Hmm, this seems tricky. In principle, not only should the price be allowed to go negative, it should not be bounded below at all, and certificate holders could have a debt for holding certificates with negative value.
Is it possible to create certificates for the negative of their expected impact, too, and tie them together in the right way?
Iām thinking like in some betting markets, if you hold 1 share for each of the outcomes, you can destroy them and get their total value, e.g. $1 by design in some markets. Or like perpetual futures in crypto.
Maybe you would also need to put up collateral to participate in these markets, and holders of the regular certificates could be forced to pay interest to holders of the negative certificates when the (net) price is negative or get margin called (and vice versa).
Token lending seems like a really good thing here since it would allow people to short and it would generate passive income for hodlers. Since the tokens will be fairly obscure compared to BTC or USDC, the interest will be high, provided there is any interest in shorting in the first place, right? So the shares of controversial projects like playpumps will yield high interest but will remain cheap while, say, AMF shares will yield low interest but appreciate. Iāll need to think about whether thatās good. And what the interest currency should be.
Perpetual futures would be another proven solution to this problem. Bonfida already offers three of them based on Serum, so they seem like an obvious partner to try to get on board with this. MoĆ«t is another one but hasnāt launched yet. Considering that Bonfida only has three and they have low volume, I suspect that itāll be hard to get this off the groundā¦
A completely out-there idea: Instead of just having one dimension ā price up or down, crudely representing positive impact ā you could have a multidimensional market. A charity could get their token listed on markets of happiness/āUSDC, suffering-reduction/āUSDC, eudaimonia/āUSDC, edification/āUSDC, progress/āUSDC, existential-safety/āUSDC, experience/āUSDC, etc., so a token/āUSDC market with many dimensions. Then traders could buy or sell arbitrary vectors on that market, and their PnL could be something like the cosine similarity to the current multidimensional market price times their investment. But that would require a lot of liquidity since an order canāt go through if even along one dimension there are not enough offers at the price. In any case, just a random phantasy, not actionable for me. xD
Thatās an interesting line of thought. Some potential problems:
There may be a wealthy actor that doesnāt like a certain net-positive intervention (e.g. because they are a company that tries to avoid the regulation that the intervention aims to impose). Such an actor can attack the āpositive sharesā by buying all the ānegative sharesā and then artificially making their price arbitrarily high (by trading with themselves).
A more speculatively concern (not specific to your idea): Suppose that most traders would believe that: conditional on an existential catastrophe happening, owning the right certificate shares is less important. This may cause traders to give less weight to downside risks when making their decisions. (RowanBDonovan mentioned this issue here.)
Could 1 already be done? They could short the impact certificates, and even inflate the certificate price for oppositional work by trading it with themselves. An efficient impact certificate market should have the latter cause downward price pressure on the certificates they want to short, right?
This leads to an interesting question: how should certificates/āorganizations working exactly against each other be priced together in an efficient market? Presumably their market caps should be negatively correlated. Would an efficient market ensure one has a market cap near 0 (and so be drained of resources from the market)?
And then maybe this gives us a solution to the original problem without the need for artificially introducing something like negative impact certificates: if the expected value were negative, negative certificates can be introduced naturally and someone can start an oppositional organization or otherwise start doing oppositional work.
There might be reasons to think one side is more efficient than the other at achieving their desired outcome, though. Iām not sure what implications this would have.
I think āoppositional workā canāt always serve as a way to mitigate the harm of a net-negative projects (e.g. it doesnāt seem obvious what the āoppositional workā is for a net-negative outreach intervention).
Simply shorting shares doesnāt seem to me like a solution either. Suppose traders anticipate that the price of the share will be very high at some point in the future (due to the chance that the project ends up being very beneficial). Shorting the share will not substantially affect its price if the amount of money that participating traders can invest is sufficiently large.
Hmm, this seems tricky. In principle, not only should the price be allowed to go negative, it should not be bounded below at all, and certificate holders could have a debt for holding certificates with negative value.
Is it possible to create certificates for the negative of their expected impact, too, and tie them together in the right way?
Iām thinking like in some betting markets, if you hold 1 share for each of the outcomes, you can destroy them and get their total value, e.g. $1 by design in some markets. Or like perpetual futures in crypto.
Maybe you would also need to put up collateral to participate in these markets, and holders of the regular certificates could be forced to pay interest to holders of the negative certificates when the (net) price is negative or get margin called (and vice versa).
Token lending seems like a really good thing here since it would allow people to short and it would generate passive income for hodlers. Since the tokens will be fairly obscure compared to BTC or USDC, the interest will be high, provided there is any interest in shorting in the first place, right? So the shares of controversial projects like playpumps will yield high interest but will remain cheap while, say, AMF shares will yield low interest but appreciate. Iāll need to think about whether thatās good. And what the interest currency should be.
Perpetual futures would be another proven solution to this problem. Bonfida already offers three of them based on Serum, so they seem like an obvious partner to try to get on board with this. MoĆ«t is another one but hasnāt launched yet. Considering that Bonfida only has three and they have low volume, I suspect that itāll be hard to get this off the groundā¦
A completely out-there idea: Instead of just having one dimension ā price up or down, crudely representing positive impact ā you could have a multidimensional market. A charity could get their token listed on markets of happiness/āUSDC, suffering-reduction/āUSDC, eudaimonia/āUSDC, edification/āUSDC, progress/āUSDC, existential-safety/āUSDC, experience/āUSDC, etc., so a token/āUSDC market with many dimensions. Then traders could buy or sell arbitrary vectors on that market, and their PnL could be something like the cosine similarity to the current multidimensional market price times their investment. But that would require a lot of liquidity since an order canāt go through if even along one dimension there are not enough offers at the price. In any case, just a random phantasy, not actionable for me. xD
Thatās an interesting line of thought. Some potential problems:
There may be a wealthy actor that doesnāt like a certain net-positive intervention (e.g. because they are a company that tries to avoid the regulation that the intervention aims to impose). Such an actor can attack the āpositive sharesā by buying all the ānegative sharesā and then artificially making their price arbitrarily high (by trading with themselves).
A more speculatively concern (not specific to your idea): Suppose that most traders would believe that: conditional on an existential catastrophe happening, owning the right certificate shares is less important. This may cause traders to give less weight to downside risks when making their decisions. (RowanBDonovan mentioned this issue here.)
Could 1 already be done? They could short the impact certificates, and even inflate the certificate price for oppositional work by trading it with themselves. An efficient impact certificate market should have the latter cause downward price pressure on the certificates they want to short, right?
This leads to an interesting question: how should certificates/āorganizations working exactly against each other be priced together in an efficient market? Presumably their market caps should be negatively correlated. Would an efficient market ensure one has a market cap near 0 (and so be drained of resources from the market)?
And then maybe this gives us a solution to the original problem without the need for artificially introducing something like negative impact certificates: if the expected value were negative, negative certificates can be introduced naturally and someone can start an oppositional organization or otherwise start doing oppositional work.
There might be reasons to think one side is more efficient than the other at achieving their desired outcome, though. Iām not sure what implications this would have.
EDIT: Previously brought up here.
I think āoppositional workā canāt always serve as a way to mitigate the harm of a net-negative projects (e.g. it doesnāt seem obvious what the āoppositional workā is for a net-negative outreach intervention).
Simply shorting shares doesnāt seem to me like a solution either. Suppose traders anticipate that the price of the share will be very high at some point in the future (due to the chance that the project ends up being very beneficial). Shorting the share will not substantially affect its price if the amount of money that participating traders can invest is sufficiently large.