A course by Stephen Reid · Original notes Original notes available on Google Docs · Event page

The Promise of Decentralisation

by Stephen Reid, May 2021

Session 1: Introduction to Decentralisation

Reading/podcasts

What is decentralisation?

Decentralised v distributed systems

Centralized-concentrated (Ce-Co) organizations [top left, ~ Red]

Centralized-distributed (Ce-Di) organizations [bottom left, ~Amber/Orange]

Decentralized-concentrated (De-Co) organizations [top right, ~Green]

Decentralized-distributed (De-Di) organizations [bottom right, ~Teal]

Why decentralise?

Resilience

Collective intelligence

Censorship resistance

See also

History of organisational evolution

Decentralisation in nature

Computational biology

Decentralised energy and connectivity

Microgrids and Virtual Power Plants

Decentralised Connectivity

Recording

Homework

Session 2: DeFi

What is money?

Functions of money

Characteristics of money

Comparing the characteristics of gold, fiat and crypto

Cryptocurrency as the new global reserve asset?

Paying taxes in crypto: the end of fiat?

What is cryptocurrency?

Ethereum: the world computer

Smart contracts

History of DeFi

Basics

CeFi v DeFi ( v TradFi)

CeDeFi(!) and Binance Smart Chain

DeFi newsletters, channels & podcasts

Information sources

Automated Market Makers

THORChain

Aggregators

Money markets: Aave and Compound

Decentralised stablecoins: Maker and DAI

Why DAI?

Price stability mechanisms

Oracles: Chainlink and Band

Synthetics: Synthetix and Mirror

Yield farming (liquidity mining)

Parallels with platform co-operativism

Homework

Recording

Session 3: ReFi and DAOs

Beyond DeFi: ReFi (regenerative finance)?

SEEDS

Celo

Proof of Humanity UBI

Circles UBI

Regen Network

DAOs, DHOs & DisCOs

DAOs allow the separation of voting and economic rights

You can think of DAOs as blockchain-based steward ownership/multi-stakeholder co-operatives

Relationship to Teal & holocracy

Blockchain-Based Limited Liability Companies (BBLLCs)

Homework

Session 4: DePsy & Dandelion Gatherings

'DePsy': Decentralised Psychedelia

Psychedelics 'decentralise' the brain

Psychedelic capitalism

Dark Net marketplaces

Mushroom growing

Cryptopsychedelia

Nowhere and the Borderland: European Burner Culture

Dandelion gatherings

That's a wrap!

Session 1: Introduction to Decentralisation

Hi there,

Thank you for registering for The Promise of Decentralisation! Each week I will send some pre-watching/reading in the days before the session. In addition there will be a few simple homework tasks set at the end of each session.

Please try to read/watch the following before our first session:

For course discussion, you are welcome to join the Telegram group. You are also welcome to leave comments on the course notes Google Doc (available soon).

I look forward to seeing you at 5pm UK time on Thursday at https://zoom.us/j/92752311616 

Best,

Stephen

Reading/podcasts

What is decentralisation?

Decentralised v distributed systems

Extracts from the paper Decentralized vs. Distributed Organization: Blockchain, Machine Learning and the Future of the Digital Platform - JP Vergne, 2020

A concept lost in interdisciplinary translation:

"Dictionaries define decentralization as the ‘distribution of powers’, thereby introducing a confusing equivalence between decentralization and distribution (e.g. dictionary.com/browse/decentralize). In the 1960s, engineer Paul Baran distinguished between the two notions in a series of landmark studies on communications networks, wherein he described decentralization as a ‘fuzzy’ state best seen as the middle ground on a spectrum ranging from the centralized to the distributed (Baran, 1964). Baran differentiated networks based on the number of nodes that needed to fail to break down communications – ranging from a single node in centralized networks, to a few in decentralized networks, and a majority in distributed networks. Baran’s illustrative visual has since become hugely popular in the network engineering community and beyond – nowadays, it is Google.com’s number-one image result for the search terms distributed and decentralized:"

"This paper offers a much-needed clarification based on the recognition that, within organizations, communications and decision-making occur as parts of two distinct systems. Thus, whereas Baran’s positioning of distribution and decentralization along the same continuum made sense in the context of communication networks, in a more complex organizational context a richer view is warranted."

What does this mean?

What shall we do about it?

All four organizational ideal-types have 7 members represented by circles. The darker the circle, the more concentrated the decision-making authority of a given member. Solid lines represent hierarchical reporting (as part of a decision-making hierarchy) and dotted lines indicate who the ‘information integrators’ are. Both solid and dotted lines represent consultation channels used to achieve coordinated communication. The 2 × 2 matrixes forming the middle column provide summary statistics for each of the four ideal-types (e.g. the upper left number in each matrix refers to ‘Ce-Co’ organizations).

* Organizational members take turns to act as decision-maker following a well-defined protocol.

Dotted lines ~ meaning-making communication (decentralisation)

Solid lines ~ delegation of decision-making capacity (distribution)

Centralized-concentrated (Ce-Co) organizations [top left, ~ Red]

In Ce-Co organizations, members work independently to structure data collected from the environment and pass it on to a decision-maker in charge of processing it, integrating it as information, and leveraging knowledge to make decisions. This setting has only one decision-maker, who also acts as the sole information integrator, connected to other members independently via (hierarchical) channels. Without trust in the decision-maker, the organization can collapse.

A Ce-Co organization could be a team of junior investigators who independently document insurance claims and report to a manager in charge of adjudicating them; a marketing consultancy whose six summer interns independently collect data on car purchasing behaviour in six different countries on behalf on an associate; or textile workers performing piecework for a supervisor.

Centralized-distributed (Ce-Di) organizations [bottom left, ~Amber/Orange]

Ce-Di organizations delegate aspects of decision-making to subordinates within a multilayered managerial hierarchy. In the figure, the distribution of decision-making requires fewer consultation channels per information integrator than in the two concentrated decision-making scenarios, and the total number of channels increases only moderately relative to the baseline Ce-Co scenario (from 6 to 9, versus 21 in the decentralized scenarios). Distribution thus increases processing efficiency.

Trust is distributed across several decision-makers as decision-making is delegated down the hierarchy; lower-ranked managers are authorized to allocate resources up to a certain level and in delineated areas (e.g. entry-level marketing managers make spending decisions for local print material but not for national TV ads). Most multidivisional corporations have adopted this type of organization, having associates who report to directors who report to vice-presidents, and so on.

Distributed managerial hierarchies enable organizations to grow steadily across both product lines and geographies while keeping complexity manageable. Centralization remains for communication and organizational strategy; yet decision-making – and trust – are distributed to manage complexity.

A Ce-Di design makes coordination and growth tractable (since complexity increases linearly with membership instead of quadratically) but with a drawback. To increase communication efficiency, Ce-Di organizations eliminate redundancies by specializing branches of the hierarchical tree by information type, which risks communication errors (e.g. flawed transmission) and opportunistic behaviour (e.g. information retention). Both decrease stakeholders’ trust in the organization.

Decentralized-concentrated (De-Co) organizations [top right, ~Green]

De-Co organizations differ from their centralized counterparts in that the six frontline members are also tasked with information integration. While decision-making still resides with the manager, the frontline is tasked with reaching consensus and recommending a course of action, which the manager can, based on extant knowledge, either accept or reject.

The number of consultation channels and information integrators increases dramatically as a result, but the number of channels needed per integrator decreases, in line with well-known arguments on the superior efficiency of decentralized information processing in contexts where the information needed is dispersed widely. Trust in the decision-maker is still crucial, but in this context, the frontline is able to recommend a course of action independently, making it more likely that an alternate could step in and substitute for a decision-maker that is either failing or corrupt.

A De-Co organization could be a factory with innovative human resource practices such as ‘problem-solving teams, incentive pay, flexible job design, [and] information sharing among workers’; it could also be a research organization, such as an academic institute where postdoctoral research fellows develop a joint project under a grant holder; or an advertising agency wherein various creative professionals work together to propose a campaign idea to an art director, who then decides to go with it or to reject the idea.

Decentralized-distributed (De-Di) organizations [bottom right, ~Teal]

De-Di organizations maximize the number of available information integrators (7) while keeping the number of channels needed per integrator to a minimum (3). To be able to make decisions without formally assigning decision-making authority to higher-ranked members, a De-Di organization must define a non-hierarchical protocol for its members to reach consensus.

The De-Di design is appealing, as it allows anyone to join the organization, access data and, if need be, contribute to decision-making; it also prevents banning specific members or censoring transactions since no one holds the formal authority to do so. These properties make De-Di organizations attractive for operating borderless, inclusive and resilient digital platforms. In De-Di organizations, trust is both distributed (i.e. any member can be a decision-maker) and decentralized (i.e. every member has equal access to data and information).

In this course, when I say 'decentralised', unless I specify otherwise please assume I'm talking about De-Di systems.

Why decentralise?

Resilience

De-Di systems are still functional even when a sizable fraction of actors fail or act maliciously.

Collective intelligence

"At a certain point if you can't accelerate your capacity for solving problems exponentially, you're done. We have to invent an entirely new toolkit for how human beings can coordinate their sense-making, their choice-making and their actions; a collective intelligence."

In an increasing number of real-world domains, the complexity/frequency of both meaning-making and decision-making required to function threatens to overwhelm all but De-Di systems.

Even when this isn't the case, De-Di systems may simply be able to make better and faster decisions about complex phenomena.

Censorship resistance

In De-Di systems, all actors have access to all the system's information and can freely communicate with all others in meaning-making.

No single actor can prevent the others from meaning-making or decision-making.

See also

History of organisational evolution

"Every transition to a new stage of consciousness has ushered in a new era in human history. At each juncture, everything changed: society (going from family bands to tribes to empires to nation states); the economy (from foraging to horticulture, agriculture, and industrialization); the power structures; the role of religion. One aspect hasn’t yet received much attention: with every new stage in human consciousness also came a breakthrough in our ability to collaborate, bringing about a new organizational model. Organizations as we know them today are simply the expression of our current worldview, our current stage of development. Every time that we, as a species, have changed the way we think about the world, we have come up with more powerful types of organizations.

This wiki is based largely on the work of Frederic Laloux in Reinventing Organizations: A Guide to Creating Organizations Inspired by the Next Stage of Human Consciousness. In his work, Laloux attempts to catalog the stages through which human organizational development has progressed. He portrays these stages in a way that borrows from many researchers, including those mentioned above, but particularly from the meta-analyses of Ken Wilber and Jenny Wade. As in Wilber’s Integral Theory, Laloux’s work and this wiki give colors as names to each stage of development.

Some caveats

Experience shows that some people react in two extreme ways when confronted with this developmental theory.

Red organizations (~Ce-Co)

Red organizations are molded on the Red stage of consciousness, which sees the world through a crude lens of power. Power is exercised constantly by ‘Chiefs’ to keep foot soldiers in line. Fear and unpredictability hold the organization together. Red organizations tend to be highly reactive with a short-term focus. This makes them well-suited to thrive in chaotic environments. Wolf packs are a good metaphor for Red organizations.

Amber and Orange organizations (~Ce-Di)

The Amber stage of consciousness enabled humankind to develop organizations that could operate on an unprecedented scale. This led to the formation of bureaucracies, institutions, and nation states, many of which have survived for centuries. Amber organizations strive for stability and are characterized by clear roles and ranks within a hierarchical structure. Leadership is exercised through command and control and compliance is expected throughout the organization . Stability and order are enforced through rules and processes. Innovation is not encouraged and competition is viewed with suspicion. The dominant metaphor is that of an army. Perhaps the most significant Amber organization is the Catholic Church.

Orange organizations represent the advance of the scientific and industrial revolutions. The world is seen as a complex machine whose inner workings and natural laws can be investigated and understood. Current management thinking, which is focused on competition, innovation and performance shape how Orange organizations operate. Leadership changes from command-and-control to predict-and-control (management by objectives). Orange Organizations retain a hierarchical pyramid, but create departments such as R&D, Marketing and Product Management to foster and enable innovation. The machine metaphor also reveals the dynamic nature of organizations in Orange (as compared to Amber, where we think of organizations as rigid, unchanging sets of rules and hierarchies).

Green organisations (~De-Co)

Green organizations reflect the Green stage of consciousness, which strives for harmony, tolerance and equality. While retaining a pyramidal structure, Green organizations focus on empowerment to lift motivation and to create great workplaces. They go beyond the shareholder focus of Orange to embrace all stakeholders. Family is the dominant metaphor.

Teal organisations (~De-Di)

The Teal paradigm refers to the next stage in the evolution of human consciousness. When applied to organizations, this paradigm views the organization as an independent force with its own purpose, and not merely as a vehicle for achieving management's objectives. Teal organizations are characterized by self-organization and self-management. The hierarchical "predict and control" pyramid of Orange is replaced with a decentralized structure consisting of small teams that take responsibility for their own governance and for how they interact with other parts of the organization. Assigned positions and job descriptions are replaced with a multiplicity of roles, often self-selected and fluid. People’s actions are guided not by orders from someone up the chain of command but by ‘listening’ to the organization’s purpose. Unlike the highly static nature of Amber, Orange and Green organizations, the organizational structure in Teal is characterized by rapid change and adaptation, as adjustments are continuously made to better serve the organization's purpose.

Decentralisation in nature

Computational biology

Decentralised energy and connectivity

Microgrids and Virtual Power Plants

Decentralised Connectivity

Recording

https://zoom.us/...

Passcode: uY95!C8f

Homework

Note, I won't be going into detail about how blockchains work. If you need that background, see:

Session 2: DeFi

What is money?

"Today, the only thing that distinguishes the value of a banknote from any other paper is trust."

"The value of money is not derived from the materials used to produce the note or coin. Instead, value is derived from the willingness to agree to a displayed value and rely on it for use in future transactions. This is money's primary function: a generally recognized medium of exchange that people and global economies intend to hold, and are willing to accept as payment for current or future transactions."

"In contrast to commodity-based money like gold coins or paper bills redeemable for precious metals, fiat money is backed entirely by the full faith and trust in the government that issued it. One reason this has merit is because governments demand that you pay taxes in the fiat money it issues. Since everybody needs to pay taxes, or else face stiff penalties or prison, people will accept it in exchange."        

"We've never seen liquidity pumped into a crisis to that degree, ever in history. Because the economy during the worst of the pandemic was basically shut down, all this liquidity basically boosted the money supply, but it couldn't find its way into the real economy," she added. "But all this liquidity has to go somewhere, and it went not just into the stock market, but every market has done well – junk bonds, precious metals."

Functions of money

From Infographic: The Properties of Money - The Money Project

Characteristics of money

From Infographic: The Properties of Money - The Money Project

Comparing the characteristics of gold, fiat and crypto

From Why Do Bitcoins Have Value?. See also: The 9 Characteristics That Make Bitcoin Money 

Note the three characteristics of greatest difference:

Cryptocurrency as the new global reserve asset?

Paying taxes in crypto: the end of fiat?

What is cryptocurrency?

Many of these articles refer to bitcoin but the same arguments mostly apply to cryptocurrency more generally

From Balaji Srinivasan:

"Perhaps the most enduring source of conflict within the Bitcoin community derives from incompatible visions of what Bitcoin is and should become. Businesses building on Bitcoin, believing it a cheap global payments network, eventually became nonviable when blocks filled up in 2017. They weren’t necessarily wrong, they just had a vision of the world that ended up being a minority view within the Bitcoin community, and was ultimately not expressed by the protocol on their desired timeline…  Visions of Bitcoin are not static. Technological developments, practical realities and real-world events have shaped collective views."

Ethereum: the world computer

From Bitcoin vs. Ethereum: What's the Difference?:

"Ethereum proposed to utilize blockchain technology not only for maintaining a decentralized payment network but also for storing [and running] computer code which can be used to power tamper-proof decentralized financial contracts and applications."

From the introductory chapter of the Mastering Ethereum e-book:

"Ethereum is an open source, globally decentralized computing infrastructure that executes programs called smart contracts. It uses a blockchain to synchronize and store the system’s state changes, along with a cryptocurrency called ether to meter and constrain execution resource costs…

Ethereum’s purpose is not primarily to be a digital currency payment network. While the digital currency ether is both integral to and necessary for the operation of Ethereum, ether is intended as a utility currency to pay for use of the Ethereum platform as the world computer.

Unlike Bitcoin, which has a very limited scripting language, Ethereum is designed to be a general-purpose programmable blockchain that runs a virtual machine capable of executing code of arbitrary and unbounded complexity. Where Bitcoin’s Script language is, intentionally, constrained to simple true/false evaluation of spending conditions, Ethereum’s language is Turing complete, meaning that Ethereum can straightforwardly function as a general-purpose computer…

The original blockchain, namely Bitcoin’s blockchain, tracks the state of units of bitcoin and their ownership. You can think of Bitcoin as a distributed consensus state machine, where transactions cause a global state transition, altering the ownership of coins. The state transitions are constrained by the rules of consensus, allowing all participants to (eventually) converge on a common (consensus) state of the system, after several blocks are mined.

Ethereum is also a distributed state machine. But instead of tracking only the state of currency ownership, Ethereum tracks the state transitions of a general-purpose data store, i.e., a store that can hold any data expressible as a key–value tuple... In some ways, this serves the same purpose as the data storage model of Random Access Memory (RAM) used by most general-purpose computers. Ethereum has memory that stores both code and data, and it uses the Ethereum blockchain to track how this memory changes over time. Like a general-purpose stored-program computer, Ethereum can load code into its state machine and run that code, storing the resulting state changes in its blockchain. Two of the critical differences from most general-purpose computers are that Ethereum state changes are governed by the rules of consensus and the state is distributed globally. Ethereum answers the question: "What if we could track any arbitrary state and program the state machine to create a world-wide computer operating under consensus?"

From the whitepaper:

"The intent of Ethereum is to create an alternative protocol for building decentralized applications, providing a different set of tradeoffs that we believe will be very useful for a large class of decentralized applications, with particular emphasis on situations where rapid development time, security for small and rarely used applications, and the ability of different applications to very efficiently interact, are important. Ethereum does this by building what is essentially the ultimate abstract foundational layer: a blockchain with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralized applications where they can create their own arbitrary rules for ownership, transaction formats and state transition functions… protocols like currencies and reputation systems can be built in under twenty [lines of code]. Smart contracts, cryptographic "boxes" that contain value and only unlock it if certain conditions are met, can also be built on top of the platform, with vastly more power than that offered by Bitcoin scripting because of the added powers of Turing-completeness, value-awareness, blockchain-awareness and state."

Smart contracts

From What is Ethereum? (EthHub):

"While the word "contract" brings to mind legal agreements; in Ethereum "smart contracts" are just pieces of code that run on the blockchain and are guaranteed to produce the same result for everyone who runs them. These can be used to create a wide range of Decentralized Applications (DApps) which can include games, digital collectibles, online-voting systems, financial products and many others."

From Chapter 7: Smart Contracts and Solidity of Mastering Ethereum:

"The term smart contract has been used over the years to describe a wide variety of different things. In the 1990s, cryptographer Nick Szabo coined the term and defined it as “a set of promises, specified in digital form, including protocols within which the parties perform on the other promises.” Since then, the concept of smart contracts has evolved, especially after the introduction of decentralized blockchain platforms with the invention of Bitcoin in 2009. In the context of Ethereum, the term is actually a bit of a misnomer, given that Ethereum smart contracts are neither smart nor legal contracts, but the term has stuck. In this book, we use the term “smart contracts” to refer to immutable computer programs that run deterministically in the context of an Ethereum Virtual Machine as part of the Ethereum network protocol—i.e., on the decentralized Ethereum world computer.

Let’s unpack that definition:

Computer programs

Smart contracts are simply computer programs. The word “contract” has no legal meaning in this context.

Immutable

Once deployed, the code of a smart contract cannot change. Unlike with traditional software, the only way to modify a smart contract is to deploy a new instance.

Deterministic

The outcome of the execution of a smart contract is the same for everyone who runs it, given the context of the transaction that initiated its execution and the state of the Ethereum blockchain at the moment of execution.

EVM context

Smart contracts operate with a very limited execution context. They can access their own state, the context of the transaction that called them, and some information about the most recent blocks.

Decentralized world computer

The EVM runs as a local instance on every Ethereum node, but because all instances of the EVM operate on the same initial state and produce the same final state, the system as a whole operates as a single "world computer.""

History of DeFi

"“In May 2018, Dharma hosted a meetup at the Polychain offices in San Francisco, called the ‘Decentralized Finance Meetup,'” Dharma co-founder Brendan Forster told CoinDesk this month.

It included all the early companies – the Maker Foundation, Compound Labs, 0x, dYdX, Wyre – and he said roughly 150 people showed. Forster credited the gathering with a dawning realization at the time that DeFi startups were a distinct “cohort” within the industry…

The name from that meetup – “decentralized finance” – stuck, because “decentralized” was more specific (and perhaps aspirational) than prior terms like “open finance” or “crypto-finance.”

Its shorthand, “DeFi,” had that double entendre with “defy.”"

Basics

CeFi v DeFi ( v TradFi)

"When using a traditional cryptocurrency exchange, such as Binance, Coinbase, or Kraken, users send funds to the exchange to manage them within an internal account. While funds are on the exchange, they are stored outside of users’ custody and are therefore vulnerable to threats in the event that the security measures put in place by the exchange fail."

"The most significant difference between DeFi and CeFi is custody of the underlying digital assets. CeFi platforms hold customer deposits and control the accrual and payment of interest. DeFi, for the most part, is non-custodial. Users lock their funds in smart contracts to access financial services. No company is holding their coins. Moreover, whether the person is in Zimbabwe or Los Angeles, no one can prevent them from accessing those services. Terrorists and financiers alike can obtain these services without the need to disclose their identity. Crypto purists argue that third party custody is anathema to the ethos of cryptocurrency. The “not your keys, not your coins” argument implores people to assume the responsibility of maintaining custody over their crypto assets."

CeDeFi(!) and Binance Smart Chain

DeFi newsletters, channels & podcasts

Information sources

Automated Market Makers

"You can think of an AMM as a primitive robotic market maker that is always willing to quote prices between two assets according to a simple pricing algorithm."

"Some use a simple formula like Uniswap, while Curve, Balancer and others use more complicated ones.

Not only can you trade trustlessly using an AMM, but you can also become the house by providing liquidity to a liquidity pool. This allows essentially anyone to become a market maker on an exchange and earn fees for providing liquidity."

THORChain

"THORChain is a Decentralized Liquidity Network. It facilitates cross-chain liquidity pools with no pegged or wrapped tokens...

Uniswap is a decentralized protocol for automated liquidity provision on Ethereum. The keywords here are on Ethereum. Uniswap does not facilitate cross-chain swaps. If you want to swap between an ETH or an ERC20 token and a token on another chain... you can't. This is why Uniswap, and every other Uniswap clone and on-chain DEX need "wrapped" (a.k.a. "pegged") tokens, like wBTC, to represent an asset from one chain to another.

Wrapped tokens are not native tokens, and in many cases, require trusting a centralized authority. Wrapped tokens are also tedious -- they require manual effort to wrap/unwrap, and more effort to exchange for the true underlying asset."

Aggregators

Money markets: Aave and Compound

"Aave is an algorithmic money market, meaning loans are obtained from a pool instead of being individually matched to a lender.

The interest rate charged is dependent on the "utilization rate" of the assets in a pool. If nearly all assets in a pool are used, the interest rate is high to entice liquidity providers to deposit more capital. If nearly no assets in a pool are used, the interest rate charged is low to entice borrowing.

Aave also allows users to take out loans in a different cryptocurrency than they deposited. For instance, a user may deposit Ethereum (ETH), then withdraw stablecoins to deposit into Yearn.finance (YFI) to earn a regular yield.

Like ETHLend, all loans are overcollateralized. This means that if one wanted to borrow $100 worth of cryptocurrency through Aave, they would need to deposit more than that amount.

Due to the volatility of cryptocurrencies, Aave includes a liquidation process. If the collateral you provide falls under the collateralization ratio specified by the protocol, your collateral may be liquidated. Note that a fee is charged in case of liquidations."

Decentralised stablecoins: Maker and DAI

From The Dai Stablecoin is a Game Changer for Ethereum and the Entire Cryptocurrency Ecosystem:

"Dai is a masterpiece of game theory that carefully balances economic incentives in the pursuit of one goal — a token that is continuously approaching the value of $1 USD.

When Dai is worth above $1, mechanisms work to decrease the price. When Dai is worth below $1, mechanisms work to increase the price. The rational actors that take part in these mechanisms do so because they earn money anytime Dai is not perfectly worth $1. This is why Dai is always floating slightly above or below $1 — it is an endless wave function bouncing infinitely close to $1, but never quite achieving it. The farther Dai goes from $1, the more incentive there is to fix it. This is the magic of Dai."

From Maker for Dummies: A Plain English Explanation of the Dai Stablecoin:

"The core smart contract at Maker is the CDP (collateralised debt position). Let’s use an analogy to describe these. Pretend you are at the bank asking for a home equity loan. You put up your house as collateral and they give you cash as a loan in return. If the value of your house decreases, they’re going to ask you to pay the loan back. If you can’t pay the loan back, they’re going to take your house. To bring this back to Maker, just replace your house with ether, the bank with a smart contract, and the loan with Dai. That’s all there is to it. You give the Maker CDP smart contract your ether and it lets you take out a loan in Dai. If the value of your ether goes below a certain threshold, you either have to pay back the smart contract as you would a bank or it will auction off your ether to the highest bidder."

Why DAI?

From The Dai Stablecoin is a Game Changer for Ethereum and the Entire Cryptocurrency Ecosystem:

"Some may ask why you need something like Dai at all. Doesn’t Tether already fulfill the purpose of a dollar-denominated token? My answer is that Tether, or any other centralized stablecoin, can be hacked, shutdown, steal your money, and is always operating at the whims of politics and human fallibility."

No individual person or company has control over it.

No government or authority can shut it down.

Price stability mechanisms

The basic market logic:

When the price of DAI rises above $1, ETH holders are able to create DAI for just $1 and sell it for more than $1. This incentivises the creation of DAI, and pushes the price of DAI back down towards $1.

When the price of DAI drops below $1, those who already have a CDP can pay down their debt at less than $1. This gives them a discount on their loan, and ensures DAI will be destroyed when necessary to move the price back up towards $1.

Other mechanisms include varying the liquidation​ ratio and stability fee.

Oracles: Chainlink and Band

"Smart contracts automate agreements on the blockchain. They evaluate information, and if certain conditions are met, they execute. However, this presents a problem.

Blockchains don’t really have a good way to access external data. The difficulty of connecting off-chain data with on-chain data is one of the great challenges facing smart contracts.

Chainlink attempts to solve this problem by providing a decentralized oracle service. In short, an oracle is a piece of software that translates external data to a language that smart contracts can understand (and vice versa)."

Synthetics: Synthetix and Mirror

"Synthetix is a protocol for issuing and trading synthetic assets (Synths) on the Ethereum blockchain. Each Synth is an ERC-20 token that tracks the price of an external asset. For example, each sUSD token tracks the price of the US dollar while sBTC tracks the price of BTC. In principle, the system can support any asset with a clear price and provides on-chain exposure to an unlimited range of real-world assets.

Synths are collateralized with the Synthetix Network Token (SNX). The platform utilizes a pooled collateral model that enables users to perform conversions between Synths directly with the smart contract, avoiding counterparty risks as well as liquidity and slippage issues experienced by many decentralized exchanges (DEXs). Synthetix currently supports synthetic fiat currencies, cryptocurrencies (long and short), commodities, and equities."

Yield farming (liquidity mining)

 

A token is only worth something if you can swap it for something else (valuable!)

From What Is Yield Farming in Decentralized Finance (DeFi)?:

"Governance tokens grant governance rights to token holders. But how do you distribute these tokens if you want to make the network as decentralized as possible?

A common way to kickstart a [blockchain project] is distributing these governance tokens algorithmically, with liquidity incentives. This attracts liquidity providers to “farm” the new token by providing liquidity to the protocol."

From What Is Yield Farming? The Rocket Fuel of DeFi, Explained:

"Liquidity mining as we now know it first showed up on Ethereum when the marketplace for synthetic tokens, Synthetix, announced in July 2019 an award in its SNX token for users who helped add liquidity to the sETH/ETH pool on Uniswap. By October, that was one of Uniswap’s biggest pools."

Parallels with platform co-operativism

Homework

Optional: Unstake your LP tokens and instead stake them in the Beefy ETH-DEFI5 vault to benefit from autocompounding

Read/watch the following:

SEEDS:

Celo:

Regen Network:

Proof of Humanity:

Circles:

DAOs:

Recording

https://zoom.us/...

Passcode: 82PAEa!z

Session 3: ReFi and DAOs

Beyond DeFi: ReFi (regenerative finance)?

SEEDS

SEEDS is a new, global, blockchain-based payment platform and currency designed to incentivise and reward behaviours by individuals, companies and communities that support an equitable and ecologically regenerative civilisation.

No one person or organisation is behind it; it is collectively owned by the holders of the SEEDS currency, and run by a decentralised team of hundreds of individuals across the globe.

Over the next 12-18 months, SEEDS intends to reach price stability relative to purchasing power. To maintain this price stability as the SEEDS economy grows further, new SEEDS will need to be minted. How these newly minted SEEDS are spent will be decided via a participatory budgeting process. Any user of SEEDS can make a proposal, and all 'citizens' of SEEDS vote on which proposals are funded.

A version of this participatory budgeting process is already up and running, and has resulted in the distribution of 50m SEEDS (currently worth £1m) to more than 60 different projects worldwide. Examples of funded projects and organisations include:

Celo

"Currently, the world’s financial system excludes roughly 1 in 3 adults. At the same time, 6 billion smartphones will be connected by 2020 as these devices spread throughout emerging markets. Cryptocurrencies accessible on mobile phones hold great promise in bringing financial inclusion to the world’s underbanked.

Despite this potential, cryptocurrencies have still not significantly impacted these populations over the last 10 years. Using cryptocurrencies is still much too complex for the average person and price volatility makes them undesirable for merchants to accept as payment. Additionally, blockchain networks are often inaccessible to unbanked and underbanked populations due to data constraints from their mobile providers.

Inspired by extensive research in emerging markets and developing countries — Tanzania, Colombia, Argentina, Mexico, the Philippines, and Kenya — Celo is building a mobile-first blockchain platform alongside a suite of financial tools accessible to anyone with a basic smartphone. On this platform, value can be transferred faster and cheaper than traditional bank wires using globally accessible technology. Since cryptocurrencies are completely programmable, a wide array of financial services can be created without costly intermediaries."

5 potential innovations on money presented by Sep:

  1. Universal Basic Income
  2. Demurrage (decay in value encouraging circulation)
  3. Natural capital backed currencies
  4. Ecology of money: local, regional, national, sectoral
  5. Debt-free money

Proof of Humanity UBI

"UBI is the first application to be built on top of the Proof of Humanity registry, an anti-Sybil attack tool designed by Kleros.

The UBI token will be streamed directly to an Ethereum address as long as it gets verified as a human in the Proof of Humanity registry and starts the accrual process, establishing a fair and ongoing distribution model. It will provide universal access to liquidity that serves to inhibit financial coercion of public decisions and will be tradeable in all open markets…

The value of UBI resides in its innovative fair distribution system based on human time. Such value is bound by two natural limiting factors: time [limited to 24 hours in a day] and population [limited to the number of humans on Earth].

This currency scales with population and is bound by the time such population exists. $UBI is a ‘missing currency layer’ necessary to put a value on time, and do so in an open, global market.

While we can't predict what the global market will determine as the fair market value of time, we can find some guideposts in existing fiat markets. For example, the minimum wage in the United States is $7.25. By transacting with UBI, you will effectively be “buying someone’s time”."

Circles UBI

"Circles is an alternative economic system that acts a bit like a basic income. Rather than wait for someone else, we can build our own economic systems to support each other, and in effect, give each other a basic income. Circles is intended to be a new kind of exchange, completely different than any kind of money in use today. It comes unconditionally, and grows in value based on communities. Circles tokens move through communities through ‘trust connections’.

The goals of this are to foster local economic interactions, and to value those things which are not seen, are invisible, or are not valued under our current system. Circles is building new networks to acknowledge those fundamental things that in the current system don't have a euro value."

Regen Network

"We bring together two cutting edge technologies: satellite driven earth observation science, and blockchain technology, to create the foundation of a new digital monitoring, reporting and verification system for ecological health."

DAOs, DHOs & DisCOs

From What is participatory budgeting? A 60-second guide:

"Participatory budgeting comes in all shapes and sizes, but basically it looks like this:

  1. Ideas are generated about how a budget should be spent
  2. People vote for their priorities
  3. The projects with the most votes gets funded"

Online tool for participatory budgeting:  Cobudget 

"Cobudget is a tool and a methodology that makes resource allocation participatory. It enables all members of an organization to get involved in decision-making by proposing projects and allocating funds to the proposals they like."

From Aragon's What's a DAO?:

"A DAO is an internet-native entity with no central management which is regulated by a set of automatically enforceable rules on a public blockchain, and whose goal is to take on a life of its own and incentivize people to achieve a shared common mission."

From Decentralized Autonomous Organization (DAO), Binance Academy:

"While the idea of decentralized organizations is not new, using smart contracts to automate some of their working mechanisms and functionalities is what makes DAO a useful and interesting concept."

DAOs allow people to:

What are DAOs good for?

From DAOHaus

DAO platforms

DAOs allow the separation of voting and economic rights

DAOHaus DAOs (and other Moloch v2 DAOs) clearly differentiate between voting rights (which they call just 'shares') and economic rights (which they call 'Loot'):

"To allow the DAO to issue non-voting shares, we introduce the concept of Loot. Just like shares, Loot is requested via proposal, issued to specific members and non-transferrable, and can be redeemed (via ragequit) on par with shares for a proportional fraction of assets in the Guild Bank. However, Loot does not count towards votes and DAO members with only Loot will not be able to sponsor proposals or vote on them."

You can think of DAOs as blockchain-based steward ownership/multi-stakeholder co-operatives

Steward-ownership structures commit companies to two key principles:

  1. Self-governance: For-profit businesses are often beholden to the interests of shareholders who aren’t involved in the operation or management of the business. Steward ownership structures keep control with the people who are actively engaged in or connected to the business. Voting shares can only be held by stewards, i.e., people in or close the business, and the business itself can never be sold.
  2. Profits serve purpose: For steward-owned companies, profits are a means to an end, not an end in and of themselves. All the profits generated by the company are either reinvested in the business, used to repay investors, shared with stakeholders, or donated to charity.

(from Steward-Ownership: Rethinking ownership in the 21st century)

Relationship to Teal & holocracy

From 11 Practical Steps Towards Healthy Power Dynamics at Work

"You may work in a highly decentralised company, but if there is someone with the authority to unilaterally decide that you don’t work there anymore, your power dynamics will always be out of balance. If someone has the power to fire you, they will use that leverage to force your compliance whenever they think it is necessary. That’s a fundamentally coercive environment…

My concern is that words like “non-hierarchical” and “self-organising” [can] create a smokescreen, masking the real power dynamics that are ultimately determined by the ownership structure."

From Ownership (Reinventing Organisations Wiki):

"Generally, for-profit Green organizations do not have a different ownership structure than Orange organizations."

On Teal ownership structures:

"A much older but still somewhat rare structure is the cooperative, where ownership is placed with members (consumer cooperative) and/or employees (worker cooperative). However, while these organizations are presumably freed from a strict pursuit of profit, their purpose is to serve a single stakeholder group."

– with the implication that multi-stakeholder co-operatives/DAOs are a suitable ownership form for Teal organisations

"Holacracy has drafted a constitution that a board can adopt and make binding, even to future shareholders. It gives shareholders a legitimate say in finance matters, but prevents them from unilaterally imposing a strategy, or from reverting to traditional management practices. Holacracy has done the legal footwork to make its constitution fit within US corporate law, and it is currently adapting the constitution to legal systems in other countries."

i.e. separation of voting and economic rights = multi-stakeholder co-ops/DAOs

Blockchain-Based Limited Liability Companies (BBLLCs)

Limited companies, owned by DAOs – a bridge between the legacy legal and crypto worlds

From Blockchain Companies Should Be Banging Down the BBLLC Doors:

"The blockchain provides an incredible opportunity for changing the way organizations operate. There is an explosion of thinking about how to structure productive interaction, how to bring people together to accomplish something. In terms of company formation, the blockchain is allowing a whole new universe of ways to structure things: more loosely, with more participation, where people are polled immediately, where an entity can accumulate votes, assign different values to things, or distribute rewards automatically. Things that used to be hard to do in terms of direct tracking of participation are now made easy.

But if those organizations exist outside legacy legal frameworks, these innovative companies could find themselves forced into structures they didn’t choose with results that are disastrous for their continued existence.  Don’t fight the law – find a way to engage it intentionally, and take advantage of opportunities like the Vermont BBLLC that will help you mold the law to support the innovation you are so good at creating."

Homework

Session 4: DePsy & Dandelion Gatherings

'DePsy': Decentralised Psychedelia

Psychedelics 'decentralise' the brain

"As the highest level of a functional hierarchy, [the default mode network] serves as a central orchestrator or conductor of global brain function."

"Psychedelics are possibly the most immediate and profound way to reduce the control of the DMN over the mind. Neuroimaging studies have consistently shown that psychedelics like LSD and psilocybin significantly reduce DMN activity and that this correlates with the experiencing of ego-dissolution (or losing the sense of self)."

Psychedelic capitalism

Dark Net marketplaces

Technology has transformed psychedelics – and vice versa

"With Apple founder Steve Jobs calling LSD “a profound experience, one of the most important things in my life,” and early employees of countless tech companies echoing the sentiment, it should be no surprise that the tech revolution has transformed the psychedelic scene, too. Launched in early 2011, the encrypted drug marketplace Silk Road became the first major dark-net market. In turn, it was the sale of drugs, including hard-to-get psychedelics, that helped power the rise of the virtual currency bitcoin, with drugs once again having an impact on the history of the internet.

Replacing festivals and concerts as a method for wholesale drug distribution, some have argued that the cryptomarkets have made drug acquisition safer for users, less likely to put buyers in potentially violent situations. It also makes users more likely to know what they’re getting, with groups like the Darknet Market Avengers testing the quality of the drugs available from various vendors, providing Yelp-like ratings, and acting as ad-hoc risk reduction services. Though Silk Road shut down following high-profile busts in in 2013, numerous other marketplaces sprung up to take its place."

 

From the light of freedom to a concrete tomb,

The fall was great and swift.

My soul cried out in a mighty boom,

How could it come to this?

Clamped down, trapped stuck,

Paralyzed in a tiny cage.

Had fate left me not a drop of luck?

Was there reason for this rage?

Told to lay down and die,

Something deep inside me stirred.

I can’t be caged, I have to fly!

Not yet am I interred.

They can take my body, tie me down,

It matters not a bit.

My spirit still runs wild and free,

So in freedom here I sit.

Mushroom growing

Oliver Merivee and Jasper Degenaars from Fungi Academy

Cryptopsychedelia

Nowhere and the Borderland: European Burner Culture

The dark side of Burning Man: a marketplace for social capital?

"My hypothesis would be that Black Rock City is actually an extremely dynamic market for social capital, an environment where the exchange rate of financial capital to social capital is extremely favorable. Commissioning extravagant art, camps or art cars probably increases your chances a lot to gain social capital.

If this is the case, we find ourselves in a schoolbook example of Marxist theory – capital attracts more capital. In this case, social capital is bought for financial capital where it is cheap - much because of the contributions of tens of thousands of participants. This social capital can then be used to acquire more financial capital later."

Dandelion gatherings

Dandelion's Gatherings feature was first invented to help make organising camps at European Burning Man events Borderland and Nowhere easier and more fun. It also works well for stand alone co-created gatherings/conferences of up to a few hundred people.

That's a wrap!

Thanks for participating in the first Promise of Decentralisation course.

You will receive a feedback form tomorrow morning. Your feedback is much appreciated (the more honest and detailed the better).

Feel free to subscribe to my newsletter to hear about future courses and events: http://stephenreid.substack.com/

Best wishes,
Stephen

Recording

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