Thanks for this incredibly comprehensive overview!
I’d like to use this chance to position our GoodX project “Impact Markets” in this context. (Thanks for linking to our MVP post!) I’m trying to write this in a way that is also understandable to people who haven’t thought about impact markets much, so sorry in advance if some of it is unnecessarily verbose.
Our main selling point is simply that altruists are more likely to have some sort of investor in their network (because there are countless ones ) than to have a funder in their network who we would trust (because there are like half a dozen or so – Open Phil, the Future Fund, the EA Funds, the SFF, et al.). Hence, to a funder, the altruist is going to succeed with the baseline probability of some suitably chosen reference class – say 10%. But to the investor, who has more knowledge of their altruistic friend, they are more likely to succeed – say 20%. There are also reasons to think that the investor can make the altruist succeed at a lower cost than the funder. The result is that the funder and the investor can find a reward size that saves the funder money and time (they don’t need to negotiate this in each case) and yet earns the investor a profit.
An added benefit is that funders can hire a wider range of staff. These staff still need to be excellent at priorities research or at applying priorities research, but they don’t need to be excellent at startup picking anymore.
What Is The Basic Format Of The Market?
We want to implement these in a sensible order, from simple to complex. We haven’t considered “block” impact certificates outside an early experiment, so they’re all considered to be fractional in our case.
If “block” certs are legally easier, that could be a reason to rethink that! Our vision for where impact markets might go is that they integrate with the classic financial market: Think tanks (incorporated as, say, public benefit corporations) issue impact certificates, generate a profit from their sale, and control their stock price with the profits, e.g., by paying dividends or doing buybacks. All the investment happens on the level of the classic stock of the think tanks. The impact certificates are just extremely simple products, consumables, that are so simple that it is dead obvious to the SEC that they are not securities. Our (Owen’s) metaphor is (consumable) bottles of wine.
This seems to us like it would make impact markets hard to use for independent researchers (the main audience we have in mind for issuers) because they would have to first start a corporation for their blogs. But maybe there are ways around that. (Maybe accredited investors can invest into the stock of unincorporated associations.)
Note that this consideration (the previous two paragraphs) is much more fundamental than the question whether certs should be fractional or not. It just relates to the question if non-fractional certs are legally easier. But if the investment happens on the level of classic stock anyway, then impact certs could also be issued retroactively, which makes them legally unproblematic according to what we’ve heard from the lawyers we talked to.
Note also that one of our cofounders, Dony, has thought a lot about dominant assurance contracts in the past. I remember him thinking about how they might combine with impact markets. That’s an interesting angle (dominant or not), but not one we’ve prioritized yet.
What Is Being Sold?
We want to keep it simple and so only focus on the core idea of making the “startup picking” part of funding delegatable. For that, the finer points of the metaphysical significance of impact purchases don’t matter. It just matters that there is a trusted retro funder that provides a prize pool and makes good decisions on what projects to reward. We want to leave the philosophy to philosophers or culture to figure out over time. (I can see that these are interesting questions, but I don’t think that that’s where the big counterfactual impact is.)
This sounds similar to what you write under “Credit for funding the project.” But I at least have moved away from the term “moral credit” for this because while some people interpret it simply as “I can get money for holding this contract,” others again interpret metaphysical significance into it (and in various conflicting ways too).
The funders that we envision serving with our solution are funders like the EA Funds, Open Phil, the Future Fund, et al., who are only interested in the counterfactual impact and not in being seen as virtuous by others or by God or some other variation.
We call what our certs certify a “right to retroactive funding,” so a right that is completely limited to only the entitlement to some share of the prize pool to the extent to which it is awarded to the project. (We want to eventually make it possible for people to attach other rights to their certificates, such as “bragging rights” if they so choose, but it’ll be up to them to define how that should work. This agnosticism about the rights that people attach to certs is just an implication of our using the Hypercertificate standard. The author of the Hypercertificates standard, David Dalrymple, and Protocol Labs are working on a solid, standards-based implementation of impact markets that we want to be compatible with.)
Another way to think about it is that if currently someone enters an article that they’ve written into a prize contest, then they can win a prize. If they’ve collaborated with five others on the article, they can agree to split the prize among themselves if they win it. They can (if they all so choose) make that agreement without ever clarifying the metaphysical significance of their agreement.
How Should The Market Handle Projects With Variable Funding Needs?
We’re going for the second solution from your list here because we put a strong emphasis on the precision and verifiability of impact certificates. This has various reasons:
we want impact certificates to be like products that charities can sell and that investors can preorder,
we want to make it easy for buyers to verify that the impact is not doubly sold under different framings, and
we want to make it easy for buyers to verify that the set of issuers is complete according to strong cultural norms.
So “cure malaria in Senegal” is not a definition of an impact cert that would work on our market. It doesn’t have enough details about the concrete actions that’ll be taken, it doesn’t make clear that the issuers really owns the cert to the extent that they claim, etc.
Instead something like this could work: “We want to collaborate with Concern Universal on a distribution of 5 million long-lasting insecticide-treated bednets in the Matam region of Senegal between Jan. 1, 2023 and Apr. 1, 2023. We currently own 60% of the certificate; Concern Universal owns 40%. The census, the distribution, and the follow-up surveys are conducted by paid staff of Concern Universal who have forfeited any claim to the certificate in their work contracts. No one else, to our knowledge, can make a legitimate claim to the certificate.”
This clarifies ownership, timeframe, location, scope, etc. The organization would sell scores or hundreds of such certificates that can all follow a standard template.
Unrelatedly, I don’t think this impact certificate would work: LLIN distributions are an intervention that is highly likely to work. Funders may assign a 90% chance to their success; a highly involved investor might assign a 95% chance to the success. That gives the investor a very, very minimal edge over the funder. The funder would likely consider it unnecessary overhead to use impact markets for this, or, if they do end up using them, they’ll pay very little over the counterfactual prospective funding for the very slightly reduced risk. That’ll not be enough for the investor to beat some counterfactual investment like a standard ETF. That’s in contrast to hits-based giving where funders often assign a 10% chance of success, which leave a lot of (multiplicative) room for highly involved investors to be more optimistic.
Should Founders Be Getting Rich Off Impact Certificates?
We haven’t thought about this much and would love to be convinced one way or the other.
But if there are projects that everyone recognizes as good, then an impact marketplace will shift the surplus from final oracular funders (who are forced to pay prices more commensurate with their benefits) to someone else. If we let founders get rich, it shifts the surplus to founders. If we don’t let founders get rich, it shifts the surplus to fast investors who may not have added any value—that is, to the first people who snapped up the obviously-underpriced certificates. See Section 7 for more on this problem.
I don’t have a good solution to this latter issue other than either not using impact markets, or allowing founders to get rich. I sketch a hack-ish solution in Section 11C.
My take is basically the first, i.e. that impact markets won’t be used for projects where it doesn’t make sense for both sides (investors/founders and funders) to use them. These will just continue to use prospective funding. This just seems like a brute fact of the preferences of the market actors and not like something that is under the control of the marketplace at all.
Some more elaboration in case it’s not clear what I mean (but it probably is): Funders will pay as little as they can get away with paying. They may start by offering prizes that are just slightly more than what they would’ve paid prospectively for a single project (with, say, a 10% chance of success). Maybe no investor will be interested. Then they’ll raise their bid slightly again and again until investors start to be interested and the first few projects actually get funded from investor money. But this is still strictly less than what the funders would’ve otherwise paid in total for prospective funding. Sure, some of that money goes to investors who can buy yachts from it, but the counterfactual is not that that money would’ve gone to beneficiaries but that it (and more) would’ve gone to failed projects.
Or in made-up numbers: In the prospective-funding world, a funder pays out a total of $1m to 100 projects ($10k each), 10 of which succeed. In the retrospective world, the funder pays out $800k to 10 projects ($80k each), all of which have succeeded. These $80k are maybe split $40k to the founders and $40k to the investors, so that one could say that $40k or more have gone to waste in some sense. But that’s compared to a counterfactual that was never attainable in the first place. More realistically, the funder achieved the same impact while saving $200k that can now go to more projects to help beneficiaries.
Unrelatedly, established charities (as opposed to independent researchers or startup charities) often have track records that make impact markets redundant (see above) or have 18+ months of runway that retro funding would funge with, so that, one way or another, funders are probably not very interested in using impact markets for them.
If impact markets were “a success”, they might have to more than dectuple the amount they pay this person, with no change to their output.
Realistically, I think, a funder wouldn’t just dectuple the investment but would try to pay as little as possible that is just enough to incentivize the creation of this researcher. By construction, the six-figure salary (say, $200k) is not enough to create an additional engineer, but maybe $300k is enough, in which case the funder would bid $300k, not $10m. Of course it could just so happen that the only price that incentivizes the creation of another researcher is no less than $10m, but then the counterfactual is not another researcher for $200k but no researcher at all.
Again the funder is well-advised to keep their true valuation of the impact (if they can come up with such a thing) a secret and just bid as low as they can get away with. (Just like when you buy a second-hand laptop. You may privately decide that you’ll bid up to $1k for it and yet start by bidding $100 because it might just be enough to convince the seller to part with the laptop.)
Admittedly, the current AI safety researchers may get greedy and try to use whatever leverage they have to get more money, but they could do that already.
How Do We Kickstart The Existence Of An Impact Market?
The Committed Pot of Money is the main or most fundamental solution we have in mind. The lower-down solutions are more powerful and they may be the desirable end states but they also come with risks that we’re wary of.
If I put myself into the shoes of an early investor on the Committed Pot of Money impact market, I don’t model myself as judging my chances to break even as a random draw. Rather, by buying in early I can buy more at a lower price, so that I later have an outsized share in the expected returns compared to later investors. But I also have an opinion on what the retro funder will value, and that model has a much stronger effect on my subjective expected returns than the amount that has been invested in total in all projects.
(If I buy SOL tokens at $5 because I think Solana is a great technology with a high success chance, I don’t start to think that Solana is going to be much less successful only because there is heavy investment into Solana and many other technologies. I’ll Aumann-update a bit on all the investments into Avalanche, Cardano, etc., but not overwhelmingly much.)
Should The Market Use Cryptocurrency?
My thoughts: Crypto-literate reviewers say that crypto exchanges take fiat and handle transactions within themselves in a non-crypto way—but then the crypto exists in case someone wants to bring it to a different exchange. This seems like a best of both worlds scenario.
Agreed. Plus we can just start with simple non-crypto solutions and keep all other options open in case there are eventually strong arguments to transition to something more like FTX (centralized) or Serum (decentralized).
How Should The Market Price IPOs?
We have an auction process that A Donor developed for us (see A Donor’s comment) that, we think, solves B neatly. We haven’t implemented it yet. (It is based on the view that it is desirable to reward people for aiding a fast price discovery.)
How Should The Oracular Funder Buy Successful Projects?
We’ve considered both – buying shares immediately if possible or creating the funding floor of limit orders. For now we’re going with the first solution simply for simplicity, but I definitely see the appeal of the second.
What Should The Final Oracular Funder’s Decision Process Be?
My thoughts: Guess this one is up to the final oracular funders.
Agreed. And by implication I think it’ll be an auction where the funders bid as little as they can get away with paying and only bid more if they don’t observe enough projects getting started or invested in.
Who Are We Expecting To Have As Investors?
My thoughts: Institutional types probably won’t bite for a little while, so we’ll need to be prepared for ordinary people.
Agreed. Plus, institutional types are again fewer and have to optimize more for scale, which causes them to suffer from some of the same problems that funders currently suffer from. Investors should rather be the sort of people who are sufficiently many and sufficiently unconstrained by scale that every independent researcher or startup entrepreneur can so happen to know one or two of them quite well.
It’s apparently now possible to become an accredited investor by passing an exam, which lowers the bar. But impact certs as we conceive of them can be consumed (or “dedicated” or “burned”) by altruists, which plausibly turns them into consumables. Consumables, such as wine, can also be preordered and resold. I find it plausible that impact certs are so much more like wine and so much less like stock that they are not securities in the eye of the law or the SEC. Plus, all of this is easier in many countries other than the US and UK.
Conclusion: What Kind Of Impact Market Should We Have?
I think the above has elucidated the design that we’re interested in. It’s similar to the “Maximum Capitalism” design but without the metaphysical bits about “losing credit” and such. The founders have done their work, and if they (maybe unwisely) elected to sell 100% of their impact cert, they’ve still done their work and can get their recognition and kudos for it. (For comparison, if I start a successful startup and make an exit, I can still claim to have started a successful startup and get the reputational benefits.)
Issues Around Unregistered Securities
We have talked with lawyers about this and people with more experience with quasi impact markets. The devil is in the details. There are various ways to avoid the impression that impact certs are securities – as mentioned above, we conceive of them like bottles of wine that can be preordered, stored, resold, and consumed – but we don’t yet have full legal clarity on the issue.
Issues Around Tax-Deductability
In our view, investing in impact certs should not be tax-deductible. It’s done with a profit motive. But consuming the certificate is something that is altruistic, and it would make sense to see to it that that is tax deductible. We envision one potential system where you have the option to do all your cert trades through a nonprofit. The nonprofit just executes all your deals on your behalf. So long as you haven’t consumed your certs, the nonprofit does nothing else. But once you consume a cert, that nonprofit (not the issuer of the cert) writes the donation receipt for you.
Issues Around Oracular Funders’ Nonprofit Status
There may be larger prize contests (such as the XPrize) organized by nonprofits. One could research those to look for legal precedents.
Issues Around Governance And Principal-Agent Problems
Agreed.
Issues Around Middlemen Holding Money
We’re currently planning to let people transact directly with each other to avoid these questions for the time being to be lean and all.
Attributed Impact (mentioned in the linked document ) also addresses moral trade, the lack of which I consider an even greater problem as well as a superset that contains the problem of the distribution mismatch.
Using Impact Certificates For Evil
The above document also addresses this.
Incentivizing Reward-Hacking
That is an interesting failure mode to look out for.
People Could Lose A Lot Of Money
I think we should promote a norm that people shouldn’t invest any money in impact certificates that they don’t want to lose. Otherwise, I’m not sure this is any worse than eg crypto, which already lets small investors lose all their money quickly.
Agreed. A marketplace could also set a default limit on investments and only raise it for investors who have somehow proven that they are financial savvy. Only allowing accredited investors to invest would have that effect, though it may be a bit too exclusive.
Thanks for this incredibly comprehensive overview!
I’d like to use this chance to position our GoodX project “Impact Markets” in this context. (Thanks for linking to our MVP post!) I’m trying to write this in a way that is also understandable to people who haven’t thought about impact markets much, so sorry in advance if some of it is unnecessarily verbose.
Our main selling point is simply that altruists are more likely to have some sort of investor in their network (because there are countless ones ) than to have a funder in their network who we would trust (because there are like half a dozen or so – Open Phil, the Future Fund, the EA Funds, the SFF, et al.). Hence, to a funder, the altruist is going to succeed with the baseline probability of some suitably chosen reference class – say 10%. But to the investor, who has more knowledge of their altruistic friend, they are more likely to succeed – say 20%. There are also reasons to think that the investor can make the altruist succeed at a lower cost than the funder. The result is that the funder and the investor can find a reward size that saves the funder money and time (they don’t need to negotiate this in each case) and yet earns the investor a profit.
An added benefit is that funders can hire a wider range of staff. These staff still need to be excellent at priorities research or at applying priorities research, but they don’t need to be excellent at startup picking anymore.
What Is The Basic Format Of The Market?
We want to implement these in a sensible order, from simple to complex. We haven’t considered “block” impact certificates outside an early experiment, so they’re all considered to be fractional in our case.
If “block” certs are legally easier, that could be a reason to rethink that! Our vision for where impact markets might go is that they integrate with the classic financial market: Think tanks (incorporated as, say, public benefit corporations) issue impact certificates, generate a profit from their sale, and control their stock price with the profits, e.g., by paying dividends or doing buybacks. All the investment happens on the level of the classic stock of the think tanks. The impact certificates are just extremely simple products, consumables, that are so simple that it is dead obvious to the SEC that they are not securities. Our (Owen’s) metaphor is (consumable) bottles of wine.
This seems to us like it would make impact markets hard to use for independent researchers (the main audience we have in mind for issuers) because they would have to first start a corporation for their blogs. But maybe there are ways around that. (Maybe accredited investors can invest into the stock of unincorporated associations.)
Note that this consideration (the previous two paragraphs) is much more fundamental than the question whether certs should be fractional or not. It just relates to the question if non-fractional certs are legally easier. But if the investment happens on the level of classic stock anyway, then impact certs could also be issued retroactively, which makes them legally unproblematic according to what we’ve heard from the lawyers we talked to.
Note also that one of our cofounders, Dony, has thought a lot about dominant assurance contracts in the past. I remember him thinking about how they might combine with impact markets. That’s an interesting angle (dominant or not), but not one we’ve prioritized yet.
What Is Being Sold?
We want to keep it simple and so only focus on the core idea of making the “startup picking” part of funding delegatable. For that, the finer points of the metaphysical significance of impact purchases don’t matter. It just matters that there is a trusted retro funder that provides a prize pool and makes good decisions on what projects to reward. We want to leave the philosophy to philosophers or culture to figure out over time. (I can see that these are interesting questions, but I don’t think that that’s where the big counterfactual impact is.)
This sounds similar to what you write under “Credit for funding the project.” But I at least have moved away from the term “moral credit” for this because while some people interpret it simply as “I can get money for holding this contract,” others again interpret metaphysical significance into it (and in various conflicting ways too).
The funders that we envision serving with our solution are funders like the EA Funds, Open Phil, the Future Fund, et al., who are only interested in the counterfactual impact and not in being seen as virtuous by others or by God or some other variation.
We call what our certs certify a “right to retroactive funding,” so a right that is completely limited to only the entitlement to some share of the prize pool to the extent to which it is awarded to the project. (We want to eventually make it possible for people to attach other rights to their certificates, such as “bragging rights” if they so choose, but it’ll be up to them to define how that should work. This agnosticism about the rights that people attach to certs is just an implication of our using the Hypercertificate standard. The author of the Hypercertificates standard, David Dalrymple, and Protocol Labs are working on a solid, standards-based implementation of impact markets that we want to be compatible with.)
Another way to think about it is that if currently someone enters an article that they’ve written into a prize contest, then they can win a prize. If they’ve collaborated with five others on the article, they can agree to split the prize among themselves if they win it. They can (if they all so choose) make that agreement without ever clarifying the metaphysical significance of their agreement.
How Should The Market Handle Projects With Variable Funding Needs?
We’re going for the second solution from your list here because we put a strong emphasis on the precision and verifiability of impact certificates. This has various reasons:
we want impact certificates to be like products that charities can sell and that investors can preorder,
we want to make it easy for buyers to verify that the impact is not doubly sold under different framings, and
we want to make it easy for buyers to verify that the set of issuers is complete according to strong cultural norms.
So “cure malaria in Senegal” is not a definition of an impact cert that would work on our market. It doesn’t have enough details about the concrete actions that’ll be taken, it doesn’t make clear that the issuers really owns the cert to the extent that they claim, etc.
Instead something like this could work: “We want to collaborate with Concern Universal on a distribution of 5 million long-lasting insecticide-treated bednets in the Matam region of Senegal between Jan. 1, 2023 and Apr. 1, 2023. We currently own 60% of the certificate; Concern Universal owns 40%. The census, the distribution, and the follow-up surveys are conducted by paid staff of Concern Universal who have forfeited any claim to the certificate in their work contracts. No one else, to our knowledge, can make a legitimate claim to the certificate.”
This clarifies ownership, timeframe, location, scope, etc. The organization would sell scores or hundreds of such certificates that can all follow a standard template.
Unrelatedly, I don’t think this impact certificate would work: LLIN distributions are an intervention that is highly likely to work. Funders may assign a 90% chance to their success; a highly involved investor might assign a 95% chance to the success. That gives the investor a very, very minimal edge over the funder. The funder would likely consider it unnecessary overhead to use impact markets for this, or, if they do end up using them, they’ll pay very little over the counterfactual prospective funding for the very slightly reduced risk. That’ll not be enough for the investor to beat some counterfactual investment like a standard ETF. That’s in contrast to hits-based giving where funders often assign a 10% chance of success, which leave a lot of (multiplicative) room for highly involved investors to be more optimistic.
Should Founders Be Getting Rich Off Impact Certificates?
We haven’t thought about this much and would love to be convinced one way or the other.
My take is basically the first, i.e. that impact markets won’t be used for projects where it doesn’t make sense for both sides (investors/founders and funders) to use them. These will just continue to use prospective funding. This just seems like a brute fact of the preferences of the market actors and not like something that is under the control of the marketplace at all.
Some more elaboration in case it’s not clear what I mean (but it probably is): Funders will pay as little as they can get away with paying. They may start by offering prizes that are just slightly more than what they would’ve paid prospectively for a single project (with, say, a 10% chance of success). Maybe no investor will be interested. Then they’ll raise their bid slightly again and again until investors start to be interested and the first few projects actually get funded from investor money. But this is still strictly less than what the funders would’ve otherwise paid in total for prospective funding. Sure, some of that money goes to investors who can buy yachts from it, but the counterfactual is not that that money would’ve gone to beneficiaries but that it (and more) would’ve gone to failed projects.
Or in made-up numbers: In the prospective-funding world, a funder pays out a total of $1m to 100 projects ($10k each), 10 of which succeed. In the retrospective world, the funder pays out $800k to 10 projects ($80k each), all of which have succeeded. These $80k are maybe split $40k to the founders and $40k to the investors, so that one could say that $40k or more have gone to waste in some sense. But that’s compared to a counterfactual that was never attainable in the first place. More realistically, the funder achieved the same impact while saving $200k that can now go to more projects to help beneficiaries.
Unrelatedly, established charities (as opposed to independent researchers or startup charities) often have track records that make impact markets redundant (see above) or have 18+ months of runway that retro funding would funge with, so that, one way or another, funders are probably not very interested in using impact markets for them.
Realistically, I think, a funder wouldn’t just dectuple the investment but would try to pay as little as possible that is just enough to incentivize the creation of this researcher. By construction, the six-figure salary (say, $200k) is not enough to create an additional engineer, but maybe $300k is enough, in which case the funder would bid $300k, not $10m. Of course it could just so happen that the only price that incentivizes the creation of another researcher is no less than $10m, but then the counterfactual is not another researcher for $200k but no researcher at all.
Again the funder is well-advised to keep their true valuation of the impact (if they can come up with such a thing) a secret and just bid as low as they can get away with. (Just like when you buy a second-hand laptop. You may privately decide that you’ll bid up to $1k for it and yet start by bidding $100 because it might just be enough to convince the seller to part with the laptop.)
Admittedly, the current AI safety researchers may get greedy and try to use whatever leverage they have to get more money, but they could do that already.
How Do We Kickstart The Existence Of An Impact Market?
The Committed Pot of Money is the main or most fundamental solution we have in mind. The lower-down solutions are more powerful and they may be the desirable end states but they also come with risks that we’re wary of.
If I put myself into the shoes of an early investor on the Committed Pot of Money impact market, I don’t model myself as judging my chances to break even as a random draw. Rather, by buying in early I can buy more at a lower price, so that I later have an outsized share in the expected returns compared to later investors. But I also have an opinion on what the retro funder will value, and that model has a much stronger effect on my subjective expected returns than the amount that has been invested in total in all projects.
(If I buy SOL tokens at $5 because I think Solana is a great technology with a high success chance, I don’t start to think that Solana is going to be much less successful only because there is heavy investment into Solana and many other technologies. I’ll Aumann-update a bit on all the investments into Avalanche, Cardano, etc., but not overwhelmingly much.)
Should The Market Use Cryptocurrency?
Agreed. Plus we can just start with simple non-crypto solutions and keep all other options open in case there are eventually strong arguments to transition to something more like FTX (centralized) or Serum (decentralized).
How Should The Market Price IPOs?
We have an auction process that A Donor developed for us (see A Donor’s comment) that, we think, solves B neatly. We haven’t implemented it yet. (It is based on the view that it is desirable to reward people for aiding a fast price discovery.)
How Should The Oracular Funder Buy Successful Projects?
We’ve considered both – buying shares immediately if possible or creating the funding floor of limit orders. For now we’re going with the first solution simply for simplicity, but I definitely see the appeal of the second.
What Should The Final Oracular Funder’s Decision Process Be?
Agreed. And by implication I think it’ll be an auction where the funders bid as little as they can get away with paying and only bid more if they don’t observe enough projects getting started or invested in.
Who Are We Expecting To Have As Investors?
Agreed. Plus, institutional types are again fewer and have to optimize more for scale, which causes them to suffer from some of the same problems that funders currently suffer from. Investors should rather be the sort of people who are sufficiently many and sufficiently unconstrained by scale that every independent researcher or startup entrepreneur can so happen to know one or two of them quite well.
It’s apparently now possible to become an accredited investor by passing an exam, which lowers the bar. But impact certs as we conceive of them can be consumed (or “dedicated” or “burned”) by altruists, which plausibly turns them into consumables. Consumables, such as wine, can also be preordered and resold. I find it plausible that impact certs are so much more like wine and so much less like stock that they are not securities in the eye of the law or the SEC. Plus, all of this is easier in many countries other than the US and UK.
Conclusion: What Kind Of Impact Market Should We Have?
I think the above has elucidated the design that we’re interested in. It’s similar to the “Maximum Capitalism” design but without the metaphysical bits about “losing credit” and such. The founders have done their work, and if they (maybe unwisely) elected to sell 100% of their impact cert, they’ve still done their work and can get their recognition and kudos for it. (For comparison, if I start a successful startup and make an exit, I can still claim to have started a successful startup and get the reputational benefits.)
Issues Around Unregistered Securities
We have talked with lawyers about this and people with more experience with quasi impact markets. The devil is in the details. There are various ways to avoid the impression that impact certs are securities – as mentioned above, we conceive of them like bottles of wine that can be preordered, stored, resold, and consumed – but we don’t yet have full legal clarity on the issue.
Issues Around Tax-Deductability
In our view, investing in impact certs should not be tax-deductible. It’s done with a profit motive. But consuming the certificate is something that is altruistic, and it would make sense to see to it that that is tax deductible. We envision one potential system where you have the option to do all your cert trades through a nonprofit. The nonprofit just executes all your deals on your behalf. So long as you haven’t consumed your certs, the nonprofit does nothing else. But once you consume a cert, that nonprofit (not the issuer of the cert) writes the donation receipt for you.
Issues Around Oracular Funders’ Nonprofit Status
There may be larger prize contests (such as the XPrize) organized by nonprofits. One could research those to look for legal precedents.
Issues Around Governance And Principal-Agent Problems
Agreed.
Issues Around Middlemen Holding Money
We’re currently planning to let people transact directly with each other to avoid these questions for the time being to be lean and all.
Accidentally Encouraging High-Risk Negative-In-Expectation Projects
This is getting at some of the big crucial problems for us that we’ve been mulling over for a year or so. Here is a list of all the current risks and mitigation mechanisms that we see.
Attributed Impact (mentioned in the linked document ) also addresses moral trade, the lack of which I consider an even greater problem as well as a superset that contains the problem of the distribution mismatch.
Using Impact Certificates For Evil
The above document also addresses this.
Incentivizing Reward-Hacking
That is an interesting failure mode to look out for.
People Could Lose A Lot Of Money
Agreed. A marketplace could also set a default limit on investments and only raise it for investors who have somehow proven that they are financial savvy. Only allowing accredited investors to invest would have that effect, though it may be a bit too exclusive.