Another day, another DEX is born. Uniswap has launched, a token trading protocol with the help of an Ethereum Foundation grant. This time, it differentiates from other “decentralized exchanges” by eliminating the use of native tokens or platform fees. Instead, it uses liquidity pool rewards and arbitrage opportunities for market participants.
While these countless decentralized exchanges are important, it’s time to move on to a unifying platform to capture the potential of all utility tokens and cryptocurrencies. Vertically and horizontally integrated DEXs with incentive alignment in mind are the key to the future.
Beating the “Utility Token” Dead Horse
The biggest complaint skeptics have of utility tokens is that purchasing a service shouldn’t require you to buy an obscure token nobody has nor wants. This contention has been hammered on hard and has become a bit of a cliche as of late. Utility tokens can be seen being mocked in the viral video “Lemoncoin Utility Token“. No-nonsense Twitter pundits lament the unnecessary added friction to paying for services with tokens. It’s true, the best marketplaces such as Amazon are going in the exact opposite direction, making it as easy as possible to checkout(one-click purchase!). “Why not just have a real product and charge real money for it?”, they all ask.
These are all valid points. Especially since most ICOs have no viable product to speak of, even if you do manage to endure the hassle of buying the tokens. No doubt, most ICOs are outright scams. Although this says more about human nature than the protocols themselves. It’s akin to saying computers are bad because many people are overly distracted by them, or cars are inherently bad because it’s the leading cause of death among many Americans. What really matters is if the technology is still being adopted, and getting better over time.
The Real ICO Innovation, and Their Future
While all of these critiques are valid, all the scams and failures of today’s ICOs are ultimately a distraction from the real innovation. The bottom line is that ICOs allow for crowdfunding and coordination in a censorship resistant way—without middlemen, on an easily monitored system. I argue that we really haven’t fleshed out the full potential of these open source systems yet. Managing the various interests of many stakeholders is what crypto really needs to improve on. “It’s tokenomics, stupid!”
You need 3 main things as base infrastructure for functioning enterprise :
1. A method of coordinating participants.
Traditionally, this problem is solved with contracts and regulations. The owners, lenders, suppliers, governments, and employees all have specific roles and responsibilities which are enforceable by law. They ensure that each person fulfills their role within the system by providing rules around each. The legal contract between you and an employer helps to back up confidence in the system even when working with a company of unknown reputation.
2. A method of discouraging malicious actors.
If a company hurts their customers with harmful products, or if a company causes an accident, you could take them to court for damages and even jail time.
3. A method of returning value to participants.
Again, the same legal framework is used to bring value to creditors, shareholders and governments. This is done with a variety of financial instruments and contracts.
But with ICOs there are often no legal contracts involved. No formal stakeholder claims that say 51% equity owners get the right to control the decision making for the company. No formal contract that requires the ICO to deliver on its promises to customers. No regulatory oversight from government. How can an ICO organization operate without these sorts of guidelines in place?
The next app to bring trillions worth of value to the world.
With ICOs you can provide incentive alignment in an alternative way. By using simple techniques such as lock-up periods. The emphasis with DAOs is making sure that the incentives are setup programmatically.
Clever lock up periods & Rewards
- The platform will not allow any ICO’s that don’t have sufficient lock up periods for dev team and other managers wallets. This helps incentivize them to ensure some future value to investors.
- Early adopters and investors can also send or withhold small amounts of tokens to to devs and workers for completing objectives on the road map.
Micro-payment streaming
- The risk of a company service outage or not fulfilling their duties can cause problems in any customer-business relationship. Currently, if a cable, electricity, or gas outage occurs you have to spend hours trying to get a credit to your account, or take them to court if they don’t compensate for the mistake.
- Alternately, micro payments allow you to take less risk in these situations. Cable service throttling your connection below what you paid for? Then throttle their payment! Road block stopping traffic and you’d rather walk the rest of the way? Stream money on a per mile basis to an Uber driver. Just pay for the fraction of the trip you took.
Reputation Staking
- Important actors may need to stake their identity by signing their public key attached to their identity. People will be discouraged from putting in any money, time & effort into a project where the leaders don’t put their reputation at risk.
Seamless Back-end Payment Solution
- Solves the “Lemoncoin” problem
- The payment automatically exchanges originating currency and interfaces with a DEX that operates behind the scenes.
- When you purchase goods and services you won’t necessarily even know if it came from a DAO or ICO organization.
- The purchase will close the stakeholder loop. The purchase is used to bid up demand for tokens, returning value to #BUIDL ers.
It’s always important to remember it’s not about perfection, it’s about incremental improvement. There are likely plenty of other systems not thought up yet that will make the DAOs of the future even more robust.
Indeed this platform of the future might not be too far off. Check out what Coil and 0x are working on already. Soon it will all be integrated.
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