I did a bunch of mechanism design on the details of #1 alongside the Impact Markets people!
Key desiderata:
Low overhead for participants in the market—Incentivising these people to spend lots of brainpower trying to work out when you buy and sell is massively suboptimal. You want a system that is buy and forget and just works.
Minimize hard feelings around selling your cert at a loss or seeing equivalent ones go for a very low price—Related to your #II—C
Impact authors automatically get some fraction of the rewards of a very successful project[1]
Ability to buy into certificates for flexible amounts, with minimal hassle and handling scaling well
We converged on the below model if there is a payments platform like FTX to automate microtransactions (crypto or not), and a different one which has slightly less nice properties but requires less payouts per pay-in. I can write that one up too if wanted.
Awesome Auto-Auction (better name welcome)
The core innovation is the queue of impact slices, with a “head” of buyouts moving along the queue as new money comes in.
Ownership of certificates in an auto-auction is divided into a series of slices, from earliest (the initial entry creating the auction), through all previous holders of slices of ownership, to the current owners’ slices.[2]
There is no action required to sell or decisions about price, the only available move is to buy and the only decision is how much you want to buy. When someone buys into a cert, the incoming money is split into three streams:
Creator—Directly to the impact creator
Capital repayment—Returning the capital to current holders of the cert and buying out their slice, with no opportunity for profit
Royalty—Giving profit to investors who have already been bought out, in proportion to the amount they raised price by (incentivising people to be early investors and raise the price)
Let’s look at an example of how this plays out with a $1000 purchase into a cert, with a 25% / 30% / 45% split.[3]
Some set % goes to the original creator (100% if they have not yet got their asking price, optionally held by an assurance contract until met), some goes to paying back the money current owners put in to buy their slices (with the oldest current owner getting priority), and some as a trickle income profit to already bought-out investors who funded the cert earlier in proportion to how much they raised the price (as a %) divided by the total amount that bought out investors raised the price (the %s added together).
I made a spreadsheet which you can copy to play around with split proportions and buy events and see how the money ends up distributed among the three groups at different investment levels.
This might sound complicated, but can be made very straightforward to operate and understand with a UI which lets buyers predict how much would be paid out by their purchase at any future level of total investment in the cert. This could work something like:
This mechanism seems to thoroughly succeed at all the desiderata, and would I think make impact markets much lower friction than other proposed market mechanisms (and as a bonus transitions smoothly into #5E!).
Edit: Also might well help with some of the concerns raised in the reddit thread, as I think the action “sell” has weird emotional connotations in this domain which this mechanism might bypass.
I would be happy to have calls with anyone who might want to turn it into a reality.
I come down on the “doing good should be a route to increasing wealth” side of #4, with the caveat that I’d like to see this happen not as a big sell off type event where a final funder directly buys impact from someone who has already got plenty back, but as an ongoing royalty stream which any funder can top up if they liked the project and is split fairly among investors and creators.
If using crypto, each individual’s NFT represents the combination of all their blocks of ownership, and indicates both how large a share of the NFT they currently own and their share of past ownership visually in an unobtrusive manner (likely a thin bar, with two colors).
The split can either be determined by the creator as they add the cert to the market, or we could just pick reasonable defaults and everyone sticks to that.
I did a bunch of mechanism design on the details of #1 alongside the Impact Markets people!
Key desiderata:
Low overhead for participants in the market—Incentivising these people to spend lots of brainpower trying to work out when you buy and sell is massively suboptimal. You want a system that is buy and forget and just works.
Minimize hard feelings around selling your cert at a loss or seeing equivalent ones go for a very low price—Related to your #II—C
Impact authors automatically get some fraction of the rewards of a very successful project[1]
Ability to buy into certificates for flexible amounts, with minimal hassle and handling scaling well
We converged on the below model if there is a payments platform like FTX to automate microtransactions (crypto or not), and a different one which has slightly less nice properties but requires less payouts per pay-in. I can write that one up too if wanted.
Awesome Auto-Auction (better name welcome)
The core innovation is the queue of impact slices, with a “head” of buyouts moving along the queue as new money comes in.
Ownership of certificates in an auto-auction is divided into a series of slices, from earliest (the initial entry creating the auction), through all previous holders of slices of ownership, to the current owners’ slices.[2]
There is no action required to sell or decisions about price, the only available move is to buy and the only decision is how much you want to buy. When someone buys into a cert, the incoming money is split into three streams:
Creator—Directly to the impact creator
Capital repayment—Returning the capital to current holders of the cert and buying out their slice, with no opportunity for profit
Royalty—Giving profit to investors who have already been bought out, in proportion to the amount they raised price by (incentivising people to be early investors and raise the price)
Let’s look at an example of how this plays out with a $1000 purchase into a cert, with a 25% / 30% / 45% split.[3]
Some set % goes to the original creator (100% if they have not yet got their asking price, optionally held by an assurance contract until met), some goes to paying back the money current owners put in to buy their slices (with the oldest current owner getting priority), and some as a trickle income profit to already bought-out investors who funded the cert earlier in proportion to how much they raised the price (as a %) divided by the total amount that bought out investors raised the price (the %s added together).
I made a spreadsheet which you can copy to play around with split proportions and buy events and see how the money ends up distributed among the three groups at different investment levels.
This might sound complicated, but can be made very straightforward to operate and understand with a UI which lets buyers predict how much would be paid out by their purchase at any future level of total investment in the cert. This could work something like:
This mechanism seems to thoroughly succeed at all the desiderata, and would I think make impact markets much lower friction than other proposed market mechanisms (and as a bonus transitions smoothly into #5E!).
Edit: Also might well help with some of the concerns raised in the reddit thread, as I think the action “sell” has weird emotional connotations in this domain which this mechanism might bypass.
I would be happy to have calls with anyone who might want to turn it into a reality.
I come down on the “doing good should be a route to increasing wealth” side of #4, with the caveat that I’d like to see this happen not as a big sell off type event where a final funder directly buys impact from someone who has already got plenty back, but as an ongoing royalty stream which any funder can top up if they liked the project and is split fairly among investors and creators.
If using crypto, each individual’s NFT represents the combination of all their blocks of ownership, and indicates both how large a share of the NFT they currently own and their share of past ownership visually in an unobtrusive manner (likely a thin bar, with two colors).
The split can either be determined by the creator as they add the cert to the market, or we could just pick reasonable defaults and everyone sticks to that.