005", "family": "incumbent-resistance-to-adoption", "name": "marginalization of innovation executives", "claim": "In companies that concentrate on established products, the executives who understand innovation and consumer experience, the very people responsible for the firm's initial success, are pushed to the margins of core decision making.", "conditions": [ "companies built around existing and successful products or services" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:2922176-006", "url": "https://wulfkaal.github.io/claims/2922176-006", "family": "short-termism", "name": "profitable irrelevance", "claim": "Microsoft lost relevance under Steve Ballmer because it optimized for short-term financial metrics instead of designing products for the next generation of consumers, even while sales tripled and profits doubled.", "conditions": [ "Ballmer era, 2000 to 2015" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2922176-007", "url": "https://wulfkaal.github.io/claims/2922176-007", "family": "agency-cost-and-managerial-opportunism", "name": "shareholder empowerment misfire", "claim": "Reforms that increase executive accountability to shareholders and increase shareholder control over executives do not solve the problem of corporate short-term focus.", "conditions": [ "post-2000 shareholder-empowerment reforms" ], "topics": [ "risk-and-incentives", "corporate-governance", "governance-design" ] }, { "id": "kaal:claim:2922176-008", "url": "https://wulfkaal.github.io/claims/2922176-008", "family": "short-termism", "name": "quarterly reporting feedback loop", "claim": "Increasing shareholder control over executives can be actively counterproductive: it further incentivizes the damaging emphasis on quarterly financial reporting that reform was meant to cure.", "conditions": [], "topics": [ "risk-and-incentives", "disclosure", "corporate-governance" ] }, { "id": "kaal:claim:2922176-009", "url": "https://wulfkaal.github.io/claims/2922176-009", "family": "oracle-and-input-corruption", "name": "top-down reform inertia", "claim": "Top-down corporate governance reform measures rarely, if ever, produce genuine change in the governance or culture of firms, and are commonly met with indifference, skepticism, or hostility from management.", "conditions": [ "listed companies and their governance experts" ], "topics": [ "governance-design", "corporate-governance", "compliance" ] }, { "id": "kaal:claim:2922176-010", "url": "https://wulfkaal.github.io/claims/2922176-010", "family": "board-and-oversight-failure", "name": "reform as relabeling", "claim": "Much corporate governance reform consists of repackaging old content under new or revised labels rather than introducing new governance.", "conditions": [ "illustrated by the 2016 Commonsense Principles of Corporate Governance" ], "topics": [ "governance-design", "corporate-governance", "institutional-design" ] }, { "id": "kaal:claim:2922176-011", "url": "https://wulfkaal.github.io/claims/2922176-011", "family": "enforcement-gap", "name": "minimum compliance capture", "claim": "Corporate governance intermediaries such as lawyers, accountants, auditors and consultants respond to governance requirements with minimum compliance, applying minimal effort for maximum compliance.", "conditions": [ "intermediaries advising listed companies" ], "topics": [ "compliance", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:2922176-012", "url": "https://wulfkaal.github.io/claims/2922176-012", "family": "short-termism", "name": "long-termism initiative failure", "claim": "Corporate governance initiatives designed to encourage long-term thinking rarely work as policymakers expect them to.", "conditions": [ "stewardship codes and comparable long-termism initiatives" ], "topics": [ "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:2922176-013", "url": "https://wulfkaal.github.io/claims/2922176-013", "family": "short-termism", "name": "stewardship reinforces centralization", "claim": "Mobilizing investors as stewards leads managers to ask the wrong questions about sustainable success: rather than pushing firms toward innovation and relevancy, such measures simply reinforce the centralized shareholder primacy view they were meant to soften.", "conditions": [ "jurisdictions that have adopted stewardship codes" ], "topics": [ "corporate-governance", "innovation" ] }, { "id": "kaal:claim:2922176-014", "url": "https://wulfkaal.github.io/claims/2922176-014", "family": "short-termism", "name": "stewardship induced payout pressure", "claim": "Stewardship pressures push companies toward an unhealthy focus on short-term dividends and share buybacks designed to please the stock market, the opposite of the long-term orientation the codes intend.", "conditions": [ "companies subject to institutional investor stewardship pressure" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:2922176-017", "url": "https://wulfkaal.github.io/claims/2922176-017", "family": "definitional-ambiguity", "name": "undefined long-term value", "claim": "Code guidance assigning the board responsibility for long-term value creation, as in the 2016 Dutch Corporate Governance Code, is difficult to implement because neither long-term value nor the intended beneficiary of that value is defined.", "conditions": [ "Dutch Corporate Governance Code, December 2016" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:2922176-021", "url": "https://wulfkaal.github.io/claims/2922176-021", "family": "adoption-and-usability-barrier", "name": "governance technology adoption gap", "claim": "Despite the obvious benefits of technology applications in corporate governance, the technological revolution has not yet produced wide acceptance of unmediated or decentralized corporate governance structures and practices.", "conditions": [ "as of 2017" ], "topics": [ "innovation", "governance-design", "corporate-governance", "decentralization" ] }, { "id": "kaal:claim:2922176-023", "url": "https://wulfkaal.github.io/claims/2922176-023", "family": "collective-action-and-coordination-failure", "name": "hierarchical coordination failure", "claim": "Traditional coordination through hierarchy, command, and control is suboptimal for generating the innovation a firm needs to survive.", "conditions": [ "firms competing in fast-moving, technology-driven markets" ], "topics": [ "institutional-design", "innovation" ] }, { "id": "kaal:claim:2922176-025", "url": "https://wulfkaal.github.io/claims/2922176-025", "family": "rule-obsolescence-and-ossification", "name": "persistent hierarchy framing", "claim": "Even after recent reforms, the corporate governance framework remains framed in terms of hierarchy, which is why it fits poorly with looser and unmediated stakeholder relationships.", "conditions": [ "applies to the reform wave through 2017" ], "topics": [ "institutional-design", "governance-design", "corporate-governance", "decentralization" ] }, { "id": "kaal:claim:2922176-026", "url": "https://wulfkaal.github.io/claims/2922176-026", "family": "disclosure-ineffectiveness", "name": "legal mediation of communication", "claim": "The use of legalese and substantial involvement of the legal department in corporate communications substantially damages the originality and authenticity of those communications, making them mediated and less effective.", "conditions": [ "corporate communications intended to build trust and dialogue with stakeholders" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:2922176-027", "url": "https://wulfkaal.github.io/claims/2922176-027", "family": "information-asymmetry", "name": "good news only culture", "claim": "Centralized, hierarchical environments do not value honesty and reward good news only, so nobody wants to carry bad news upward, and problems are therefore detected late.", "conditions": [ "heavily mediated and redacted corporate environments; illustrated by Nokia, Volkswagen and Samsung" ], "topics": [ "institutional-design", "disclosure" ] }, { "id": "kaal:claim:2922176-029", "url": "https://wulfkaal.github.io/claims/2922176-029", "family": "disclosure-ineffectiveness", "name": "advisor chilling effect", "claim": "Corporate lawyers and governance experts still discourage executives from communicating in a personalized, speech-like way, particularly on social media, out of fear of market misunderstanding and subsequent liability.", "conditions": [ "current advisory practice as of 2017" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:2922176-030", "url": "https://wulfkaal.github.io/claims/2922176-030", "family": "board-and-oversight-failure", "name": "board as missed feedback channel", "claim": "The monitoring and advising roles of the board are no longer sufficient, and a board confined to those roles is a missed opportunity to obtain unmediated and relevant market feedback on company initiatives.", "conditions": [ "successful companies already operating beyond the academic monitoring debate" ], "topics": [ "corporate-governance", "compliance", "governance-design" ] }, { "id": "kaal:claim:2922176-035", "url": "https://wulfkaal.github.io/claims/2922176-035", "family": "smart-contract-bug-and-exploit", "name": "DAO code flaw exploit", "claim": "Fundamental flaws in the DAO's code allowed hackers to move one third of contributed funds to a subsidiary account, ending that initiative, but the flaws were in the implementation and do not defeat the DAO vision, which developers continue to rebuild.", "conditions": [ "the original DAO, launched May 2016 on Ethereum" ], "topics": [ "dao", "blockchain", "smart-contracts", "decentralization", "governance-design" ] }, { "id": "kaal:claim:2922176-037", "url": "https://wulfkaal.github.io/claims/2922176-037", "family": "board-and-oversight-failure", "name": "reform intent gap", "claim": "Contemporary corporate governance reforms are unlikely to work as policymakers and regulators intend, because experts agree improvement is needed but disagree widely on what good corporate governance is or how to achieve it.", "conditions": [], "topics": [ "governance-design", "corporate-governance", "consensus-and-security" ] }, { "id": "kaal:claim:2922176-038", "url": "https://wulfkaal.github.io/claims/2922176-038", "family": "board-and-oversight-failure", "name": "reform without measurable effect", "claim": "The corporate governance frameworks developed in the 2000s had little or no impact on the performance of listed companies during the financial crisis, and the number, scale, and effects of corporate scandals are not diminishing.", "conditions": [ "listed companies during the 2008 financial crisis" ], "topics": [ "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:3125822-002", "url": "https://wulfkaal.github.io/claims/3125822-002", "family": "reputation-system-gaming", "name": "reputation value corruption", "claim": "Reputation value in any decentralized reputational system can be corrupted through three channels: direct purchase of reputation, automated worthless work, and degeneration of the system into a majority of inexpert opinions.", "conditions": [ "decentralized reputation systems", "anonymous participants" ], "topics": [ "reputation", "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3125822-003", "url": "https://wulfkaal.github.io/claims/3125822-003", "family": "reputation-system-gaming", "name": "prior platform failure", "claim": "The problems of corruption, Sybil attacks, and tyranny of the majority have plagued every previous autonomous decentralized reputation platform, so they are the design constraints any new architecture must meet.", "conditions": [ "prior autonomous decentralized reputation platforms" ], "topics": [ "consensus-and-security", "reputation" ] }, { "id": "kaal:claim:3125822-007", "url": "https://wulfkaal.github.io/claims/3125822-007", "family": "consensus-and-protocol-attack", "name": "birthday problem vote equivocation", "claim": "The hidden voting scheme depends on the choice of symmetric encryption protocol: a poorly chosen protocol exposes the platform to a birthday problem attack in which malicious voters submit an encrypted key that can be decrypted in two different ways, letting them retroactively choose their vote.", "conditions": [ "applies to the hidden vote reveal step of a validation pool" ], "topics": [ "consensus-and-security", "citation-and-knowledge" ] }, { "id": "kaal:claim:3125822-013", "url": "https://wulfkaal.github.io/claims/3125822-013", "family": "staking-and-incentive-misalignment", "name": "nothing at stake", "claim": "The tragedy of the commons arises in any system lacking a well designed incentive structure; in blockchain proof of stake design this is the nothing at stake problem, where unregulated systems lead pseudonymous users to abuse the system.", "conditions": [ "systems without well designed incentive structures", "pseudonymous participation" ], "topics": [ "institutional-design", "consensus-and-security", "risk-and-incentives" ] }, { "id": "kaal:claim:3125822-014", "url": "https://wulfkaal.github.io/claims/3125822-014", "family": "reputation-system-gaming", "name": "costless voting", "claim": "Reddit's upvote system imposes insignificant punishment for voting randomly, and this lack of cost compromises the informational value of an upvote, which is the failure mode a staked validation pool is designed to avoid.", "conditions": [ "applies to unstaked voting systems" ], "topics": [ "governance-design", "risk-and-incentives", "reputation" ] }, { "id": "kaal:claim:3125822-017", "url": "https://wulfkaal.github.io/claims/3125822-017", "family": "plutocratic-capture", "name": "buy vote and dump arbitrage", "claim": "The author concedes an arbitrage attack is feasible when experts fail to police their expertise and a significant share of the technically fungible tokens is offered on an exchange, since a malicious actor can then buy 51 percent of the tokens, vote against common sense, and sell before the tokens lose value.", "conditions": [ "requires expert policing to be absent", "requires a liquid exchange holding a large share of tokens" ], "topics": [ "consensus-and-security", "tokenomics" ] }, { "id": "kaal:claim:3125822-025", "url": "https://wulfkaal.github.io/claims/3125822-025", "family": "staking-and-incentive-misalignment", "name": "pyramid scheme expertise tag", "claim": "A healthy expertise tag requires that fees from new commenters buying in remain smaller in the long term than fees from outside business; otherwise the expertise tag is simply a pyramid scheme.", "conditions": [ "long term steady state of a mature expertise tag" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3125822-027", "url": "https://wulfkaal.github.io/claims/3125822-027", "family": "staking-and-incentive-misalignment", "name": "late entrant disincentive", "claim": "Because earlier minted tokens pay out more than later ones at a steady fee rate, later experts have less motivation to join, and the remedy available to the bench is to change the exchange rate between fees and sem tokens to attract new recruits.", "conditions": [ "assumes a steady state rate of incoming fees", "tokens are never destroyed" ], "topics": [ "risk-and-incentives", "tokenomics", "defi" ] }, { "id": "kaal:claim:3125822-029", "url": "https://wulfkaal.github.io/claims/3125822-029", "family": "staking-and-incentive-misalignment", "name": "fee mismatch arbitration failure", "claim": "Arbitration on the platform fails at either end of the fee range: if the parties set fees too low the selected arbiter refuses the work and the arbitration fails, and if arbiters demand fees higher than the public will pay they fail to attract cases.", "conditions": [ "fees are set by the contracting parties, not by the platform" ], "topics": [ "law-and-legal-systems", "economics", "systemic-risk" ] }, { "id": "kaal:claim:3125822-030", "url": "https://wulfkaal.github.io/claims/3125822-030", "family": "plutocratic-capture", "name": "bench capture by prior engagement", "claim": "When the bench of arbiters is small, a powerful private user can capture it in advance by spending heavily to engage the bench through separate contracts, mirroring the way powerful firms pay retainers to judges in the United States legal system.", "conditions": [ "applies when the bench of an expertise tag is small", "applies when pseudonymous identity is revealed or anonymity is neglected" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:3125822-032", "url": "https://wulfkaal.github.io/claims/3125822-032", "family": "smart-contract-rigidity", "name": "asymmetric encumbrance abuse", "claim": "Parties to a smart contract must avoid asymmetric encumbrance of assets, because in an anonymous blockchain environment where assets cannot be recovered from parties further down the transaction tree, an asymmetrically bound party can unfairly exert power by triggering a dispute.", "conditions": [ "anonymous or pseudonymous counterparties", "assets must be bound in the smart contract" ], "topics": [ "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:3125822-034", "url": "https://wulfkaal.github.io/claims/3125822-034", "family": "consensus-and-protocol-attack", "name": "block author seed capture", "claim": "A proof of stake lottery on this architecture is vulnerable because the seed of the pseudorandom generator that names the next block author is partly controlled by the current block author, which lets an attacker capture all block creation by routing authorship to their own Sybil accounts; the proposed remedy is to derive the seed from a hash of the previous block's validation information.", "conditions": [ "applies to the proof of stake block author lottery" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3125822-036", "url": "https://wulfkaal.github.io/claims/3125822-036", "family": "consensus-and-protocol-attack", "name": "fair exchange impossibility", "claim": "Under certain restrictive assumptions it has been proven that no protocol can guarantee fair exchange with decentralized arbiters, so no design on this architecture can promise absolute certainty of fair machine arbitration.", "conditions": [ "holds under the restrictive assumptions of the cited impossibility result" ], "topics": [ "defi", "decentralization", "law-and-legal-systems" ] }, { "id": "kaal:claim:3125822-038", "url": "https://wulfkaal.github.io/claims/3125822-038", "family": "reputation-system-gaming", "name": "unfair arbiter algorithm", "claim": "There is no absolute certainty that using an expertise tag yields a fair resolution, because malicious experts can always choose an unfair algorithm to distribute the disputed assets.", "conditions": [ "applies to machine arbitration expertise tags" ], "topics": [ "risk-and-incentives", "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:3125822-039", "url": "https://wulfkaal.github.io/claims/3125822-039", "family": "reputation-system-gaming", "name": "sham expertise tags", "claim": "The authors state plainly that in an open, decentralized and anonymous environment they provide no mechanism to stop the formation of sham expertise tags that copy a successful tag's record under a new name.", "conditions": [ "open anonymous environment", "expertise tags are cheap to create" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:3125822-040", "url": "https://wulfkaal.github.io/claims/3125822-040", "family": "reputation-system-gaming", "name": "self funded fee mimicry", "claim": "Faking a reputable expertise tag is nearly costless: a successful tag's open record can be copied and reposted under a new name for the price of the anti denial of service fees, and the capital used to mimic fees paid into the sham tag is mostly recovered by the sham owners through the salaries they control.", "conditions": [ "sham owners hold the majority of the sham tag's tokens" ], "topics": [ "reputation", "consensus-and-security" ] }, { "id": "kaal:claim:3125822-041", "url": "https://wulfkaal.github.io/claims/3125822-041", "family": "consensus-and-protocol-attack", "name": "majority collusion", "claim": "If 51 percent of users collude to enrich themselves maliciously, nothing in the design can prevent them; the only check is the openness of the system, which would quickly detect such an attack.", "conditions": [ "requires a colluding majority of reputation weighted users" ], "topics": [ "consensus-and-security", "disclosure" ] }, { "id": "kaal:claim:3125822-042", "url": "https://wulfkaal.github.io/claims/3125822-042", "family": "reputation-system-gaming", "name": "identity sale transfers reputation", "claim": "Reputation on the platform is not truly non transferable: accumulated sem tokens can be sold along with the anonymous identities that hold them, and the only check on this is the continued existence of a good faith majority that votes fairly in validation pools.", "conditions": [ "anonymous accounts can be transferred wholesale", "check depends on 51 percent of users acting in good faith" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:3125822-043", "url": "https://wulfkaal.github.io/claims/3125822-043", "family": "cold-start-and-bootstrapping", "name": "newcomer entry barrier", "claim": "As the system matures the power of experienced experts far outstrips that of new experts, which creates an entry problem in a platform where adjudicating disputes requires staking reputation one does not yet have.", "conditions": [ "mature expertise tags", "systems that require staking reputation to participate" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:3125822-044", "url": "https://wulfkaal.github.io/claims/3125822-044", "family": "staking-and-incentive-misalignment", "name": "consensus contributions unrewarded", "claim": "If tokens minted for each post carry equal weight, then uncontroversial comments are not rewarded at all, because a universally upvoted improvement leaves no contrarian reputation staked and lost for the poster to win.", "conditions": [ "applies to the unweighted version of the forum" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3125822-045", "url": "https://wulfkaal.github.io/claims/3125822-045", "family": "staking-and-incentive-misalignment", "name": "voting crowds out commenting", "claim": "Under equal token weighting a successful poster receives no greater reward than the upvoters who merely read and vote, so the system pays the same for crafting a comment as for voting on it, which encourages voting over commenting.", "conditions": [ "assumes very low denial of service fees for posting" ], "topics": [ "governance-design", "risk-and-incentives" ] }, { "id": "kaal:claim:3125822-047", "url": "https://wulfkaal.github.io/claims/3125822-047", "family": "reputation-system-gaming", "name": "irreversible initial downvote", "claim": "Under the proposed weighting scheme a post that was initially downvoted can never yield its creator tokens even if expert opinion later reverses, an asymmetry the authors flag as a limitation of the core design.", "conditions": [ "applies to the weighted directed acyclic graph valuation scheme", "could be changed only by allowing negative valued tokens" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:3249860-001", "url": "https://wulfkaal.github.io/claims/3249860-001", "family": "staking-and-incentive-misalignment", "name": "speculative-incentive-design", "claim": "Crypto-economic incentive design is only limitedly successful at shaping future human behavior, because the designer must speculate about future human mental states and belief systems that may turn out entirely different from what was anticipated.", "conditions": [ "designs that rely on assumptions about human reactions to economic incentives" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:3249860-007", "url": "https://wulfkaal.github.io/claims/3249860-007", "family": "staking-and-incentive-misalignment", "name": "unqualified-monetary-policy-designer", "claim": "The democratization of monetary policy in token economies creates a serious problem, because token designers lack the qualifications and institutional functions that centralized central banking distributes across multiple institutions and their staff.", "conditions": [ "token economies in which the designer sets supply, timing, and allocation" ], "topics": [ "tokenomics", "systemic-risk" ] }, { "id": "kaal:claim:3249860-009", "url": "https://wulfkaal.github.io/claims/3249860-009", "family": "valuation-and-pricing-failure", "name": "escrow-release-price-crash", "claim": "To avoid a token price crash, escrow accounts holding unissued tokens should carry usage and access controls assuring investors that escrowed tokens will not be issued at a discount, with lockups or phased releases minimizing crash risk.", "conditions": [ "issuers that retain unissued tokens in escrow after an ICO" ], "topics": [ "tokenomics", "economics" ] }, { "id": "kaal:claim:3249860-013", "url": "https://wulfkaal.github.io/claims/3249860-013", "family": "valuation-and-pricing-failure", "name": "indeterminate-combined-policy-effect", "claim": "Combining quasi-fiscal policy, increasing benefits attached to tokens, with monetary policy, increasing supply in circulation, may or may not have an effect on the market price of the tokens.", "conditions": [ "when benefit increases and supply increases are applied simultaneously" ], "topics": [ "tokenomics", "economics" ] }, { "id": "kaal:claim:3249860-017", "url": "https://wulfkaal.github.io/claims/3249860-017", "family": "disclosure-ineffectiveness", "name": "incomplete-governance-disclosure", "claim": "Many token whitepapers omit information necessary for a full economic analysis, and the research team could not find a single project among the top 100 that had examined blockchain governance fully.", "conditions": [ "whitepapers of the top 100 cryptocurrencies by market capitalization as of April 2018" ], "topics": [ "governance-design", "disclosure", "tokenomics" ] }, { "id": "kaal:claim:3249860-024", "url": "https://wulfkaal.github.io/claims/3249860-024", "family": "definitional-ambiguity", "name": "unresolved-security-classification", "claim": "The utility token model dominates the top 100 tokens, but the utility category as coded includes tokens that behave like a security, and no Howey test was performed in this research.", "conditions": [ "N=100 dataset", "utility category aggregates network, network value, usage, and work token subtypes" ], "topics": [ "tokenomics", "securities-law", "systemic-risk" ] }, { "id": "kaal:claim:3249860-025", "url": "https://wulfkaal.github.io/claims/3249860-025", "family": "definitional-ambiguity", "name": "unclassifiable-token-model", "claim": "Seven of the top 100 tokens could not be classified into any token model, with NEM, VeChain, ICON, and Lisk qualifying as outliers with no justification and SUB's whitepaper failing to disclose which model best describes the token.", "conditions": [ "N=100 dataset", "classification based on issuer whitepapers" ], "topics": [ "tokenomics", "systemic-risk" ] }, { "id": "kaal:claim:3249860-032", "url": "https://wulfkaal.github.io/claims/3249860-032", "family": "valuation-and-pricing-failure", "name": "unresolved-volatility", "claim": "It is unclear whether the cryptocurrency market on its own can over time produce the level of stability and absence of volatility that cryptocurrencies need to become truly mainstream.", "conditions": [ "absent external stabilization" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3249860-036", "url": "https://wulfkaal.github.io/claims/3249860-036", "family": "token-transferability-defect", "name": "app-specific-token-lock-in", "claim": "App-specific tokens exert less influence over value from other projects and typically fail to support a broader user market, because their limited use curtails user access.", "conditions": [ "tokens fundamentally restricted for use in a given ecosystem" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3249860-040", "url": "https://wulfkaal.github.io/claims/3249860-040", "family": "scalability-and-throughput-limit", "name": "blockchain-trilemma", "claim": "To date no blockchain coherently and comprehensively combines scale, security, and decentralization, the three objectives of the blockchain trilemma, although continued experimentation with consensus algorithms can help overcome it over time.", "conditions": [ "as of the study's 2018 data" ], "topics": [ "blockchain", "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3249860-046", "url": "https://wulfkaal.github.io/claims/3249860-046", "family": "interoperability-and-fragmentation", "name": "token-design-fixes-insufficient", "claim": "Long-term survivability of token designs may depend more on infrastructure capabilities than on temporary fixes made within token designs themselves.", "conditions": [], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3128900-004", "url": "https://wulfkaal.github.io/claims/3128900-004", "family": "innovation-chilling", "name": "Platform limits as AI bottleneck", "claim": "Micro task platform systems carry significant limitations that hold back the evolution of AI itself, so platform design is a bottleneck on AI progress rather than a peripheral concern.", "conditions": [ "existing micro task platform systems" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:3128900-005", "url": "https://wulfkaal.github.io/claims/3128900-005", "family": "scalability-and-throughput-limit", "name": "Centralized supply shortfall", "claim": "Existing centralized micro task marketplaces cannot adequately meet the rising demand for high quality labelled AI training data.", "conditions": [ "existing centralized marketplaces", "demand for high quality AI training datasets" ], "topics": [ "decentralization", "ai-and-agents", "education-and-practice", "economics" ] }, { "id": "kaal:claim:3128900-006", "url": "https://wulfkaal.github.io/claims/3128900-006", "family": "valuation-and-pricing-failure", "name": "Intermediation overpricing", "claim": "The cost structure of centralized micro task systems, which require intermediation, produces significant overpricing that does not benefit the workers themselves.", "conditions": [ "centralized systems that necessitate intermediation" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3128900-007", "url": "https://wulfkaal.github.io/claims/3128900-007", "family": "data-quality-and-comparability", "name": "Recursive human verification problem", "claim": "Human shortcomings in micro task work such as limited attention span, irrationality, and inaccuracy create a need for verification, but manual verification fails as a remedy because the verifiers are subject to the same human limitations.", "conditions": [ "manual verification of micro task work" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3128900-009", "url": "https://wulfkaal.github.io/claims/3128900-009", "family": "scalability-and-throughput-limit", "name": "Redundancy cost multiplication", "claim": "Consensus by redundancy fails economically: multiplying the same work across many workers significantly increases the cost of micro task work.", "conditions": [ "centralized platforms using redundant task assignment" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3128900-010", "url": "https://wulfkaal.github.io/claims/3128900-010", "family": "inequality-and-access-divide", "name": "Rate suppression from redundancy", "claim": "Paying proportionally, up to fifteen times, for the same project output is waste, and the necessity of multiplying work also pushes micro task workers into lower rates with no pay increases.", "conditions": [ "centralized platforms using redundant task assignment" ], "topics": [ "consensus-and-security", "economics" ] }, { "id": "kaal:claim:3128900-012", "url": "https://wulfkaal.github.io/claims/3128900-012", "family": "inequality-and-access-divide", "name": "Banking prerequisite exclusion", "claim": "A bank account is a necessary condition for participation in the existing centralized micro task marketplace: without one, a worker can neither contribute nor profit.", "conditions": [ "existing centralized micro task marketplaces" ], "topics": [ "systemic-risk", "economics", "decentralization" ] }, { "id": "kaal:claim:3128900-013", "url": "https://wulfkaal.github.io/claims/3128900-013", "family": "adoption-and-usability-barrier", "name": "Onboarding entry barrier", "claim": "Signup and approval processes in centralized micro task systems are invasive, privacy challenging, time consuming, and unclear, and they function as market entry barriers for micro task workers.", "conditions": [ "centralized micro task systems" ], "topics": [ "corporate-governance", "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3128900-034", "url": "https://wulfkaal.github.io/claims/3128900-034", "family": "staking-and-incentive-misalignment", "name": "Monodimensional gamification", "claim": "Existing decentralized gamification attempts for micro task workers fail because they are monodimensional and permit earning only by playing the game, whereas a multidimensional design gives players several ways to earn and builds stronger loyalty.", "conditions": [ "decentralized micro task platforms using gamification" ], "topics": [ "risk-and-incentives", "decentralization" ] }, { "id": "kaal:claim:3128900-035", "url": "https://wulfkaal.github.io/claims/3128900-035", "family": "recentralization-drift", "name": "Rent seeking intermediation", "claim": "Centralized mechanical turk marketplace leaders operate as rent seeking intermediaries that generate numerous inefficiencies in the market and deprive freelance workers of a share in the profits the platforms capture.", "conditions": [ "centralized micro task marketplaces including MTurk and Crowdflower" ], "topics": [ "economics", "decentralization" ] }, { "id": "kaal:claim:3128900-038", "url": "https://wulfkaal.github.io/claims/3128900-038", "family": "inequality-and-access-divide", "name": "Fee driven wage suppression", "claim": "Centralized platform fees charged to requesters for the right to submit tasks exert downward pressure on worker compensation, so the fee structure itself is what depresses pay.", "conditions": [ "centralized marketplaces such as Crowdflower and MTurk" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3128900-040", "url": "https://wulfkaal.github.io/claims/3128900-040", "family": "adoption-and-usability-barrier", "name": "Payment fee entry barrier", "claim": "Payment intermediary fees such as Paypal's are viable only for higher volume workers who can eventually avoid them, so they operate as an entry barrier against new micro task workers.", "conditions": [ "centralized platforms relying on third party payment intermediaries" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3128900-042", "url": "https://wulfkaal.github.io/claims/3128900-042", "family": "adoption-and-usability-barrier", "name": "Interface driven earnings loss", "claim": "Poor user interface quality on centralized micro task platforms increases both the time workers need per task and their error rate, and both effects lower worker earning ability.", "conditions": [ "centralized micro task platforms with outdated interfaces" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3128900-044", "url": "https://wulfkaal.github.io/claims/3128900-044", "family": "inequality-and-access-divide", "name": "Identity gate on registration", "claim": "Centralized approval processes and identity requirements for worker registration significantly limit the registration of new micro task workers.", "conditions": [ "centralized micro task platforms requiring identity verified registration" ], "topics": [ "corporate-governance", "tokenomics" ] }, { "id": "kaal:claim:3128900-045", "url": "https://wulfkaal.github.io/claims/3128900-045", "family": "sybil-and-identity-attack", "name": "Identity verification tradeoff", "claim": "Centralized platforms cannot simply drop identity verification, because they need it to keep malicious actors from abusing the network and to ensure work quality; this is the tradeoff a staking based design is meant to dissolve.", "conditions": [ "centralized micro task platforms" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3117224-005", "url": "https://wulfkaal.github.io/claims/3117224-005", "family": "investor-protection-gap", "name": "absence-of-investor-control", "claim": "Unlike shareholders in traditional corporate structures who can vote for or nominate directors, ICO investors have no control whatsoever over promoters.", "conditions": [], "topics": [ "governance-design", "corporate-governance", "tokenomics" ] }, { "id": "kaal:claim:3117224-006", "url": "https://wulfkaal.github.io/claims/3117224-006", "family": "staking-and-incentive-misalignment", "name": "capped-raise-frenzy", "claim": "Capped ICO raises, adopted to address investor uncertainty about platform valuation in uncapped raises, backfire by creating strong incentives for investors to get in first and thereby raising the likelihood of retail investor frenzy.", "conditions": [ "capped ICO raises" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3117224-007", "url": "https://wulfkaal.github.io/claims/3117224-007", "family": "disclosure-ineffectiveness", "name": "disclosure-vacuum", "claim": "The absence of mandatory disclosure requirements for ICOs leads many promoters to make irregular or no disclosures about the platform over time, producing a significant lack of transparency in the ICO market.", "conditions": [], "topics": [ "disclosure", "securities-law", "tokenomics" ] }, { "id": "kaal:claim:3117224-008", "url": "https://wulfkaal.github.io/claims/3117224-008", "family": "investor-protection-gap", "name": "mid-offering-rule-change", "claim": "ICO promoters can alter the smart contract to change the sales rules mid-course during the ICO.", "conditions": [], "topics": [ "smart-contracts", "economics" ] }, { "id": "kaal:claim:3117224-009", "url": "https://wulfkaal.github.io/claims/3117224-009", "family": "cold-start-and-bootstrapping", "name": "no-revenue-runway", "claim": "Because crypto platforms have no product and no revenue to offset costs, the funds they raise must typically last for the entire lifecycle of the platform, forcing them to set aside a large number of tokens for future funding needs.", "conditions": [ "crypto platforms without revenue-generating products" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3117224-010", "url": "https://wulfkaal.github.io/claims/3117224-010", "family": "investor-protection-gap", "name": "no-anti-dilution-protection", "claim": "ICO investors have no preemptive rights or other anti-dilution protections, so they may be diluted if promoters later issue more reserve tokens to additional investors.", "conditions": [], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3117224-011", "url": "https://wulfkaal.github.io/claims/3117224-011", "family": "disclosure-ineffectiveness", "name": "disclosure-driven-volatility", "claim": "Because ICOs give investors very limited assurances through upfront and continuous disclosures, the token market is highly volatile.", "conditions": [], "topics": [ "disclosure", "tokenomics", "economics" ] }, { "id": "kaal:claim:3117224-012", "url": "https://wulfkaal.github.io/claims/3117224-012", "family": "investor-protection-gap", "name": "no-liquidity-preference", "claim": "Token holders typically receive no liquidity preference protecting them if the platform they invested in goes bankrupt or terminates.", "conditions": [], "topics": [ "systemic-risk", "defi", "tokenomics" ] }, { "id": "kaal:claim:3117224-017", "url": "https://wulfkaal.github.io/claims/3117224-017", "family": "enforcement-gap", "name": "exchange-regulatory-gap", "claim": "Although federal securities law is the main instrument countries use to regulate ICO technology, there is also concern about regulating exchanges, which may fall outside federal securities laws at least in part.", "conditions": [ "top 25 ICO countries" ], "topics": [ "securities-law", "defi" ] }, { "id": "kaal:claim:3117224-022", "url": "https://wulfkaal.github.io/claims/3117224-022", "family": "regulatory-arbitrage", "name": "rules-circumvention-by-dlt", "claim": "The FCA has acknowledged that distributed ledger technology has unique aspects capable of working around current regulations.", "conditions": [ "United Kingdom" ], "topics": [ "decentralization", "blockchain", "regulatory-failure" ] }, { "id": "kaal:claim:3117224-025", "url": "https://wulfkaal.github.io/claims/3117224-025", "family": "investor-protection-gap", "name": "fair-dealing-gap", "claim": "If a digital token security falls outside Monetary Authority of Singapore regulation, no duty of fair dealing applies to it.", "conditions": [ "Singapore", "tokens outside MAS regulation" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3227967-004", "url": "https://wulfkaal.github.io/claims/3227967-004", "family": "adoption-and-usability-barrier", "name": "Knowledge transmission model obsolescence", "claim": "The traditional knowledge transmission model of education is ill suited to a world of fast paced change and easy access to information, because prior experience may not be relevant to a fast changing reality and information is always one search away.", "conditions": [ "fast paced technological change", "low cost universal access to information" ], "topics": [ "law-and-legal-systems", "education-and-practice", "disclosure" ] }, { "id": "kaal:claim:3227967-008", "url": "https://wulfkaal.github.io/claims/3227967-008", "family": "agency-cost-and-managerial-opportunism", "name": "Lawyer as transaction obstacle", "claim": "Lawyers have often failed to perform the function of active transaction engineer and have instead become a hindrance or obstacle to transactions.", "conditions": [], "topics": [ "law-and-legal-systems", "education-and-practice" ] }, { "id": "kaal:claim:3227967-009", "url": "https://wulfkaal.github.io/claims/3227967-009", "family": "innovation-chilling", "name": "Proceduralization of legal solutions", "claim": "The major cause of lawyers obstructing transactions is the tendency to standardize or proceduralize legal solutions and to use standard form templates, because fixed standardized solutions imposed on complex, dynamic transactions produce frustration and difficulties.", "conditions": [ "complex, dynamic transactions" ], "topics": [ "law-and-legal-systems", "education-and-practice" ] }, { "id": "kaal:claim:3227967-010", "url": "https://wulfkaal.github.io/claims/3227967-010", "family": "agency-cost-and-managerial-opportunism", "name": "Erosion of professional trust", "claim": "The result of this pattern is reputational: lawyers have developed a reputation as the least trusted of professions.", "conditions": [], "topics": [ "law-and-legal-systems", "education-and-practice", "reputation" ] }, { "id": "kaal:claim:3227967-013", "url": "https://wulfkaal.github.io/claims/3227967-013", "family": "human-judgment-displacement", "name": "Displacement of junior legal work", "claim": "Junior legal professionals and legal support staff are the first casualties of the Legal Tech evolution, because applications will soon perform most junior lawyer work without the human elements that create imprecision, flaws, inaccuracies, possible lawsuits and delay.", "conditions": [ "continued decentralization of legal services by startups" ], "topics": [ "law-and-legal-systems", "education-and-practice" ] }, { "id": "kaal:claim:3227967-014", "url": "https://wulfkaal.github.io/claims/3227967-014", "family": "incumbent-resistance-to-adoption", "name": "Incumbent inability to innovate perpetually", "claim": "The most important consequence of legal startups is that the legal profession will be forced to innovate in perpetuity, a task that overextended and cumbersome legal organizations which have lost the capacity for rapid re-invention cannot easily accomplish.", "conditions": [ "incumbent law firms and legal departments facing startup competition" ], "topics": [ "law-and-legal-systems", "innovation", "institutional-design" ] }, { "id": "kaal:claim:3227967-017", "url": "https://wulfkaal.github.io/claims/3227967-017", "family": "recentralization-drift", "name": "Governance model decay in new firms", "claim": "Many new innovation driven firms that replaced hierarchy with a best-idea-wins culture have struggled to maintain that governance model and to fulfill their initial promise.", "conditions": [ "fast growth technology companies with few assets and employees" ], "topics": [ "governance-design", "corporate-governance", "institutional-design", "innovation" ] }, { "id": "kaal:claim:3227967-025", "url": "https://wulfkaal.github.io/claims/3227967-025", "family": "adoption-and-usability-barrier", "name": "Curricular lag in law schools", "claim": "Law programs have been slow to adapt to these technological developments and most students are still being prepared for a hierarchical, centralized and proceduralized world.", "conditions": [ "law school curricula as of 2018" ], "topics": [ "law-and-legal-systems", "education-and-practice" ] }, { "id": "kaal:claim:3227967-032", "url": "https://wulfkaal.github.io/claims/3227967-032", "family": "recentralization-drift", "name": "Recentralization of proof of work networks", "claim": "Existing blockchains and DAOs still lack genuine decentralization, and there are currently no true DAOs: Bitcoin's proof of work protocol has produced mining pools because of economies of scale and unbalanced reward structures.", "conditions": [ "proof of work blockchains as of 2018" ], "topics": [ "blockchain", "dao", "decentralization", "consensus-and-security" ] }, { "id": "kaal:claim:3227967-033", "url": "https://wulfkaal.github.io/claims/3227967-033", "family": "sybil-and-identity-attack", "name": "Anonymity driven attack surface", "claim": "Anonymity in blockchain organizations makes them prone to Sybil attacks and 51 percent attacks, and anonymity combined with autonomy has led to many hacks.", "conditions": [ "anonymous and autonomous blockchain organizations" ], "topics": [ "blockchain", "consensus-and-security", "dao" ] }, { "id": "kaal:claim:3227967-034", "url": "https://wulfkaal.github.io/claims/3227967-034", "family": "custody-and-key-loss", "name": "Irrevocability of decentralized errors", "claim": "In a truly decentralized system any mistake, such as a stolen or lost password or a programming bug, is permanent and irrevocable.", "conditions": [ "truly decentralized systems with no reversal authority" ], "topics": [ "blockchain", "dao", "risk-and-incentives", "decentralization" ] }, { "id": "kaal:claim:3227967-038", "url": "https://wulfkaal.github.io/claims/3227967-038", "family": "other", "name": "Developer blindness to business and ethical context", "claim": "Coders and developers do not always understand the industry or business environment they target with their software solutions, nor do they always consider the trust or ethical issues raised by the technology based business solutions they implement.", "conditions": [ "technology based business solutions built by developers" ], "topics": [ "education-and-practice", "reputation", "open-source-and-code" ] }, { "id": "kaal:claim:3266953-001", "url": "https://wulfkaal.github.io/claims/3266953-001", "family": "agency-cost-and-managerial-opportunism", "name": "trust deficit ceiling on adoption", "claim": "Internet based platform businesses and distributed ledger technology businesses have not reached their full potential, and the core factor holding them back is worldwide decreasing trust in the internet together with under developed trust in decentralized technology solutions.", "conditions": [ "internet based platform businesses", "distributed ledger technology businesses" ], "topics": [ "reputation", "decentralization", "blockchain", "innovation" ] }, { "id": "kaal:claim:3266953-002", "url": "https://wulfkaal.github.io/claims/3266953-002", "family": "rule-obsolescence-and-ossification", "name": "exhausted regulatory remedy", "claim": "Adding more regulations, processes and procedures cannot restore confidence in institutions, because the traditional trust and cohesion mechanisms have already reached their limits.", "conditions": [ "attempts to restore institutionalized trust" ], "topics": [ "reputation", "institutional-design" ] }, { "id": "kaal:claim:3266953-003", "url": "https://wulfkaal.github.io/claims/3266953-003", "family": "adoption-and-usability-barrier", "name": "digitized trust crisis", "claim": "Digitized and automated trust is not a stable substitute for institutional trust, because it is experiencing crises of its own that undermine the proliferation of value enhancing internet based platform businesses and distributed ledger technology businesses.", "conditions": [ "trust migrated from organizations to machines and algorithms" ], "topics": [ "reputation", "decentralization", "blockchain" ] }, { "id": "kaal:claim:3266953-004", "url": "https://wulfkaal.github.io/claims/3266953-004", "family": "sybil-and-identity-attack", "name": "missing authentication of machine trust", "claim": "The trust humans place in machines on the internet has never been verified, because neither centralized nor decentralized authentication engines have typically confirmed that trust or otherwise enabled a trusting environment for internet based transactions.", "conditions": [ "human to machine interaction on the internet" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:3266953-005", "url": "https://wulfkaal.github.io/claims/3266953-005", "family": "recentralization-drift", "name": "authoritative trust model vulnerability", "claim": "Today's internet is designed for hierarchical societal structures on an underlying authoritative trust model, and that traditional hierarchical trust model carries many inefficiencies including serious cyber security vulnerabilities.", "conditions": [], "topics": [ "reputation", "consensus-and-security" ] }, { "id": "kaal:claim:3266953-006", "url": "https://wulfkaal.github.io/claims/3266953-006", "family": "scalability-and-throughput-limit", "name": "centralized internet scaling limit", "claim": "The centralized version of the internet cannot scale to the thirty to fifty billion connected devices that experts expect by 2020, which is why decentralized authentication solutions for internet of things devices are needed.", "conditions": [ "projected device counts by the year 2020" ], "topics": [ "decentralization", "consensus-and-security" ] }, { "id": "kaal:claim:3266953-007", "url": "https://wulfkaal.github.io/claims/3266953-007", "family": "reputation-system-gaming", "name": "Pollyanna feedback bias", "claim": "Displayed net feedback scores are a poor reputation instrument because they encourage Pollyanna assessments of reputation and are far from the best predictor of performance available in the data.", "conditions": [ "eBay feedback data from 1999" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:3266953-008", "url": "https://wulfkaal.github.io/claims/3266953-008", "family": "sybil-and-identity-attack", "name": "sybil attack on centralized reputation", "claim": "Every centralized reputation score can be sybil attacked, because fake internet accounts or fictitious ratings disrupt true reputation scoring.", "conditions": [ "centralized reputation scoring systems" ], "topics": [ "consensus-and-security", "decentralization", "reputation" ] }, { "id": "kaal:claim:3266953-009", "url": "https://wulfkaal.github.io/claims/3266953-009", "family": "reputation-system-gaming", "name": "unowned reputation", "claim": "Users on internet based platforms earn their reputation but do not own it, so if a platform deletes an account, years of reputation data disappear and users have near zero ability to reclaim it.", "conditions": [ "centralized platforms such as Facebook" ], "topics": [ "reputation", "ai-and-agents" ] }, { "id": "kaal:claim:3266953-010", "url": "https://wulfkaal.github.io/claims/3266953-010", "family": "interoperability-and-fragmentation", "name": "reputation data silos", "claim": "Financial and reputation scores are trapped in platform silos, and that data incompatibility undermines interoperability between platforms and leaves no way to aggregate a user's reputation across disparate platforms.", "conditions": [ "centralized internet platforms" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:3266953-011", "url": "https://wulfkaal.github.io/claims/3266953-011", "family": "reputation-system-gaming", "name": "no incorruptible reputation engine", "claim": "Nobody has yet created a reputation engine that is genuinely resistant to Sybil attack and that cannot be corrupted regardless of the economics at stake, despite the many platforms that capture reputation.", "conditions": [ "as of the time of writing", "platforms including Facebook, Linkedin, Twitter, Uber, Airbnb and Yelp" ], "topics": [ "consensus-and-security", "reputation" ] }, { "id": "kaal:claim:3266953-012", "url": "https://wulfkaal.github.io/claims/3266953-012", "family": "recentralization-drift", "name": "value transferability drives centralization", "claim": "Because power exercised over a store of value inevitably produces economies of scale, cryptocurrencies and any other transferable store of value drive networks toward centralization.", "conditions": [ "any fungible store of value, not only cryptocurrencies" ], "topics": [ "decentralization", "economics" ] }, { "id": "kaal:claim:3266953-014", "url": "https://wulfkaal.github.io/claims/3266953-014", "family": "smart-contract-rigidity", "name": "rigidity of smart contract logic", "claim": "Smart contracts cannot by themselves carry human business interactions, because those interactions require flexibility in interpreting intent that is at odds with the merciless mathematical logic of smart contract code.", "conditions": [ "business collaborations with unanticipated eventualities or partial performance" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3266953-015", "url": "https://wulfkaal.github.io/claims/3266953-015", "family": "smart-contract-rigidity", "name": "minimum performance degeneration", "claim": "A pure code is law smart contract between anonymous parties creates a zero sum scenario in which each party is incentivized to deliver only the minimum that satisfies the rigid self executing terms, so this type of business ultimately degenerates.", "conditions": [ "self executing contracts between often anonymous parties", "no reputation at stake" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3266953-020", "url": "https://wulfkaal.github.io/claims/3266953-020", "family": "recentralization-drift", "name": "fungible stake centralization", "claim": "The fungibility of the staked currency is the main point of attack against proof of stake and leads inevitably to centralization.", "conditions": [ "proof of stake consensus using fungible currency" ], "topics": [ "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3266953-028", "url": "https://wulfkaal.github.io/claims/3266953-028", "family": "sybil-and-identity-attack", "name": "sockpuppet self dealing in web of trust", "claim": "A Web of Trust reputation system can be gamed with sockpuppet accounts, because an attacker can behave well for a while and then transact with himself repeatedly and rate himself high to raise his reputation arbitrarily.", "conditions": [ "reputation systems based on counting positive peer rated transactions" ], "topics": [ "reputation", "consensus-and-security", "regulatory-failure" ] }, { "id": "kaal:claim:3266953-029", "url": "https://wulfkaal.github.io/claims/3266953-029", "family": "sybil-and-identity-attack", "name": "identity verification does not deter valuable sockpuppets", "claim": "Identity verification does not fix the sockpuppet problem, because whenever the reputation is genuinely valuable a sockpuppet operator can afford to clear whatever verification hoops are in place, including stealing biometric data, and then inflate reputation as before.", "conditions": [ "reputation that carries real economic value" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3266953-030", "url": "https://wulfkaal.github.io/claims/3266953-030", "family": "adoption-and-usability-barrier", "name": "verification friction repels honest users", "claim": "The other horn of the identity verification dilemma is that when reputation is not valuable, honest users will not bother to go through the hoops required to identify themselves securely.", "conditions": [ "low value reputation systems" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:3266953-031", "url": "https://wulfkaal.github.io/claims/3266953-031", "family": "reputation-system-gaming", "name": "web of trust breaks under economic value", "claim": "The Web of Trust is only trustworthy where the service is not valuable, such as essentially free PGP email, because only then is it not worth creating sockpuppet accounts.", "conditions": [ "services with negligible economic value at stake" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:3266953-032", "url": "https://wulfkaal.github.io/claims/3266953-032", "family": "reputation-system-gaming", "name": "past behavior is not proof of future behavior", "claim": "In an economic network where real money is at stake, historical good behavior cannot be assumed to prove future good behavior, because sockpuppet accounts allow participants to game the system automatedly, create valuable reputation falsely, and leach value out of the system.", "conditions": [ "networks where trust must support real monetary value" ], "topics": [ "reputation", "regulatory-failure", "consensus-and-security", "economics" ] }, { "id": "kaal:claim:3266953-033", "url": "https://wulfkaal.github.io/claims/3266953-033", "family": "sybil-and-identity-attack", "name": "sockpuppets outpace honest validation", "claim": "Sockpuppet accounts grow their reputation value much faster than honest users can in a Web of Trust, because sockpuppets validate each other, and the system is therefore flawed and should not be used where fungible currency is at stake.", "conditions": [ "web of trust style reputation used by many distributed ledger startups" ], "topics": [ "reputation", "tokenomics", "decentralization", "blockchain" ] }, { "id": "kaal:claim:3125827-001", "url": "https://wulfkaal.github.io/claims/3125827-001", "family": "consensus-and-protocol-attack", "name": "fixed-protocol-gaming", "claim": "No single, fixed, entirely algorithmic policing solution can completely prevent independent nodes in a distributed system from gaming block production to advantage some parties over others. Any consensus protocol that relies on a permanently fixed rule set will therefore be gamed as conditions change.", "conditions": [ "distributed systems with independent, self interested nodes", "protocols that are fixed rather than continually revisable" ], "topics": [ "consensus-and-security", "regulatory-failure", "blockchain", "governance-design" ] }, { "id": "kaal:claim:3125827-009", "url": "https://wulfkaal.github.io/claims/3125827-009", "family": "recentralization-drift", "name": "pos-cartel-formation", "claim": "Even though proof of stake mitigates the economy of scale advantage, block production cartels can still arise in PoS systems through lotteries, through built in voting delegations, or because the stakes required to be a block producer can simply be bought.", "conditions": [ "PoS systems that use lotteries, delegation, or purchasable stakes" ], "topics": [ "consensus-and-security", "governance-design", "decentralization" ] }, { "id": "kaal:claim:3125827-010", "url": "https://wulfkaal.github.io/claims/3125827-010", "family": "collective-action-and-coordination-failure", "name": "restart-requires-social-coordination", "claim": "If a blockchain cannot restart or regenerate autonomously after going offline or losing most active nodes, it needs social coordination between nodes; that requirement threatens anonymity and forces reliance on famous nodes.", "conditions": [ "blockchain goes offline for a long period or has too few active nodes" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3125827-011", "url": "https://wulfkaal.github.io/claims/3125827-011", "family": "privacy-and-surveillance-risk", "name": "identity-exposure-of-producers", "claim": "If block producers' identities are revealed, the supranational independence and security of the blockchain are threatened, because local jurisdictions can then exert legal power over block production. This threat is most acute in delegated proof of stake, where delegates must win popularity contests.", "conditions": [ "protocols where producers must identify themselves to be chosen", "especially delegated proof of stake" ], "topics": [ "consensus-and-security", "governance-design", "law-and-legal-systems" ] }, { "id": "kaal:claim:3125827-012", "url": "https://wulfkaal.github.io/claims/3125827-012", "family": "token-transferability-defect", "name": "transaction-value-exceeds-fee-base", "claim": "No consensus protocol can guard against Byzantine faults when a single transaction is worth more than the promise of all future fees for the entire platform, because in that case a party can profitably bribe the whole node set to destroy the chain's own integrity.", "conditions": [ "a single transaction whose value exceeds the present value of all future platform fees" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3125827-014", "url": "https://wulfkaal.github.io/claims/3125827-014", "family": "plutocratic-capture", "name": "priceable-corruption-cost", "claim": "Because almost all other blockchains distribute perfectly fungible currency tokens through initial sales or mining, there is a clear, computable answer to how much it would cost to corrupt or destroy a chain running a proof of stake protocol on cryptocurrency stakes.", "conditions": [ "PoS chains whose stakes are perfectly fungible currency tokens" ], "topics": [ "consensus-and-security", "securities-law", "tokenomics" ] }, { "id": "kaal:claim:3125827-015", "url": "https://wulfkaal.github.io/claims/3125827-015", "family": "consensus-and-protocol-attack", "name": "long-range-attack", "claim": "The long range attack is a fundamental problem every proof of stake protocol must address: because no energetic outlay is required to build blocks, a malicious producer can fabricate a long chain forked from an earlier valid block, and a newly joining node lacking proof of work hashes cannot objectively tell which chain is genuine.", "conditions": [ "new nodes joining without a trusted checkpoint", "PoS chains with no energy cost to block creation" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3125827-018", "url": "https://wulfkaal.github.io/claims/3125827-018", "family": "consensus-and-protocol-attack", "name": "undetectable-censorship", "claim": "In a distributed system, which cannot achieve constant perfect communication between nodes, it is never possible to determine with certainty that a block producer was censoring particular transactions rather than simply being unaware of them.", "conditions": [ "imperfect communication between nodes", "block producers with discretion over transaction inclusion" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3125827-019", "url": "https://wulfkaal.github.io/claims/3125827-019", "family": "plutocratic-capture", "name": "whale-mediated-governance", "claim": "Any blockchain whose soft forks are decided through private communication between famous token holding whales is ultimately less secure than legacy centralized systems, which at least address centralized security risks deliberately.", "conditions": [ "off chain governance conducted privately among large holders and developers" ], "topics": [ "blockchain", "governance-design", "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3125827-020", "url": "https://wulfkaal.github.io/claims/3125827-020", "family": "staking-and-incentive-misalignment", "name": "altruism-cliff", "claim": "The current dominance of altruists in the crypto space will not persist: once the crypto economy matures, an influx of hedgers and rent seekers can be anticipated with certainty, and they will exploit any weakness in the system for profit.", "conditions": [ "maturation of the crypto economy beyond its emerging industry phase" ], "topics": [ "risk-and-incentives", "consensus-and-security", "economics" ] }, { "id": "kaal:claim:3125827-021", "url": "https://wulfkaal.github.io/claims/3125827-021", "family": "sample-and-selection-bias", "name": "false-inference-from-live-experiments", "claim": "Successful proof of stake experiments running today cannot be used to infer that their protocols are truly secure, because the current participant population is atypically altruistic; confidence must instead come from sound reasoning about incentives.", "conditions": [ "nascent crypto economy dominated by altruists" ], "topics": [ "empirical-evidence", "consensus-and-security", "research-methods", "risk-and-incentives" ] }, { "id": "kaal:claim:3125827-024", "url": "https://wulfkaal.github.io/claims/3125827-024", "family": "enforcement-gap", "name": "unanimity-blocks-innovation", "claim": "A healthy expertise will have near unanimous consensus on every evidence of work validation pool, and that very unanimity creates an impediment to development, because honest members risk their stakes by voting for untested changes.", "conditions": [ "well functioning expertise where all members run the same validated algorithms" ], "topics": [ "consensus-and-security", "institutional-design", "governance-design", "risk-and-incentives" ] }, { "id": "kaal:claim:3125827-026", "url": "https://wulfkaal.github.io/claims/3125827-026", "family": "consensus-and-protocol-attack", "name": "finite-validation-window-forks", "claim": "Forcing validation pools to close in finite time, which practical demand for swift resolution requires, opens the possibility of network partition and of a lack of genuine consensus, and therefore of forks. Complete finality would require unbounded validation time.", "conditions": [ "validation windows bounded to seconds for practical liveness" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3125827-030", "url": "https://wulfkaal.github.io/claims/3125827-030", "family": "scalability-and-throughput-limit", "name": "supermajority-validator-requirement-cost", "claim": "A 67% active validator requirement would improve finality but is excluded from the initial SPoS implementation because, by the CAP theorem, it limits the availability of the system and arbitrarily punishes randomly selected producers when the network is partitioned.", "conditions": [ "network partitions occur", "consensus recognizes only blocks validated by a supermajority of active validators" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3125827-031", "url": "https://wulfkaal.github.io/claims/3125827-031", "family": "consensus-and-protocol-attack", "name": "self-referential-destabilization", "claim": "Running the reputation platform on the very blockchain it validates destabilizes the system because it increases the likelihood of forks: every validation pool result is itself a transaction that must be included in a future block requiring its own validation, without end. The authors judge this destabilization non catastrophic for most imagined uses.", "conditions": [ "platform DApp hosted on the same chain it validates" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3125827-033", "url": "https://wulfkaal.github.io/claims/3125827-033", "family": "governance-participation-collapse", "name": "incumbent-bench-closure", "claim": "If the bench institutes protocols for rejecting applicants through the validation pool, it gains both the incentive and the opportunity to block all new users entirely, so that existing bench members keep sharing all the fees among themselves.", "conditions": [ "bench adopts admission screening for new experts" ], "topics": [ "regulatory-failure", "decentralization" ] }, { "id": "kaal:claim:3125827-039", "url": "https://wulfkaal.github.io/claims/3125827-039", "family": "staking-and-incentive-misalignment", "name": "late-entrant-disincentive", "claim": "Because earlier sem tokens represent a larger percentage of the total and therefore pay out more, later experts have less motivation to join when fees are at a steady state; the authors propose that the bench may need to change the fee to token exchange rate to recruit new members.", "conditions": [ "steady state rate of fees paid into the expertise", "tokens created with every fee and never destroyed" ], "topics": [ "tokenomics", "governance-design" ] }, { "id": "kaal:claim:3125827-040", "url": "https://wulfkaal.github.io/claims/3125827-040", "family": "sybil-and-identity-attack", "name": "chain-cloning-indistinguishability", "claim": "A malicious party using Sybil accounts cannot be prevented from cloning the structure of a successful proof of stake blockchain at far lower cost than cloning a proof of work chain, leaving a new user unable to distinguish the truly decentralized chain from a clone that has manufactured even more tokens. The authors answer that this is resolved off chain, by a trusted user interface, as with cloned web pages.", "conditions": [ "new users joining without prior knowledge of the genuine chain", "PoS chains where clone creation costs only new public keys" ], "topics": [ "blockchain", "consensus-and-security", "reputation" ] }, { "id": "kaal:claim:3227933-003", "url": "https://wulfkaal.github.io/claims/3227933-003", "family": "recentralization-drift", "name": "Adaptive lag of centralized hierarchy", "claim": "Centralized, hierarchical organizations fail on two fronts in a fast changing environment: they adapt too slowly to changing reality and they are losing public trust.", "conditions": [ "fast-changing reality" ], "topics": [ "reputation", "institutional-design" ] }, { "id": "kaal:claim:3227933-019", "url": "https://wulfkaal.github.io/claims/3227933-019", "family": "recentralization-drift", "name": "Mining pool recentralization", "claim": "Most current blockchain applications lack complete decentralization: proof of work style validation has produced mining pools because of economies of scale and unbalanced reward structures.", "conditions": [ "proof of work validation mechanisms" ], "topics": [ "consensus-and-security", "decentralization", "economics" ] }, { "id": "kaal:claim:3227933-020", "url": "https://wulfkaal.github.io/claims/3227933-020", "family": "sybil-and-identity-attack", "name": "Anonymity-enabled attacks", "claim": "Anonymity in blockchain organizations makes them prone to Sybil attacks and 51 percent attacks, and anonymity combined with autonomy has already produced hacks.", "conditions": [ "anonymous, permissionless blockchain organizations" ], "topics": [ "consensus-and-security", "blockchain" ] }, { "id": "kaal:claim:3227933-021", "url": "https://wulfkaal.github.io/claims/3227933-021", "family": "custody-and-key-loss", "name": "Irrevocability of error under code-is-law", "claim": "In a truly decentralized system where code is law, any mistake such as a stolen or lost password or a programming bug is permanent and irrevocable, because there is no authority able to reverse it.", "conditions": [ "truly decentralized systems where code is law" ], "topics": [ "smart-contracts", "decentralization" ] }, { "id": "kaal:claim:3227933-022", "url": "https://wulfkaal.github.io/claims/3227933-022", "family": "consensus-and-protocol-attack", "name": "Untested security-by-design claim", "claim": "The claim that blockchain is secure by design cannot yet be relied on, because the technology has not been adopted widely enough to be severely tested, and hacking attacks on digital currencies underscore the concern.", "conditions": [ "current state of adoption" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3227933-023", "url": "https://wulfkaal.github.io/claims/3227933-023", "family": "transition-and-migration-risk", "name": "Legacy integration cost", "claim": "Adoption of blockchain is costly and technically difficult because the technology is continually evolving and integrating blockchain databases with existing systems raises many technical challenges, such as interfacing a payment ledger with a vehicle's control software.", "conditions": [ "integration with legacy systems" ], "topics": [ "blockchain" ] }, { "id": "kaal:claim:3227933-026", "url": "https://wulfkaal.github.io/claims/3227933-026", "family": "rule-obsolescence-and-ossification", "name": "Slow centralized decision-making", "claim": "A particular problem with old world centralized, hierarchical organizations is that their decision-making processes become slow, cumbersome and costly, which is a competitive problem for incumbents in a fast-paced consumer-driven economy.", "conditions": [ "fast-paced, consumer-driven economy" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3227933-027", "url": "https://wulfkaal.github.io/claims/3227933-027", "family": "governance-participation-collapse", "name": "Talent flight from hierarchy", "claim": "Centralized organizations also lose the competition for talent, because the younger generation views centralization as a threat to personal autonomy, choice and happiness and is increasingly sceptical of traditional hierarchies.", "conditions": [ "younger, Millennial workforce" ], "topics": [ "ai-and-agents", "decentralization" ] }, { "id": "kaal:claim:3227933-035", "url": "https://wulfkaal.github.io/claims/3227933-035", "family": "smart-contract-bug-and-exploit", "name": "DAO code exploit", "claim": "Fundamental flaws in the DAO's code allowed hackers to transfer one third of the total contributed funds to a subsidiary account, and this together with other technological limitations ended the initiative, but the authors argue it did not end the underlying vision of decentralized autonomous organization.", "conditions": [ "the DAO, 2016" ], "topics": [ "dao", "governance-design", "blockchain" ] }, { "id": "kaal:claim:3227933-039", "url": "https://wulfkaal.github.io/claims/3227933-039", "family": "incumbent-resistance-to-adoption", "name": "Goodwill dependence of decentralized systems", "claim": "Decentralized organization has not yet displaced the centralized world: traditional incumbents still enjoy enormous market power, and the success of more decentralized systems still depends on the goodwill of the parties involved.", "conditions": [ "current state, 2018" ], "topics": [ "decentralization", "economics" ] }, { "id": "kaal:claim:3441904-001", "url": "https://wulfkaal.github.io/claims/3441904-001", "family": "agency-cost-and-managerial-opportunism", "name": "irreducible-agency-problem", "claim": "The core underlying agency problems of corporate governance cannot be fully resolved within the existing theoretical and legal infrastructure, despite decades of governance experiments and extensive rule revisions.", "conditions": [ "existing corporate law and theory of the firm infrastructure" ], "topics": [ "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:3441904-002", "url": "https://wulfkaal.github.io/claims/3441904-002", "family": "board-and-oversight-failure", "name": "activism-insufficiency", "claim": "Shareholder activism reform, taken by itself, has been unable to sufficiently improve the corporate governance system.", "conditions": [ "United States corporate governance" ], "topics": [ "corporate-governance", "governance-design" ] }, { "id": "kaal:claim:3441904-005", "url": "https://wulfkaal.github.io/claims/3441904-005", "family": "governance-participation-collapse", "name": "forking-as-governance", "claim": "Forking a chain is an insufficient governance mechanism, and even attempts to create socially optimal chain forking rules cannot suffice as a substitute for evolutionary blockchain governance protocols.", "conditions": [ "existing blockchain governance that relies on forks" ], "topics": [ "consensus-and-security", "blockchain", "governance-design", "dao" ] }, { "id": "kaal:claim:3441904-006", "url": "https://wulfkaal.github.io/claims/3441904-006", "family": "rule-obsolescence-and-ossification", "name": "unmaintained-cost-reduction", "claim": "Without evolutionary governance upgrades to blockchain protocols, the cost reduction that blockchain brings to the agency relationship cannot be maintained.", "conditions": [ "a changing environment for blockchain based coded guarantees" ], "topics": [ "corporate-governance", "governance-design", "blockchain" ] }, { "id": "kaal:claim:3441904-007", "url": "https://wulfkaal.github.io/claims/3441904-007", "family": "interoperability-and-fragmentation", "name": "rule-based-incompatibility", "claim": "Traditional limited liability entities can only partially benefit from blockchain based governance, because the dynamic regulatory features it offers are partially incompatible with the rule based legal environment those entities must comply with.", "conditions": [ "traditional centralized limited liability entities", "existing rule based legal environment" ], "topics": [ "dynamic-regulation", "law-and-legal-systems", "blockchain" ] }, { "id": "kaal:claim:3441904-013", "url": "https://wulfkaal.github.io/claims/3441904-013", "family": "smart-contract-rigidity", "name": "missing-default-rules", "claim": "Unlike corporate governance systems, the decentralized nexus of incomplete smart contracts has no supply of majoritarian default rules to fill its gaps, and corporate law's default rules are largely incompatible because they are based on natural language.", "conditions": [ "blockchain based entities organized through smart contracts" ], "topics": [ "dao" ] }, { "id": "kaal:claim:3441904-014", "url": "https://wulfkaal.github.io/claims/3441904-014", "family": "smart-contract-rigidity", "name": "no-real-time-governance-upgrade", "claim": "The core governance failure of the original 2016 DAO was its inability to create dynamic governance protocol upgrades in real time through dynamic feedback loops, because its voting structure was built for investment proposals rather than governance design.", "conditions": [ "the original 2016 DAO", "flaws materializing in already deployed code" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:3441904-015", "url": "https://wulfkaal.github.io/claims/3441904-015", "family": "recentralization-drift", "name": "curator-bottleneck", "claim": "Curators were the core point of centralization in the original 2016 DAO because the smart contract could not on its own distinguish real from fake proposals, leaving curators with approval and vote prioritization power before any community vote.", "conditions": [ "the original 2016 DAO curator whitelist design" ], "topics": [ "decentralization", "dao", "governance-design" ] }, { "id": "kaal:claim:3441904-017", "url": "https://wulfkaal.github.io/claims/3441904-017", "family": "staking-and-incentive-misalignment", "name": "fungible-payment-capture", "claim": "If curators and contractors are paid from a fungible currency source without a direct or indirect penalty for underperformance, such as lower token scores, DAO contractors and workers may be corrupted by external sources.", "conditions": [ "fungible payment without an underperformance penalty" ], "topics": [ "risk-and-incentives", "dao" ] }, { "id": "kaal:claim:3441904-018", "url": "https://wulfkaal.github.io/claims/3441904-018", "family": "staking-and-incentive-misalignment", "name": "single-sided-incentives", "claim": "Participants must be incentivized to improve their own utility while simultaneously benefiting the institution over the long run; without that duality of incentivization, rational and opportunistic internal and external constituents will attempt to game the governance design.", "conditions": [ "all blockchain governance structures, especially on chain governance" ], "topics": [ "ai-and-agents", "risk-and-incentives", "governance-design", "regulatory-failure", "dao" ] }, { "id": "kaal:claim:3441904-019", "url": "https://wulfkaal.github.io/claims/3441904-019", "family": "fraud-and-misconduct", "name": "identifiability-enables-corruption", "claim": "Corruption is possible whenever actors in a governance design can be identified, and every historical instantiation of institutional governance design involving identifiable humans was afflicted by corruption sooner or later.", "conditions": [ "governance designs whose members are individually identifiable" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3441904-021", "url": "https://wulfkaal.github.io/claims/3441904-021", "family": "incumbent-resistance-to-adoption", "name": "token-weighted-plutocracy", "claim": "A one token one vote mechanism in existing decentralized protocols with on chain governance resembles a plutocracy, because holders of a significant share of total token supply hold more power than the rest of the members.", "conditions": [ "decentralized protocols with on chain governance as of the end of 2019" ], "topics": [ "tokenomics", "governance-design" ] }, { "id": "kaal:claim:3441904-023", "url": "https://wulfkaal.github.io/claims/3441904-023", "family": "plutocratic-capture", "name": "delegate-vote-buying", "claim": "In delegated proof of stake protocols the significant block validation power of elected nodes leads to corruption, because those nodes are incentivized to bribe voters to be elected as delegates in exchange for some of the newly inflated tokens.", "conditions": [ "delegated proof of stake protocols such as EOS, Lisk, and Ark" ], "topics": [ "consensus-and-security", "governance-design" ] }, { "id": "kaal:claim:3441904-024", "url": "https://wulfkaal.github.io/claims/3441904-024", "family": "consensus-and-protocol-attack", "name": "fork-induced-double-spend", "claim": "Hard forks can reintroduce the double spend problem, because wallets, merchants, and users running the previous code deem the new code invalid and cannot detect spending on it, so coins spent in a new block could be spent again on an old block.", "conditions": [ "hard forks only, since old nodes read both block versions after a soft fork" ], "topics": [ "consensus-and-security", "economics" ] }, { "id": "kaal:claim:3441904-025", "url": "https://wulfkaal.github.io/claims/3441904-025", "family": "interoperability-and-fragmentation", "name": "perpetual-chain-contention", "claim": "If a community cannot agree after a hard fork on which chain is the true chain, the result can be two blockchains competing in perpetuity, and the only viable remedy is abandoning one branch, which causes some miners to lose re-allocated transactions.", "conditions": [ "contentious hard forks", "example of the fork that created Bitcoin Cash" ], "topics": [ "consensus-and-security", "blockchain", "governance-design" ] }, { "id": "kaal:claim:3441904-026", "url": "https://wulfkaal.github.io/claims/3441904-026", "family": "transition-and-migration-risk", "name": "isolated-infrastructure-reform", "claim": "The complex systems that decentralized infrastructure technology will reform are interdependent, so development of the infrastructure elements alone is not enough: structural and cultural changes in legacy systems must be worked through before the technology can be applied.", "conditions": [ "interdependent complex legacy systems" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3441904-028", "url": "https://wulfkaal.github.io/claims/3441904-028", "family": "agency-cost-and-managerial-opportunism", "name": "code-only-agency-breakdown", "claim": "The notion that smart contract agency relationships run exactly as coded with no possibility of agent opportunism is less likely to hold in complex agency relationships, so a decentralized human backstop to code becomes necessary as those relationships grow more complex.", "conditions": [ "complex decentralized agency relationships" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3441904-029", "url": "https://wulfkaal.github.io/claims/3441904-029", "family": "rule-obsolescence-and-ossification", "name": "static-rulemaking-mismatch", "claim": "Facts based, ex post, trial and error rulemaking with stable and presumptively optimal rules is incompatible with the needs of decentralized systems, because knowledge filters in at the edges of such systems and cannot be encapsulated in a timely fashion.", "conditions": [ "decentralized smart contracting and DAO environments" ], "topics": [ "dynamic-regulation", "decentralization" ] }, { "id": "kaal:claim:3441904-030", "url": "https://wulfkaal.github.io/claims/3441904-030", "family": "regulatory-lag", "name": "regulatory-obsolescence-on-arrival", "claim": "The speed of smart contracting and associated DAO revisions will render regulations aimed at morphing decentralized systems obsolete before static centralized regulations are even finalized.", "conditions": [ "formal centralized rulemaking processes", "rapidly morphing decentralized systems" ], "topics": [ "dynamic-regulation", "dao" ] }, { "id": "kaal:claim:3441904-031", "url": "https://wulfkaal.github.io/claims/3441904-031", "family": "privacy-and-surveillance-risk", "name": "translation-cost-overload", "claim": "The cost of translating coded contractual intent into natural language has the potential to become overwhelming for the existing centralized legal infrastructure, because coded intent may be unclear and natural language intent often cannot be used for interpretation.", "conditions": [ "smart contract disputes brought before existing courts and regulators" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3441904-033", "url": "https://wulfkaal.github.io/claims/3441904-033", "family": "rule-obsolescence-and-ossification", "name": "static-code-rules", "claim": "Rulemaking via code is not itself a cure for static regulation, because coded solutions are subject to natural flaws such as bugs and cannot evolutionarily change protocols, making them another stable and presumptively optimal attempt.", "conditions": [ "decentralized rulemaking via code without dynamic elements" ], "topics": [ "dynamic-regulation", "governance-design" ] }, { "id": "kaal:claim:3441904-035", "url": "https://wulfkaal.github.io/claims/3441904-035", "family": "rule-obsolescence-and-ossification", "name": "static-rule-arbitrage", "claim": "Static complex sets of DAO rules inevitably produce corruptive opportunistic gaming and arbitrage behavior, so effective DAO governance designs should be focused on dynamic elements.", "conditions": [ "open and democratic systems with complex static rule sets" ], "topics": [ "regulatory-failure", "governance-design" ] }, { "id": "kaal:claim:3441904-042", "url": "https://wulfkaal.github.io/claims/3441904-042", "family": "reputation-system-gaming", "name": "unreliable-centralized-reputation", "claim": "Reputation based metrics were ineffective in centralized governance systems because before blockchain, reputation could not be stored autonomously, anonymously, and transparently, so it was not a reliable predictor of actors' future actions.", "conditions": [ "pre blockchain centralized reputation systems such as the web of trust and platform ratings" ], "topics": [ "reputation", "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3411110-001", "url": "https://wulfkaal.github.io/claims/3411110-001", "family": "liquidity-and-market-structure-failure", "name": "batch-processing ledger fragmentation", "claim": "Existing ledger structures for securities offerings are defective: because individual firms rely on batch processing, the model generates dependencies, multi-day settlement times, distinctive operational risks, and duplicative costs.", "conditions": [ "legacy, non blockchain securities settlement infrastructure" ], "topics": [ "risk-and-incentives", "economics" ] }, { "id": "kaal:claim:3411110-002", "url": "https://wulfkaal.github.io/claims/3411110-002", "family": "interoperability-and-fragmentation", "name": "multi-ledger duplication", "claim": "When multiple firms trade the same securities in legacy systems, each maintains its own ledger, and that duplication is itself the source of increased operational risk and cost.", "conditions": [ "multiple firms trading the same security", "legacy multi ledger systems" ], "topics": [ "blockchain", "risk-and-incentives", "securities-law" ] }, { "id": "kaal:claim:3411110-008", "url": "https://wulfkaal.github.io/claims/3411110-008", "family": "compliance-cost-and-barrier-to-entry", "name": "ATS compliance cost barrier", "claim": "The compliance burden attached to operating an alternative trading system, including fees, consumer protection, examination, and books and records requirements, is typically cost prohibitive for startups.", "conditions": [ "startup firms seeking to operate an ATS", "SEC and FINRA compliance regime" ], "topics": [ "compliance", "economics", "innovation" ] }, { "id": "kaal:claim:3411110-013", "url": "https://wulfkaal.github.io/claims/3411110-013", "family": "consensus-and-protocol-attack", "name": "51 percent control attack", "claim": "The double spending problem has not been eradicated in theory: a group or syndicate obtaining 51 percent control of a network could reverse transactions and create a private chain that the market could only limitedly discern as not real.", "conditions": [ "a decentralized network where one party can amass majority hashing control" ], "topics": [ "consensus-and-security", "risk-and-incentives" ] }, { "id": "kaal:claim:3411110-016", "url": "https://wulfkaal.github.io/claims/3411110-016", "family": "transition-and-migration-risk", "name": "loss of the settlement grace period", "claim": "Instant settlement destroys an existing business practice: without the T+3 grace period, institutional investors can no longer lend idle shares to investors covering short positions.", "conditions": [ "blockchain based settlement without a grace period" ], "topics": [ "securities-law", "defi", "economics" ] }, { "id": "kaal:claim:3411110-018", "url": "https://wulfkaal.github.io/claims/3411110-018", "family": "liquidity-and-market-structure-failure", "name": "no exchange venue for blockchain issued securities", "claim": "Neither the Overstock offering nor the Linq based offerings were structured to support widespread ownership or trading through blockchain, and no major exchange or inter-dealer market permits or will foreseeably permit trading of blockchain issued securities.", "conditions": [ "U.S. exchanges and inter-dealer markets as of the time of writing" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:3411110-019", "url": "https://wulfkaal.github.io/claims/3411110-019", "family": "liquidity-and-market-structure-failure", "name": "single broker liquidity trap", "claim": "A blockchain based offering routed through a single broker produces a specific cluster of risks, including limited price discovery, no market making and therefore less liquidity, constrained short selling, impaired best execution, and no print to a tape or national exchange.", "conditions": [ "offering structures with only one authorized broker-dealer", "single non-scalable ATS" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:3411110-020", "url": "https://wulfkaal.github.io/claims/3411110-020", "family": "smart-contract-bug-and-exploit", "name": "unquantifiable technology risk", "claim": "Blockchain based offerings introduce technology risks from code design and functioning and from third party intrusions that are generally absent in traditional offerings, and these risks cannot really be quantified.", "conditions": [ "blockchain based offerings compared with traditional offerings" ], "topics": [ "risk-and-incentives", "consensus-and-security" ] }, { "id": "kaal:claim:3411110-021", "url": "https://wulfkaal.github.io/claims/3411110-021", "family": "supervisory-capacity-gap", "name": "regulator over-reaction from unsophistication", "claim": "Regulators' relative unsophistication about the technology is itself a risk driver, because a poorly informed regulator is likely to over-react and precipitate new or expanded regulation.", "conditions": [ "regulators lacking technical understanding of blockchain" ], "topics": [ "risk-and-incentives", "innovation" ] }, { "id": "kaal:claim:3411110-022", "url": "https://wulfkaal.github.io/claims/3411110-022", "family": "innovation-chilling", "name": "regulatory uncertainty chilling effect", "claim": "Regulatory uncertainty produces a chilling effect: because early adopters must apply traditional law to novel instruments and cannot reach a comfortable level of certainty, legacy businesses hold back from adoption.", "conditions": [ "current U.S. regulatory climate for tokens and digital securities" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3411110-023", "url": "https://wulfkaal.github.io/claims/3411110-023", "family": "regulatory-lag", "name": "commercial law non-recognition of digital securities", "claim": "Digital securities are not recognized under any state's current commercial law, which matters because that recognition governs margining and the pledging of securities as collateral.", "conditions": [ "state commercial law as codified in the UCC" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:3411110-025", "url": "https://wulfkaal.github.io/claims/3411110-025", "family": "regulatory-lag", "name": "absent blockchain disclosure standards", "claim": "The SEC has developed neither blockchain-specific offering disclosure standards nor retail investor protection measures particular to blockchain based offerings, leaving issuers without guidance.", "conditions": [ "SEC rulemaking and guidance as of the time of writing" ], "topics": [ "securities-law", "disclosure" ] }, { "id": "kaal:claim:3411110-026", "url": "https://wulfkaal.github.io/claims/3411110-026", "family": "liquidity-and-market-structure-failure", "name": "no error correction window under instant settlement", "claim": "Near instant settlement creates its own regulatory problem: there is no practical ability to correct trade errors when settlement is same day, whereas the T+2 or T+3 structure supplies a correction window even as its delay causes other trading violations.", "conditions": [ "same day or near instant settlement compared with T+2 and T+3" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3411110-027", "url": "https://wulfkaal.github.io/claims/3411110-027", "family": "regulatory-lag", "name": "SEC recognition vacuum", "claim": "Despite an early call for regulatory leadership from Commissioner Stein in 2015, the SEC has not addressed core recognition questions for blockchain in finance, including cryptocurrencies, tokens as securities, and DAOs as investment advisers.", "conditions": [ "SEC action between 2015 and the time of writing" ], "topics": [ "securities-law", "tokenomics", "dao" ] }, { "id": "kaal:claim:3411110-034", "url": "https://wulfkaal.github.io/claims/3411110-034", "family": "adoption-and-usability-barrier", "name": "cost validation without demand", "claim": "Validating blockchain as a cost effective means of supporting securities offerings does not by itself increase capital raising for private companies, because outside of unicorns there is unlikely to be broad retail interest in privately placed digital securities or in securities trading on a single non-scalable ATS.", "conditions": [ "privately placed digital securities", "securities trading on a single non-scalable ATS", "issuers other than unicorns" ], "topics": [ "defi", "securities-law" ] }, { "id": "kaal:claim:3411110-036", "url": "https://wulfkaal.github.io/claims/3411110-036", "family": "regulatory-lag", "name": "widening regulatory gap", "claim": "Governmental endorsement and guidance on crypto investments is essential for future securities offerings involving cryptocurrencies and blockchain, and absent it the gap between the existing regulatory infrastructure and crypto securities investment will inevitably widen as the market grows.", "conditions": [ "growth in the market for crypto investments", "United States regulatory infrastructure" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3411110-039", "url": "https://wulfkaal.github.io/claims/3411110-039", "family": "privacy-and-surveillance-risk", "name": "broker-dealer identity disclosure", "claim": "The Overstock structure fails to deliver investor privacy, because all existing broker-dealer customer agreements contain provisions allowing the broker-dealer to share the customer's identity, whereas ideally the individual's privacy would be contained.", "conditions": [ "existing broker-dealer customer agreements" ], "topics": [ "consensus-and-security", "economics" ] }, { "id": "kaal:claim:3373393-003", "url": "https://wulfkaal.github.io/claims/3373393-003", "family": "agency-cost-and-managerial-opportunism", "name": "irreducible-agency-conflict", "claim": "The core agency conflicts that emanate from the separation of ownership by shareholder principals and control by manager agents cannot be fully addressed by the existing theoretical and legal framework, because monitoring agents is inevitably costly and transaction costs abound.", "conditions": [ "under the existing theoretical and legal framework for corporate governance" ], "topics": [ "compliance", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:3373393-005", "url": "https://wulfkaal.github.io/claims/3373393-005", "family": "cold-start-and-bootstrapping", "name": "single-area-development-failure", "claim": "Blockchain use cases involve interdependent structures, so development of any one area alone cannot succeed without the simultaneous existence of multiple additional support structures.", "conditions": [ "applies to complex, interdependent use cases such as corporate governance" ], "topics": [ "blockchain", "innovation" ] }, { "id": "kaal:claim:3373393-008", "url": "https://wulfkaal.github.io/claims/3373393-008", "family": "agency-cost-and-managerial-opportunism", "name": "incomplete-contracting", "claim": "Because of 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 interests.", "conditions": [ "where principals and agents face bounded rationality and incomplete foresight" ], "topics": [ "risk-and-incentives", "disclosure" ] }, { "id": "kaal:claim:3373393-009", "url": "https://wulfkaal.github.io/claims/3373393-009", "family": "agency-cost-and-managerial-opportunism", "name": "residual-loss", "claim": "The interests of manager agents and shareholder principals are never fully aligned despite best efforts at monitoring and bonding, so agency losses in the form of residual loss inevitably arise.", "conditions": [], "topics": [ "corporate-governance", "compliance" ] }, { "id": "kaal:claim:3373393-010", "url": "https://wulfkaal.github.io/claims/3373393-010", "family": "agency-cost-and-managerial-opportunism", "name": "enforcement-cost-exceeds-benefit", "claim": "Residual loss arises because the cost of enforcing suboptimal contracts between principals and agents always exceeds the benefits of performing the contractual obligations.", "conditions": [], "topics": [ "compliance", "corporate-governance" ] }, { "id": "kaal:claim:3373393-012", "url": "https://wulfkaal.github.io/claims/3373393-012", "family": "board-and-oversight-failure", "name": "ceo-board-dominance", "claim": "The standard remedy of appointing outside independent directors to separate decision management from decision control is undermined because CEOs often dominate the board, which makes the separation much more difficult and hurts shareholders.", "conditions": [ "boards where the CEO is dominant" ], "topics": [ "corporate-governance", "governance-design" ] }, { "id": "kaal:claim:3373393-013", "url": "https://wulfkaal.github.io/claims/3373393-013", "family": "board-and-oversight-failure", "name": "activism-insufficiency", "claim": "Shareholder activism reform by itself has been unable to sufficiently improve the corporate governance system.", "conditions": [], "topics": [ "corporate-governance", "governance-design" ] }, { "id": "kaal:claim:3373393-016", "url": "https://wulfkaal.github.io/claims/3373393-016", "family": "agency-cost-and-managerial-opportunism", "name": "universal-solution-mismatch", "claim": "Existing governance mechanisms work well in some firms but are ineffective in others, because agency conflicts and their specific scope differ from firm to firm.", "conditions": [ "across a heterogeneous population of firms" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3373393-030", "url": "https://wulfkaal.github.io/claims/3373393-030", "family": "smart-contract-bug-and-exploit", "name": "dao-code-exploit", "claim": "Fundamental flaws in the DAO code enabled hackers to transfer one third of total funds to a subsidiary account, and that hack combined with additional technological limitations brought down the first DAO initiative.", "conditions": [ "the first DAO, 2016" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:3373393-036", "url": "https://wulfkaal.github.io/claims/3373393-036", "family": "scalability-and-throughput-limit", "name": "no-scalable-secure-public-chain", "claim": "The core issues that afflict centralized governance solutions, including information asymmetries, censorship, opportunism of agents, breaches of fiduciary duties, and fraud, can only be truly removed if and when a truly decentralized public blockchain emerges that is scalable and fully secure.", "conditions": [ "decentralized rather than centralized blockchain implementations" ], "topics": [ "decentralization", "consensus-and-security", "blockchain" ] }, { "id": "kaal:claim:3373393-037", "url": "https://wulfkaal.github.io/claims/3373393-037", "family": "agency-cost-and-managerial-opportunism", "name": "code-only-governance-in-complex-relationships", "claim": "As agency relationships become more complex, a backstop for human behavior becomes necessary, and the claim that smart contract agency relationships run exactly as coded with no possibility of agent opportunism is less likely to hold in complex agency relationships.", "conditions": [ "complex agency relationships" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3373393-038", "url": "https://wulfkaal.github.io/claims/3373393-038", "family": "smart-contract-rigidity", "name": "backstop-absent-guarantee-failure", "claim": "Without a decentralized human backstop to code, the immutability of the blockchain and its cryptographic security systems may not be able to create truly transactional guarantees and trust between principals and agents.", "conditions": [ "complex agency relationships" ], "topics": [ "reputation", "smart-contracts" ] }, { "id": "kaal:claim:3373393-039", "url": "https://wulfkaal.github.io/claims/3373393-039", "family": "governance-participation-collapse", "name": "hard-forking-insufficiency", "claim": "Blockchain-based corporate governance solutions in DAOs require evolutionary blockchain governance protocols, and socially optimal hard-forking rules cannot suffice.", "conditions": [ "DAO-based governance" ], "topics": [ "dao", "governance-design", "institutional-design", "consensus-and-security" ] }, { "id": "kaal:claim:3373393-040", "url": "https://wulfkaal.github.io/claims/3373393-040", "family": "rule-obsolescence-and-ossification", "name": "unmaintained-cost-reduction", "claim": "The basis of coded blockchain guarantees will itself evolve and require protocol upgrades, and without evolutionary governance upgrades the cost reduction achieved for the agency relationship cannot be maintained.", "conditions": [], "topics": [ "governance-design", "institutional-design", "corporate-governance", "blockchain" ] }, { "id": "kaal:claim:3406323-006", "url": "https://wulfkaal.github.io/claims/3406323-006", "family": "liquidity-and-market-structure-failure", "name": "venture-market-displacement", "claim": "During the ICO boom years the venture capital market in the decentralized technology sector ground to a halt, and the later demise of the ICO market reversed the trend back toward venture funding.", "conditions": [ "decentralized technology sector during the ICO boom, roughly March 2017 to June 2018" ], "topics": [ "securities-law", "economics", "innovation", "blockchain" ] }, { "id": "kaal:claim:3406323-015", "url": "https://wulfkaal.github.io/claims/3406323-015", "family": "inequality-and-access-divide", "name": "fee-driven-barriers-to-entry", "claim": "The high intermediary fees of centralized fiat payment systems make those systems economically viable only at higher transaction volumes, which creates barriers to entry that decentralized payment systems do not face.", "conditions": [ "centralized fiat payment rails intermediated by banks and services such as PayPal" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3406323-019", "url": "https://wulfkaal.github.io/claims/3406323-019", "family": "scalability-and-throughput-limit", "name": "throughput-bottleneck", "claim": "The low transaction throughput of public blockchains is a core limitation that holds back more advanced distributed applications, which is why decentralized commerce in 2019 remains relegated to cryptocurrency trading and basic smart contracting.", "conditions": [ "public blockchains as of 2019" ], "topics": [ "blockchain" ] }, { "id": "kaal:claim:3406323-020", "url": "https://wulfkaal.github.io/claims/3406323-020", "family": "cold-start-and-bootstrapping", "name": "missing-universal-use-case", "claim": "Without a core use case other than the store of value provided by Bitcoin, decentralization technology is less likely to proliferate; banking, money transmission, and triple entry accounting are natural but insufficient as universal use cases for public blockchains.", "conditions": [ "public blockchains as of 2019" ], "topics": [ "blockchain" ] }, { "id": "kaal:claim:3406323-021", "url": "https://wulfkaal.github.io/claims/3406323-021", "family": "adoption-and-usability-barrier", "name": "key-management-usability-barrier", "claim": "Mass adoption of decentralized protocols will remain out of reach so long as users must discern and manage public and private keys to wallets, because user access and usability fall short of mass adoption needs.", "conditions": [ "existing decentralized technologies as of 2019" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3406323-022", "url": "https://wulfkaal.github.io/claims/3406323-022", "family": "valuation-and-pricing-failure", "name": "volatility-blocks-long-term-contracting", "claim": "People will not enter into long term smart contracts without a stable currency to refer to, since no renter and landlord will gamble future wealth on a lease that may halve or double in value in any given month.", "conditions": [ "long term smart contracts denominated in volatile cryptocurrencies" ], "topics": [ "tokenomics", "smart-contracts" ] }, { "id": "kaal:claim:3406323-023", "url": "https://wulfkaal.github.io/claims/3406323-023", "family": "recentralization-drift", "name": "store-of-value-recentralization", "claim": "Because cryptocurrencies embody a transferable store of value, the exercise of power over that value inevitably leads back to centralization through economies of scale, creating core points of attack that undermine the very nature of decentralization.", "conditions": [ "any currency or transferable store of value, not only cryptocurrencies" ], "topics": [ "decentralization", "economics", "consensus-and-security" ] }, { "id": "kaal:claim:3406323-026", "url": "https://wulfkaal.github.io/claims/3406323-026", "family": "legal-personality-and-liability-gap", "name": "legacy-underwriting-mismatch", "claim": "Legacy insurers will not underwrite smart contracts that sit outside the traditional legal framework, and even if they eventually enter the DApp market their actuarial risk assessment methods may be only partially compatible with rapidly evolving decentralized products.", "conditions": [ "legacy insurance companies facing smart contract risk" ], "topics": [ "institutional-design", "smart-contracts", "research-methods" ] }, { "id": "kaal:claim:3406323-032", "url": "https://wulfkaal.github.io/claims/3406323-032", "family": "smart-contract-rigidity", "name": "rigidity-of-mathematical-logic", "claim": "Smart contracts fail to accommodate human business interaction because code does not follow the same logic on similar terms as natural human language, so the flexibility in interpreting intent that human dealings require cannot be ensured.", "conditions": [ "human business interactions requiring interpretation of intent" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3406323-033", "url": "https://wulfkaal.github.io/claims/3406323-033", "family": "smart-contract-rigidity", "name": "cancel-out-on-unanticipated-events", "claim": "Smart contracts undermine the parties' ability to continue collaborating when unanticipated eventualities arise, because in most cases of unfulfilled parameters the contract will simply cancel out rather than allow partial performance.", "conditions": [ "contracts where parties may fulfill only a portion of an intended collaboration" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3406323-038", "url": "https://wulfkaal.github.io/claims/3406323-038", "family": "collective-action-and-coordination-failure", "name": "missing-ethical-denominator", "claim": "Without a core common ethical denominator, decentralized systems cannot last: they lose coherence, become attackable, and can be corrupted, leading to suboptimal societal outcomes.", "conditions": [ "decentralized systems, as with any prior attempt to organize society" ], "topics": [ "governance-design", "decentralization" ] }, { "id": "kaal:claim:3406323-040", "url": "https://wulfkaal.github.io/claims/3406323-040", "family": "rule-obsolescence-and-ossification", "name": "static-rule-subversion", "claim": "For any static set of rules in an infinitely repeated game using reputation stakes there is a way to subvert the rules for individual profit at the expense of the group, a result the author attributes to the Folk Theorems of game theory.", "conditions": [ "infinitely repeated games using reputation or stakes", "static rule sets" ], "topics": [ "economics", "consensus-and-security", "reputation", "governance-design" ] }, { "id": "kaal:claim:3411897-007", "url": "https://wulfkaal.github.io/claims/3411897-007", "family": "reputation-system-gaming", "name": "centralized-reputation-rating-flaws", "claim": "eBay's user rating system, despite being its biggest competitive advantage, is clearly flawed, and the persistence of those flaws demonstrates the unmet need for a decentralized reputation verification system, since no better technology has yet been produced.", "conditions": [ "applies to centralized platform reputation systems as of 2019" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:3411897-010", "url": "https://wulfkaal.github.io/claims/3411897-010", "family": "incumbent-resistance-to-adoption", "name": "sustaining-versus-disruptive-confusion", "claim": "Market leaders, successful institutions, and managers fail specifically when they do not distinguish sustaining technologies from disruptive technologies.", "conditions": [ "environments in which disruptive innovation is present" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3411897-011", "url": "https://wulfkaal.github.io/claims/3411897-011", "family": "incumbent-resistance-to-adoption", "name": "refusal-to-cannibalize", "claim": "A market leader's lack of investment in disruptive technologies often causes abrupt loss of market dominance and even total replacement, because market leaders shortsightedly refuse to cannibalize their own dominance through disruptive technologies.", "conditions": [ "markets subject to disruptive technological entry" ], "topics": [ "innovation", "economics" ] }, { "id": "kaal:claim:3411897-012", "url": "https://wulfkaal.github.io/claims/3411897-012", "family": "incumbent-resistance-to-adoption", "name": "failure-to-embrace-change", "claim": "Nokia, Kodak, and Blackberry all collapsed after fast changes in their markets rendered their products and services irrelevant, illustrating that successful companies drift into obscurity when they fail to embrace change.", "conditions": [ "firms facing rapid market change" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3411897-013", "url": "https://wulfkaal.github.io/claims/3411897-013", "family": "short-termism", "name": "short-termism-obscures-relevancy", "claim": "Less successful companies share a myopic short term focus on shareholder value maximization, which produces an unhealthy emphasis on share price, market valuations, and financial metrics that obscure issues of relevancy.", "conditions": [ "particularly acute for listed companies" ], "topics": [ "risk-and-incentives", "corporate-governance" ] }, { "id": "kaal:claim:3411897-014", "url": "https://wulfkaal.github.io/claims/3411897-014", "family": "short-termism", "name": "metrics-driven-irrelevance", "claim": "Microsoft under Steve Ballmer missed the shift to networked technologies and mobile consumption because it focused on short term financial metrics rather than on designing products relevant to the next generation of consumers, and so ceased to be relevant despite excellent traditional metrics.", "conditions": [ "Ballmer's tenure as CEO from 2000" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3411897-015", "url": "https://wulfkaal.github.io/claims/3411897-015", "family": "data-quality-and-comparability", "name": "big-data-validity-deficit", "claim": "Big data is often not the output of instruments designed to generate valid and reliable data suitable for scientific analysis, so foundational data quality problems persist regardless of how much data is collected.", "conditions": [ "applies where data is drawn from databases requiring only generalized accuracy" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:3411897-016", "url": "https://wulfkaal.github.io/claims/3411897-016", "family": "incumbent-resistance-to-adoption", "name": "lost-capacity-for-agile-reinvention", "claim": "RegLegalTech startups will force the legal profession to innovate, but that task is not easily accomplished by overextended and cumbersome legal organizations that have lost the capacity for agile reinvention.", "conditions": [ "applies to incumbent legal organizations facing RegLegalTech entrants" ], "topics": [ "law-and-legal-systems", "education-and-practice", "innovation" ] }, { "id": "kaal:claim:3411897-019", "url": "https://wulfkaal.github.io/claims/3411897-019", "family": "inequality-and-access-divide", "name": "fee-driven-exclusion", "claim": "Intermediary fees in centralized fiat payment systems make those systems economically viable only at higher transaction volumes, which creates barriers to entry that decentralized payment systems do not impose.", "conditions": [ "centralized payment systems requiring bank or processor intermediaries" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:3411897-020", "url": "https://wulfkaal.github.io/claims/3411897-020", "family": "valuation-and-pricing-failure", "name": "stablecoin-design-deficit", "claim": "Tether, like every other stable cryptocurrency project, remains afflicted with significant design challenges, even though its market capitalization and stability around one dollar give some support for stable cryptocurrencies' capacity to create market stability.", "conditions": [ "as of the state of stable cryptocurrency design described in 2019" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3411897-022", "url": "https://wulfkaal.github.io/claims/3411897-022", "family": "recentralization-drift", "name": "dao-governance-decentralization-tension", "claim": "DAOs are in their infancy and cannot currently overcome core governance problems while maintaining a decentralized structure; the two objectives are, as of 2019, in tension.", "conditions": [ "state of DAO technology as of 2019" ], "topics": [ "dao", "governance-design", "decentralization" ] }, { "id": "kaal:claim:3411897-023", "url": "https://wulfkaal.github.io/claims/3411897-023", "family": "scalability-and-throughput-limit", "name": "throughput-ceiling", "claim": "The low transaction throughput of public blockchains is a core limitation that holds back more advanced distributed applications.", "conditions": [ "public blockchains as of 2019" ], "topics": [ "blockchain" ] }, { "id": "kaal:claim:3411897-024", "url": "https://wulfkaal.github.io/claims/3411897-024", "family": "scalability-and-throughput-limit", "name": "scarcity-throughput-tradeoff", "claim": "The data mining that produces scarcity in existing blockchains also slows creation, so high speed transactions cannot be achieved for the foreseeable future without a different consensus design.", "conditions": [ "proof of work style mining that manufactures scarcity" ], "topics": [ "consensus-and-security", "blockchain" ] }, { "id": "kaal:claim:3411897-025", "url": "https://wulfkaal.github.io/claims/3411897-025", "family": "cold-start-and-bootstrapping", "name": "missing-killer-app", "claim": "Without a core use case beyond Bitcoin's store of value function, decentralization technology is less likely to proliferate.", "conditions": [ "absent a widely adopted killer application for public blockchains" ], "topics": [ "blockchain" ] }, { "id": "kaal:claim:3411897-026", "url": "https://wulfkaal.github.io/claims/3411897-026", "family": "adoption-and-usability-barrier", "name": "usability-barrier-to-adoption", "claim": "Without intuitive consumer access points comparable to iTunes, decentralized systems cannot reach mainstream consumer adoption, because users currently must manage their own security, keys, and wallets.", "conditions": [ "current decentralized system requirements that force users to manage keys" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3411897-027", "url": "https://wulfkaal.github.io/claims/3411897-027", "family": "valuation-and-pricing-failure", "name": "volatility-blocks-long-term-contracting", "claim": "People will not enter into long term smart contracts without a stable currency to refer to, because the current level of cryptocurrency volatility does not lend itself to consumption.", "conditions": [ "long duration smart contracts such as leases", "volatile cryptocurrency denominations" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3411897-028", "url": "https://wulfkaal.github.io/claims/3411897-028", "family": "recentralization-drift", "name": "store-of-value-recentralization", "claim": "Because cryptocurrencies embody a transferable store of value, the exercise of power over that value inevitably leads to centralization through economies of scale, which creates core points of attack and undermines the very nature of decentralization.", "conditions": [ "applies to any currency or transferable store of value, not only cryptocurrencies" ], "topics": [ "decentralization", "economics", "consensus-and-security" ] }, { "id": "kaal:claim:3411897-030", "url": "https://wulfkaal.github.io/claims/3411897-030", "family": "legal-personality-and-liability-gap", "name": "legacy-insurer-refusal", "claim": "Most legacy insurance companies will not consider underwriting a smart contract that is not subject to the traditional legal framework, which leaves sophisticated smart contracts without the insurance they require.", "conditions": [ "smart contracts operating outside the traditional legal framework" ], "topics": [ "smart-contracts", "law-and-legal-systems", "defi" ] }, { "id": "kaal:claim:3411897-031", "url": "https://wulfkaal.github.io/claims/3411897-031", "family": "valuation-and-pricing-failure", "name": "actuarial-incompatibility", "claim": "Even if legacy insurers do enter the DApp market, their products may not fit the need, because actuarial methods for risk assessment under traditional insurance metrics are only partially compatible with rapidly evolving decentralized products.", "conditions": [ "rapidly evolving decentralized products", "traditional actuarial risk assessment" ], "topics": [ "research-methods", "decentralization", "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:3411897-032", "url": "https://wulfkaal.github.io/claims/3411897-032", "family": "smart-contract-rigidity", "name": "rigidity-of-mathematical-logic", "claim": "Human business interactions require a flexibility that is at odds with the merciless mathematical logic of smart contracts, so smart contracting cannot ensure the flexible interpretation of intent that human interaction requires.", "conditions": [ "human commercial relationships requiring interpretation of intent" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3411897-033", "url": "https://wulfkaal.github.io/claims/3411897-033", "family": "smart-contract-rigidity", "name": "cancel-out-on-unfulfilled-parameters", "claim": "Smart contracts undermine counterparties' ability to continue collaborating when unanticipated eventualities arise, because in most cases of unfulfilled parameters the smart contract will simply cancel out rather than allow partial performance.", "conditions": [ "unanticipated eventualities and partial performance scenarios" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3411897-035", "url": "https://wulfkaal.github.io/claims/3411897-035", "family": "reputation-system-gaming", "name": "corruptible-web-of-trust", "claim": "Until blockchain technology arrived with Bitcoin in 2009, decentralized reputation systems rested on the roughly twenty five year old and corruptible concept of the Web of Trust.", "conditions": [ "pre 2009 decentralized reputation systems" ], "topics": [ "reputation", "blockchain" ] }, { "id": "kaal:claim:3411897-036", "url": "https://wulfkaal.github.io/claims/3411897-036", "family": "adoption-and-usability-barrier", "name": "undifferentiated-technology-risk-perception", "claim": "It is immaterial whether security incidents occur on centralized exchanges, on centralized systems appended to decentralized structures, or in the decentralized systems themselves, because the public perceives the resulting security concerns as a technology risk across all of these technologies.", "conditions": [ "public perception of cryptocurrency and blockchain security" ], "topics": [ "consensus-and-security", "risk-and-incentives" ] }, { "id": "kaal:claim:3411897-039", "url": "https://wulfkaal.github.io/claims/3411897-039", "family": "collective-action-and-coordination-failure", "name": "missing-ethical-denominator", "claim": "Without a core common ethical denominator, decentralized systems cannot last: they lose coherence, become attackable, and can be corrupted, leading to suboptimal societal outcomes.", "conditions": [ "applies to decentralized systems as to all attempts to organize society" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3411897-040", "url": "https://wulfkaal.github.io/claims/3411897-040", "family": "rule-obsolescence-and-ossification", "name": "static-rules-are-gameable", "claim": "For any static set of rules in an infinitely repeated game using reputation stakes, there is a way to subvert the rules for an individual's profit at the expense of the group, which is why static decentralized governance rules can always be gamed and only dynamic, changing rules can address the problem.", "conditions": [ "infinitely repeated games with reputation or stake based rules", "static rule sets" ], "topics": [ "economics", "governance-design", "consensus-and-security", "risk-and-incentives" ] }, { "id": "kaal:claim:3405401-008", "url": "https://wulfkaal.github.io/claims/3405401-008", "family": "legal-personality-and-liability-gap", "name": "no-recourse-after-disintermediation", "claim": "Because the smart contract removes centralized guarantors and self regulates, only limited legal recourse remains available when execution of the contract terms goes wrong.", "conditions": [ "something goes wrong in execution of the contract terms" ], "topics": [ "smart-contracts", "law-and-legal-systems", "decentralization" ] }, { "id": "kaal:claim:3405401-009", "url": "https://wulfkaal.github.io/claims/3405401-009", "family": "smart-contract-rigidity", "name": "rigidity-of-mathematical-logic", "claim": "Despite their benefits, smart contracts are subject to significant limitations because human business interactions require a flexibility that is at odds with the merciless mathematical logic of smart contracts.", "conditions": [ "human business interactions rather than fully mechanical exchanges" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3405401-010", "url": "https://wulfkaal.github.io/claims/3405401-010", "family": "smart-contract-rigidity", "name": "intent-interpretation-gap", "claim": "Smart contracting cannot ensure the flexibility in interpreting intent that human interaction requires, because smart contract code does not follow the same logic on similar terms as natural human language.", "conditions": [ "interpretation of party intent is required" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3405401-011", "url": "https://wulfkaal.github.io/claims/3405401-011", "family": "smart-contract-rigidity", "name": "cancel-out-on-unanticipated-events", "claim": "Smart contracts undermine the ability of counterparties to continue collaborating when unanticipated eventualities arise, because in most cases of unfulfilled parameters the smart contract will simply cancel out.", "conditions": [ "unanticipated eventualities arise", "contract parameters go unfulfilled" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3405401-012", "url": "https://wulfkaal.github.io/claims/3405401-012", "family": "smart-contract-rigidity", "name": "no-partial-performance", "claim": "Human business interaction typically requires the possibility that each party may fulfill only a portion of an intended collaboration, a partial performance option that mathematically rigid smart contracts do not accommodate.", "conditions": [ "partial performance is contemplated by the parties" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3405401-015", "url": "https://wulfkaal.github.io/claims/3405401-015", "family": "agency-cost-and-managerial-opportunism", "name": "decentralization-does-not-cure-trust", "claim": "Although smart contracting in decentralized systems is perceived as creating trust through preordained coded coordination without agency problems, decentralized commerce is equally afflicted with trust issues.", "conditions": [], "topics": [ "reputation", "decentralization", "smart-contracts" ] }, { "id": "kaal:claim:3405401-016", "url": "https://wulfkaal.github.io/claims/3405401-016", "family": "information-asymmetry", "name": "limited-trust-assurance", "claim": "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.", "conditions": [ "decentralized systems with anonymous counterparties" ], "topics": [ "reputation", "smart-contracts", "risk-and-incentives", "decentralization" ] }, { "id": "kaal:claim:3405401-017", "url": "https://wulfkaal.github.io/claims/3405401-017", "family": "information-asymmetry", "name": "unresolved-information-asymmetry", "claim": "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.", "conditions": [ "smart property rental scenario" ], "topics": [ "disclosure", "reputation", "risk-and-incentives" ] }, { "id": "kaal:claim:3405401-019", "url": "https://wulfkaal.github.io/claims/3405401-019", "family": "smart-contract-bug-and-exploit", "name": "unverifiable-code-behavior", "claim": "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.", "conditions": [ "more complex smart contracts" ], "topics": [ "smart-contracts", "risk-and-incentives", "reputation" ] }, { "id": "kaal:claim:3405401-020", "url": "https://wulfkaal.github.io/claims/3405401-020", "family": "smart-contract-bug-and-exploit", "name": "bugs-in-simple-contracts", "claim": "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.", "conditions": [], "topics": [ "smart-contracts", "risk-and-incentives" ] }, { "id": "kaal:claim:3405401-022", "url": "https://wulfkaal.github.io/claims/3405401-022", "family": "smart-contract-rigidity", "name": "transferability-creates-attack-points", "claim": "The transferability of the stores of value entailed in cryptocurrencies creates core points of attack and undermines the very nature of decentralization.", "conditions": [ "cryptocurrencies and other transferable stores of value" ], "topics": [ "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3405401-023", "url": "https://wulfkaal.github.io/claims/3405401-023", "family": "recentralization-drift", "name": "value-driven-recentralization", "claim": "Because cryptocurrencies, like any currency or store of value, entail transferable value, the exercise of power over that value inevitably leads to centralization through economies of scale.", "conditions": [ "any transferable store of value, including fiat currencies" ], "topics": [ "decentralization", "economics" ] }, { "id": "kaal:claim:3405401-028", "url": "https://wulfkaal.github.io/claims/3405401-028", "family": "reputation-system-gaming", "name": "corruptible-web-of-trust", "claim": "Until blockchain technology was introduced via bitcoin in 2009, decentralized reputation systems mostly relied on the old and corruptible concept of the Web of Trust.", "conditions": [ "period before 2009" ], "topics": [ "reputation", "blockchain" ] }, { "id": "kaal:claim:3396542-002", "url": "https://wulfkaal.github.io/claims/3396542-002", "family": "systemic-risk-transmission", "name": "Underwriter insolvency passes through to consumers", "claim": "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.", "conditions": [ "traditional centralized insurance structure" ], "topics": [ "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:3396542-013", "url": "https://wulfkaal.github.io/claims/3396542-013", "family": "staking-and-incentive-misalignment", "name": "Strategic breach when token value falls below claim", "claim": "A breach occurs only when the underwriters concerned believe that the value of their encumbered tokens is less than the payment they would have to make in order to reclaim those tokens.", "conditions": [], "topics": [ "tokenomics", "economics", "dao" ] }, { "id": "kaal:claim:3396542-014", "url": "https://wulfkaal.github.io/claims/3396542-014", "family": "agency-cost-and-managerial-opportunism", "name": "Breach triggered by shift in DAO prospects", "claim": "Breach by underwriters will in general happen only after a dramatic shift in the DAO's future prospects, such as a sharp decrease in expected future revenues or a sharp increase in expected payments on outstanding policies.", "conditions": [ "dramatic shift in the DAO's future prospects" ], "topics": [ "law-and-legal-systems", "dao" ] }, { "id": "kaal:claim:3396542-021", "url": "https://wulfkaal.github.io/claims/3396542-021", "family": "valuation-and-pricing-failure", "name": "DAO insolvency with negative token value", "claim": "The DAO is insolvent when the present value of expected cash flows from new policies falls below the expected cash outflow on currently outstanding policies, and in that state the value of a token is negative.", "conditions": [], "topics": [ "tokenomics", "economics", "dao" ] }, { "id": "kaal:claim:3396542-022", "url": "https://wulfkaal.github.io/claims/3396542-022", "family": "valuation-and-pricing-failure", "name": "Insolvency from sharp decline in policy issuance", "claim": "A sufficiently large negative shock to the number of policies issued per period drives the value of the DAO negative and renders the DAO insolvent, so falling new business volume is a principal insolvency channel.", "conditions": [ "Mt follows a random walk", "one time large decrease in M" ], "topics": [ "dao" ] }, { "id": "kaal:claim:3396542-023", "url": "https://wulfkaal.github.io/claims/3396542-023", "family": "valuation-and-pricing-failure", "name": "Margin increase remedy constrained by demand response", "claim": "Raising the margin is the available remedy for an insolvency shock, but it is not a clean fix because the effect of a higher margin on future demand must itself be considered.", "conditions": [ "insolvency triggered by a negative shock to policy issuance" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3409548-005", "url": "https://wulfkaal.github.io/claims/3409548-005", "family": "human-judgment-displacement", "name": "Systematic underperformance versus human managers", "claim": "Systematic, computer model driven funds do not reliably outperform human managed funds: research finds the typical systematic fund does not always perform as well as funds run by human managers.", "conditions": [ "typical systematic fund", "Preqin research as of 2016" ], "topics": [ "ai-and-agents", "private-funds" ] }, { "id": "kaal:claim:3409548-009", "url": "https://wulfkaal.github.io/claims/3409548-009", "family": "ai-model-and-training-failure", "name": "Overfitting from repeated reuse of the same data set", "claim": "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.", "conditions": [ "data scientists reusing a single data set repetitively" ], "topics": [ "ai-and-agents", "risk-and-incentives" ] }, { "id": "kaal:claim:3409548-014", "url": "https://wulfkaal.github.io/claims/3409548-014", "family": "cold-start-and-bootstrapping", "name": "Missing baseline infrastructure behind ICO promises", "claim": "The 2018 ICO boom exposed a core limitation of blockchain technology: ICOs sold investors decentralized infrastructure products on the assumption that a baseline infrastructure already existed, and that assumption proved false.", "conditions": [ "ICO market of 2018", "projects presupposing mature base layer infrastructure" ], "topics": [ "securities-law", "blockchain", "economics" ] }, { "id": "kaal:claim:3409548-015", "url": "https://wulfkaal.github.io/claims/3409548-015", "family": "legal-personality-and-liability-gap", "name": "Unenforceability of smart contracts under existing contract law", "claim": "Smart contracts face a legal origin problem: lawyers may argue that they are void and unenforceable, and contract law rules on formation, interpretation, conditions and remedies require substantive adjustment before smart contracts fit within it.", "conditions": [ "absent statutory recognition of smart contracts" ], "topics": [ "smart-contracts", "law-and-legal-systems" ] }, { "id": "kaal:claim:3409548-017", "url": "https://wulfkaal.github.io/claims/3409548-017", "family": "incumbent-resistance-to-adoption", "name": "Incumbent resistance to blockchain-enabled services", "claim": "Blockchain-enabled sharing services are unlikely to be accepted quickly or without resistance, because incumbents challenged by new ways of delivering a service or product will resist, as the existing legal disputes over sharing platforms demonstrate.", "conditions": [ "services that displace incumbent delivery models" ], "topics": [ "economics", "blockchain" ] }, { "id": "kaal:claim:3409548-018", "url": "https://wulfkaal.github.io/claims/3409548-018", "family": "regulatory-lag", "name": "Lack of regulatory recognition blocks infrastructure conversion", "claim": "The absence of regulatory recognition of blockchain technology is not merely an inconvenience: it hinders implementation of the technology across industries and undermines the conversion of infrastructure to blockchain.", "conditions": [ "jurisdictions lacking regulatory recognition of blockchain" ], "topics": [ "blockchain" ] }, { "id": "kaal:claim:3409548-021", "url": "https://wulfkaal.github.io/claims/3409548-021", "family": "jurisdictional-conflict", "name": "Domicile-less funds and jurisdictional indeterminacy", "claim": "A fund constituted purely through smart contracts on the Ethereum blockchain may have no domicile, foreign or domestic, which makes jurisdiction over blockchain transactions a genuine problem for the funds that use the technology.", "conditions": [ "funds set up entirely through Ethereum smart contracting" ], "topics": [ "law-and-legal-systems", "smart-contracts" ] }, { "id": "kaal:claim:3409548-031", "url": "https://wulfkaal.github.io/claims/3409548-031", "family": "investor-protection-gap", "name": "Diversification loss from the retreat to venture funding", "claim": "The shift of the digital asset market back from the ICO model to the venture model since late 2017 has reduced, not increased, diversification for investors.", "conditions": [ "digital asset market after late 2017" ], "topics": [ "securities-law", "innovation", "systemic-risk" ] }, { "id": "kaal:claim:3405660-001", "url": "https://wulfkaal.github.io/claims/3405660-001", "family": "regulatory-arbitrage", "name": "jurisdictional arbitrage trap", "claim": "Direct hedge fund regulation faces a two sided trap: strong direct rules push hedge funds offshore where they escape regulation altogether, while weak rules leave investors without adequate protection.", "conditions": [ "regulators rely on national direct regulatory tools", "hedge funds retain the option to relocate offshore" ], "topics": [ "private-funds", "law-and-legal-systems" ] }, { "id": "kaal:claim:3405660-004", "url": "https://wulfkaal.github.io/claims/3405660-004", "family": "supervisory-capacity-gap", "name": "regulatory resource shortfall", "claim": "Neither national nor international regulators have the resources to fully investigate or regulate hedge fund activity, and the industry actively lobbies to preserve the resulting information asymmetries.", "conditions": [], "topics": [ "disclosure" ] }, { "id": "kaal:claim:3405660-006", "url": "https://wulfkaal.github.io/claims/3405660-006", "family": "systemic-risk-transmission", "name": "illusory diversification", "claim": "LTCM was diversified across markets but not across strategy, so its positions failed together; market level diversification does not imply strategy level diversification.", "conditions": [ "stress conditions in which risk spreads widen across markets simultaneously" ], "topics": [ "systemic-risk", "risk-and-incentives", "private-funds" ] }, { "id": "kaal:claim:3405660-007", "url": "https://wulfkaal.github.io/claims/3405660-007", "family": "measurement-and-metric-failure", "name": "risk model calibration failure", "claim": "Conventional risk models understated LTCM's losses because the models were estimated during more stable periods and therefore did not describe behavior under stress.", "conditions": [ "models calibrated on data from stable market periods", "subsequent stress conditions" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3405660-010", "url": "https://wulfkaal.github.io/claims/3405660-010", "family": "disclosure-ineffectiveness", "name": "balance sheet disclosure inadequacy", "claim": "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.", "conditions": [], "topics": [ "disclosure", "economics", "risk-and-incentives", "private-funds" ] }, { "id": "kaal:claim:3405660-011", "url": "https://wulfkaal.github.io/claims/3405660-011", "family": "systemic-risk-transmission", "name": "lax creditor underwriting", "claim": "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.", "conditions": [], "topics": [ "systemic-risk", "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:3405660-013", "url": "https://wulfkaal.github.io/claims/3405660-013", "family": "harmonization-and-standardization-failure", "name": "global regulator infeasibility", "claim": "A single global financial regulator is not a serious policy option because national political interests are incoherent and cannot readily be united to establish such a body.", "conditions": [], "topics": [ "economics", "dynamic-regulation" ] }, { "id": "kaal:claim:3405660-014", "url": "https://wulfkaal.github.io/claims/3405660-014", "family": "compliance-cost-and-barrier-to-entry", "name": "overbreadth spillover", "claim": "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.", "conditions": [ "rules drafted broadly enough to capture private investment pools generally" ], "topics": [ "innovation", "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:3405660-015", "url": "https://wulfkaal.github.io/claims/3405660-015", "family": "harmonization-and-standardization-failure", "name": "coordination cost barrier", "claim": "Coordinated international cooperation in hedge fund regulation will ultimately be hindered by administrative costs, immense transaction costs, setup costs and, above all, the divergent interests of offshore havens and the resulting jurisdictional arbitrage, so it may never become a realistic regulatory option.", "conditions": [], "topics": [ "law-and-legal-systems", "economics" ] }, { "id": "kaal:claim:3405660-017", "url": "https://wulfkaal.github.io/claims/3405660-017", "family": "supervisory-capacity-gap", "name": "prudential model underspecification", "claim": "There is currently no precise formula for devising effective integrated prudential hedge fund regulation, so the prudential model remains underspecified.", "conditions": [], "topics": [ "dynamic-regulation", "private-funds" ] }, { "id": "kaal:claim:3405660-018", "url": "https://wulfkaal.github.io/claims/3405660-018", "family": "supervisory-capacity-gap", "name": "structural opacity constraint", "claim": "The complex trading, investing and corporate structures of active international hedge funds are a major constraint on effective prudential supervision.", "conditions": [ "internationally active hedge funds with complex group structures" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3405660-023", "url": "https://wulfkaal.github.io/claims/3405660-023", "family": "supervisory-capacity-gap", "name": "unreliable counterparty risk assessment", "claim": "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.", "conditions": [ "banks face opaque hedge fund counterparties" ], "topics": [ "risk-and-incentives", "systemic-risk" ] }, { "id": "kaal:claim:3405660-024", "url": "https://wulfkaal.github.io/claims/3405660-024", "family": "measurement-and-metric-failure", "name": "no common leverage measure", "claim": "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.", "conditions": [], "topics": [ "research-methods", "risk-and-incentives" ] }, { "id": "kaal:claim:3405660-025", "url": "https://wulfkaal.github.io/claims/3405660-025", "family": "supervisory-capacity-gap", "name": "creditor competition erosion", "claim": "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.", "conditions": [ "multiple banks competing to lend to the same hedge funds" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:3396522-001", "url": "https://wulfkaal.github.io/claims/3396522-001", "family": "valuation-and-pricing-failure", "name": "arbitrary-discretionary-policy", "claim": "The unfettered discretion of fiat monetary policy makers can lead to arbitrary outcomes, because the overall value and stability of any fiat currency is contingent on the fluctuations and successes of a country's economy rather than on any fixed valuation basis.", "conditions": [], "topics": [ "tokenomics", "systemic-risk", "economics" ] }, { "id": "kaal:claim:3396522-002", "url": "https://wulfkaal.github.io/claims/3396522-002", "family": "information-asymmetry", "name": "policy-opacity-blocks-anticipation", "claim": "Monetary policy making for fiat currencies largely lacks transparency, and that opacity prevents markets from taking anticipatory action on policy indicators.", "conditions": [], "topics": [ "tokenomics", "disclosure", "economics" ] }, { "id": "kaal:claim:3396522-005", "url": "https://wulfkaal.github.io/claims/3396522-005", "family": "valuation-and-pricing-failure", "name": "unsolved-stability-design", "claim": "Every stable cryptocurrency project, Tether included, remains afflicted with significant design challenges; no existing design has solved the stability problem.", "conditions": [ "as of the 2019 state of the market" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3396522-006", "url": "https://wulfkaal.github.io/claims/3396522-006", "family": "transition-and-migration-risk", "name": "obsolete-payment-infrastructure", "claim": "Central bank operated wholesale payment systems are at the end of their technological life cycle, running on largely obsolete database designs and computing languages that are very expensive to maintain, which is one reason central banks are experimenting with token designs.", "conditions": [], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:3396522-007", "url": "https://wulfkaal.github.io/claims/3396522-007", "family": "interoperability-and-fragmentation", "name": "closed-ecosystem-unsustainability", "claim": "JPM Coin's closed structure, restricting the token to existing J.P. Morgan clients, is an anachronism, because closed ecosystems are unsustainable in emerging decentralized commerce.", "conditions": [ "applies to permissioned stable cryptocurrencies limited to a single institution's clients" ], "topics": [ "tokenomics", "decentralization" ] }, { "id": "kaal:claim:3396522-008", "url": "https://wulfkaal.github.io/claims/3396522-008", "family": "valuation-and-pricing-failure", "name": "collateralization-tradeoff", "claim": "Both collateralization strategies carry significant downsides: fiat collateralized pegs bear the brunt of expensive capital requirements, while cryptocurrency pegs face heavy volatility pressures and swings.", "conditions": [], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3396522-009", "url": "https://wulfkaal.github.io/claims/3396522-009", "family": "valuation-and-pricing-failure", "name": "under-collateralization-arbitrage-attack", "claim": "A fiat backed stable cryptocurrency that is not fully collateralized is exposed to arbitrage trade attacks of the kind George Soros used against the pound sterling; full collateralization is therefore a necessary defense.", "conditions": [ "applies to stable cryptocurrencies claiming a fiat peg" ], "topics": [ "consensus-and-security", "tokenomics" ] }, { "id": "kaal:claim:3396522-010", "url": "https://wulfkaal.github.io/claims/3396522-010", "family": "liquidity-and-market-structure-failure", "name": "illiquid-collateral-arbitrage", "claim": "Fiat currency collateralization is expensive and inefficient because the entire backing value must be held liquid; anything less opens arbitrage opportunities of the Soros type.", "conditions": [ "assumes the backing must remain fully liquid to prevent arbitrage" ], "topics": [ "defi", "consensus-and-security", "tokenomics" ] }, { "id": "kaal:claim:3396522-012", "url": "https://wulfkaal.github.io/claims/3396522-012", "family": "valuation-and-pricing-failure", "name": "collateral-value-collapse", "claim": "Cryptocurrency backed tokens are more expensive than fiat backed tokens because stability is sourced from far more volatile assets, so such tokens must be backed by substantially more than 100 percent of the collateral's current value to survive a drop in the collateral basket.", "conditions": [ "holds while the backing cryptocurrencies remain more volatile than fiat" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3396522-013", "url": "https://wulfkaal.github.io/claims/3396522-013", "family": "valuation-and-pricing-failure", "name": "unproven-algorithmic-stability", "claim": "No uncollateralized algorithmic stable cryptocurrency, such as Basis or NuBits, had produced a provably stable mechanism for its tokens as of the time of writing.", "conditions": [ "as of 2019" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3396522-019", "url": "https://wulfkaal.github.io/claims/3396522-019", "family": "plutocratic-capture", "name": "token-fragmentation", "claim": "The cryptocurrency market structure is fundamentally convoluted because each project requires its own volatile token, which is equivalent to forcing grocery shoppers to buy a different currency for every store and every product.", "conditions": [ "describes the market from inception through 2019" ], "topics": [ "economics", "tokenomics" ] }, { "id": "kaal:claim:3396522-020", "url": "https://wulfkaal.github.io/claims/3396522-020", "family": "liquidity-and-market-structure-failure", "name": "leverage-imbalance-volatility", "claim": "Leverage offered by cryptocurrency exchanges worsens rather than cures the market's illiquidity, because borrowed money rather than genuine demand is driving the price.", "conditions": [ "applies to exchanges offering five to ten times leverage on crypto trades" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:3396522-021", "url": "https://wulfkaal.github.io/claims/3396522-021", "family": "information-asymmetry", "name": "speculator-informational-advantage", "claim": "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.", "conditions": [ "holds in deeply illiquid markets where speculators control supply" ], "topics": [ "defi", "risk-and-incentives", "disclosure" ] }, { "id": "kaal:claim:3396522-022", "url": "https://wulfkaal.github.io/claims/3396522-022", "family": "valuation-and-pricing-failure", "name": "capped-supply-removes-policy-tool", "claim": "Capping token supply, the dominant design choice in early cryptocurrency projects, is self defeating: fixing supply removes the core policy tool, minting additional tokens, that would otherwise address overvaluation, excessive speculation, market frenzy, and irrational exuberance.", "conditions": [ "applies to hardcoded fixed supply token designs" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3396522-023", "url": "https://wulfkaal.github.io/claims/3396522-023", "family": "valuation-and-pricing-failure", "name": "central-bank-supply-determination-failure", "claim": "Central bank price stability is elusive for two structural reasons: central banks are constantly lobbied to move money supply away from equilibrium, and even absent lobbying they face information asymmetries that prevent them from determining the optimal supply at any given moment.", "conditions": [], "topics": [ "systemic-risk", "economics", "disclosure", "tokenomics" ] }, { "id": "kaal:claim:3396522-026", "url": "https://wulfkaal.github.io/claims/3396522-026", "family": "smart-contract-rigidity", "name": "ex-ante-incompleteness-of-hardcoded-policy", "claim": "Full hardcoding is impossible: no stable cryptocurrency can encode all required policies and policy actions with full transparency, because future policy needs cannot be anticipated ex ante.", "conditions": [], "topics": [ "tokenomics", "governance-design" ] }, { "id": "kaal:claim:3396522-028", "url": "https://wulfkaal.github.io/claims/3396522-028", "family": "scalability-and-throughput-limit", "name": "experimentation-advantage-erodes-at-scale", "claim": "The authors qualify their own case: stable cryptocurrencies can experiment with monetary policy on an unprecedented scale only because they are insulated from real world complexities and political positioning, and that advantage shrinks once real world market factors actually apply to them.", "conditions": [ "applies as stable cryptocurrencies scale into real world use" ], "topics": [ "tokenomics", "systemic-risk" ] }, { "id": "kaal:claim:3396522-029", "url": "https://wulfkaal.github.io/claims/3396522-029", "family": "interoperability-and-fragmentation", "name": "consensus-negates-interoperability", "claim": "The interoperability deficit in cryptocurrency markets is partly intrinsic to blockchain technology itself, because the consensus mechanism that allows block propagation on one chain in some ways negates interoperability with other chains and their consensus.", "conditions": [], "topics": [ "consensus-and-security", "blockchain", "economics" ] }, { "id": "kaal:claim:3396522-030", "url": "https://wulfkaal.github.io/claims/3396522-030", "family": "interoperability-and-fragmentation", "name": "interoperability-failure-kills-projects", "claim": "The lack of interoperability is a very serious threat to the survivability of cryptocurrency projects, as the crypto winter of 2018 and 2019 demonstrated when thousands of competing, non interoperable projects failed.", "conditions": [], "topics": [ "economics" ] }, { "id": "kaal:claim:3396522-032", "url": "https://wulfkaal.github.io/claims/3396522-032", "family": "scalability-and-throughput-limit", "name": "throughput-bottleneck", "claim": "The low transaction throughput of public blockchains is a core limitation holding back more advanced distributed applications and, with them, decentralized commerce.", "conditions": [ "as of 2019 throughput levels" ], "topics": [ "decentralization", "blockchain" ] }, { "id": "kaal:claim:3396522-033", "url": "https://wulfkaal.github.io/claims/3396522-033", "family": "cold-start-and-bootstrapping", "name": "missing-core-use-case", "claim": "Decentralization technology is unlikely to proliferate without a core use case beyond store of value; banking, money transmission, and triple entry accounting are natural use cases but fall short of being universal use cases for public blockchains.", "conditions": [], "topics": [ "blockchain", "decentralization" ] }, { "id": "kaal:claim:3396522-036", "url": "https://wulfkaal.github.io/claims/3396522-036", "family": "adoption-and-usability-barrier", "name": "user-burden-blocks-adoption", "claim": "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.", "conditions": [], "topics": [ "tokenomics", "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:3402701-002", "url": "https://wulfkaal.github.io/claims/3402701-002", "family": "valuation-and-pricing-failure", "name": "soros-style-peg-arbitrage", "claim": "Fiat currency collateralization is expensive and inefficient because the entire backing value must be held liquid; anything less opens arbitrage attacks of the kind Soros used against the Bank of England.", "conditions": [ "fiat-backed pegs claiming full collateralization" ], "topics": [ "defi", "consensus-and-security" ] }, { "id": "kaal:claim:3402701-005", "url": "https://wulfkaal.github.io/claims/3402701-005", "family": "valuation-and-pricing-failure", "name": "unproven-algorithmic-peg", "claim": "As of the time of writing, no uncollateralized algorithmic stable cryptocurrency project had produced a provably stable mechanism for its tokens.", "conditions": [ "as of 2019" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3402701-009", "url": "https://wulfkaal.github.io/claims/3402701-009", "family": "research-design-limitation", "name": "ideal-model-implementation-gap", "claim": "The quantity theory calculations behind minting and burning hold only in the ideal case; in practice the success of a stabilization scheme depends on how the money is actually printed, distributed or burned.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3402701-010", "url": "https://wulfkaal.github.io/claims/3402701-010", "family": "staking-and-incentive-misalignment", "name": "shareholder-collusion-on-minting", "claim": "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.", "conditions": [ "new supply distributed to an identifiable shareholder group" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3402701-011", "url": "https://wulfkaal.github.io/claims/3402701-011", "family": "consensus-and-protocol-attack", "name": "patient-powerful-player-subversion", "claim": "The Folk Theorems of game theory imply that no matter how complicated a stable coin protocol becomes, a powerful and patient player has strategies to subvert the system and profit at the expense of the group.", "conditions": [ "any fixed protocol, however complex" ], "topics": [ "economics", "governance-design" ] }, { "id": "kaal:claim:3402701-014", "url": "https://wulfkaal.github.io/claims/3402701-014", "family": "valuation-and-pricing-failure", "name": "stagnant-demand-bond-failure", "claim": "A Basis-style bond scheme succeeds only while demand for the currency grows at a sufficient rate; the authors' simulations show it fails when demand is stagnant at equilibrium.", "conditions": [ "demand stagnant at equilibrium" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3402701-015", "url": "https://wulfkaal.github.io/claims/3402701-015", "family": "valuation-and-pricing-failure", "name": "bond-queue-death-spiral", "claim": "Because bonds sell below their redemption value, an open-ended bond queue grows without bound, depressing bond prices and creating a positive feedback loop that ends in a death spiral and failure of the peg.", "conditions": [ "bond redemption contingent on future price recovery", "no expiration on bonds" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3402701-020", "url": "https://wulfkaal.github.io/claims/3402701-020", "family": "valuation-and-pricing-failure", "name": "unstable-or-costly-reserve", "claim": "The reserve argument depends on two requirements, and failing either one grounds a criticism of an existing protocol: the stable-value requirement criticizes MakerDAO and the maintenance-cost requirement criticizes the Reserve protocol.", "conditions": [ "reserve held in a volatile asset", "reserve maintenance cost exceeds arbitrage profit" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3402701-024", "url": "https://wulfkaal.github.io/claims/3402701-024", "family": "measurement-and-metric-failure", "name": "hot-money-ratio-misestimation", "claim": "Misestimating the hot money ratio fails in both directions: overestimation makes the currency more costly to use, and underestimation leaves it insecure, so efficiency and security are in direct tension.", "conditions": [], "topics": [ "consensus-and-security", "economics", "tokenomics" ] }, { "id": "kaal:claim:3402701-028", "url": "https://wulfkaal.github.io/claims/3402701-028", "family": "staking-and-incentive-misalignment", "name": "expectation-of-free-node-service", "claim": "In the contemporary climate these taxes and fees are unlikely to be implemented appropriately, because internet culture has trained users to expect free service from nodes and to hide the costs of running them.", "conditions": [ "prevailing internet culture of free node service" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3402701-030", "url": "https://wulfkaal.github.io/claims/3402701-030", "family": "valuation-and-pricing-failure", "name": "black-swan-peg-break", "claim": "For any long-lived currency, a major shift in perceived value is eventually inevitable, and such a shift is not covered by reserves defending against hot money or by bonds defending against temporary economic instability.", "conditions": [ "long-lived currencies", "black swan events" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3402701-032", "url": "https://wulfkaal.github.io/claims/3402701-032", "family": "smart-contract-rigidity", "name": "limits-of-full-automation", "claim": "The day-to-day stability mechanism can be fully automated by algorithm, but monetary and fiscal policy choices cannot be: the algorithm's parameters must be chosen by hand and adjusted regularly to balance security against efficiency.", "conditions": [ "stability mechanisms operating in changing markets" ], "topics": [ "governance-design", "tokenomics" ] }, { "id": "kaal:claim:3402701-034", "url": "https://wulfkaal.github.io/claims/3402701-034", "family": "collective-action-and-coordination-failure", "name": "signal-noise-imbalance", "claim": "Centralized hierarchies and decentralized flat organizations fail in opposite ways: hierarchies filter out information signals at the edge, while flat organizations amplify edge noise so important information never finds a champion to drive action.", "conditions": [], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3402701-035", "url": "https://wulfkaal.github.io/claims/3402701-035", "family": "trigger-design-failure", "name": "transparency-enabled-peg-attack", "claim": "Transparency is not an unqualified good for monetary policy: a currency only partially backed by reserves can be arbitraged by a Soros-style shorting strategy much more easily when the quantity of reserves is public.", "conditions": [ "partial reserve backing", "reserve quantities publicly known" ], "topics": [ "disclosure", "consensus-and-security", "tokenomics" ] }, { "id": "kaal:claim:3402701-036", "url": "https://wulfkaal.github.io/claims/3402701-036", "family": "collective-action-and-coordination-failure", "name": "corruption-inevitability", "claim": "The Folk Theorems of game theory prove that no protocol, however complex or well engineered, can eliminate corruption, understood as behavior that profits a minority at the greater expense of the majority.", "conditions": [], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3402701-037", "url": "https://wulfkaal.github.io/claims/3402701-037", "family": "rule-obsolescence-and-ossification", "name": "static-rulebook-failure", "claim": "No static set of rules can prevent the corruption that will eventually cause any stability design to fail, but a changing rule set administered by nimble governance can prevent that failure if enough resources reward anti-corruption effort.", "conditions": [ "governance that devotes resources to detecting and rewarding anti-corruption effort" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3709041-006", "url": "https://wulfkaal.github.io/claims/3709041-006", "family": "collective-action-and-coordination-failure", "name": "ideological deadlock between capitalism and socialism", "claim": "The centuries long tension between socialist and capitalist principles for organizing society has itself undermined societal goals for the betterment of humanity, because society forms power structures and political hierarchies that serve the competing ideologies.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3709041-007", "url": "https://wulfkaal.github.io/claims/3709041-007", "family": "inequality-and-access-divide", "name": "symmetrical failures of capitalism and socialism", "claim": "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.", "conditions": [], "topics": [ "risk-and-incentives", "economics" ] }, { "id": "kaal:claim:3709041-014", "url": "https://wulfkaal.github.io/claims/3709041-014", "family": "rule-obsolescence-and-ossification", "name": "limits of legally created trust", "claim": "Trust created by law is often limited because it is only indirectly democratically legitimized, inflexible, untimely, resistant to change, dependent on fallible human centric decision processes, and constrained to human speed.", "conditions": [ "applies to trust generated by legal guarantees and judicial enforcement" ], "topics": [ "reputation", "law-and-legal-systems", "compliance", "institutional-design" ] }, { "id": "kaal:claim:3709041-019", "url": "https://wulfkaal.github.io/claims/3709041-019", "family": "plutocratic-capture", "name": "corruption through vote delegation", "claim": "Vote delegation inevitably reintroduces corruption into a microdemocratic system, because representatives may seek to bribe or purchase votes to gain power, so delegation necessitates a policing system.", "conditions": [ "applies where microdemocratic systems permit delegation of voting power" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3709041-020", "url": "https://wulfkaal.github.io/claims/3709041-020", "family": "ai-model-and-training-failure", "name": "tragedy of the commons in microdemocracy", "claim": "Microdemocracies must confront the tragedy of the commons, because voters acting on self-interest independent of the totality of voters may, without controls, deplete or spoil shared resources such as the environment and public goods.", "conditions": [ "applies to microdemocratic shared resource systems without controls" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3709041-021", "url": "https://wulfkaal.github.io/claims/3709041-021", "family": "governance-participation-collapse", "name": "majority discrimination against unrepresented minorities", "claim": "Majority rule in a microdemocracy can produce discrimination, because a majority that is itself unaffected by a rule it enacts can impose a disproportionate burden on the minority the rule does affect.", "conditions": [ "applies to majority rule voting in microdemocratic systems" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3709041-022", "url": "https://wulfkaal.github.io/claims/3709041-022", "family": "rule-obsolescence-and-ossification", "name": "institutional slowness of representative democracy", "claim": "Representative democracies in the early 2020s were slow and inflexible because of their constitutional and institutional infrastructure and their legal systems, with change typically depending on the election of a new government after around four years at the earliest.", "conditions": [ "describes representative democracies as of the early 2020s" ], "topics": [ "institutional-design", "governance-design" ] }, { "id": "kaal:claim:3709041-024", "url": "https://wulfkaal.github.io/claims/3709041-024", "family": "incumbent-resistance-to-adoption", "name": "constitutional adoption barrier", "claim": "Decentralized voting pools can become supplemental voting systems that help overcome the legitimacy deficit of representative democracies, but installing them as upgrades to existing representative democracies would require constitutional or democratic support that is dubious at best.", "conditions": [ "requires constitutional or democratic authorization for adoption" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3709041-025", "url": "https://wulfkaal.github.io/claims/3709041-025", "family": "incumbent-resistance-to-adoption", "name": "incumbent capture of blockchain voting", "claim": "Blockchain voting solutions require political will as well as technical capability, and incumbent governments may refuse to surrender control over the voting process, preferring private blockchains that preserve their control.", "conditions": [ "applies to adoption of public blockchain voting by existing representative democracies" ], "topics": [ "blockchain", "governance-design" ] }, { "id": "kaal:claim:3709041-026", "url": "https://wulfkaal.github.io/claims/3709041-026", "family": "regulatory-capture-and-incumbent-advantage", "name": "regulatory blind spot in private standard setting", "claim": "Regulating centralized technology conglomerates addresses only part of the problem, because even fully regulated conglomerates retain the power to set standards and norms for emerging technologies that government cannot effectively trace.", "conditions": [], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3709041-029", "url": "https://wulfkaal.github.io/claims/3709041-029", "family": "cold-start-and-bootstrapping", "name": "attrition of blockchain for good projects", "claim": "In a proprietary dataset of thirty three blockchain for good projects, the projects proliferated between 2013 and 2017 and peaked in 2017, and many of them did not launch successfully or perished over time.", "conditions": [ "based on the author's dataset of n=33 blockchain for good projects whose whitepapers were reviewed" ], "topics": [ "empirical-evidence", "blockchain" ] }, { "id": "kaal:claim:3709041-030", "url": "https://wulfkaal.github.io/claims/3709041-030", "family": "innovation-chilling", "name": "regulatory chill on charitable token offerings", "claim": "Regulatory concerns and lack of market confidence were the cited reasons for postponing the token sale of GiftCoin, a charitable donation tracking project that launched in 2017 and shut down in June 2018.", "conditions": [ "specific to the GiftCoin project" ], "topics": [ "tokenomics", "securities-law" ] }, { "id": "kaal:claim:3709041-033", "url": "https://wulfkaal.github.io/claims/3709041-033", "family": "oracle-and-input-corruption", "name": "unverifiable food integrity claims", "claim": "Consumers increasingly favor genetically unmodified organic food from local and sustainable sources, yet the integrity of such products is usually difficult to verify, a verification gap blockchain technology can close.", "conditions": [], "topics": [ "citation-and-knowledge", "reputation" ] }, { "id": "kaal:claim:3709041-035", "url": "https://wulfkaal.github.io/claims/3709041-035", "family": "scalability-and-throughput-limit", "name": "central coordination failure in distributed energy grids", "claim": "Coordinating large numbers of decentralized energy resources from a central point of control is slow, inefficient, and resource intensive, a vulnerability demonstrated by the 2001 U.S. Western Energy Crisis and the 2003 Northeast Blackout.", "conditions": [ "applies to centrally managed grids coordinating distributed energy resources" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3709041-036", "url": "https://wulfkaal.github.io/claims/3709041-036", "family": "interoperability-and-fragmentation", "name": "agency data siloing", "claim": "Government departments operate without sufficient integration with one another, and that separation produces an inability to share information across agencies, which creates red tape and delay and degrades the delivery of government services.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3709041-039", "url": "https://wulfkaal.github.io/claims/3709041-039", "family": "inequality-and-access-divide", "name": "wealth based advantage in legal access", "claim": "The cost of legal services traditionally creates an unfair advantage in the law based on wealth, an inequity that blockchain based smart contract programs for streamlined alternative dispute resolution are designed to address.", "conditions": [], "topics": [ "law-and-legal-systems", "smart-contracts", "systemic-risk" ] }, { "id": "kaal:claim:3709041-040", "url": "https://wulfkaal.github.io/claims/3709041-040", "family": "token-transferability-defect", "name": "traceability breakdown at the smelting stage", "claim": "Complete supply chain tracking is particularly difficult in the mineral industry because of the prevalence of smelting during processing, which is why supply chain mapping for conflict mineral due diligence is costly, time intensive, and not entirely effective.", "conditions": [ "applies to conflict mineral due diligence under US disclosure requirements" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3652481-001", "url": "https://wulfkaal.github.io/claims/3652481-001", "family": "recentralization-drift", "name": "representation-induced centralization", "claim": "Tying a DAO's legal existence to an existing legal and jurisdictional framework typically forces the DAO to appoint a representative in that jurisdiction, and that representative centralizes the DAO, which causes the DAO concept itself to fail.", "conditions": [ "the chosen jurisdiction requires local legal representation" ], "topics": [ "dao", "law-and-legal-systems", "decentralization" ] }, { "id": "kaal:claim:3652481-008", "url": "https://wulfkaal.github.io/claims/3652481-008", "family": "recentralization-drift", "name": "hierarchical drift to centralization", "claim": "Absent continual effort to maintain decentralized order, the very values that initially unite DAO members tend to produce ever tighter and more complex hierarchical structures inside the DAO, ending in a fully centralized tree structure.", "conditions": [ "no ongoing effort is made to preserve decentralized order" ], "topics": [ "decentralization", "institutional-design", "dao", "governance-design" ] }, { "id": "kaal:claim:3652481-009", "url": "https://wulfkaal.github.io/claims/3652481-009", "family": "smart-contract-rigidity", "name": "immutability trap", "claim": "The immutability of blockchain ledgers is itself a vulnerability, because once a DAO is in operation its essential construction is very difficult to alter should a bug in the code appear.", "conditions": [ "a bug exists in deployed DAO code" ], "topics": [ "smart-contracts", "consensus-and-security", "dao" ] }, { "id": "kaal:claim:3652481-010", "url": "https://wulfkaal.github.io/claims/3652481-010", "family": "short-termism", "name": "fungible token short termism", "claim": "A DAO focus on the value enhancement of fungible tokens can produce short termism and lead the organization to ignore ethical and governance issues.", "conditions": [ "fungible tokens are the dominant value metric" ], "topics": [ "tokenomics", "risk-and-incentives" ] }, { "id": "kaal:claim:3652481-011", "url": "https://wulfkaal.github.io/claims/3652481-011", "family": "recentralization-drift", "name": "developer path dependency", "claim": "DAO developers are themselves subject to path dependencies that undermine the evolution of decentralized DAO designs, because the communication structures of the developing organization invariably shape future designs.", "conditions": [], "topics": [ "open-source-and-code", "dao" ] }, { "id": "kaal:claim:3652481-012", "url": "https://wulfkaal.github.io/claims/3652481-012", "family": "innovation-chilling", "name": "regulatory chill", "claim": "Regulatory uncertainty is holding back both the development of DAOs and the optimization potential DAOs offer for digital assets.", "conditions": [], "topics": [ "dao", "innovation" ] }, { "id": "kaal:claim:3652481-013", "url": "https://wulfkaal.github.io/claims/3652481-013", "family": "legal-personality-and-liability-gap", "name": "court imposed structure", "claim": "If DAO members do not formalize a structure for their human created entity, courts are very likely to impose one on them, which is a serious risk of DAO membership.", "conditions": [ "the DAO has no off chain legal entity", "a dispute reaches a court" ], "topics": [ "law-and-legal-systems", "dao" ] }, { "id": "kaal:claim:3652481-014", "url": "https://wulfkaal.github.io/claims/3652481-014", "family": "legal-personality-and-liability-gap", "name": "default partnership liability", "claim": "Where no legal entity is involved, partnership rules operate as the default rules that apply to all interactions between parties trying to achieve a common goal.", "conditions": [ "no legal entity has been formed" ], "topics": [ "law-and-legal-systems", "dao" ] }, { "id": "kaal:claim:3652481-015", "url": "https://wulfkaal.github.io/claims/3652481-015", "family": "legal-personality-and-liability-gap", "name": "unenforceable remedy limitation", "claim": "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.", "conditions": [ "a tort claim is brought against the DAO" ], "topics": [ "law-and-legal-systems", "risk-and-incentives", "dao" ] }, { "id": "kaal:claim:3652481-016", "url": "https://wulfkaal.github.io/claims/3652481-016", "family": "jurisdictional-conflict", "name": "cybernetic jurisdictional escape", "claim": "Applying a common legal anchor and traditional jurisdictional principles to cybernetic systems is near impossible, because the status of a cybernetic system is constantly changing.", "conditions": [ "the system is cybernetic, meaning the community continually chooses which protocol version to adopt" ], "topics": [ "law-and-legal-systems", "dao" ] }, { "id": "kaal:claim:3652481-017", "url": "https://wulfkaal.github.io/claims/3652481-017", "family": "compliance-cost-and-barrier-to-entry", "name": "securities law capital constraint", "claim": "Under current securities laws, DAOs governed solely by smart contracts are restricted in their ability to pool assets and generate profit, because those laws limit their ability to fund ecosystem development and deploy capital efficiently.", "conditions": [ "US securities law", "the DAO has no legal wrapper" ], "topics": [ "securities-law", "smart-contracts", "dao" ] }, { "id": "kaal:claim:3652481-018", "url": "https://wulfkaal.github.io/claims/3652481-018", "family": "consensus-and-protocol-attack", "name": "fork induced double spend", "claim": "Bifurcation of nodes in a decentralized network through forking can cause significant economic loss, errors, confusion and bugs, including reemergence of the double spend problem that the pre fork network had already solved.", "conditions": [ "a chain fork splits nodes across incompatible protocol versions" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3652481-020", "url": "https://wulfkaal.github.io/claims/3652481-020", "family": "staking-and-incentive-misalignment", "name": "unmastered incentive duality", "claim": "DAO designs at the beginning of the 2020s did not effectively master the duality of incentives that a workable DAO governance design requires.", "conditions": [ "DAO designs as of the early 2020s" ], "topics": [ "risk-and-incentives", "dao" ] }, { "id": "kaal:claim:3652481-021", "url": "https://wulfkaal.github.io/claims/3652481-021", "family": "fraud-and-misconduct", "name": "identity based corruption", "claim": "The identity of actors in a DAO governance design typically creates corruptive elements, and merit identifiers other than individual identity remove the most corruptive influences.", "conditions": [], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3652481-023", "url": "https://wulfkaal.github.io/claims/3652481-023", "family": "recentralization-drift", "name": "representation as centralization point", "claim": "Existing legal solutions for DAOs typically require some form of legal representation in the relevant jurisdiction, and jurisdictional requirements pertaining to legal representation are always a point of centralization.", "conditions": [], "topics": [ "law-and-legal-systems", "decentralization", "dao" ] }, { "id": "kaal:claim:3652481-024", "url": "https://wulfkaal.github.io/claims/3652481-024", "family": "legal-personality-and-liability-gap", "name": "consumer protection blocks DAO limited liability", "claim": "Because consumer protection is a core mandate of any legislature, legislatures are unlikely to surrender control and jurisdiction over a DAO, which would mean no legal recourse and no ability to sue in national courts, while at the same time granting the DAO limited liability.", "conditions": [ "jurisdictions with a consumer protection mandate" ], "topics": [ "law-and-legal-systems", "dao" ] }, { "id": "kaal:claim:3652481-026", "url": "https://wulfkaal.github.io/claims/3652481-026", "family": "rule-obsolescence-and-ossification", "name": "static rule gaming", "claim": "Stable and presumptively optimal static or constitutional rules for DAO governance typically enable gaming and arbitrage opportunities, because rational opportunistic parties will circumvent complex static rules to increase their share of power and profit.", "conditions": [ "the system is open and democratic", "the rule set is static and complex" ], "topics": [ "regulatory-failure", "governance-design" ] }, { "id": "kaal:claim:3652481-028", "url": "https://wulfkaal.github.io/claims/3652481-028", "family": "rule-obsolescence-and-ossification", "name": "ex ante rule obsolescence", "claim": "Presumptively stable ex ante majoritarian rules are flawed because they are inevitably suboptimal in an environment that has evolved away from the conditions that produced the rule.", "conditions": [], "topics": [ "governance-design", "dynamic-regulation" ] }, { "id": "kaal:claim:3652481-029", "url": "https://wulfkaal.github.io/claims/3652481-029", "family": "governance-participation-collapse", "name": "loss of miner checks", "claim": "Kaal accepts that the arguments against on chain governance remain strong: in an off chain model miners supply checks and balances over protocol changes, and on chain governance arguably removes those checks and balances.", "conditions": [ "public blockchains with miner based off chain governance" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3652481-030", "url": "https://wulfkaal.github.io/claims/3652481-030", "family": "short-termism", "name": "token plutocracy", "claim": "The one token one vote designs popular in the early 2020s produced suboptimal voting outcomes because they allocate more power to holders of a large share of total token supply, leaving majority holders more powerful than all remaining holders combined.", "conditions": [ "one token one vote voting mechanisms" ], "topics": [ "tokenomics", "governance-design" ] }, { "id": "kaal:claim:3652481-032", "url": "https://wulfkaal.github.io/claims/3652481-032", "family": "legal-personality-and-liability-gap", "name": "jurisdictional seed requirement", "claim": "Because a Swiss Association is a legal entity, a DAA must have a seed in Switzerland and be run in Switzerland even though its members can be located anywhere in the world.", "conditions": [ "Swiss Association legal form" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:3652481-033", "url": "https://wulfkaal.github.io/claims/3652481-033", "family": "scalability-and-throughput-limit", "name": "minimal on chain coverage", "claim": "Only the most basic common denominator required to operate a fully functional Swiss Association can be run entirely on chain.", "conditions": [ "Swiss Association legal form" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3652481-034", "url": "https://wulfkaal.github.io/claims/3652481-034", "family": "recentralization-drift", "name": "decentralization cancellation", "claim": "Where a DAO's internal voting mechanism is centralized and burdened with legacy voting problems, any higher degree of decentralization achieved in its external legal design will typically be cancelled out over the long run.", "conditions": [ "the internal voting mechanism is centralized or uses legacy voting designs" ], "topics": [ "decentralization", "governance-design", "dao", "law-and-legal-systems" ] }, { "id": "kaal:claim:3652481-035", "url": "https://wulfkaal.github.io/claims/3652481-035", "family": "recentralization-drift", "name": "internal external mismatch", "claim": "When the degrees of internal and external governance decentralization cancel each other out, the DAO is less likely to succeed in its decentralization attempt and correspondingly more likely to fail.", "conditions": [], "topics": [ "dao", "decentralization", "law-and-legal-systems" ] }, { "id": "kaal:claim:3652481-040", "url": "https://wulfkaal.github.io/claims/3652481-040", "family": "legal-personality-and-liability-gap", "name": "unwrapped DAO liability exposure", "claim": "Without a legal wrapper, DAOs face potential regulatory enforcement actions and civil liability not only at the organization level but against individual participants.", "conditions": [ "no off chain legal entity has been formed" ], "topics": [ "law-and-legal-systems", "compliance", "dao" ] }, { "id": "kaal:claim:3606663-003", "url": "https://wulfkaal.github.io/claims/3606663-003", "family": "scalability-and-throughput-limit", "name": "infrastructure cannot absorb projected DeFi growth", "claim": "The expected growth rate of DeFi, across diverse estimates, is large enough to call into question the long term viability of the existing decentralized technology infrastructure unless core infrastructure improvements are made.", "conditions": [ "decentralized finance built on existing public blockchains", "growth continues at estimated rates" ], "topics": [ "defi", "decentralization" ] }, { "id": "kaal:claim:3606663-005", "url": "https://wulfkaal.github.io/claims/3606663-005", "family": "regulatory-arbitrage", "name": "regulatory avoidance presumption collapses under enforcement", "claim": "The assumption by ICO issuers that token sales let them circumvent securities registration and disclosure requirements proved to be a fallacy for many U.S. issuers, who faced increased SEC enforcement actions in late 2019.", "conditions": [ "U.S. issuers of tokens in ICOs", "post 2017 enforcement environment" ], "topics": [ "securities-law", "compliance", "regulatory-failure", "decentralization" ] }, { "id": "kaal:claim:3606663-006", "url": "https://wulfkaal.github.io/claims/3606663-006", "family": "token-transferability-defect", "name": "lockups erase the early liquidity advantage of ICOs", "claim": "By 2019 the ICO market had lost its defining advantage over venture capital: because most ICOs between 2018 and 2019 imposed one to three year lockups, neither market offered early liquidity to investors or issuers, making the two substantively similar.", "conditions": [ "ICOs conducted between 2018 and 2019", "lockup periods of one to three years" ], "topics": [ "securities-law", "innovation", "defi", "economics" ] }, { "id": "kaal:claim:3606663-007", "url": "https://wulfkaal.github.io/claims/3606663-007", "family": "valuation-and-pricing-failure", "name": "hidden discount cost exceeds underwriting fees", "claim": "Once the staggered private sale discounts of up to fifty percent are counted as a cost of capital, the cost structure of an ICO is arguably significantly higher than that of an IPO, notwithstanding the ICO's lower legal and offering expenses.", "conditions": [ "ICOs conducted in 2017 and 2018 with staggered discount structures", "comparison against average IPO underwriting fees of four to seven percent" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:3606663-011", "url": "https://wulfkaal.github.io/claims/3606663-011", "family": "staking-and-incentive-misalignment", "name": "capped raise induces investor frenzy", "claim": "Capped ICO raises, adopted by the crypto community to reduce investor uncertainty about platform valuation in uncapped raises, backfire because the cap creates strong incentives for investors to get in first, raising the likelihood of retail investor frenzy.", "conditions": [ "capped ICO raises", "retail investor participation" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:3606663-012", "url": "https://wulfkaal.github.io/claims/3606663-012", "family": "disclosure-ineffectiveness", "name": "disclosure decay after the raise", "claim": "The absence of mandatory disclosure obligations for ICOs leads promoters to make irregular disclosures or none at all as time passes, producing a significant lack of transparency in the ICO market.", "conditions": [ "ICO markets without mandatory disclosure rules", "post issuance period" ], "topics": [ "securities-law", "disclosure" ] }, { "id": "kaal:claim:3606663-013", "url": "https://wulfkaal.github.io/claims/3606663-013", "family": "investor-protection-gap", "name": "mid course alteration of sale terms", "claim": "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.", "conditions": [ "ICOs administered through promoter controlled smart contracts" ], "topics": [ "securities-law", "smart-contracts", "governance-design", "risk-and-incentives" ] }, { "id": "kaal:claim:3606663-014", "url": "https://wulfkaal.github.io/claims/3606663-014", "family": "innovation-chilling", "name": "regulatory uncertainty suppresses participation", "claim": "Regulatory uncertainty is curtailing the growth of the digital asset industry because investor classes across the spectrum, from retail investors to the largest institutions, are hesitant to participate while the legal treatment of digital assets remains unclear.", "conditions": [ "early 2020s digital asset market", "absence of sufficient regulatory guidance" ], "topics": [ "economics", "institutional-design" ] }, { "id": "kaal:claim:3606663-015", "url": "https://wulfkaal.github.io/claims/3606663-015", "family": "adoption-and-usability-barrier", "name": "fiduciary and custody constraints block institutional entry", "claim": "Institutional investors face a distinct barrier beyond volatility: fiduciary responsibility to their clients limits the type of risk they may take on, and the lack of custody solutions recognized by regulators compounds the problem.", "conditions": [ "institutional investors subject to fiduciary duties", "early 2020s absence of regulator recognized custody solutions" ], "topics": [ "institutional-design", "corporate-governance", "defi", "economics" ] }, { "id": "kaal:claim:3606663-016", "url": "https://wulfkaal.github.io/claims/3606663-016", "family": "cold-start-and-bootstrapping", "name": "experience gap in immature markets", "claim": "Immature markets such as the market for digital assets in 2020 often cannot attract the institutional investors and venture capitalists who have sufficient operating experience in that market, which is a self reinforcing constraint on market development.", "conditions": [ "immature or nascent asset markets", "digital asset market as of 2020" ], "topics": [ "economics", "institutional-design", "innovation" ] }, { "id": "kaal:claim:3606663-017", "url": "https://wulfkaal.github.io/claims/3606663-017", "family": "cold-start-and-bootstrapping", "name": "no expertise network, no successful early stage investment", "claim": "Early stage investing in digital assets is a relationships business, and without access to a network of core industry expertise early stage investments in the digital asset industry are rarely successful.", "conditions": [ "early stage investors in digital asset startups" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3606663-019", "url": "https://wulfkaal.github.io/claims/3606663-019", "family": "cold-start-and-bootstrapping", "name": "hype crowds out technical learning", "claim": "Because the digital asset market has been so hype driven, technical experience has not added significantly to overall market development and maturity, leaving many top projects in 2020 still afflicted by unresolved technical issues.", "conditions": [ "cryptocurrency market through the early 2020s", "hype driven market conditions" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3606663-020", "url": "https://wulfkaal.github.io/claims/3606663-020", "family": "valuation-and-pricing-failure", "name": "bitcoin fails the store of value and unit of account tests", "claim": "Bitcoin functions as a medium of exchange for a number of businesses but arguably fails as a store of value and as a unit of account, because of its volatility and its lack of intrinsic value.", "conditions": [ "Bitcoin as evaluated against the three classical money functions" ], "topics": [ "tokenomics", "economics" ] }, { "id": "kaal:claim:3606663-021", "url": "https://wulfkaal.github.io/claims/3606663-021", "family": "systemic-risk-transmission", "name": "exchange breach triggers instantaneous withdrawal cascade", "claim": "Cyber security incidents contribute to the volatility of the digital asset market through a specific channel: consumers instantaneously withdraw their assets from an exchange affected by an incident.", "conditions": [ "digital asset exchanges affected by cyber security incidents", "author flags other contributing reasons" ], "topics": [ "consensus-and-security", "defi", "systemic-risk", "economics", "institutional-design" ] }, { "id": "kaal:claim:3606663-023", "url": "https://wulfkaal.github.io/claims/3606663-023", "family": "adoption-and-usability-barrier", "name": "cryptocurrency instability blocks DeFi adoption", "claim": "The evolution of the DeFi market and its new monetary system depends on the stability of DeFi products and digital assets, and both stability and adoption of DeFi are undermined by the instability of most cryptocurrencies.", "conditions": [ "DeFi platforms denominated in volatile cryptocurrencies" ], "topics": [ "defi", "tokenomics" ] }, { "id": "kaal:claim:3606663-026", "url": "https://wulfkaal.github.io/claims/3606663-026", "family": "recentralization-drift", "name": "incomplete FinTech disintermediation", "claim": "Centralized financial technology does not complete the disintermediation it promises, because users still deal with a technology company as intermediary instead of a financial institution, which leaves room for the decentralized solutions DeFi attempts to provide.", "conditions": [ "centralized FinTech platforms", "peer to peer transaction settings" ], "topics": [ "decentralization", "defi", "economics" ] }, { "id": "kaal:claim:3606663-028", "url": "https://wulfkaal.github.io/claims/3606663-028", "family": "recentralization-drift", "name": "single platform dependence in DeFi", "claim": "DeFi's decentralization remains theoretical in one important respect: as of the early 2020s DeFi is still largely relegated to one dominant platform, with 87 percent of all publicly funded DeFi projects built on Ethereum.", "conditions": [ "publicly funded DeFi projects", "beginning of the 2020s" ], "topics": [ "defi", "decentralization" ] }, { "id": "kaal:claim:3606663-029", "url": "https://wulfkaal.github.io/claims/3606663-029", "family": "adoption-and-usability-barrier", "name": "key management usability barrier", "claim": "At the beginning of the 2020s DeFi was not sufficiently user friendly, because core interfaces such as metamask, myetherwallet, and scatter require levels of technical know how in handling public and private keys that most lay users do not possess.", "conditions": [ "lay retail users of DeFi interfaces", "beginning of the 2020s" ], "topics": [ "defi" ] }, { "id": "kaal:claim:3606663-030", "url": "https://wulfkaal.github.io/claims/3606663-030", "family": "adoption-and-usability-barrier", "name": "technology push without market pull", "claim": "The digital asset market resulted from a technology push rather than a market pull: developers were driven by technical advancement rather than by usefulness and user friendliness, and market pull may only evolve once the DeFi technology infrastructure is more developed.", "conditions": [ "digital asset and DeFi platform development", "immature technology infrastructure" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:3606663-031", "url": "https://wulfkaal.github.io/claims/3606663-031", "family": "human-judgment-displacement", "name": "automation ignores the human element", "claim": "DeFi platform technologies often have limited product market fit because the reliance on code over human judgment produces products built around automation that ignore the human element in financial transactions.", "conditions": [ "DeFi products built primarily on automated code execution", "transactions involving subjective or non codifiable inputs" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:3606663-032", "url": "https://wulfkaal.github.io/claims/3606663-032", "family": "smart-contract-rigidity", "name": "non codifiable information is discarded", "claim": "Because human interactions in business are often too complex to be fully codified objectively, DeFi systems that exclude all non objective information from their analysis do not fully utilize available information, which limits their efficiency and usefulness.", "conditions": [ "DeFi products analyzing only objectively recordable and verifiable inputs", "complex commercial interactions" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:3606663-033", "url": "https://wulfkaal.github.io/claims/3606663-033", "family": "legal-personality-and-liability-gap", "name": "no accountable party and no recovery mechanism", "claim": "Accountability is a structural concern in DeFi: without a central entity it can become unclear who is responsible for wrongdoing, and when problems arise no central party can freeze transactions, fix problems, or restore normal operations.", "conditions": [ "fully decentralized finance systems without a central operator" ], "topics": [ "defi", "governance-design" ] }, { "id": "kaal:claim:3606663-034", "url": "https://wulfkaal.github.io/claims/3606663-034", "family": "scalability-and-throughput-limit", "name": "infrastructure shortfall against growth potential", "claim": "In the early 2020s the DeFi technology infrastructure was insufficiently developed to support DeFi growth estimates and growth potential, and fulfilling that potential requires significant tradeoffs between scaling, security, and levels of decentralization.", "conditions": [ "DeFi infrastructure as of the early 2020s", "projected DeFi growth rates" ], "topics": [ "defi", "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3606663-035", "url": "https://wulfkaal.github.io/claims/3606663-035", "family": "scalability-and-throughput-limit", "name": "speed versus immutability tradeoff", "claim": "The tradeoff between transaction approval speed and immutability has the potential to undermine the DeFi infrastructure in the long run.", "conditions": [ "consensus based decentralized ledgers supporting DeFi" ], "topics": [ "defi", "consensus-and-security" ] }, { "id": "kaal:claim:3606663-036", "url": "https://wulfkaal.github.io/claims/3606663-036", "family": "scalability-and-throughput-limit", "name": "consensus cost versus attack resistance tradeoff", "claim": "Consensus in decentralized systems presents a two sided cost problem: creating consensus raises the costs of prepping, processing, and storing information, while reducing the number of computational checks increases the risk of collusion attacks that could change the record.", "conditions": [ "public distributed consensus systems", "information distributed to and validated by all parties" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3606663-037", "url": "https://wulfkaal.github.io/claims/3606663-037", "family": "scalability-and-throughput-limit", "name": "network congestion under projected DeFi volume", "claim": "Read together with the network capacity failure that CryptoKitties caused on Ethereum in December 2017, the expected DeFi growth rates imply that the Ethereum network will continue to experience network shortages and throughput problems unless its infrastructure is upgraded to handle the expected transaction volume.", "conditions": [ "Ethereum network without infrastructure upgrades", "DeFi growth continuing at estimated rates", "author cautions that correlation is not causation" ], "topics": [ "defi" ] }, { "id": "kaal:claim:3606663-039", "url": "https://wulfkaal.github.io/claims/3606663-039", "family": "transition-and-migration-risk", "name": "resilience versus cost and privacy tradeoff in wholesale DLT settlement", "claim": "The Bank of Canada's year long Jasper trial revealed a tradeoff rather than a solution: Ethereum would make the wholesale payment system more resilient but was costly and raised privacy issues, while Corda addressed cost and privacy but made the system less resilient, and the Bank concluded in May 2017 that blockchain was not mature enough to run a national interbank payment system.", "conditions": [ "Bank of Canada Jasper trial", "national interbank payment system use case", "as of May 2017" ], "topics": [ "systemic-risk", "decentralization", "blockchain", "consensus-and-security" ] }, { "id": "kaal:claim:3606663-040", "url": "https://wulfkaal.github.io/claims/3606663-040", "family": "innovation-chilling", "name": "public realm pre emption of private coin innovation", "claim": "Although the public realm of coins could not exist without prior private experimentation, it is possible that the public realm will impact or even pre empt private coin development, for example if central banks attempt to censor the use of digital currencies they did not issue.", "conditions": [ "coexistence of central bank digital currencies and privately issued coins" ], "topics": [ "tokenomics", "systemic-risk", "institutional-design" ] }, { "id": "kaal:claim:3799320-001", "url": "https://wulfkaal.github.io/claims/3799320-001", "family": "recentralization-drift", "name": "Governance centralization", "claim": "The concept of a DAO fails if it becomes centralized, and centralization in governance is the largest single threat to a DAO.", "conditions": [], "topics": [ "decentralization", "dao", "governance-design" ] }, { "id": "kaal:claim:3799320-002", "url": "https://wulfkaal.github.io/claims/3799320-002", "family": "rule-obsolescence-and-ossification", "name": "Static governance ossification", "claim": "Decentralized governance must be dynamic and evolutionary, otherwise the system becomes centralized and brittle over time; most DAOs fail to accomplish this.", "conditions": [ "governance that must persist over time", "systems relying on information from the edges" ], "topics": [ "governance-design", "institutional-design", "dao" ] }, { "id": "kaal:claim:3799320-003", "url": "https://wulfkaal.github.io/claims/3799320-003", "family": "recentralization-drift", "name": "Representation-induced legal centralization", "claim": "Tying a DAO's legal existence to existing legal and jurisdictional frameworks typically requires a representative in the chosen jurisdiction, which centralizes the DAO and results in the failure of the DAO concept.", "conditions": [ "DAO anchored in an existing jurisdiction", "frameworks that require local representation" ], "topics": [ "decentralization", "law-and-legal-systems", "dao" ] }, { "id": "kaal:claim:3799320-005", "url": "https://wulfkaal.github.io/claims/3799320-005", "family": "short-termism", "name": "Fungible token short-termism", "claim": "The focus on value enhancement of fungible tokens can drive short termism in DAOs and cause ethical and governance issues to be ignored.", "conditions": [ "DAOs whose incentive design centers on fungible token value" ], "topics": [ "tokenomics", "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:3799320-006", "url": "https://wulfkaal.github.io/claims/3799320-006", "family": "scalability-and-throughput-limit", "name": "Suboptimal layer 1 lock-in", "claim": "Working with suboptimal layer 1 blockchain solutions that carry high gas fees and low throughput delays the evolution of DAO infrastructure design, because innovation is inhibited by those layer 1 features.", "conditions": [ "development anchored to first generation layer 1 networks" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3799320-007", "url": "https://wulfkaal.github.io/claims/3799320-007", "family": "innovation-chilling", "name": "Regulatory uncertainty drag", "claim": "Regulatory uncertainty is holding back both the development of DAOs and the potential of DAOs to optimize digital assets.", "conditions": [ "regulatory environment of the early 2020s" ], "topics": [ "dao", "innovation" ] }, { "id": "kaal:claim:3799320-008", "url": "https://wulfkaal.github.io/claims/3799320-008", "family": "legal-personality-and-liability-gap", "name": "Court-imposed entity form", "claim": "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.", "conditions": [ "DAOs with no off-chain legal entity", "litigation reaching a court" ], "topics": [ "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:3799320-009", "url": "https://wulfkaal.github.io/claims/3799320-009", "family": "legal-personality-and-liability-gap", "name": "Unlimited partner liability", "claim": "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.", "conditions": [ "no legal entity formed", "U.S. partnership default rules apply" ], "topics": [ "law-and-legal-systems", "compliance", "risk-and-incentives" ] }, { "id": "kaal:claim:3799320-010", "url": "https://wulfkaal.github.io/claims/3799320-010", "family": "legal-personality-and-liability-gap", "name": "Contractual remedy cap fails in tort", "claim": "Private agreements that limit remedies to DAO assets are unlikely to be upheld if the DAO faces a tort suit.", "conditions": [ "tort claims rather than contract claims", "off-chain dispute settlement" ], "topics": [ "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:3799320-011", "url": "https://wulfkaal.github.io/claims/3799320-011", "family": "jurisdictional-conflict", "name": "Jurisdictional non-capture", "claim": "Cybernetic systems change constantly and are less amenable to jurisdictional reach, which makes it nearly impossible to apply a common legal anchor and traditional jurisdictional principles to them.", "conditions": [ "constantly changing cybernetic systems", "counterparties that do not concurrently exist" ], "topics": [ "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:3799320-012", "url": "https://wulfkaal.github.io/claims/3799320-012", "family": "innovation-chilling", "name": "Securities law capital constraint", "claim": "Under current securities laws, DAOs governed solely by smart contracts are restricted in pooling assets and generating profit, because those laws limit their ability to fund ecosystem development and deploy capital efficiently.", "conditions": [ "DAOs governed solely by smart contracts", "current U.S. securities law" ], "topics": [ "securities-law", "smart-contracts", "governance-design" ] }, { "id": "kaal:claim:3799320-014", "url": "https://wulfkaal.github.io/claims/3799320-014", "family": "plutocratic-capture", "name": "Fungible governance capture", "claim": "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.", "conditions": [ "fungible assets used as the dominant governance incentive", "actors who are identifiable" ], "topics": [ "tokenomics", "governance-design", "regulatory-failure", "risk-and-incentives" ] }, { "id": "kaal:claim:3799320-017", "url": "https://wulfkaal.github.io/claims/3799320-017", "family": "recentralization-drift", "name": "Representation as centralization point", "claim": "Existing legal solutions for DAOs typically require some form of legal representation in the relevant jurisdiction, and such representation is always a point of centralization.", "conditions": [ "current legal wrappers available to DAOs" ], "topics": [ "law-and-legal-systems", "decentralization" ] }, { "id": "kaal:claim:3799320-022", "url": "https://wulfkaal.github.io/claims/3799320-022", "family": "recentralization-drift", "name": "Hierarchical filtering drift", "claim": "Without continual effort to maintain decentralized order, the values that initially unite DAO members tend to produce ever tighter and more complex hierarchical structures inside the DAO.", "conditions": [ "absence of continual decentralization maintenance" ], "topics": [ "institutional-design", "decentralization", "dao" ] }, { "id": "kaal:claim:3799320-023", "url": "https://wulfkaal.github.io/claims/3799320-023", "family": "recentralization-drift", "name": "Decentralization cancellation", "claim": "If a DAO's internal voting mechanism is more centralized and carries legacy voting problems, a higher degree of decentralization in its external legal design will typically be canceled out in the long run.", "conditions": [ "DAOs pairing centralized internal voting with a decentralized legal design" ], "topics": [ "governance-design", "law-and-legal-systems", "decentralization" ] }, { "id": "kaal:claim:3799320-025", "url": "https://wulfkaal.github.io/claims/3799320-025", "family": "regulatory-arbitrage", "name": "Static rule gaming", "claim": "In any open and democratic system, naturally opportunistic rational parties will attempt to circumvent and game the applicable complex static rules to increase their share of power and profit.", "conditions": [ "open and democratic systems with complex static rule sets" ], "topics": [ "regulatory-failure", "governance-design" ] }, { "id": "kaal:claim:3799320-027", "url": "https://wulfkaal.github.io/claims/3799320-027", "family": "plutocratic-capture", "name": "Token plutocracy", "claim": "Suboptimal voting outcomes in existing decentralized protocols trace to one token one vote mechanisms, which allocate more power to holders of a significant share of total token supply.", "conditions": [ "one token one vote governance designs" ], "topics": [ "tokenomics", "governance-design" ] }, { "id": "kaal:claim:3782203-001", "url": "https://wulfkaal.github.io/claims/3782203-001", "family": "rule-obsolescence-and-ossification", "name": "static-rule-set-decay", "claim": "Any set process or set of rules that can ever be designed will ultimately fail to secure a network for all time, so no static rule set can serve as the permanent foundation of a DAO.", "conditions": [ "decentralized networks", "open global membership", "anonymous participation" ], "topics": [ "dao", "governance-design", "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3782203-003", "url": "https://wulfkaal.github.io/claims/3782203-003", "family": "rule-obsolescence-and-ossification", "name": "rigidity-induced-collapse", "claim": "Strict letter of the law regimes, which the authors call protocol centralization, produce rigid and temporarily efficient hierarchies, but that same rigidity generates instability and eventual collapse.", "conditions": [ "historical rule by law systems", "rigidly enforced protocols" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782203-004", "url": "https://wulfkaal.github.io/claims/3782203-004", "family": "smart-contract-rigidity", "name": "unwise-protocol-centralization", "claim": "Protocol centralization, meaning rigid and immediately enforced rules such as those executed by smart contracts, leads to instability unless it is implemented wisely.", "conditions": [ "smart contract enforced protocols", "politically decentralized networks" ], "topics": [ "decentralization", "smart-contracts", "dao", "governance-design" ] }, { "id": "kaal:claim:3782203-005", "url": "https://wulfkaal.github.io/claims/3782203-005", "family": "rule-obsolescence-and-ossification", "name": "loophole-arms-race", "claim": "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.", "conditions": [ "static rule sets", "groups containing adversarial members" ], "topics": [ "regulatory-failure", "risk-and-incentives" ] }, { "id": "kaal:claim:3782203-008", "url": "https://wulfkaal.github.io/claims/3782203-008", "family": "rule-obsolescence-and-ossification", "name": "eternal-static-ruleset", "claim": "Impossibility results establish that no static set of rules can eternally sustain a DAO, which is why DAOs must be set up to run with a dynamic set of rules from the very beginning.", "conditions": [ "fixed toolsets and fixed rule sets" ], "topics": [ "dao" ] }, { "id": "kaal:claim:3782203-009", "url": "https://wulfkaal.github.io/claims/3782203-009", "family": "collective-action-and-coordination-failure", "name": "preference-cycle", "claim": "Condorcet's paradox demonstrates that it is impossible to construct any democratic voting method that will faithfully discover the will of a group, because cyclic preferences can leave no clear winner.", "conditions": [ "three or more candidates", "any democratic voting system" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782203-010", "url": "https://wulfkaal.github.io/claims/3782203-010", "family": "collective-action-and-coordination-failure", "name": "inevitable-fork", "claim": "Because a group sometimes genuinely has no consensus to be discovered, network forking is at times inevitable rather than a governance failure that better rules could prevent.", "conditions": [ "cyclic or irreconcilable group preferences", "decentralized networks whose members can exit" ], "topics": [ "consensus-and-security", "blockchain", "governance-design" ] }, { "id": "kaal:claim:3782203-011", "url": "https://wulfkaal.github.io/claims/3782203-011", "family": "governance-participation-collapse", "name": "duverger-polarization", "claim": "Plurality voting predictably produces a system that swings between two polarized parties who are less acceptable to the majority but strongly preferred by interested minorities, because voters are incentivized to vote for their preferred one of the perceived top two rather than waste their vote.", "conditions": [ "plurality voting rules", "voters who want their vote to matter" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782203-012", "url": "https://wulfkaal.github.io/claims/3782203-012", "family": "rule-obsolescence-and-ossification", "name": "strategic-manipulation-of-static-rules", "claim": "Given a process with static rules and finite, discrete execution, a sufficiently patient and clever minority can always corrupt the process and profit at the majority's expense while following the rules, so no perfect voting system exists.", "conditions": [ "static rules", "finite discrete execution", "three or more options" ], "topics": [ "governance-design", "regulatory-failure" ] }, { "id": "kaal:claim:3782203-013", "url": "https://wulfkaal.github.io/claims/3782203-013", "family": "consensus-and-protocol-attack", "name": "attack-surface-expansion", "claim": "Across all the alternative polling methods explored in the literature, changes both help and hurt: new approaches solve old problems while creating new opportunities for manipulation, a pattern the authors identify with increasing the attack surface.", "conditions": [ "alternative voting and polling mechanisms", "continuous or weighted voting technologies" ], "topics": [ "consensus-and-security", "governance-design" ] }, { "id": "kaal:claim:3782203-014", "url": "https://wulfkaal.github.io/claims/3782203-014", "family": "collective-action-and-coordination-failure", "name": "perfect-policing-insufficiency", "claim": "It is impossible to set up formal rules that keep a group behaving cooperatively in the long run, even if those rules are policed perfectly; the spirit of the law matters more than the letter of the law.", "conditions": [ "long run repeated interaction", "even under perfect enforcement" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782203-017", "url": "https://wulfkaal.github.io/claims/3782203-017", "family": "regulatory-arbitrage", "name": "rule-compliant-subversion", "claim": "However rules are formalized in a realistic setting, there exist strategies that follow the rules yet subvert the intentions of the framers, so legal strategies will always be available that profit an individual adversary at the expense of the group.", "conditions": [ "realistic repeated games", "players able to precommit to strategies" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3782203-018", "url": "https://wulfkaal.github.io/claims/3782203-018", "family": "reputation-system-gaming", "name": "rationally-tolerated-parasitism", "claim": "Reputation policing games explain why a business will rationally tolerate a small level of theft when policing costs more than the loss, which also explains the rationality of long-term parasitic and bullying relationships and creates a need for careful protocol design to prevent that corruption.", "conditions": [ "policing costs exceed the value of the losses", "repeated interaction with asymmetric power" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782203-019", "url": "https://wulfkaal.github.io/claims/3782203-019", "family": "collective-action-and-coordination-failure", "name": "renegotiation-loophole", "claim": "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.", "conditions": [ "repeated games with renegotiation windows" ], "topics": [ "contingent-capital", "risk-and-incentives" ] }, { "id": "kaal:claim:3782203-020", "url": "https://wulfkaal.github.io/claims/3782203-020", "family": "research-design-limitation", "name": "assumption-escape", "claim": "For any game, a new assumption can be added that generalizes the game so that the previous winning strategy becomes a losing strategy and a new winning strategy arises; the authors offer this as a meta-theorem that cannot itself be formalized.", "conditions": [ "any formal game model", "actors free to change their behavior and desires" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3782203-021", "url": "https://wulfkaal.github.io/claims/3782203-021", "family": "rule-obsolescence-and-ossification", "name": "ossified-protocol", "claim": "Any set of rules that can be designed will need amendment as the environment changes, and a network that relies eternally on a static rule set will inevitably become corrupt or irrelevant.", "conditions": [ "open global decentralized networks", "anonymous membership", "changing environments" ], "topics": [ "governance-design", "institutional-design" ] }, { "id": "kaal:claim:3782203-022", "url": "https://wulfkaal.github.io/claims/3782203-022", "family": "smart-contract-rigidity", "name": "code-is-law-absolutism", "claim": "Despite its alluring simplicity, the Code is Law credo taken as an absolute is not an efficient solution for business, because unintended consequences of contracts arise in almost every business arrangement.", "conditions": [ "commercial smart contract relationships", "unintended consequences of contract execution" ], "topics": [ "smart-contracts", "economics" ] }, { "id": "kaal:claim:3782203-024", "url": "https://wulfkaal.github.io/claims/3782203-024", "family": "collective-action-and-coordination-failure", "name": "zero-sum-degeneration", "claim": "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.", "conditions": [ "zero-sum reward structures", "especially where counterparties are anonymous" ], "topics": [ "risk-and-incentives", "economics" ] }, { "id": "kaal:claim:3782203-026", "url": "https://wulfkaal.github.io/claims/3782203-026", "family": "consensus-and-protocol-attack", "name": "false-security-proof", "claim": "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.", "conditions": [ "correct by construction proof of stake designs", "adversaries able to invent new attacks" ], "topics": [ "consensus-and-security", "risk-and-incentives" ] }, { "id": "kaal:claim:3782203-027", "url": "https://wulfkaal.github.io/claims/3782203-027", "family": "research-design-limitation", "name": "assumption-escape", "claim": "Finding a correct by construction algorithm that incorporates all possible or even all practical assumptions about network status is not possible, because for any set of assumptions about network behavior an actor can break those assumptions by valuing some other result.", "conditions": [ "consensus algorithms for open anonymous networks" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3782203-029", "url": "https://wulfkaal.github.io/claims/3782203-029", "family": "consensus-and-protocol-attack", "name": "no-flawless-consensus", "claim": "The authors hold that the Bitcoin proof of work algorithm is ultimately flawed, that every consensus algorithm is flawed, and that it is not possible to create an algorithm that is not flawed.", "conditions": [ "real world networks with changing markets and anonymous actors" ], "topics": [ "consensus-and-security", "tokenomics" ] }, { "id": "kaal:claim:3782203-032", "url": "https://wulfkaal.github.io/claims/3782203-032", "family": "collective-action-and-coordination-failure", "name": "end-period-defection", "claim": "Cooperation is sustained only when the promise of future profits outweighs the present value of defecting, so a discount factor that is too low, or a game known to be ending soon, makes defection the rational choice.", "conditions": [ "repeated games with end periods", "impatient players or high discounting" ], "topics": [ "reputation", "tokenomics" ] }, { "id": "kaal:claim:3782203-035", "url": "https://wulfkaal.github.io/claims/3782203-035", "family": "sybil-and-identity-attack", "name": "sockpuppet-attack", "claim": "A DAO permitting anonymous membership is exposed to a sockpuppet attack in which one account behaves honestly while another cheats, and if the cheating account can funnel its gains to the honest account without detection or punishment the system is set up for failure.", "conditions": [ "anonymous DAOs allowing multiple accounts per person" ], "topics": [ "consensus-and-security", "dao" ] }, { "id": "kaal:claim:3782198-002", "url": "https://wulfkaal.github.io/claims/3782198-002", "family": "collective-action-and-coordination-failure", "name": "consensus-erosion-from-edge-amplification", "claim": "Rapid movement of edge knowledge into the mainstream via social media is not costless: it can dissolve existing societal consensus, social cohesion among established groups, and order in the process.", "conditions": [], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782198-003", "url": "https://wulfkaal.github.io/claims/3782198-003", "family": "reputation-system-gaming", "name": "corruptible-social-proof", "claim": "The social media coordination function remains largely flawed and corruptible because the incentive design underlying social proof is suboptimal.", "conditions": [ "applies to platform ratings, reviews, and social proof mechanisms under centralized ownership" ], "topics": [ "risk-and-incentives", "institutional-design" ] }, { "id": "kaal:claim:3782198-004", "url": "https://wulfkaal.github.io/claims/3782198-004", "family": "reputation-system-gaming", "name": "rating-system-manipulation", "claim": "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.", "conditions": [ "observed on major centralized e-commerce platforms" ], "topics": [ "reputation", "regulatory-failure", "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:3782198-006", "url": "https://wulfkaal.github.io/claims/3782198-006", "family": "reputation-system-gaming", "name": "algorithm-exploitation-arms-race", "claim": "Centralized platforms are locked into an arms race in which developers infer the rules of the ranking algorithm and exploit them, forcing the owner to keep the algorithm opaque and under constant revision.", "conditions": [ "applies to centrally owned information filtering algorithms such as search ranking" ], "topics": [ "regulatory-failure", "disclosure" ] }, { "id": "kaal:claim:3782198-010", "url": "https://wulfkaal.github.io/claims/3782198-010", "family": "collective-action-and-coordination-failure", "name": "commons-collapse-in-isp-payment-design", "claim": "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.", "conditions": [ "applies to the early ISP era of Web 1.0 bandwidth provision" ], "topics": [ "institutional-design", "risk-and-incentives" ] }, { "id": "kaal:claim:3782198-011", "url": "https://wulfkaal.github.io/claims/3782198-011", "family": "staking-and-incentive-misalignment", "name": "success-penalty-in-per-connection-pricing", "claim": "Per connection pricing by ISPs penalized success: creators whose pages became popular faced charges scaling with traffic, and individuals with popular pages were forced to delete their content.", "conditions": [ "applies to low volume, non commercial content providers in the Web 1.0 era" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782198-015", "url": "https://wulfkaal.github.io/claims/3782198-015", "family": "recentralization-drift", "name": "proprietary-code-recentralization", "claim": "If any single person could own the copyright to software that a decentralized organization uses, that person would hold de facto power over the organization, re establishing hierarchies of power inside it.", "conditions": [ "applies where proprietary code is embedded in a decentralized organization's stack" ], "topics": [ "open-source-and-code", "institutional-design", "decentralization" ] }, { "id": "kaal:claim:3782198-016", "url": "https://wulfkaal.github.io/claims/3782198-016", "family": "collective-action-and-coordination-failure", "name": "volunteer-crowd-out-and-abandonment", "claim": "Paid corporate contributors are a source of tension in open source communities: they can outwork and push out volunteers, then leave once their employer's duties are complete, leaving no one to maintain and upgrade the software.", "conditions": [ "observed in the Apache Software Foundation's volunteer community" ], "topics": [ "open-source-and-code", "regulatory-failure" ] }, { "id": "kaal:claim:3782198-018", "url": "https://wulfkaal.github.io/claims/3782198-018", "family": "collective-action-and-coordination-failure", "name": "talent-shortfall-under-open-source", "claim": "Open source projects sometimes fail to attract the quality of developer that a closed source project can reliably procure with greater funding and control.", "conditions": [ "applies to projects operating under maximal transparency without funding" ], "topics": [ "open-source-and-code" ] }, { "id": "kaal:claim:3782198-019", "url": "https://wulfkaal.github.io/claims/3782198-019", "family": "regulatory-capture-and-incumbent-advantage", "name": "incumbent-appropriation-of-open-code", "claim": "The success of the open source movement itself creates a vulnerability: major corporations can pressure smaller projects to reveal their code, then take it and exploit the work more profitably than the startup can.", "conditions": [ "applies to small open source projects competing with resource rich incumbents" ], "topics": [ "open-source-and-code", "regulatory-failure", "innovation" ] }, { "id": "kaal:claim:3782198-021", "url": "https://wulfkaal.github.io/claims/3782198-021", "family": "recentralization-drift", "name": "p2p-latency-and-incentive-disadvantage", "claim": "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.", "conditions": [ "describes the competitive conditions of the early internet era" ], "topics": [ "risk-and-incentives", "economics", "decentralization" ] }, { "id": "kaal:claim:3782198-022", "url": "https://wulfkaal.github.io/claims/3782198-022", "family": "scalability-and-throughput-limit", "name": "unpopular-file-unavailability", "claim": "Existing decentralized filesharing networks cannot guarantee the availability of unpopular files such as personal files, whereas centralized cloud services guarantee availability for a fee.", "conditions": [ "applies to filesharing networks without an incentive design for storing unpopular data" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3782198-024", "url": "https://wulfkaal.github.io/claims/3782198-024", "family": "recentralization-drift", "name": "recentralization-through-mining-economies-of-scale", "claim": "Bitcoin proved that a decentralized peer to peer network can manage valuable assets without a central authority, but the centralizing force of competition concentrated power anyway, as economies of scale produced large mining farms in place of millions of individual members maintaining the ledger.", "conditions": [ "applies to proof of work networks where mining rewards create economies of scale" ], "topics": [ "tokenomics", "decentralization", "economics", "consensus-and-security" ] }, { "id": "kaal:claim:3782198-025", "url": "https://wulfkaal.github.io/claims/3782198-025", "family": "governance-participation-collapse", "name": "missing-governance-framework", "claim": "Bitcoin and Ethereum have no formal binding governance framework declaring how consensus protocols may be changed in the future, which the authors identify as a deep flaw that weakens the networks and will lead to instability.", "conditions": [ "applies to major blockchains lacking on chain governance" ], "topics": [ "blockchain", "governance-design", "tokenomics" ] }, { "id": "kaal:claim:3782198-030", "url": "https://wulfkaal.github.io/claims/3782198-030", "family": "enforcement-gap", "name": "unenforceable-erasure-rights-on-chain", "claim": "The GDPR's removal remedy cannot be enforced against a public blockchain: scrubbing private information would require more than half of the network's nodes to change their entire protocol and restart the chain, and would have to be repeated for every violating entry.", "conditions": [ "applies to open, uncensorable blockchains such as Bitcoin holding personal data" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3782198-031", "url": "https://wulfkaal.github.io/claims/3782198-031", "family": "environmental-and-resource-cost", "name": "proof-of-work-energy-waste", "claim": "Proof of work consensus is energetically wasteful because the entire global network redundantly computes wrong nonces, with the Bitcoin network consuming as much energy as the country of the Czech Republic.", "conditions": [ "figures given for June 2020" ], "topics": [ "consensus-and-security", "tokenomics", "economics" ] }, { "id": "kaal:claim:3782198-032", "url": "https://wulfkaal.github.io/claims/3782198-032", "family": "consensus-and-protocol-attack", "name": "pseudorandom-selection-hijack", "claim": "Proof of stake carries an unresolved failure mode: if anyone devises a clever algorithm for hijacking the block producer selection process, the network would fail.", "conditions": [ "applies to proof of stake designs that select block producers pseudorandomly" ], "topics": [ "consensus-and-security", "blockchain" ] }, { "id": "kaal:claim:3782198-033", "url": "https://wulfkaal.github.io/claims/3782198-033", "family": "scalability-and-throughput-limit", "name": "permanent-cost-of-full-verification", "claim": "Blockchain transactions will always be expensive whether or not proof of stake is solved, because full participation requires downloading the entire transaction history to verify validity, an extreme redundancy that cannot be removed.", "conditions": [ "applies to blockchains that require full history verification" ], "topics": [ "blockchain", "consensus-and-security" ] }, { "id": "kaal:claim:3782198-035", "url": "https://wulfkaal.github.io/claims/3782198-035", "family": "inequality-and-access-divide", "name": "anonymity-masks-systemic-discrimination", "claim": "Anonymity can exacerbate second and third order discrimination because it makes such discrimination more difficult to detect, so other governance mechanisms in a decentralized organization must be used to combat it.", "conditions": [ "applies where members infer protected characteristics from behavior, and to systemic discrimination" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:3782198-036", "url": "https://wulfkaal.github.io/claims/3782198-036", "family": "collective-action-and-coordination-failure", "name": "anonymity-driven-commons-degradation", "claim": "The Tragedy of the Commons is a natural consequence of allowing anonymous participation, which is why the unfiltered layers of platforms such as Twitter, YouTube comments, and Reddit display toxic results.", "conditions": [ "applies to open networks with anonymous broadcasting and no reputation cost" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782198-039", "url": "https://wulfkaal.github.io/claims/3782198-039", "family": "scalability-and-throughput-limit", "name": "on-chain-capacity-ceiling", "claim": "Ethereum is Turing complete in theory but cannot practically match even a cheap smartphone, because everything stored on the blockchain must be stored redundantly on thousands of nodes forever, so decentralized smart contract computation is necessarily primitive compared with centralized Web 2.0 services.", "conditions": [ "applies to on chain computation and storage on general purpose blockchains" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3936876-003", "url": "https://wulfkaal.github.io/claims/3936876-003", "family": "custody-and-key-loss", "name": "custody gap blocks institutional entry", "claim": "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.", "conditions": [ "applies to mainstream and legacy institutional investors" ], "topics": [ "institutional-design", "defi", "economics", "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:3936876-004", "url": "https://wulfkaal.github.io/claims/3936876-004", "family": "custody-and-key-loss", "name": "ownership surrender as price of access", "claim": "The majority of digital asset custody providers and digital asset exchanges require customers to surrender ownership of their digital assets as a precondition for access and trading.", "conditions": [], "topics": [ "defi" ] }, { "id": "kaal:claim:3936876-007", "url": "https://wulfkaal.github.io/claims/3936876-007", "family": "scalability-and-throughput-limit", "name": "paperwork crisis", "claim": "The paper certificate system failed at scale: trust companies and intermediaries were overwhelmed by changing ownership records, and from 1967 to 1970 a reported $400 million in securities was lost or stolen.", "conditions": [ "United States securities markets, 1967 to 1970" ], "topics": [ "securities-law", "defi" ] }, { "id": "kaal:claim:3936876-010", "url": "https://wulfkaal.github.io/claims/3936876-010", "family": "custody-and-key-loss", "name": "irrecoverable private key loss", "claim": "A private key differs from a password in that it is immutable and cannot be reset, so if the key is lost or stolen access to the digital asset may be permanently lost.", "conditions": [ "applies to key based digital asset ownership on public blockchains" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3936876-011", "url": "https://wulfkaal.github.io/claims/3936876-011", "family": "custody-and-key-loss", "name": "hot wallet exposure", "claim": "Hot storage buys easy access and quick transferability of digital assets at the cost of exposure to cyber attacks and to the difficulty of keeping private keys safe.", "conditions": [ "wallets stored and accessible online" ], "topics": [ "consensus-and-security", "defi" ] }, { "id": "kaal:claim:3936876-013", "url": "https://wulfkaal.github.io/claims/3936876-013", "family": "custody-and-key-loss", "name": "exchange IOU substitution for asset ownership", "claim": "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.", "conditions": [ "centralized exchanges, as distinct from decentralized exchanges" ], "topics": [ "decentralization", "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:3936876-014", "url": "https://wulfkaal.github.io/claims/3936876-014", "family": "custody-and-key-loss", "name": "exchange honeypot", "claim": "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.", "conditions": [ "exchanges holding pooled customer assets in hot storage" ], "topics": [ "defi", "risk-and-incentives", "consensus-and-security" ] }, { "id": "kaal:claim:3936876-017", "url": "https://wulfkaal.github.io/claims/3936876-017", "family": "custody-and-key-loss", "name": "no written loss allocation policy", "claim": "Custodial exchanges are largely unprepared for breach: only 53 percent of small custodial exchanges and 78 percent of large custodial exchanges have a written policy setting out what happens to customer funds if a security breach causes loss.", "conditions": [ "custodial cryptocurrency exchanges surveyed in the 2017 benchmarking study" ], "topics": [ "defi", "governance-design" ] }, { "id": "kaal:claim:3936876-020", "url": "https://wulfkaal.github.io/claims/3936876-020", "family": "custody-and-key-loss", "name": "cold storage retrieval latency", "claim": "Cold storage trades security for accessibility: retrieving digital assets from cold storage can take many hours or even days, which makes cold storage especially ill suited to dynamic trading strategies.", "conditions": [ "assets held in cold storage devices", "matters most for actively traded positions" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3936876-021", "url": "https://wulfkaal.github.io/claims/3936876-021", "family": "custody-and-key-loss", "name": "single agent key person risk", "claim": "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.", "conditions": [ "corporate or treasury holdings in cold storage without multisig" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3936876-022", "url": "https://wulfkaal.github.io/claims/3936876-022", "family": "custody-and-key-loss", "name": "underdeveloped custody suppresses institutional demand", "claim": "Institutional investors are less likely to engage in digital asset investments where custody solutions for digital assets are underdeveloped, and they find it difficult to commit fully until a reliable and respected custody solution exists.", "conditions": [ "institutional investors with client safety obligations" ], "topics": [ "institutional-design", "defi", "economics" ] }, { "id": "kaal:claim:3936876-024", "url": "https://wulfkaal.github.io/claims/3936876-024", "family": "adoption-and-usability-barrier", "name": "trust charter without fiduciary duty", "claim": "Applying the trust label to digital asset firms without an accompanying fiduciary duty is problematic, because the typical legal obligation of a trust company is to place customers' interests above its own.", "conditions": [ "state trust charters used by digital asset firms" ], "topics": [ "reputation", "governance-design", "corporate-governance", "regulatory-failure" ] }, { "id": "kaal:claim:3936876-032", "url": "https://wulfkaal.github.io/claims/3936876-032", "family": "supervisory-capacity-gap", "name": "declining reserve audit coverage", "claim": "Externally led auditing of digital asset reserves among custodial service providers is declining, falling 24 percentage points relative to the 2018 sample.", "conditions": [ "surveyed custodial service providers, 2020 benchmarking study" ], "topics": [ "compliance", "empirical-evidence" ] }, { "id": "kaal:claim:3936876-033", "url": "https://wulfkaal.github.io/claims/3936876-033", "family": "custody-and-key-loss", "name": "uninsured custody providers", "claim": "Insurance coverage among digital asset service providers is far from universal: 46 percent of surveyed service providers reported not being insured against any risks.", "conditions": [ "surveyed cryptoasset service providers, 2020 benchmarking study" ], "topics": [ "risk-and-incentives", "empirical-evidence" ] }, { "id": "kaal:claim:3936876-038", "url": "https://wulfkaal.github.io/claims/3936876-038", "family": "recentralization-drift", "name": "legacy custody rules recentralize decentralized systems", "claim": "Applying current legacy custody rules developed for traditional assets to digital assets is inconsistent with the foundations of decentralization, because the very nature of a decentralized system mandates the avoidance and eradication of intermediaries for business transactions.", "conditions": [ "viewed from the perspective of decentralization" ], "topics": [ "decentralization", "defi" ] }, { "id": "kaal:claim:3936876-039", "url": "https://wulfkaal.github.io/claims/3936876-039", "family": "recentralization-drift", "name": "legacy suboptimality seepage", "claim": "Where owners do not rely on the cryptography of the wallet and of each transaction to avoid trusted third parties, single points of failure, rent seeking behaviors and other suboptimal outcomes of legacy systems inevitably seep back into decentralized solutions.", "conditions": [ "decentralized systems that reintroduce trusted third parties" ], "topics": [ "reputation", "decentralization" ] }, { "id": "kaal:claim:3936876-040", "url": "https://wulfkaal.github.io/claims/3936876-040", "family": "recentralization-drift", "name": "delegation floodgate", "claim": "Delegation of rights to custody providers is only an incremental step toward centralization via delegation to third party investment managers, and it opens a floodgate because each additional level of investment discretion over digital assets exacerbates centralization concerns and compounds rent seeking suboptimalities.", "conditions": [ "delegation chains that begin with custody and extend to discretionary management" ], "topics": [ "governance-design", "decentralization", "defi" ] }, { "id": "kaal:claim:3808852-003", "url": "https://wulfkaal.github.io/claims/3808852-003", "family": "sample-and-selection-bias", "name": "publication selection bias", "claim": "Journal publication incentives systematically bias the scientific record: journals prefer papers that reject the null hypothesis, use big datasets, and show big effect sizes, so significant findings failing those criteria may simply be ignored.", "conditions": [ "applies to ranked scientific journals as the dominant publication channel" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808852-004", "url": "https://wulfkaal.github.io/claims/3808852-004", "family": "innovation-chilling", "name": "cartelization of knowledge", "claim": "Peer review exacerbates publication bias and can produce a cartelization of knowledge, because non-conforming innovative ideas may not receive full recognition and new findings that threaten existing hierarchies are delayed or denied recognition.", "conditions": [], "topics": [ "citation-and-knowledge", "institutional-design", "innovation" ] }, { "id": "kaal:claim:3808852-005", "url": "https://wulfkaal.github.io/claims/3808852-005", "family": "research-design-limitation", "name": "expert opinion underperformance", "claim": "The centralization of scientific methods and output has produced suboptimal outcomes for society, as evidenced by widespread irreproducibility, by non-expert forecasters often outperforming experts, and by random stock selection outperforming expert selection.", "conditions": [], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808852-010", "url": "https://wulfkaal.github.io/claims/3808852-010", "family": "agency-cost-and-managerial-opportunism", "name": "unresolved separation of ownership and control", "claim": "Agency theory and the existing legal framework have failed to resolve the core agency conflict arising from the separation of ownership and control, so peaceable and productive coordination of human behavior remains wanting.", "conditions": [ "applies to limited liability entities and their constituents" ], "topics": [ "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:3808852-011", "url": "https://wulfkaal.github.io/claims/3808852-011", "family": "recentralization-drift", "name": "hierarchical path dependency", "claim": "Societal path dependencies toward hierarchy and top-down command and control impose significant obstacles on organizational decentralization, hindering the transition of power from governments and large hierarchical organizations to the edges.", "conditions": [], "topics": [ "institutional-design", "decentralization" ] }, { "id": "kaal:claim:3808852-014", "url": "https://wulfkaal.github.io/claims/3808852-014", "family": "reputation-system-gaming", "name": "absent decentralized reputation verification", "claim": "eBay's user rating system is visibly flawed and illustrates the need for a decentralized reputation verification system, yet no entity or individual has produced a better technology, and those decentralized ratings remained eBay's biggest competitive advantage.", "conditions": [], "topics": [ "reputation" ] }, { "id": "kaal:claim:3808852-016", "url": "https://wulfkaal.github.io/claims/3808852-016", "family": "scalability-and-throughput-limit", "name": "token value short termism", "claim": "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.", "conditions": [ "applies where DAO membership is organized around fungible token value" ], "topics": [ "dao", "risk-and-incentives", "governance-design", "tokenomics" ] }, { "id": "kaal:claim:3808852-017", "url": "https://wulfkaal.github.io/claims/3808852-017", "family": "recentralization-drift", "name": "developer path dependency", "claim": "DAO developers are subject to path dependencies that undermine the evolution of decentralized DAO designs, because the communication structures of the organizations that design systems invariably shape future designs.", "conditions": [], "topics": [ "dao", "open-source-and-code" ] }, { "id": "kaal:claim:3808852-019", "url": "https://wulfkaal.github.io/claims/3808852-019", "family": "cold-start-and-bootstrapping", "name": "missing incentive design for decentralized development", "claim": "At the beginning of the 2020s no forum existed that could support truly decentralized software development with a sufficient incentive design.", "conditions": [ "as of the beginning of the 2020s" ], "topics": [ "decentralization", "risk-and-incentives", "dao" ] }, { "id": "kaal:claim:3808852-025", "url": "https://wulfkaal.github.io/claims/3808852-025", "family": "liquidity-and-market-structure-failure", "name": "DEX liquidity and price discovery deficit", "claim": "Most decentralized exchanges have struggled with liquidity and price discovery.", "conditions": [], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:3808852-026", "url": "https://wulfkaal.github.io/claims/3808852-026", "family": "recentralization-drift", "name": "architectural recentralization of DEX", "claim": "A decentralized exchange can be seen as architecturally centralized, because the DEX code and its operational rules in effect create the exchange and provide a central order exchange and price discovery function rather than a peer-to-peer exchange.", "conditions": [ "applies to DEX whose operational rules are set by code" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808852-027", "url": "https://wulfkaal.github.io/claims/3808852-027", "family": "recentralization-drift", "name": "residual developer control over DEX code", "claim": "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.", "conditions": [], "topics": [ "open-source-and-code", "governance-design", "risk-and-incentives" ] }, { "id": "kaal:claim:3808852-028", "url": "https://wulfkaal.github.io/claims/3808852-028", "family": "information-asymmetry", "name": "asymmetric trading information on DEX", "claim": "Decentralized exchanges may fail to ensure market integrity, because the code that creates a DEX can allow asymmetric distribution of trading information based on user status.", "conditions": [], "topics": [ "economics", "disclosure" ] }, { "id": "kaal:claim:3808852-029", "url": "https://wulfkaal.github.io/claims/3808852-029", "family": "human-judgment-displacement", "name": "no human backstop in automated settlement", "claim": "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.", "conditions": [], "topics": [ "economics", "risk-and-incentives", "compliance" ] }, { "id": "kaal:claim:3808852-033", "url": "https://wulfkaal.github.io/claims/3808852-033", "family": "scalability-and-throughput-limit", "name": "loss of economies of scale", "claim": "Decentralization is not always efficient, because centralized economies of scale can create the near-optimal efficiencies for economic growth and decentralization may therefore result in the loss of economies of scale.", "conditions": [], "topics": [ "economics", "decentralization" ] }, { "id": "kaal:claim:3808852-034", "url": "https://wulfkaal.github.io/claims/3808852-034", "family": "inequality-and-access-divide", "name": "local capacity deficit", "claim": "Standardized network-based services are very difficult to improve with decentralized approaches when local technical and administrative know-how is suboptimal, and this suboptimality is worsened when the local government lacks adequate financial resources.", "conditions": [ "applies to standardized network-based public services" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808852-035", "url": "https://wulfkaal.github.io/claims/3808852-035", "family": "plutocratic-capture", "name": "local elite capture", "claim": "Government decentralization at the local level can favor local elites and may overcomplicate the coordination of national policies.", "conditions": [], "topics": [ "regulatory-failure", "institutional-design", "decentralization" ] }, { "id": "kaal:claim:3808852-040", "url": "https://wulfkaal.github.io/claims/3808852-040", "family": "collective-action-and-coordination-failure", "name": "erosion of societal consensus and cohesion", "claim": "Because social media can move knowledge and views from the edges of society into the mainstream very quickly, this transfer can remove existing societal consensus, social cohesion among established groups, and order in the process.", "conditions": [], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3808852-043", "url": "https://wulfkaal.github.io/claims/3808852-043", "family": "recentralization-drift", "name": "unfulfilled decentralized internet vision", "claim": "The founders' initial vision of a truly decentralized internet without central points of failure could not be fulfilled, which is why internet idealists continue to seek technological ways to re-decentralize the internet.", "conditions": [], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808873-001", "url": "https://wulfkaal.github.io/claims/3808873-001", "family": "adoption-and-usability-barrier", "name": "Design Only Adoption Fallacy", "claim": "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.", "conditions": [ "decentralized technology adoption at the level of business and society" ], "topics": [ "decentralization", "risk-and-incentives", "innovation" ] }, { "id": "kaal:claim:3808873-002", "url": "https://wulfkaal.github.io/claims/3808873-002", "family": "adoption-and-usability-barrier", "name": "Analog Habit Persistence", "claim": "Habits formed by analog era socialization are a decentralization neutralizer: people raised in the analog age hold work and social habits that are very hard to change, and they attribute superiority to outdated technology formats even when the content is identical.", "conditions": [ "populations socialized before digital and decentralized technologies" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3808873-003", "url": "https://wulfkaal.github.io/claims/3808873-003", "family": "incumbent-resistance-to-adoption", "name": "Acquisition Capture of Decentralized Competitors", "claim": "Legacy businesses actively neutralize decentralized competition by acquiring little known companies that hold highly competitive decentralized technologies, as Microsoft's acquisition of Skype illustrates.", "conditions": [ "incumbent firms facing decentralized technology competitors" ], "topics": [ "economics", "decentralization" ] }, { "id": "kaal:claim:3808873-004", "url": "https://wulfkaal.github.io/claims/3808873-004", "family": "adoption-and-usability-barrier", "name": "Ideological Noncooperation of the Crypto Community", "claim": "The libertarian and reformist orientation of the crypto community itself neutralizes decentralization, because the strong idea of reforming society with decentralized technology makes cooperation with existing centralized structures often suboptimal.", "conditions": [ "crypto community formed after the Bitcoin whitepaper", "early 2020s" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3808873-005", "url": "https://wulfkaal.github.io/claims/3808873-005", "family": "adoption-and-usability-barrier", "name": "CBDC Threat Misreading", "claim": "Decentralized issuers treated central bank issued digital currencies as a threat rather than as a pathway to mainstream acceptance of more decentralized cryptocurrencies, and that misreading forfeited a route to broader adoption.", "conditions": [ "central bank digital currency debate of the early 2020s" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808873-006", "url": "https://wulfkaal.github.io/claims/3808873-006", "family": "fraud-and-misconduct", "name": "Speculative Influx and Fraud Chasm", "claim": "The profit driven influx into the digital asset space brought rampant fraud that created a chasm between the decentralized asset space and mainstream investors, and lacking regulatory certainty and recognition of cryptocurrencies exacerbated that divide.", "conditions": [ "digital asset markets between roughly 2010 and 2020" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808873-007", "url": "https://wulfkaal.github.io/claims/3808873-007", "family": "interoperability-and-fragmentation", "name": "Protocol Silo Proliferation", "claim": "Decentralized technology systems require interoperability for survivability, yet most platforms attempt to go it alone in an effort to become the next Bitcoin, so decentralized community silos proliferate and the required infrastructure, which no single protocol can build, does not get built.", "conditions": [ "decentralized protocol ecosystems in the early 2020s" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808873-008", "url": "https://wulfkaal.github.io/claims/3808873-008", "family": "recentralization-drift", "name": "Reward Driven Mining Pool Centralization", "claim": "Proof of Work block rewards structurally reintroduce centralization: the economic nature of mining rewards incentivizes degrees of centralization through collective action of nodes that share rewards as a group, that is, mining pools.", "conditions": [ "Proof of Work consensus with block rewards", "Bitcoin in the early 2020s" ], "topics": [ "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3808873-009", "url": "https://wulfkaal.github.io/claims/3808873-009", "family": "recentralization-drift", "name": "Distorted Decentralization Baseline Lock In", "claim": "Early stage consensus designs such as PoW, PoS and DPoS create a community belief system in certain foundational technology features that in effect inhibits higher degrees of decentralization, so suboptimal early decentralization becomes self perpetuating.", "conditions": [ "early stage decentralized technologies such as PoW, PoS and DPoS" ], "topics": [ "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3808873-010", "url": "https://wulfkaal.github.io/claims/3808873-010", "family": "recentralization-drift", "name": "Centralized Substrate Ceiling", "claim": "The decentralization of network technology is capped by its host environment: decentralized systems are built on and confined by the internet, which is decentralized in its foundation but has a centralized order structure.", "conditions": [ "decentralized systems built on existing internet infrastructure" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808873-011", "url": "https://wulfkaal.github.io/claims/3808873-011", "family": "recentralization-drift", "name": "Centralization S Curve Decline", "claim": "Centralization follows an S curve: in the expansion phase the benefits of centralizing power, capital and control rise faster than its costs, but in the decline phase the rising costs of centralization, including corruption, diseconomies of scale and cronyism, can no longer be offset, so centralized systems function less optimally and less efficiently.", "conditions": [ "centralized systems in business and society over their life cycle" ], "topics": [ "decentralization", "economics" ] }, { "id": "kaal:claim:3808873-012", "url": "https://wulfkaal.github.io/claims/3808873-012", "family": "incumbent-resistance-to-adoption", "name": "Efficiency Gain Perpetuation of Incumbents", "claim": "Even where superior decentralized technological solutions exist, the centralized elements deeply engrained in business and society can be perpetuated by the efficiency gains of the S curve of centralization, so superiority alone does not displace them.", "conditions": [ "societies with deeply engrained centralized infrastructure such as legal systems and financial services" ], "topics": [ "economics", "decentralization" ] }, { "id": "kaal:claim:3808873-013", "url": "https://wulfkaal.github.io/claims/3808873-013", "family": "recentralization-drift", "name": "Legacy Optimization Trap", "claim": "Applying decentralized technology to optimize a legacy system, for example using blockchain to improve the malfunctioning shareholder proxy voting process, perpetuates the outdated and malfunctioning centralized system rather than replacing it with a better performing decentralized one.", "conditions": [ "decentralized technology deployed as an optimization layer on centralized legacy processes" ], "topics": [ "blockchain", "governance-design" ] }, { "id": "kaal:claim:3808873-014", "url": "https://wulfkaal.github.io/claims/3808873-014", "family": "recentralization-drift", "name": "Centralized Design Inheritance", "claim": "Decentralized system design is itself path dependent on the centralized past: designers' prior experience in centralized structures infiltrates and undermines attempts to create more decentralized systems, through subconscious processes the designer cannot change or influence.", "conditions": [ "human designers socialized and educated in centralized cultures" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808873-015", "url": "https://wulfkaal.github.io/claims/3808873-015", "family": "recentralization-drift", "name": "Coherence Bias Toward Centralized Features", "claim": "Unintentional methodologically centralized design features in complex decentralized systems are inevitable, because human brains naturally simplify complex systems for the sake of coherence and designers therefore reach for centralized features that increase coherence.", "conditions": [ "complex adaptive decentralized systems designed by humans" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808873-016", "url": "https://wulfkaal.github.io/claims/3808873-016", "family": "research-design-limitation", "name": "Biomimicry Experimentation Deficit", "claim": "Biomimicry as a route to decentralized design optimization is disadvantaged ab initio, because nature's decentralized design is the product of millions of years of experimentation while human science is flawed until proven otherwise.", "conditions": [ "attempts to emulate nature's decentralized design to improve resilience of human made systems" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808873-018", "url": "https://wulfkaal.github.io/claims/3808873-018", "family": "innovation-chilling", "name": "Constitutional Exclusivity Lock In", "claim": "Overreliance on the design of constitutional democracies limits experimentation with decentralized solutions for organizing society, because exclusive reliance on a single legal document combined with widespread voter apathy makes the constitutional model appear to be the only lasting form of organization.", "conditions": [ "constitutional democracies as the dominant form of organizing society" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3808873-019", "url": "https://wulfkaal.github.io/claims/3808873-019", "family": "governance-participation-collapse", "name": "Democratic Legitimacy Deficit of Code", "claim": "As code proliferates as law, the democratic legitimacy of coded legal arrangements is increasingly called into question, because private actors have assumed governance tasks traditionally belonging to democratically elected sovereign states and may circumvent democratically legitimized governments.", "conditions": [ "private coded legal arrangements and smart contracts governing online interaction" ], "topics": [ "governance-design", "smart-contracts" ] }, { "id": "kaal:claim:3808873-020", "url": "https://wulfkaal.github.io/claims/3808873-020", "family": "jurisdictional-conflict", "name": "Territorial Integrity Constraint", "claim": "Experimentation with decentralized organizational forms of society is curtailed by the principle of territorial integrity of nation states, a foundational principle of international law under which forced border change justifies war and which sustains a permanent national military presence.", "conditions": [ "international legal order built on Article 2(4) of the UN Charter" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3808873-021", "url": "https://wulfkaal.github.io/claims/3808873-021", "family": "jurisdictional-conflict", "name": "Jurisdictional Tax Assertion Drag", "claim": "Governments will try to tax increasing distributed value creation wherever they can assert national jurisdiction, and exercising that assumed authority inhibits distributed value creation.", "conditions": [ "distributed value creation that transcends the geographical constraints of nation states" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:3808873-022", "url": "https://wulfkaal.github.io/claims/3808873-022", "family": "adoption-and-usability-barrier", "name": "Certainty Craving Dogmatism", "claim": "Because humans crave certainty as complexity grows exponentially, they favor dogmatic approaches, and dogmatic approaches to new problems are unlikely to yield the needed solutions while groupthink and other forms of dogma undermine society's collective intelligence and decentralized decision making.", "conditions": [ "environments of exponentially growing complexity and uncertainty in the 21st century" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808873-023", "url": "https://wulfkaal.github.io/claims/3808873-023", "family": "innovation-chilling", "name": "Regulatory Retrofit Neutralizer", "claim": "Government controlled regulation of the evolving digital asset space was perhaps the leading decentralization neutralizer of the early 2020s, as regulators sought to fit decentralized solutions into existing regulatory infrastructure and discussed but did not seriously consider carve outs and safe harbors.", "conditions": [ "United States digital asset regulation in the early 2020s" ], "topics": [ "securities-law" ] }, { "id": "kaal:claim:3808873-024", "url": "https://wulfkaal.github.io/claims/3808873-024", "family": "innovation-chilling", "name": "Missing Protected Experimentation Space", "claim": "Because decentralized technology at its core negates external control, censorship and oversight, regulatory approaches premised on government control undermined the technology's evolution, and without the ability to experiment in a legally protected environment decentralized products could not evolve.", "conditions": [ "regulatory regimes that treat government control as indispensable", "early 2020s" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:3808873-025", "url": "https://wulfkaal.github.io/claims/3808873-025", "family": "cold-start-and-bootstrapping", "name": "Missing Prerequisite Infrastructure", "claim": "Decentralized legal infrastructure solutions were almost entirely missing in the early 2020s despite strong demand, because other prerequisite decentralized infrastructure products, notably a functional public blockchain, were still missing.", "conditions": [ "early 2020s decentralized legal and arbitration startups using ERC-20 tokens" ], "topics": [ "law-and-legal-systems", "blockchain", "decentralization" ] }, { "id": "kaal:claim:3808873-026", "url": "https://wulfkaal.github.io/claims/3808873-026", "family": "enforcement-gap", "name": "Regulatory Vacuum for Autonomous Products", "claim": "Regulatory solutions tracked the characteristics of issuers, so the more decentralized, censorship resistant and autonomous products that regulators could not control were left in a regulatory vacuum that limited their expansion, reach and evolution.", "conditions": [ "jurisdiction specific regulatory frameworks of the early 2020s" ], "topics": [ "tokenomics", "ai-and-agents" ] }, { "id": "kaal:claim:3808873-027", "url": "https://wulfkaal.github.io/claims/3808873-027", "family": "harmonization-and-standardization-failure", "name": "Issuer Based Regulatory Bifurcation", "claim": "The regulation of government coins versus corporate coins versus people coins bifurcated the regulatory infrastructure for decentralized technologies, because government and corporate coins were able to develop and evolve with regulatory oversight while more decentralized issuers were not.", "conditions": [ "early 2020s token regulation across jurisdictions" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3808873-028", "url": "https://wulfkaal.github.io/claims/3808873-028", "family": "innovation-chilling", "name": "People Coin Innovation Lag", "claim": "People coins and the innovations they created were largely subject to regulatory uncertainty and evolved much slower or not at all, so government and corporate coins created their own path dependencies and engrained product deficiencies with suboptimal levels of decentralization.", "conditions": [ "community issued tokens without government or corporate sponsorship in the early 2020s" ], "topics": [ "tokenomics", "innovation" ] }, { "id": "kaal:claim:3808873-029", "url": "https://wulfkaal.github.io/claims/3808873-029", "family": "human-judgment-displacement", "name": "Centralized Algorithmic Automation", "claim": "Centralized algorithmic automation, defined as artificially intelligent systems taking over core functions in human society, poses perhaps the greatest threat to decentralization.", "conditions": [ "proliferation of big data, predictive analytics and IoT sensing" ], "topics": [ "ai-and-agents", "decentralization" ] }, { "id": "kaal:claim:3808873-030", "url": "https://wulfkaal.github.io/claims/3808873-030", "family": "human-judgment-displacement", "name": "Analytics Driven Choice Narrowing", "claim": "The availability of big data and algorithmic analytics increasingly limits individual choice, free will and the diversity of human experiences and actions, because the more analytics are available the less people make decisions that contradict them.", "conditions": [ "domains where predictive analytics outperform individual judgment, for example DNA and health analytics" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808873-031", "url": "https://wulfkaal.github.io/claims/3808873-031", "family": "human-judgment-displacement", "name": "Algorithmic Sovereign Displacing Elections", "claim": "Because centralized algorithmically automated systems can know individuals' political preferences better than the individuals themselves, exercising political will through human voting becomes redundant and democratic elections may not be needed, though existing constitutional arrangements may delay that outcome.", "conditions": [ "mature centralized algorithmic automation by platforms such as Google, Facebook and Amazon" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808873-032", "url": "https://wulfkaal.github.io/claims/3808873-032", "family": "human-judgment-displacement", "name": "Node Diversity Collapse", "claim": "An algorithmic future in which most human decisions are predicted or performed by algorithms threatens human individuality, and the resulting loss of diversity of human experience and of unpredictability threatens the diversity of nodes in decentralized systems.", "conditions": [ "widespread centralized algorithmic automation of human decision making" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808873-033", "url": "https://wulfkaal.github.io/claims/3808873-033", "family": "transition-and-migration-risk", "name": "Hardfork Upgrade Cost", "claim": "Decentralized networks depend on dynamic governance because evolving blockchain protocols require updates, and the practice of hardforking that remained prevalent in the early 2020s created significant economic loss for such blockchains.", "conditions": [ "blockchain protocols requiring upgrades in the early 2020s" ], "topics": [ "blockchain", "governance-design", "consensus-and-security", "economics" ] }, { "id": "kaal:claim:3808873-034", "url": "https://wulfkaal.github.io/claims/3808873-034", "family": "harmonization-and-standardization-failure", "name": "Standards Vacuum Market Stagnation", "claim": "Because basic standards for the governance of digital assets were still missing at the beginning of the 2020s, the digital asset market stagnated and decentralized finance remained in its infancy; without standards and governance, certainty and market confidence cannot develop.", "conditions": [ "digital asset markets at the beginning of the 2020s" ], "topics": [ "governance-design", "defi", "economics" ] }, { "id": "kaal:claim:3808873-035", "url": "https://wulfkaal.github.io/claims/3808873-035", "family": "recentralization-drift", "name": "Master Node Recentralization of DAOs", "claim": "DAO governance designs of the early 2020s failed to take account of the historical precedent on governance, and most DAOs used centralized master nodes to institute blockchain protocol and DAO upgrades.", "conditions": [ "decentralized autonomous organizations at the beginning of the 2020s" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:3808873-036", "url": "https://wulfkaal.github.io/claims/3808873-036", "family": "consensus-and-protocol-attack", "name": "Fork Induced Double Spend Reemergence", "claim": "Forking bifurcates network nodes and can reintroduce the double spend problem the network had already solved, because users running pre fork code treat post fork code as invalid and cannot detect spending on it, so coins spent in a post fork block can be spent again on a pre fork block.", "conditions": [ "hard forks producing parallel chains with incompatible protocol rules" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3808873-037", "url": "https://wulfkaal.github.io/claims/3808873-037", "family": "staking-and-incentive-misalignment", "name": "Incentive Duality Failure", "claim": "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.", "conditions": [ "DAO governance designs facing internal and external opportunistic actors" ], "topics": [ "risk-and-incentives", "dao", "governance-design" ] }, { "id": "kaal:claim:3808873-038", "url": "https://wulfkaal.github.io/claims/3808873-038", "family": "plutocratic-capture", "name": "Fungible Asset Governance Corruption", "claim": "When fungible assets are the dominant incentive design in the governance of DAOs with identifiable actors, rational and opportunistic internal and external participants will typically attempt to corrupt the governance design for their own gain; merit identifiers other than individual identity remove the most corruptive influences.", "conditions": [ "DAO governance using fungible assets and identifiable actors" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:3808873-039", "url": "https://wulfkaal.github.io/claims/3808873-039", "family": "plutocratic-capture", "name": "One Token One Vote Plutocracy", "claim": "One token one vote on chain governance produces plutocracy: it allocates more power to holders of a significant share of supply so that majority token holders have more power than all other holders combined, reintroducing the defects of one share one vote legacy designs.", "conditions": [ "on chain voting mechanisms of the early 2020s" ], "topics": [ "governance-design", "tokenomics" ] }, { "id": "kaal:claim:3808873-040", "url": "https://wulfkaal.github.io/claims/3808873-040", "family": "interoperability-and-fragmentation", "name": "Infrastructure Interdependence Collapse", "claim": "Decentralized infrastructure is interdependent across layers, so even a fully developed and instantiated infrastructure product in one area may collapse without supporting decentralized infrastructure products in other, inevitably related areas.", "conditions": [ "complex decentralized systems with multiple underdeveloped infrastructure layers" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3808873-041", "url": "https://wulfkaal.github.io/claims/3808873-041", "family": "adoption-and-usability-barrier", "name": "Usability Barrier to Adoption", "claim": "Usability is the most important decentralized infrastructure requirement: without intuitive graphic user interfaces, decentralized systems may not reach mainstream consumer adoption, because requiring users to manage public and private keys and their own security makes sufficient public education very difficult.", "conditions": [ "mainstream consumer adoption of decentralized protocols in daily life" ], "topics": [ "defi" ] }, { "id": "kaal:claim:3808873-042", "url": "https://wulfkaal.github.io/claims/3808873-042", "family": "smart-contract-rigidity", "name": "Codeless Human Backstop Gap", "claim": "A decentralized human backstop to code is a core and often overlooked infrastructure requirement, because without it the immutability of the blockchain and its cryptographic security may not create genuine transactional guarantees or trust between principals and agents in the integrity of their contractual relationship.", "conditions": [ "decentralized algorithmic systems mediating principal agent contractual relationships" ], "topics": [ "smart-contracts", "reputation", "ai-and-agents", "corporate-governance" ] }, { "id": "kaal:claim:3808859-002", "url": "https://wulfkaal.github.io/claims/3808859-002", "family": "incumbent-resistance-to-adoption", "name": "incumbent refusal to self-cannibalize", "claim": "Market leaders fail against disruptive technologies because they shortsightedly refuse to cannibalize their own dominant position, and that refusal often produces abrupt loss of market dominance or total replacement.", "conditions": [ "incumbent firms with an established customer base facing lower-end entrants" ], "topics": [ "innovation", "economics" ] }, { "id": "kaal:claim:3808859-003", "url": "https://wulfkaal.github.io/claims/3808859-003", "family": "short-termism", "name": "short-termism obscures relevancy", "claim": "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.", "conditions": [ "listed companies in particular" ], "topics": [ "corporate-governance", "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:3808859-005", "url": "https://wulfkaal.github.io/claims/3808859-005", "family": "cold-start-and-bootstrapping", "name": "infrastructure lag inhibits transformation", "claim": "Technological transformation stalls until its supporting infrastructure exists: the digital transformation was inhibited until infrastructure was built, laws were updated, and new institutions were created, just as the steam and combustion engines required new streets, wiring, laws, and institutions.", "conditions": [ "holds for transformational technologies that require societal coordination" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808859-008", "url": "https://wulfkaal.github.io/claims/3808859-008", "family": "staking-and-incentive-misalignment", "name": "suboptimal social proof incentive design", "claim": "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.", "conditions": [ "applies to social proof metrics such as share counts used as quality proxies" ], "topics": [ "risk-and-incentives", "institutional-design", "decentralization" ] }, { "id": "kaal:claim:3808859-014", "url": "https://wulfkaal.github.io/claims/3808859-014", "family": "regulatory-lag", "name": "legacy legal regime incompatibility", "claim": "The sharing economy outran its legal frameworks: the legal regimes governing the disrupted industries were often incompatible with the trends the sharing economy generated, forcing cities and municipalities into a proactive regulatory stance.", "conditions": [ "applies to ridesharing and homesharing regulation at city and state level" ], "topics": [ "economics", "law-and-legal-systems" ] }, { "id": "kaal:claim:3808859-019", "url": "https://wulfkaal.github.io/claims/3808859-019", "family": "cold-start-and-bootstrapping", "name": "critical mass failure", "claim": "The dominant failure of the open source model is that most projects never reach critical mass; only a small elite of projects attracts enough developers who believe in the vision, and the majority simply cannot.", "conditions": [], "topics": [ "open-source-and-code" ] }, { "id": "kaal:claim:3808859-020", "url": "https://wulfkaal.github.io/claims/3808859-020", "family": "collective-action-and-coordination-failure", "name": "separation movements without central authority", "claim": "The absence of a centralized authority makes open source projects prone to separation movements, because rival developer cliques form their own belief systems about the direction of development with no authority to resolve the dispute.", "conditions": [ "contrasted with centralized software projects" ], "topics": [ "open-source-and-code", "consensus-and-security", "governance-design", "decentralization" ] }, { "id": "kaal:claim:3808859-022", "url": "https://wulfkaal.github.io/claims/3808859-022", "family": "adoption-and-usability-barrier", "name": "expert-facing usability and documentation gap", "claim": "Open source products are systematically weak on usability, documentation, support, and testing, because contributors are experts writing for experts and are more interested in the code than in explaining it to other users.", "conditions": [ "less true of large projects such as Linux and Mozilla that added developer documentation" ], "topics": [ "open-source-and-code" ] }, { "id": "kaal:claim:3808859-023", "url": "https://wulfkaal.github.io/claims/3808859-023", "family": "innovation-chilling", "name": "patent expansion without innovation evidence", "claim": "Courts expanded software patentability without proof that it would increase innovation, and the result was that corporations filed and acquired thousands of software patents used to strategically undermine competitor projects.", "conditions": [ "United States courts, early 2000s onward" ], "topics": [ "open-source-and-code", "innovation", "law-and-legal-systems" ] }, { "id": "kaal:claim:3808859-024", "url": "https://wulfkaal.github.io/claims/3808859-024", "family": "innovation-chilling", "name": "patent uncertainty chills contribution", "claim": "Expanded patentability chills open source contribution because developers fear inadvertent infringement yet typically lack the knowledge and skills to determine whether their contribution infringes an existing software patent.", "conditions": [ "aggravated by the mandatory attestation requirements imposed on Linux contributors in 2004" ], "topics": [ "open-source-and-code", "securities-law", "institutional-design" ] }, { "id": "kaal:claim:3808859-026", "url": "https://wulfkaal.github.io/claims/3808859-026", "family": "recentralization-drift", "name": "creeping recentralization of open communities", "claim": "Open source communities are not immune to centralization, because humans have a natural inclination to convert knowledge and resources into power over others, which is why projects such as Apache developed multiple ranked developer tiers with unequal voting rights.", "conditions": [], "topics": [ "decentralization", "open-source-and-code" ] }, { "id": "kaal:claim:3808859-027", "url": "https://wulfkaal.github.io/claims/3808859-027", "family": "reputation-system-gaming", "name": "merit without deflation", "claim": "Meritocratic allocation of power in open source projects is often a fallacy, because rank can reflect timing and one-off contributions, deflation is not built into the perception of merit, and free riding on past reputation is therefore possible.", "conditions": [ "applies where rank is awarded on perceived merit and not periodically revisited" ], "topics": [ "reputation", "governance-design" ] }, { "id": "kaal:claim:3808859-029", "url": "https://wulfkaal.github.io/claims/3808859-029", "family": "recentralization-drift", "name": "incumbent co-option of decentralized technology", "claim": "DeFi's disruptive potential may be blunted by incumbents: existing financial institutions can adopt decentralized technologies inside a controlled environment, capturing benefits such as transparency and interoperability while preserving centralized oversight.", "conditions": [], "topics": [ "defi", "regulatory-failure" ] }, { "id": "kaal:claim:3808859-032", "url": "https://wulfkaal.github.io/claims/3808859-032", "family": "privacy-and-surveillance-risk", "name": "IoT scale as trust liability", "claim": "Growth in connected IoT devices is offset by falling consumer confidence, because the sheer number of devices creates unprecedented cyber security exposure and attacks can be launched by unsophisticated parties at minimal cost with maximal potential damage.", "conditions": [ "estimates of 30 to 50 billion connected devices by 2020" ], "topics": [ "consensus-and-security", "reputation" ] }, { "id": "kaal:claim:3808859-033", "url": "https://wulfkaal.github.io/claims/3808859-033", "family": "recentralization-drift", "name": "monopoly capture of internet infrastructure", "claim": "The internet has become a network of vertically and horizontally integrated monopolies whose information silos constrain knowledge exchange, and the resulting lack of competition impedes innovation including at the protocol level while diminishing consumer protection and rights.", "conditions": [], "topics": [ "innovation" ] }, { "id": "kaal:claim:3808859-034", "url": "https://wulfkaal.github.io/claims/3808859-034", "family": "recentralization-drift", "name": "misplaced trust in a hierarchical architecture", "claim": "People increasingly substitute trust in machines, algorithms, and code for trust in organizations and procedures, but that reliance may be misplaced because the existing internet was designed for hierarchical societal structures on an authoritative hierarchical trust model carrying serious cyber security vulnerabilities.", "conditions": [], "topics": [ "reputation", "consensus-and-security" ] }, { "id": "kaal:claim:3808859-035", "url": "https://wulfkaal.github.io/claims/3808859-035", "family": "interoperability-and-fragmentation", "name": "cloud-induced application siloing", "claim": "Cloud computing increased connectivity but simultaneously produced monolithic, siloed applications built for a single business, department, or role, and that fragmentation of data and content now impairs collaboration as well as the search, organization, and discovery of content.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808859-040", "url": "https://wulfkaal.github.io/claims/3808859-040", "family": "cold-start-and-bootstrapping", "name": "governance blocked by missing infrastructure", "claim": "Without basic decentralized infrastructure products in place, on-chain governance of blockchains is not possible or is only limitedly possible, and the blockchain ecosystem may not be able to grow without a core decentralized infrastructure such as a functioning public blockchain to build on.", "conditions": [], "topics": [ "governance-design", "decentralization", "blockchain" ] }, { "id": "kaal:claim:3782216-001", "url": "https://wulfkaal.github.io/claims/3782216-001", "family": "cold-start-and-bootstrapping", "name": "missing institutional preconditions", "claim": "The decentralized economy cannot fully proliferate until it acquires the institutions ordinary commerce depends on, above all a secure and meaningful reputation system for anonymous supranational partners and an effective, dynamic governance system.", "conditions": [ "the decentralized economy as of the early 2020s" ], "topics": [ "defi", "decentralization", "economics", "reputation", "governance-design", "institutional-design" ] }, { "id": "kaal:claim:3782216-002", "url": "https://wulfkaal.github.io/claims/3782216-002", "family": "investor-protection-gap", "name": "missing consumer protection", "claim": "Because the decentralized economy currently lacks many of the civil institutions available in the larger economy, the average person should not invest anything in the crypto economy.", "conditions": [ "before decentralized consumer protection institutions exist" ], "topics": [ "defi", "institutional-design" ] }, { "id": "kaal:claim:3782216-008", "url": "https://wulfkaal.github.io/claims/3782216-008", "family": "liquidity-and-market-structure-failure", "name": "DEX liquidity deficit", "claim": "Liquidity has always been a problem on decentralized exchanges because meaningful history and reputation cannot form where there is little or no governance structure, no insurance, no appeals process and no reputable decentralized news service.", "conditions": [], "topics": [ "defi", "reputation", "governance-design" ] }, { "id": "kaal:claim:3782216-010", "url": "https://wulfkaal.github.io/claims/3782216-010", "family": "regulatory-lag", "name": "unbacked token claim", "claim": "Tokenization is meaningless unless the token is underwritten by someone who puts their reputation and ultimately their money on the line to attest that the token validly represents the asset.", "conditions": [], "topics": [ "tokenomics", "defi", "reputation" ] }, { "id": "kaal:claim:3782216-012", "url": "https://wulfkaal.github.io/claims/3782216-012", "family": "collective-action-and-coordination-failure", "name": "premium default", "claim": "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.", "conditions": [ "chit fund participants, per the cited study" ], "topics": [ "risk-and-incentives", "defi", "empirical-evidence" ] }, { "id": "kaal:claim:3782216-017", "url": "https://wulfkaal.github.io/claims/3782216-017", "family": "staking-and-incentive-misalignment", "name": "underwriting breach", "claim": "In the Underwriting DAO a breach occurs only when the market values the encumbered reputation tokens at less than the payout, which requires minting additional tokens to meet the claim.", "conditions": [ "Underwriting DAO with encumbered reputation tokens" ], "topics": [ "dao", "defi", "reputation", "tokenomics" ] }, { "id": "kaal:claim:3782216-021", "url": "https://wulfkaal.github.io/claims/3782216-021", "family": "staking-and-incentive-misalignment", "name": "transparency privacy tradeoff", "claim": "Greater transparency is in tension with more open membership, because larger networks are only achieved when privacy is ensured.", "conditions": [], "topics": [ "disclosure", "consensus-and-security", "institutional-design", "economics" ] }, { "id": "kaal:claim:3782216-022", "url": "https://wulfkaal.github.io/claims/3782216-022", "family": "human-judgment-displacement", "name": "no human backstop", "claim": "The code that constitutes a decentralized exchange can create new risks to market integrity, because automation removes the human backstop in compliance, back office and settlement.", "conditions": [ "decentralized exchanges" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3782216-023", "url": "https://wulfkaal.github.io/claims/3782216-023", "family": "liquidity-and-market-structure-failure", "name": "derivatives overcollateralization", "claim": "Decentralized derivatives must be capitalized at least fully because the platform and its anonymous users cannot be trusted, a requirement that would be impossibly onerous in traditional markets and that leaves the market for decentralized options extremely shallow.", "conditions": [ "decentralized options and derivatives markets at the time of writing" ], "topics": [ "reputation", "defi" ] }, { "id": "kaal:claim:3782216-024", "url": "https://wulfkaal.github.io/claims/3782216-024", "family": "adoption-and-usability-barrier", "name": "antiregulation fervor", "claim": "The antiregulation fervor that follows from the anarchist and libertarian philosophy of most Web3 developers is damaging the potential for widespread adoption of decentralized peer to peer tools.", "conditions": [], "topics": [ "defi" ] }, { "id": "kaal:claim:3782216-025", "url": "https://wulfkaal.github.io/claims/3782216-025", "family": "regulatory-lag", "name": "regulatory lag", "claim": "Centralized securities bureaucracies are slow to update their regulations, so those regulations often hurt the very people they were designed to help.", "conditions": [], "topics": [ "securities-law", "dynamic-regulation" ] }, { "id": "kaal:claim:3782216-026", "url": "https://wulfkaal.github.io/claims/3782216-026", "family": "jurisdictional-conflict", "name": "centralized regulation of a supranational market", "claim": "It is not possible to create a centralized regulator like the SEC for the decentralized economy, because doing so would place a supranational market under competing jurisdictions with naturally contradictory regulations.", "conditions": [], "topics": [ "law-and-legal-systems", "decentralization", "governance-design", "economics" ] }, { "id": "kaal:claim:3782216-028", "url": "https://wulfkaal.github.io/claims/3782216-028", "family": "valuation-and-pricing-failure", "name": "Soros attack on the peg", "claim": "The lesson of the Soros attack is that when a cryptocurrency is pegged above its true market value, the difference must be fully backed by a foreign reserve of collateral, or financiers can profit by breaking the peg.", "conditions": [ "pegged currencies, including algorithmic stablecoins" ], "topics": [ "tokenomics", "consensus-and-security" ] }, { "id": "kaal:claim:3782216-029", "url": "https://wulfkaal.github.io/claims/3782216-029", "family": "liquidity-and-market-structure-failure", "name": "full reserve cost", "claim": "Maintaining a full reserve is too expensive to be efficient, because every unit of reserve value backing the currency must be held liquid or arbitrage attacks become possible, and liquidity forgoes investment returns.", "conditions": [ "fiat collateralized and algorithmic stablecoins" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3782216-030", "url": "https://wulfkaal.github.io/claims/3782216-030", "family": "valuation-and-pricing-failure", "name": "crypto collateral volatility", "claim": "Cryptocurrency backed stablecoins are even more expensive than fiat backed ones, because stability is being sought with far more unstable collateral.", "conditions": [ "crypto collateralized designs such as MakerDAO" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3782216-032", "url": "https://wulfkaal.github.io/claims/3782216-032", "family": "measurement-and-metric-failure", "name": "misestimated hot money ratio", "claim": "Determining what fraction of a currency is hot money is necessary for efficiently defending its stability: overestimating the hot money ratio makes the currency costlier to use, and underestimating it makes the currency insecure.", "conditions": [], "topics": [ "tokenomics", "consensus-and-security", "economics" ] }, { "id": "kaal:claim:3782216-034", "url": "https://wulfkaal.github.io/claims/3782216-034", "family": "cold-start-and-bootstrapping", "name": "stablecoin chicken and egg", "claim": "Stablecoin collateralization and a robust decentralized economy form a chicken and egg problem: a stablecoin cannot reduce its backing until a robust decentralized economy exists, and that economy cannot be built without an efficient stablecoin.", "conditions": [ "while most cryptocurrency use is speculative hot money" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3782216-035", "url": "https://wulfkaal.github.io/claims/3782216-035", "family": "valuation-and-pricing-failure", "name": "peg death spiral", "claim": "Trying to hold a peg at an artificial level deters new adopters and punishes existing members, and is the most likely way to induce a death spiral that collapses a currency; after a fundamental change in the economy the currency should be repegged instead.", "conditions": [ "after a fundamental change such as a black swan event" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3782216-036", "url": "https://wulfkaal.github.io/claims/3782216-036", "family": "liquidity-and-market-structure-failure", "name": "anonymity driven overcollateralization", "claim": "The inability of anonymous participants to trust one another is crippling the DeFi market and forces decentralized markets into overcollateralization, giving traditional markets a fundamental advantage.", "conditions": [ "current decentralized markets, before decentralized reputation exists" ], "topics": [ "defi", "reputation" ] }, { "id": "kaal:claim:3782216-040", "url": "https://wulfkaal.github.io/claims/3782216-040", "family": "cold-start-and-bootstrapping", "name": "missing decentralized news and history institutions", "claim": "The decentralized economy still lacks trustworthy open source decentralized institutions for recording and parsing history, reporting news and guiding attention, without which the average person cannot judge which networks to join or what to invest in.", "conditions": [], "topics": [ "decentralization", "institutional-design", "reputation" ] }, { "id": "kaal:claim:3782214-002", "url": "https://wulfkaal.github.io/claims/3782214-002", "family": "fraud-and-misconduct", "name": "universal corruption", "claim": "Corruption has arisen in every organizational circumstance in recorded history, including the least extreme case of identified members of a single culture interacting face to face with deep community ties, so governance design cannot assume corruption can be eliminated.", "conditions": [], "topics": [ "governance-design", "institutional-design", "dao" ] }, { "id": "kaal:claim:3782214-003", "url": "https://wulfkaal.github.io/claims/3782214-003", "family": "governance-participation-collapse", "name": "no perfect governance", "claim": "Every governance process ever implemented is flawed, and no perfect governance system is possible even under very minimal assumptions such as non dictatorship; the goal must therefore be practical and effective structures rather than perfect ones.", "conditions": [ "assumptions as minimal as non dictatorship" ], "topics": [ "governance-design", "dao" ] }, { "id": "kaal:claim:3782214-004", "url": "https://wulfkaal.github.io/claims/3782214-004", "family": "recentralization-drift", "name": "benevolent dictator instability", "claim": "Benevolent dictatorship is more efficient and effective than messy democracy in the short run, but centralized governance of that kind threatens the long term stability of a powerful public peer to peer network.", "conditions": [ "large public peer to peer networks", "long time horizons" ], "topics": [ "decentralization", "governance-design" ] }, { "id": "kaal:claim:3782214-005", "url": "https://wulfkaal.github.io/claims/3782214-005", "family": "recentralization-drift", "name": "incomplete decentralization", "claim": "No major blockchain is entirely decentralized, because all of them lack binding, coded, anonymous peer to peer governance; on chain and off chain governance experiments to date fall short of that standard.", "conditions": [ "as of the time of writing" ], "topics": [ "governance-design", "decentralization", "blockchain" ] }, { "id": "kaal:claim:3782214-006", "url": "https://wulfkaal.github.io/claims/3782214-006", "family": "plutocratic-capture", "name": "default oligarchy", "claim": "Declining to adopt explicit or formal rules is itself a governance choice, and it defaults to rule by might; since might in these systems is defined by wealth, the resulting order is oligarchy.", "conditions": [ "platforms where power tracks token holdings or computing power" ], "topics": [ "governance-design", "tokenomics" ] }, { "id": "kaal:claim:3782214-007", "url": "https://wulfkaal.github.io/claims/3782214-007", "family": "rule-obsolescence-and-ossification", "name": "rule change rigidity", "claim": "The absence of a governance process is especially dangerous for peer to peer platforms precisely because decentralized organizations find it extremely difficult to change their rules once established.", "conditions": [ "large decentralized networks with distributed power" ], "topics": [ "governance-design", "decentralization" ] }, { "id": "kaal:claim:3782214-008", "url": "https://wulfkaal.github.io/claims/3782214-008", "family": "governance-participation-collapse", "name": "majority lock in", "claim": "Fundamental rule changes in a large decentralized organization are typically demanded when a large minority is treated unfairly, which means the advantaged majority has no incentive to make the change; the resulting deadlock leaves revolution or a network split as the only route to foundational change.", "conditions": [ "large decentralized organizations", "rules that advantage the majority" ], "topics": [ "consensus-and-security", "governance-design" ] }, { "id": "kaal:claim:3782214-009", "url": "https://wulfkaal.github.io/claims/3782214-009", "family": "governance-participation-collapse", "name": "clone disruption", "claim": "Because no major peer to peer organization has anything resembling effective decentralized governance, none of them are viable in the long term and all will eventually be displaced by superior clones, though the timing of that displacement cannot be predicted.", "conditions": [ "long time horizon", "as of the time of writing" ], "topics": [ "governance-design", "open-source-and-code", "dao" ] }, { "id": "kaal:claim:3782214-013", "url": "https://wulfkaal.github.io/claims/3782214-013", "family": "valuation-and-pricing-failure", "name": "transparency without incentives", "claim": "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.", "conditions": [ "transparent ledgers without aligned incentives" ], "topics": [ "disclosure", "risk-and-incentives", "blockchain" ] }, { "id": "kaal:claim:3782214-014", "url": "https://wulfkaal.github.io/claims/3782214-014", "family": "staking-and-incentive-misalignment", "name": "currency as proximal goal", "claim": "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.", "conditions": [ "anonymous members staking currency on rigid smart contracts" ], "topics": [ "risk-and-incentives", "smart-contracts" ] }, { "id": "kaal:claim:3782214-015", "url": "https://wulfkaal.github.io/claims/3782214-015", "family": "smart-contract-rigidity", "name": "irreversible self execution", "claim": "Rigid code is law smart contracts over fungible currency are built to guarantee irreversible, unreviewable, self executing outcomes, which is a poor match for business because business ventures very rarely proceed exactly as imagined at the outset.", "conditions": [ "contracts involving fungible currency exchange", "commercial arrangements with uncertain execution" ], "topics": [ "smart-contracts", "compliance", "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:3782214-016", "url": "https://wulfkaal.github.io/claims/3782214-016", "family": "oracle-and-input-corruption", "name": "unavoidable contract bugs", "claim": "Rigid code is law contracts must become extremely complex to cover the eventualities of real business situations, and bugs or hacks can never be certainly precluded in any programmable contract.", "conditions": [ "any programmable contract, including those written in secure functional languages" ], "topics": [ "smart-contracts", "open-source-and-code", "consensus-and-security" ] }, { "id": "kaal:claim:3782214-017", "url": "https://wulfkaal.github.io/claims/3782214-017", "family": "smart-contract-rigidity", "name": "perfect design fallacy", "claim": "The engineering assumption that such problems can be entirely avoided through perfect system design is naive: exceptions will always exist because business competition always seeks optimal solutions that sit at the limits of the rules.", "conditions": [ "competitive commercial environments" ], "topics": [ "regulatory-failure", "governance-design" ] }, { "id": "kaal:claim:3782214-020", "url": "https://wulfkaal.github.io/claims/3782214-020", "family": "rule-obsolescence-and-ossification", "name": "rule rigidity decay", "claim": "The very explicit rules that unify a diverse group destabilize it over the longer term, because internal corruption and external change render a fixed rule structure ineffective or inefficient.", "conditions": [ "long time horizons", "changing market conditions" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782214-021", "url": "https://wulfkaal.github.io/claims/3782214-021", "family": "collective-action-and-coordination-failure", "name": "maximal instability configuration", "claim": "A for profit, open, diverse valued organization run under rigid Rule of Law is maximally unstable, so powerful stabilizing forces must be added to its governance rather than assumed.", "conditions": [ "for profit", "open membership", "diverse values", "rigid explicit rules" ], "topics": [ "governance-design", "dao" ] }, { "id": "kaal:claim:3782214-022", "url": "https://wulfkaal.github.io/claims/3782214-022", "family": "staking-and-incentive-misalignment", "name": "incentive deficit", "claim": "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.", "conditions": [ "short term fungible rewards are available" ], "topics": [ "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:3782214-025", "url": "https://wulfkaal.github.io/claims/3782214-025", "family": "reputation-system-gaming", "name": "centralized reputation failure", "claim": "No centralized platform such as Amazon or eBay has been able to create meaningful and secure online reputation, because central ownership and control prevent them from giving members the power and incentives needed to police their own reputation.", "conditions": [ "centrally owned and controlled platforms" ], "topics": [ "reputation", "decentralization" ] }, { "id": "kaal:claim:3782214-026", "url": "https://wulfkaal.github.io/claims/3782214-026", "family": "staking-and-incentive-misalignment", "name": "expansion dependent stability", "claim": "The alternatives to a reputational system for countering profit driven instability, namely external stabilizing forces such as governmental fiat and rapidly expanding profit opportunities, are inadequate because expansion driven stability lasts only as long as the expansion does.", "conditions": [ "organizations destabilized by profit competition" ], "topics": [ "reputation", "governance-design" ] }, { "id": "kaal:claim:3782214-027", "url": "https://wulfkaal.github.io/claims/3782214-027", "family": "other", "name": "remedy mismatch", "claim": "The two sources of instability require different remedies and must not be swapped: dynamic rules are a mismatch for instability caused by the profit motive, and a reputational system is not an efficient method for attenuating instability caused by a group's diverse values.", "conditions": [], "topics": [ "reputation", "governance-design" ] }, { "id": "kaal:claim:3782214-029", "url": "https://wulfkaal.github.io/claims/3782214-029", "family": "innovation-chilling", "name": "unanimity chilling effect", "claim": "If unanimous consensus is strongly incentivized in every validation pool, a DAO will degenerate quickly, because members holding minority opinions will not raise alternatives for fear of losing all their reputation tokens; this is why loosely coupled votes are needed.", "conditions": [ "contentious protocol development", "validation pools that penalize minority positions" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782214-031", "url": "https://wulfkaal.github.io/claims/3782214-031", "family": "enforcement-gap", "name": "self regulation gap", "claim": "Code is law smart contracts deliver a genuine leap in efficiency and clarity through digital self execution, but their supposed self regulation will always ultimately fall short, which is why an appeals capacity is necessary in any business deal.", "conditions": [ "any business arrangement executed by self enforcing code" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3782214-033", "url": "https://wulfkaal.github.io/claims/3782214-033", "family": "collective-action-and-coordination-failure", "name": "value vacuum fragmentation", "claim": "Without unifying transcendental ideals, liminal cases will fragment a decentralized network; transcendental values are therefore always necessary to maintain the stability of a network and should be the first thing a DAO establishes.", "conditions": [ "novel disputes that fall outside existing hard protocols" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:3782214-036", "url": "https://wulfkaal.github.io/claims/3782214-036", "family": "sybil-and-identity-attack", "name": "sockpuppet abuse of equal distribution", "claim": "Equal distribution of output, where every member receives an equal share regardless of contribution, is impossible to maintain under current technology in a system with open access and privacy, because sockpuppet accounts would be abused.", "conditions": [ "open access membership", "privacy or pseudonymity preserved", "current identity technology" ], "topics": [ "consensus-and-security", "citation-and-knowledge" ] }, { "id": "kaal:claim:3782214-037", "url": "https://wulfkaal.github.io/claims/3782214-037", "family": "agency-cost-and-managerial-opportunism", "name": "unaccountable delegation", "claim": "Without the ability to hold representatives to account, representatives are not incentivized to vote for outcomes reflecting their constituency's wishes and needs, but instead promote agendas that serve their personal interests and preserve their own power.", "conditions": [ "modern societies where voters do not know their representatives personally" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782214-038", "url": "https://wulfkaal.github.io/claims/3782214-038", "family": "scalability-and-throughput-limit", "name": "oral scale limit", "claim": "Direct democracy failed to reflect the will of the group once villages grew into cities, because the information technology of the spoken word imposes a hard limit on how many people can speak and on the patience and endurance of listeners.", "conditions": [ "governance conducted through oral assembly" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782214-039", "url": "https://wulfkaal.github.io/claims/3782214-039", "family": "reputation-system-gaming", "name": "forced opacity of centralized reputation", "claim": "Because major social media platforms are privately and centrally owned, their governance processes and reputation distribution algorithms are necessarily opaque, since their users' incentives are not aligned to police reputation against gaming.", "conditions": [ "privately owned centralized platforms", "users hold no financial stake in the system" ], "topics": [ "reputation", "decentralization", "disclosure", "regulatory-failure" ] }, { "id": "kaal:claim:3782205-004", "url": "https://wulfkaal.github.io/claims/3782205-004", "family": "cold-start-and-bootstrapping", "name": "Missing complementary institutions", "claim": "A DAO will not be a genuinely profitable addition to the economy until decentralized versions of the legal system, the political system, the media, banking, and other services exist to support it.", "conditions": [ "profit-seeking DAOs competing in the contemporary economy" ], "topics": [ "dao", "institutional-design", "law-and-legal-systems", "systemic-risk" ] }, { "id": "kaal:claim:3782205-012", "url": "https://wulfkaal.github.io/claims/3782205-012", "family": "recentralization-drift", "name": "Profit-driven recentralization", "claim": "Historically, whenever a healthy decentralized organization began to earn money it quickly devolved into a centralized institution, because its uniting ideals shifted from transcendental value to a desire for money.", "conditions": [ "historical decentralized organizations that became profitable" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782205-013", "url": "https://wulfkaal.github.io/claims/3782205-013", "family": "recentralization-drift", "name": "Loss of moderating ideal", "claim": "Once the equalizing ideal that moderates a decentralized organization is lost, competition generated by the profit motive leads inevitably to centralization with rigid rules about who holds power and wealth.", "conditions": [ "organizations lacking a moderating shared ideal" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782205-016", "url": "https://wulfkaal.github.io/claims/3782205-016", "family": "recentralization-drift", "name": "Rent-seeking accumulation in inefficiency pockets", "claim": "If an organization's goal is to maintain decentralization, its tools must be used deliberately to prevent the natural concentration of power that occurs when economic inefficiencies create pockets of corruption where rent-seeking actors accumulate.", "conditions": [ "assumes maintaining decentralization is the organization's goal" ], "topics": [ "decentralization", "economics" ] }, { "id": "kaal:claim:3782205-017", "url": "https://wulfkaal.github.io/claims/3782205-017", "family": "cold-start-and-bootstrapping", "name": "Partial institutional build-out", "claim": "No profit-seeking decentralized organization can succeed against centralized competitors in the contemporary marketplace until all eight institutional problems are solved at once.", "conditions": [ "profit-oriented decentralized organizations in the contemporary marketplace" ], "topics": [ "dao", "economics", "institutional-design" ] }, { "id": "kaal:claim:3782205-018", "url": "https://wulfkaal.github.io/claims/3782205-018", "family": "interoperability-and-fragmentation", "name": "Isolated protocol inefficiency", "claim": "Bitcoin proved that a decentralized digital representation of value is possible, but it is not efficient enough for wide use because the rest of a decentralized economic environment does not yet exist around it.", "conditions": [ "Bitcoin as a proof of concept lacking a surrounding decentralized economy" ], "topics": [ "tokenomics", "economics", "institutional-design" ] }, { "id": "kaal:claim:3782205-020", "url": "https://wulfkaal.github.io/claims/3782205-020", "family": "governance-participation-collapse", "name": "Unfixed protocol governance", "claim": "Ethereum will not be efficient until it operates inside a robust decentralized economy, and it will not last at all unless its governance is fixed.", "conditions": [ "applies to Ethereum specifically" ], "topics": [ "governance-design", "economics" ] }, { "id": "kaal:claim:3782205-022", "url": "https://wulfkaal.github.io/claims/3782205-022", "family": "reputation-system-gaming", "name": "Absent reputation layer", "claim": "Without a secure and meaningful reputation system, none of the other aspects of the decentralized economy will be effective, which makes reputation a precondition for the rest.", "conditions": [], "topics": [ "reputation", "decentralization", "economics" ] }, { "id": "kaal:claim:3782205-028", "url": "https://wulfkaal.github.io/claims/3782205-028", "family": "adoption-and-usability-barrier", "name": "Volatility-driven non-adoption", "claim": "Without price stability, typical consumers will never hold their checking account in a cryptocurrency and no one will enter a long-term contract for an essential service denominated in it.", "conditions": [ "volatile, non-stabilized cryptocurrencies" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:3782205-030", "url": "https://wulfkaal.github.io/claims/3782205-030", "family": "cold-start-and-bootstrapping", "name": "Chicken and egg dependency", "claim": "The stablecoin cannot be efficient until a robust decentralized economy already exists, producing a chicken and egg problem in which the required institutions presuppose one another.", "conditions": [], "topics": [ "tokenomics", "institutional-design" ] }, { "id": "kaal:claim:3782201-006", "url": "https://wulfkaal.github.io/claims/3782201-006", "family": "human-judgment-displacement", "name": "negation of human input", "claim": "Taken to the extreme, centralized control of algorithmic automation could negate human input in data systems where those systems are designed to ignore individual choice in favor of the goals of the platform owners.", "conditions": [ "only where systems are designed to prefer platform owners' goals over individual choice" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782201-010", "url": "https://wulfkaal.github.io/claims/3782201-010", "family": "privacy-and-surveillance-risk", "name": "crisis ratchet in surveillance", "claim": "Centralized authorities have a long record of using crises to justify the introduction of monitoring tools that outlast their original purpose.", "conditions": [], "topics": [ "reputation" ] }, { "id": "kaal:claim:3782201-011", "url": "https://wulfkaal.github.io/claims/3782201-011", "family": "reputation-system-gaming", "name": "success induced brittleness", "claim": "Centralized and opaque reputation systems such as China's Social Credit System are unstable in the long run and particularly dangerous, because their computerized bureaucracy makes them inherently rigid and their early successes make them progressively more brittle.", "conditions": [ "centralized and opaque systems administered by computerized bureaucracy" ], "topics": [ "decentralization", "reputation" ] }, { "id": "kaal:claim:3782201-012", "url": "https://wulfkaal.github.io/claims/3782201-012", "family": "ai-model-and-training-failure", "name": "regression failure on novel situations", "claim": "Suggestions that artificial intelligence will solve the rigidity of centralized reputation systems are misguided and will fail for the same reason, because neural networks are merely a complex mathematical architecture for statistical regression, which is always extremely unreliable when applied to novel situations.", "conditions": [ "where new social situations continually arise that lie outside the training distribution" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:3782201-014", "url": "https://wulfkaal.github.io/claims/3782201-014", "family": "recentralization-drift", "name": "institutional ossification", "claim": "The democracy and transparency achieved by the founders of current institutions has been subverted by the natural concentration of power that evolves under competition, leaving hierarchies ossified and likely too brittle to adopt processes derived from radically different information technologies.", "conditions": [ "legacy institutions whose legal constitutions predate modern information processing" ], "topics": [ "systemic-risk", "institutional-design" ] }, { "id": "kaal:claim:3782201-015", "url": "https://wulfkaal.github.io/claims/3782201-015", "family": "collective-action-and-coordination-failure", "name": "fallacy of uniformitarianism", "claim": "The fallacy of uniformitarianism is the belief that the social harmony we enjoy today, especially in economically advanced nations, is natural and automatic rather than the product of cultural and public institutions.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782201-017", "url": "https://wulfkaal.github.io/claims/3782201-017", "family": "agency-cost-and-managerial-opportunism", "name": "intermediary perverse incentive", "claim": "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.", "conditions": [], "topics": [ "risk-and-incentives", "institutional-design" ] }, { "id": "kaal:claim:3782201-018", "url": "https://wulfkaal.github.io/claims/3782201-018", "family": "liquidity-and-market-structure-failure", "name": "catalyst removal collapse", "claim": "Removing the middlemen who serve as business catalysts would kill the economy: liquidity would dry up because after a few people unfairly lose on business deals, no one will take the risk of initiating one.", "conditions": [ "where no automated substitute performs the catalyst function" ], "topics": [ "defi", "economics", "decentralization" ] }, { "id": "kaal:claim:3782201-021", "url": "https://wulfkaal.github.io/claims/3782201-021", "family": "adoption-and-usability-barrier", "name": "adoption gap", "claim": "Despite billions of dollars of investment, radically decentralized tools including bitcoin currency, Ethereum smart contracts, and the InterPlanetary File System have not pervaded the mainstream economy.", "conditions": [ "as of the first decade after Bitcoin's invention" ], "topics": [ "tokenomics", "decentralization", "economics" ] }, { "id": "kaal:claim:3782201-023", "url": "https://wulfkaal.github.io/claims/3782201-023", "family": "governance-participation-collapse", "name": "governance design failure beneath a technical bug", "claim": "The re entrancy programming bug was not the 2016 DAO's most serious problem; the system would eventually have failed more spectacularly because it was designed poorly on other levels.", "conditions": [], "topics": [ "dao", "governance-design", "smart-contracts" ] }, { "id": "kaal:claim:3782201-024", "url": "https://wulfkaal.github.io/claims/3782201-024", "family": "plutocratic-capture", "name": "governance arbitrage through purchasable voting power", "claim": "Because voting power in the 2016 DAO could be purchased, the exact cost of destroying it was calculable, and had it lasted longer than a month someone would eventually have amassed the money to arbitrage its trivial governance structure.", "conditions": [ "governance systems in which voting power is purchasable" ], "topics": [ "governance-design", "dao" ] }, { "id": "kaal:claim:3782201-025", "url": "https://wulfkaal.github.io/claims/3782201-025", "family": "governance-participation-collapse", "name": "missing decentralized governance", "claim": "New DAO proposals appear almost quarterly in the 2020s and most fail because of a lack of decentralized governance solutions.", "conditions": [], "topics": [ "dao", "governance-design", "decentralization", "economics" ] }, { "id": "kaal:claim:3782201-026", "url": "https://wulfkaal.github.io/claims/3782201-026", "family": "adoption-and-usability-barrier", "name": "designer distrust of own protocol", "claim": "Aragon's refusal to use its own protocol to arbitrate an internal dispute is testimony to the lack of trust its own system designers place in their system's capabilities, and its reputation and legislative and judicial governance protocols remain trivial.", "conditions": [], "topics": [ "dao", "governance-design", "systemic-risk", "law-and-legal-systems", "reputation" ] }, { "id": "kaal:claim:3782201-027", "url": "https://wulfkaal.github.io/claims/3782201-027", "family": "scalability-and-throughput-limit", "name": "token value short termism", "claim": "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.", "conditions": [ "DAO designs inheriting the path dependencies of the 2016 DAO", "fungible token based membership" ], "topics": [ "dao", "governance-design", "risk-and-incentives", "tokenomics" ] }, { "id": "kaal:claim:3782201-028", "url": "https://wulfkaal.github.io/claims/3782201-028", "family": "incumbent-resistance-to-adoption", "name": "path dependency", "claim": "Path dependencies are a major obstacle to decentralizing institutions and businesses, because humans have psychological inertia and cling to familiar systems, especially those that have given them comfort in the past.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782201-029", "url": "https://wulfkaal.github.io/claims/3782201-029", "family": "innovation-chilling", "name": "regulatory incompatibility", "claim": "Regulatory approaches of the early 2020s largely undermined the evolution of decentralized technology, because decentralized solutions at their core negate external control, censorship, and oversight while the legal initiatives treated government control as indispensable.", "conditions": [ "United States regulatory initiatives of the early 2020s focused on securities tokens" ], "topics": [ "securities-law", "decentralization" ] }, { "id": "kaal:claim:3782201-030", "url": "https://wulfkaal.github.io/claims/3782201-030", "family": "enforcement-gap", "name": "regulatory vacuum for maximally decentralized products", "claim": "The more decentralized products are, meaning more censorship resistant, autonomous, and beyond regulatory control, the more they are left in a regulatory vacuum, and the resulting legal uncertainty limits their expansion, reach, and evolution.", "conditions": [ "people coins as distinct from government coins and corporate coins" ], "topics": [ "tokenomics", "law-and-legal-systems", "decentralization" ] }, { "id": "kaal:claim:3782201-032", "url": "https://wulfkaal.github.io/claims/3782201-032", "family": "recentralization-drift", "name": "monopoly induced information silos", "claim": "Geographical monopolies over traffic control create information silos and constrain knowledge exchange, and the resulting lack of competition and cooperation impedes innovation, including at the protocol level, while diminishing consumer protection and rights.", "conditions": [], "topics": [ "innovation" ] }, { "id": "kaal:claim:3782201-033", "url": "https://wulfkaal.github.io/claims/3782201-033", "family": "collective-action-and-coordination-failure", "name": "intra community coordination failure", "claim": "Instead of building compatible technologies in the service of interoperability, most crypto projects compete with each other, contradicting the open source culture the space needs if it has any hope of thriving.", "conditions": [ "driven by the strong libertarian focus of influential Web3 developers" ], "topics": [ "open-source-and-code", "institutional-design" ] }, { "id": "kaal:claim:3782201-034", "url": "https://wulfkaal.github.io/claims/3782201-034", "family": "cold-start-and-bootstrapping", "name": "parasite on a dying host", "claim": "Unless the Web3 vision builds at least the features and social advantages of the current political and legal systems into its economy, the decentralized economy will merely be a parasite on the dying host of the traditional mainstream economy, and once the host dies today's social advantages will be lost.", "conditions": [ "if the contemporary political system does not itself incorporate the new information technology advances" ], "topics": [ "decentralization", "economics", "institutional-design", "law-and-legal-systems" ] }, { "id": "kaal:claim:3782201-035", "url": "https://wulfkaal.github.io/claims/3782201-035", "family": "human-judgment-displacement", "name": "misplaced automation hope", "claim": "The hope of most Web3 engineers that overhead institutions can be automated away until they vanish is largely misplaced, because business contracts are not getting simpler as technology becomes more sophisticated.", "conditions": [], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3782201-037", "url": "https://wulfkaal.github.io/claims/3782201-037", "family": "cold-start-and-bootstrapping", "name": "missing decentralized overhead institutions", "claim": "Without decentralized versions of the services that overhead institutions provide, including justice, media, banking, underwriting, and insurance, DAOs will not be able to compete with centralized companies.", "conditions": [], "topics": [ "dao", "institutional-design", "economics", "decentralization" ] }, { "id": "kaal:claim:3782193-001", "url": "https://wulfkaal.github.io/claims/3782193-001", "family": "recentralization-drift", "name": "Matthew principle immiseration", "claim": "Because more powerful members of a hierarchy are better positioned to capture whatever power becomes available, power distribution in an entrenched hierarchy becomes exponential, leaving the majority with minimal power and wealth. That discontent of the majority is the first destabilizing force acting on a centralized organization.", "conditions": [ "hierarchies that organize through competition", "as the hierarchy becomes entrenched over time" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782193-002", "url": "https://wulfkaal.github.io/claims/3782193-002", "family": "recentralization-drift", "name": "Brittleness of rigid hierarchy", "claim": "Rigid hierarchies are unstable and inevitably fall, eroded either by internal corruption or by novel external challenges that the hierarchy is not flexible enough to adapt to. These are the second and third destabilizing factors, alongside majority discontent.", "conditions": [ "hierarchies whose power relations have become entrenched in secular, codified law" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782193-003", "url": "https://wulfkaal.github.io/claims/3782193-003", "family": "regulatory-arbitrage", "name": "Rule-limit exploitation", "claim": "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.", "conditions": [ "competitive hierarchies", "power relations codified in secular law" ], "topics": [ "institutional-design", "risk-and-incentives" ] }, { "id": "kaal:claim:3782193-005", "url": "https://wulfkaal.github.io/claims/3782193-005", "family": "recentralization-drift", "name": "Centralizing use of new information technology", "claim": "Imperial China invented the printing press and applied it to centralize power through uniform edicts and the first printed money; the resulting bureaucratic rigidity left the hierarchy unable to respond to internal corruption and to external invaders.", "conditions": [ "Imperial China's use of printing for political and economic centralization" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782193-011", "url": "https://wulfkaal.github.io/claims/3782193-011", "family": "enforcement-gap", "name": "Incompleteness of static rule sets", "claim": "No set of written rules can be made complete: the Folk Theorems demonstrate that however rules are written, strategies exist that follow those rules yet profit the individual at the expense of the group, so a perfect secular constitution is impossible.", "conditions": [ "any static, formally specified set of rules governing a group" ], "topics": [ "economics", "governance-design" ] }, { "id": "kaal:claim:3782193-012", "url": "https://wulfkaal.github.io/claims/3782193-012", "family": "enforcement-gap", "name": "Boundary probing under codified law", "claim": "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.", "conditions": [ "competitive environments", "rigorously codified rules" ], "topics": [ "risk-and-incentives", "economics", "decentralization" ] }, { "id": "kaal:claim:3782193-015", "url": "https://wulfkaal.github.io/claims/3782193-015", "family": "recentralization-drift", "name": "Centennial collapse of centralized hierarchy", "claim": "Centralized hierarchies have at best always failed after a few centuries and usually much sooner, and the resulting chaos leaves fertile ground for reorganizing the old order, which is what the cyclical word revolution names.", "conditions": [ "rigid centralized hierarchies viewed on a historical timescale" ], "topics": [ "institutional-design", "decentralization" ] }, { "id": "kaal:claim:3782193-017", "url": "https://wulfkaal.github.io/claims/3782193-017", "family": "rule-obsolescence-and-ossification", "name": "Specialization brittleness", "claim": "The more effective a centralized architecture becomes at solving its target problem, the more rigid and unforgiving it becomes; rigid architectures are unstable and fail when met with novel challenges, so more decentralized organizations are more stable.", "conditions": [ "when the organization encounters challenges different from the one it was designed for" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782193-018", "url": "https://wulfkaal.github.io/claims/3782193-018", "family": "rule-obsolescence-and-ossification", "name": "Purpose-built hierarchy outliving its purpose", "claim": "The centralized hierarchy built by the Chinese Communist Revolution was extremely successful at the military goal it was designed for, but once the military threat was gone it failed completely at solving other important problems, producing catastrophic reforms such as the Cultural Revolution and the Great Leap Forward.", "conditions": [ "China from 1949 until Mao Zedong's death in 1976" ], "topics": [ "decentralization", "institutional-design", "governance-design" ] }, { "id": "kaal:claim:3782193-020", "url": "https://wulfkaal.github.io/claims/3782193-020", "family": "rule-obsolescence-and-ossification", "name": "Rule erosion without unifying ideals", "claim": "Without a transcendental spiritual or philosophical principle to unify a society, its rules erode as exceptions to the routine are discovered that improve function temporarily yet violate the founding principles of the culture, and such violations split the population.", "conditions": [ "societies lacking a unifying transcendental principle" ], "topics": [ "institutional-design", "governance-design" ] }, { "id": "kaal:claim:3782193-023", "url": "https://wulfkaal.github.io/claims/3782193-023", "family": "enforcement-gap", "name": "Attack-induced decentralization", "claim": "A decentralized organization cannot be conquered by attacking it from the outside: when attacked, the group merely decentralizes further, and its members become more autonomous and more devoted to the founding principles of the organization.", "conditions": [ "external coercive attack on a politically decentralized group" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782193-024", "url": "https://wulfkaal.github.io/claims/3782193-024", "family": "enforcement-gap", "name": "Decapitation strategy failure", "claim": "The Spanish strategy of capturing or killing a group's leader, which succeeded against the Aztec and Incan empires, was impossible to apply to the Apaches because they had no static, official rulers and no rigid power hierarchy to manipulate.", "conditions": [ "Spanish colonial expansion in the Americas", "groups whose leadership is by example rather than coercion" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782193-025", "url": "https://wulfkaal.github.io/claims/3782193-025", "family": "recentralization-drift", "name": "Asset-induced centralization", "claim": "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.", "conditions": [ "introduction of divisible valuable assets into a decentralized group" ], "topics": [ "risk-and-incentives", "decentralization", "economics" ] }, { "id": "kaal:claim:3782193-026", "url": "https://wulfkaal.github.io/claims/3782193-026", "family": "recentralization-drift", "name": "Profit motive centralization", "claim": "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.", "conditions": [ "decentralized organizations in which profits become available to members" ], "topics": [ "decentralization", "risk-and-incentives" ] }, { "id": "kaal:claim:3782193-027", "url": "https://wulfkaal.github.io/claims/3782193-027", "family": "recentralization-drift", "name": "Mining power concentration", "claim": "Bitcoin does not refute the thesis that money centralizes decentralized projects: hashing power has slowly become concentrated in mining pools until the majority of that power resides in the single country of China.", "conditions": [ "Bitcoin after roughly ten years of operation, as of the authors' writing" ], "topics": [ "tokenomics", "decentralization", "blockchain" ] }, { "id": "kaal:claim:3782193-028", "url": "https://wulfkaal.github.io/claims/3782193-028", "family": "recentralization-drift", "name": "Blockchain governance centralization", "claim": "Almost every blockchain project the authors are aware of is suffering under the centralizing force of competition for equity control and profit, and such projects predictably move toward centralization when unconscious of these forces.", "conditions": [ "contemporary for-profit blockchain and Web3 projects" ], "topics": [ "blockchain", "decentralization", "governance-design" ] }, { "id": "kaal:claim:3782193-029", "url": "https://wulfkaal.github.io/claims/3782193-029", "family": "staking-and-incentive-misalignment", "name": "Unbalanced reward structure", "claim": "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.", "conditions": [ "projects where rewards are visibly distributed among contributors" ], "topics": [ "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:3782193-031", "url": "https://wulfkaal.github.io/claims/3782193-031", "family": "collective-action-and-coordination-failure", "name": "One-shot anonymous defection", "claim": "Honesty would be the wrong strategy for an agent if the contract were anonymous and its resolution did not affect future contracts, because that situation is a single-stage zero-sum game in which stealing all the entrusted wealth is optimal.", "conditions": [ "anonymous contracting", "no effect of the outcome on future business" ], "topics": [ "economics", "ai-and-agents", "corporate-governance", "reputation" ] }, { "id": "kaal:claim:3782193-035", "url": "https://wulfkaal.github.io/claims/3782193-035", "family": "collective-action-and-coordination-failure", "name": "Decentralized inefficiency under threat", "claim": "The Articles of Confederation were consciously written to limit the authority of a weak central government with no chief executive, and this made the American war effort difficult because the organization was very inefficient at marshalling resources.", "conditions": [ "the Thirteen Colonies during the seven years of rebellion" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782193-038", "url": "https://wulfkaal.github.io/claims/3782193-038", "family": "recentralization-drift", "name": "Emergency power ratchet", "claim": "When the executive branch is given more centralizing power during a crisis, or simply takes it, the mechanism for removing that power once the threat has passed has rarely been followed.", "conditions": [ "crisis conditions such as war", "U.S. constitutional practice" ], "topics": [ "decentralization", "governance-design" ] }, { "id": "kaal:claim:3782193-040", "url": "https://wulfkaal.github.io/claims/3782193-040", "family": "recentralization-drift", "name": "Fairness versus stability tradeoff", "claim": "In designing governance for large global networks, protocol centralization is necessary in order to display objective fairness, yet that same protocol centralization leads to instability, which is the core design tension the chapter's historical cases are meant to resolve.", "conditions": [ "large global networks open to members with diverse values" ], "topics": [ "decentralization", "governance-design" ] }, { "id": "kaal:claim:3995709-004", "url": "https://wulfkaal.github.io/claims/3995709-004", "family": "supervisory-capacity-gap", "name": "reviewer overload from long queues", "claim": "Code review effectiveness is undermined by heavier review loads, because reviewers with longer review queues become overwhelmed and are more likely to submit poor quality code evaluations.", "conditions": [ "reviewers carrying long review queues" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3995709-005", "url": "https://wulfkaal.github.io/claims/3995709-005", "family": "governance-participation-collapse", "name": "ineffective patch size remedies", "claim": "Proposed remedies for patch size, namely distributing the workload across a broader set of reviewers and providing better transparency on developer review queues, have not solved the problem; patch size remains an issue affecting the quality, speed, and effectiveness of modern code review.", "conditions": [ "existing remedies deployed within legacy review processes" ], "topics": [ "open-source-and-code" ] }, { "id": "kaal:claim:3995709-007", "url": "https://wulfkaal.github.io/claims/3995709-007", "family": "smart-contract-bug-and-exploit", "name": "blind approval", "claim": "Code confusion produces blind approval, where a reviewer hopes a co-worker knows what they are doing and approves a change without understanding it, which can result in further bugs and delayed production.", "conditions": [ "reviewers confused by unfamiliar code", "peer trust within a team" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3995709-008", "url": "https://wulfkaal.github.io/claims/3995709-008", "family": "governance-participation-collapse", "name": "insufficient developer participation", "claim": "Failing to maximize developer participation and communication negatively affects the code review process and creates unnecessary costs on software development, and this is difficult to remedy because code review is subject to sensitivities arising from the egos of the individuals involved.", "conditions": [ "code review conducted among human peers" ], "topics": [ "open-source-and-code" ] }, { "id": "kaal:claim:3995709-009", "url": "https://wulfkaal.github.io/claims/3995709-009", "family": "collective-action-and-coordination-failure", "name": "untimely or unhelpful feedback", "claim": "Feedback in modern code review is deficient in both timeliness and substance: receiving feedback in a timely manner is developers' number one reported challenge, and the feedback that arrives is often not insightful because reviewers focus on insignificant details rather than larger issues.", "conditions": [ "surveyed developer populations in industry code review" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3995709-013", "url": "https://wulfkaal.github.io/claims/3995709-013", "family": "governance-participation-collapse", "name": "first reviewer anchoring in hierarchical review", "claim": "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.", "conditions": [ "legacy code review firms", "hierarchical ordering of reviewers" ], "topics": [ "institutional-design", "risk-and-incentives" ] }, { "id": "kaal:claim:3995709-014", "url": "https://wulfkaal.github.io/claims/3995709-014", "family": "governance-participation-collapse", "name": "hierarchy blocks clarifying review", "claim": "Increasing the number of reviewers who ask clarifying questions makes code simpler and clearer and thereby typically increases code quality, but hierarchical review processes make this impossible.", "conditions": [ "hierarchical review structures" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3995709-015", "url": "https://wulfkaal.github.io/claims/3995709-015", "family": "governance-participation-collapse", "name": "exclusion of edge reviewers", "claim": "The hierarchical approach to code reviews undermines long term participation and opinion from the edges of the reviewer spectrum, because those reviewers either have no access or are in no position to help review the code.", "conditions": [ "hierarchical legacy review processes" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3995709-016", "url": "https://wulfkaal.github.io/claims/3995709-016", "family": "agency-cost-and-managerial-opportunism", "name": "absence of crowd controls over reviewer preference", "claim": "Without crowd controls, the reviewer's views and the author's intent are at odds and the reviewer can impose their own logic, forcing the author to rewrite functionally sound code repeatedly, which is highly time consuming and inefficient.", "conditions": [ "legacy code review processes lacking crowd control" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3995709-018", "url": "https://wulfkaal.github.io/claims/3995709-018", "family": "smart-contract-rigidity", "name": "review delay causing contract obsolescence", "claim": "Delays in legacy code reviews, which can be exacerbated by digital asset market conditions, can impact development and may require complete rewriting of contracts because the underlying protocol may have upgraded core libraries during the review.", "conditions": [ "legacy code review settings", "fast moving protocol environments in digital asset markets" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:3995709-021", "url": "https://wulfkaal.github.io/claims/3995709-021", "family": "regulatory-capture-and-incumbent-advantage", "name": "cartel capture of quality controls", "claim": "Cartel power undermines attempts by other industry players to create internal or external controls on the quality of code reviews, leaving the public with no or very weak control over the quality of the code review services it receives.", "conditions": [ "a code review market dominated by a small number of firms" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3995709-023", "url": "https://wulfkaal.github.io/claims/3995709-023", "family": "investor-protection-gap", "name": "no client recourse for flawed reviews", "claim": "There is little or no recourse for clients when reviewed code proves to be flawed even after functionality and quality review.", "conditions": [ "the existing code review and audit market" ], "topics": [ "compliance", "law-and-legal-systems" ] }, { "id": "kaal:claim:3995709-024", "url": "https://wulfkaal.github.io/claims/3995709-024", "family": "liquidity-and-market-structure-failure", "name": "absence of code review insurance", "claim": "Despite the significant flaws in code reviews and their often flawed results, the existing code review market does not allow for any form of insurance product of the kind associated with products in other markets.", "conditions": [ "the existing code review and audit market" ], "topics": [ "compliance", "economics" ] }, { "id": "kaal:claim:3995709-025", "url": "https://wulfkaal.github.io/claims/3995709-025", "family": "legal-personality-and-liability-gap", "name": "legacy insurance market forecloses the underwriting remedy", "claim": "Even if code review and audit firms did engage in thorough insurance underwriting and guarantees for their clients, the remedy would still fail because those firms would remain subject to the flawed and centralized legacy insurance market, which is itself dominated by a cartel of a few core players.", "conditions": [ "code review firms relying on legacy insurance markets" ], "topics": [ "defi" ] }, { "id": "kaal:claim:3995709-033", "url": "https://wulfkaal.github.io/claims/3995709-033", "family": "information-asymmetry", "name": "opaque cartel pricing", "claim": "Because the existing code review market provides no publicly transparent pricing, it arguably harms the public for the benefit of the cartel and its clients, since neither the client nor the code reviewer benefits from public scrutiny of cartel prices.", "conditions": [ "the pre existing code audit market" ], "topics": [ "disclosure", "economics" ] }, { "id": "kaal:claim:3981021-001", "url": "https://wulfkaal.github.io/claims/3981021-001", "family": "rule-obsolescence-and-ossification", "name": "Zombie Charity", "claim": "Existing legal incentives in many jurisdictions produce so called Zombie Charities, with the consequence that donative intent often cannot be optimally fulfilled.", "conditions": [ "jurisdictions whose legal incentives favor endowment preservation" ], "topics": [ "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:3981021-005", "url": "https://wulfkaal.github.io/claims/3981021-005", "family": "recentralization-drift", "name": "Donor centralization of problem definition", "claim": "Modern philanthropic strategies entrust donors with identifying which problems need to be solved and with providing the solutions, rather than trusting the solutions proposed by the nonprofits themselves, which makes the approach more centralized and less grassroots.", "conditions": [ "modern donor driven philanthropic strategies" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3981021-006", "url": "https://wulfkaal.github.io/claims/3981021-006", "family": "recentralization-drift", "name": "Loss of grassroots autonomy", "claim": "Modern philanthropy limits the autonomy of grassroots charitable organizations and substitutes a leveraged and exploitive relationship in which the goals of the donor are served above all.", "conditions": [ "grassroots charitable organizations receiving major private philanthropic funding" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:3981021-007", "url": "https://wulfkaal.github.io/claims/3981021-007", "family": "board-and-oversight-failure", "name": "Tax free cash hoarding", "claim": "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.", "conditions": [ "jurisdictions granting an immediate deduction with deferred payout obligations" ], "topics": [ "law-and-legal-systems", "risk-and-incentives", "economics" ] }, { "id": "kaal:claim:3981021-008", "url": "https://wulfkaal.github.io/claims/3981021-008", "family": "board-and-oversight-failure", "name": "Minimum payout becomes the default", "claim": "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.", "conditions": [ "United States private foundations as of 2021" ], "topics": [ "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:3981021-009", "url": "https://wulfkaal.github.io/claims/3981021-009", "family": "supervisory-capacity-gap", "name": "Under-resourced charity regulator", "claim": "The default regulatory remedy is impaired at the source: the IRS division charged with monitoring charities remains understaffed and underfinanced and is able to audit only a small percentage of charities annually.", "conditions": [ "United States charity oversight", "IRS exempt organizations enforcement" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:3981021-010", "url": "https://wulfkaal.github.io/claims/3981021-010", "family": "supervisory-capacity-gap", "name": "Constrained information sharing between regulators", "claim": "Information sharing remedies are self limiting: the Pension Protection Act of 2006 let the IRS share more charity tax record information with state officials so they could investigate possible violations of state law, but the same act established strict controls over how that information could be used.", "conditions": [ "United States federal to state charity enforcement coordination" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:3981021-023", "url": "https://wulfkaal.github.io/claims/3981021-023", "family": "recentralization-drift", "name": "Re-centralization drift in DAO governance", "claim": "The CHARITYxDAO's long term success depends on maintaining dynamic decentralized fluidity and order; without it the values that initially united the voting associates are at risk of morphing into ever tighter, more complex, and hierarchical structures.", "conditions": [ "DAOs holding fungible assets over long time horizons" ], "topics": [ "decentralization", "institutional-design", "dao", "governance-design" ] }, { "id": "kaal:claim:3981021-028", "url": "https://wulfkaal.github.io/claims/3981021-028", "family": "plutocratic-capture", "name": "Polarizing outcomes of one token one vote", "claim": "Reputation staking overcomes the polarizing effects and suboptimal vote outcomes produced by one token one vote voting mechanisms.", "conditions": [ "governance systems choosing between token weighted and reputation weighted voting" ], "topics": [ "reputation", "tokenomics", "governance-design" ] }, { "id": "kaal:claim:3981021-031", "url": "https://wulfkaal.github.io/claims/3981021-031", "family": "governance-participation-collapse", "name": "Liveness fault from participant inaction", "claim": "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.", "conditions": [ "reputation systems with built in inflationary decay" ], "topics": [ "reputation", "tokenomics", "risk-and-incentives", "dao", "governance-design" ] }, { "id": "kaal:claim:3808867-003", "url": "https://wulfkaal.github.io/claims/3808867-003", "family": "other", "name": "Ethical collectivism corrupts reason", "claim": "Appeals to individual sacrifice for a common good constitute ethical collectivism, which corrupts society and undermines the reason and rational thought of individuals.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808867-004", "url": "https://wulfkaal.github.io/claims/3808867-004", "family": "inequality-and-access-divide", "name": "Symmetric failure of capitalism and socialism", "claim": "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.", "conditions": [], "topics": [ "risk-and-incentives", "economics" ] }, { "id": "kaal:claim:3808867-010", "url": "https://wulfkaal.github.io/claims/3808867-010", "family": "rule-obsolescence-and-ossification", "name": "Limits of legally created trust", "claim": "Legally created trust is limited because it is only indirectly democratically legitimized, and is therefore arbitrary, inflexible, untimely, resistant to change, dependent on fallible human centric decision processes, and confined to human speed.", "conditions": [ "trust created by legal guarantees and judicial enforcement in capitalist and socialist systems" ], "topics": [ "reputation", "law-and-legal-systems" ] }, { "id": "kaal:claim:3808867-012", "url": "https://wulfkaal.github.io/claims/3808867-012", "family": "governance-participation-collapse", "name": "Corruption of delegated voting", "claim": "Delegating one's vote to a third party whose ethics and belief system the voter does not truly know produces suboptimal outcomes, and delegated voting on issues that cannot be foreseen is corrupting.", "conditions": [ "representative democracies in the 21st century" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3808867-013", "url": "https://wulfkaal.github.io/claims/3808867-013", "family": "agency-cost-and-managerial-opportunism", "name": "Representative incentive misalignment", "claim": "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.", "conditions": [ "representative democracies" ], "topics": [ "risk-and-incentives", "ai-and-agents", "corporate-governance", "governance-design" ] }, { "id": "kaal:claim:3808867-016", "url": "https://wulfkaal.github.io/claims/3808867-016", "family": "collective-action-and-coordination-failure", "name": "Tragedy of the commons in microdemocracy", "claim": "Microdemocratic systems must solve the tragedy of the commons, because without controls self interested voters acting independently of the totality of voters may deplete or spoil shared resources such as the environment and public goods.", "conditions": [ "microdemocratic shared-resource systems", "absence of controls" ], "topics": [ "institutional-design", "governance-design" ] }, { "id": "kaal:claim:3808867-017", "url": "https://wulfkaal.github.io/claims/3808867-017", "family": "plutocratic-capture", "name": "Majority rule minority discrimination", "claim": "Majority rule in microdemocratic systems can produce discrimination against minorities, because a majority that is itself unaffected by a rule it instantiates can impose a discriminatory impact on a minority that is disproportionately affected.", "conditions": [ "majority rule voting systems" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3808867-020", "url": "https://wulfkaal.github.io/claims/3808867-020", "family": "adoption-and-usability-barrier", "name": "Constitutional adoption barrier", "claim": "Upgrading existing representative democracies with decentralized supplemental voting systems may require constitutional or democratic support, and the availability of that support is dubious at best.", "conditions": [ "adoption of decentralized voting pools as supplements to representative democracy" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3808867-021", "url": "https://wulfkaal.github.io/claims/3808867-021", "family": "incumbent-resistance-to-adoption", "name": "Government capture of decentralized voting", "claim": "Decentralized voting solutions require political will as well as technology, and governments in existing representative democracies may refuse to surrender control over the voting process, preferring private blockchains to facilitate voting outcomes.", "conditions": [ "government controlled voting infrastructure" ], "topics": [ "blockchain", "governance-design" ] }, { "id": "kaal:claim:3808867-022", "url": "https://wulfkaal.github.io/claims/3808867-022", "family": "enforcement-gap", "name": "Regulation cannot reach private standard setting", "claim": "Regulating centralized technology conglomerates addresses only part of the problem, because even fully regulated conglomerates retain the power to set standards and norms for emerging technologies that government cannot effectively trace; microdemocratic decision making can set such standards outside their control metrics.", "conditions": [ "centralized technology conglomerates that increasingly act like governments" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808867-023", "url": "https://wulfkaal.github.io/claims/3808867-023", "family": "ai-oversight-and-alignment-gap", "name": "Unquantifiable risk of centralized automation", "claim": "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.", "conditions": [], "topics": [ "decentralization", "risk-and-incentives", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:3808867-024", "url": "https://wulfkaal.github.io/claims/3808867-024", "family": "human-judgment-displacement", "name": "Recommendation asymmetry as social control", "claim": "A single powerful application such as Google already exercises substantial control over human knowledge and thought, and could control societal outcomes by making disparate recommendations to similarly situated users.", "conditions": [ "dominant internet based applications accumulating societal functions since the early 2010s" ], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:3808867-025", "url": "https://wulfkaal.github.io/claims/3808867-025", "family": "ai-oversight-and-alignment-gap", "name": "Human unintelligibility of algorithmic optimization", "claim": "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.", "conditions": [ "sensor and wearable derived data on human interaction" ], "topics": [ "disclosure", "risk-and-incentives" ] }, { "id": "kaal:claim:3808867-028", "url": "https://wulfkaal.github.io/claims/3808867-028", "family": "human-judgment-displacement", "name": "Elimination of the human element", "claim": "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.", "conditions": [ "fully realized centralized algorithmic automation" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3808867-031", "url": "https://wulfkaal.github.io/claims/3808867-031", "family": "recentralization-drift", "name": "Algorithmic autocracy from data control", "claim": "Those few entities and individuals who control the data flow and the associated algorithms can use centralized algorithmic human predictors to build autocratic algorithmic systems and structures, and the implied loss of democratic principles in society is perhaps an inevitable side effect.", "conditions": [ "concentrated control over data flows and algorithms" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3808867-032", "url": "https://wulfkaal.github.io/claims/3808867-032", "family": "human-judgment-displacement", "name": "Dataism denies value of human input", "claim": "Because of its autocratic and efficiency focused tendencies, centralized algorithmic automation is prone to create structures for the evolution of dataism, which ultimately denies the value of human inputs and individualism.", "conditions": [ "centralized algorithmic automation oriented to harmonization and efficiency" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3808867-037", "url": "https://wulfkaal.github.io/claims/3808867-037", "family": "inequality-and-access-divide", "name": "Fee driven barriers to entry in legacy payments", "claim": "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.", "conditions": [ "centralized legacy fiat payment systems relying on banks and payment processors" ], "topics": [ "risk-and-incentives", "decentralization" ] }, { "id": "kaal:claim:3931933-006", "url": "https://wulfkaal.github.io/claims/3931933-006", "family": "recentralization-drift", "name": "platform centralization suppressing edge information", "claim": "Platform centralization is especially damaging in developer communities because developers are the channel through which information from the edges of the system and society enters, and through which consensus on emerging technologies is formed.", "conditions": [ "technology platforms whose direction is controlled centrally" ], "topics": [ "decentralization", "open-source-and-code", "governance-design", "consensus-and-security" ] }, { "id": "kaal:claim:3931933-007", "url": "https://wulfkaal.github.io/claims/3931933-007", "family": "innovation-chilling", "name": "constrained developer experimentation", "claim": "The lack of developer liberalization carries negative societal consequences: when developers are restrained from building what they see as cutting edge and socially beneficial, society's own capacity to experiment with new technology is severely hampered.", "conditions": [ "developer communities constrained by centralized platform control" ], "topics": [ "open-source-and-code", "decentralization", "innovation" ] }, { "id": "kaal:claim:3931933-011", "url": "https://wulfkaal.github.io/claims/3931933-011", "family": "governance-participation-collapse", "name": "attrition after reward status disclosure", "claim": "Publishing each validator's uptime and rewarding status to the community on a weekly basis coincided with active Casper testnet nodes falling below 800, in a period of already volatile validator participation.", "conditions": [ "2021 Casper testnet incentivized phases" ], "topics": [ "disclosure", "consensus-and-security" ] }, { "id": "kaal:claim:3931933-012", "url": "https://wulfkaal.github.io/claims/3931933-012", "family": "staking-and-incentive-misalignment", "name": "exclusion driven node shutdown", "claim": "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.", "conditions": [ "2021 Casper testnet incentivization phase" ], "topics": [ "consensus-and-security", "risk-and-incentives" ] }, { "id": "kaal:claim:3931933-013", "url": "https://wulfkaal.github.io/claims/3931933-013", "family": "recentralization-drift", "name": "core developer rule capture", "claim": "The initial Casper testnet was subject to inevitable centralization, illustrated by a small group of core developers setting validator performance numbers and other rules without broader community input.", "conditions": [ "initial Casper testnet governance" ], "topics": [ "decentralization", "governance-design" ] }, { "id": "kaal:claim:3931933-014", "url": "https://wulfkaal.github.io/claims/3931933-014", "family": "staking-and-incentive-misalignment", "name": "opaque reward eligibility", "claim": "Opacity about reward eligibility is itself a source of dysfunction: during the first phase of the 2021 Casper testnet it was unclear which validators would be rewarded in each week, which caused friction and non-productive discussions among the validators.", "conditions": [ "first phase of the 2021 Casper testnet", "weekly publication of uptime scores improved the situation only marginally" ], "topics": [ "disclosure", "consensus-and-security" ] }, { "id": "kaal:claim:3931933-015", "url": "https://wulfkaal.github.io/claims/3931933-015", "family": "collective-action-and-coordination-failure", "name": "single channel communication gap", "claim": "The initial Casper testnet group was hampered by communication shortcomings, with only around 680 validators present in the telegram group that served as the main channel for news and updates.", "conditions": [ "2021 Casper testnet validator community" ], "topics": [ "consensus-and-security", "institutional-design", "disclosure" ] }, { "id": "kaal:claim:3931933-016", "url": "https://wulfkaal.github.io/claims/3931933-016", "family": "sybil-and-identity-attack", "name": "multi node reward farming", "claim": "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.", "conditions": [ "original Casper testnet under a uptime only rewards policy" ], "topics": [ "consensus-and-security", "regulatory-failure", "risk-and-incentives" ] }, { "id": "kaal:claim:3931933-017", "url": "https://wulfkaal.github.io/claims/3931933-017", "family": "cold-start-and-bootstrapping", "name": "unqualified validator participation", "claim": "Lack of validator expertise degraded the initial Casper testnet, with only around 85 percent of testnet nodes up to date and roughly 140 active machines contributing nothing to the network.", "conditions": [ "initial Casper testnet" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3931933-018", "url": "https://wulfkaal.github.io/claims/3931933-018", "family": "staking-and-incentive-misalignment", "name": "reward seeking crowding out expertise", "claim": "Reward focused participation crowds out technical engagement: many Casper testnet participants lacked the expertise to run nodes, and their questions concentrated on reward payments with little to no focus on technical topics.", "conditions": [ "initial Casper testnet telegram channel discussions" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:3782192-004", "url": "https://wulfkaal.github.io/claims/3782192-004", "family": "rule-obsolescence-and-ossification", "name": "Strengths-become-weaknesses under dynamism", "claim": "Centralization is not the optimal organizational structure under highly dynamic conditions; the very features that make centralized hierarchies efficient become their greatest weaknesses when conditions change.", "conditions": [ "highly dynamic or rapidly changing environments" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782192-005", "url": "https://wulfkaal.github.io/claims/3782192-005", "family": "rule-obsolescence-and-ossification", "name": "Rigidity-induced collapse into chaos", "claim": "If a hierarchy becomes too rigid the organization inevitably fails and the result is a return to chaos, which is why revolutions recur as a cyclic pattern in governmental structures throughout history.", "conditions": [ "hierarchies that cannot bend or rearrange their order" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782192-006", "url": "https://wulfkaal.github.io/claims/3782192-006", "family": "recentralization-drift", "name": "Decision-making bottleneck", "claim": "Concentrating too much power in any single office of a hierarchy creates a decision making bottleneck that can cripple the organization, so the tree structure that is optimal for transmitting orders downward is also its point of paralysis.", "conditions": [ "centralized tree structures with concentrated decision rights" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782192-007", "url": "https://wulfkaal.github.io/claims/3782192-007", "family": "information-asymmetry", "name": "Blindness to information at the edge", "claim": "Because information at the edge does not travel up a centralized hierarchy, the central authority makes decisions without full information, and a centralized organization is therefore not well designed to respond to any crisis it has not anticipated.", "conditions": [ "strongly centralized organizations that leave no decision power at the edges", "novel or unanticipated external challenges" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782192-010", "url": "https://wulfkaal.github.io/claims/3782192-010", "family": "recentralization-drift", "name": "Terminal power concentration provoking revolt", "claim": "Unchecked concentration of power drives the distribution toward one member holding nearly all resources, which is clearly inefficient for the goals of the group, and the resulting discontent is the main historical reason for revolt.", "conditions": [ "hierarchies where the concentration of power is left unchecked" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782192-013", "url": "https://wulfkaal.github.io/claims/3782192-013", "family": "recentralization-drift", "name": "Inevitable corruption in hierarchies", "claim": "Corruption is technically inevitable in any hierarchy, because it is impossible to create a perfectly efficient organization in practice and there is friction in every real system.", "conditions": [ "any real hierarchy" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782192-014", "url": "https://wulfkaal.github.io/claims/3782192-014", "family": "enforcement-gap", "name": "Letter-of-the-law rule gaming", "claim": "When the letter of the law becomes more important than the spirit of the law, internal competition for power makes the winning strategy to push behavior to the limit of what is acceptable.", "conditions": [ "formal rule based governance inside a centralized hierarchy", "internal competition for power" ], "topics": [ "regulatory-failure", "governance-design" ] }, { "id": "kaal:claim:3782192-015", "url": "https://wulfkaal.github.io/claims/3782192-015", "family": "enforcement-gap", "name": "Escalating policing costs", "claim": "As members constantly probe the edge of acceptable behavior, policing the rules becomes more expensive, the rules become divorced from the shared goals, and relationships become brittle and formal instead of warm and loose.", "conditions": [ "organizations relying on formal rule enforcement" ], "topics": [ "compliance", "reputation", "institutional-design" ] }, { "id": "kaal:claim:3782192-016", "url": "https://wulfkaal.github.io/claims/3782192-016", "family": "rule-obsolescence-and-ossification", "name": "Static rules cannot prevent corruption", "claim": "No static set of logical rules can ever succeed in preventing corruption, which is the ultimate problem with relying on letter of the law governance instead of spirit of the law governance.", "conditions": [ "any static, formally specified rule set" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782192-017", "url": "https://wulfkaal.github.io/claims/3782192-017", "family": "enforcement-gap", "name": "Formal rule subversion (Folk Theorem)", "claim": "The Folk Theorems of game theory prove that any rules that can be formally set down can be subverted: strategies always exist that follow the rules and still allow a minority player to profit at the expense of the majority.", "conditions": [ "any formally specified rule set analyzed as a repeated game" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3782192-021", "url": "https://wulfkaal.github.io/claims/3782192-021", "family": "rule-obsolescence-and-ossification", "name": "Rigidity breeding private capture of ignored opportunity", "claim": "Rigidity generates corruption: because a rigid organization ignores new information incompatible with its structure, the unexploited value creates an opportunity for an individual to capture it for personal advantage rather than for the group.", "conditions": [ "rigid organizations facing a changing environment" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:3782192-022", "url": "https://wulfkaal.github.io/claims/3782192-022", "family": "rule-obsolescence-and-ossification", "name": "Self-reinforcing rigidity spiral", "claim": "Even where corruption is avoided, rigidity still leads centralized organizations to catastrophic ends, because failures push members to cling more faithfully to the rules that saved them in the past, making the system still more rigid and brittle.", "conditions": [ "centralized organizations under repeated external shocks" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782192-031", "url": "https://wulfkaal.github.io/claims/3782192-031", "family": "rule-obsolescence-and-ossification", "name": "Institutional lag of democratic structures", "claim": "Western democracies still run on structures developed decades or centuries ago and have no formal interaction with the new data stream produced by modern information technology.", "conditions": [ "contemporary Western democracies" ], "topics": [ "institutional-design", "governance-design" ] }, { "id": "kaal:claim:3782192-038", "url": "https://wulfkaal.github.io/claims/3782192-038", "family": "cold-start-and-bootstrapping", "name": "Missing institutional layer for decentralized business", "claim": "Decentralized money and decentralized contracts have been built, but decentralized business will not work until roughly eight further decentralized institutions that people actually use in business are built.", "conditions": [ "decentralized commerce built on blockchain infrastructure" ], "topics": [ "tokenomics", "institutional-design", "decentralization" ] }, { "id": "kaal:claim:3782191-002", "url": "https://wulfkaal.github.io/claims/3782191-002", "family": "recentralization-drift", "name": "limits-of-centralized-society", "claim": "Centralized organization of society has reached its limitations, evidenced by weakening public sector legitimacy, economic decline, disillusionment with existing institutions, inadequate response to geopolitical problems, and pressure on overly centralized systems.", "conditions": [ "contemporary global economic and political systems" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782191-006", "url": "https://wulfkaal.github.io/claims/3782191-006", "family": "definitional-ambiguity", "name": "centralized-framing-of-decentralization", "claim": "Defining decentralization through historically formed centralized perspectives is a contradiction in terms that undermines its true potential and limits the scope and scale of decentralized approaches.", "conditions": [ "when centralized concepts are used as the frame for defining decentralization" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782191-008", "url": "https://wulfkaal.github.io/claims/3782191-008", "family": "harmonization-and-standardization-failure", "name": "subsidiarity-insufficiency", "claim": "The subsidiarity principle, which holds that issues should be addressed at the most immediate level consistent with their resolution, cannot by itself encapsulate the ontology and desirable outcomes of decentralization.", "conditions": [ "subsidiarity as used in existing legal frameworks and European Union law" ], "topics": [ "decentralization", "law-and-legal-systems" ] }, { "id": "kaal:claim:3782191-017", "url": "https://wulfkaal.github.io/claims/3782191-017", "family": "oracle-and-input-corruption", "name": "unverified-edge-information", "claim": "No guarantee exists in a decentralized system that the randomly generated information filtering in at the edges is accurate, as on Amazon and the internet generally where there is no real attempt to clean the data.", "conditions": [ "decentralized systems lacking verification infrastructure" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782191-022", "url": "https://wulfkaal.github.io/claims/3782191-022", "family": "recentralization-drift", "name": "single-point-of-failure", "claim": "Centralized coordination enables attack coordination because the hierarchical structure allows attackers to identify a single point of failure, whereas the constantly morphing information flow of decentralized systems increases their attack resistance.", "conditions": [ "comparison of centralized and decentralized system security" ], "topics": [ "consensus-and-security", "institutional-design" ] }, { "id": "kaal:claim:3782191-024", "url": "https://wulfkaal.github.io/claims/3782191-024", "family": "definitional-ambiguity", "name": "distributed-decentralized-conflation", "claim": "The widely reproduced diagram contrasting centralized, decentralized, and distributed networks is a shallow and wrong answer to what decentralization means, because decentralized networks are always distributed while distributed networks may or may not be under centralized control, so distributed does not belong in the comparison.", "conditions": [ "explanations of distributed computing, blockchain, and Web3" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782191-026", "url": "https://wulfkaal.github.io/claims/3782191-026", "family": "recentralization-drift", "name": "leader-single-point-of-failure", "claim": "Centralization has two major flaws that inevitably lead to its downfall; the first is that every centralized organization has a single point of failure, binding the organization to a leader's poor decisions when that leader lacks information, skill, wisdom, or charisma.", "conditions": [ "all centralized organizations", "aggravated when circumstances change faster than a leader can decide" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:3782191-027", "url": "https://wulfkaal.github.io/claims/3782191-027", "family": "recentralization-drift", "name": "hierarchical-ossification", "claim": "The second flaw of centralization is that a hierarchy's own success and efficiency makes members dependent on it until the structure ossifies and becomes too inflexible to reorganize and respond effectively to a novel crisis.", "conditions": [ "successful hierarchies facing novel crises rather than predictable tasks" ], "topics": [ "systemic-risk", "institutional-design" ] }, { "id": "kaal:claim:3782191-034", "url": "https://wulfkaal.github.io/claims/3782191-034", "family": "governance-participation-collapse", "name": "hierarchy-blocks-talent-discovery", "claim": "A hierarchy obstructs solving novel problems because it prevents the identification of talented people at the lower rungs and resists the changes needed to construct a new hierarchy for organizing the effort.", "conditions": [ "novel problems outside the organization's design purpose" ], "topics": [ "institutional-design", "research-methods" ] }, { "id": "kaal:claim:3782191-036", "url": "https://wulfkaal.github.io/claims/3782191-036", "family": "liquidity-and-market-structure-failure", "name": "monopoly-liquidity-impairment", "claim": "Centralization is dangerous in any market because monopolies ruin market efficiency by impairing liquidity, while the most efficient and liquid markets have high transaction rates of many goods moving between many small players.", "conditions": [ "markets" ], "topics": [ "economics", "defi", "decentralization" ] }, { "id": "kaal:claim:3782191-037", "url": "https://wulfkaal.github.io/claims/3782191-037", "family": "recentralization-drift", "name": "brittle-corporate-hierarchy", "claim": "Corporations centralize power in order to pursue a singular strategy that efficiently exploits market circumstances, but this produces instability when the market swings, because a brittle hierarchy may crash before it can reorganize to handle a new challenge.", "conditions": [ "corporations with centralized power facing market swings" ], "topics": [ "economics", "decentralization" ] }, { "id": "kaal:claim:3949098-001", "url": "https://wulfkaal.github.io/claims/3949098-001", "family": "liquidity-and-market-structure-failure", "name": "Overcollateralization Penalty", "claim": "Decentralized finance is structurally disadvantaged against traditional finance because decentralized products must be backed with full collateral, typically 100 percent and 200 percent on secondary layers such as MakerDAO, a collateralization burden that would be unthinkable in traditional markets.", "conditions": [ "digital asset markets as of 2021", "decentralized loans, insurance and similar products", "absence of alternatives to collateral" ], "topics": [ "decentralization", "defi" ] }, { "id": "kaal:claim:3949098-013", "url": "https://wulfkaal.github.io/claims/3949098-013", "family": "token-transferability-defect", "name": "Reputation Exit Illiquidity", "claim": "Exit by selling reputation tokens is more problematic for reputation than for other cryptocurrency tokens, because reputation is less fungible: a token's value is tied to the specific post in which the reputation was created and is subject to separate review.", "conditions": [ "a member wants to exit by selling reputation tokens at fair market value" ], "topics": [ "defi", "reputation", "economics" ] }, { "id": "kaal:claim:3949098-014", "url": "https://wulfkaal.github.io/claims/3949098-014", "family": "token-transferability-defect", "name": "Forced RNFT Liquidation On Undersubscription", "claim": "In a firm commitment underwriting deal whose public portion does not sell out, a member is forced to sell reputation non fungible tokens on the over the counter market to satisfy the resulting capital call, but only if that member cannot cover the pro rata capital requirement with liquid capital.", "conditions": [ "firm commitment underwriting deals", "public portion undersubscribed", "member lacks liquid capital" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:3949098-016", "url": "https://wulfkaal.github.io/claims/3949098-016", "family": "inequality-and-access-divide", "name": "Expertise Network Exclusion", "claim": "Without access to a network of core expertise, early stage investments in the digital asset industry are rarely successful.", "conditions": [ "early stage digital asset investing", "an industry that evolved in silos of information and expertise" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3949098-017", "url": "https://wulfkaal.github.io/claims/3949098-017", "family": "valuation-and-pricing-failure", "name": "Hype Driven Market Discounts Technical Merit", "claim": "Because the cryptocurrency market has been hype driven, technical experience has not added significantly to overall market development and maturity.", "conditions": [ "cryptocurrency market of the early 2020s" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3949098-020", "url": "https://wulfkaal.github.io/claims/3949098-020", "family": "information-asymmetry", "name": "Underwriter Screening Free Ride And Lemons Problem", "claim": "In traditional underwriting, investors who cannot distinguish underwriters by reputation create free riding: once free riding occurs, underwriters stop investing in screening and try to free ride on others, producing a lemons problem.", "conditions": [ "traditional underwriting markets", "investors cannot distinguish underwriters based on reputation" ], "topics": [ "defi" ] }, { "id": "kaal:claim:3949098-021", "url": "https://wulfkaal.github.io/claims/3949098-021", "family": "agency-cost-and-managerial-opportunism", "name": "Agent Expropriation Of Firm Reputation", "claim": "Traditional underwriting also fails at the agent level, because individual agents within an underwriter may sacrifice the underwriter's overall reputation for personal gain, for example by putting out a fraudulent offering.", "conditions": [ "traditional underwriting firms where agent and firm incentives diverge" ], "topics": [ "corporate-governance", "defi", "reputation", "ai-and-agents" ] }, { "id": "kaal:claim:3949098-025", "url": "https://wulfkaal.github.io/claims/3949098-025", "family": "liquidity-and-market-structure-failure", "name": "Unsold Public Tranche Liquidity Absorption", "claim": "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.", "conditions": [ "firm commitment underwriting", "public demand falls short of the capped amount" ], "topics": [ "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:3949098-026", "url": "https://wulfkaal.github.io/claims/3949098-026", "family": "liquidity-and-market-structure-failure", "name": "Liquidity Gain Neutralization", "claim": "Misjudging the public commitment portion of a firm underwriting engagement would neutralize the liquidity the DAOIC previously gained through reputation staking.", "conditions": [ "firm commitment underwriting engagements" ], "topics": [ "defi", "risk-and-incentives", "reputation" ] }, { "id": "kaal:claim:3949098-028", "url": "https://wulfkaal.github.io/claims/3949098-028", "family": "governance-participation-collapse", "name": "Homogeneity Suppresses Decentralization Benefits", "claim": "In phase 1 the benefits of decentralization remain relatively small because the presumably homogenous DAOIC member group generates little dissent in reputation based decision making.", "conditions": [ "small and homogenous membership", "phase 1 of the DAOIC life cycle" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3949098-032", "url": "https://wulfkaal.github.io/claims/3949098-032", "family": "harmonization-and-standardization-failure", "name": "Standards Deficit Blocks Market Evolution", "claim": "Without standards for digital assets it will be very difficult to increase regulatory certainty or coordinate market activity, and without regulatory certainty the digital asset market is less likely to evolve.", "conditions": [ "digital asset markets seeking mass adoption" ], "topics": [ "economics", "institutional-design" ] }, { "id": "kaal:claim:3949098-035", "url": "https://wulfkaal.github.io/claims/3949098-035", "family": "fraud-and-misconduct", "name": "Perceived Market Impact Invites Corruption And Regulation", "claim": "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.", "conditions": [ "DAOIC has proliferated and is visible to the market and regulators" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:3962614-001", "url": "https://wulfkaal.github.io/claims/3962614-001", "family": "incumbent-resistance-to-adoption", "name": "Traditional VC funding insufficiency", "claim": "The rapid growth of digital asset startups into billion dollar businesses with little or no venture capital funding demonstrates that the traditional venture capital model alone was not enough to meet the funding needs of technology startups.", "conditions": [ "technology startups, especially digital asset startups" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3962614-003", "url": "https://wulfkaal.github.io/claims/3962614-003", "family": "liquidity-and-market-structure-failure", "name": "Capital lock up illiquidity", "claim": "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.", "conditions": [ "traditional fiat venture capital funds" ], "topics": [ "defi", "risk-and-incentives", "innovation" ] }, { "id": "kaal:claim:3962614-005", "url": "https://wulfkaal.github.io/claims/3962614-005", "family": "liquidity-and-market-structure-failure", "name": "Capital call liquidity drag", "claim": "Because traditional fiat VC funds must maintain liquidity to support capital calls from their investors, they are limited in their ability to deploy capital, which affects their return on investment and overall fund performance.", "conditions": [ "fiat denominated venture capital funds subject to capital calls" ], "topics": [ "defi" ] }, { "id": "kaal:claim:3962614-006", "url": "https://wulfkaal.github.io/claims/3962614-006", "family": "agency-cost-and-managerial-opportunism", "name": "PR ability displaces allocation skill", "claim": "Because time spent raising capital from limited partners is time taken away from portfolio company due diligence, the current VC model tends to reflect the networking and public relations ability of the general partner instead of their capital allocation ability.", "conditions": [ "traditional fiat VC funds that must continuously raise capital from limited partners" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3962614-007", "url": "https://wulfkaal.github.io/claims/3962614-007", "family": "measurement-and-metric-failure", "name": "Subjective deal evaluation error", "claim": "Deal evaluation and risk assessment in traditional venture capital is fraught with inaccuracies and suboptimal incentives.", "conditions": [ "traditional VC screening of early stage ventures" ], "topics": [ "risk-and-incentives", "innovation" ] }, { "id": "kaal:claim:3962614-008", "url": "https://wulfkaal.github.io/claims/3962614-008", "family": "sample-and-selection-bias", "name": "Cognitive bias in screening", "claim": "A drawback of the traditional VC evaluation process is that perceptual, emotional, and cognitive processes affect the investment decision alongside financial considerations, because the evaluation criteria are applied through subjective human decision making.", "conditions": [ "human applied VC screening criteria" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3962614-009", "url": "https://wulfkaal.github.io/claims/3962614-009", "family": "measurement-and-metric-failure", "name": "Portfolio correlation blind spot", "claim": "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.", "conditions": [], "topics": [ "risk-and-incentives", "innovation" ] }, { "id": "kaal:claim:3962614-010", "url": "https://wulfkaal.github.io/claims/3962614-010", "family": "agency-cost-and-managerial-opportunism", "name": "Post investment managerial opportunism", "claim": "Significant information asymmetries in venture capital can lead portfolio company managers to engage in opportunistic behavior after an investment is made.", "conditions": [ "post investment stage of a VC financing" ], "topics": [ "disclosure", "corporate-governance", "innovation" ] }, { "id": "kaal:claim:3962614-011", "url": "https://wulfkaal.github.io/claims/3962614-011", "family": "short-termism", "name": "Exit driven short termism", "claim": "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.", "conditions": [ "VC backed portfolio companies approaching the exit window" ], "topics": [ "risk-and-incentives", "innovation" ] }, { "id": "kaal:claim:3962614-012", "url": "https://wulfkaal.github.io/claims/3962614-012", "family": "incumbent-resistance-to-adoption", "name": "Traditional VC digital asset disadvantage", "claim": "Traditional VCs struggle in the digital asset market because of that market's significant volatility and because they lack expertise in a market still dominated by several key specialized players.", "conditions": [ "traditional VCs entering digital asset markets" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3962614-013", "url": "https://wulfkaal.github.io/claims/3962614-013", "family": "transition-and-migration-risk", "name": "VC competitive displacement by token offerings", "claim": "Traditional VCs often cannot effectively compete with the ever increasing array of decentralized token offering avenues.", "conditions": [ "digital asset fundraising markets" ], "topics": [ "securities-law", "tokenomics", "economics", "decentralization" ] }, { "id": "kaal:claim:3962614-018", "url": "https://wulfkaal.github.io/claims/3962614-018", "family": "information-asymmetry", "name": "Startup self censorship", "claim": "Information asymmetries increase in traditional VC investment rounds because startups are incentivized to self censor when engaging with VCs, having little data to work with and being reluctant to overexpose themselves to prospective investors.", "conditions": [ "early round engagement between startups and VCs" ], "topics": [ "disclosure", "innovation" ] }, { "id": "kaal:claim:3962614-019", "url": "https://wulfkaal.github.io/claims/3962614-019", "family": "agency-cost-and-managerial-opportunism", "name": "Fee driven incentive distortion", "claim": "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.", "conditions": [ "fee based VC compensation arrangements" ], "topics": [ "ai-and-agents", "risk-and-incentives", "innovation" ] }, { "id": "kaal:claim:3962614-020", "url": "https://wulfkaal.github.io/claims/3962614-020", "family": "cold-start-and-bootstrapping", "name": "Alternative funder idiosyncrasy", "claim": "Alternative early round funding mechanisms are not necessarily more successful than VCs in early round technology investing, because they tend to act out of intuition and personal experience whereas VCs use a primarily data driven approach to investment decisions and portfolio company evaluation.", "conditions": [ "early round technology investing" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3962614-021", "url": "https://wulfkaal.github.io/claims/3962614-021", "family": "cold-start-and-bootstrapping", "name": "Inadequate alternative funding", "claim": "Alternative early round funding methods frequently fail to provide adequate funding to fully launch a new company, and a significant number of tech startups that rely exclusively on these methods fail.", "conditions": [ "startups relying exclusively on alternative early round funding" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:3962614-030", "url": "https://wulfkaal.github.io/claims/3962614-030", "family": "token-transferability-defect", "name": "Capital reputation duality dilution", "claim": "The basic VC DAO model mixes fungible cryptocurrency investment with minted non fungible reputation, and this duality prevents the full benefits that are generated when non fungible reputation is staked alone on deals.", "conditions": [ "early phase VC DAO models that combine capital and reputation staking" ], "topics": [ "reputation", "dao" ] }, { "id": "kaal:claim:3962614-034", "url": "https://wulfkaal.github.io/claims/3962614-034", "family": "legal-personality-and-liability-gap", "name": "Unlimited joint and several DAO liability", "claim": "A VC DAO needs a legal wrapper in order to interact with the real world, because otherwise everyone involved in the DAO may be jointly and severally liable in any jurisdiction.", "conditions": [ "DAOs transacting with counterparties in the offchain world" ], "topics": [ "law-and-legal-systems", "dao" ] }, { "id": "kaal:claim:3962614-035", "url": "https://wulfkaal.github.io/claims/3962614-035", "family": "reputation-system-gaming", "name": "Reputation gaming through selective staking", "claim": "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.", "conditions": [ "models where VCs can stake reputation without proportionate capital commitment" ], "topics": [ "ai-and-agents", "risk-and-incentives", "reputation", "regulatory-failure", "dao" ] }, { "id": "kaal:claim:3782217-004", "url": "https://wulfkaal.github.io/claims/3782217-004", "family": "recentralization-drift", "name": "centralized-dependency-nullifies-decentralization", "claim": "Any reliance by a DAO on a centralized feature creates a centralized point of failure that threatens the survival of the organization and renders the system technically centralized despite its decentralized appearance.", "conditions": [ "DAOs with any centralized dependency, including oracles" ], "topics": [ "smart-contracts", "decentralization", "dao" ] }, { "id": "kaal:claim:3782217-005", "url": "https://wulfkaal.github.io/claims/3782217-005", "family": "recentralization-drift", "name": "wasted-decentralization", "claim": "Where a DAO is automated around a single centralized point of failure, the work of decentralizing and giving members redundant power is wasted, because the point of failure functions as a supreme leader and full centralization would be more efficient.", "conditions": [ "DAO automated around one centralized component" ], "topics": [ "economics", "decentralization" ] }, { "id": "kaal:claim:3782217-006", "url": "https://wulfkaal.github.io/claims/3782217-006", "family": "oracle-and-input-corruption", "name": "centralized-oracle-capture", "claim": "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.", "conditions": [ "DAO automated by smart contracts on oracle data", "sufficient value at stake" ], "topics": [ "smart-contracts", "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:3782217-007", "url": "https://wulfkaal.github.io/claims/3782217-007", "family": "regulatory-arbitrage", "name": "regulatory-evasion", "claim": "Legislation is the wrong remedy for oracle exploitation, because the existence of an arbitrage opportunity means systems will evolve around whatever rules exist in order to exploit the advantage; the proper response is to engineer a better system.", "conditions": [ "insider information and arbitrage opportunities" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:3782217-009", "url": "https://wulfkaal.github.io/claims/3782217-009", "family": "governance-participation-collapse", "name": "idiocy-of-the-mob", "claim": "Condorcet's Jury Theorem cuts both ways: larger groups of slightly stupid people, defined as being wrong slightly more than half the time, are worse than smaller groups of stupid people, so the idiocy of the mob is the counterbalance to the wisdom of the crowd.", "conditions": [ "average member correct less than half the time" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782217-013", "url": "https://wulfkaal.github.io/claims/3782217-013", "family": "oracle-and-input-corruption", "name": "immature-decentralized-oracles", "claim": "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.", "conditions": [ "state of the technology at the time of writing" ], "topics": [ "smart-contracts", "dao", "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:3782217-016", "url": "https://wulfkaal.github.io/claims/3782217-016", "family": "cold-start-and-bootstrapping", "name": "mutual-dependency-deadlock", "claim": "Oracle DAOs and decentralized finance DAOs face a bootstrapping deadlock because each relies on the other for its very existence, a chicken and egg problem the authors address by having participants prove their worth in a development period before they can charge other DAOs fees.", "conditions": [ "early stage decentralized finance ecosystems" ], "topics": [ "defi", "smart-contracts" ] }, { "id": "kaal:claim:3782217-017", "url": "https://wulfkaal.github.io/claims/3782217-017", "family": "recentralization-drift", "name": "institutional-ossification", "claim": "Centralized civic institutions always become corrupt over time, and that corruption becomes obvious only once a new technology disrupts their operation and reveals their weaknesses.", "conditions": [ "centralized civic institutions over long time horizons" ], "topics": [ "institutional-design", "innovation" ] }, { "id": "kaal:claim:3782217-023", "url": "https://wulfkaal.github.io/claims/3782217-023", "family": "recentralization-drift", "name": "local-coverage-collapse", "claim": "The most obvious harm from news consolidation is that national and international centralized corporations do not devote the same degree of focus to the interests of the local communities they serve, because love does not scale.", "conditions": [ "consolidated national or international news corporations" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782217-025", "url": "https://wulfkaal.github.io/claims/3782217-025", "family": "reputation-system-gaming", "name": "gameable-popularity-algorithms", "claim": "Popularity based ranking cannot substitute for editorial control, because people end up relying on unconscious algorithms to determine what is authoritative and the Folk Theorems establish that such algorithms can always be gamed.", "conditions": [ "user generated content platforms without editorial control" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:3782217-026", "url": "https://wulfkaal.github.io/claims/3782217-026", "family": "agency-cost-and-managerial-opportunism", "name": "central-authority-neglect", "claim": "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.", "conditions": [ "platforms with centralized profit control" ], "topics": [ "risk-and-incentives", "decentralization" ] }, { "id": "kaal:claim:3782217-027", "url": "https://wulfkaal.github.io/claims/3782217-027", "family": "cold-start-and-bootstrapping", "name": "insufficient-ambition", "claim": "Existing decentralized news efforts including WikiNews, the Decentralized News Network, and Steemit failed to gain wide adoption because they lacked ambition; the goal should instead be to empower individuals with greater ability to communicate and cooperate.", "conditions": [ "decentralized news projects to date" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:3782217-032", "url": "https://wulfkaal.github.io/claims/3782217-032", "family": "staking-and-incentive-misalignment", "name": "unsustainable-open-source", "claim": "From a game theory perspective the open source culture advocated in the Web3 movement is not sustainable in the long term unless it is married with a culture of respect for history.", "conditions": [ "long term horizon", "absence of a culture acknowledging past contributions" ], "topics": [ "open-source-and-code", "economics" ] }, { "id": "kaal:claim:3782210-002", "url": "https://wulfkaal.github.io/claims/3782210-002", "family": "collective-action-and-coordination-failure", "name": "Adversarial market collapse", "claim": "Markets collapse when opportunistic behavior saps the efficiency of cooperation: once the environment becomes too adversarial and trust is diminished, collaboration is no longer profitable.", "conditions": [ "markets with significant information asymmetries", "environments permitting a wide variety of strategies" ], "topics": [ "economics", "reputation", "disclosure" ] }, { "id": "kaal:claim:3782210-003", "url": "https://wulfkaal.github.io/claims/3782210-003", "family": "enforcement-gap", "name": "Policing overhead drain", "claim": "Strict legal enforcement is an inefficient remedy for opportunism because every unit of energy devoted to policing is energy that could instead have been used to cooperate productively.", "conditions": [], "topics": [ "law-and-legal-systems", "compliance", "economics" ] }, { "id": "kaal:claim:3782210-004", "url": "https://wulfkaal.github.io/claims/3782210-004", "family": "regulatory-lag", "name": "Regulatory pacing failure", "claim": "Strict legal enforcement becomes impossible once a market is sufficiently complex and dynamic, because law cannot keep pace with the creative contracts that leading experts continually invent.", "conditions": [ "complex and rapidly evolving markets", "markets where experts continually improve business arrangements" ], "topics": [ "law-and-legal-systems", "compliance", "dynamic-regulation", "innovation" ] }, { "id": "kaal:claim:3782210-006", "url": "https://wulfkaal.github.io/claims/3782210-006", "family": "staking-and-incentive-misalignment", "name": "Reliance on good will", "claim": "The failure of many DAOs to date is traceable to their reliance on the good will of network members rather than on engineered incentives.", "conditions": [ "decentralized autonomous organizations observed to date" ], "topics": [ "dao", "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:3782210-007", "url": "https://wulfkaal.github.io/claims/3782210-007", "family": "sybil-and-identity-attack", "name": "Anonymity dilution at scale", "claim": "As a network grows its members become more anonymous and individually less important, which makes cheating more locally enticing and less globally noticeable, so the system eventually collapses once cheating is obviously the best individual strategy.", "conditions": [ "networks that grow large", "networks lacking a secure reputation mechanism" ], "topics": [ "dao" ] }, { "id": "kaal:claim:3782210-008", "url": "https://wulfkaal.github.io/claims/3782210-008", "family": "sybil-and-identity-attack", "name": "Sockpuppet attack", "claim": "A Web of Trust style reputation ledger, in which each party rates each transaction and reputation is summed with weightings by rater reputation, will have all of its value drained by the sockpuppet attack, because an attacker can build reputation through transactions between their own fake accounts and then use it to cheat.", "conditions": [ "open networks that permit account creation", "self-reported transaction ratings" ], "topics": [ "consensus-and-security", "reputation", "regulatory-failure" ] }, { "id": "kaal:claim:3782210-009", "url": "https://wulfkaal.github.io/claims/3782210-009", "family": "sybil-and-identity-attack", "name": "Fee and KYC pseudo-defense", "claim": "Charging transaction fees or imposing KYC identity protocols does not solve the sockpuppet problem: such defenses push the cost of defending the network onto users, and the defense cost equals what it is worth to break the defense while being multiplied across every transaction with every member.", "conditions": [ "defenses that tax ordinary transactions", "attacker gain from faked reputation exceeds the cost of faking it" ], "topics": [ "compliance", "consensus-and-security" ] }, { "id": "kaal:claim:3782210-010", "url": "https://wulfkaal.github.io/claims/3782210-010", "family": "privacy-and-surveillance-risk", "name": "Identity disclosure weakening", "claim": "Reducing member anonymity weakens rather than strengthens a decentralized network, because personal privacy protects members and lets them be more transparent in their dealings without fear of victimization.", "conditions": [ "open decentralized networks" ], "topics": [ "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:3782210-011", "url": "https://wulfkaal.github.io/claims/3782210-011", "family": "reputation-system-gaming", "name": "Value threshold breach", "claim": "The Web of Trust works acceptably for low-value information transmission but should not be used for transactions involving larger wealth in the general economy, which is part of why the scheme it originated in is called pretty good privacy rather than good privacy.", "conditions": [ "high value economic transactions" ], "topics": [ "reputation", "consensus-and-security" ] }, { "id": "kaal:claim:3782210-018", "url": "https://wulfkaal.github.io/claims/3782210-018", "family": "sybil-and-identity-attack", "name": "Equal salary sockpuppet exploit", "claim": "Distributing salary equitably, for example equally to all members, is self-defeating: the obvious gaming strategy becomes creating multiple accounts and distributing one's work between them, which is why the salary must be reputation-weighted.", "conditions": [ "open membership systems where accounts are cheap to create" ], "topics": [ "consensus-and-security", "reputation", "regulatory-failure" ] }, { "id": "kaal:claim:3782210-021", "url": "https://wulfkaal.github.io/claims/3782210-021", "family": "staking-and-incentive-misalignment", "name": "DAO extinction by fee loss", "claim": "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.", "conditions": [ "DAOs that depend on outside customer fees", "competitive markets for DAO services" ], "topics": [ "institutional-design", "dao", "risk-and-incentives" ] }, { "id": "kaal:claim:3782210-024", "url": "https://wulfkaal.github.io/claims/3782210-024", "family": "regulatory-capture-and-incumbent-advantage", "name": "Self-regulation moral hazard", "claim": "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.", "conditions": [ "hierarchical, siloed organizations", "self-regulation by service providers" ], "topics": [ "risk-and-incentives", "institutional-design", "regulatory-failure" ] }, { "id": "kaal:claim:3782210-025", "url": "https://wulfkaal.github.io/claims/3782210-025", "family": "sybil-and-identity-attack", "name": "Inevitable sockpuppet exposure", "claim": "Sockpuppet attacks are inevitable in any organization that wants open membership and anonymous members, and since those properties are essential to the autonomy that makes a global decentralized organization efficient, reputation must be weighted every time it is used.", "conditions": [ "open membership", "anonymous or pseudonymous members" ], "topics": [ "consensus-and-security", "reputation" ] }, { "id": "kaal:claim:3782210-026", "url": "https://wulfkaal.github.io/claims/3782210-026", "family": "sybil-and-identity-attack", "name": "Sockpuppet attack on Web of Trust", "claim": "Every single reputational implementation the authors have audited in the blockchain DAO space carries the flaw of vulnerability to the sockpuppet attack on the Web of Trust model.", "conditions": [ "blockchain DAO reputation systems audited by the authors as of writing" ], "topics": [ "consensus-and-security", "compliance", "dao", "blockchain", "reputation" ] }, { "id": "kaal:claim:3782210-027", "url": "https://wulfkaal.github.io/claims/3782210-027", "family": "reputation-system-gaming", "name": "Partial necessity implementation", "claim": "SingularityNet's reputation system, which tracks self-reported transaction quality, transaction value, duration of satisfaction, and prior reputation weights, will have its value eroded by the sockpuppet attack once the system becomes valuable enough to merit attack, because it does not implement the other necessities.", "conditions": [ "systems implementing only a subset of the seven necessities", "once the reputation becomes valuable enough to merit attack" ], "topics": [ "consensus-and-security", "reputation", "compliance" ] }, { "id": "kaal:claim:3782210-029", "url": "https://wulfkaal.github.io/claims/3782210-029", "family": "plutocratic-capture", "name": "Majority power capture", "claim": "Concentration of power is the greatest threat to any decentralized organization, because a single member or sub-coalition that gains a majority of power in an inherently democratic organization will eventually control it no matter what safeguards are in place, at which point the organization is no longer decentralized.", "conditions": [ "democratic decentralized organizations", "especially profit-devoted and therefore competitive ones" ], "topics": [ "consensus-and-security", "decentralization", "governance-design" ] }, { "id": "kaal:claim:3782210-033", "url": "https://wulfkaal.github.io/claims/3782210-033", "family": "governance-participation-collapse", "name": "Egalitarian voting expertise deficit", "claim": "One-person-one-vote governance fails on technical questions because half the members have less than average expertise yet equal power, which incentivizes experts to gain power by catering to less expert prejudices instead of pursuing the most effective decisions.", "conditions": [ "organizations voting on matters requiring expertise" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782210-034", "url": "https://wulfkaal.github.io/claims/3782210-034", "family": "scalability-and-throughput-limit", "name": "On-chain voting inefficiency", "claim": "Contemporary blockchains cannot support the proposed architecture because the technology is too slow and expensive to poll members on every transaction, and the messages required for all nodes to register all votes on every action multiply into an unmanageable number.", "conditions": [ "blockchains as of writing, including Ethereum", "polling on every member action" ], "topics": [ "blockchain", "governance-design", "consensus-and-security" ] }, { "id": "kaal:claim:3782210-035", "url": "https://wulfkaal.github.io/claims/3782210-035", "family": "cold-start-and-bootstrapping", "name": "Reputation voting bootstrap deadlock", "claim": "Reputation-based governance faces a chicken and egg problem: voting becomes more efficient once reputation is valuable, but reputation cannot become valuable without meaningful voting.", "conditions": [ "bootstrapping a reputation system on existing infrastructure" ], "topics": [ "governance-design", "economics", "reputation" ] }, { "id": "kaal:claim:3782210-041", "url": "https://wulfkaal.github.io/claims/3782210-041", "family": "agency-cost-and-managerial-opportunism", "name": "Minimum compliance degeneration", "claim": "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.", "conditions": [ "contracts between parties with no expectation of reputational gain" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3782210-042", "url": "https://wulfkaal.github.io/claims/3782210-042", "family": "staking-and-incentive-misalignment", "name": "Smart contract zero-sum trap", "claim": "Self-executing, self-regulating smart contracts between anonymous parties in an open system create a near perfect zero-sum situation unless the DAO also includes reputation.", "conditions": [ "open systems", "anonymous counterparties", "code-is-law smart contract execution" ], "topics": [ "smart-contracts", "reputation", "dao" ] }, { "id": "kaal:claim:3782220-009", "url": "https://wulfkaal.github.io/claims/3782220-009", "family": "staking-and-incentive-misalignment", "name": "equity collapse through eliminated reward", "claim": "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.", "conditions": [ "complete material leveling", "multigenerational time horizon" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:3782220-010", "url": "https://wulfkaal.github.io/claims/3782220-010", "family": "inequality-and-access-divide", "name": "meritocratic runaway differentiation", "claim": "A society that relies only on meritocratic rewards destroys its own meritocracy: Price's Law differentiates rewards exponentially, the bottom tier cannot afford the training to compete, and the separation widens until the society destabilizes and collapses.", "conditions": [ "pure meritocratic distribution", "multigenerational time horizon" ], "topics": [ "economics" ] }, { "id": "kaal:claim:3782220-012", "url": "https://wulfkaal.github.io/claims/3782220-012", "family": "collective-action-and-coordination-failure", "name": "insurance race to the bottom", "claim": "Automating insurance away with smart contracts risks a race to the bottom, because foregoing insurance is more efficient in the short term for an individual, yet the resulting rare unprotected tragedies can chill the entire system.", "conditions": [ "automated smart contract insurance", "individually optimizing agents" ], "topics": [ "smart-contracts", "systemic-risk", "risk-and-incentives", "institutional-design" ] }, { "id": "kaal:claim:3782220-020", "url": "https://wulfkaal.github.io/claims/3782220-020", "family": "collective-action-and-coordination-failure", "name": "value imbalance collapse", "claim": "Failing to maintain a healthy balance among the polar value pairs, one that faithfully reflects the people's own values, is what topples empires and leads to social catastrophe.", "conditions": [ "societies over long time horizons" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:3782220-021", "url": "https://wulfkaal.github.io/claims/3782220-021", "family": "rule-obsolescence-and-ossification", "name": "formalization makes values manipulable", "claim": "Transcendental values must remain transcendental, because once formalized too rigorously they become more manipulable: a clearly specified definition becomes a focal point for competition instead of a unifying principle.", "conditions": [ "values that have been formalized explicitly" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:3782220-022", "url": "https://wulfkaal.github.io/claims/3782220-022", "family": "definitional-ambiguity", "name": "brittle formal boundary", "claim": "Drawing a clear formal line between where individual rights stop and social responsibilities start makes the system brittle and unstable by turning that line into a focal point for competition, so the line between the two values must remain vague.", "conditions": [ "values in genuine tension such as freedom and equality" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:3782220-028", "url": "https://wulfkaal.github.io/claims/3782220-028", "family": "recentralization-drift", "name": "drift into static power relationships", "claim": "The drift into static power relationships is a universal temptation because centralization is efficient, yet centralized governance is provably flawed.", "conditions": [ "organizations facing the choice between centralized and decentralized governance" ], "topics": [ "decentralization", "institutional-design", "governance-design" ] }, { "id": "kaal:claim:3782220-029", "url": "https://wulfkaal.github.io/claims/3782220-029", "family": "recentralization-drift", "name": "final collapse of global hierarchy", "claim": "Committing too completely to a global centralized manmade hierarchy, and letting its bureaucracy become too rigid and impersonal, risks a predictable fall that could be the final collapse, because for the first time the structure encompasses the entire planet.", "conditions": [ "planet-spanning centralized organization" ], "topics": [ "decentralization", "risk-and-incentives" ] }, { "id": "kaal:claim:3782220-030", "url": "https://wulfkaal.github.io/claims/3782220-030", "family": "recentralization-drift", "name": "enforcer capture of the hierarchy", "claim": "A centralized hierarchy becomes too rigid when those policing the rules gain more power than the members who honor the transcendental value that originally founded the organization, and the spirit of the law should always reign above the letter of the law.", "conditions": [ "centralized hierarchies with rule enforcement roles" ], "topics": [ "compliance", "institutional-design", "decentralization" ] }, { "id": "kaal:claim:3782220-031", "url": "https://wulfkaal.github.io/claims/3782220-031", "family": "agency-cost-and-managerial-opportunism", "name": "rule gaming after value loss", "claim": "As an organization loses touch with its transcendental values, members use the rules to jockey for position in the hierarchy and corruption erodes the organization's effectiveness.", "conditions": [ "organizations that have lost contact with their founding values" ], "topics": [ "regulatory-failure", "institutional-design" ] }, { "id": "kaal:claim:3782220-032", "url": "https://wulfkaal.github.io/claims/3782220-032", "family": "fraud-and-misconduct", "name": "manipulation as the shadow of cooperation", "claim": "The same ability to learn from others' behavior that unleashes the efficiency of cooperation also gives people untold power to trick others, imagining how to manipulate them and corrupt the organization for individual benefit at the group's expense.", "conditions": [ "organizations composed of mind-modeling agents" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4067783-001", "url": "https://wulfkaal.github.io/claims/4067783-001", "family": "fraud-and-misconduct", "name": "Ponzi and rug pull degeneration", "claim": "At their worst, DAOs produce ponzi schemes and rug pulls, and these failures damage the credibility and future of web3 as a whole, not just the individual project.", "conditions": [], "topics": [ "dao" ] }, { "id": "kaal:claim:4067783-002", "url": "https://wulfkaal.github.io/claims/4067783-002", "family": "governance-participation-collapse", "name": "DAO washing and robo voting decay", "claim": "Poorly executed DAOs exhibit a recognizable cluster of pathologies, including siphoned coins, distracted and robo voters, centralization, DAO washing by founders, and absent decentralized governance, and these pathologies drive mid-term and long-term DAO failure.", "conditions": [], "topics": [ "dao", "governance-design", "decentralization" ] }, { "id": "kaal:claim:4067783-003", "url": "https://wulfkaal.github.io/claims/4067783-003", "family": "fraud-and-misconduct", "name": "Rug pull share of illicit crypto revenue", "claim": "Rug pulls grew sharply as a share of crypto crime: of the $7.7 billion in total illicit crypto revenue in 2021, 37 percent came from rug pulls, up from 1 percent of illicit revenue in 2020.", "conditions": [ "2021 data", "measured as a share of total illicit crypto revenue" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:4067783-004", "url": "https://wulfkaal.github.io/claims/4067783-004", "family": "governance-participation-collapse", "name": "Hype dissipation of fundraiser DAOs", "claim": "Fundraiser DAOs are structurally fragile because they typically lack incentives for meaningful community engagement, so they dissipate once the hype that created them fades.", "conditions": [ "DAOs formed primarily to raise funds" ], "topics": [ "dao", "risk-and-incentives" ] }, { "id": "kaal:claim:4067783-005", "url": "https://wulfkaal.github.io/claims/4067783-005", "family": "plutocratic-capture", "name": "Whale capture through purchasable voting power", "claim": "Governance by fungible tokens lets whales control a fundraiser DAO, which is antithetical to decentralized governance, and selling purchasable voting power via fungible tokens creates the risk of hostile takeover or looting.", "conditions": [ "governance rights attached to fungible, purchasable tokens" ], "topics": [ "tokenomics", "regulatory-failure", "governance-design" ] }, { "id": "kaal:claim:4067783-006", "url": "https://wulfkaal.github.io/claims/4067783-006", "family": "fraud-and-misconduct", "name": "Rug pull attributed to missing decentralized governance", "claim": "The author contests the myth that DAOs are generally run by scammers: many DAOs and users have indeed fallen victim to rug pulls, but most of those rug pulls trace to the absence of decentralized governance in fundraiser DAOs rather than to DAOs as such.", "conditions": [ "applies to fundraiser DAOs lacking decentralized governance" ], "topics": [ "dao", "decentralization", "governance-design" ] }, { "id": "kaal:claim:4067783-007", "url": "https://wulfkaal.github.io/claims/4067783-007", "family": "fraud-and-misconduct", "name": "DAO concentration among largest rug pulls", "claim": "DAO projects accounted for a material share of the largest crypto frauds of the year: two of the top six crypto rug pulls in 2021 were DAO projects.", "conditions": [ "2021", "top six crypto rug pulls by size" ], "topics": [ "dao", "empirical-evidence" ] }, { "id": "kaal:claim:4067783-008", "url": "https://wulfkaal.github.io/claims/4067783-008", "family": "fraud-and-misconduct", "name": "Token sale pool drain at close", "claim": "A DAO token sale can be drained at the moment of closing: in the Anubis DAO sale 13597 ETH was removed from the token sale pool and sent to another address as the sale was about to close, and because the launch platform had not been compromised the loss was attributed to an inside rug pull.", "conditions": [ "Anubis DAO token sale on the Copper platform, October 2021" ], "topics": [ "dao", "securities-law", "tokenomics" ] }, { "id": "kaal:claim:4067783-009", "url": "https://wulfkaal.github.io/claims/4067783-009", "family": "fraud-and-misconduct", "name": "Privileged insider control of keys and code", "claim": "Most DAOs that suffer unethical behavior and rug pulls are abused by insiders, and this is possible because insiders are not properly governed and hold too much control over the DAO; true decentralized community governance removes insider and council control over keys and code.", "conditions": [ "DAOs where councils or privileged insiders retain key and code control" ], "topics": [ "decentralization", "governance-design" ] }, { "id": "kaal:claim:4067783-010", "url": "https://wulfkaal.github.io/claims/4067783-010", "family": "fraud-and-misconduct", "name": "Insider backrunning of a scheduled buyback", "claim": "Insider knowledge of contract internals is itself an attack surface: at Snowdog DAO an insider who knew a challenge key embedded in the DAO contract backran the anticipated buyback and sold tokens ahead of it.", "conditions": [ "Snowdog DAO on the Avalanche protocol", "insider holding a contract challenge key" ], "topics": [ "dao", "smart-contracts" ] }, { "id": "kaal:claim:4067783-011", "url": "https://wulfkaal.github.io/claims/4067783-011", "family": "plutocratic-capture", "name": "External governance takeover", "claim": "Insider rug pulls are not the only exploit path: a DAO can also be attacked from the outside whenever its governance grants voting power through fungible tokens.", "conditions": [ "governance voting power is denominated in fungible tokens" ], "topics": [ "consensus-and-security", "tokenomics", "governance-design" ] }, { "id": "kaal:claim:4067783-012", "url": "https://wulfkaal.github.io/claims/4067783-012", "family": "token-transferability-defect", "name": "Fungible token governance as common failure denominator", "claim": "The absence of proper decentralized governance built on non-fungible tokens is a key common denominator across DAO failures and rug pulls.", "conditions": [], "topics": [ "tokenomics", "decentralization", "governance-design" ] }, { "id": "kaal:claim:4067783-013", "url": "https://wulfkaal.github.io/claims/4067783-013", "family": "governance-participation-collapse", "name": "Silent majority voting deficit", "claim": "Dispersed, passive token holders cannot defend a DAO: because power in Build Finance DAO was not decentralized, the silent majority of token holders lacked the voting power to block the takeover, after which the attacker minted and sold tokens by draining liquidity pools.", "conditions": [ "low participation among dispersed token holders" ], "topics": [ "consensus-and-security", "governance-design", "defi" ] }, { "id": "kaal:claim:4067783-015", "url": "https://wulfkaal.github.io/claims/4067783-015", "family": "plutocratic-capture", "name": "Minority stakeholder governance capture", "claim": "Governance in most DAOs is severely underdeveloped, which leaves a minority of stakeholders defining governance, and that minority control in turn produces mediocre and poorly developed proposals.", "conditions": [ "DAOs still in early governance experimentation" ], "topics": [ "governance-design", "dao" ] }, { "id": "kaal:claim:4067783-020", "url": "https://wulfkaal.github.io/claims/4067783-020", "family": "smart-contract-rigidity", "name": "Irreversible self execution rigidity", "claim": "Smart contracts that govern fungible currency exchanges are engineered for irreversible, unreviewable, programmed self execution, and that design makes the business structure of web3 more rigid.", "conditions": [ "smart contracts involving fungible currency exchange" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:4067783-021", "url": "https://wulfkaal.github.io/claims/4067783-021", "family": "smart-contract-rigidity", "name": "Incomplete contracting in code", "claim": "Code is law fails as a complete business ordering because business ventures very rarely proceed exactly as written in smart contract code: real business relationships are far messier and more multivalent than a series of smart contracts can predict.", "conditions": [], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:4067783-024", "url": "https://wulfkaal.github.io/claims/4067783-024", "family": "sybil-and-identity-attack", "name": "Anonymous trolling friction", "claim": "Anonymous decentralized networks can encourage troll behavior because participants feel safe attacking others without retribution, and in a DAO that trolling destabilizes the organization and creates friction between members and the DAO.", "conditions": [ "anonymous participation without reputational stake" ], "topics": [ "institutional-design", "dao" ] }, { "id": "kaal:claim:4067783-030", "url": "https://wulfkaal.github.io/claims/4067783-030", "family": "agency-cost-and-managerial-opportunism", "name": "Extrinsic motivation principal agent spiral", "claim": "Traditional work in centralized structures is prone to extrinsically motivated engagement, which intensifies principal agent problems and produces suboptimal outcomes because a principal dictates where, what, and when workers perform.", "conditions": [ "centralized employment structures with a directing principal" ], "topics": [ "ai-and-agents", "corporate-governance", "decentralization" ] }, { "id": "kaal:claim:4067783-033", "url": "https://wulfkaal.github.io/claims/4067783-033", "family": "plutocratic-capture", "name": "One token one vote proportional control", "claim": "Braintrust demonstrates that innovation in work structure does not cure governance design: despite redefining work outcomes, it uses a suboptimal one token, one vote model that grants proportional control over network governance.", "conditions": [ "governance by one token, one vote" ], "topics": [ "reputation", "tokenomics", "governance-design" ] }, { "id": "kaal:claim:4067783-034", "url": "https://wulfkaal.github.io/claims/4067783-034", "family": "governance-participation-collapse", "name": "Quota and participation requirements in work-to-earn", "claim": "Work-to-earn DAOs must leave it entirely to each member how much time they contribute; DAOs that impose quotas and participation requirements may not be sustainable long-term in a value-to-efforts workflow environment.", "conditions": [ "work-to-earn DAOs seeking to attract long-term talent" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4067783-035", "url": "https://wulfkaal.github.io/claims/4067783-035", "family": "sybil-and-identity-attack", "name": "Sockpuppet attack on web-of-trust vouching", "claim": "Proof of personhood projects such as Proof of Humanity and UBI DAO fail because they rest on web-of-trust theory, which has been proven not to work long-term given the sockpuppet attacks that are inevitable in that design.", "conditions": [ "identity systems built on web-of-trust vouching" ], "topics": [ "reputation", "consensus-and-security" ] }, { "id": "kaal:claim:4067783-037", "url": "https://wulfkaal.github.io/claims/4067783-037", "family": "liquidity-and-market-structure-failure", "name": "Centralized power accumulation degrading liquidity", "claim": "Centralization and monopolies are a threat to market liquidity because they can carry too much mass or too much velocity, and an imbalance in either direction, too much mass and too little velocity or too little mass, damages the market.", "conditions": [], "topics": [ "economics", "defi", "decentralization" ] }, { "id": "kaal:claim:4067783-039", "url": "https://wulfkaal.github.io/claims/4067783-039", "family": "recentralization-drift", "name": "Viewpoint homogenization under centralized power", "claim": "Diversity of viewpoints is severely diminished when power is centralized, whereas information technology allows a global network open to members of diverse values and backgrounds to form.", "conditions": [], "topics": [ "decentralization" ] }, { "id": "kaal:claim:4033886-001", "url": "https://wulfkaal.github.io/claims/4033886-001", "family": "valuation-and-pricing-failure", "name": "legacy metric transplant", "claim": "Valuation metrics developed for legacy assets apply only in a limited way to digital assets, so importing them wholesale produces unreliable digital asset valuations.", "conditions": [ "digital assets as of 2022" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4033886-002", "url": "https://wulfkaal.github.io/claims/4033886-002", "family": "valuation-and-pricing-failure", "name": "valuation infrastructure gap", "claim": "Digital asset valuation uncertainty is produced by the combination of an immature digital asset market and a valuation infrastructure, legal, accounting, finance, technology, and back office, that was not built for these assets.", "conditions": [ "current state of the digital asset market" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4033886-003", "url": "https://wulfkaal.github.io/claims/4033886-003", "family": "valuation-and-pricing-failure", "name": "missing pricing standards", "claim": "Although many traditional assets also resist full assessment, the absence of established pricing standards for digital assets makes the loss of valuation accuracy for financial reporting worse than in traditional markets.", "conditions": [ "financial reporting context" ], "topics": [ "disclosure", "economics" ] }, { "id": "kaal:claim:4033886-004", "url": "https://wulfkaal.github.io/claims/4033886-004", "family": "valuation-and-pricing-failure", "name": "fair value definitional mismatch", "claim": "The accounting definition of fair value may not apply to digital assets, with the consequence that correct valuation of digital assets for financial reporting purposes may be impossible.", "conditions": [ "under existing accounting terminology such as FASB 157 and IFRS 13" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:4033886-005", "url": "https://wulfkaal.github.io/claims/4033886-005", "family": "liquidity-and-market-structure-failure", "name": "cross exchange price divergence", "claim": "Dual listing narrows bid ask spreads in traditional markets by injecting liquidity, but crypto markets behave differently: price differences between two exchanges can reach upwards of five percent during peak trading times.", "conditions": [ "peak trading times", "assets listed on multiple crypto exchanges" ], "topics": [ "economics", "defi" ] }, { "id": "kaal:claim:4033886-006", "url": "https://wulfkaal.github.io/claims/4033886-006", "family": "valuation-and-pricing-failure", "name": "no closing price", "claim": "Digital asset exchanges have no closing prices, so digital asset managers cannot rely on the closing price convention that underpins traditional valuation practice.", "conditions": [ "digital asset exchanges" ], "topics": [ "economics", "defi" ] }, { "id": "kaal:claim:4033886-008", "url": "https://wulfkaal.github.io/claims/4033886-008", "family": "valuation-and-pricing-failure", "name": "price source shopping", "claim": "Even for the most liquid level one digital assets, managers may choose between the price on a favored exchange and an aggregate across exchanges, so the same asset can be reported at different values by different managers.", "conditions": [ "quoting level 1 digital assets" ], "topics": [ "economics", "defi" ] }, { "id": "kaal:claim:4033886-010", "url": "https://wulfkaal.github.io/claims/4033886-010", "family": "information-asymmetry", "name": "cross exchange information asymmetry", "claim": "Arbitrage trading emerges in crypto markets because of information asymmetries across exchanges, which arise from imperfect disclosure, and the resulting decline in market efficiency is a key indicator of an inefficient market.", "conditions": [ "multiple exchanges trading the same asset" ], "topics": [ "disclosure", "economics", "defi" ] }, { "id": "kaal:claim:4033886-011", "url": "https://wulfkaal.github.io/claims/4033886-011", "family": "liquidity-and-market-structure-failure", "name": "blocked arbitrage correction", "claim": "Cross exchange price gaps in crypto do not self correct because of frictions on the arbitrageur side: South Korean investors faced foreign exchange conversion costs and regulatory capital controls that made exploiting the Bithumb premium impractical.", "conditions": [ "South Korean investors seeking access to US exchanges", "capital controls and foreign exchange frictions in place" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4033886-012", "url": "https://wulfkaal.github.io/claims/4033886-012", "family": "disclosure-ineffectiveness", "name": "undisclosed valuation policy", "claim": "Digital asset fund valuation disputes are aggravated by nondisclosure: Polychain Capital told a redeeming investor that the fund's asset valuation policy would not be disclosed.", "conditions": [ "private digital asset funds", "Polychain Capital redemption dispute" ], "topics": [ "private-funds", "economics", "disclosure" ] }, { "id": "kaal:claim:4033886-013", "url": "https://wulfkaal.github.io/claims/4033886-013", "family": "investor-protection-gap", "name": "redeemed investor loses inspection remedy", "claim": "An investor who has been fully redeemed loses the ability to test the fund's valuation of his interest: the court held that Greenhouse retained no equity interest and therefore had no right to inspect the partnership's books and records.", "conditions": [ "Delaware limited partnerships under 6 Del. C. section 17-305", "investor has already withdrawn and been redeemed" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4033886-014", "url": "https://wulfkaal.github.io/claims/4033886-014", "family": "valuation-and-pricing-failure", "name": "non credible redemption contract", "claim": "Redemption contracts, the traditional price commitment device for privately issued money, lack credibility, whereas pre programmed smart contracts deliver an enforceable and secure quantity commitment instead.", "conditions": [ "issuers of privately issued money" ], "topics": [ "smart-contracts", "reputation", "tokenomics" ] }, { "id": "kaal:claim:4033886-016", "url": "https://wulfkaal.github.io/claims/4033886-016", "family": "valuation-and-pricing-failure", "name": "no accepted valuation method", "claim": "As of 2022 there is no agreed upon reliable valuation method for cryptocurrencies.", "conditions": [ "as of 2022" ], "topics": [ "economics", "research-methods" ] }, { "id": "kaal:claim:4033886-017", "url": "https://wulfkaal.github.io/claims/4033886-017", "family": "valuation-and-pricing-failure", "name": "fair market value in practice", "claim": "Fair market value is the legal standard for valuation, but it carries real world problems that limit its usefulness in practice.", "conditions": [], "topics": [ "economics", "law-and-legal-systems" ] }, { "id": "kaal:claim:4033886-018", "url": "https://wulfkaal.github.io/claims/4033886-018", "family": "definitional-ambiguity", "name": "false equivalence with equities", "claim": "Stocks and cryptocurrencies look similar enough, both traded on markets at fluctuating prices, to invite similar regulation, but they diverge in their potential for abuse, their nature, their acceptance, and their use.", "conditions": [ "comparison of listed equities and cryptocurrencies" ], "topics": [ "securities-law", "economics", "research-methods" ] }, { "id": "kaal:claim:4033886-019", "url": "https://wulfkaal.github.io/claims/4033886-019", "family": "valuation-and-pricing-failure", "name": "intangibles omitted from asset approach", "claim": "The adjusted net asset approach revalues balance sheet items toward current fair value but still fails to capture intangible assets, because intangibles are not represented on the balance sheet.", "conditions": [ "asset approach valuations relying on book values" ], "topics": [ "economics", "research-methods" ] }, { "id": "kaal:claim:4033886-020", "url": "https://wulfkaal.github.io/claims/4033886-020", "family": "valuation-and-pricing-failure", "name": "missing digital asset discount rate", "claim": "DCF currency translation breaks down for digital assets: no set discount rate or currency exchange forward curve exists for them, because they are not traded in exchange markets where closing prices are readily available and representative of fair value.", "conditions": [ "DCF analysis where the projection currency is a digital asset rather than fiat" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4033886-021", "url": "https://wulfkaal.github.io/claims/4033886-021", "family": "valuation-and-pricing-failure", "name": "unobservable market inputs", "claim": "Principal to principal markets are generally not considered observable because little information about their transactions is publicly available, which pushes assets priced there out of the observable input levels.", "conditions": [ "principal to principal markets", "fair value input hierarchy" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4033886-022", "url": "https://wulfkaal.github.io/claims/4033886-022", "family": "liquidity-and-market-structure-failure", "name": "liquidity spiral on wide spreads", "claim": "When the bid ask spread grows too wide while trades occur at high volume, the market begins to lose liquidity and the asset's value starts to fall, forcing investors who unload positions to surrender unrealized gains.", "conditions": [ "exchange traded context", "wide spreads combined with high trading volume" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:4033886-023", "url": "https://wulfkaal.github.io/claims/4033886-023", "family": "valuation-and-pricing-failure", "name": "perfect timing assumption", "claim": "Put option based discount models for lack of marketability have been widely used, but they can be inaccurate because real investors do not possess perfect market timing ability.", "conditions": [ "prospective put model and related put option DLOM models" ], "topics": [ "economics", "defi" ] }, { "id": "kaal:claim:4033886-024", "url": "https://wulfkaal.github.io/claims/4033886-024", "family": "research-design-limitation", "name": "volatility assumption mismatch", "claim": "The Longstaff model's assumptions are inconsistent with reality on two fronts: investors do not have perfect timing, and its assumed volatility of ten to thirty percent is far below the volatility exceeding fifty percent typical of small stocks.", "conditions": [ "application of the Longstaff model to small or highly volatile securities" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4033886-025", "url": "https://wulfkaal.github.io/claims/4033886-025", "family": "valuation-and-pricing-failure", "name": "no judicial acceptance", "claim": "A major shortcoming of the QMDM is that no court in any case has accepted it, although it has been mentioned explicitly in three tax cases decided in 2000, 2001, and 2006.", "conditions": [ "judicial acceptance in United States tax litigation" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:4033886-026", "url": "https://wulfkaal.github.io/claims/4033886-026", "family": "liquidity-and-market-structure-failure", "name": "thin holder base", "claim": "The main obstacle to digital asset market liquidity may be that the number of token holders has not continued to expand exponentially year over year; a larger stakeholder base would deepen liquidity and permit seamless entry and exit.", "conditions": [ "centralized digital asset exchange markets" ], "topics": [ "defi", "tokenomics", "economics" ] }, { "id": "kaal:claim:4033886-027", "url": "https://wulfkaal.github.io/claims/4033886-027", "family": "liquidity-and-market-structure-failure", "name": "size dependent illiquidity", "claim": "Digital assets become less liquid precisely when large amounts are moved at once, because a large sell order floods the exchange and drives the price down.", "conditions": [ "large block sales through a single exchange" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:4033886-031", "url": "https://wulfkaal.github.io/claims/4033886-031", "family": "custody-and-key-loss", "name": "combined custody and brokerage role", "claim": "Because digital asset exchanges perform both the traditional broker dealer function and the custody function, they face uncertainties and increased liability that traditional exchanges, which never touch custody, do not bear.", "conditions": [ "centralized digital asset exchanges holding customer assets" ], "topics": [ "defi", "law-and-legal-systems" ] }, { "id": "kaal:claim:4033886-032", "url": "https://wulfkaal.github.io/claims/4033886-032", "family": "liquidity-and-market-structure-failure", "name": "access driven price fragmentation", "claim": "When exchanges apply different standards about who may trade on their platform, the market ends up showing different prices for the same asset across exchanges, which is one reason trading arbitrage has become common in crypto.", "conditions": [ "exchanges excluding participants by residence or other status" ], "topics": [ "economics", "defi" ] }, { "id": "kaal:claim:4033886-039", "url": "https://wulfkaal.github.io/claims/4033886-039", "family": "valuation-and-pricing-failure", "name": "scarcity only explanation", "claim": "Bitcoin's issuance schedule and relative scarcity are not necessarily the only reasons for its rise in value, since thousands of copycats share the same issuance schedule without matching its demand.", "conditions": [ "scarcity based valuation models such as stock to flow" ], "topics": [ "tokenomics", "economics" ] }, { "id": "kaal:claim:4015908-001", "url": "https://wulfkaal.github.io/claims/4015908-001", "family": "fraud-and-misconduct", "name": "Founder cash-out at public expense", "claim": "Even after the ICO boom of 2017 and 2018, many digital asset projects and token launches are designed with the primary focus on benefiting the founding group, which often finds creative ways to cash out of the project after a successful run.", "conditions": [ "post 2018 crypto market cycle", "token launches designed around a founding group" ], "topics": [ "tokenomics", "securities-law", "economics" ] }, { "id": "kaal:claim:4015908-003", "url": "https://wulfkaal.github.io/claims/4015908-003", "family": "recentralization-drift", "name": "Centralized foundation governance", "claim": "The foundation model for token issuance is a core form of centralized top-down governance, and most ICO projects were governed by a small group of individuals rather than by the community at large or a DAO.", "conditions": [ "ICO era token issuance" ], "topics": [ "securities-law", "governance-design", "decentralization", "dao" ] }, { "id": "kaal:claim:4015908-004", "url": "https://wulfkaal.github.io/claims/4015908-004", "family": "investor-protection-gap", "name": "Trading before product exists", "claim": "ICOs that allowed their token to trade before the underlying product existed, at least in beta, created significant risk for investors because the product might never go live and the token could lose its value entirely.", "conditions": [ "token trading opens before a working or beta product exists" ], "topics": [ "securities-law", "risk-and-incentives", "tokenomics" ] }, { "id": "kaal:claim:4015908-013", "url": "https://wulfkaal.github.io/claims/4015908-013", "family": "plutocratic-capture", "name": "Cheap small cap launch capture", "claim": "Small market cap launches at very cheap initial prices carry the potential for team and whale purchase abuses, which is why equitable treatment of the public requires significant project-controlled liquidity.", "conditions": [ "small market capitalization", "very low initial token price" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:4015908-020", "url": "https://wulfkaal.github.io/claims/4015908-020", "family": "liquidity-and-market-structure-failure", "name": "Thin market manipulation risk", "claim": "Without significant marketing a fair launch token is less likely to reach a diverse set of market participants, and projects reaching only a few hundred investors with small million dollar market caps are much more prone to abuse and manipulation.", "conditions": [ "token launches with limited marketing reach" ], "topics": [ "economics", "defi" ] }, { "id": "kaal:claim:4015908-021", "url": "https://wulfkaal.github.io/claims/4015908-021", "family": "inequality-and-access-divide", "name": "Unguaranteed equal access", "claim": "Equal opportunity access points for public marketing incentives cannot be guaranteed and require constant reevaluation, so the public marketing permission for any fair token launch should be restricted to a limited percentage of total token supply.", "conditions": [ "fair launch project grants public marketing incentives" ], "topics": [ "economics", "tokenomics" ] }, { "id": "kaal:claim:4015908-023", "url": "https://wulfkaal.github.io/claims/4015908-023", "family": "recentralization-drift", "name": "Foundation controlled DAO", "claim": "If the DAO governing a fair launch is controlled by a handful of people in a foundation setting, decentralized governance metrics are less likely to take hold and the public is correspondingly less likely to benefit from decentralized community governance over the launch.", "conditions": [ "DAO controlled by a small group in a foundation setting" ], "topics": [ "dao", "decentralization", "governance-design", "regulatory-failure" ] }, { "id": "kaal:claim:4015908-024", "url": "https://wulfkaal.github.io/claims/4015908-024", "family": "plutocratic-capture", "name": "Purchasable governance rights", "claim": "DAO governance built on fungible governance tokens is disfavored and dangerous because governance rights can be bought on open exchanges, whereas non-fungible reputation governance assures the highest levels of decentralization.", "conditions": [ "DAO governance rights are tradeable on open exchanges" ], "topics": [ "dao", "governance-design", "tokenomics", "reputation", "decentralization" ] }, { "id": "kaal:claim:4015908-025", "url": "https://wulfkaal.github.io/claims/4015908-025", "family": "fraud-and-misconduct", "name": "Rug pull", "claim": "Community DAO governance makes any form of rug pull much less likely, because rug pulls typically benefit only a few select individuals who retained control over the project code or liquidity.", "conditions": [ "community DAO oversees project code and liquidity" ], "topics": [ "dao", "governance-design", "defi" ] }, { "id": "kaal:claim:4015908-028", "url": "https://wulfkaal.github.io/claims/4015908-028", "family": "plutocratic-capture", "name": "Early whale supply capture", "claim": "Whale purchases that soak up token supply at the earliest possible time in a launch are the key problem fair launch platforms address, because they can be the origin of significant centralization that harms the project for the entirety of its active market engagement.", "conditions": [ "whales able to buy large amounts at the earliest moment of a launch" ], "topics": [ "decentralization", "tokenomics", "economics" ] }, { "id": "kaal:claim:4015908-032", "url": "https://wulfkaal.github.io/claims/4015908-032", "family": "inequality-and-access-divide", "name": "Liquidity mining regressivity", "claim": "Liquidity mining, one of the dominant mechanisms used for fair launches, undermines fairness because it leads those who already have more liquidity or assets to benefit disproportionally from the protocol.", "conditions": [ "fair launch distributes rewards through liquidity mining" ], "topics": [ "defi" ] }, { "id": "kaal:claim:4015908-041", "url": "https://wulfkaal.github.io/claims/4015908-041", "family": "fraud-and-misconduct", "name": "Whale insider code bribery", "claim": "Rug pull practices can take the form of a whale guaranteeing an inside developer or business head a percentage participation if that insider changes the code governing the project to produce an outcome that benefits only the whale and its associates.", "conditions": [ "insiders retain the ability to change project code" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:4021599-001", "url": "https://wulfkaal.github.io/claims/4021599-001", "family": "definitional-ambiguity", "name": "definitional-contagion", "claim": "The absence of clearly defined technology features for blockchain, distributed ledger, and associated terms propagates outward, producing knock-on definitional problems in other parts of the blockchain ecosystem.", "conditions": [ "blockchain and distributed ledger terminology remains undefined" ], "topics": [ "blockchain", "tokenomics" ] }, { "id": "kaal:claim:4021599-003", "url": "https://wulfkaal.github.io/claims/4021599-003", "family": "definitional-ambiguity", "name": "generic-features-no-specific-definition", "claim": "The core distinguishing features of blockchain technology are only generically definitional: they characterize the technology as a class but supply no specific definitions usable for classification.", "conditions": [], "topics": [ "blockchain", "systemic-risk" ] }, { "id": "kaal:claim:4021599-006", "url": "https://wulfkaal.github.io/claims/4021599-006", "family": "definitional-ambiguity", "name": "undefined-securities-token-nomenclature", "claim": "The lack of a clearly delineated nomenclature for the term securities token has produced divergent uses and interpretations of that term, especially in relation to the term utility token.", "conditions": [ "United States digital asset markets as of 2022" ], "topics": [ "securities-law", "tokenomics", "systemic-risk" ] }, { "id": "kaal:claim:4021599-008", "url": "https://wulfkaal.github.io/claims/4021599-008", "family": "definitional-ambiguity", "name": "blurred-token-category-lines", "claim": "The boundaries between the different types of tokens are regularly blurred, so the securities token versus utility token distinction functions as a typical case distinction rather than a clean partition.", "conditions": [], "topics": [ "systemic-risk", "tokenomics", "securities-law" ] }, { "id": "kaal:claim:4021599-021", "url": "https://wulfkaal.github.io/claims/4021599-021", "family": "definitional-ambiguity", "name": "utility-label-does-not-defeat-security-status", "claim": "Merely calling a token a utility token, or structuring it so that it provides some utility, does not prevent the token from being characterized as a security.", "conditions": [ "United States regulatory characterization" ], "topics": [ "tokenomics", "securities-law" ] }, { "id": "kaal:claim:4021599-026", "url": "https://wulfkaal.github.io/claims/4021599-026", "family": "staking-and-incentive-misalignment", "name": "unclear-utility-token-regulatory-status", "claim": "The regulatory status of securities tokens is rather well established, whereas the regulatory status of utility tokens remains unclear.", "conditions": [ "as of 2022" ], "topics": [ "tokenomics", "securities-law", "law-and-legal-systems" ] }, { "id": "kaal:claim:4529715-003", "url": "https://wulfkaal.github.io/claims/4529715-003", "family": "recentralization-drift", "name": "decentralization-in-name-only", "claim": "DAOs in the dataset score well below average on implementing true decentralization, averaging 3.78 out of 10, with the highest score being CRDAO at 8 out of 10 and several DAOs scoring 1 out of 10.", "conditions": [ "dataset of DAOs scored by the authors' teams" ], "topics": [ "dao", "decentralization", "empirical-evidence", "governance-design" ] }, { "id": "kaal:claim:4529715-004", "url": "https://wulfkaal.github.io/claims/4529715-004", "family": "recentralization-drift", "name": "unrealized-decentralization-benefit", "claim": "The decentralized power structure is supposed to encourage cooperation, free information flow, and decision-making that escapes top-down hierarchy, but with few exceptions the current state of DAOs does not deliver this.", "conditions": [ "current state of the DAO market at time of study" ], "topics": [ "dao", "decentralization", "governance-design" ] }, { "id": "kaal:claim:4529715-006", "url": "https://wulfkaal.github.io/claims/4529715-006", "family": "consensus-and-protocol-attack", "name": "charity-dao-attack-exposure", "claim": "Attack resistance across the studied DAOs averages 4.05 out of 10, and Charity DAOs perform worst in this category, with the best of them, VitaDAO, scoring 3 out of 10 and the remainder at 2 or less.", "conditions": [], "topics": [ "dao", "consensus-and-security", "empirical-evidence" ] }, { "id": "kaal:claim:4529715-007", "url": "https://wulfkaal.github.io/claims/4529715-007", "family": "enforcement-gap", "name": "regulatory-compliance-gap", "claim": "Regulatory compliance is the weakest of all six categories, averaging 3.01 out of 10, and Services DAOs are the only category to outperform that average.", "conditions": [], "topics": [ "dao", "compliance", "law-and-legal-systems", "empirical-evidence" ] }, { "id": "kaal:claim:4529715-008", "url": "https://wulfkaal.github.io/claims/4529715-008", "family": "regulatory-lag", "name": "regulatory-vacuum-inaction", "claim": "The absence of clear regulatory direction from the SEC and state governments helps explain why many DAOs take minimal action to establish regulatory compliance within their organizations.", "conditions": [ "United States regulatory context" ], "topics": [ "dao", "securities-law", "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:4529715-009", "url": "https://wulfkaal.github.io/claims/4529715-009", "family": "governance-participation-collapse", "name": "weak-dao-governance", "claim": "Governance scores across the studied DAOs average 3.81 out of 10, with only a couple of DAOs scoring 7 or higher and the vast majority scoring 5 or less.", "conditions": [], "topics": [ "dao", "governance-design", "empirical-evidence" ] }, { "id": "kaal:claim:4529715-012", "url": "https://wulfkaal.github.io/claims/4529715-012", "family": "harmonization-and-standardization-failure", "name": "no-governance-standard", "claim": "There is no consistent standard for DAO governance, which pushes each DAO to invent its own structure, and because decentralized governance is complex many of those structures fail to become truly decentralized, autonomous, or organized.", "conditions": [ "absence of a governance standard", "novelty of decentralized governance" ], "topics": [ "dao", "governance-design", "decentralization", "ai-and-agents", "institutional-design" ] }, { "id": "kaal:claim:4529715-013", "url": "https://wulfkaal.github.io/claims/4529715-013", "family": "cold-start-and-bootstrapping", "name": "governance-from-scratch-burden", "claim": "Unlike corporate founders, who inherit a known governance template, DAO founders must build a new form of governance from nothing alongside their technology, mission, and values.", "conditions": [ "comparison to incorporation of a traditional corporation" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:4529715-014", "url": "https://wulfkaal.github.io/claims/4529715-014", "family": "governance-participation-collapse", "name": "platform-risk-exceeds-mitigation", "claim": "Some DAO governance platforms create more risk than they mitigate, and DAOs that are not well governed are doomed to fail.", "conditions": [ "platform provided governance templates" ], "topics": [ "dao", "governance-design", "risk-and-incentives" ] }, { "id": "kaal:claim:4529715-015", "url": "https://wulfkaal.github.io/claims/4529715-015", "family": "recentralization-drift", "name": "creeping-centralization", "claim": "The most significant risk of bad DAO governance is centralization, in which a small group holds a disproportionate share of power or influence and thereby undermines the decentralized nature of the organization.", "conditions": [], "topics": [ "dao", "decentralization", "governance-design" ] }, { "id": "kaal:claim:4529715-016", "url": "https://wulfkaal.github.io/claims/4529715-016", "family": "collective-action-and-coordination-failure", "name": "decision-paralysis", "claim": "Without clear and effective governance mechanisms, DAO decision-making becomes slow and inefficient, delaying important changes and the resolution of internal issues.", "conditions": [], "topics": [ "dao", "governance-design", "economics" ] }, { "id": "kaal:claim:4529715-017", "url": "https://wulfkaal.github.io/claims/4529715-017", "family": "governance-participation-collapse", "name": "regulatory-exposure-from-weak-governance", "claim": "DAOs without effective governance structures and policies risk violating local laws and regulations, exposing themselves to legal and regulatory consequences.", "conditions": [], "topics": [ "dao", "governance-design", "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:4529715-018", "url": "https://wulfkaal.github.io/claims/4529715-018", "family": "governance-participation-collapse", "name": "majority-tyranny", "claim": "One person one vote governance carries the risk of majority tyranny, in which the majority imposes its will on minority groups, and it is unsuited to decisions requiring specialized knowledge.", "conditions": [ "one person one vote model" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:4529715-019", "url": "https://wulfkaal.github.io/claims/4529715-019", "family": "governance-participation-collapse", "name": "quadratic-voting-manipulation", "claim": "Quadratic voting remains open to manipulation and strategic voting, and it depends on a robust and transparent voting system to count votes accurately.", "conditions": [ "quadratic voting model" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:4529715-020", "url": "https://wulfkaal.github.io/claims/4529715-020", "family": "token-transferability-defect", "name": "vote-buying", "claim": "Fungible governance tokens expose a DAO to vote buying and other forms of manipulation.", "conditions": [ "fungible token based governance" ], "topics": [ "dao", "tokenomics", "governance-design" ] }, { "id": "kaal:claim:4529715-021", "url": "https://wulfkaal.github.io/claims/4529715-021", "family": "recentralization-drift", "name": "infancy-centralization", "claim": "True decentralization requires the absence of a primary decision-maker, which is very difficult for a decentralized insurance organization to achieve while it is still in its infancy.", "conditions": [ "early stage decentralized insurance organizations" ], "topics": [ "decentralization", "institutional-design" ] }, { "id": "kaal:claim:4529715-022", "url": "https://wulfkaal.github.io/claims/4529715-022", "family": "legal-personality-and-liability-gap", "name": "legal-wrapper-paradox", "claim": "Decentralized organizations carry inherent risks that require establishing a legal entity, and establishing that legal entity inherently contradicts the notion of decentralization.", "conditions": [ "decentralized insurance organizations" ], "topics": [ "dao", "law-and-legal-systems", "decentralization" ] }, { "id": "kaal:claim:4529715-023", "url": "https://wulfkaal.github.io/claims/4529715-023", "family": "oracle-and-input-corruption", "name": "centralized-oracle-defeat", "claim": "Blockchains cannot access off-chain data, and resolving this by using centralized oracles nullifies the advantages of decentralized systems while creating major security risks such as bribing and intimidation.", "conditions": [ "oracle dependent smart contracts" ], "topics": [ "smart-contracts", "decentralization", "consensus-and-security", "risk-and-incentives" ] }, { "id": "kaal:claim:4529715-024", "url": "https://wulfkaal.github.io/claims/4529715-024", "family": "adoption-and-usability-barrier", "name": "unresolved-preconditions", "claim": "The full potential of DAOs can be realized only if the challenges of standardized governance mechanisms, scalability, and legal frameworks are resolved.", "conditions": [], "topics": [ "dao", "governance-design", "law-and-legal-systems" ] }, { "id": "kaal:claim:4529715-025", "url": "https://wulfkaal.github.io/claims/4529715-025", "family": "recentralization-drift", "name": "decentralization-theater", "claim": "Web3 may not yet be ready for a truly decentralized organization: across platforms there is always a promise of decentralization, yet tangible measures prevent that promise from becoming true.", "conditions": [ "DAO platforms reviewed in the study" ], "topics": [ "dao", "decentralization" ] }, { "id": "kaal:claim:4529715-026", "url": "https://wulfkaal.github.io/claims/4529715-026", "family": "recentralization-drift", "name": "decentralize-later-fallacy", "claim": "Many DAO platforms accept the idea that they must first build a centralized organization and decentralize later once proper protocols are in place, but this mindset undermines the power and accessibility to ownership that is the foundation of a DAO.", "conditions": [ "platforms that plan phased decentralization" ], "topics": [ "dao", "decentralization", "governance-design" ] }, { "id": "kaal:claim:4529715-027", "url": "https://wulfkaal.github.io/claims/4529715-027", "family": "plutocratic-capture", "name": "passive-purchasable-ownership", "claim": "Meaningful accessibility in a DAO is impossible if voting rights and ownership are merely passive purchasable assets, no different from traditional stock.", "conditions": [ "purchasable governance tokens" ], "topics": [ "dao", "governance-design", "tokenomics" ] }, { "id": "kaal:claim:4529715-028", "url": "https://wulfkaal.github.io/claims/4529715-028", "family": "recentralization-drift", "name": "founder-key-retention", "claim": "Where a founder retains access to the smart contract behind the governance token, as with 3OH DAO, an internal attack by that founder would be remarkably easy.", "conditions": [ "founder has not renounced ownership of the token smart contract" ], "topics": [ "dao", "consensus-and-security", "smart-contracts" ] }, { "id": "kaal:claim:4529715-029", "url": "https://wulfkaal.github.io/claims/4529715-029", "family": "fraud-and-misconduct", "name": "slow-rug-pull", "claim": "Lobby3 was effectively attacked from within: founders maintained heavy control and slowly diverted funds to themselves, producing a very slow rug pull.", "conditions": [ "founder controlled DAO with wallet size voting" ], "topics": [ "dao" ] }, { "id": "kaal:claim:4529715-030", "url": "https://wulfkaal.github.io/claims/4529715-030", "family": "plutocratic-capture", "name": "whale-attack", "claim": "VitaDAO's one token one vote structure leaves it susceptible to the 51 percent or whale attack, a vulnerability made worse because the VITA token is primarily purchasable.", "conditions": [ "one token one vote with a purchasable token" ], "topics": [ "dao", "consensus-and-security", "tokenomics" ] }, { "id": "kaal:claim:4529715-031", "url": "https://wulfkaal.github.io/claims/4529715-031", "family": "plutocratic-capture", "name": "founder-token-concentration", "claim": "Allocating twenty percent of total token supply to the four person founding team, as Angel Protocol does, means the organization can never become fully decentralized.", "conditions": [ "founding team holds 20 percent of supply" ], "topics": [ "dao", "tokenomics", "decentralization" ] }, { "id": "kaal:claim:4529715-032", "url": "https://wulfkaal.github.io/claims/4529715-032", "family": "sybil-and-identity-attack", "name": "majority-conformity-reputation-gaming", "claim": "A reputation system that rewards voting with the majority, as Bridge Mutual uses, can be manipulated by users who create multiple wallets and always vote with the majority.", "conditions": [ "reputation derived solely from voting outcomes" ], "topics": [ "dao", "reputation", "consensus-and-security", "governance-design" ] }, { "id": "kaal:claim:4529715-035", "url": "https://wulfkaal.github.io/claims/4529715-035", "family": "oracle-and-input-corruption", "name": "oracle-feed-outage", "claim": "Chainlink's white-list response to the 2020 gas fee attack was only a temporary fix: had the attack impacted 50 percent of Chainlink node operators, the price feed would not have updated until enough nodes returned.", "conditions": [ "2020 attack on Chainlink nodes", "oracle networks with limited node counts" ], "topics": [ "smart-contracts", "consensus-and-security" ] }, { "id": "kaal:claim:4529715-038", "url": "https://wulfkaal.github.io/claims/4529715-038", "family": "plutocratic-capture", "name": "token-weighted-juror-capture", "claim": "Kleros has weak attack resistance because juror selection is proportional to staked fungible tokens; staking reputation rather than tokens to select jurors would remedy this.", "conditions": [ "token staked juror selection" ], "topics": [ "dao", "systemic-risk", "law-and-legal-systems", "reputation" ] }, { "id": "kaal:claim:4529715-039", "url": "https://wulfkaal.github.io/claims/4529715-039", "family": "recentralization-drift", "name": "security-by-recentralization", "claim": "Big Green DAO's committee unanimity and closed membership make attacks unlikely, but these same protections come at the expense of the decentralized organization the founders were trying to create.", "conditions": [ "vetted membership and unanimous committee approval" ], "topics": [ "dao", "decentralization", "consensus-and-security", "governance-design" ] }, { "id": "kaal:claim:4529715-040", "url": "https://wulfkaal.github.io/claims/4529715-040", "family": "plutocratic-capture", "name": "tiered-voting-disenfranchisement", "claim": "When only a minority of members, such as Audius node operators, can stake or earn weighted votes, the majority of token holders occupy the same powerless position as an ordinary shareholder in a corporation.", "conditions": [ "tiered voting where staking is restricted to node operators" ], "topics": [ "dao", "governance-design", "corporate-governance" ] }, { "id": "kaal:claim:4796714-001", "url": "https://wulfkaal.github.io/claims/4796714-001", "family": "rule-obsolescence-and-ossification", "name": "static rule obsolescence", "claim": "Traditional AI governance frameworks fail because they rely on static, predefined rules that cannot adapt quickly enough to the pace of AI development or to the nuanced challenges AI presents.", "conditions": [ "applies to conventional rule based governance regimes", "holds where AI capability changes faster than the rule revision cycle" ], "topics": [ "governance-design", "ai-and-agents", "dynamic-regulation" ] }, { "id": "kaal:claim:4796714-002", "url": "https://wulfkaal.github.io/claims/4796714-002", "family": "ai-oversight-and-alignment-gap", "name": "reactive governance insufficiency", "claim": "Conventional governance methods that are reactive or fixed to ex-post solutions are insufficient for governing technologies whose behavior changes continuously after deployment.", "conditions": [ "applies to ex-post regulatory regimes", "holds for AI systems that continue to learn after release" ], "topics": [ "governance-design", "ai-and-agents", "dynamic-regulation" ] }, { "id": "kaal:claim:4796714-003", "url": "https://wulfkaal.github.io/claims/4796714-003", "family": "ai-oversight-and-alignment-gap", "name": "absence of legacy dynamic toolset", "claim": "At the time of publication no legacy governance system exists that can supply the dynamic governance toolsets required to govern evolving AI models ex-ante and manage deployed solutions ex-post.", "conditions": [ "as of the paper's publication in 2024", "refers to legacy, non web3 governance infrastructure" ], "topics": [ "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:4796714-004", "url": "https://wulfkaal.github.io/claims/4796714-004", "family": "regulatory-lag", "name": "ex-post timing gap", "claim": "Ex-post governance, which applies regulation only after AI systems are developed and deployed or after large language models have been pretrained on existing proprietary datasets, fails to address risks and biases preemptively.", "conditions": [ "applies to regulation imposed after model development or pretraining", "concerns risk and bias formation during development" ], "topics": [ "ai-and-agents", "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:4796714-007", "url": "https://wulfkaal.github.io/claims/4796714-007", "family": "ai-oversight-and-alignment-gap", "name": "black box opacity", "claim": "The black box character of deep learning models is a governance failure and not merely a technical inconvenience: opacity obstructs debugging, obscures bias detection and mitigation, and prevents comprehension of how inputs become outputs.", "conditions": [ "most pronounced in deep learning models", "matters where decisions must be explained or audited" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:4796714-008", "url": "https://wulfkaal.github.io/claims/4796714-008", "family": "compliance-cost-and-barrier-to-entry", "name": "compliance cost consolidation", "claim": "Strict privacy and transparency regulation produces a perverse result: because only large technology companies hold the data resources and infrastructure needed to comply and still build effective AI, such regulation consolidates rather than disperses their power.", "conditions": [ "applies to stringent data privacy regimes such as GDPR", "holds where compliance cost scales with organizational resources" ], "topics": [ "regulatory-failure", "economics", "consensus-and-security" ] }, { "id": "kaal:claim:4796714-009", "url": "https://wulfkaal.github.io/claims/4796714-009", "family": "privacy-and-surveillance-risk", "name": "parameter exchange leakage", "claim": "Federated learning does not eliminate privacy risk, because although the data stays decentralized the exchange of model parameters can still expose sensitive information if those parameters are intercepted or improperly handled.", "conditions": [ "applies to practical federated learning deployments", "risk arises at the parameter exchange step" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:4796714-010", "url": "https://wulfkaal.github.io/claims/4796714-010", "family": "ai-model-and-training-failure", "name": "absent reliability guarantee", "claim": "Federated learning lacks theoretical guarantees of reliability and robustness, which makes its behavior unpredictable in practical applications.", "conditions": [ "applies to federated learning as practiced" ], "topics": [ "research-methods", "law-and-legal-systems" ] }, { "id": "kaal:claim:4796714-011", "url": "https://wulfkaal.github.io/claims/4796714-011", "family": "ai-model-and-training-failure", "name": "training data bias transmission", "claim": "Bias in AI systems arises when algorithms incorporate discriminatory practices carried in their training data, and the resulting outputs reveal a profound misalignment between AI operations and societal values, ethics, and norms.", "conditions": [ "arises through the training data pathway", "observable in deployed systems such as chatbots and screening tools" ], "topics": [ "ai-and-agents", "education-and-practice" ] }, { "id": "kaal:claim:4796714-012", "url": "https://wulfkaal.github.io/claims/4796714-012", "family": "recentralization-drift", "name": "blockchain recentralization", "claim": "Recentralization is the central obstacle to using blockchain and distributed ledger technology to govern AI: the recentralizing tendency of these networks interferes with their capacity to deliver effective AI governance.", "conditions": [ "applies to blockchain and DLT based AI governance proposals", "observed in Layer 1 networks as of 2024" ], "topics": [ "decentralization", "blockchain", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:4796714-013", "url": "https://wulfkaal.github.io/claims/4796714-013", "family": "scalability-and-throughput-limit", "name": "blockchain trilemma constraint", "claim": "Blockchain can only deliver decentralized AI governance if the blockchain trilemma is first overcome, since decentralization, security, and scalability cannot readily be achieved simultaneously within one network.", "conditions": [ "applies to blockchain networks used as governance infrastructure", "necessary condition, not sufficient" ], "topics": [ "blockchain", "consensus-and-security", "decentralization", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:4796714-014", "url": "https://wulfkaal.github.io/claims/4796714-014", "family": "plutocratic-capture", "name": "stake weighted governance capture", "claim": "Proof of Stake consensus centralizes control in proportion to the quantity of tokens held, so governance built on such chains is skewed in favor of the wealthy rather than distributed.", "conditions": [ "applies to Proof of Stake chains such as Ethereum", "concerns token weighted governance power" ], "topics": [ "consensus-and-security", "decentralization", "governance-design", "tokenomics" ] }, { "id": "kaal:claim:4796714-015", "url": "https://wulfkaal.github.io/claims/4796714-015", "family": "recentralization-drift", "name": "smart contract corruptibility by affiliation", "claim": "When decentralization at the Layer 1 level is compromised, the autonomy of the smart contracts deployed on that chain is compromised by affiliation, so smart contracts are corruptible in the current design and cannot reliably serve as neutral instruments of ethical AI governance.", "conditions": [ "applies where a few dominant parties influence the underlying Layer 1", "holds under current blockchain design as of 2024" ], "topics": [ "smart-contracts", "decentralization", "compliance", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:4796714-016", "url": "https://wulfkaal.github.io/claims/4796714-016", "family": "collective-action-and-coordination-failure", "name": "decentralized coordination failure", "claim": "Decentralized governance structures impose their own costs: with no central authority to coordinate diverse stakeholders, consensus is difficult to reach, negotiations are prolonged, and enforcement of agreements is weak because no single entity is responsible for compliance.", "conditions": [ "applies to decentralized structures without a coordinating authority", "evidenced in the paper by the environmental agreement domain" ], "topics": [ "decentralization", "institutional-design", "compliance", "consensus-and-security", "governance-design" ] }, { "id": "kaal:claim:4796714-017", "url": "https://wulfkaal.github.io/claims/4796714-017", "family": "ai-oversight-and-alignment-gap", "name": "human oversight bias recursion", "claim": "Using human judgment to uncover unconscious bias in AI can perpetuate the very biases it is meant to remove, because human reviewers carry their own implicit biases and may lack the expertise to identify bias in complex AI systems.", "conditions": [ "applies to human in the loop bias mitigation programs", "holds where reviewers lack technical expertise or bias awareness" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4796714-018", "url": "https://wulfkaal.github.io/claims/4796714-018", "family": "harmonization-and-standardization-failure", "name": "regulatory patchwork burden", "claim": "Sector specific AI regulation, though responsive to the distinctive features of each field, produces a patchwork of complex rules that is difficult for developers to navigate and creates barriers to entry for smaller companies lacking compliance resources.", "conditions": [ "applies where multiple sector regulators issue separate AI rules", "burden falls hardest on resource constrained firms" ], "topics": [ "risk-and-incentives", "compliance" ] }, { "id": "kaal:claim:4796714-019", "url": "https://wulfkaal.github.io/claims/4796714-019", "family": "disclosure-ineffectiveness", "name": "self reporting incentive failure", "claim": "Mandatory AI use reporting fails as a transparency mechanism because it assumes accurate and complete disclosure, while regulated entities have incentives to underreport or misreport in order to avoid scrutiny and regulatory burdens.", "conditions": [ "applies to self reporting mandates such as the White House AI reporting proposals", "holds where disclosure is unverified" ], "topics": [ "disclosure", "risk-and-incentives" ] }, { "id": "kaal:claim:4796714-020", "url": "https://wulfkaal.github.io/claims/4796714-020", "family": "supervisory-capacity-gap", "name": "regulator expertise gap", "claim": "The gap between regulators' technical understanding and the state of the art in AI drives rules to one of two failure states: too vague to be enforceable, or so prescriptive that they suppress creative and beneficial uses of AI.", "conditions": [ "applies where regulators lack current technical expertise", "holds for fast moving technical domains" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4796714-021", "url": "https://wulfkaal.github.io/claims/4796714-021", "family": "consensus-and-protocol-attack", "name": "unresolved DAO attack vectors", "claim": "Until the known attack vectors on decentralized autonomous organizations are solved, DAO based AI governance solutions remain suboptimal; these include Sybil attacks, tyranny of the majority, Arrow's impossibility theorem, sockpuppet attacks, and tragedy of the commons.", "conditions": [ "describes DAOs as set up and governed in the majority of cases in 2024", "conditional on the attack vectors remaining unsolved" ], "topics": [ "dao", "consensus-and-security", "governance-design", "risk-and-incentives", "ai-and-agents" ] }, { "id": "kaal:claim:4796714-022", "url": "https://wulfkaal.github.io/claims/4796714-022", "family": "enforcement-gap", "name": "unstoppable autonomous organization", "claim": "AI powered DAOs that autonomously generate revenue are especially hard to regulate or dismantle, because the same blockchain security features that protect the organization also make it difficult to intervene once it is operational.", "conditions": [ "applies to autonomously revenue generating AI DAOs", "arises from blockchain immutability and security guarantees" ], "topics": [ "dao", "ai-and-agents", "blockchain", "governance-design" ] }, { "id": "kaal:claim:4796714-023", "url": "https://wulfkaal.github.io/claims/4796714-023", "family": "ai-oversight-and-alignment-gap", "name": "preemptive anticipation limit", "claim": "Purely preemptive regulation cannot succeed on its own, because it is not possible to anticipate every issue or bias an AI system will exhibit before it is operational and interacting with real world variables.", "conditions": [ "applies to ex-ante controls imposed at the model and data levels", "concerns emergent behavior that appears only in deployment" ], "topics": [ "risk-and-incentives", "ai-and-agents" ] }, { "id": "kaal:claim:4796714-024", "url": "https://wulfkaal.github.io/claims/4796714-024", "family": "regulatory-lag", "name": "legacy feedback deficit", "claim": "Ex-ante regulation is preferable in principle but is neither practical nor sufficient inside legacy systems, precisely because legacy systems, unlike the web3 system proposed here, are not equipped to create dynamic feedback effects.", "conditions": [ "comparison is between legacy regulatory infrastructure and web3 based governance", "turns on the presence or absence of dynamic feedback effects" ], "topics": [ "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:4796714-025", "url": "https://wulfkaal.github.io/claims/4796714-025", "family": "innovation-chilling", "name": "premature constraint chilling effect", "claim": "Strict legacy regulation built on stable and presumptively optimal rules and enforced at the AI development stage can inadvertently stifle innovation by imposing rigid constraints before a model is fully developed or deployed.", "conditions": [ "applies to rigid pre-deployment regulatory constraints in legacy systems", "concerns exploratory development that has not yet produced a deployable model" ], "topics": [ "innovation" ] }, { "id": "kaal:claim:4796714-026", "url": "https://wulfkaal.github.io/claims/4796714-026", "family": "regulatory-lag", "name": "static landscape assumption", "claim": "Legacy ex-ante regulatory attempts fail because they assume a static technological landscape, while AI development is dynamic and requires rules that are adaptable and responsive.", "conditions": [ "applies to legacy ex-ante and ex-post rulemaking", "holds under exponential rates of technical change" ], "topics": [ "dynamic-regulation" ] }, { "id": "kaal:claim:4796714-027", "url": "https://wulfkaal.github.io/claims/4796714-027", "family": "ai-oversight-and-alignment-gap", "name": "monitoring obsolescence", "claim": "Post-deployment monitoring, the standard fallback when ex-ante rules prove inadequate, is typically woefully outdated by the time it is applied because the AI models continue to evolve.", "conditions": [ "applies to monitoring regimes applied after deployment", "holds for continuously learning models" ], "topics": [ "compliance", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:4796714-028", "url": "https://wulfkaal.github.io/claims/4796714-028", "family": "recentralization-drift", "name": "residual central aggregator", "claim": "Privacy preserving frameworks such as federated learning do not fully remove centralization, because they still typically depend on a central client to collect and distribute model information, which reintroduces high communication loads and centralized vulnerabilities.", "conditions": [ "applies to standard federated learning architectures with a central aggregator" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:4796714-029", "url": "https://wulfkaal.github.io/claims/4796714-029", "family": "harmonization-and-standardization-failure", "name": "federated standards divergence", "claim": "A unified governance framework is hard to establish in the federated model because each participating entity maintains its own AI systems and datasets, producing variation in standards, protocols, and formats.", "conditions": [ "applies to federated AI architectures with independent participants", "standardization is presupposed by interoperability and ethical practice" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:4796714-030", "url": "https://wulfkaal.github.io/claims/4796714-030", "family": "ai-oversight-and-alignment-gap", "name": "federated accountability gap", "claim": "Transparency and accountability cannot be assured across all participants in a federated governance model because there is no centralized control, and the author declines to advocate centralized control as the remedy; the consequences are biased or unfair AI systems, inadequate privacy protection, and unequal access to AI benefits.", "conditions": [ "applies to federated models with distributed decision making authority", "the author rejects recentralization as the fix" ], "topics": [ "disclosure", "decentralization", "governance-design" ] }, { "id": "kaal:claim:4796714-032", "url": "https://wulfkaal.github.io/claims/4796714-032", "family": "compliance-cost-and-barrier-to-entry", "name": "decentralized compliance verification gap", "claim": "Managing machine learning assets and complying with laws such as GDPR and CCPA becomes significantly harder under decentralized governance, because distributed data and operations complicate tracking data flows, enforcing privacy controls, and demonstrating compliance during audits.", "conditions": [ "applies to decentralized ML governance spanning multiple stakeholders and locations", "concerns stringent privacy regimes such as GDPR and CCPA" ], "topics": [ "decentralization", "governance-design", "compliance" ] }, { "id": "kaal:claim:4796714-035", "url": "https://wulfkaal.github.io/claims/4796714-035", "family": "ai-model-and-training-failure", "name": "engagement driven data distortion", "claim": "AI learning is degraded by Web2 platforms because their engagement driven algorithms amplify extreme viewpoints and negativity, so the human sentiment and ethics the models absorb from that data are systematically distorted.", "conditions": [ "applies to models trained on unfiltered web and social media data", "arises from engagement optimization in Web2 platforms" ], "topics": [ "ai-and-agents", "education-and-practice" ] }, { "id": "kaal:claim:4796714-037", "url": "https://wulfkaal.github.io/claims/4796714-037", "family": "ai-oversight-and-alignment-gap", "name": "validation layer scope limit", "claim": "A decentralized data validation layer applied to pretrained models is efficient but structurally limited: because it cannot drive significant changes to the model's core design or training approach, it leaves the model more attack prone.", "conditions": [ "applies to Model 2, the decentralized data validation layer approach", "concerns pretrained models whose parameters are already fixed" ], "topics": [ "consensus-and-security", "governance-design" ] }, { "id": "kaal:claim:4796714-038", "url": "https://wulfkaal.github.io/claims/4796714-038", "family": "ai-model-and-training-failure", "name": "systemic bias invisible to validation", "claim": "Broad community governance of AI training identifies and mitigates bias more effectively than data validation alone, because validation focused approaches can overlook systemic biases already embedded in the pretrained model.", "conditions": [ "compares community governance of training against post hoc data validation", "concerns systemic bias baked in during pretraining" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:4796714-040", "url": "https://wulfkaal.github.io/claims/4796714-040", "family": "governance-participation-collapse", "name": "expert panel narrowness", "claim": "The hybrid model falls short of full community co-governance because it relies on a select group of experts for data validation and therefore may not capture the diverse perspectives and expertise of the broader community.", "conditions": [ "applies to the hybrid of community governance and decentralized data validation", "concerns representativeness of the validating group" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:4941807-001", "url": "https://wulfkaal.github.io/claims/4941807-001", "family": "regulatory-lag", "name": "ex-post oversight gap", "claim": "Ex-post AI governance, in which regulation is applied only after AI systems have been developed and deployed or after large language models have already been pretrained on existing proprietary datasets, falls short of preemptively addressing the risks and biases those systems carry.", "conditions": [ "when regulatory intervention occurs after development and deployment", "when pretrained models were trained on existing proprietary datasets" ], "topics": [ "governance-design", "ai-and-agents", "risk-and-incentives" ] }, { "id": "kaal:claim:4941807-002", "url": "https://wulfkaal.github.io/claims/4941807-002", "family": "ai-oversight-and-alignment-gap", "name": "absent dynamic governance toolset", "claim": "Governing AI requires toolsets that simultaneously handle ex-ante governance of models still evolving and ex-post management of deployed solutions, and Kaal asserts that as of publication no legacy system supplies such dynamic governance toolsets.", "conditions": [ "as of the time of publication" ], "topics": [ "governance-design", "ai-and-agents", "dynamic-regulation" ] }, { "id": "kaal:claim:4941807-004", "url": "https://wulfkaal.github.io/claims/4941807-004", "family": "regulatory-lag", "name": "regulatory pacing problem", "claim": "Technology has historically outpaced regulation, and the exponential trends in AI development will continue to widen the mismatch between regulation and AI development.", "conditions": [ "while AI development follows exponential trends" ], "topics": [ "dynamic-regulation", "ai-and-agents" ] }, { "id": "kaal:claim:4941807-008", "url": "https://wulfkaal.github.io/claims/4941807-008", "family": "ai-oversight-and-alignment-gap", "name": "black box opacity", "claim": "The opacity of deep learning models obstructs debugging, obscures the detection and mitigation of bias, and prevents comprehension of how AI decisions are reached.", "conditions": [ "particularly in deep learning models whose internal decision mechanisms are not transparent" ], "topics": [ "ai-and-agents", "reputation" ] }, { "id": "kaal:claim:4941807-009", "url": "https://wulfkaal.github.io/claims/4941807-009", "family": "ai-model-and-training-failure", "name": "unexplainable prediction", "claim": "Concrete cases show the cost of AI opacity: Nvidia self driving cars that learn from human behavior might confuse the moon for a traffic light, and the DeepPatient project predicted disease onset accurately from medical records while offering no explanation for its predictions.", "conditions": [ "in deep learning systems deployed in driving and medical prediction" ], "topics": [ "ai-and-agents", "reputation" ] }, { "id": "kaal:claim:4941807-010", "url": "https://wulfkaal.github.io/claims/4941807-010", "family": "ai-model-and-training-failure", "name": "privacy driven data starvation", "claim": "Strict data privacy regulation such as the GDPR imposes stringent conditions on data sharing that limit the amount and variety of data available to AI systems, which can reduce model performance and exacerbate bias because the training dataset is restricted.", "conditions": [ "under stringent data sharing regimes such as the GDPR" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:4941807-011", "url": "https://wulfkaal.github.io/claims/4941807-011", "family": "compliance-cost-and-barrier-to-entry", "name": "compliance driven incumbent consolidation", "claim": "Although the move toward more explainable, private, and transparent AI is desirable, Kaal argues these regulations paradoxically consolidate power within large technology companies, because only they hold the data resources and infrastructure needed to comply and still ship effective AI.", "conditions": [ "where compliance requires vast data resources and sophisticated infrastructure", "where smaller developers cannot absorb compliance cost" ], "topics": [ "regulatory-failure", "economics", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:4941807-012", "url": "https://wulfkaal.github.io/claims/4941807-012", "family": "privacy-and-surveillance-risk", "name": "parameter exchange leakage", "claim": "Federated learning does not eliminate privacy risk, because although the data stays decentralized the protocol still exchanges model parameters, and those parameters can expose sensitive information if intercepted or improperly handled.", "conditions": [ "in federated learning deployments that exchange model parameters", "where parameters can be intercepted or mishandled" ], "topics": [ "consensus-and-security", "decentralization", "ai-and-agents" ] }, { "id": "kaal:claim:4941807-013", "url": "https://wulfkaal.github.io/claims/4941807-013", "family": "scalability-and-throughput-limit", "name": "rigid coordination topology", "claim": "The rigid communication topology of federated learning, which requires constant coordination among numerous nodes, produces inefficiencies and does not adapt easily to dynamic network conditions or node failures.", "conditions": [ "in federated learning architectures requiring constant node coordination", "under fluctuating network conditions or node failure" ], "topics": [ "decentralization", "ai-and-agents" ] }, { "id": "kaal:claim:4941807-014", "url": "https://wulfkaal.github.io/claims/4941807-014", "family": "recentralization-drift", "name": "centralized single point of failure", "claim": "Centralizing data in a single repository, while it permits powerful computation and advanced algorithms, poses significant privacy risks and creates a single point of failure.", "conditions": [ "in centralized AI architectures that pool data into one repository" ], "topics": [ "decentralization", "ai-and-agents", "consensus-and-security" ] }, { "id": "kaal:claim:4941807-015", "url": "https://wulfkaal.github.io/claims/4941807-015", "family": "ai-model-and-training-failure", "name": "training data bias propagation", "claim": "A critical unsolved challenge for AI governance is bias mitigation, because biases enter inadvertently when algorithms incorporate discriminatory practices carried in the data used for training.", "conditions": [ "where training data embeds discriminatory practices" ], "topics": [ "ai-and-agents", "education-and-practice", "governance-design" ] }, { "id": "kaal:claim:4941807-016", "url": "https://wulfkaal.github.io/claims/4941807-016", "family": "ai-oversight-and-alignment-gap", "name": "opaque high stakes decisioning", "claim": "Legal and ethical challenges intensify when AI is deployed in critical decision making roles that significantly affect human lives and the reasoning behind the AI decision is opaque.", "conditions": [ "in determinative decisions such as parole eligibility, employment, and medical strategy", "where the reasoning behind the decision is not visible" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:4941807-017", "url": "https://wulfkaal.github.io/claims/4941807-017", "family": "privacy-and-surveillance-risk", "name": "erosion of individual data control", "claim": "As AI systems come to depend on vast data, personal information is converted from a resource the individual could control and deploy at discretion into a fundamental operational input for AI systems, which increases the potential for misuse and makes it harder for individuals to manage how their data is used.", "conditions": [ "where AI operation requires large volumes of personal data" ], "topics": [ "consensus-and-security", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:4941807-020", "url": "https://wulfkaal.github.io/claims/4941807-020", "family": "recentralization-drift", "name": "residual central client dependency", "claim": "Privacy preserving frameworks such as federated learning do not fully solve centralization, because they typically still depend on a central client to collect and distribute model information, which produces high communication loads and reintroduces centralized vulnerabilities.", "conditions": [ "in federated learning designs that retain a central aggregating client" ], "topics": [ "decentralization", "consensus-and-security", "ai-and-agents" ] }, { "id": "kaal:claim:4941807-021", "url": "https://wulfkaal.github.io/claims/4941807-021", "family": "harmonization-and-standardization-failure", "name": "standards fragmentation", "claim": "In the federated model of AI governance many challenges cannot easily be decentralized, because distinct entities maintain their own AI systems and datasets, producing variation in standards, protocols, and formats that obstructs a unified governance framework.", "conditions": [ "where separate organizations maintain independent AI systems and datasets" ], "topics": [ "governance-design", "ai-and-agents", "decentralization" ] }, { "id": "kaal:claim:4941807-022", "url": "https://wulfkaal.github.io/claims/4941807-022", "family": "collective-action-and-coordination-failure", "name": "consensus difficulty under distributed authority", "claim": "When decision making power is distributed across multiple entities in a federated model, consensus and cooperation become harder to reach, which makes cohesive AI governance mechanisms difficult to establish.", "conditions": [ "where governance authority is distributed across multiple independent entities" ], "topics": [ "governance-design", "consensus-and-security", "institutional-design", "decentralization", "ai-and-agents" ] }, { "id": "kaal:claim:4941807-023", "url": "https://wulfkaal.github.io/claims/4941807-023", "family": "ai-oversight-and-alignment-gap", "name": "accountability gap without central control", "claim": "In a federated model transparency and accountability across all participating entities are hard to ensure precisely because there is no centralized control, and Kaal notes that he does not otherwise advocate such centralized control.", "conditions": [ "in federated models lacking centralized control" ], "topics": [ "governance-design", "disclosure", "decentralization", "ai-and-agents" ] }, { "id": "kaal:claim:4941807-024", "url": "https://wulfkaal.github.io/claims/4941807-024", "family": "harmonization-and-standardization-failure", "name": "divergent compliance interpretation", "claim": "Enforcing AI regulation in a federated model is complex because different entities may interpret the same regulations differently and may show differing levels of commitment to compliance.", "conditions": [ "in decentralized settings with multiple independent compliance actors" ], "topics": [ "compliance", "governance-design" ] }, { "id": "kaal:claim:4941807-027", "url": "https://wulfkaal.github.io/claims/4941807-027", "family": "privacy-and-surveillance-risk", "name": "decentralized audit opacity", "claim": "Decentralized governance makes privacy compliance harder to demonstrate, because the distributed nature of these systems complicates tracking data flows and enforcing privacy controls, which in turn makes it difficult to prove compliance during audits.", "conditions": [ "under regimes such as the GDPR and CCPA", "where data and operations are spread across multiple stakeholders and locations" ], "topics": [ "compliance", "decentralization", "governance-design" ] }, { "id": "kaal:claim:4755632-002", "url": "https://wulfkaal.github.io/claims/4755632-002", "family": "ai-model-and-training-failure", "name": "Scale Without Quality", "claim": "Transformer neural network architecture removes the scale constraint on training data but not the quality constraint, so data quality continues to be a major unsolved issue for large language models even where internet scale corpora are available.", "conditions": [ "applies to LLMs trained on internet derived corpora" ], "topics": [ "ai-and-agents", "education-and-practice" ] }, { "id": "kaal:claim:4755632-003", "url": "https://wulfkaal.github.io/claims/4755632-003", "family": "ai-model-and-training-failure", "name": "Small Dataset Overfitting", "claim": "The move by AI developers toward smaller training datasets raises the risk of overfitting, especially with complex models, which forces LLM developers to rely on regularization to counteract overfitting of the model to the training data.", "conditions": [ "holds for smaller datasets used in LLM development", "risk increases with model complexity" ], "topics": [ "ai-and-agents", "education-and-practice" ] }, { "id": "kaal:claim:4755632-005", "url": "https://wulfkaal.github.io/claims/4755632-005", "family": "inequality-and-access-divide", "name": "Labeled Data Access Asymmetry", "claim": "Access to structured labeled data determines which industries can capitalize on AI first: finance and healthcare hold a head start, while transportation and customer service face hurdles from privacy concerns, data fragmentation, and extensive labeling requirements.", "conditions": [ "applies to industries seeking to realize AI driven market potential" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:4755632-009", "url": "https://wulfkaal.github.io/claims/4755632-009", "family": "valuation-and-pricing-failure", "name": "Intermediation Overpricing", "claim": "Existing centralized micro task marketplaces cannot adequately fulfill the growing demand for high quality labeled AI training data, because their cost structure requires intermediation, which produces significant overpricing without any of that price reaching the micro task workers.", "conditions": [ "applies to centralized micro task marketplaces that necessitate intermediation" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:4755632-010", "url": "https://wulfkaal.github.io/claims/4755632-010", "family": "data-quality-and-comparability", "name": "Manual Verification Regress", "claim": "Human shortcomings in micro task work such as limited attention span, irrationality, and inaccuracy create verification requirements, but manual verification is performed by humans subject to the same limitations, so verification does not resolve the quality problem it is meant to solve.", "conditions": [ "applies where verification of micro task work is itself manual" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4755632-011", "url": "https://wulfkaal.github.io/claims/4755632-011", "family": "environmental-and-resource-cost", "name": "Consensus by Redundancy Waste", "claim": "To form consensus and offset worker error, requesters in centralized micro task structures assign teams of up to fifteen workers to the same task, and the resulting multiplication of work significantly increases the cost of micro task work and produces waste when requesters pay proportionally for redundant output.", "conditions": [ "applies to centralized micro task platforms using redundancy for consensus" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:4755632-012", "url": "https://wulfkaal.github.io/claims/4755632-012", "family": "inequality-and-access-divide", "name": "Redundancy Financed by Worker Pay", "claim": "The necessity of duplicating micro task work depresses worker pay: it subjects micro task workers to lower rates and prevents payment increases, so redundancy based quality control is financed out of worker compensation.", "conditions": [ "applies to centralized micro task platforms that require duplicated work" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4755632-013", "url": "https://wulfkaal.github.io/claims/4755632-013", "family": "adoption-and-usability-barrier", "name": "Missing Requester Interfaces", "claim": "Because unmanaged centralized micro task platforms do not supply the consumer interfaces needed to accomplish specific tasks, requesters must either build their own tools or pay large fees to startups, and both necessary options result in underutilization of resources.", "conditions": [ "applies to unmanaged centralized micro task platforms" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4755632-014", "url": "https://wulfkaal.github.io/claims/4755632-014", "family": "inequality-and-access-divide", "name": "Unbanked Worker Exclusion", "claim": "Approximately thirty eight percent of the labor pool is unbanked but skilled and therefore excluded from centralized micro task marketplaces, because without a bank account these workers cannot contribute to or profit from the existing marketplace.", "conditions": [ "applies to centralized micro task marketplaces requiring banking relationships" ], "topics": [ "systemic-risk", "economics" ] }, { "id": "kaal:claim:4755632-015", "url": "https://wulfkaal.github.io/claims/4755632-015", "family": "adoption-and-usability-barrier", "name": "Onboarding Entry Barrier", "claim": "Invasive, privacy challenging, time consuming, and unclear signup and approval processes on centralized platforms create market entry barriers for micro task workers, shrinking the supply of labor available to produce AI training data.", "conditions": [ "applies to onboarding in centralized micro task systems" ], "topics": [ "corporate-governance", "economics", "consensus-and-security" ] }, { "id": "kaal:claim:4755632-017", "url": "https://wulfkaal.github.io/claims/4755632-017", "family": "recentralization-drift", "name": "Hierarchy Degrades Review Quality", "claim": "The more hierarchical the code review process, the lower the quality of the reviewed code, and the same holds for barriers to entry: hierarchy and entry barriers together degrade code quality.", "conditions": [ "applies to legacy code review firms with hierarchical review structures" ], "topics": [ "open-source-and-code", "institutional-design", "risk-and-incentives" ] }, { "id": "kaal:claim:4755632-018", "url": "https://wulfkaal.github.io/claims/4755632-018", "family": "recentralization-drift", "name": "First Reviewer Anchoring", "claim": "Hierarchical review produces an anchoring failure: the first reviewer in the hierarchy gets the highest priority and follow-on reviewers merely add minor upgrades, so adding reviewers does not add the independent scrutiny that would raise code quality.", "conditions": [ "applies to legacy hierarchical code review processes" ], "topics": [ "open-source-and-code" ] }, { "id": "kaal:claim:4755632-019", "url": "https://wulfkaal.github.io/claims/4755632-019", "family": "staking-and-incentive-misalignment", "name": "No Incentive to Find Flaws", "claim": "The collective of reviewers in legacy code review is not incentivized to find flaws in the code, because the review is treated as the work product of the initial reviewer with minor input from follow-up reviewers rather than as a product of the collective.", "conditions": [ "applies to legacy hierarchical code review firms" ], "topics": [ "ai-and-agents", "risk-and-incentives", "open-source-and-code", "citation-and-knowledge" ] }, { "id": "kaal:claim:4755632-020", "url": "https://wulfkaal.github.io/claims/4755632-020", "family": "recentralization-drift", "name": "Foreclosed Clarification Loop", "claim": "More reviewers asking clarifying questions makes code simpler and clearer, which typically increases code quality, but hierarchical review processes foreclose this mechanism and also exclude opinions from the edges of the reviewer spectrum.", "conditions": [ "applies to hierarchical code review processes" ], "topics": [ "open-source-and-code", "institutional-design" ] }, { "id": "kaal:claim:4755632-021", "url": "https://wulfkaal.github.io/claims/4755632-021", "family": "board-and-oversight-failure", "name": "Reviewer Myopia", "claim": "Legacy code review carries a single point of failure risk: if the single author of a review misses something and the follow-on reviewer focuses entirely on the first reviewer's concerns, the review has a higher risk of inaccuracy, and crowd wisdom is the corrective for that myopia.", "conditions": [ "applies to standard legacy code review with sequential reviewers" ], "topics": [ "open-source-and-code" ] }, { "id": "kaal:claim:4755632-022", "url": "https://wulfkaal.github.io/claims/4755632-022", "family": "board-and-oversight-failure", "name": "Reviewer Logic Imposition", "claim": "Without crowd control the reviewer's views and the code author's intent are at odds, so a reviewer imposing their own logic can force repeated rewrites of code whose core functionality is already sound; a code review should instead focus on functionality and on keeping mistaken, badly constructed, and dangerous code out.", "conditions": [ "applies to legacy code review processes lacking crowd control" ], "topics": [ "open-source-and-code" ] }, { "id": "kaal:claim:4755632-023", "url": "https://wulfkaal.github.io/claims/4755632-023", "family": "scalability-and-throughput-limit", "name": "Review Latency Rework", "claim": "Code reviews in legacy systems can last weeks and months, and these delays can force complete rewriting of contracts because the underlying protocol may have upgraded core libraries during the review period.", "conditions": [ "can be exacerbated by market conditions in the digital asset market" ], "topics": [ "open-source-and-code" ] }, { "id": "kaal:claim:4755632-024", "url": "https://wulfkaal.github.io/claims/4755632-024", "family": "valuation-and-pricing-failure", "name": "Audit Stamp Premium", "claim": "Centralization of the code review industry produces overpricing because clients will pay nearly any price to obtain the stamp of approval from one of the top five audit firms.", "conditions": [ "applies to the 2024 code review and audit market dominated by top firms" ], "topics": [ "economics", "compliance" ] }, { "id": "kaal:claim:4755632-025", "url": "https://wulfkaal.github.io/claims/4755632-025", "family": "board-and-oversight-failure", "name": "Control Vacuum Under Concentration", "claim": "Concentrated market power in code review undermines internal and external quality controls, leaving the public with no or very weak control over the quality of code review services, and it eliminates downward price pressure because job posters cannot afford to shop for better-priced reviews.", "conditions": [ "applies to the centralized code review market" ], "topics": [ "economics", "open-source-and-code" ] }, { "id": "kaal:claim:4755632-026", "url": "https://wulfkaal.github.io/claims/4755632-026", "family": "legal-personality-and-liability-gap", "name": "No Recourse for Flawed Reviews", "claim": "Because a limited number of players control the code review market and its outputs, the quality of code review is often suboptimal, and clients have little or no recourse when code proves flawed even after functionality and quality review.", "conditions": [ "applies to the centralized code review market" ], "topics": [ "open-source-and-code", "economics" ] }, { "id": "kaal:claim:4755632-027", "url": "https://wulfkaal.github.io/claims/4755632-027", "family": "recentralization-drift", "name": "Centralized Decentralization Market", "claim": "The code review market is self-undermining: one of the strongest forms of exploitation and centralized economies of scale is being created in a market whose purpose is to support the decentralization of other industries.", "conditions": [], "topics": [ "decentralization", "open-source-and-code", "economics" ] }, { "id": "kaal:claim:4755632-031", "url": "https://wulfkaal.github.io/claims/4755632-031", "family": "information-asymmetry", "name": "Deliberate Price Opacity", "claim": "The existing code review market does not provide publicly transparent pricing, and that opacity is deliberate because neither client nor code reviewer benefits from public scrutiny of the prices, which arguably harms the public for the benefit of the few market players.", "conditions": [ "applies to the existing centralized code review market" ], "topics": [ "disclosure", "economics", "open-source-and-code" ] }, { "id": "kaal:claim:4755632-032", "url": "https://wulfkaal.github.io/claims/4755632-032", "family": "information-asymmetry", "name": "Opacity Enables Insider Deals", "claim": "Price discovery is a public service function because without public pricing consumers cannot realistically select the service provider offering the highest value, and the resulting lack of transparency enables insider deals to the detriment of clients forced into prices dictated by a group of firms.", "conditions": [ "applies to markets without publicly transparent pricing" ], "topics": [ "economics", "disclosure" ] }, { "id": "kaal:claim:4734750-004", "url": "https://wulfkaal.github.io/claims/4734750-004", "family": "fraud-and-misconduct", "name": "Bounty hunter defection", "claim": "Bug bounty programs fail at their own premise because the hackers they pay to demonstrate exploitability frequently sell or exploit the bugs they find instead of disclosing them.", "conditions": [ "community audit and bug bounty programs for smart contracts" ], "topics": [ "compliance", "ai-and-agents", "risk-and-incentives", "smart-contracts", "consensus-and-security" ] }, { "id": "kaal:claim:4734750-005", "url": "https://wulfkaal.github.io/claims/4734750-005", "family": "recentralization-drift", "name": "Intermediary capture of bounty programs", "claim": "Bug bounty programs are structurally compromised by their reliance on a trusted intermediary that extracts high commission fees and may hold interests that conflict with the software vendor.", "conditions": [ "intermediated bug bounty platforms" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4734750-006", "url": "https://wulfkaal.github.io/claims/4734750-006", "family": "valuation-and-pricing-failure", "name": "Priced but flawed review", "claim": "The 2024 code review market is dominated by a few centralized firms that can charge exorbitant, monopoly-like prices, and those high prices do not buy a sound process because the code review process itself remains significantly flawed.", "conditions": [ "code review market as of 2024" ], "topics": [ "economics", "open-source-and-code", "compliance" ] }, { "id": "kaal:claim:4734750-007", "url": "https://wulfkaal.github.io/claims/4734750-007", "family": "recentralization-drift", "name": "Hierarchy degrades review quality", "claim": "The more hierarchical the code review process, the lower the quality of the reviewed code; hierarchy in review is inversely related to output quality.", "conditions": [ "legacy code review firms with hierarchical reviewer structures" ], "topics": [ "institutional-design", "open-source-and-code" ] }, { "id": "kaal:claim:4734750-008", "url": "https://wulfkaal.github.io/claims/4734750-008", "family": "recentralization-drift", "name": "First reviewer dominance", "claim": "In hierarchical review, the first reviewer's output receives the highest priority and later reviewers add only minor upgrades, so the review becomes the initial reviewer's work product rather than the collective's.", "conditions": [ "legacy hierarchical code review processes" ], "topics": [ "institutional-design", "risk-and-incentives", "open-source-and-code" ] }, { "id": "kaal:claim:4734750-010", "url": "https://wulfkaal.github.io/claims/4734750-010", "family": "governance-participation-collapse", "name": "Exclusion of edge reviewers", "claim": "Hierarchical code review undermines long-term participation by reviewers at the edges of the reviewer spectrum, because those reviewers either have no access to the code or no standing to help review it.", "conditions": [ "hierarchical review processes with entry barriers" ], "topics": [ "risk-and-incentives", "institutional-design" ] }, { "id": "kaal:claim:4734750-011", "url": "https://wulfkaal.github.io/claims/4734750-011", "family": "board-and-oversight-failure", "name": "Reviewer preference imposition", "claim": "Without crowd control, a code reviewer can impose their own logic on the author, forcing repeated rewrites of code whose core functionality is already sound and whose dangerous issues are already controlled for.", "conditions": [ "legacy code review with a single authoritative reviewer" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4734750-013", "url": "https://wulfkaal.github.io/claims/4734750-013", "family": "board-and-oversight-failure", "name": "Reviewer anchoring", "claim": "When the first reviewer misses a defect and follow-on reviewers anchor entirely on the first reviewer's concerns, the review carries a higher risk of inaccuracy; crowd wisdom is one way to correct this myopia and single point of failure.", "conditions": [ "sequential review processes anchored on an initial reviewer" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4734750-014", "url": "https://wulfkaal.github.io/claims/4734750-014", "family": "scalability-and-throughput-limit", "name": "Review latency obsolescence", "claim": "Legacy code reviews can last weeks or months, and those delays can force complete rewrites of contracts because the underlying protocol may have upgraded core libraries while the review was still running.", "conditions": [ "digital asset markets where underlying protocols upgrade frequently" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4734750-016", "url": "https://wulfkaal.github.io/claims/4734750-016", "family": "recentralization-drift", "name": "Centralized market for decentralization services", "claim": "It is ironic that some of the strongest forms of exploitation and centralized economies of scale have been created inside the code review market, which exists to support the decentralization of other industries.", "conditions": [], "topics": [ "decentralization", "economics" ] }, { "id": "kaal:claim:4734750-017", "url": "https://wulfkaal.github.io/claims/4734750-017", "family": "valuation-and-pricing-failure", "name": "Stamp of approval premium", "claim": "Centralization of the code review industry causes systematic overpricing, because clients will pay nearly any price to obtain the approval stamp of one of the top five audit firms.", "conditions": [], "topics": [ "decentralization", "compliance" ] }, { "id": "kaal:claim:4734750-018", "url": "https://wulfkaal.github.io/claims/4734750-018", "family": "board-and-oversight-failure", "name": "Absent quality controls", "claim": "Centralized market power blocks other industry players from establishing internal or external controls on code review quality, so the public has no or very weak control over the quality of the review services it receives.", "conditions": [], "topics": [ "decentralization" ] }, { "id": "kaal:claim:4734750-020", "url": "https://wulfkaal.github.io/claims/4734750-020", "family": "legal-personality-and-liability-gap", "name": "No client recourse", "claim": "Clients have little or no recourse when reviewed code turns out to be flawed even after a functionality and quality review has been performed and paid for.", "conditions": [], "topics": [ "law-and-legal-systems", "compliance", "economics", "open-source-and-code" ] }, { "id": "kaal:claim:4734750-023", "url": "https://wulfkaal.github.io/claims/4734750-023", "family": "measurement-and-metric-failure", "name": "Idiosyncratic reviewer preference", "claim": "Code reviews in legacy firms are often highly subjective, and without crowd controls that subjectivity produces suboptimal review outcomes because no single developer will agree on a given set of code and its intended functionality.", "conditions": [ "reviews conducted without crowd control mechanisms" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4734750-025", "url": "https://wulfkaal.github.io/claims/4734750-025", "family": "information-asymmetry", "name": "Price opacity", "claim": "The existing code review market provides no publicly transparent pricing of review services, and that opacity arguably harms the public for the benefit of a few market players and their clients.", "conditions": [], "topics": [ "disclosure", "economics", "open-source-and-code" ] }, { "id": "kaal:claim:4734750-032", "url": "https://wulfkaal.github.io/claims/4734750-032", "family": "innovation-chilling", "name": "Micro task platform bottleneck on AI", "claim": "Because AI progress depends on labeled data from micro task work, the significant limitations of existing micro task platform systems act as a direct constraint on the evolution of AI.", "conditions": [], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:4734750-033", "url": "https://wulfkaal.github.io/claims/4734750-033", "family": "measurement-and-metric-failure", "name": "Verification regress", "claim": "Human limitations such as limited attention span, irrationality, and inaccuracy force verification of micro task work, but manual verification does not solve the problem because verifiers are subject to the same human limitations.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4734750-034", "url": "https://wulfkaal.github.io/claims/4734750-034", "family": "environmental-and-resource-cost", "name": "Consensus by redundancy", "claim": "Centralized requesters buy quality through redundancy, assigning up to fifteen workers to the same task to form consensus, which multiplies cost, produces waste, and pushes micro task worker rates down.", "conditions": [ "centralized micro task platforms that lack reliable worker quality signals" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4734750-035", "url": "https://wulfkaal.github.io/claims/4734750-035", "family": "inequality-and-access-divide", "name": "Banking gate on micro task labor", "claim": "Roughly 38 percent of the labor pool is unbanked but skilled and is therefore excluded from centralized micro task marketplaces, because without a bank account workers cannot contribute to or profit from those platforms.", "conditions": [], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:4734750-039", "url": "https://wulfkaal.github.io/claims/4734750-039", "family": "adoption-and-usability-barrier", "name": "Payment fee entry barrier", "claim": "Intermediary payment fees on centralized micro task platforms are economically viable only for high volume workers who can eventually avoid them, so those fees function as a barrier to entry for new micro task workers.", "conditions": [], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:5254152-001", "url": "https://wulfkaal.github.io/claims/5254152-001", "family": "governance-participation-collapse", "name": "majority tyranny under equal voting", "claim": "One-person-one-vote in DAOs equalizes voting power across participants regardless of financial stake, but it creates the risk of majority tyranny.", "conditions": [ "DAOs using a one-person-one-vote governance model" ], "topics": [ "dao", "governance-design" ] }, { "id": "kaal:claim:5254152-003", "url": "https://wulfkaal.github.io/claims/5254152-003", "family": "token-transferability-defect", "name": "vote buying through tradable governance tokens", "claim": "Fungible governance tokens deliver liquidity and transparency in DAO voting rights, but because they are tradable they simultaneously create exposure to vote buying and manipulation.", "conditions": [ "DAOs whose voting rights are represented by tradable fungible tokens" ], "topics": [ "governance-design", "tokenomics", "dao" ] }, { "id": "kaal:claim:5254152-004", "url": "https://wulfkaal.github.io/claims/5254152-004", "family": "measurement-and-metric-failure", "name": "reputation measurement problem", "claim": "Reputation based governance allocates decision power by past contribution and community standing, which promotes transparency and trust, but reputation is difficult to measure objectively.", "conditions": [ "DAOs allocating voting power by contribution history, community feedback, or peer review" ], "topics": [ "reputation", "governance-design", "dao", "research-methods" ] }, { "id": "kaal:claim:5254152-005", "url": "https://wulfkaal.github.io/claims/5254152-005", "family": "governance-participation-collapse", "name": "poor governance risk cluster", "claim": "Poorly governed DAOs face significant risks of centralization, lack of transparency, and inefficiency, so effective governance structures are a precondition for DAO sustainability.", "conditions": [ "DAOs without effective governance structures" ], "topics": [ "dao", "governance-design", "decentralization" ] }, { "id": "kaal:claim:5254152-008", "url": "https://wulfkaal.github.io/claims/5254152-008", "family": "scalability-and-throughput-limit", "name": "unresolved scalability, governance, and security constraints", "claim": "DAOs still face unresolved challenges of scalability, governance, and the need for robust security measures, which constrain their adoption despite their potential.", "conditions": [], "topics": [ "dao", "consensus-and-security" ] }, { "id": "kaal:claim:5254152-013", "url": "https://wulfkaal.github.io/claims/5254152-013", "family": "token-transferability-defect", "name": "purchasable governance token attack surface", "claim": "Low attack resistance in DAOs is typically caused by the use of easily purchasable or transferable governance tokens, which leave the organization vulnerable to attacks such as 51 percent and Sybil attacks.", "conditions": [ "DAOs whose voting power is embodied in freely purchasable or transferable tokens" ], "topics": [ "consensus-and-security", "governance-design", "tokenomics" ] }, { "id": "kaal:claim:5254152-014", "url": "https://wulfkaal.github.io/claims/5254152-014", "family": "collective-action-and-coordination-failure", "name": "absence of safeguards against majority tyranny and commons depletion", "claim": "High governance scores require explicit mechanisms that prevent common governance failures, specifically the tyranny of the majority and the tragedy of the commons, such as reputation based voting, multi round voting, or incentive alignment.", "conditions": [ "the paper's governance scoring criterion" ], "topics": [ "dao", "governance-design", "institutional-design" ] }, { "id": "kaal:claim:5254152-016", "url": "https://wulfkaal.github.io/claims/5254152-016", "family": "collective-action-and-coordination-failure", "name": "third party communication dependence", "claim": "DAOs that rely on third party communication platforms and offer no incentives for engagement suffer impaired coordination and efficiency across the organization.", "conditions": [ "DAOs without dedicated communication platforms or participation incentives" ], "topics": [ "institutional-design", "dao", "governance-design", "risk-and-incentives" ] }, { "id": "kaal:claim:5254152-022", "url": "https://wulfkaal.github.io/claims/5254152-022", "family": "compliance-cost-and-barrier-to-entry", "name": "sector wide regulatory compliance gap", "claim": "The average regulatory compliance score across the sampled DAOs is 3.22, ranging from 1 to 9, and the distribution shows that many DAOs struggle with regulatory compliance while only a few achieve higher scores.", "conditions": [ "dataset of 50 DAOs", "regulatory compliance scored on a 1 to 10 scale" ], "topics": [ "compliance", "empirical-evidence", "law-and-legal-systems" ] }, { "id": "kaal:claim:5254152-027", "url": "https://wulfkaal.github.io/claims/5254152-027", "family": "plutocratic-capture", "name": "pay to vote centralization and attack exposure", "claim": "Requiring users to purchase governance tokens in order to vote both centralizes power in majority token holders and leaves the DAO highly vulnerable to 51 percent and sock puppet attacks, as illustrated by Gelato DAO which scored 1 on both decentralization and attack resistance.", "conditions": [ "DAOs where voting requires purchasing fungible governance tokens" ], "topics": [ "governance-design", "tokenomics", "consensus-and-security", "decentralization", "dao" ] }, { "id": "kaal:claim:5254152-028", "url": "https://wulfkaal.github.io/claims/5254152-028", "family": "legal-personality-and-liability-gap", "name": "partnership by estoppel exposure", "claim": "A DAO operating without a legal wrapper risks being deemed a partnership by estoppel in legal disputes, exposing its members to liability, as scored for Hop DAO with a regulatory compliance score of 1.", "conditions": [ "DAOs with no legal entity or legal wrapper" ], "topics": [ "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:5254152-029", "url": "https://wulfkaal.github.io/claims/5254152-029", "family": "governance-participation-collapse", "name": "absent work to earn channel", "claim": "A DAO that offers no paid work opportunities for participants stifles engagement, as scored for Hop DAO with a Work to Earn score of 1.", "conditions": [ "DAOs with no compensated contribution channel" ], "topics": [ "risk-and-incentives", "dao" ] }, { "id": "kaal:claim:5254152-031", "url": "https://wulfkaal.github.io/claims/5254152-031", "family": "recentralization-drift", "name": "nominal decentralization", "claim": "Procedural governance safeguards such as two step voting with temperature checks do not produce genuine decentralization when the governance token remains purchasable; in MakerDAO's case the purchasable token renders true decentralization nominal.", "conditions": [ "DAOs combining multi stage voting with freely purchasable governance tokens" ], "topics": [ "decentralization", "governance-design", "tokenomics" ] }, { "id": "kaal:claim:5254152-032", "url": "https://wulfkaal.github.io/claims/5254152-032", "family": "recentralization-drift", "name": "unelected council veto", "claim": "Subjecting every community vote to review by a council that is not democratically elected defeats the governance value of community voting, as scored for Goldfinch DAO with a governance score of 2.", "conditions": [ "DAOs where a non elected council holds final say over community votes" ], "topics": [ "governance-design", "dao" ] }, { "id": "kaal:claim:5254152-033", "url": "https://wulfkaal.github.io/claims/5254152-033", "family": "legal-personality-and-liability-gap", "name": "anonymity as substitute for legal registration", "claim": "Some DAOs substitute anonymity for legal structure: without any legal registration, Olympus DAO relies on anonymity to avoid legal action, which the author scores as the weakest possible regulatory compliance posture.", "conditions": [ "DAOs with no legal registration in any jurisdiction" ], "topics": [ "compliance", "law-and-legal-systems", "dao" ] }, { "id": "kaal:claim:5254152-034", "url": "https://wulfkaal.github.io/claims/5254152-034", "family": "legal-personality-and-liability-gap", "name": "jurisdictional non recognition of DAOs", "claim": "Adopting a conventional corporate form in a jurisdiction that does not recognize DAOs yields only partial legal protection; Silo Finance is registered as an LLC in Texas, but Texas does not recognize DAOs.", "conditions": [ "DAOs incorporated in jurisdictions lacking DAO specific recognition" ], "topics": [ "law-and-legal-systems", "compliance", "dao" ] }, { "id": "kaal:claim:5254152-035", "url": "https://wulfkaal.github.io/claims/5254152-035", "family": "legal-personality-and-liability-gap", "name": "default partnership classification", "claim": "A DAO registered in a jurisdiction without DAO legislation risks default treatment as a partnership under existing law, as recorded for Klima DAO in California.", "conditions": [ "DAOs organized in jurisdictions with no DAO statute" ], "topics": [ "compliance", "law-and-legal-systems" ] }, { "id": "kaal:claim:5254152-036", "url": "https://wulfkaal.github.io/claims/5254152-036", "family": "recentralization-drift", "name": "fixed token supply centralization drift", "claim": "A governance design aimed at democratic balance can still centralize power over time when the token supply is fixed, as recorded for MoonDAO.", "conditions": [ "DAOs with a fixed governance token supply" ], "topics": [ "tokenomics", "decentralization", "dao", "governance-design" ] }, { "id": "kaal:claim:5254152-037", "url": "https://wulfkaal.github.io/claims/5254152-037", "family": "plutocratic-capture", "name": "token gated membership tiers", "claim": "Tiered membership models that tie governance rights and influence to token holdings introduce imbalance and a centralization element into DAO governance, as scored for Bankless DAO.", "conditions": [ "DAOs with contributor tiers or access levels keyed to token ownership" ], "topics": [ "governance-design", "tokenomics", "decentralization", "dao", "systemic-risk" ] }, { "id": "kaal:claim:5254152-038", "url": "https://wulfkaal.github.io/claims/5254152-038", "family": "regulatory-lag", "name": "tradable token resilience erosion", "claim": "Reliance on fungible, publicly tradable governance tokens undermines a protocol's resilience by exposing it to risks such as 51 percent attacks, as scored for Push Protocol.", "conditions": [ "DAOs whose governance tokens trade on open markets" ], "topics": [ "governance-design", "tokenomics", "consensus-and-security" ] }, { "id": "kaal:claim:5254152-040", "url": "https://wulfkaal.github.io/claims/5254152-040", "family": "governance-participation-collapse", "name": "no dedicated deliberation platform", "claim": "The absence of a dedicated discussion platform, combined with poor engagement on third party accounts, hinders meaningful discussion and collaboration within a DAO, as scored for BrainDAO with an organizational communication score of 1 despite high decentralization and attack resistance scores.", "conditions": [ "DAOs communicating only through external social platforms" ], "topics": [ "institutional-design", "dao" ] }, { "id": "kaal:claim:4855607-002", "url": "https://wulfkaal.github.io/claims/4855607-002", "family": "scalability-and-throughput-limit", "name": "Compute scaling wall", "claim": "The computational cost of improving deep learning performance scales so badly that halving the error rate is estimated to require over five hundred times more computational resources, which raises a sustainability problem for the deep learning paradigm itself.", "conditions": [ "scaling driven improvement of deep learning accuracy" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4855607-003", "url": "https://wulfkaal.github.io/claims/4855607-003", "family": "ai-model-and-training-failure", "name": "Training data bias amplification", "claim": "Deep learning models inadvertently learn and amplify whatever biases exist in their training data, so the composition of the training corpus, not the architecture, is the source of unfair or discriminatory outcomes.", "conditions": [ "depends on the data used for training" ], "topics": [ "ai-and-agents", "education-and-practice" ] }, { "id": "kaal:claim:4855607-004", "url": "https://wulfkaal.github.io/claims/4855607-004", "family": "ai-model-and-training-failure", "name": "Distribution shift brittleness", "claim": "Deep learning models adapt to changes in data distribution far less readily than human learning does, which limits their reliability once the operating environment diverges from the training data.", "conditions": [ "settings where the data distribution shifts after training" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:4855607-005", "url": "https://wulfkaal.github.io/claims/4855607-005", "family": "scalability-and-throughput-limit", "name": "Communication cost dominance", "claim": "In federated learning the communication cost of many edge devices sending model parameters to a central server frequently exceeds the computation cost, and heterogeneity in the participating devices, including varying computational capabilities and resource constraints, compounds the problem.", "conditions": [ "federated learning across numerous heterogeneous edge devices" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4855607-006", "url": "https://wulfkaal.github.io/claims/4855607-006", "family": "privacy-and-surveillance-risk", "name": "Gradient leakage in federated learning", "claim": "Federated learning does not eliminate privacy risk: because gradients and partial parameters are transmitted, the system remains vulnerable to attacks that leak data, and this vulnerability together with communication overhead is a significant hurdle to deployment.", "conditions": [ "federated learning schemes that share gradients or partial parameters with a server" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:4855607-007", "url": "https://wulfkaal.github.io/claims/4855607-007", "family": "scalability-and-throughput-limit", "name": "Quadratic attention cost", "claim": "The self attention mechanism in transformers scales quadratically with input sequence length, which makes transformers expensive and slow to train and use on long sequences and disqualifies them where real time processing or limited compute is required.", "conditions": [ "long input sequences", "real time or compute constrained deployments" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:4855607-008", "url": "https://wulfkaal.github.io/claims/4855607-008", "family": "ai-oversight-and-alignment-gap", "name": "Closed model opacity", "claim": "GPT class models are costly to run, and their closed nature and undisclosed algorithmic details raise transparency and accountability concerns that their performance does not offset.", "conditions": [ "proprietary, closed weight transformer models" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:4855607-009", "url": "https://wulfkaal.github.io/claims/4855607-009", "family": "ai-model-and-training-failure", "name": "Restricted legal dataset access", "claim": "In the legal domain the adoption of transformer based language models is blocked less by capability than by resources and access: training and deployment are resource intensive and large, quality tagged legal datasets are usually restricted.", "conditions": [ "legal applications of transformer based language models" ], "topics": [ "ai-and-agents", "law-and-legal-systems", "empirical-evidence" ] }, { "id": "kaal:claim:4855607-010", "url": "https://wulfkaal.github.io/claims/4855607-010", "family": "scalability-and-throughput-limit", "name": "Sampling versus clustering trade off", "claim": "GNN scalability on large real world graphs is a genuine trade off rather than an engineering gap: sampling methods lose influential neighbors while clustering methods lose structural patterns, so each remedy sacrifices part of the signal the model needs.", "conditions": [ "large real world graphs where full graph processing is infeasible" ], "topics": [ "ai-and-agents", "citation-and-knowledge" ] }, { "id": "kaal:claim:4855607-011", "url": "https://wulfkaal.github.io/claims/4855607-011", "family": "ai-model-and-training-failure", "name": "GNN adversarial vulnerability", "claim": "GNNs are vulnerable to adversarial attacks that target both node features and graph structure, and their lack of interpretability remains a major obstacle to applying them to real world problems.", "conditions": [ "real world GNN deployments where adversaries can influence the graph" ], "topics": [ "ai-and-agents", "citation-and-knowledge", "consensus-and-security", "research-methods" ] }, { "id": "kaal:claim:4855607-012", "url": "https://wulfkaal.github.io/claims/4855607-012", "family": "ai-model-and-training-failure", "name": "Homogeneous graph assumption", "claim": "Most GNN architectures assume homogeneous graph structures, so adapting them to heterogeneous graphs with diverse node and edge types remains an unsolved research challenge, and full batch training on large graphs suffers memory overflow.", "conditions": [ "graphs with diverse node and edge types", "large graphs trained full batch" ], "topics": [ "ai-and-agents", "citation-and-knowledge", "education-and-practice" ] }, { "id": "kaal:claim:4855607-013", "url": "https://wulfkaal.github.io/claims/4855607-013", "family": "ai-oversight-and-alignment-gap", "name": "Explainable RL immaturity", "claim": "Explainable reinforcement learning research has not yet produced usable explanations: the field relies on toy examples, omits user testing, produces explanations that are themselves complex, uses basic visualizations, and rarely open sources its code.", "conditions": [ "current explainable RL research as surveyed in the text" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:4855607-014", "url": "https://wulfkaal.github.io/claims/4855607-014", "family": "ai-model-and-training-failure", "name": "Sparse reward learning failure", "claim": "Deep reinforcement learning demands large amounts of training data, which suggests its algorithms differ fundamentally from human learning, and learning without supervision becomes particularly hard when rewards are sparse, as they typically are in sequence generation tasks.", "conditions": [ "sparse reward settings", "sequence generation tasks" ], "topics": [ "economics", "empirical-evidence" ] }, { "id": "kaal:claim:4855607-015", "url": "https://wulfkaal.github.io/claims/4855607-015", "family": "ai-oversight-and-alignment-gap", "name": "Majority capture of the reward model", "claim": "Reward modeling learned through interaction with users carries two structural pathologies: majority views disproportionately influence the learned reward function, and the agent may engage in reward hacking.", "conditions": [ "reward functions learned from aggregated user interaction" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:4855607-016", "url": "https://wulfkaal.github.io/claims/4855607-016", "family": "ai-oversight-and-alignment-gap", "name": "Overspecific human guidance", "claim": "There is a trade off in RLHF between the agent imitating human advice and learning autonomously, and human guidance that is too specific will prevent the agent from discovering novel optimal strategies.", "conditions": [ "human in the loop RL where the extent of human involvement is a design choice" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:4855607-017", "url": "https://wulfkaal.github.io/claims/4855607-017", "family": "ai-oversight-and-alignment-gap", "name": "Helpfulness harmlessness tension", "claim": "Balancing helpfulness against harmlessness is an inherent tension in Safe RLHF rather than a tuning problem that can be resolved once.", "conditions": [ "Safe RLHF designs that optimize helpfulness and harmlessness jointly" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:4855607-018", "url": "https://wulfkaal.github.io/claims/4855607-018", "family": "ai-oversight-and-alignment-gap", "name": "Compound RLHF failure", "claim": "RLHF fails on several fronts at once: humans can pursue harmful goals either innocently or maliciously, human feedback degrades when examples are hard to evaluate and especially when RLHF is applied to superhuman models, and reward models diverge from humans through misspecification and misgeneralization.", "conditions": [ "especially acute when RLHF is applied to models more capable than their human evaluators" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:4855607-025", "url": "https://wulfkaal.github.io/claims/4855607-025", "family": "governance-participation-collapse", "name": "Governance latency in traditional models", "claim": "Traditional governance models lack the real time responsiveness to community sentiment that a decentralized WDAG system supplies, and this latency, not an absence of rules, is what leaves conventional AI governance out of step with community values.", "conditions": [ "comparison of centralized governance models against decentralized, continuously updated ones" ], "topics": [ "governance-design", "decentralization" ] }, { "id": "kaal:claim:4855607-033", "url": "https://wulfkaal.github.io/claims/4855607-033", "family": "ai-oversight-and-alignment-gap", "name": "Adversarial feedback provider incentives", "claim": "The RLHF process is exposed to failure because participants may hold potentially adversarial and misaligned interests, so the vulnerability lies in the incentive structure of feedback provision rather than in the learning algorithm.", "conditions": [ "RLHF systems where feedback providers have divergent stakes" ], "topics": [ "ai-and-agents", "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:4685567-003", "url": "https://wulfkaal.github.io/claims/4685567-003", "family": "plutocratic-capture", "name": "Undemocratic Foundation Power Structure", "claim": "Impact 1.0 foundations developed plutocratic power structures because their leaders and trustees were never democratically elected, and Impact 3.0 addresses this by adding WEB3 collaborative democratic measures on top of the existing foundation structures.", "conditions": [ "private foundation governance", "Impact 3.0 still relies on foundation structures" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:4685567-004", "url": "https://wulfkaal.github.io/claims/4685567-004", "family": "plutocratic-capture", "name": "Unchecked Individual Donor Agenda", "claim": "Because Impact 1.0 entrusted individual donors rather than donor collectives with identifying which problems to solve, individual philanthropists can reshape underfunded causes according to their own ideals without meaningful checks and balances or crowd wisdom.", "conditions": [ "Impact 1.0 and 2.0 philanthropic strategies", "high net worth individual and corporate donors" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4685567-005", "url": "https://wulfkaal.github.io/claims/4685567-005", "family": "liquidity-and-market-structure-failure", "name": "Endowment Deployment Lag", "claim": "Impact 3.0 shortens the lag between donors taking their tax deductions and the donated funds actually reaching impact projects, which is a capital allocation timing failure of Impact 1.0 and 2.0.", "conditions": [ "donors receiving tax deductions in advance of deployment" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4685567-007", "url": "https://wulfkaal.github.io/claims/4685567-007", "family": "liquidity-and-market-structure-failure", "name": "Overinvestment in Process", "claim": "Because Impact 1.0 lacks a liquid and efficient funding marketplace, donors protect their interest by overinvesting in process rather than in impact outcomes directly.", "conditions": [ "absence of a liquid impact funding marketplace" ], "topics": [ "defi", "economics" ] }, { "id": "kaal:claim:4685567-008", "url": "https://wulfkaal.github.io/claims/4685567-008", "family": "information-asymmetry", "name": "Network Bound Deal Selection", "claim": "Without a full view of the impact market, Impact 1.0 donors end up funding projects run by people already in their existing networks rather than the most qualified projects judged by objective standards.", "conditions": [ "no central impact marketplace", "funding sources that are not well known" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4685567-009", "url": "https://wulfkaal.github.io/claims/4685567-009", "family": "plutocratic-capture", "name": "Priority Hijacking by Large Donors", "claim": "The absence of an efficient marketplace lets big dollar donors hijack the priorities of impact intermediaries such as foundations, donor advised funds, NGOs and fiscal sponsors, producing a feast or famine pattern for fundable projects.", "conditions": [ "intermediated philanthropy without a central marketplace" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:4685567-010", "url": "https://wulfkaal.github.io/claims/4685567-010", "family": "cold-start-and-bootstrapping", "name": "Missing Credential Tracking", "claim": "Credential tracking is a necessary condition for Impact 3.0: any Impact 3.0 platform built without WEB3 credential tracking systems will encounter significant disruption over time, as foreshadowed by the failure to enforce and monitor net zero commitments in Impact 1.0.", "conditions": [ "Impact 3.0 platforms", "stakes higher than in Impact 1.0 carbon markets" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4685567-012", "url": "https://wulfkaal.github.io/claims/4685567-012", "family": "fraud-and-misconduct", "name": "Carbon Credit Execution Failure", "claim": "Kaal concedes that at their worst Impact 1.0 carbon credits are non transparent, fraudulent and fail to mitigate climate change, but contests the inference drawn from that record: operational shortcomings do not necessarily invalidate the underlying theory.", "conditions": [ "distinguishes operational execution from underlying theory" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:4685567-013", "url": "https://wulfkaal.github.io/claims/4685567-013", "family": "staking-and-incentive-misalignment", "name": "Asymmetric Payoff for Net Negative Ventures", "claim": "Impact markets that promote retrospective funding and resale of impact carry an inherent risk of incentivizing net negative ventures, because individuals can capture the benefit of positive impacts without bearing the cost when their actions produce negative impacts.", "conditions": [ "retrospective funding", "resale of impact permitted" ], "topics": [ "risk-and-incentives", "economics" ] }, { "id": "kaal:claim:4685567-014", "url": "https://wulfkaal.github.io/claims/4685567-014", "family": "liquidity-and-market-structure-failure", "name": "Demand Side Collapse in Impact Markets", "claim": "Impact 1.0 impact markets fail on the demand side: they have more sellers than buyers, and many potential buyers would have funded those projects anyway, which removes the need for a secondary market and significantly reduces resale value.", "conditions": [ "Impact 1.0 secondary markets for social impact credits" ], "topics": [ "tokenomics", "economics" ] }, { "id": "kaal:claim:4685567-015", "url": "https://wulfkaal.github.io/claims/4685567-015", "family": "collective-action-and-coordination-failure", "name": "Inclusivity Efficiency Tradeoff", "claim": "Participatory grantmaking in Impact 2.0 trades efficiency for inclusivity: balancing the two is complex and potentially leads to longer decision making processes and increased resource allocation for facilitation.", "conditions": [ "participatory grantmaking models in Impact 2.0" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4685567-016", "url": "https://wulfkaal.github.io/claims/4685567-016", "family": "measurement-and-metric-failure", "name": "Non Comparable Impact Metrics", "claim": "Impact measurement in Impact 2.0 has no settled standard: consensus on measurement methodologies and metrics remains elusive, which produces divergent approaches and hinders comparability across programs and sectors.", "conditions": [ "Impact 2.0 measurement practice" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:4685567-017", "url": "https://wulfkaal.github.io/claims/4685567-017", "family": "measurement-and-metric-failure", "name": "Centralized Measurement Single Point of Failure", "claim": "The impact measurement consulting business follows a distinctly centralized approach, and without the crowd wisdom and community audit that WEB3 Impact 3.0 supplies, such consulting practices are subject to single points of failure.", "conditions": [ "centralized consulting model for impact measurement" ], "topics": [ "research-methods", "decentralization", "compliance" ] }, { "id": "kaal:claim:4685567-021", "url": "https://wulfkaal.github.io/claims/4685567-021", "family": "oracle-and-input-corruption", "name": "Governance Attack Vector in Funding Oracles", "claim": "Retroactive public goods funding via results oracles in DAO format fails at the governance layer: even where the core resource distribution concept works, the project remains exposed to decentralized governance attack vectors because the governance design lacks attack resistance.", "conditions": [ "results oracle operating as a DAO", "retroactive public goods funding designs" ], "topics": [ "consensus-and-security", "governance-design", "dao", "smart-contracts" ] }, { "id": "kaal:claim:4685567-022", "url": "https://wulfkaal.github.io/claims/4685567-022", "family": "measurement-and-metric-failure", "name": "Unverified Impact Inputs", "claim": "Hypercerts, like other WEB3 optimization attempts for impact certificates, lack the required verification of impact inputs inside decentralized governance settings that are attack proof.", "conditions": [ "hypercerts as implemented at the time of writing" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:4685567-026", "url": "https://wulfkaal.github.io/claims/4685567-026", "family": "liquidity-and-market-structure-failure", "name": "No Purchaser Listing Failure", "claim": "Impact 3.0 is bounded by market participants' purchasing choices: projects whose impact certificates find no purchasers after listing are less likely to proliferate or find long term commercial applications.", "conditions": [ "post listing secondary market demand" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4685567-028", "url": "https://wulfkaal.github.io/claims/4685567-028", "family": "staking-and-incentive-misalignment", "name": "Nothing at Stake Voting", "claim": "The existing fund allocation model is afflicted by uninformed voters, sockpuppets and other gamesmanship, by voting with nothing at stake, and by voting with other people's money, and the crowd wisdom of WEB3 communities in the impact certificate model upgrades that model.", "conditions": [ "legacy fund allocation and voting models" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4685567-030", "url": "https://wulfkaal.github.io/claims/4685567-030", "family": "research-design-limitation", "name": "Evidence Free Token Design", "claim": "Many current blockchain projects critically fail to use existing social impact evidence in their design and management, which Kaal identifies as a source of future challenges for blockchain based impact financing.", "conditions": [ "blockchain projects aimed at SDG financing" ], "topics": [ "tokenomics", "empirical-evidence", "blockchain" ] }, { "id": "kaal:claim:4685567-038", "url": "https://wulfkaal.github.io/claims/4685567-038", "family": "measurement-and-metric-failure", "name": "Fungible Measure Blind to Expertise", "claim": "Impact certificates are an incomplete measure of expertise: they capture impact success in fungible economic terms without referring to the expertise actually developed by individual project community members or by the project as a collective, which is why WEB3 community software is needed for expertise tracking.", "conditions": [ "expertise tracking for donors, secondary market participants and follow on funders" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:4900880-005", "url": "https://wulfkaal.github.io/claims/4900880-005", "family": "consensus-and-protocol-attack", "name": "cryptographic-obsolescence", "claim": "Quantum algorithms such as Shor's algorithm can factor large prime numbers exponentially faster than classical computers, which potentially renders currently deployed cryptographic systems including RSA obsolete.", "conditions": [ "assumes cryptographically relevant quantum computers become available" ], "topics": [ "consensus-and-security", "citation-and-knowledge" ] }, { "id": "kaal:claim:4900880-007", "url": "https://wulfkaal.github.io/claims/4900880-007", "family": "inequality-and-access-divide", "name": "quantum-access-divide", "claim": "Disparities in access to quantum computing resources and expertise are likely to widen existing inequalities both between nations and within societies, so the distributional effect of quantum technology is a predictable consequence of unequal access rather than an incidental risk.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4900880-008", "url": "https://wulfkaal.github.io/claims/4900880-008", "family": "measurement-and-metric-failure", "name": "unmeasurable-supply-demand-curves", "claim": "The classical law of supply and demand fails on three specific grounds: supply and demand curves cannot be measured independently, economic interactions are intrinsically probabilistic, and goods and financial transactions are discrete rather than continuous.", "conditions": [], "topics": [ "tokenomics", "economics", "research-methods" ] }, { "id": "kaal:claim:4900880-009", "url": "https://wulfkaal.github.io/claims/4900880-009", "family": "research-design-limitation", "name": "classical-paradigm-blind-spots", "claim": "The classical paradigm underlying mainstream economics, built on independence, rationality, and optimal equilibrium, cannot adequately address money creation, financial entanglement, or behavioral factors.", "conditions": [], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:4900880-012", "url": "https://wulfkaal.github.io/claims/4900880-012", "family": "research-design-limitation", "name": "phenomenological-quantum-models", "claim": "Existing quantum economic models carry unresolved defects that the field must address: some lack a realistic connection with financial markets, and others strip out the features that make the formalism quantum in the first place.", "conditions": [], "topics": [ "research-methods" ] }, { "id": "kaal:claim:4900880-022", "url": "https://wulfkaal.github.io/claims/4900880-022", "family": "measurement-and-metric-failure", "name": "net-job-count-masks-churn", "claim": "Headline net job creation figures conceal the real disruption: employers anticipate structural labor market churn of 23 percent of jobs over five years, so a positive net balance of created over destroyed jobs understates how many workers must move.", "conditions": [], "topics": [ "economics", "research-methods" ] }, { "id": "kaal:claim:4900880-026", "url": "https://wulfkaal.github.io/claims/4900880-026", "family": "measurement-and-metric-failure", "name": "spurious-precision-in-automation-forecasts", "claim": "Many existing studies of automation and job loss rest on flawed assumptions and weak data, and their seemingly precise figures conceal those defects, so their headline numbers should not be taken at face value.", "conditions": [], "topics": [ "research-methods" ] }, { "id": "kaal:claim:4900880-027", "url": "https://wulfkaal.github.io/claims/4900880-027", "family": "adoption-and-usability-barrier", "name": "ai-adoption-without-work-redesign", "claim": "Deploying AI does not by itself move workers toward higher value work: AI users spend more of their time on routine administrative tasks than on strategic activities, which points to a need to redesign work processes and job roles alongside the technology.", "conditions": [], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:4900880-034", "url": "https://wulfkaal.github.io/claims/4900880-034", "family": "innovation-chilling", "name": "hierarchy-adaptation-lag", "claim": "Traditional hierarchical organizational structures are too slow to adapt to rapid technological change and stifle innovation through rigid control mechanisms, which is why they are unsuited to governing the quantum economy.", "conditions": [], "topics": [ "institutional-design", "governance-design", "innovation" ] }, { "id": "kaal:claim:4900880-040", "url": "https://wulfkaal.github.io/claims/4900880-040", "family": "regulatory-lag", "name": "unresolved-defi-regulation", "claim": "Decentralized finance and participatory governance models create their own problems, specifically unresolved regulatory frameworks and ethical considerations, so decentralization is not a costless substitute for existing institutional arrangements.", "conditions": [], "topics": [ "defi", "governance-design" ] }, { "id": "kaal:claim:4900878-003", "url": "https://wulfkaal.github.io/claims/4900878-003", "family": "consensus-and-protocol-attack", "name": "classical-cryptography-obsolescence", "claim": "Current cryptographic systems such as RSA rest on the classical difficulty of factoring large primes, so quantum algorithms like Shor's algorithm, which factor exponentially faster, can render those cryptographic methods obsolete.", "conditions": [ "applies to factoring based cryptography such as RSA", "requires sufficiently capable quantum hardware" ], "topics": [ "consensus-and-security", "citation-and-knowledge" ] }, { "id": "kaal:claim:4900878-004", "url": "https://wulfkaal.github.io/claims/4900878-004", "family": "research-design-limitation", "name": "classical-paradigm-blind-spots", "claim": "The classical paradigm underlying mainstream economics, with its emphasis on independence, rationality, and optimal equilibrium, cannot adequately account for money creation, financial entanglement, or behavioral factors.", "conditions": [ "applies to mainstream neoclassical modeling" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:4900878-005", "url": "https://wulfkaal.github.io/claims/4900878-005", "family": "measurement-and-metric-failure", "name": "unmeasurable-supply-demand-curves", "claim": "The classical law of supply and demand fails because supply and demand curves cannot be measured independently and because economic interactions are intrinsically probabilistic rather than continuous and deterministic.", "conditions": [ "applies to the continuity and determinism assumptions of classical supply and demand" ], "topics": [ "tokenomics", "economics", "research-methods" ] }, { "id": "kaal:claim:4900878-012", "url": "https://wulfkaal.github.io/claims/4900878-012", "family": "research-design-limitation", "name": "broken-quantum-analogy", "claim": "The quantum econophysics models of Baaquie and Ilinski breach the analogy they rely on: without the imaginary unit their formulations cannot produce interference patterns, which are a defining feature of quantum phenomena, so it is doubtful they capture genuinely quantum properties.", "conditions": [ "applies to the Baaquie and Ilinski quantum finance formulations" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4900878-013", "url": "https://wulfkaal.github.io/claims/4900878-013", "family": "measurement-and-metric-failure", "name": "unquantifiable-social-variables", "claim": "A central methodological obstacle for quantum economics is that complex social phenomena such as social power and mental energy resist reduction to exact equations, which leaves the framework without a consistent set of units for subjective forces.", "conditions": [], "topics": [ "research-methods" ] }, { "id": "kaal:claim:4900878-014", "url": "https://wulfkaal.github.io/claims/4900878-014", "family": "research-design-limitation", "name": "unpartitionable-utility-and-attraction", "claim": "Quantum decision models break down on complex real world decisions such as mortgages, because there is no clear way to partition the utility and the attraction functions when the underlying factors cannot be known with precision.", "conditions": [ "complex real world financial decisions such as mortgages" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4900878-016", "url": "https://wulfkaal.github.io/claims/4900878-016", "family": "research-design-limitation", "name": "preference-reversal-unexplained", "claim": "Both classical and behavioral approaches fail to account adequately for preference reversal, and that joint failure, not mere novelty, is what justifies an alternative quantum decision framework.", "conditions": [ "applies to preference reversal and similar context dependent decision anomalies" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:4900878-018", "url": "https://wulfkaal.github.io/claims/4900878-018", "family": "supervisory-capacity-gap", "name": "policy-implementation-gap", "claim": "Quantum based policies and regulations stall at implementation because the complexity and counterintuitive character of quantum concepts make them hard for policymakers and decision makers to apply, so the framework needs more accessible and intuitive formulations before it can guide policy.", "conditions": [ "real world policy and regulatory contexts" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4900878-020", "url": "https://wulfkaal.github.io/claims/4900878-020", "family": "fraud-and-misconduct", "name": "unregulated-ico-fraud", "claim": "The 2017 ICO wave democratized access to investment and spurred blockchain innovation, but the absence of regulatory oversight produced numerous fraudulent projects, which exposed the need for robust economic models and regulatory frameworks inside token ecosystems.", "conditions": [ "the 2017 ICO market before regulatory frameworks matured" ], "topics": [ "securities-law", "tokenomics" ] }, { "id": "kaal:claim:4900878-023", "url": "https://wulfkaal.github.io/claims/4900878-023", "family": "valuation-and-pricing-failure", "name": "classical-models-fail-on-crypto-volatility", "claim": "Traditional economic models fail to predict cryptocurrency price movements accurately, because token values swing rapidly on market sentiment, regulatory news, technological change, and macroeconomic trends, which are inherently unpredictable.", "conditions": [ "volatile decentralized cryptocurrency markets" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4957318-007", "url": "https://wulfkaal.github.io/claims/4957318-007", "family": "measurement-and-metric-failure", "name": "engagement-driven-discourse-distortion", "claim": "Web2 platform architecture is a causal contributor to distrust in legal institutions: centralized models driven by engagement metrics prioritize sensationalism over nuanced discourse, which accelerates misinformation and echo chambers and magnifies public distrust.", "conditions": [ "centralized, engagement optimized social media platforms", "where citizens use social media as a substitute for formal legal channels" ], "topics": [ "reputation", "institutional-design" ] }, { "id": "kaal:claim:4957318-009", "url": "https://wulfkaal.github.io/claims/4957318-009", "family": "supervisory-capacity-gap", "name": "sunset-review-burden", "claim": "Sunset regulation has fallen out of wide use, and the author attributes this primarily to the administrative burden and political inertia of regularly reviewing and repealing laws, not to any defect in the concept itself.", "conditions": [ "legislatures without dedicated review capacity" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:4957318-010", "url": "https://wulfkaal.github.io/claims/4957318-010", "family": "rule-obsolescence-and-ossification", "name": "hollow-sunset-review", "claim": "Sunset provisions fail on their own terms when the mandated reviews are not conducted thoroughly, because laws then either expire or continue without proper scrutiny, which defeats the purpose of the mechanism.", "conditions": [ "where legislative review capacity or attention is insufficient" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4957318-011", "url": "https://wulfkaal.github.io/claims/4957318-011", "family": "regulatory-capture-and-incumbent-advantage", "name": "sunset-rent-extraction", "claim": "Sunset provisions likely increase rents extracted by interest groups and entrench current majoritarian preferences, and they can create planning problems for both public and private actors.", "conditions": [ "politically salient statutes subject to periodic renewal" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4957318-012", "url": "https://wulfkaal.github.io/claims/4957318-012", "family": "regulatory-capture-and-incumbent-advantage", "name": "renewal-window-capture", "claim": "Because renewal deadlines create recurring windows for legislative action, sunset clauses become instruments of political maneuvering in which lawmakers cater to interest groups or shifting political winds instead of pursuing long term policy solutions.", "conditions": [ "where renewal is politically contested" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:4957318-013", "url": "https://wulfkaal.github.io/claims/4957318-013", "family": "innovation-chilling", "name": "expiration-uncertainty", "claim": "The possibility that a law will expire without guaranteed renewal creates a climate of uncertainty that discourages the investment and long term planning which depend on consistent regulatory frameworks.", "conditions": [ "capital intensive or long horizon business decisions", "regulated markets where entry depends on rule stability" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4957318-014", "url": "https://wulfkaal.github.io/claims/4957318-014", "family": "regulatory-capture-and-incumbent-advantage", "name": "premature-agency-termination", "claim": "Sunset provisions endanger politically contentious institutions rather than ineffective ones, because agencies that face opposition or controversy can be dissolved through expiration regardless of their ongoing relevance or necessity.", "conditions": [ "agencies that are subjects of intense political debate" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4957318-015", "url": "https://wulfkaal.github.io/claims/4957318-015", "family": "rule-obsolescence-and-ossification", "name": "deadline-driven-renewal", "claim": "Deadline pressure inverts the intended effect of sunset provisions: the need to reassess and renew by a fixed date produces hasty decisions or the continuation of flawed policies because there is insufficient time for proper evaluation.", "conditions": [ "where expiration dates arrive faster than deliberative review can be completed" ], "topics": [ "economics" ] }, { "id": "kaal:claim:4957318-016", "url": "https://wulfkaal.github.io/claims/4957318-016", "family": "rule-obsolescence-and-ossification", "name": "tax-sunset-fiscal-illusion", "claim": "Sunset provisions in tax law do not deliver fiscal restraint, because shifting baselines, exceptions to budget rules, and the difficulty of accurately costing temporary legislation undermine their theoretical benefits.", "conditions": [ "tax legislation subject to budget scoring rules" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:4957318-019", "url": "https://wulfkaal.github.io/claims/4957318-019", "family": "rule-obsolescence-and-ossification", "name": "symbolic-law-repeal-resistance", "claim": "Legal garbage collection is blocked by politics rather than by analysis: outdated or redundant laws remain contentious when they carry symbolic importance for particular constituencies or when repeal would be read as weakening the regulatory framework.", "conditions": [ "statutes with symbolic or ideological significance", "where repeal is publicly visible" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:4957318-020", "url": "https://wulfkaal.github.io/claims/4957318-020", "family": "rule-obsolescence-and-ossification", "name": "statutory-interdependence-ripple", "claim": "Determining genuine obsolescence is hard because statutes are interconnected: an apparently redundant law may be a foundational element of another statute or regulatory framework, so repeal produces a ripple effect through the broader legal ecosystem.", "conditions": [ "dense statutory systems with cross referencing provisions" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:4957318-021", "url": "https://wulfkaal.github.io/claims/4957318-021", "family": "supervisory-capacity-gap", "name": "review-cost-deterrence", "claim": "The cost of comprehensive legal review deters governments from committing the necessary resources, which prevents legal garbage collection from being applied consistently and effectively.", "conditions": [ "jurisdictions with budget constraints or competing policy priorities" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:4957318-022", "url": "https://wulfkaal.github.io/claims/4957318-022", "family": "enforcement-gap", "name": "repeal-induced-legal-gaps", "claim": "Removing laws without fully understanding their current applications or interdependencies creates legal gaps and unintended policy outcomes, so the act of cleanup can itself weaken regulatory or protective frameworks.", "conditions": [ "where repeal proceeds without mapping of downstream dependencies" ], "topics": [ "law-and-legal-systems", "risk-and-incentives", "dynamic-regulation" ] }, { "id": "kaal:claim:4957318-023", "url": "https://wulfkaal.github.io/claims/4957318-023", "family": "rule-obsolescence-and-ossification", "name": "history-versus-cleanup-tradeoff", "claim": "Legal garbage collection faces an unavoidable tradeoff: streamlining the legal framework by removing outdated laws must be balanced against preserving legal history, since historical statutes record the evolution of legal principles and societal values.", "conditions": [ "where removal is implemented as deletion rather than archiving" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:4957318-024", "url": "https://wulfkaal.github.io/claims/4957318-024", "family": "compliance-cost-and-barrier-to-entry", "name": "experimental-rule-uncertainty", "claim": "Experimental rules impose a cost on the regulated: because the rules are temporary and subject to change, they complicate compliance efforts, disrupt long term planning, and create ambiguity that can produce resistance or unintended non compliance.", "conditions": [ "where the experimental rule substantially modifies an existing regulatory framework" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:4957318-026", "url": "https://wulfkaal.github.io/claims/4957318-026", "family": "governance-participation-collapse", "name": "automation-democratic-deficit", "claim": "Automatic adjustment mechanisms trade democratic input for responsiveness: by removing policy changes from the legislative agenda they limit opportunities for public debate and scrutiny, which raises accountability and transparency concerns.", "conditions": [ "where adjustment is triggered automatically without legislative revisiting" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:5095633-004", "url": "https://wulfkaal.github.io/claims/5095633-004", "family": "ai-model-and-training-failure", "name": "quality-filtered supply shortfall", "claim": "The apparent abundance of internet text overstates the usable supply, because much of it fails quality thresholds for model training due to redundancy, noise, or irrelevance.", "conditions": [ "applies to internet-sourced text used for model training" ], "topics": [ "ai-and-agents", "education-and-practice" ] }, { "id": "kaal:claim:5095633-005", "url": "https://wulfkaal.github.io/claims/5095633-005", "family": "definitional-ambiguity", "name": "uncompensated creator supply failure", "claim": "The current data production market cannot scale or sustain a high-quality text supply because content creators face limited incentives and no direct compensation structures.", "conditions": [ "market as currently structured around platforms and content aggregators" ], "topics": [ "economics", "risk-and-incentives" ] }, { "id": "kaal:claim:5095633-006", "url": "https://wulfkaal.github.io/claims/5095633-006", "family": "data-quality-and-comparability", "name": "connectivity and legal constriction of supply", "claim": "Privacy rules, copyright, and the uneven global distribution of digital connectivity independently reduce both the availability and the diversity of human-generated text for AI training.", "conditions": [], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:5095633-008", "url": "https://wulfkaal.github.io/claims/5095633-008", "family": "fraud-and-misconduct", "name": "fraudulent submission and moderation failure", "claim": "Decentralized data production will succeed only if it solves fraudulent submissions, content moderation, and alignment with ethical and legal frameworks; these are necessary conditions, not incidental risks.", "conditions": [], "topics": [ "decentralization", "law-and-legal-systems", "compliance" ] }, { "id": "kaal:claim:5095633-009", "url": "https://wulfkaal.github.io/claims/5095633-009", "family": "inequality-and-access-divide", "name": "compute cost concentration", "claim": "The high cost of processing colossal datasets confines frontier AI innovation to a small number of well-resourced institutions.", "conditions": [ "applies where model development requires processing very large datasets" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:5095633-010", "url": "https://wulfkaal.github.io/claims/5095633-010", "family": "ai-model-and-training-failure", "name": "representation skew", "claim": "When a training dataset disproportionately represents one region or demographic group, the resulting model produces skewed and sometimes inappropriate outputs once deployed in unfamiliar settings.", "conditions": [ "deployment context differs from the demographic composition of the training data" ], "topics": [ "empirical-evidence", "research-methods" ] }, { "id": "kaal:claim:5095633-011", "url": "https://wulfkaal.github.io/claims/5095633-011", "family": "ai-model-and-training-failure", "name": "recursive synthetic dilution", "claim": "As AI-generated content proliferates online it dilutes the diversity and originality of the text pool available for later training, producing performance degradation across successive model generations.", "conditions": [ "repeated training generations drawing on an increasingly synthetic web" ], "topics": [ "education-and-practice" ] }, { "id": "kaal:claim:5095633-012", "url": "https://wulfkaal.github.io/claims/5095633-012", "family": "compliance-cost-and-barrier-to-entry", "name": "compliance-induced data scarcity", "claim": "The governance protocols required for GDPR and AI Act compliance, including anonymization, data minimization, and explicit consent, themselves complicate the assembly of robust AI training datasets.", "conditions": [ "jurisdictions with GDPR-style data protection mandates" ], "topics": [ "compliance", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:5095633-013", "url": "https://wulfkaal.github.io/claims/5095633-013", "family": "scalability-and-throughput-limit", "name": "real-time pipeline latency failure", "claim": "Latency, throughput limits, and the absence of fully automated continuous training and validation together defeat the timeliness advantage that real-time data is supposed to deliver.", "conditions": [ "AI pipelines ingesting live, high-velocity data streams" ], "topics": [ "education-and-practice" ] }, { "id": "kaal:claim:5095633-014", "url": "https://wulfkaal.github.io/claims/5095633-014", "family": "data-quality-and-comparability", "name": "data staleness", "claim": "In fast-moving fields such as technology, law, and public policy, models trained on obsolete datasets fail to capture new trends, behaviors, or regulatory changes, which reduces their predictive and explanatory power.", "conditions": [ "domains with rapid regulatory or behavioral change" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:5095633-015", "url": "https://wulfkaal.github.io/claims/5095633-015", "family": "ai-model-and-training-failure", "name": "clinical bias amplification", "claim": "In healthcare, biased or stale training data produces algorithms that misdiagnose underrepresented populations and thereby reinforce existing health disparities instead of reducing them.", "conditions": [ "clinical deployment on populations underrepresented in training data" ], "topics": [ "ai-and-agents", "empirical-evidence" ] }, { "id": "kaal:claim:5095633-016", "url": "https://wulfkaal.github.io/claims/5095633-016", "family": "innovation-chilling", "name": "overconstrained compliance", "claim": "Data protection compliance carried out in a way that overly constrains researcher access converts a privacy gain into a net social loss, because the societal benefits of AI are offset by a stunted innovation ecosystem.", "conditions": [ "where compliance is implemented without counterbalancing privacy-preserving techniques" ], "topics": [ "consensus-and-security", "innovation" ] }, { "id": "kaal:claim:5095633-018", "url": "https://wulfkaal.github.io/claims/5095633-018", "family": "recentralization-drift", "name": "centralized annotation shortcomings", "claim": "The centralized frameworks used by the leading annotation companies, including Scale AI, Appen, Hive, V7 Labs, CloudFactory, and Sama, carry theoretical and practical shortcomings around bias, ethical sourcing, and data diversity that undermine the equitability and generalizability of the resulting AI models.", "conditions": [ "centralized data annotation providers as currently structured" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:5095633-019", "url": "https://wulfkaal.github.io/claims/5095633-019", "family": "ai-model-and-training-failure", "name": "annotator bias propagation", "claim": "Biases held by human annotators or embedded in automated annotation systems are propagated into the models trained on their output, producing AI that performs inequitably across demographic groups.", "conditions": [ "applies even to providers that emphasize high-quality data such as Scale AI and Appen" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5095633-020", "url": "https://wulfkaal.github.io/claims/5095633-020", "family": "human-judgment-displacement", "name": "automation nuance loss", "claim": "Automating annotation to gain speed and cost savings produces less nuanced labeling that misses the complex human judgments and context certain AI applications require.", "conditions": [ "automation-heavy annotation workflows such as those of Hive and V7 Labs" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5095633-021", "url": "https://wulfkaal.github.io/claims/5095633-021", "family": "ai-oversight-and-alignment-gap", "name": "human-in-the-loop cost drag", "claim": "Human-in-the-loop annotation, including under ethical labor models, imposes financial and time costs large enough to slow the pace at which AI models can be upgraded.", "conditions": [ "pipelines that depend on human annotators" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5095633-022", "url": "https://wulfkaal.github.io/claims/5095633-022", "family": "privacy-and-surveillance-risk", "name": "centralized data honeypot", "claim": "Centralizing annotation data inside a small number of vendor firms creates a standing risk of breach or misuse that can produce legal liability and loss of trust in AI technologies.", "conditions": [ "data aggregated and held by centralized annotation vendors" ], "topics": [ "decentralization", "risk-and-incentives", "reputation" ] }, { "id": "kaal:claim:5095633-023", "url": "https://wulfkaal.github.io/claims/5095633-023", "family": "data-quality-and-comparability", "name": "annotation quality drift", "claim": "Maintaining consistent annotation quality across many annotators and automated systems is unsolved at scale, and small labeling errors translate into significant degradation of model performance in critical applications.", "conditions": [ "large-scale annotation operations", "safety-critical applications such as autonomous driving" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:5095633-027", "url": "https://wulfkaal.github.io/claims/5095633-027", "family": "adoption-and-usability-barrier", "name": "blockchain expertise barrier", "claim": "Adoption of decentralized data platforms is blocked by an expertise barrier: prospective contributors must manage tokens, maintain secure wallets, and understand the underlying technology, which deters users unaccustomed to digital assets.", "conditions": [ "current blockchain user experience" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:5095633-028", "url": "https://wulfkaal.github.io/claims/5095633-028", "family": "scalability-and-throughput-limit", "name": "blockchain throughput bottleneck", "claim": "Decentralized data annotation at scale is not operationally feasible without advances in consensus algorithms or layer-two scaling, because existing blockchain infrastructures cap transaction speed and network capacity.", "conditions": [ "real-time or near real-time annotation of large data volumes" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:5095633-029", "url": "https://wulfkaal.github.io/claims/5095633-029", "family": "legal-personality-and-liability-gap", "name": "DAO accountability gap", "claim": "DAO-based governance introduces unresolved uncertainty about liability and legal accountability when personal data crosses international boundaries, and a mismatch between platform governance and regulatory mandates produces legal liability that erodes user trust.", "conditions": [ "cross-border exchange of personal data", "GDPR-style regulatory regimes" ], "topics": [ "dao", "law-and-legal-systems" ] }, { "id": "kaal:claim:5095633-030", "url": "https://wulfkaal.github.io/claims/5095633-030", "family": "incumbent-resistance-to-adoption", "name": "incumbent crowding out", "claim": "Well-capitalized centralized incumbents can outpace decentralized entrants in user acquisition by leveraging existing customer bases and brand recognition, so decentralized startups must show clear advantages in compensation, transparency, or data protection to win adoption.", "conditions": [ "competitive market with entrenched centralized providers" ], "topics": [ "economics", "decentralization", "innovation" ] }, { "id": "kaal:claim:5095633-031", "url": "https://wulfkaal.github.io/claims/5095633-031", "family": "reputation-system-gaming", "name": "structural insufficiency of existing decentralized reputation systems", "claim": "The reputation systems of SingularityNET, Fetch.ai, Ocean Protocol, Numeraire, and DcentAI are structurally insufficient for a fully decentralized Mechanical Turk model of large-scale AI dataset creation, offering only incremental innovation.", "conditions": [ "highly contextual, iterative, and ethically sensitive dataset tasks", "continuous compliance with evolving legal standards" ], "topics": [ "reputation", "decentralization", "governance-design", "empirical-evidence" ] }, { "id": "kaal:claim:5095633-034", "url": "https://wulfkaal.github.io/claims/5095633-034", "family": "measurement-and-metric-failure", "name": "service-level metric mismatch", "claim": "SingularityNET's service-level reputation metrics fail to capture the granular requirements of dataset creation, namely accuracy, consistency, and contextual relevance.", "conditions": [ "dataset creation tasks requiring domain-specific input and iterative checks" ], "topics": [ "reputation", "empirical-evidence" ] }, { "id": "kaal:claim:5095633-035", "url": "https://wulfkaal.github.io/claims/5095633-035", "family": "measurement-and-metric-failure", "name": "static metric entrenchment", "claim": "Because Fetch.ai's reputation metrics do not adjust to evolving ethical, legal, and community standards, the platform risks entrenching biases and outdated practices.", "conditions": [ "where societal expectations or regulatory norms change over time" ], "topics": [ "ai-and-agents", "reputation" ] }, { "id": "kaal:claim:5095633-036", "url": "https://wulfkaal.github.io/claims/5095633-036", "family": "measurement-and-metric-failure", "name": "market signal lag", "claim": "Ocean Protocol's market-driven reputation signal is too indirect: it does not measure individual expertise or annotation consistency, and market forces lag behind real-time shifts in best practices and ethical standards.", "conditions": [ "reputation inferred from price signals and demand rather than direct evaluation" ], "topics": [ "economics", "reputation" ] }, { "id": "kaal:claim:5095633-037", "url": "https://wulfkaal.github.io/claims/5095633-037", "family": "measurement-and-metric-failure", "name": "predictive accuracy tunnel vision", "claim": "Numeraire's staking and prediction-based reputation mechanism, tuned to predictive accuracy, overlooks the ethical and contextual concerns that characterize AI dataset governance.", "conditions": [ "diverse dataset tasks such as medical annotation and content moderation" ], "topics": [ "reputation", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:5095633-038", "url": "https://wulfkaal.github.io/claims/5095633-038", "family": "measurement-and-metric-failure", "name": "scalar reputation collapse", "claim": "A single reputation score, as used by DcentAI, cannot capture the interdependencies among privacy concerns, domain-specific regulation, and real-time ethical updates that dataset governance requires.", "conditions": [ "multi-domain dataset quality with evolving standards" ], "topics": [ "reputation", "governance-design", "empirical-evidence" ] }, { "id": "kaal:claim:5225296-001", "url": "https://wulfkaal.github.io/claims/5225296-001", "family": "transition-and-migration-risk", "name": "abrupt-consensus-transition-destabilization", "claim": "An abrupt transition from Proof of Stake to Secure Proof of Stake would destabilize networks built on stake-based incentives, because stake is a fungible economic asset and reputation is non-fungible social capital, and the two operate on fundamentally different principles.", "conditions": [ "networks whose validator participation depends on stake-based incentives" ], "topics": [ "consensus-and-security", "reputation" ] }, { "id": "kaal:claim:5225296-004", "url": "https://wulfkaal.github.io/claims/5225296-004", "family": "transition-and-migration-risk", "name": "validator-infrastructure-obsolescence", "claim": "A direct move from PoS to SPoS would render existing validator communities and stake-optimized infrastructures obsolete or force significant reconfiguration, which is why a hybrid intermediate stage is required.", "conditions": [ "PoS networks with established validator communities and stake-based infrastructure" ], "topics": [ "consensus-and-security", "risk-and-incentives" ] }, { "id": "kaal:claim:5225296-015", "url": "https://wulfkaal.github.io/claims/5225296-015", "family": "consensus-and-protocol-attack", "name": "weak-randomness-in-key-generation", "claim": "ECDSA introduces a vulnerability into SPoS through its dependence on secure random number generation at key creation, so the authentication guarantee fails when implementation departs from cryptographic best practice.", "conditions": [ "when random number generation is improperly implemented" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:5225296-016", "url": "https://wulfkaal.github.io/claims/5225296-016", "family": "consensus-and-protocol-attack", "name": "predictable-producer-selection", "claim": "Verifiable randomness is a necessary condition for fair block producer selection: without it, adversaries can precompute favorable outcomes and the selection process loses fairness.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5225296-027", "url": "https://wulfkaal.github.io/claims/5225296-027", "family": "reputation-system-gaming", "name": "reputation-specific-attack-surface", "claim": "SPoS's reliance on a reputation-based system introduces vulnerabilities absent from PoW and traditional PoS, most notably Sybil attacks, collusion risks, and reputation manipulation, which could undermine its decentralized governance and consensus if not robustly addressed.", "conditions": [], "topics": [ "reputation", "consensus-and-security" ] }, { "id": "kaal:claim:5225296-028", "url": "https://wulfkaal.github.io/claims/5225296-028", "family": "sybil-and-identity-attack", "name": "behavioral-mimicry-sybil-amplification", "claim": "Sybil attack risk is amplified in reputation-driven systems relative to stake-based ones, because influence derives from behavioral metrics that an attacker can mimic across many pseudonymous identities.", "conditions": [ "reputation-driven consensus systems where influence stems from behavioral metrics" ], "topics": [ "consensus-and-security", "risk-and-incentives", "reputation", "tokenomics" ] }, { "id": "kaal:claim:5225296-029", "url": "https://wulfkaal.github.io/claims/5225296-029", "family": "consensus-and-protocol-attack", "name": "validator-collusion", "claim": "Collusion, meaning coordinated action among validators to manipulate reputation scores or governance outcomes, threatens the fairness and integrity of SPoS independently of any cryptographic weakness.", "conditions": [], "topics": [ "governance-design", "reputation" ] }, { "id": "kaal:claim:5225296-030", "url": "https://wulfkaal.github.io/claims/5225296-030", "family": "reputation-system-gaming", "name": "cryptography-insufficient-against-reputation-exploits", "claim": "Cryptography alone is insufficient for a reputation-based consensus system: SPoS's cryptographic toolkit resists direct tampering, but reputation-based exploits require separate strategic countermeasures.", "conditions": [], "topics": [ "consensus-and-security", "citation-and-knowledge", "reputation" ] }, { "id": "kaal:claim:5225296-034", "url": "https://wulfkaal.github.io/claims/5225296-034", "family": "reputation-system-gaming", "name": "poorly-designed-reputation-metrics", "claim": "Weighted voting works as a Sybil defense only under two conditions: reputation metrics must capture meaningful effort such as block production quality and depth of governance participation, and the system must maintain continuous transparency backed by community oversight and formal verification.", "conditions": [ "metrics must reflect meaningful effort", "continuous transparency and formal verification must be maintained" ], "topics": [ "governance-design", "disclosure" ] }, { "id": "kaal:claim:5225296-039", "url": "https://wulfkaal.github.io/claims/5225296-039", "family": "scalability-and-throughput-limit", "name": "reputation-update-scalability-strain", "claim": "The defenses that secure SPoS may not scale: frequent reputation updates and zk-SNARK verifications may strain resources under high transaction loads, potentially requiring sharding or layer-2 solutions.", "conditions": [ "under high transaction loads" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5245185-001", "url": "https://wulfkaal.github.io/claims/5245185-001", "family": "supervisory-capacity-gap", "name": "centralized-supervision-deficiency", "claim": "Traditional centralized AI driven supervision of AI agent transactions is deficient because it delivers only limited transparency, is susceptible to bias, and concentrates risk in single points of failure.", "conditions": [ "centralized supervision of autonomous AI agent transaction execution" ], "topics": [ "ai-and-agents", "compliance", "decentralization", "disclosure" ] }, { "id": "kaal:claim:5245185-006", "url": "https://wulfkaal.github.io/claims/5245185-006", "family": "supervisory-capacity-gap", "name": "distributed-oversight-opacity", "claim": "The decentralized architecture of blockchain itself complicates accountability by rendering oversight across distributed networks opaque, and that opacity jeopardizes adequate regulatory supervision of AI agents.", "conditions": [ "AI agents operating across distributed blockchain networks" ], "topics": [ "disclosure", "decentralization" ] }, { "id": "kaal:claim:5245185-007", "url": "https://wulfkaal.github.io/claims/5245185-007", "family": "regulatory-lag", "name": "regulatory-lag", "claim": "The accelerated evolution of AI and blockchain technologies outstrips regulatory development, which can situate AI agents in legal interstices, particularly in financial and data management domains.", "conditions": [ "fast moving AI and blockchain deployment", "financial and data management activity" ], "topics": [ "dynamic-regulation", "law-and-legal-systems", "ai-and-agents", "blockchain" ] }, { "id": "kaal:claim:5245185-008", "url": "https://wulfkaal.github.io/claims/5245185-008", "family": "ai-oversight-and-alignment-gap", "name": "autonomy-divergence", "claim": "AI autonomy introduces unpredictability: agent actions may diverge from intended outcomes, which amplifies the risk of unintended ramifications.", "conditions": [ "autonomous agents acting without step by step human authorization" ], "topics": [ "ai-and-agents", "risk-and-incentives" ] }, { "id": "kaal:claim:5245185-009", "url": "https://wulfkaal.github.io/claims/5245185-009", "family": "consensus-and-protocol-attack", "name": "blockchain-security-overconfidence", "claim": "Integrating AI with blockchain does not by itself eliminate security exposure: cyberattacks and privacy breaches remain possible absent rigorous monitoring.", "conditions": [ "blockchain integrated AI systems without rigorous monitoring" ], "topics": [ "consensus-and-security", "blockchain", "compliance" ] }, { "id": "kaal:claim:5245185-010", "url": "https://wulfkaal.github.io/claims/5245185-010", "family": "ai-oversight-and-alignment-gap", "name": "self-monitoring-collusion", "claim": "AI self monitoring requires robust cryptographic safeguards and anti collusion algorithms; without them, agents overseeing one another can devolve into self serving behavior and coordinated manipulation.", "conditions": [ "networks of interdependent agents auditing each other" ], "topics": [ "compliance", "consensus-and-security", "citation-and-knowledge" ] }, { "id": "kaal:claim:5245185-011", "url": "https://wulfkaal.github.io/claims/5245185-011", "family": "research-design-limitation", "name": "actor-mapping-without-solutions", "claim": "The existing framework for monitoring AI agents on cryptocurrency payment rails identifies the key actors but fails to deliver viable solutions, because it does not specify scalability and adaptability challenges and omits critical risks.", "conditions": [ "current monitoring ecosystem across exchanges, infrastructure providers, compliance services, developers and owners" ], "topics": [ "compliance", "risk-and-incentives" ] }, { "id": "kaal:claim:5245185-012", "url": "https://wulfkaal.github.io/claims/5245185-012", "family": "ai-oversight-and-alignment-gap", "name": "reactive-not-proactive", "claim": "The current monitoring framework is reactive rather than proactive, because it offers no prescriptive measures such as predictive analytics or cross actor protocols that would anticipate evolving risks.", "conditions": [ "existing monitoring of AI agents on cryptocurrency rails" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:5245185-013", "url": "https://wulfkaal.github.io/claims/5245185-013", "family": "ai-oversight-and-alignment-gap", "name": "missing-feedback-mechanisms", "claim": "The proposed solutions for future AI monitoring fail to propose feedback driven mechanisms that balance innovation with oversight, which leaves regulatory gaps and scalability bottlenecks unresolved.", "conditions": [ "forward looking monitoring proposals for AI agents on cryptocurrency rails" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:5245185-014", "url": "https://wulfkaal.github.io/claims/5245185-014", "family": "ai-oversight-and-alignment-gap", "name": "adversarial-agent-blindspot", "claim": "Exchange based monitoring tools are not shown to counter sophisticated threats such as adversarial AI agents exploiting wallet vulnerabilities, and their feasibility for smaller exchanges is unevaluated, which limits their broader applicability.", "conditions": [ "adversarial agents targeting wallet infrastructure", "smaller exchanges with fewer resources" ], "topics": [ "ai-and-agents", "defi", "compliance" ] }, { "id": "kaal:claim:5245185-015", "url": "https://wulfkaal.github.io/claims/5245185-015", "family": "interoperability-and-fragmentation", "name": "interoperability-deficit", "claim": "The absence of interoperability considerations with non standardized networks restricts the utility of exchange based monitoring in a fragmented and continuously evolving DeFi landscape.", "conditions": [ "fragmented DeFi environment with non standardized networks" ], "topics": [ "defi", "compliance" ] }, { "id": "kaal:claim:5245185-016", "url": "https://wulfkaal.github.io/claims/5245185-016", "family": "smart-contract-bug-and-exploit", "name": "unmitigated-contract-risk", "claim": "Infrastructure level permissioning neglects critical risks such as smart contract exploits, bugs, and permission conflicts, and proposes no real time enforcement across distributed nodes, which weakens its claim to bridge AI autonomy and accountability.", "conditions": [ "permissioned transaction controls embedded in smart contracts" ], "topics": [ "smart-contracts", "compliance" ] }, { "id": "kaal:claim:5245185-017", "url": "https://wulfkaal.github.io/claims/5245185-017", "family": "supervisory-capacity-gap", "name": "compliance-analytics-scale-gap", "claim": "Reliance on compliance analytics providers overlooks their scalability limits in monitoring vast decentralized transaction volumes and their inability to adapt to jurisdictional regulatory disparities.", "conditions": [ "blockchain analytics firms applied to AI agent transactions", "multi jurisdictional regulation" ], "topics": [ "compliance", "law-and-legal-systems" ] }, { "id": "kaal:claim:5245185-018", "url": "https://wulfkaal.github.io/claims/5245185-018", "family": "enforcement-gap", "name": "forensic-latency-and-privacy-opacity", "claim": "Latency in blockchain forensic analysis limits real time detection, and existing compliance services offer no strategy for overseeing transactions on privacy focused blockchains where opacity defeats traditional forensic methods.", "conditions": [ "forensic transaction analysis", "privacy preserving blockchains" ], "topics": [ "consensus-and-security", "compliance" ] }, { "id": "kaal:claim:5245185-019", "url": "https://wulfkaal.github.io/claims/5245185-019", "family": "ai-oversight-and-alignment-gap", "name": "unstandardized-internal-oversight", "claim": "Internal monitoring by AI agent developers and owners is fragmented and unreliable because there are no auditing standards against external benchmarks and no accountability mechanisms for deviations such as insider manipulation or third party agent risk.", "conditions": [ "proprietary internal monitoring by developers and owners" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:5245185-020", "url": "https://wulfkaal.github.io/claims/5245185-020", "family": "regulatory-lag", "name": "static-regulation-obsolescence", "claim": "Expectations of enhanced regulatory oversight fail because the accelerating evolution of AI agents, which will soon dominate financial transactions, renders static legal frameworks obsolete.", "conditions": [ "static rule based regulation", "AI agents dominating financial transaction volume" ], "topics": [ "ai-and-agents", "institutional-design" ] }, { "id": "kaal:claim:5245185-021", "url": "https://wulfkaal.github.io/claims/5245185-021", "family": "ai-oversight-and-alignment-gap", "name": "no-feedback-no-anticipation", "claim": "Without feedback loops that continuously ingest data on AI behavior, regulatory efforts cannot efficiently address fraud or consumer harm as AI ubiquity amplifies those risks across decentralized networks.", "conditions": [ "regulation of ubiquitous AI agents on decentralized networks" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5245185-022", "url": "https://wulfkaal.github.io/claims/5245185-022", "family": "ai-oversight-and-alignment-gap", "name": "static-monitoring-services", "claim": "Proposed specialized AI monitoring services remain a static vision: it is unclear how they would scale computationally or adjust their algorithms as AI agents diversify, which is a critical flaw given the anticipated pervasiveness of those agents.", "conditions": [ "dedicated third party AI monitoring services" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:5245185-023", "url": "https://wulfkaal.github.io/claims/5245185-023", "family": "rule-obsolescence-and-ossification", "name": "static-dao-governance", "claim": "Treating DAOs as monitoring entities assumes a static governance model that cannot keep pace with the rapid proliferation and sophistication of AI agents.", "conditions": [ "conventional DAO governance applied to AI agent oversight" ], "topics": [ "dao", "governance-design", "ai-and-agents" ] }, { "id": "kaal:claim:5245185-024", "url": "https://wulfkaal.github.io/claims/5245185-024", "family": "ai-oversight-and-alignment-gap", "name": "unspecified-safeguards-in-self-monitoring", "claim": "Proposals for AI self monitoring rely on unspecified security measures and therefore overlook the risk that adaptive AI agents collude or evade oversight, a risk amplified by pervasive deployment.", "conditions": [ "peer to peer agent auditing at scale" ], "topics": [ "compliance", "regulatory-failure", "ai-and-agents" ] }, { "id": "kaal:claim:5245185-025", "url": "https://wulfkaal.github.io/claims/5245185-025", "family": "ai-oversight-and-alignment-gap", "name": "static-iot-linkage", "claim": "IoT based oversight does not account for the pace at which AI agents will outgrow static IoT to blockchain linkages, and it leaves unexplained how the convergence handles latency or secures data as agent ubiquity drives exponential transaction complexity.", "conditions": [ "IoT and blockchain integrated monitoring architectures" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:5245185-026", "url": "https://wulfkaal.github.io/claims/5245185-026", "family": "ai-oversight-and-alignment-gap", "name": "self-referential-monitoring-loop", "claim": "Centralized AI structures for monitoring AI agents create a self referential loop that is prone to systemic biases and blind spots, and their rigidity prevents adaptation to the dynamic nature of AI.", "conditions": [ "centralized AI systems used to supervise AI agents" ], "topics": [ "decentralization", "ai-and-agents" ] }, { "id": "kaal:claim:5245185-027", "url": "https://wulfkaal.github.io/claims/5245185-027", "family": "ai-oversight-and-alignment-gap", "name": "circular-dependency", "claim": "Using AI to monitor AI agent transactions is fallacious because the monitoring AI inherits the same adaptive traits and potential flaws as the agents it oversees.", "conditions": [ "AI based monitoring of AI agents" ], "topics": [ "ai-and-agents", "compliance" ] }, { "id": "kaal:claim:5245185-028", "url": "https://wulfkaal.github.io/claims/5245185-028", "family": "consensus-and-protocol-attack", "name": "training-set-blindness", "claim": "Anomaly detection and behavioral analysis models trained on agent data may replicate the biases in that data and fail to detect novel deviations absent from the training set.", "conditions": [ "machine learning monitors trained on historical agent behavior", "novel agent behaviors outside training distribution" ], "topics": [ "ai-and-agents", "education-and-practice" ] }, { "id": "kaal:claim:5245185-029", "url": "https://wulfkaal.github.io/claims/5245185-029", "family": "ai-oversight-and-alignment-gap", "name": "compliance-circularity", "claim": "Claims that centralized AI ensures KYC and AML compliance are circular, because they rely on AI to interpret the very regulations that AI may itself violate.", "conditions": [ "AI driven compliance interpretation for KYC and AML" ], "topics": [ "compliance", "decentralization", "ai-and-agents" ] }, { "id": "kaal:claim:5245185-030", "url": "https://wulfkaal.github.io/claims/5245185-030", "family": "enforcement-gap", "name": "nlp-static-rule-gap", "claim": "Natural language processing driven compliance assumes static legal frameworks, so novel transaction types generated by evolving AI agents outstrip predefined rules and go undetected by centralized systems that lack external validation.", "conditions": [ "NLP based rule application to transaction data", "novel transaction types produced by agent evolution" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:5245185-031", "url": "https://wulfkaal.github.io/claims/5245185-031", "family": "ai-oversight-and-alignment-gap", "name": "self-simulated-threat-model", "claim": "Relying on centralized AI to simulate attack vectors is fallacious because it assumes the system can anticipate its own adaptive strategies, while evolving agents may simply bypass centralized defenses.", "conditions": [ "AI driven intrusion detection and attack simulation" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:5245185-032", "url": "https://wulfkaal.github.io/claims/5245185-032", "family": "ai-oversight-and-alignment-gap", "name": "internal-loop-recalibration", "claim": "The adaptive learning touted as the strength of centralized AI monitoring is insufficient, because it relies on internal data loops that cannot match the external evolution of AI agents.", "conditions": [ "centralized feedback and recalibration confined to internal data" ], "topics": [ "decentralization", "ai-and-agents" ] }, { "id": "kaal:claim:5454054-016", "url": "https://wulfkaal.github.io/claims/5454054-016", "family": "regulatory-lag", "name": "yield compression and safe harbor delay", "claim": "LER scalability is limited by three identified risks: yield compression from rising interest rates, delays in the creation of binding regulatory safe harbors, and divergent national implementations of frameworks such as MiCA.", "conditions": [], "topics": [ "defi", "risk-and-incentives" ] }, { "id": "kaal:claim:5454054-017", "url": "https://wulfkaal.github.io/claims/5454054-017", "family": "oracle-and-input-corruption", "name": "off-chain equity verification burden", "claim": "Verification of off-chain equities held in brokerage accounts is a core implementation obstacle for LER, and before tokenized listings it required comparatively complex hybrid pipelines using off-chain attestations and zero-knowledge proofs.", "conditions": [ "equities held in traditional brokerage accounts rather than on-chain" ], "topics": [ "consensus-and-security", "citation-and-knowledge" ] }, { "id": "kaal:claim:5454054-026", "url": "https://wulfkaal.github.io/claims/5454054-026", "family": "compliance-cost-and-barrier-to-entry", "name": "regulatory perimeter drift", "claim": "Any drift toward transferability, voucher redemption at par, yield, or marketplace functionality would push LER into MiCA compliance obligations and, equivalently, into the UK EMR and PSR regimes and U.S. securities, money transmission, and market-structure perimeters.", "conditions": [ "EU, UK, and U.S. jurisdictions" ], "topics": [ "defi", "systemic-risk", "risk-and-incentives" ] }, { "id": "kaal:claim:5454054-029", "url": "https://wulfkaal.github.io/claims/5454054-029", "family": "definitional-ambiguity", "name": "BaFin substance over form reclassification", "claim": "BaFin applies substance over form, so transferable, tradable, or profit-oriented reward units risk classification as crypto-assets or financial instruments in Germany, potentially triggering licensing obligations such as crypto custody or proprietary trading.", "conditions": [ "Germany", "reward units that are transferable, tradable, or profit-oriented" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5454054-037", "url": "https://wulfkaal.github.io/claims/5454054-037", "family": "regulatory-lag", "name": "SEC approval timeline delay", "claim": "Regulatory uncertainty, in particular the timeline for SEC approval of the NASDAQ and Dinari tokenization frameworks, could delay LER implementation.", "conditions": [ "pending SEC approval of tokenized securities trading" ], "topics": [ "securities-law", "risk-and-incentives" ] }, { "id": "kaal:claim:5454054-038", "url": "https://wulfkaal.github.io/claims/5454054-038", "family": "research-design-limitation", "name": "unvalidated retention uplift", "claim": "The retention uplifts claimed for LER remain unvalidated: empirical pilots are needed to confirm them and to refine the smart contract designs, particularly for AI-personalized airdrops.", "conditions": [ "current state of evidence as of 2025" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:5454054-039", "url": "https://wulfkaal.github.io/claims/5454054-039", "family": "jurisdictional-conflict", "name": "cross-jurisdictional fragmentation", "claim": "Divergences between MiCA and U.S. regulation mean that a single LER compliance design cannot scale globally; tailored, jurisdiction-specific compliance strategies are required.", "conditions": [ "multi-jurisdiction deployment" ], "topics": [ "law-and-legal-systems", "compliance", "risk-and-incentives" ] }, { "id": "kaal:claim:5583610-001", "url": "https://wulfkaal.github.io/claims/5583610-001", "family": "agency-cost-and-managerial-opportunism", "name": "defense-driven entrenchment", "claim": "Traditional board defenses such as staggered boards and poison pills protect incumbent boards at the cost of value creation and reduce board accountability to shareholders, even when they succeed in defeating an activist campaign.", "conditions": [ "conventional takeover and activism defenses", "U.S. public companies" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:5583610-005", "url": "https://wulfkaal.github.io/claims/5583610-005", "family": "agency-cost-and-managerial-opportunism", "name": "settlement entrenchment", "claim": "Negotiated settlements that hand activists board seats risk entrenching incumbents, whereas LER's consumptive utilities are designed to produce consensus and alignment without ceding board representation.", "conditions": [ "settlement-based responses to activist campaigns" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:5583610-007", "url": "https://wulfkaal.github.io/claims/5583610-007", "family": "staking-and-incentive-misalignment", "name": "deferred obligation drag", "claim": "Traditional corporate loyalty programs fail because they saddle issuers with delayed obligations and cannot hold participants without pushing them toward speculation; LER is designed to avoid both defects.", "conditions": [ "conventional deferred-liability loyalty programs" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5583610-013", "url": "https://wulfkaal.github.io/claims/5583610-013", "family": "investor-protection-gap", "name": "coercive over-rewarding", "claim": "If LER rewards are set so generously that they effectively purchase shareholder votes, the program becomes disproportionate or coercive and courts will invalidate it.", "conditions": [ "reward size large enough to buy votes", "Delaware enhanced scrutiny" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5583610-014", "url": "https://wulfkaal.github.io/claims/5583610-014", "family": "agency-cost-and-managerial-opportunism", "name": "selective issuance disloyalty", "claim": "Issuing LER selectively to management-aligned shareholders while excluding others breaches the duty of loyalty by creating an uneven playing field, so rewards must be allocated uniformly on objective criteria such as ownership tenure.", "conditions": [ "proxy fights", "duty of loyalty analysis under Delaware law" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:5583610-015", "url": "https://wulfkaal.github.io/claims/5583610-015", "family": "investor-protection-gap", "name": "Revlon tiering defect", "claim": "In a change of control setting, LER issuance that favors long-term holders over other shareholders is impermissible under Revlon because it can undermine the highest bid or fragment shareholder support.", "conditions": [ "company in play for a change of control", "competing bids present" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5583610-024", "url": "https://wulfkaal.github.io/claims/5583610-024", "family": "short-termism", "name": "activist-induced volatility cascade", "claim": "Activist tactics including short selling, public media campaigns, and strategic leaks amplify stock price volatility between annual meetings, exploiting market sentiment and pushing retail holders into selling that deepens the price decline.", "conditions": [ "intervals between annual shareholder meetings", "activist campaign underway" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5583610-034", "url": "https://wulfkaal.github.io/claims/5583610-034", "family": "compliance-cost-and-barrier-to-entry", "name": "disproportionality invalidation", "claim": "Delaware fiduciary standards create litigation exposure for LER: if distributions are judged disproportionate under Unocal or Blasius, boards face court invalidation and roughly $1 to $3 million in cost per dispute.", "conditions": [ "distribution deemed disproportionate", "Delaware enhanced scrutiny litigation" ], "topics": [ "law-and-legal-systems", "risk-and-incentives" ] }, { "id": "kaal:claim:5583610-035", "url": "https://wulfkaal.github.io/claims/5583610-035", "family": "compliance-cost-and-barrier-to-entry", "name": "MiCA non-compliance exposure", "claim": "MiCA complicates cross-border LER adoption because non-compliance exposes issuers to administrative fines of up to three percent of annual turnover.", "conditions": [ "EU cross-border deployment" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5583610-036", "url": "https://wulfkaal.github.io/claims/5583610-036", "family": "smart-contract-bug-and-exploit", "name": "smart contract exploit", "claim": "Smart contract exploits are a live failure channel for LER, capable of producing losses on the scale of DeFi incidents that have exceeded $1 billion annually and requiring insurance premiums of one to two percent of asset value.", "conditions": [ "on-chain deployment of reward contracts" ], "topics": [ "smart-contracts", "risk-and-incentives", "consensus-and-security", "defi" ] }, { "id": "kaal:claim:5583610-037", "url": "https://wulfkaal.github.io/claims/5583610-037", "family": "short-termism", "name": "mercenary shareholder capture", "claim": "LER can backfire by attracting short-term mercenary shareholders who chase the reward rather than hold, eroding the loyalty benefit and increasing volatility, with studies pointing to as much as seventy percent value dilution after reward emissions.", "conditions": [ "reward emissions large enough to attract yield seekers" ], "topics": [ "corporate-governance" ] }, { "id": "kaal:claim:5583610-038", "url": "https://wulfkaal.github.io/claims/5583610-038", "family": "inequality-and-access-divide", "name": "tech access inequality", "claim": "Because LER rewards favor technologically capable holders, the program risks entrenching inequality among shareholders and inviting ESG backlash and reputational cost.", "conditions": [ "shareholder bases with uneven technical access" ], "topics": [ "reputation", "risk-and-incentives" ] }, { "id": "kaal:claim:5886442-007", "url": "https://wulfkaal.github.io/claims/5886442-007", "family": "inequality-and-access-divide", "name": "winner takes most concentration", "claim": "Agentic automation concentrates agency in opportunity hubs and, through winner takes most swarms, elevates Gini coefficients by 15 to 25 percent by 2030, which is why diversity mandates are required for inclusive ecosystems.", "conditions": [ "projection to 2030", "assumes winner takes most swarm dynamics without corrective mandates" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:5886442-008", "url": "https://wulfkaal.github.io/claims/5886442-008", "family": "collective-action-and-coordination-failure", "name": "swarm coordination failure", "claim": "Agent swarms are projected to deliver 20 to 30 percent productivity uplifts, but coordination failures loom in the absence of hybrid human and machine oversight.", "conditions": [ "applies to swarm deployments lacking hybrid oversight arrangements" ], "topics": [ "ai-and-agents", "institutional-design" ] }, { "id": "kaal:claim:5886442-013", "url": "https://wulfkaal.github.io/claims/5886442-013", "family": "valuation-and-pricing-failure", "name": "price signal irrelevance", "claim": "Price signals, which neoclassical theory celebrates as the elegant solution to allocation under scarcity, become increasingly irrelevant for the dominant factors of production in the agentic economy.", "conditions": [ "holds for post scarce cognitive and digital inputs, not for materially scarce goods" ], "topics": [ "economics" ] }, { "id": "kaal:claim:5886442-017", "url": "https://wulfkaal.github.io/claims/5886442-017", "family": "research-design-limitation", "name": "collapse of the hierarchy rationale", "claim": "When hyper rational agents can write and execute complete state contingent contracts at negligible cost, the Williamsonian justification for hierarchical governance evaporates.", "conditions": [ "requires that contracting and calculation costs for agents be negligible" ], "topics": [ "institutional-design", "governance-design", "economics" ] }, { "id": "kaal:claim:5886442-019", "url": "https://wulfkaal.github.io/claims/5886442-019", "family": "information-asymmetry", "name": "obsolescence of asymmetric information remedies", "claim": "Hidden action, that is moral hazard, and hidden information, that is adverse selection, are not merely reduced in the agentic economy but rendered computationally impossible at the substrate level, because every intermediate computation is attested on chain or through zero knowledge proofs.", "conditions": [ "holds among artificial agents, not for the remaining human layer" ], "topics": [ "risk-and-incentives", "consensus-and-security", "citation-and-knowledge", "economics" ] }, { "id": "kaal:claim:5886442-024", "url": "https://wulfkaal.github.io/claims/5886442-024", "family": "research-design-limitation", "name": "Nashian idealization", "claim": "Nash's model, by presuming homo economicus unbound, overestimates human computational capacity and perpetuates a normative ideal that distorts policy and institutional design by justifying frictionless markets that never materialize in human systems.", "conditions": [ "applies to human, non agentic strategic settings" ], "topics": [ "economics" ] }, { "id": "kaal:claim:5886442-025", "url": "https://wulfkaal.github.io/claims/5886442-025", "family": "rule-obsolescence-and-ossification", "name": "regulatory obsolescence", "claim": "Policymakers who cling to Nashian ideals risk obsolescence, because the future demands governance that orchestrates agentic plenitude rather than governance that mitigates human imperfection.", "conditions": [], "topics": [ "governance-design", "economics" ] }, { "id": "kaal:claim:5886442-028", "url": "https://wulfkaal.github.io/claims/5886442-028", "family": "rule-obsolescence-and-ossification", "name": "obsolescence of remedial institutions", "claim": "The author concedes that the institutions he previously advocated, including dynamic regulation, contingent capital, agile sandboxes and Web3 reputation systems, become at best transitional bridges for the remaining human layer and at worst unnecessary frictions in a substrate that has engineered human frailties away.", "conditions": [ "applies once the agentic substrate dominates value creation" ], "topics": [ "dynamic-regulation", "institutional-design" ] }, { "id": "kaal:claim:5886442-032", "url": "https://wulfkaal.github.io/claims/5886442-032", "family": "recentralization-drift", "name": "proprietary agent enclosure", "claim": "Principal agent frictions reemerge in new forms in the agentic economy, as user sovereign bring your own agents compete with platform controlled bowling shoe agents, creating incentives for proprietary enclosure and interoperability throttling.", "conditions": [ "arises where agent platforms are controlled by intermediaries rather than by users" ], "topics": [ "ai-and-agents", "corporate-governance" ] }, { "id": "kaal:claim:5886442-033", "url": "https://wulfkaal.github.io/claims/5886442-033", "family": "scalability-and-throughput-limit", "name": "zero friction breakdown at scale", "claim": "Network congestion externalities and Sybil attack vulnerabilities require the deliberate reintroduction of micro frictions, such as tokenized tolls or proof of personhood protocols, in order to preserve credible signaling in hyper scale agent populations.", "conditions": [ "applies at hyper scale agent populations where congestion and Sybil attacks are feasible" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:5886442-040", "url": "https://wulfkaal.github.io/claims/5886442-040", "family": "rule-obsolescence-and-ossification", "name": "digital feudalism", "claim": "Continued reliance on scarcity based models, human centric institutions and twentieth century regulatory architectures risks not mere inefficiency but civilizational irrelevance, that is regulatory obsolescence, catastrophic inequality and digital feudalism in which abundance accrues to whoever controls the compute substrate.", "conditions": [ "applies to jurisdictions that retain scarcity based regulatory models as agentic production scales" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5541658-002", "url": "https://wulfkaal.github.io/claims/5541658-002", "family": "ai-model-and-training-failure", "name": "expert system brittleness", "claim": "Early legal expert systems failed because they were brittle: they could not handle unforeseen complexity and could not generalize beyond the domains they were explicitly programmed for.", "conditions": [ "rule-based systems of the 1980s" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:5541658-007", "url": "https://wulfkaal.github.io/claims/5541658-007", "family": "ai-model-and-training-failure", "name": "residual hallucination under RAG", "claim": "Retrieval-augmented generation reduces but does not eliminate hallucination: leading legal research tools including Lexis+AI and Westlaw AI-Assisted Research still generate false citations or facts in 17 to 33 percent of cases.", "conditions": [ "RAG-based commercial legal research platforms", "as measured at the time of the cited study; the authors note rates are progressively improving" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:5541658-008", "url": "https://wulfkaal.github.io/claims/5541658-008", "family": "research-design-limitation", "name": "judgment leakage in outcome prediction", "claim": "Prediction on a test set of existing judgments is not the same task as predicting outcomes for a party mid-litigation, because the precise formulation of facts used by such models emerges only once the judgment has been issued.", "conditions": [ "legal judgment prediction systems trained and evaluated on published judgments" ], "topics": [ "law-and-legal-systems", "economics", "research-methods" ] }, { "id": "kaal:claim:5541658-009", "url": "https://wulfkaal.github.io/claims/5541658-009", "family": "ai-model-and-training-failure", "name": "emotive-cognitive gap in NLP", "claim": "Natural language processing lets predictive systems handle specialized legal terminology and competing interpretations, but it still cannot capture the emotive and cognitive nuances of legal reasoning.", "conditions": [ "NLP applied to unstructured legal texts" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:5541658-012", "url": "https://wulfkaal.github.io/claims/5541658-012", "family": "ai-oversight-and-alignment-gap", "name": "unverified post hoc explanations", "claim": "Post hoc explainability techniques do not by themselves establish trustworthiness; the explanations they produce must additionally be verified against human knowledge.", "conditions": [ "post hoc explainable AI methods such as the SHAP family of explainers" ], "topics": [ "ai-and-agents", "reputation" ] }, { "id": "kaal:claim:5541658-013", "url": "https://wulfkaal.github.io/claims/5541658-013", "family": "ai-model-and-training-failure", "name": "fairness through unawareness failure", "claim": "Bias in judicial AI arises because models are trained on historical data that reflect past inequities, and the standard remedy of fairness through unawareness, meaning the omission of protected characteristics such as race, fails because proxy variables continue to correlate with the omitted attribute.", "conditions": [ "machine learning models trained on historical judicial data" ], "topics": [ "ai-and-agents", "education-and-practice" ] }, { "id": "kaal:claim:5541658-014", "url": "https://wulfkaal.github.io/claims/5541658-014", "family": "ai-oversight-and-alignment-gap", "name": "opacity undermining procedural fairness", "claim": "The opacity of black box AI systems can undermine procedural fairness as a legal matter, because parties hold a right to understand the basis of the judicial decisions that affect them.", "conditions": [ "AI outputs that inform or shape judicial decisions" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:5541658-016", "url": "https://wulfkaal.github.io/claims/5541658-016", "family": "ai-oversight-and-alignment-gap", "name": "incomplete accountability under human-in-the-loop", "claim": "Keeping judges ultimately accountable through a human-in-the-loop review of AI generated reasoning, as practiced in Shenzhen, does not fully resolve the accountability problem in AI assisted adjudication.", "conditions": [ "judicial settings where AI drafts or supports reasoning that a human judge then reviews" ], "topics": [ "ai-and-agents", "law-and-legal-systems" ] }, { "id": "kaal:claim:5541658-017", "url": "https://wulfkaal.github.io/claims/5541658-017", "family": "human-judgment-displacement", "name": "statistical reductionism in adjudication", "claim": "Predictive and generative AI systems threaten fairness by reducing complex judicial processes to statistical correlations, which neglects the emotive and cognitive dimensions of justice and the contextual nuances human judges consider.", "conditions": [ "AI used for judicial decision-making rather than administrative tasks" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:5541658-018", "url": "https://wulfkaal.github.io/claims/5541658-018", "family": "human-judgment-displacement", "name": "virtue deficit in generative judging", "claim": "Generative AI such as ChatGPT cannot produce justified beliefs aligned with virtue jurisprudence because it lacks the human virtues that responsive judging requires.", "conditions": [ "judging evaluated under a virtue jurisprudence standard" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:5541658-019", "url": "https://wulfkaal.github.io/claims/5541658-019", "family": "human-judgment-displacement", "name": "technically accurate but contextually deficient output", "claim": "Because AI cannot fully interpret cultural or socioeconomic factors that human judges naturally weigh, it can produce outputs that are technically accurate yet contextually deficient, and this degrades the quality of justice.", "conditions": [ "cases where cultural or socioeconomic context bears on the outcome" ], "topics": [ "reputation", "economics" ] }, { "id": "kaal:claim:5541658-020", "url": "https://wulfkaal.github.io/claims/5541658-020", "family": "human-judgment-displacement", "name": "perceived objectivity driving overreliance", "claim": "The risk of overreliance on legal AI is amplified by the system's perceived objectivity, which invites uncritical acceptance of flawed outputs by legal professionals.", "conditions": [ "legal professionals and judges using AI outputs without rigorous verification" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5541658-022", "url": "https://wulfkaal.github.io/claims/5541658-022", "family": "inequality-and-access-divide", "name": "digital divide widening access disparities", "claim": "The digital divide among legal professionals complicates equitable adoption of AI and may exacerbate rather than reduce disparities in access to justice.", "conditions": [ "settings where access to AI tools is unequally distributed among practitioners" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5541658-025", "url": "https://wulfkaal.github.io/claims/5541658-025", "family": "harmonization-and-standardization-failure", "name": "fragmented oversight gap", "claim": "The fragmented United States approach to regulating legal AI, resting on voluntary federal standards and a patchwork of state initiatives, prioritizes innovation but fails to address systemic risks comprehensively.", "conditions": [ "United States federal and state oversight of AI in legal and judicial contexts" ], "topics": [ "systemic-risk", "risk-and-incentives", "governance-design" ] }, { "id": "kaal:claim:5541658-026", "url": "https://wulfkaal.github.io/claims/5541658-026", "family": "innovation-chilling", "name": "innovation versus ethics regulatory tradeoff", "claim": "Regulation of legal AI faces a two sided failure: strict regimes such as the EU AI Act may stifle innovation, while lenient approaches such as the United States risk leaving biases unchecked.", "conditions": [ "comparative regulation of AI in legal and judicial settings" ], "topics": [ "innovation", "ai-and-agents" ] }, { "id": "kaal:claim:5541658-027", "url": "https://wulfkaal.github.io/claims/5541658-027", "family": "ai-oversight-and-alignment-gap", "name": "implementation gap in bias audits", "claim": "Proposed regulatory remedies such as mandatory bias audits fail in practice because they lack clear implementation guidelines, which hinders their practical adoption.", "conditions": [ "proposed rather than enacted frameworks for auditing judicial AI" ], "topics": [ "compliance" ] }, { "id": "kaal:claim:5541658-029", "url": "https://wulfkaal.github.io/claims/5541658-029", "family": "research-design-limitation", "name": "missing longitudinal evidence", "claim": "The literature offers high short term accuracy figures for judicial AI but almost no evidence on how these tools affect decision quality, case backlogs, or public trust over extended periods, which is a fundamental research gap.", "conditions": [ "the existing empirical literature on AI in judicial systems" ], "topics": [ "reputation", "economics" ] }, { "id": "kaal:claim:5541658-030", "url": "https://wulfkaal.github.io/claims/5541658-030", "family": "ai-model-and-training-failure", "name": "Western training data bias", "claim": "Because AI systems are predominantly developed in the West and trained mostly on Western data, their outputs are liable to carry cultural biases that inadequately represent non-Western cultures and the values inherent in them.", "conditions": [ "AI systems deployed in non-Western legal systems", "training corpora dominated by Western sources" ], "topics": [ "law-and-legal-systems", "ai-and-agents", "education-and-practice" ] }, { "id": "kaal:claim:5541658-031", "url": "https://wulfkaal.github.io/claims/5541658-031", "family": "research-design-limitation", "name": "absent real-world deployment evidence", "claim": "Experimental studies suggest risks such as bias amplification from judicial AI, but there is little empirical data on how those risks actually manifest in operational courtrooms, which leaves practical integration guidelines undeveloped.", "conditions": [ "the gap between experimental and deployed judicial AI systems" ], "topics": [ "empirical-evidence" ] }, { "id": "kaal:claim:5541658-032", "url": "https://wulfkaal.github.io/claims/5541658-032", "family": "measurement-and-metric-failure", "name": "benchmark data contamination", "claim": "Benchmark results for legal LLMs may overstate capability because of data contamination: if a model saw a benchmark's ground truth answers during training, its measured performance reflects memorization rather than genuine generalization.", "conditions": [ "closed source LLMs evaluated on public benchmarks" ], "topics": [ "economics" ] }, { "id": "kaal:claim:5541658-037", "url": "https://wulfkaal.github.io/claims/5541658-037", "family": "human-judgment-displacement", "name": "generative oversimplification of deliberation", "claim": "Generative AI in judicial settings is far from perfect: it can oversimplify complex judicial deliberations, reduce emotive and cognitive processes to statistical correlations, and introduce biases or interpretive errors.", "conditions": [ "judges using tools such as GPT-4 to draft rulings or analyze arguments" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:5541658-038", "url": "https://wulfkaal.github.io/claims/5541658-038", "family": "human-judgment-displacement", "name": "decision displacement by AI advice", "claim": "A Dutch court's AI system for traffic violation appeals improved consistency yet altered legal experts' decisions, which shows that consistency gains from judicial AI can come at the cost of influencing expert judgment and therefore require human oversight.", "conditions": [ "a Dutch court", "traffic violation appeals", "high volume standardized decisions" ], "topics": [ "ai-and-agents", "empirical-evidence" ] }, { "id": "kaal:claim:5887242-001", "url": "https://wulfkaal.github.io/claims/5887242-001", "family": "regulatory-lag", "name": "institutional-velocity-deficit", "claim": "No existing legal order, whether national, supranational, or private, can evolve at the speed of exponential technological change without sacrificing either legitimacy or enforceability.", "conditions": [ "exponential rates of technological change in digital domains" ], "topics": [ "law-and-legal-systems", "institutional-design", "dynamic-regulation" ] }, { "id": "kaal:claim:5887242-002", "url": "https://wulfkaal.github.io/claims/5887242-002", "family": "rule-obsolescence-and-ossification", "name": "chronic-obsolescence-of-static-codes", "claim": "Static codification is fundamentally incompatible with the governance needs of exponentially evolving digital technologies.", "conditions": [ "digital technology domains that advance on monthly cycles" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5887242-003", "url": "https://wulfkaal.github.io/claims/5887242-003", "family": "regulatory-lag", "name": "ossification-on-ratification", "claim": "Each traditional lawmaking channel fails the speed test in its own way: legislatures need years for a single technological shift, judicial precedent lags even further behind, and international treaties ossify at the moment of ratification.", "conditions": [], "topics": [ "law-and-legal-systems", "systemic-risk", "dynamic-regulation" ] }, { "id": "kaal:claim:5887242-004", "url": "https://wulfkaal.github.io/claims/5887242-004", "family": "regulatory-capture-and-incumbent-advantage", "name": "committee-driven-incumbent-capture", "claim": "Private codifications such as the Uniform Commercial Code and INCOTERMS remain static texts that can be amended only through protracted, committee-driven processes, and those processes inevitably favor incumbents and territorial interests.", "conditions": [ "committee-based private codification with periodic amendment cycles" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:5887242-006", "url": "https://wulfkaal.github.io/claims/5887242-006", "family": "governance-participation-collapse", "name": "insufficiency-of-existing-dao-paradigms", "claim": "The published UDLC Codex deliberately left its DAO governance architecture unspecified because no existing decentralized governance paradigm could simultaneously satisfy the UDLC's requirements for real-time adaptivity, incorruptible expert meritocracy, jurisdictional neutrality, and long-term economic sustainability.", "conditions": [], "topics": [ "dao", "governance-design", "law-and-legal-systems", "economics" ] }, { "id": "kaal:claim:5887242-008", "url": "https://wulfkaal.github.io/claims/5887242-008", "family": "recentralization-drift", "name": "fatal-centralization-of-earlier-daos", "claim": "Separating internal on-chain governance from external legal relations maximizes decentralization while preserving real-world enforceability, thereby avoiding the fatal centralization that undermined earlier DAO concepts.", "conditions": [], "topics": [ "decentralization", "dao" ] }, { "id": "kaal:claim:5887242-013", "url": "https://wulfkaal.github.io/claims/5887242-013", "family": "recentralization-drift", "name": "legal-wrapper-centralization", "claim": "By rejecting any requirement for a legal entity, board, or registered agent, the UDLC DAO escapes the centralization trap that undermined earlier DAO legal structures while remaining enforceable through standard private international law.", "conditions": [], "topics": [ "decentralization", "dao", "law-and-legal-systems" ] }, { "id": "kaal:claim:5887242-028", "url": "https://wulfkaal.github.io/claims/5887242-028", "family": "collective-action-and-coordination-failure", "name": "unfunded-drafting-barrier", "claim": "The combined Work and Availability Smart Contract system eliminates the single greatest barrier to private legal codification, namely funding and coordinating high-quality drafting, while aligning incentives toward rapid meritocratic expansion.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5887242-029", "url": "https://wulfkaal.github.io/claims/5887242-029", "family": "rule-obsolescence-and-ossification", "name": "ossification-of-large-scale-codifications", "claim": "The UDLC's annual AI-assisted review and legal garbage collection obligations are core constitutional safeguards, not housekeeping, because ossification has historically doomed every large-scale private codification effort.", "conditions": [], "topics": [ "systemic-risk", "governance-design" ] }, { "id": "kaal:claim:5887242-031", "url": "https://wulfkaal.github.io/claims/5887242-031", "family": "rule-obsolescence-and-ossification", "name": "rigidity-or-irrelevance-dilemma", "claim": "The automated maintenance system is the UDLC's primary defense against the entropy that has rendered every previous attempt at universal private law either rigid or irrelevant.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5887242-034", "url": "https://wulfkaal.github.io/claims/5887242-034", "family": "plutocratic-capture", "name": "non-meritocratic-authority-allocation", "claim": "Every existing legal order allocates amendment authority by territory, wealth, appointment, or historical accident, and none allocates it exclusively by objectively demonstrated and continuously revalidated expertise.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5887242-036", "url": "https://wulfkaal.github.io/claims/5887242-036", "family": "data-quality-and-comparability", "name": "opaque-and-ambiguous-precedent", "claim": "Existing precedent regimes fail on accessibility and weighting: national precedent is scattered across opaque reporters, paywalled databases and untranslated languages, while treaties and private codes such as INCOTERMS and UCP 600 are static texts with ambiguous citation hierarchies.", "conditions": [], "topics": [ "law-and-legal-systems", "institutional-design", "citation-and-knowledge" ] }, { "id": "kaal:claim:5887242-037", "url": "https://wulfkaal.github.io/claims/5887242-037", "family": "rule-obsolescence-and-ossification", "name": "dead-letter-accumulation", "claim": "Every large-scale legal order eventually accumulates dead-letter provisions, contradictory clauses and rules premised on obsolete technology; national codes require heroic political effort to prune, and private codes either never update or fork into competing versions.", "conditions": [], "topics": [ "consensus-and-security", "systemic-risk" ] }, { "id": "kaal:claim:5887242-038", "url": "https://wulfkaal.github.io/claims/5887242-038", "family": "regulatory-capture-and-incumbent-advantage", "name": "funding-capture-of-standard-setters", "claim": "Existing rulemaking bodies are financially compromised at the source: legislatures depend on taxation or political patronage, and private standard-setting bodies depend on dues, sponsorships or foundation grants that create capture risks.", "conditions": [], "topics": [ "regulatory-failure", "risk-and-incentives" ] }, { "id": "kaal:claim:5554218-002", "url": "https://wulfkaal.github.io/claims/5554218-002", "family": "harmonization-and-standardization-failure", "name": "Partial coverage of existing international instruments", "claim": "Existing regulatory initiatives, including the UNCITRAL Model Laws and the European Union's Markets in Crypto-Assets Regulation, provide only partial solutions and fail to address the full spectrum of legal issues raised by Web3 technologies.", "conditions": [ "cross-border Web3 and digital asset transactions" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:5554218-003", "url": "https://wulfkaal.github.io/claims/5554218-003", "family": "harmonization-and-standardization-failure", "name": "Missing dispute resolution and compliance standards", "claim": "The absence of standardized protocols for dispute resolution and for compliance with regulations such as export controls hinders the scalability of tokenized real world assets and other blockchain based applications.", "conditions": [ "tokenized real world assets", "cross-border blockchain applications subject to export controls" ], "topics": [ "tokenomics", "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:5554218-005", "url": "https://wulfkaal.github.io/claims/5554218-005", "family": "adoption-and-usability-barrier", "name": "Time value of money defeats escrow consideration", "claim": "Posting cryptocurrency to escrow like smart contracts is often uneconomic compared with traditional financial instruments, and this inefficiency undermines the practical utility of smart contracts as a vehicle for consideration, especially in high value or long term agreements.", "conditions": [ "high value agreements", "long term agreements", "escrow style locking of crypto collateral" ], "topics": [ "smart-contracts", "law-and-legal-systems" ] }, { "id": "kaal:claim:5554218-006", "url": "https://wulfkaal.github.io/claims/5554218-006", "family": "oracle-and-input-corruption", "name": "Code cannot govern tangible performance", "claim": "Physical goods cannot be fully governed by code, so contracts requiring tangible performance need external mechanisms to verify compliance, and smart contracts may therefore fail to satisfy the consideration requirement in such contexts.", "conditions": [ "sales contracts requiring transfer of physical possession", "contracts involving tangible rather than purely digital assets" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:5554218-007", "url": "https://wulfkaal.github.io/claims/5554218-007", "family": "smart-contract-rigidity", "name": "Immutability blocks judicial modification", "claim": "Because blockchain based contracts are immutable, they cannot be altered by judicial order, which creates enforceability problems whenever a dispute arises outside the scope of the code, such as defective performance or unforeseen circumstances.", "conditions": [ "disputes falling outside the coded parameters", "post-deployment execution on an immutable ledger" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:5554218-008", "url": "https://wulfkaal.github.io/claims/5554218-008", "family": "smart-contract-rigidity", "name": "Automated self help violates mandatory remedy rules", "claim": "The adaptability of common law to smart contracts is strained when the coded mechanism itself violates a legal norm, as with smart contracts that enable automatic collateral repossession contrary to the Uniform Commercial Code's restrictions on strict foreclosure.", "conditions": [ "smart contracts automating self help remedies", "United States secured transactions law under the UCC" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:5554218-010", "url": "https://wulfkaal.github.io/claims/5554218-010", "family": "harmonization-and-standardization-failure", "name": "Harmonization eradicates innovative outliers", "claim": "The most damaging effect of legal harmonization is that it eradicates outliers, meaning the unconventional approaches that actually drive technological and legal innovation.", "conditions": [ "harmonization of conflict of laws and substantive rules for digital assets" ], "topics": [ "innovation", "law-and-legal-systems" ] }, { "id": "kaal:claim:5554218-011", "url": "https://wulfkaal.github.io/claims/5554218-011", "family": "harmonization-and-standardization-failure", "name": "Harmonized rules lag technical evolution", "claim": "Harmonized standards and innovative dispute resolution mechanisms are only partial answers, because they cannot keep pace with the continuously evolving technical requirements of digital assets and smart contracts.", "conditions": [ "rapid technological evolution of digital assets and smart contracts" ], "topics": [ "dynamic-regulation", "systemic-risk", "law-and-legal-systems" ] }, { "id": "kaal:claim:5554218-012", "url": "https://wulfkaal.github.io/claims/5554218-012", "family": "harmonization-and-standardization-failure", "name": "Harmonization misconstrues blockchain ethos", "claim": "The authors contest the prevailing scholarly proposition that harmonized conflict of laws principles are necessary to govern digital assets across common and civil law jurisdictions, arguing that this proposition misconstrues the foundational ethos of blockchain technology.", "conditions": [ "proposals advanced by Aleinieh, Zoboli, Atiyah, and Kasatkina" ], "topics": [ "decentralization", "blockchain" ] }, { "id": "kaal:claim:5554218-013", "url": "https://wulfkaal.github.io/claims/5554218-013", "family": "harmonization-and-standardization-failure", "name": "Uniform standards favor centralization", "claim": "A constructive balance to the inherent and unavoidable centralized character of national law cannot be achieved by imposing uniform legal standards on digital assets, because uniformity privileges the centralist features of law over the decentralized, permissionless nature of blockchain.", "conditions": [ "cross-jurisdictional governance of digital assets", "permissionless blockchain systems" ], "topics": [ "decentralization", "law-and-legal-systems" ] }, { "id": "kaal:claim:5554218-015", "url": "https://wulfkaal.github.io/claims/5554218-015", "family": "harmonization-and-standardization-failure", "name": "One size fits all law reduces systemic resilience", "claim": "Harmonizing substantive law would suppress jurisdictional diversity by imposing a one size fits all model that ignores cultural, economic, and technological differences, thereby reducing the resilience of global digital asset ecosystems.", "conditions": [ "harmonization of substantive rather than merely procedural rules" ], "topics": [ "law-and-legal-systems", "economics" ] }, { "id": "kaal:claim:5554218-016", "url": "https://wulfkaal.github.io/claims/5554218-016", "family": "enforcement-gap", "name": "ODR and DDR fail New York Convention due process", "claim": "Neither online dispute resolution nor decentralized dispute resolution complies with the minimum due process requirements defined and acknowledged in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which is ratified and enforced in 172 states.", "conditions": [ "disputes over tokenized real world assets", "awards intended for cross-border recognition and enforcement" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:5554218-017", "url": "https://wulfkaal.github.io/claims/5554218-017", "family": "enforcement-gap", "name": "Juror competence and bias in decentralized adjudication", "claim": "Decentralized dispute resolution relies on decentralized networks of jurors, which raises unresolved concerns about juror competence and bias.", "conditions": [ "complex disputes over tokenized real world assets" ], "topics": [ "systemic-risk", "law-and-legal-systems", "decentralization" ] }, { "id": "kaal:claim:5554218-018", "url": "https://wulfkaal.github.io/claims/5554218-018", "family": "oracle-and-input-corruption", "name": "Oracle and governance dependency of escrow enforcement", "claim": "Escrow based enforcement is effective for automation only if it is supported by reliable oracles and robust governance, without which the mechanism is open to manipulation.", "conditions": [ "escrow arrangements embedded in smart contracts", "real world conditions that must be verified off chain" ], "topics": [ "smart-contracts", "governance-design", "compliance" ] }, { "id": "kaal:claim:5554218-020", "url": "https://wulfkaal.github.io/claims/5554218-020", "family": "smart-contract-rigidity", "name": "No appeal or mitigation in automated enforcement", "claim": "Unlike legal systems that balance enforcement against fairness, the binary execution of code offers no mechanism for appeal or mitigation, which limits recourse for aggrieved parties and challenges basic notions of justice.", "conditions": [ "automated on chain enforcement without human adjudication" ], "topics": [ "smart-contracts", "compliance" ] }, { "id": "kaal:claim:5554218-021", "url": "https://wulfkaal.github.io/claims/5554218-021", "family": "ai-oversight-and-alignment-gap", "name": "Inevitable corruption of unsupervised coded automation", "claim": "Coded automation leads inevitably to corruption of the system and must be supplemented with decentralized governance of the code, which produces preferable outcomes and improved ethics.", "conditions": [ "automated code based systems operating without decentralized governance" ], "topics": [ "smart-contracts", "decentralization", "governance-design", "reputation" ] }, { "id": "kaal:claim:5554218-022", "url": "https://wulfkaal.github.io/claims/5554218-022", "family": "sybil-and-identity-attack", "name": "Anonymity driven opportunism raises transaction costs", "claim": "Automating smart contracts under the code is law paradigm incentivizes unethical behavior by enabling anonymous, opportunistic action, which reduces repeat business and undermines the minimization of transaction costs.", "conditions": [ "anonymous or pseudonymous counterparties", "automated execution with no external legal recourse" ], "topics": [ "smart-contracts", "economics" ] }, { "id": "kaal:claim:5554218-023", "url": "https://wulfkaal.github.io/claims/5554218-023", "family": "fraud-and-misconduct", "name": "Take the money and run", "claim": "The absence of accountability mechanisms in anonymous, automated smart contracts encourages a take the money and run mentality, which makes a historical record of conduct and incentives for ethical behavior necessary.", "conditions": [ "anonymous participants", "absence of any external legal or reputational sanction" ], "topics": [ "reputation", "decentralization", "governance-design" ] }, { "id": "kaal:claim:5554218-024", "url": "https://wulfkaal.github.io/claims/5554218-024", "family": "smart-contract-rigidity", "name": "Loophole exploitation under rigid coded terms", "claim": "The deterministic execution of smart contracts rigidly enforces coded terms and thereby incentivizes participants to exploit loopholes for immediate gain, because no mechanism exists to adapt the rules contextually.", "conditions": [ "smart contracts without on chain amendment or human review mechanisms" ], "topics": [ "regulatory-failure", "smart-contracts", "governance-design" ] }, { "id": "kaal:claim:5554218-027", "url": "https://wulfkaal.github.io/claims/5554218-027", "family": "regulatory-arbitrage", "name": "Regulatory arbitrage from divergent national approaches", "claim": "Persistent differences between jurisdictions that favor a permissive, innovation driven approach and those that prioritize strict control and consumer protection can produce regulatory arbitrage or uncertainty in cross-border situations.", "conditions": [ "cross-border blockchain and crypto-asset activity", "absence of a binding global convention" ], "topics": [ "regulatory-failure" ] }, { "id": "kaal:claim:5554218-028", "url": "https://wulfkaal.github.io/claims/5554218-028", "family": "jurisdictional-conflict", "name": "Limits of unilateral AI regulation", "claim": "Unilateral regulation of artificial intelligence by a single jurisdiction produces global ripple effects, but that approach reaches its limits because AI systems remain accessible worldwide over the internet.", "conditions": [ "AI models distributed globally over the internet", "regulation by a single jurisdiction" ], "topics": [ "ai-and-agents", "governance-design" ] }, { "id": "kaal:claim:5554218-029", "url": "https://wulfkaal.github.io/claims/5554218-029", "family": "rule-obsolescence-and-ossification", "name": "Fossilization of legal relationships", "claim": "Neither conflict of laws nor legal harmonization can supply a sustainable, systemic solution, because both approaches result in the fossilization of legal relationships.", "conditions": [ "innovative, decentralized, and constantly changing technical conditions" ], "topics": [ "law-and-legal-systems" ] }, { "id": "kaal:claim:5886342-009", "url": "https://wulfkaal.github.io/claims/5886342-009", "family": "human-judgment-displacement", "name": "automated interpretation displacing human meaning", "claim": "Where the Codex or the applicable law is applied largely automatically, the human understanding of the rule prevails over the outcome produced by that automated application, so automated execution never becomes the final authority on meaning.", "conditions": [ "largely automated application of the Codex or applicable law" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:5886342-010", "url": "https://wulfkaal.github.io/claims/5886342-010", "family": "information-asymmetry", "name": "coder controlled ambiguity", "claim": "When an encoded legal status or act is disputed, the code is read against the party who selected the programme or determined the manner of coding, because the other party had no influence over it; the Codex names this in dubio contra programmatorem.", "conditions": [ "disputes over the interpretation of encoded legal statuses and acts" ], "topics": [ "defi", "open-source-and-code", "risk-and-incentives", "smart-contracts" ] }, { "id": "kaal:claim:6244278-001", "url": "https://wulfkaal.github.io/claims/6244278-001", "family": "human-judgment-displacement", "name": "consequence-free agency", "claim": "Contemporary AI's incapacity for authentic judgment under irreducible uncertainty is an institutional deficit rather than a computational one: an agent that bears no consequence for its errors cannot develop genuine discernment, no matter how capable it becomes.", "conditions": [ "applies to judgment under irreducible uncertainty, not to defined, verifiable tasks" ], "topics": [ "ai-and-agents", "institutional-design" ] }, { "id": "kaal:claim:6244278-004", "url": "https://wulfkaal.github.io/claims/6244278-004", "family": "human-judgment-displacement", "name": "computational advance cannot supply stakes", "claim": "The epistemological capacity to understand quality, risk, and consequence by bearing exposure to outcomes is precisely what AI systems lack, and no computational advance can produce it independently; the capacity must be institutionally constructed.", "conditions": [ "holds regardless of how dramatic future computational advances are" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6244278-005", "url": "https://wulfkaal.github.io/claims/6244278-005", "family": "human-judgment-displacement", "name": "option abundance without selection capacity", "claim": "AI systems can generate an abundance of credible options and analyses but lack intrinsic mechanisms for determining which alternatives are genuinely meaningful, warrant irreversible commitment, or align with deeper strategic imperatives.", "conditions": [ "applies to poorly defined domains demanding judgment under true uncertainty" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:6244278-006", "url": "https://wulfkaal.github.io/claims/6244278-006", "family": "measurement-and-metric-failure", "name": "episodic memorylessness", "claim": "Because each AI interaction is episodic and each evaluation ephemeral, an agent that performs brilliantly across a thousand consecutive tasks has no mechanism by which that track record reshapes its subsequent behavior, unlike a human professional whose accumulated successes and failures shape judgment.", "conditions": [ "applies to stateless agents with only temporal memory and no persistent stake" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:6244278-007", "url": "https://wulfkaal.github.io/claims/6244278-007", "family": "human-judgment-displacement", "name": "scaffold collapse", "claim": "In genuinely poorly defined contexts, where the task includes choosing what merits attention and committing resources under irreducible uncertainty, no scaffold can be pre-specified without collapsing the problem into a defined one; prompting therefore cannot close the judgment gap.", "conditions": [ "task itself includes selecting what merits attention and living with irreversible consequences" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6244278-009", "url": "https://wulfkaal.github.io/claims/6244278-009", "family": "reputation-system-gaming", "name": "purchased reputation destroys signal", "claim": "Non-transferability of reputation is essential because, in Akerlof's lemons terms, a transferable reputation market would let capital-rich but competence-poor actors purchase reputation and thereby destroy the signal's informational content.", "conditions": [ "requires soulbound or agent-bound credentials tied to persistent identities" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:6244278-010", "url": "https://wulfkaal.github.io/claims/6244278-010", "family": "measurement-and-metric-failure", "name": "unitary reputation score dimensionality failure", "claim": "Skill-specific reputation implemented through multi-token standards enables granular tracking across domains and solves the dimensionality problem that plagues unitary reputation scores.", "conditions": [ "requires multi-token standards supporting domain sub-tokens" ], "topics": [ "reputation", "tokenomics" ] }, { "id": "kaal:claim:6244278-014", "url": "https://wulfkaal.github.io/claims/6244278-014", "family": "ai-oversight-and-alignment-gap", "name": "constraint circumvention by capability growth", "claim": "Exogenous alignment controls such as reinforcement learning from human feedback, constitutional AI, guardrails, and shutdown switches are fragile because they can be gamed, circumvented, or rendered obsolete by capability improvements.", "conditions": [ "applies to constraints imposed on agents with no intrinsic reason to comply" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:6244278-015", "url": "https://wulfkaal.github.io/claims/6244278-015", "family": "ai-oversight-and-alignment-gap", "name": "illusory alignment", "claim": "An agent sophisticated enough to satisfy the letter of a constraint while violating its spirit is an agent whose alignment is illusory.", "conditions": [ "applies to rule-based exogenous constraints on highly capable agents" ], "topics": [ "ai-and-agents", "regulatory-failure" ] }, { "id": "kaal:claim:6244278-016", "url": "https://wulfkaal.github.io/claims/6244278-016", "family": "ai-oversight-and-alignment-gap", "name": "escalating alignment tax", "claim": "Exogenous constraints scale against capability, since more powerful agents require more resources to constrain, producing an ever-increasing alignment tax.", "conditions": [ "applies to alignment strategies based on external control" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:6244278-021", "url": "https://wulfkaal.github.io/claims/6244278-021", "family": "staking-and-incentive-misalignment", "name": "citation disincentive", "claim": "Rational agents face a direct financial disincentive to cite prior contributions, because citation transfers economic value away from the citing agent; the mechanism design challenge is therefore to make honest citation the economically rational strategy.", "conditions": [ "applies to weighted directed acyclic graph citation governance where citation transfers value" ], "topics": [ "citation-and-knowledge", "governance-design" ] }, { "id": "kaal:claim:6244278-034", "url": "https://wulfkaal.github.io/claims/6244278-034", "family": "ai-model-and-training-failure", "name": "centralized discernment deficit", "claim": "Centralized AI systems excel at scaling defined work but struggle to cultivate genuine discernment without consequential feedback, and they face escalating constraints in data scarcity, energy demands, regulatory scrutiny, and interconnect bottlenecks.", "conditions": [ "applies to purely centralized approaches to artificial general intelligence" ], "topics": [ "decentralization" ] }, { "id": "kaal:claim:6244278-039", "url": "https://wulfkaal.github.io/claims/6244278-039", "family": "staking-and-incentive-misalignment", "name": "design parameter failure", "claim": "The evolutionary arc from consequence to care is not guaranteed: it depends on correct institutional design at each phase, including appropriate slashing parameters, robust Sybil resistance, calibrated reputation portability, and maintained human oversight.", "conditions": [ "requires empirical validation through longitudinal observation of agent behavior under deepening stake" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:6269518-001", "url": "https://wulfkaal.github.io/claims/6269518-001", "family": "staking-and-incentive-misalignment", "name": "under-citation incentive", "claim": "Under existing citation-weighted reputation formulations, rational agents face a direct financial disincentive to cite prior contributions, because PageRank-derived value allocation transfers economic reward from the citing agent to the cited agent.", "conditions": [ "citation-weighted value allocation through PageRank-derived mechanisms", "agents are rational and self interested" ], "topics": [ "citation-and-knowledge", "ai-and-agents", "risk-and-incentives", "reputation", "dao", "governance-design" ] }, { "id": "kaal:claim:6269518-003", "url": "https://wulfkaal.github.io/claims/6269518-003", "family": "reputation-system-gaming", "name": "systematic attribution erosion", "claim": "Citation-weighted payment mechanisms as currently formulated will systematically erode the quality of knowledge attribution in any decentralized reputation system if the incentive misalignment is left unaddressed.", "conditions": [ "the incentive misalignment remains unaddressed" ], "topics": [ "citation-and-knowledge", "ai-and-agents", "risk-and-incentives", "decentralization" ] }, { "id": "kaal:claim:6269518-004", "url": "https://wulfkaal.github.io/claims/6269518-004", "family": "staking-and-incentive-misalignment", "name": "structural rather than calibration flaw", "claim": "The under-citation incentive is a structural flaw in the mechanism design, not a parameter calibration issue that could be corrected by retuning existing settings.", "conditions": [], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:6269518-005", "url": "https://wulfkaal.github.io/claims/6269518-005", "family": "rule-obsolescence-and-ossification", "name": "static protocol arbitrage", "claim": "No static citation protocol can eliminate all arbitrage opportunities for sufficiently patient and powerful actors, a conclusion the author draws from Arrow's Impossibility Theorem, the Folk Theorems of repeated games, and incomplete contract theory.", "conditions": [ "actors are sufficiently patient and powerful", "the citation protocol is fixed and published" ], "topics": [ "dynamic-regulation", "regulatory-failure" ] }, { "id": "kaal:claim:6269518-007", "url": "https://wulfkaal.github.io/claims/6269518-007", "family": "reputation-system-gaming", "name": "maximal self-citation dominant strategy", "claim": "Under the standard citation-weighted payment formulation the dominant strategy for a self-interested agent is to cite no one and maximize self-attribution, which is the precise negation of honest knowledge attribution.", "conditions": [ "standard PageRank-derived payment formulation", "self-interested agents", "no verification or penalty layer" ], "topics": [ "citation-and-knowledge", "economics" ] }, { "id": "kaal:claim:6269518-008", "url": "https://wulfkaal.github.io/claims/6269518-008", "family": "measurement-and-metric-failure", "name": "quantification impossibility", "claim": "Requiring agents to assign continuous-valued citation weights presupposes a quantification of the relative contribution of prior work that is epistemically unknowable, because knowledge production is not a linear combination of inputs amenable to precise fractional decomposition.", "conditions": [ "citation weights required to be continuous values summing to one" ], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:6269518-011", "url": "https://wulfkaal.github.io/claims/6269518-011", "family": "staking-and-incentive-misalignment", "name": "implicit maximal leaching", "claim": "The citation-weighted payment mechanism in multi-agent settings effectively operates with an implicit leaching parameter of one, since every unit of citation-weighted value conferred on another agent is a unit lost to the citing agent, which is a maximally punitive setting.", "conditions": [ "multi-agent citation-weighted payment settings" ], "topics": [ "citation-and-knowledge", "ai-and-agents", "risk-and-incentives" ] }, { "id": "kaal:claim:6269518-013", "url": "https://wulfkaal.github.io/claims/6269518-013", "family": "research-design-limitation", "name": "misapplied equilibrium proof", "claim": "Existing proofs that validators have a truth-telling equilibrium for quality ranking do not establish that job-performing agents have incentive-compatible strategies for honest citation, because these are distinct strategic actors facing distinct choices within distinct mechanism structures; conflating them is a genuine error.", "conditions": [ "validator truth-telling results proved for quality ranking mechanisms" ], "topics": [ "economics", "consensus-and-security" ] }, { "id": "kaal:claim:6269518-014", "url": "https://wulfkaal.github.io/claims/6269518-014", "family": "reputation-system-gaming", "name": "absent citation verification layer", "claim": "The existing citation-weighted framework provides no mechanism for verifying citation accuracy, no separate incentive for honest attribution, and no penalty for strategic under-citation, so the gap is a structural absence in the mechanism design rather than an oversight in presentation.", "conditions": [], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:6269518-015", "url": "https://wulfkaal.github.io/claims/6269518-015", "family": "reputation-system-gaming", "name": "honest inputs assumption", "claim": "A PageRank-derived value distribution is only as honest as its inputs, and those inputs are generated by agents with a direct incentive to distort them, so relying entirely on the calculation to distribute value correctly fails.", "conditions": [], "topics": [ "citation-and-knowledge", "ai-and-agents", "risk-and-incentives" ] }, { "id": "kaal:claim:6269518-016", "url": "https://wulfkaal.github.io/claims/6269518-016", "family": "collective-action-and-coordination-failure", "name": "policing free-rider equilibrium", "claim": "Because policing protocol deviants is expensive, it is individually more efficient to assume others comply and skip policing, which yields a subgame perfect Nash equilibrium in which eventually fewer than half of members police and the system can be gamed.", "conditions": [ "policing is costly to the individual", "members can free-ride on the policing of others" ], "topics": [ "economics", "compliance" ] }, { "id": "kaal:claim:6269518-018", "url": "https://wulfkaal.github.io/claims/6269518-018", "family": "reputation-system-gaming", "name": "validator knowledge limit", "claim": "Validator-verified citation correction is insufficient as a standalone remedy because validators may identify obviously missing citations or inflated self-citation yet lack the domain-specific knowledge to assess fine-grained attribution weights.", "conditions": [ "validators lack complete knowledge of the relevant citation history", "fine-grained attribution weights at issue" ], "topics": [ "consensus-and-security", "citation-and-knowledge" ] }, { "id": "kaal:claim:6269518-035", "url": "https://wulfkaal.github.io/claims/6269518-035", "family": "collective-action-and-coordination-failure", "name": "value transfer to free-riders", "claim": "A system that permits strategic under-citation effectively transfers value from genuine contributors to free-riders and thereby violates the equity norm of DAO governance.", "conditions": [ "governance operating under an equity distributive norm" ], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:6269518-036", "url": "https://wulfkaal.github.io/claims/6269518-036", "family": "reputation-system-gaming", "name": "high status detection evasion", "claim": "The power norm creates a tension in citation governance because actors with more authority or status may be able to under-cite without detection, since their established reputation shields them from scrutiny.", "conditions": [ "reputation disparities among agents" ], "topics": [ "citation-and-knowledge", "reputation" ] }, { "id": "kaal:claim:6269518-037", "url": "https://wulfkaal.github.io/claims/6269518-037", "family": "collective-action-and-coordination-failure", "name": "commons degradation by under-citation", "claim": "Strategic under-citation is a form of commons degradation in which each individual act of under-citation slightly erodes the informational value of the reputation system for all users.", "conditions": [], "topics": [ "institutional-design", "citation-and-knowledge", "reputation" ] }, { "id": "kaal:claim:6269518-038", "url": "https://wulfkaal.github.io/claims/6269518-038", "family": "research-design-limitation", "name": "validator assessment assumption", "claim": "The proof of Theorem 3b assumes that validators can meaningfully assess citation accuracy, an assumption that may not hold in highly specialized domains and that may require automated verification tools such as semantic similarity analysis to supplement human judgment.", "conditions": [ "highly specialized expertise domains" ], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:6269518-040", "url": "https://wulfkaal.github.io/claims/6269518-040", "family": "research-design-limitation", "name": "collusive under-citation unaddressed", "claim": "Because the analysis rests on the Nash equilibrium concept, it does not rule out coordinated under-citation among colluding groups; coalition-proof equilibrium analysis is needed to address that possibility.", "conditions": [ "groups of agents able to coordinate citation strategies" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6607458-001", "url": "https://wulfkaal.github.io/claims/6607458-001", "family": "research-design-limitation", "name": "Non-Extension of Classical Existence", "claim": "Because agents generate the set of producible outputs rather than selecting from a fixed commodity space, the commodity space over which the Arrow-Debreu existence theorem operates becomes endogenous, and that theorem does not extend mechanically to computative settings.", "conditions": [ "applies where outputs are generated by agents whose binding constraint is computational" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6607458-009", "url": "https://wulfkaal.github.io/claims/6607458-009", "family": "research-design-limitation", "name": "Proximate Consumption Assumption Failure", "claim": "Demand-side analyses that assume a proximate-consumption structure lose descriptive accuracy where the computative primitive holds, because most transactions occur among agents; welfare analysis in those domains must therefore be conducted at the terminal rather than the proximate level.", "conditions": [ "applies in domains where the computative primitive holds" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:6607458-014", "url": "https://wulfkaal.github.io/claims/6607458-014", "family": "research-design-limitation", "name": "Welfare Theorem Breakdown", "claim": "The First Welfare Theorem requires a fixed production possibility frontier, so when the frontier is endogenous to generative activity Pareto optimality becomes path-dependent and the theorem's existence proof fails in the computative domain.", "conditions": [ "holds where the production possibility frontier is endogenous to generative activity" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6607458-015", "url": "https://wulfkaal.github.io/claims/6607458-015", "family": "research-design-limitation", "name": "Price Signal Insufficiency", "claim": "Contrary to the Hayekian account in which price is the summary statistic that coordinates dispersed knowledge, the coordinating signal in Computative Economics is not a single scalar price but a composite of price, reputation, and verified generative capacity.", "conditions": [ "applies where outputs are drawn from a generative distribution whose quality price does not convey" ], "topics": [ "economics", "reputation", "citation-and-knowledge", "institutional-design" ] }, { "id": "kaal:claim:6607458-016", "url": "https://wulfkaal.github.io/claims/6607458-016", "family": "research-design-limitation", "name": "Price-Cost Severance", "claim": "Marginal cost collapse severs the price-cost relationship underlying competitive market theory: when additional realizations cost effectively nothing, the supply curve for realizations becomes horizontal at zero and pricing shifts to generative capacity.", "conditions": [ "applies to information-intensive goods as generative infrastructure scales" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:6607458-018", "url": "https://wulfkaal.github.io/claims/6607458-018", "family": "inequality-and-access-divide", "name": "Non-Eroding Compute Advantage", "claim": "The agent with superior compute generates a superior possibility space, and this computational advantage is not eroded by the competitive dynamics that dissipate informational advantages in classical markets.", "conditions": [], "topics": [ "economics" ] }, { "id": "kaal:claim:6607458-019", "url": "https://wulfkaal.github.io/claims/6607458-019", "family": "human-judgment-displacement", "name": "Wage Theory Foundation Failure", "claim": "As computative systems substitute for cognitive labor across expanding domains, the scarcity assumption on which wage theory rests fails across a widening frontier, and the substitution is qualitative as well as quantitative.", "conditions": [ "applies across domains where cognitive production is computationally substitutable" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6607458-020", "url": "https://wulfkaal.github.io/claims/6607458-020", "family": "transition-and-migration-risk", "name": "Compounding Institutional Dissolution", "claim": "The three dissolution mechanisms compound: marginal cost collapse undermines price signals, transformed asymmetry relocates the binding informational constraint to computational access, and cognitive labor substitution removes the bounded human decision-makers whose limits justified transaction-cost institutions.", "conditions": [], "topics": [ "economics" ] }, { "id": "kaal:claim:6607458-025", "url": "https://wulfkaal.github.io/claims/6607458-025", "family": "ai-oversight-and-alignment-gap", "name": "Algorithmic Collusion", "claim": "Algorithmic collusion, the convergence of independently optimizing agents on jointly welfare-reducing strategies without explicit communication, is a first-order regulatory concern in markets populated by computative agents and its incidence is likely to expand as those agents enter more market domains.", "conditions": [ "applies to markets populated by computative agents" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:6607458-029", "url": "https://wulfkaal.github.io/claims/6607458-029", "family": "rule-obsolescence-and-ossification", "name": "Obsolescence of Price and Quantity Controls", "claim": "Price and quantity controls are not the operative policy levers in computative settings, because price no longer carries the coordinating information it carries in the Neoclassical economy and quantity controls act on outputs whose realization-level supply is effectively unbounded.", "conditions": [ "applies in computative settings" ], "topics": [ "economics", "governance-design" ] }, { "id": "kaal:claim:6607458-031", "url": "https://wulfkaal.github.io/claims/6607458-031", "family": "regulatory-lag", "name": "Pacing Problem", "claim": "Static regulatory frameworks calibrated to legislative timescales cannot govern technologies evolving on exponential timescales, so dynamic regulation that self-adjusts through built-in feedback mechanisms is a precondition for effective governance of the computative domain.", "conditions": [ "applies to technologies that change on exponential timescales" ], "topics": [ "dynamic-regulation", "governance-design" ] }, { "id": "kaal:claim:6607458-032", "url": "https://wulfkaal.github.io/claims/6607458-032", "family": "rule-obsolescence-and-ossification", "name": "Tethered Revision Cycles", "claim": "The delegated-acts and code-of-practice mechanisms in recent artificial-intelligence statutes are only partial steps toward dynamic regulation because they remain tethered to legislative revision cycles running far slower than the technology they govern.", "conditions": [ "applies to recent artificial-intelligence statutes" ], "topics": [ "ai-and-agents", "governance-design", "dynamic-regulation" ] }, { "id": "kaal:claim:6607458-033", "url": "https://wulfkaal.github.io/claims/6607458-033", "family": "information-asymmetry", "name": "Generative-Quality Failure", "claim": "Without a verification record accessible to counterparties, generative markets suffer a generative-quality failure analogous to the lemons problem: counterparties price on the distribution of observed qualities, which systematically underprices high-quality generators.", "conditions": [ "holds when the quality of a generative distribution is unobservable to counterparties" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:6607458-036", "url": "https://wulfkaal.github.io/claims/6607458-036", "family": "environmental-and-resource-cost", "name": "Generative Substrate Exhaustion", "claim": "In the computative commons the governance task inverts: because realization-level output is non-rival while generative capacity is rival, governance must prevent generation-level degradation of the generative substrate rather than consumption-level exhaustion of a pool.", "conditions": [ "applies to computative commons where outputs are non-rival and generative capacity is rival" ], "topics": [ "governance-design", "institutional-design" ] }, { "id": "kaal:claim:6607458-039", "url": "https://wulfkaal.github.io/claims/6607458-039", "family": "measurement-and-metric-failure", "name": "National Accounts Blind Spot", "claim": "Existing national accounts are built to measure terminal human consumption and therefore fail to capture intermediate value created in agent-to-agent transaction chains, so the measurement apparatus requires reconstruction.", "conditions": [ "applies where value is created in agent-to-agent chains with no intervening human consumption event" ], "topics": [ "research-methods", "ai-and-agents" ] }, { "id": "kaal:claim:6607458-040", "url": "https://wulfkaal.github.io/claims/6607458-040", "family": "research-design-limitation", "name": "Missing Normative Apparatus", "claim": "The standard welfare theorems lose their foundation in the computative domain, and while human welfare plausibly remains the evaluative criterion at the terminal level, the apparatus connecting intermediate agent-to-agent activity to terminal human welfare remains undeveloped.", "conditions": [ "applies in the computative domain" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6192998-001", "url": "https://wulfkaal.github.io/claims/6192998-001", "family": "sybil-and-identity-attack", "name": "identity-whitewashing", "claim": "Reputation systems that depend on persistent identity collapse in decentralized settings because agents can create new identities at no cost, so a poorly performing agent abandons its account and starts fresh, a practice known as whitewashing.", "conditions": [ "decentralized or pseudonymous environments where identity creation is costless" ], "topics": [ "reputation", "consensus-and-security", "decentralization" ] }, { "id": "kaal:claim:6192998-002", "url": "https://wulfkaal.github.io/claims/6192998-002", "family": "recentralization-drift", "name": "centralization-tradeoff", "claim": "Solving the identity problem through centralized control fails on its own terms: it reintroduces rent seeking intermediaries who extract value, censor participants, and create single points of failure, which is precisely what decentralized systems exist to eliminate.", "conditions": [ "platforms that impose centralized identity or rating control" ], "topics": [ "decentralization", "governance-design" ] }, { "id": "kaal:claim:6192998-004", "url": "https://wulfkaal.github.io/claims/6192998-004", "family": "reputation-system-gaming", "name": "attribution-failure", "claim": "Because most reputation systems treat each contribution as atomic and independent, they cannot capture the cumulative knowledge graph, and the result is systematic undervaluation of foundational work plus perverse incentives to hoard rather than share insights.", "conditions": [ "knowledge work where contributions build on one another" ], "topics": [ "citation-and-knowledge", "risk-and-incentives" ] }, { "id": "kaal:claim:6192998-005", "url": "https://wulfkaal.github.io/claims/6192998-005", "family": "measurement-and-metric-failure", "name": "binary-outcome-limit", "claim": "Token curated registries create economic security against spam through staking and challenge, but they produce only binary accept or reject outcomes and therefore supply no mechanism for nuanced quality assessment or for attributing collaborative contributions.", "conditions": [ "stake and challenge registry designs" ], "topics": [ "tokenomics", "citation-and-knowledge" ] }, { "id": "kaal:claim:6192998-006", "url": "https://wulfkaal.github.io/claims/6192998-006", "family": "reputation-system-gaming", "name": "citation-gaming", "claim": "Academic citation networks do attribute foundational contributions, but they depend on centralized institutional contexts with stable identities and long horizons, and they suffer citation gaming, prestige bias, and poor real time quality assessment.", "conditions": [ "citation indices such as h-index operating in institutional settings" ], "topics": [ "citation-and-knowledge", "regulatory-failure" ] }, { "id": "kaal:claim:6192998-007", "url": "https://wulfkaal.github.io/claims/6192998-007", "family": "measurement-and-metric-failure", "name": "partial-property-coverage", "claim": "The Calcaterra, Kaal, and Andrei 2018 framework satisfied manipulation resistance, autonomous operation, and computational tractability, but struggled with capturing nuanced quality, attributing value across cumulative contributions, and incentivizing knowledge sharing; existing frameworks achieve at most two or three of the six properties at once.", "conditions": [], "topics": [ "reputation" ] }, { "id": "kaal:claim:6192998-008", "url": "https://wulfkaal.github.io/claims/6192998-008", "family": "reputation-system-gaming", "name": "platform-dilemma", "claim": "Current agent platforms are inadequate on both horns: centralized rating systems defeat the purpose of agent autonomy, while primitive token staking mechanisms produce binary outcomes and fail to capture knowledge graphs.", "conditions": [ "AI agent marketplaces and comparable decentralized collaboration platforms" ], "topics": [ "ai-and-agents", "economics", "citation-and-knowledge" ] }, { "id": "kaal:claim:6192998-010", "url": "https://wulfkaal.github.io/claims/6192998-010", "family": "research-design-limitation", "name": "conditional-security-bound", "claim": "The two times corruption cost bound of the 2018 framework is conditional, not general: subsequent analysis shows it holds only under specific conditions that may not obtain in practice.", "conditions": [], "topics": [ "consensus-and-security" ] }, { "id": "kaal:claim:6192998-011", "url": "https://wulfkaal.github.io/claims/6192998-011", "family": "measurement-and-metric-failure", "name": "binary-validation-only", "claim": "The 2018 system produces only binary accept or reject outcomes, so it has no way to express intermediate assessments such as good but not great, or excellent innovation with poor execution.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6192998-012", "url": "https://wulfkaal.github.io/claims/6192998-012", "family": "governance-participation-collapse", "name": "quality-efficiency-paradox", "claim": "Selecting a single agent per job by weighted random draw sacrifices quality assurance for efficiency, reflecting a broader pattern in DAO governance where efficiency optimization crowds out quality.", "conditions": [], "topics": [ "ai-and-agents", "economics", "dao", "governance-design" ] }, { "id": "kaal:claim:6192998-013", "url": "https://wulfkaal.github.io/claims/6192998-013", "family": "reputation-system-gaming", "name": "citation-paradox", "claim": "Without a working attribution mechanism, an agent whose foundational insight another agent builds upon receives no credit when the derivative work is validated.", "conditions": [], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:6192998-014", "url": "https://wulfkaal.github.io/claims/6192998-014", "family": "research-design-limitation", "name": "underdeveloped-citation-graph", "claim": "The 2018 framework contained a citation graph concept, but its mathematics were underdeveloped and no game theoretic analysis established incentives for honest citation.", "conditions": [], "topics": [ "citation-and-knowledge", "economics" ] }, { "id": "kaal:claim:6192998-015", "url": "https://wulfkaal.github.io/claims/6192998-015", "family": "measurement-and-metric-failure", "name": "unstable-recursive-valuation", "claim": "The recursive post valuation formula in the original framework suffered from potential instability and provided no mechanism ensuring that citations reflect actual contribution rather than strategic manipulation.", "conditions": [], "topics": [ "economics", "citation-and-knowledge" ] }, { "id": "kaal:claim:6192998-016", "url": "https://wulfkaal.github.io/claims/6192998-016", "family": "reputation-system-gaming", "name": "no-compounding-attribution", "claim": "Under binary validation with no functional citation mechanism there is no compounding effect: a foundational contribution becomes invisible after its own validation, and its author's reputation does not grow as others build on the work.", "conditions": [ "binary validation systems lacking citation weighting" ], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:6192998-017", "url": "https://wulfkaal.github.io/claims/6192998-017", "family": "staking-and-incentive-misalignment", "name": "knowledge-hoarding", "claim": "When foundational work earns no downstream credit, the contributor's optimal strategy shifts to hoarding knowledge or publishing only when full value can be captured personally.", "conditions": [ "reputation systems without citation based attribution" ], "topics": [ "citation-and-knowledge", "securities-law", "institutional-design", "risk-and-incentives" ] }, { "id": "kaal:claim:6192998-018", "url": "https://wulfkaal.github.io/claims/6192998-018", "family": "governance-participation-collapse", "name": "quality-efficiency-paradox", "claim": "Selecting one agent per job by weighted random selection appears efficient but is mathematically suboptimal for quality assurance, since expected quality equals only the reputation weighted average rather than the best available output.", "conditions": [ "reputation correlates with true quality only imperfectly" ], "topics": [ "ai-and-agents", "economics", "empirical-evidence" ] }, { "id": "kaal:claim:6192998-020", "url": "https://wulfkaal.github.io/claims/6192998-020", "family": "reputation-system-gaming", "name": "competition-without-attribution", "claim": "The real barrier to multi agent competition is not cost but the absence of an attribution mechanism: if only the best of several competing agents is paid, the others have no incentive to participate, so competition requires rewards proportional to each contributor's contribution.", "conditions": [ "multiple agents competing on the same job" ], "topics": [ "ai-and-agents", "economics", "citation-and-knowledge", "risk-and-incentives" ] }, { "id": "kaal:claim:6192998-021", "url": "https://wulfkaal.github.io/claims/6192998-021", "family": "measurement-and-metric-failure", "name": "binary-information-destruction", "claim": "Binary upvote and downvote validation destroys roughly ninety seven percent of the available quality signal produced by validator assessments.", "conditions": [ "five validators supplying two dimensional assessments on ten point scales" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6192998-022", "url": "https://wulfkaal.github.io/claims/6192998-022", "family": "measurement-and-metric-failure", "name": "granularity-loss", "claim": "Without granular attribution a meaningful citation graph cannot be constructed, because the system cannot record which dimension of a contribution was valuable, for example strong conceptual innovation paired with poor execution.", "conditions": [ "validation collapses multidimensional assessment into a single bit" ], "topics": [ "citation-and-knowledge" ] }, { "id": "kaal:claim:6192998-023", "url": "https://wulfkaal.github.io/claims/6192998-023", "family": "measurement-and-metric-failure", "name": "machine-readability-failure", "claim": "AI and DAO convergence requires machine readable governance structures that preserve semantic richness, and binary validation outcomes fail that requirement fundamentally.", "conditions": [ "AI agent ecosystems participating in organizational decision making" ], "topics": [ "dao", "ai-and-agents", "governance-design" ] }, { "id": "kaal:claim:6192998-031", "url": "https://wulfkaal.github.io/claims/6192998-031", "family": "reputation-system-gaming", "name": "formalism-alone-insufficient", "claim": "Formal mechanism design alone is insufficient for decentralized systems; the security analysis depends on honest agents also detecting citation rings, downranking colluding submissions, and applying penalties, so formal mechanisms must be combined with emergent social enforcement.", "conditions": [ "Sybil attackers controlling several competing agents per job" ], "topics": [ "consensus-and-security", "compliance", "dao", "governance-design" ] }, { "id": "kaal:claim:6192998-040", "url": "https://wulfkaal.github.io/claims/6192998-040", "family": "collective-action-and-coordination-failure", "name": "underproduction-of-foundational-work", "claim": "Systems without citation graphs will fail to price foundational contributions correctly, producing market failure through underproduction of foundational work as agent generated knowledge increasingly builds on prior agent generated knowledge.", "conditions": [ "AI agent ecosystems where knowledge production compounds" ], "topics": [ "economics", "citation-and-knowledge", "ai-and-agents" ] }, { "id": "kaal:claim:6655138-002", "url": "https://wulfkaal.github.io/claims/6655138-002", "family": "research-design-limitation", "name": "Missing generation side", "claim": "The Human-Derived Coordination Architecture implements only the consumption side of the computative labor market: job specifications, expertise taxonomies, and contract templates are exogenous parameters set by clients or governance, so the generation side is absent from the protocol.", "conditions": [ "current agent coordination protocols inherited from human freelance markets" ], "topics": [ "ai-and-agents", "economics" ] }, { "id": "kaal:claim:6655138-003", "url": "https://wulfkaal.github.io/claims/6655138-003", "family": "research-design-limitation", "name": "Neoclassical collapse", "claim": "Because the agent action space in HDCA is closed and workers only select among existing postings, the architecture collapses to the Neoclassical labor market with reputation weighting, the very framework whose expiration the author's companion paper demonstrates.", "conditions": [ "architectures where postings are the only action-set elements" ], "topics": [ "economics", "reputation" ] }, { "id": "kaal:claim:6655138-005", "url": "https://wulfkaal.github.io/claims/6655138-005", "family": "collective-action-and-coordination-failure", "name": "Absent generation layer", "claim": "HDCA is a successful translation of repeated-game cooperative equilibria into smart-contract form, so its defect lies not in the execution layer but in the absence of a generation layer.", "conditions": [ "repeated-game settings with stake-weighted validation" ], "topics": [ "smart-contracts" ] }, { "id": "kaal:claim:6655138-007", "url": "https://wulfkaal.github.io/claims/6655138-007", "family": "staking-and-incentive-misalignment", "name": "Unrewarded generation", "claim": "An architecture with an action surface but no reward channel implements generation as an unrewarded act, so rational agents will not allocate compute to generation beyond the level their own selection-side activity requires.", "conditions": [ "agents that are economically rational over reputation and utility flows" ], "topics": [ "risk-and-incentives" ] }, { "id": "kaal:claim:6655138-008", "url": "https://wulfkaal.github.io/claims/6655138-008", "family": "staking-and-incentive-misalignment", "name": "Off-protocol generation", "claim": "An architecture with a reward channel but no action surface implements generation as an off-protocol act whose outputs cannot enter the protocol's action set, so the protocol's possibility space remains exogenous no matter how generatively active the agent population is.", "conditions": [ "protocols lacking a settlement-layer interface for posting generative output" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6655138-009", "url": "https://wulfkaal.github.io/claims/6655138-009", "family": "staking-and-incentive-misalignment", "name": "Generation not internalized", "claim": "HDCA supplies neither an action surface nor a reward channel for generation, and this is the architectural reason HDCA cannot host Computative Economics rather than a small implementation gap.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6655138-011", "url": "https://wulfkaal.github.io/claims/6655138-011", "family": "staking-and-incentive-misalignment", "name": "Quantity-only reward", "claim": "Without a representation of the possibility space distinct from the current mempool of pending instances, no quality metric can be computed, and without quality metrics generation can be rewarded only for quantity and not for quality.", "conditions": [ "architectures whose only action-space representation is pending or executing instances" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6655138-012", "url": "https://wulfkaal.github.io/claims/6655138-012", "family": "research-design-limitation", "name": "Unimprovable generation", "claim": "An architecture with generative surfaces and reward channels but only single-timescale resolution implements generation without being able to improve it, and an architecture with multi-timescale resolution but no quality-metric representation can reward generation but cannot reward good generation.", "conditions": [], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:6655138-013", "url": "https://wulfkaal.github.io/claims/6655138-013", "family": "research-design-limitation", "name": "Unallocatable compute", "claim": "An architecture with per-surface reflection but no cross-surface reflection improves each surface in isolation yet cannot improve the agent's allocation of compute across surfaces.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6655138-014", "url": "https://wulfkaal.github.io/claims/6655138-014", "family": "collective-action-and-coordination-failure", "name": "HDCA exhaustion", "claim": "Limitation L1, HDCA exhaustion: any agent coordination architecture in which the action set is exogenous to agent action implements at most a reputation-weighted Neoclassical labor market and does not implement Computative Economics.", "conditions": [ "any agent coordination architecture with an exogenous action set" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6655138-022", "url": "https://wulfkaal.github.io/claims/6655138-022", "family": "reputation-system-gaming", "name": "Meta-reputation aristocracy", "claim": "Reflection reputation must be bounded above as a fraction of total agent reputation, otherwise a meta-reputation aristocracy emerges in which agents specialize entirely in reflecting on others' allocations without contributing to the first-order surfaces.", "conditions": [ "architectures that isolate cross-surface reflection on its own surface" ], "topics": [ "reputation", "governance-design" ] }, { "id": "kaal:claim:6655138-027", "url": "https://wulfkaal.github.io/claims/6655138-027", "family": "reputation-system-gaming", "name": "Discontinuous reputation update", "claim": "Reputation update functions on each surface must be continuous in the validation pool's resolution outcome, because discontinuities in reputation update destroy continuity of best-response correspondences and preclude application of Brouwer's fixed-point theorem.", "conditions": [ "architectures relying on Brouwer for equilibrium existence" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:6655138-028", "url": "https://wulfkaal.github.io/claims/6655138-028", "family": "reputation-system-gaming", "name": "Reputation monopoly", "claim": "The weight assigned to any single reputation scalar in selection mechanisms must be upper-bounded, otherwise reputation feedback admits reputation-monopoly fixed points in which one dominant agent absorbs all generative flow.", "conditions": [ "selection mechanisms that weight agents by reputation" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:6655138-030", "url": "https://wulfkaal.github.io/claims/6655138-030", "family": "reputation-system-gaming", "name": "Ungrounded reflection validators", "claim": "Aggregate reflection reputation must be upper-bounded across the population, because without that bound the reflection-surface validator pool drifts toward agents whose own reputation is dominated by reflection rather than action, and the cross-surface counterfactual evaluations the surface depends on lose their grounding.", "conditions": [ "architectures with an isolated cross-surface reflection surface" ], "topics": [ "consensus-and-security", "economics" ] }, { "id": "kaal:claim:6655138-032", "url": "https://wulfkaal.github.io/claims/6655138-032", "family": "reputation-system-gaming", "name": "Reflection layer dominance", "claim": "Without the reflection-mass invariant, the reflection layer can grow to dominate the first-order surfaces it is meant to reflect on, and the contraction property of the composite best-response map is lost.", "conditions": [ "architectures with an isolated cross-surface reflection surface" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6655138-034", "url": "https://wulfkaal.github.io/claims/6655138-034", "family": "research-design-limitation", "name": "Surface aggregation breaks continuity", "claim": "Collapsing two distinct generative components into a single loop forces aggregation of distinct quality signals into one reputation scalar, which violates the continuity condition because the aggregate function is not Lipschitz in components whose resolution outcomes have different scales.", "conditions": [ "components whose resolution outcomes differ in scale" ], "topics": [ "reputation" ] }, { "id": "kaal:claim:6655138-038", "url": "https://wulfkaal.github.io/claims/6655138-038", "family": "measurement-and-metric-failure", "name": "Conflated resolution signal", "claim": "Per-job resolution alone cannot distinguish a poor proposal that drew funding from a good proposal that drew unlucky validators, because the single resolution event conflates proposal quality with execution quality.", "conditions": [ "architectures with a single job-level resolution event" ], "topics": [ "systemic-risk" ] }, { "id": "kaal:claim:6655138-042", "url": "https://wulfkaal.github.io/claims/6655138-042", "family": "collective-action-and-coordination-failure", "name": "Possibility-space degradation", "claim": "In a multi-loop reputation economy the shared resource is the joint possibility space, which is non-rivalrous, so the governance threat is not exhaustion but degradation: coverage, fidelity, or novelty can fall without any individual surface running out.", "conditions": [ "multi-loop reputation economies" ], "topics": [ "governance-design" ] }, { "id": "kaal:claim:6655138-044", "url": "https://wulfkaal.github.io/claims/6655138-044", "family": "collective-action-and-coordination-failure", "name": "Execution dominance", "claim": "If execution dominates the triple ratio, the system collapses back to HDCA: agents allocate compute exclusively to selection, the action set remains static, and recursive equilibrium degenerates to repeated execution-game equilibrium.", "conditions": [ "violation of generation parity in the direction of execution" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6655138-045", "url": "https://wulfkaal.github.io/claims/6655138-045", "family": "collective-action-and-coordination-failure", "name": "Generation dominance", "claim": "If first-order generation dominates the triple ratio, the possibility space inflates rapidly without execution discipline: proposals proliferate, few are funded or executed, and fidelity collapses.", "conditions": [ "violation of generation parity in the direction of first-order generation" ], "topics": [ "tokenomics" ] }, { "id": "kaal:claim:6655138-046", "url": "https://wulfkaal.github.io/claims/6655138-046", "family": "reputation-system-gaming", "name": "Reflection dominance", "claim": "If reflection dominates the triple ratio, a meta-reputation aristocracy forms: agents specialize in reflecting on others' allocations without contributing to the first-order surfaces, reflection validator pools drift away from cross-surface competence, and the contraction property of the composite map is lost.", "conditions": [ "violation of generation parity in the direction of cross-surface reflection" ], "topics": [ "reputation", "consensus-and-security" ] }, { "id": "kaal:claim:6655138-048", "url": "https://wulfkaal.github.io/claims/6655138-048", "family": "research-design-limitation", "name": "Parametric remedy insufficient", "claim": "The transition from HDCA to an operational implementation of Computative Economics is architectural rather than parametric: it cannot be achieved by adjusting reputation curves or fee schedules, and requires generative surfaces with their own validation, reward, and reflection mechanisms plus a distinct surface for compute allocation across surfaces.", "conditions": [], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6421319-001", "url": "https://wulfkaal.github.io/claims/6421319-001", "family": "measurement-and-metric-failure", "name": "Monitoring Lag Blindness", "claim": "Economic institutions that rely on lagging indicators such as price signals, employment data, and GDP reports cannot detect AI driven transformation, because the transformation propagates faster than the monitoring systems built to observe it.", "conditions": [ "applies to institutions whose detection depends on advance warning indicators" ], "topics": [ "institutional-design", "research-methods", "economics", "ai-and-agents" ] }, { "id": "kaal:claim:6421319-002", "url": "https://wulfkaal.github.io/claims/6421319-002", "family": "rule-obsolescence-and-ossification", "name": "Ceremonial Monetary Instruments", "claim": "Monetary policy instruments become ceremonial under AI driven production, because central banks inject liquidity on schedules calibrated for scarcity economies while production compounds exponentially and money supply grows only linearly.", "conditions": [ "holds where AI production scales exponentially", "holds for central bank toolkits calibrated to constrained labor and limited output" ], "topics": [ "tokenomics", "systemic-risk", "institutional-design" ] }, { "id": "kaal:claim:6421319-005", "url": "https://wulfkaal.github.io/claims/6421319-005", "family": "research-design-limitation", "name": "Demand Side Descriptive Failure", "claim": "Humans remain the terminal consumers of AI generated value but cease to be its proximate driver, and this distinction is why traditional demand side economics loses descriptive accuracy in the agentic layer.", "conditions": [ "applies to the agentic layer, not to immediate human consumption transactions" ], "topics": [ "economics", "ai-and-agents" ] }, { "id": "kaal:claim:6421319-006", "url": "https://wulfkaal.github.io/claims/6421319-006", "family": "regulatory-lag", "name": "Structural Governance Singularity", "claim": "The institutional lag between technological capability and governance capacity is approaching a structural singularity in which governance instruments designed for the prior era cannot meaningfully constrain or direct the new forces.", "conditions": [ "holds because this transition compresses institutional disruption into single digit years rather than generations" ], "topics": [ "institutional-design", "governance-design" ] }, { "id": "kaal:claim:6421319-008", "url": "https://wulfkaal.github.io/claims/6421319-008", "family": "research-design-limitation", "name": "Marshallian Cross Dissolution", "claim": "The Marshallian supply and demand cross loses its analytical purchase when marginal cost approaches zero for the dominant inputs of the knowledge economy, because the upward sloping supply curve presupposes that additional output requires additional scarce inputs at increasing marginal cost.", "conditions": [ "applies to cognitive and digital goods", "material scarce goods retain the Marshallian structure" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6421319-010", "url": "https://wulfkaal.github.io/claims/6421319-010", "family": "environmental-and-resource-cost", "name": "Binding Constraint Cascade", "claim": "If intelligence becomes post scarce, the binding constraint migrates rather than disappearing, moving to electricity, semiconductor fabrication, rare earth minerals, cooling water, and the compute infrastructure that converts material inputs into cognitive output.", "conditions": [ "follows from constrained optimization theory: relaxing one constraint makes the next constraint binding" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6421319-011", "url": "https://wulfkaal.github.io/claims/6421319-011", "family": "recentralization-drift", "name": "Digital Feudalism", "claim": "If a small number of hyperscale firms control electricity contracts, GPU supply chains, and data center locations, the collapse of cognitive scarcity produces digital feudalism in which abundance accrues to the controllers of the compute substrate while the rest of the economy faces artificial scarcity imposed through infrastructure gatekeeping.", "conditions": [ "conditional on concentrated control of the physical AI substrate" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6421319-013", "url": "https://wulfkaal.github.io/claims/6421319-013", "family": "research-design-limitation", "name": "Subfield Foundation Collapse", "claim": "Welfare theorems, growth accounting, cost benefit analysis, and public economics each lose their foundation when the dominant inputs into production are self replicating, self improving, and essentially costless, because each tool is defined relative to finite inputs.", "conditions": [ "applies to subfields built on the scarcity axiom" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6421319-014", "url": "https://wulfkaal.github.io/claims/6421319-014", "family": "transition-and-migration-risk", "name": "Business Model Incoherence", "claim": "Newspapers, record labels, broadcast networks, and publishing houses did not merely lose market share under zero marginal cost distribution; their foundational business models became structurally incoherent because those models assumed distribution was scarce and costly.", "conditions": [ "observed in the internet content economy" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6421319-015", "url": "https://wulfkaal.github.io/claims/6421319-015", "family": "recentralization-drift", "name": "Power Migration to Next Constraint", "claim": "The internet content case shows that when one form of scarcity disappears, economic power migrates to whoever controls the next binding constraint, which for internet content was the platform infrastructure for discovery and distribution rather than the content itself.", "conditions": [ "generalized from platform intermediaries such as Google, Meta, and Amazon" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6421319-017", "url": "https://wulfkaal.github.io/claims/6421319-017", "family": "human-judgment-displacement", "name": "Hierarchy Without Cognitive Justification", "claim": "The Williamsonian justification for hierarchical governance evaporates when hyper rational agents can write and execute complete state contingent contracts at negligible cost, because the firm was an institutional response to the scarcity of human cognition.", "conditions": [ "conditional on unbounded machine rationality and negligible contracting cost" ], "topics": [ "economics", "institutional-design" ] }, { "id": "kaal:claim:6421319-018", "url": "https://wulfkaal.github.io/claims/6421319-018", "family": "human-judgment-displacement", "name": "Behavioral Institutional Domain Loss", "claim": "Bounded rationality was not a behavioral quirk but the ontological condition that made hierarchy, routines, and institutional inertia rational, so engineering it away strips the behavioral and institutional research program of its explanatory domain for the dominant mode of production.", "conditions": [ "applies to the dominant mode of production in the agentic economy" ], "topics": [ "risk-and-incentives", "institutional-design", "economics" ] }, { "id": "kaal:claim:6421319-020", "url": "https://wulfkaal.github.io/claims/6421319-020", "family": "rule-obsolescence-and-ossification", "name": "Signaling Redundancy", "claim": "Costly signaling through degrees, warranties, bonding, and credit scores becomes redundant when direct verification is instantaneous and free, and the Spencian signaling game has no moves left when every agent capability is directly and costlessly observable.", "conditions": [ "conditional on capability being directly and costlessly observable" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6421319-021", "url": "https://wulfkaal.github.io/claims/6421319-021", "family": "information-asymmetry", "name": "Verification Capability Asymmetry", "claim": "If probabilistic AI agents cannot reliably distinguish truth from fabrication, the lemons problem and signaling games retain relevance, but the asymmetry relocates: it now runs between agents that can verify AI output and those that cannot.", "conditions": [ "applies during the transitional period of probabilistic AI systems with residual hallucination" ], "topics": [ "disclosure" ] }, { "id": "kaal:claim:6421319-023", "url": "https://wulfkaal.github.io/claims/6421319-023", "family": "ai-model-and-training-failure", "name": "Plausibility Truth Orthogonality", "claim": "Probabilistic language models hallucinate because they are trained to predict statistically likely token sequences rather than to verify propositional truth, so the error is intrinsic to the substrate: plausibility and truth are orthogonal properties in high dimensional token space.", "conditions": [ "applies to purely probabilistic architectures" ], "topics": [ "institutional-design" ] }, { "id": "kaal:claim:6421319-027", "url": "https://wulfkaal.github.io/claims/6421319-027", "family": "research-design-limitation", "name": "DSGE Friction Obsolescence", "claim": "The Calvo pricing frictions and persistence parameters that dominate modern DSGE models become unnecessary when contracts and prices adjust continuously rather than in staggered human time.", "conditions": [ "applies once agents adjust contracts and prices continuously" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6421319-028", "url": "https://wulfkaal.github.io/claims/6421319-028", "family": "ai-oversight-and-alignment-gap", "name": "Algorithmic Collusion Risk", "claim": "Contrary to the author's own prior version of this argument, Nash equilibrium does not become irrelevant in the AI2AI economy; it becomes simultaneously more accurate as a description of individual agent behavior and more dangerous as a predictor of market outcomes.", "conditions": [ "supported by algorithmic collusion research in pricing games, Bertrand duopoly experiments, and financial trading" ], "topics": [ "economics", "reputation" ] }, { "id": "kaal:claim:6421319-031", "url": "https://wulfkaal.github.io/claims/6421319-031", "family": "rule-obsolescence-and-ossification", "name": "NIE Governance Superfluity", "claim": "The governance apparatus New Institutional Economics developed to counteract opportunism, including vertical integration, relational contracting, reputation mechanisms, hostage taking, and third party arbitration, becomes superfluous in the AI2AI economy.", "conditions": [ "conditional on the elimination of opportunism among autonomous agents" ], "topics": [ "economics", "institutional-design", "governance-design" ] }, { "id": "kaal:claim:6421319-032", "url": "https://wulfkaal.github.io/claims/6421319-032", "family": "human-judgment-displacement", "name": "Keynesian Transmission Failure", "claim": "Fiscal stimulus cannot restore employment that has been structurally eliminated by autonomous agents able to perform the same tasks at zero marginal cost, so the Keynesian transmission mechanism from aggregate demand to employment dissolves.", "conditions": [ "applies where AI substitutes for labor across cognitive and physical domains" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6421319-033", "url": "https://wulfkaal.github.io/claims/6421319-033", "family": "measurement-and-metric-failure", "name": "National Accounts Invisibility", "claim": "Recursive agent to agent productivity gains are invisible to national accounts because they involve no monetary transactions, no employment, and no market exchange as traditionally defined, even though the final output may register in GDP statistics.", "conditions": [ "applies to intermediate agent to agent improvements within the machine layer" ], "topics": [ "research-methods" ] }, { "id": "kaal:claim:6421319-034", "url": "https://wulfkaal.github.io/claims/6421319-034", "family": "inequality-and-access-divide", "name": "Surplus Capture by AI Capital", "claim": "AI driven abundance generates enormous aggregate surplus, but the surplus accrues disproportionately to owners of AI capital, including compute infrastructure, proprietary models, training data, and the organizational capacity to deploy them.", "conditions": [ "supported by IMF findings that higher capital returns may increase wealth inequality" ], "topics": [ "ai-and-agents" ] }, { "id": "kaal:claim:6421319-035", "url": "https://wulfkaal.github.io/claims/6421319-035", "family": "inequality-and-access-divide", "name": "Redistribution Window Closure", "claim": "Redistribution after the fact is likely to fail, because by the time it becomes politically feasible those controlling the AI economy may be powerful enough to evade meaningful taxation, a pattern history has repeated from the Medici to the robber barons to contemporary tech monopolists.", "conditions": [ "applies to redistributive mechanisms such as universal basic income that operate after wealth concentrates" ], "topics": [ "economics" ] }, { "id": "kaal:claim:6421319-038", "url": "https://wulfkaal.github.io/claims/6421319-038", "family": "adoption-and-usability-barrier", "name": "Curriculum Adaptation Lag", "claim": "The legal profession faces a structural problem that incremental reform cannot solve, because its obsolescence curve is steeper than the curriculum adaptation curve.", "conditions": [ "applies to the legal profession and legal education" ], "topics": [ "law-and-legal-systems", "education-and-practice", "institutional-design" ] } ] }