Certificates seem like a nice match for NFTs because if you are serious about the status/prestige thing, you do want a global visible registry so you can brag about what impacts you retrocausally funded; and for creators, this makes a lot more sense than doing one-off negotiations over, like, email.* I was thinking about Harberger taxes on NFTs and how to ensure that NFT collectibles can always be transferred without needing a tax and ratcheting up price as a mechanisms, and that doesn’t work because of wash trades with oneself (esp powered by flash loans), but something like that might make sense for certificate of impact NFTs.
A CoI NFT would be a NFT linked to a specific action or object, such as a research paper; it would be sold by the responsible agent; a CoI NFT contains the creator’s address; a CoI NFT can be purchased/transferred at any time from its current owner by sending the last price + N ETH to the contract, where the last owner gets the last price as a refund and the creator gets the marginal N ETH as further payment for their impact.
So you might buy the NFT for Paul’s latest blog post for 1 ETH from Paul, and then Jess decides it’s actually more important, and buys it away from you for 1.1 ETH (you are then break-even, and Paul is at 1 + 0.1 ETH, and Jess is at −1.1 ETH); then pg decides he really likes it and buys it for 10 ETH, refunding Jess’s 1.1 ETH and sending an additional 8.9 ETH to Paul… At that point, people collectively agree that the true worth of Paul’s post is indeed about 10 ETH, and the NFT stops moving and pg gets the prestige of having the good philanthropic taste to have (retro-causally) patronized Paul & caused by commissioning that post.
The creator of impact gets all the revenue irreversibly so there’s no pernicious speculative financial bubble problems; any person worldwide can contribute more at any time permissionlessly; only one person at a time ‘owns’ the collectible and gets the status & prestige of “I own and retroactively commissioned awesome thing X”; and the faster you bid it up to its true price (as you believe it), the more likely you are to win the game of musical chairs, incentivizing everyone to weigh in fast. (And to the extent there’s a winner’s curse, well, that’s a good thing, since this is for public goods and other underincentivized things.)
* I turned down one or two impact requests for my own work because I couldn’t decide if it was really a good idea to irrevocably sell this sort of nebulous right to my works, and if it was a good idea, didn’t it then logically follow that I’d want to maximize my gains by some sort of public auction rather than negotiating one on one with the first buyer to come along & make an offer?
a CoI NFT can be purchased/transferred at any time from its current owner by sending the last price + N ETH to the contract, where the last owner gets the last price as a refund and the creator gets the marginal N ETH as further payment for their impact.
As I understand, you’re having the profits/losses from resale accrue to the creator, rather than the reseller. But then, why would an impact certificate ever be resold? And I see a lot of other potential disadvantages:
You lose benefit 3 (coordination)
You lose benefit 4 (less commitment of capital required)
You lose the incentive for resellers to research the effectiveness of philanthropic activities.
No-longer will we find that “at equilibrium, the price of certificates of impact on X is equal to the marginal cost of achieving an impact on X.”
If an impact certificate is ever sold at a loss, then the creator could be in for an unwelcome surprise, so they would always need to account for all impact certificates sold, and store much of the sum in cash (!!)
If you’re having only profits accrue to the creator, but not the losses, then all of these concerns except for the last would still hold, and the price discovery mechanism would be even more messed up.
It seems like your main goal is to avoid a scenario where creators sell their ICs for too little, thereby being exploited. But in that case, maybe you could just use a better auction, or have the creator only sell some fraction of any impact certificate, for a period of time, until some price discovery has taken place. Or if you insist, you could interpolate between the two proposals—requiring resellers to donate n% of any profits/losses to the creator—and still preserve some of the good properties. Which would dampen speculation, if you want that.
The impact certificate is resold when someone wants to become the owner of it and pays more than the current owner paid for it; that’s just built-in, like a Harberger tax except there’s no ongoing ‘tax’. (I thought about what if you made a tax that paid to the creator—sort of like an annuity? “Research X is great, as a reward, here’s the NPV of it but in the form of a perpetuity.” But the pros and cons were unclear to me.) The current owner has no choice about it, and if they want to keep owning it, well, they can then just buy it back at their real valuation of it, and then they are indifferent to any further transfers.
I don’t see how CoI NFTs are any worse for coordination?
You do need capital upfront for the refund, but your capital loss is another EA’ers capital gain: on net, it cancels out. The person you just bought the CoI NFT from now has X ETH they can deploy to new CoI NFTs, if they wish.
If you’re worried about lumpiness in prices, NFTs can be subdivided—they are just tokens, after all, there’s no reason you couldn’t have NFTs on scales anywhere from “a year of a nonprofit organization’s work” to “the first paragraph of this blog post” or just ‘shares’ of each. Or pool funds in a DAO to buy them collectively. Plenty of options for that. (This would be set more by things like blockchain fees and mental accounting costs.)
I don’t see why that wouldn’t be the case? If the cost of 1 utilon is $1, what stops a creator from spending $1, issuing a new CoI NFT, and eventually receiving ~$1? People won’t pay >$1 because then they could have bought more utilons by paying for a new NFT. The person who first paid $1 for the NFT keeps it, and then a new one gets made, which gets bid up to $1, and then a new one gets made, and so on and so forth.
A certificate can’t be sold at a ‘loss’ by the terms of the smart contract. It just ratchets. If the price is not so low that someone is tempted to buy it, it just stops trading and remains with the last buyer and has reached its charitable equilibrium, as the creator has been paid in full by philanthropists based on their belief of the impact of that NFT. (A “loss” is a weird thing to talk about in a philanthropic or fan context like this; almost by definition, every single impact certificate is a ‘loss’ in the sense that you don’t get back more money than you put into it, that’s the point!)
It seems like your main goal is to avoid a scenario where creators sell their ICs for too little, thereby being exploited.
The main thing is to avoid the pathologies of NFTs as collectibles and speculative bubbles, where the price and activities have nothing whatsoever to do with any fundamentals. The “Beepleification” of EA, if you will. If certificates of impact are subject to the same dynamics as Beeple NFTs are, for example, then they are useless. What the creators skim off is not the main problem, and in fact, to the extent that creators successfully skim off more (the way Beeple has) while those financial dynamics remain intact, they worsen the problem.
The impact certificate is resold when someone wants to become the owner of it and pays more than the current owner paid for it
Oh, selling is compulsory.
A certificate can’t be sold at a ‘loss’ by the terms of the smart contract. It just ratchets.
OK. That’s what I meant when I said “If you’re having only profits accrue to the creator, but not the losses, then all of these concerns except for the last would still hold, and the price discovery mechanism would be even more messed up.” I’ll call my understanding of Paul’s proposal the “capitalist” model and your model the “ratchet” model BTW.
The main thing is to avoid the pathologies of NFTs as collectibles and speculative bubbles
OK.
Re the downsides of the “ratchet” model, here are my responses:
(Coordination). If Anne writes a blog post, Bob and Chris may both want Anne to be funded, but not want to have to personally lose the cash. In the capitalist model, Bob can just buy Anne’s IC, knowing that he’s not any worse off, because he has gained an asset that he can easily sell later. Whereas in the ratchet model, Bob and Chris don’t gain any profitable asset.
(Capital requirement). Sorry, I was unclear about the fact that I was referencing Paul’s quote “The ability to resell certificates makes a purchase less of a commitment of philanthropic capital, and less of a strategic decision; instead it represents a direct vote of confidence in the work being funded.” In the capitalist model, talent scouts who buy up undervalued projects can retain and grow their capital, and scout more talent. Not so in the “ratchet” version.
(Equilibrium). Price discovery will have problems due to the price not being able to go down. Suppose I do an activity that further investigation will be revealed to have had value $0 or $2, with equal probability. Until we figure that out, the price will be $1. If someone discovers that the value was really $0, there is no way for that information to be revealed via the price (which can only increase). Edit: or alternatively, the price never goes up to $1 in the first place. So then the price only reaches a level $n when people are sure it really couldn’t be worth less than that, and the price will only serve as a lower bound on the EV of the impact.
(Incentive for resellers to research).
(Selling at a loss). OK, I agree this is not an issue if you ratchet.
Your example doesn’t make sense to me. If Bob is not providing any money and cannot ‘personally lose the cash’ and is never ‘any worse off’ because he just resells it, what is he doing, exactly? Extending Anne some sort of disguised interest-free loan? (Guaranteed and risk-free how?) Why can’t he be replaced by a smart contract if there are zero losses?
It seems like in any sensible Paul-like capitalist system, he must be providing money somewhere in the process—if only by eating the loss when no one shows up to buy it at the same or higher price! If Bob gets involved and does anything useful at all, he’s personally losing cash, somehow, in expectation.
So, I don’t see how this is any different from the ratchet system where the ‘loss’ is upfront and Bob buys half the tokens for the blog post and Chris buys the other half, or Bob+Chris pool in a DAO to jointly buy the post’s NFT, or something. Maybe someone will show up to buy out those tokens, and they get their money back. Or they don’t. Just like the capitalist system. But the ‘loss’ goes to Anne either way.
Yes, I regard this as a feature and not a bug, and a problem with capitalist CoI schemes. There is no difference between ‘talent scouting’ and ‘speculative bubble unmoored from fundamentals’, as this is implemented. It becomes a Keynesian beauty contest: buying CoIs because you think many someones will think it’s a CoI to buy...
There is no ground truth which verifies the ‘talent’ which has been shouted up. The only ‘verification’ is that there is a greater fool who does buy the CoI from you, so that means ‘talent scout’ here actually means ‘snake oil salesman and marketer’ as the scheme collapses under Goodhart, and Paul (or whoever outcompetes him in marketing rather than impacting) starts spending all his time shilling his NFTs on Instagram and talking about how EA CoIs are going to be auctioned at Christies soon, and his followers DM you saying that their inside source says that a new Paul blog is going to drop at midnight on Thursday and if you join their Discord the dropbot can get you in on the token buy early to flip them for guaranteed profits! don’t be a sucker or left holding the bag!...
CoIs should be about paying for past performance, and not playing at being covert prediction markets, and doing so poorly. Mixing pay for making more accurate predictions and pay for performance is an uneasy combination at the best of times. If PMs and CoIs are going to be con-fused into the same financial instrument, it needs to be thought through much more carefully. There is probably a role for PMs with subsidies on EA-relevant questions, which can then be used to help price CoIs of any type, but not by directly determining their prices as the answer to their prices, circularly.
Price discovery is implemented by new NFTs. As they reach equilibrium and stop trading, new NFTs have to come out (as one would hope, as the world needs new impacts every day). If an activity is discovered to be worthless, people will just stop buying the new NFTs involving that activity.
Note that new NFTs need to be issued under capitalist CoI too, because time marches on and the world changes: maybe an activity did have the impact back then, but that’s not the same question as “today, I, a potential impacter, should do something; what should that something be?” A CoI for fighting iodine deficiency 20 years ago may have a high price, and may always trade at around that high price, and the value of further fighting iodine today be ~$0. The price of the old CoI does not answer the current question; what does is… issuing a new CoI, which people can refuse to buy—“don’t you know, iodization is solved, dude? Just check the last national nutrition survey! I’m not buying it, not at that price.”
Buyers can buy the CoI of researchers of CoIs. :) Think of how much a CoI must be worth to an altruistic philanthropist when that research affects the purchase of hundreds of later CoIs by other altruists! So much impact.
If Bob is not providing any money and cannot ‘personally lose the cash’ and is never ‘any worse off’ because he just resells it, what is he doing, exactly? Extending Anne some sort of disguised interest-free loan? (Guaranteed and risk-free how?) Why can’t he be replaced by a smart contract if there are zero losses?
1. (Coordination). Bob does lose cash of his balance sheet, but his net asset position stays the same, because he’s gained an IC that he can resell.
3. (Price discovery). I agree that in cases of repeated events, the issues with price discovery can be somewhat routed around.
2&4. (Philanthropic capital requirement & Incentive for resellers to research). The capitalist IC system gives non-altruistic people an incentive to do altruistic work, scout talent, and research activities’ impact, and it rewards altruists for these. Moreover, it reallocates capital to individuals—altruistic or otherwise—who perform these tasks better, which allows them to do more. Nice features, and very standard ones for a capitalist system. I do agree that the ratchet system will allow altruists to fund some talent scouting and impact research, but in a way that is more in-line with current philanthropic behaviour. We might ask the question: do we really want to create a truly capitalist strand of philanthropy? So long as prices are somewhat tethered to reality, then this kind of strand might be really valuable, especially since it need not totally displace other modes of funding.
Certificates seem like a nice match for NFTs because if you are serious about the status/prestige thing, you do want a global visible registry so you can brag about what impacts you retrocausally funded; and for creators, this makes a lot more sense than doing one-off negotiations over, like, email.* I was thinking about Harberger taxes on NFTs and how to ensure that NFT collectibles can always be transferred without needing a tax and ratcheting up price as a mechanisms, and that doesn’t work because of wash trades with oneself (esp powered by flash loans), but something like that might make sense for certificate of impact NFTs.
A CoI NFT would be a NFT linked to a specific action or object, such as a research paper; it would be sold by the responsible agent; a CoI NFT contains the creator’s address; a CoI NFT can be purchased/transferred at any time from its current owner by sending the last price + N ETH to the contract, where the last owner gets the last price as a refund and the creator gets the marginal N ETH as further payment for their impact.
So you might buy the NFT for Paul’s latest blog post for 1 ETH from Paul, and then Jess decides it’s actually more important, and buys it away from you for 1.1 ETH (you are then break-even, and Paul is at 1 + 0.1 ETH, and Jess is at −1.1 ETH); then pg decides he really likes it and buys it for 10 ETH, refunding Jess’s 1.1 ETH and sending an additional 8.9 ETH to Paul… At that point, people collectively agree that the true worth of Paul’s post is indeed about 10 ETH, and the NFT stops moving and pg gets the prestige of having the good philanthropic taste to have (retro-causally) patronized Paul & caused by commissioning that post.
The creator of impact gets all the revenue irreversibly so there’s no pernicious speculative financial bubble problems; any person worldwide can contribute more at any time permissionlessly; only one person at a time ‘owns’ the collectible and gets the status & prestige of “I own and retroactively commissioned awesome thing X”; and the faster you bid it up to its true price (as you believe it), the more likely you are to win the game of musical chairs, incentivizing everyone to weigh in fast. (And to the extent there’s a winner’s curse, well, that’s a good thing, since this is for public goods and other underincentivized things.)
* I turned down one or two impact requests for my own work because I couldn’t decide if it was really a good idea to irrevocably sell this sort of nebulous right to my works, and if it was a good idea, didn’t it then logically follow that I’d want to maximize my gains by some sort of public auction rather than negotiating one on one with the first buyer to come along & make an offer?
As I understand, you’re having the profits/losses from resale accrue to the creator, rather than the reseller. But then, why would an impact certificate ever be resold? And I see a lot of other potential disadvantages:
You lose benefit 3 (coordination)
You lose benefit 4 (less commitment of capital required)
You lose the incentive for resellers to research the effectiveness of philanthropic activities.
No-longer will we find that “at equilibrium, the price of certificates of impact on X is equal to the marginal cost of achieving an impact on X.”
If an impact certificate is ever sold at a loss, then the creator could be in for an unwelcome surprise, so they would always need to account for all impact certificates sold, and store much of the sum in cash (!!)
If you’re having only profits accrue to the creator, but not the losses, then all of these concerns except for the last would still hold, and the price discovery mechanism would be even more messed up.
It seems like your main goal is to avoid a scenario where creators sell their ICs for too little, thereby being exploited. But in that case, maybe you could just use a better auction, or have the creator only sell some fraction of any impact certificate, for a period of time, until some price discovery has taken place. Or if you insist, you could interpolate between the two proposals—requiring resellers to donate n% of any profits/losses to the creator—and still preserve some of the good properties. Which would dampen speculation, if you want that.
The impact certificate is resold when someone wants to become the owner of it and pays more than the current owner paid for it; that’s just built-in, like a Harberger tax except there’s no ongoing ‘tax’. (I thought about what if you made a tax that paid to the creator—sort of like an annuity? “Research X is great, as a reward, here’s the NPV of it but in the form of a perpetuity.” But the pros and cons were unclear to me.) The current owner has no choice about it, and if they want to keep owning it, well, they can then just buy it back at their real valuation of it, and then they are indifferent to any further transfers.
I don’t see how CoI NFTs are any worse for coordination?
You do need capital upfront for the refund, but your capital loss is another EA’ers capital gain: on net, it cancels out. The person you just bought the CoI NFT from now has X ETH they can deploy to new CoI NFTs, if they wish.
If you’re worried about lumpiness in prices, NFTs can be subdivided—they are just tokens, after all, there’s no reason you couldn’t have NFTs on scales anywhere from “a year of a nonprofit organization’s work” to “the first paragraph of this blog post” or just ‘shares’ of each. Or pool funds in a DAO to buy them collectively. Plenty of options for that. (This would be set more by things like blockchain fees and mental accounting costs.)
I don’t see why that wouldn’t be the case? If the cost of 1 utilon is $1, what stops a creator from spending $1, issuing a new CoI NFT, and eventually receiving ~$1? People won’t pay >$1 because then they could have bought more utilons by paying for a new NFT. The person who first paid $1 for the NFT keeps it, and then a new one gets made, which gets bid up to $1, and then a new one gets made, and so on and so forth.
A certificate can’t be sold at a ‘loss’ by the terms of the smart contract. It just ratchets. If the price is not so low that someone is tempted to buy it, it just stops trading and remains with the last buyer and has reached its charitable equilibrium, as the creator has been paid in full by philanthropists based on their belief of the impact of that NFT. (A “loss” is a weird thing to talk about in a philanthropic or fan context like this; almost by definition, every single impact certificate is a ‘loss’ in the sense that you don’t get back more money than you put into it, that’s the point!)
The main thing is to avoid the pathologies of NFTs as collectibles and speculative bubbles, where the price and activities have nothing whatsoever to do with any fundamentals. The “Beepleification” of EA, if you will. If certificates of impact are subject to the same dynamics as Beeple NFTs are, for example, then they are useless. What the creators skim off is not the main problem, and in fact, to the extent that creators successfully skim off more (the way Beeple has) while those financial dynamics remain intact, they worsen the problem.
Oh, selling is compulsory.
OK. That’s what I meant when I said “If you’re having only profits accrue to the creator, but not the losses, then all of these concerns except for the last would still hold, and the price discovery mechanism would be even more messed up.” I’ll call my understanding of Paul’s proposal the “capitalist” model and your model the “ratchet” model BTW.
OK.
Re the downsides of the “ratchet” model, here are my responses:
(Coordination). If Anne writes a blog post, Bob and Chris may both want Anne to be funded, but not want to have to personally lose the cash. In the capitalist model, Bob can just buy Anne’s IC, knowing that he’s not any worse off, because he has gained an asset that he can easily sell later. Whereas in the ratchet model, Bob and Chris don’t gain any profitable asset.
(Capital requirement). Sorry, I was unclear about the fact that I was referencing Paul’s quote “The ability to resell certificates makes a purchase less of a commitment of philanthropic capital, and less of a strategic decision; instead it represents a direct vote of confidence in the work being funded.” In the capitalist model, talent scouts who buy up undervalued projects can retain and grow their capital, and scout more talent. Not so in the “ratchet” version.
(Equilibrium). Price discovery will have problems due to the price not being able to go down. Suppose I do an activity that further investigation will be revealed to have had value $0 or $2, with equal probability. Until we figure that out, the price will be $1. If someone discovers that the value was really $0, there is no way for that information to be revealed via the price (which can only increase). Edit: or alternatively, the price never goes up to $1 in the first place. So then the price only reaches a level $n when people are sure it really couldn’t be worth less than that, and the price will only serve as a lower bound on the EV of the impact.
(Incentive for resellers to research).
(Selling at a loss). OK, I agree this is not an issue if you ratchet.
Your example doesn’t make sense to me. If Bob is not providing any money and cannot ‘personally lose the cash’ and is never ‘any worse off’ because he just resells it, what is he doing, exactly? Extending Anne some sort of disguised interest-free loan? (Guaranteed and risk-free how?) Why can’t he be replaced by a smart contract if there are zero losses?
It seems like in any sensible Paul-like capitalist system, he must be providing money somewhere in the process—if only by eating the loss when no one shows up to buy it at the same or higher price! If Bob gets involved and does anything useful at all, he’s personally losing cash, somehow, in expectation.
So, I don’t see how this is any different from the ratchet system where the ‘loss’ is upfront and Bob buys half the tokens for the blog post and Chris buys the other half, or Bob+Chris pool in a DAO to jointly buy the post’s NFT, or something. Maybe someone will show up to buy out those tokens, and they get their money back. Or they don’t. Just like the capitalist system. But the ‘loss’ goes to Anne either way.
Yes, I regard this as a feature and not a bug, and a problem with capitalist CoI schemes. There is no difference between ‘talent scouting’ and ‘speculative bubble unmoored from fundamentals’, as this is implemented. It becomes a Keynesian beauty contest: buying CoIs because you think many someones will think it’s a CoI to buy...
There is no ground truth which verifies the ‘talent’ which has been shouted up. The only ‘verification’ is that there is a greater fool who does buy the CoI from you, so that means ‘talent scout’ here actually means ‘snake oil salesman and marketer’ as the scheme collapses under Goodhart, and Paul (or whoever outcompetes him in marketing rather than impacting) starts spending all his time shilling his NFTs on Instagram and talking about how EA CoIs are going to be auctioned at Christies soon, and his followers DM you saying that their inside source says that a new Paul blog is going to drop at midnight on Thursday and if you join their Discord the dropbot can get you in on the token buy early to flip them for guaranteed profits! don’t be a sucker or left holding the bag!...
CoIs should be about paying for past performance, and not playing at being covert prediction markets, and doing so poorly. Mixing pay for making more accurate predictions and pay for performance is an uneasy combination at the best of times. If PMs and CoIs are going to be con-fused into the same financial instrument, it needs to be thought through much more carefully. There is probably a role for PMs with subsidies on EA-relevant questions, which can then be used to help price CoIs of any type, but not by directly determining their prices as the answer to their prices, circularly.
Price discovery is implemented by new NFTs. As they reach equilibrium and stop trading, new NFTs have to come out (as one would hope, as the world needs new impacts every day). If an activity is discovered to be worthless, people will just stop buying the new NFTs involving that activity.
Note that new NFTs need to be issued under capitalist CoI too, because time marches on and the world changes: maybe an activity did have the impact back then, but that’s not the same question as “today, I, a potential impacter, should do something; what should that something be?” A CoI for fighting iodine deficiency 20 years ago may have a high price, and may always trade at around that high price, and the value of further fighting iodine today be ~$0. The price of the old CoI does not answer the current question; what does is… issuing a new CoI, which people can refuse to buy—“don’t you know, iodization is solved, dude? Just check the last national nutrition survey! I’m not buying it, not at that price.”
Buyers can buy the CoI of researchers of CoIs. :) Think of how much a CoI must be worth to an altruistic philanthropist when that research affects the purchase of hundreds of later CoIs by other altruists! So much impact.
1. (Coordination). Bob does lose cash of his balance sheet, but his net asset position stays the same, because he’s gained an IC that he can resell.
3. (Price discovery). I agree that in cases of repeated events, the issues with price discovery can be somewhat routed around.
2&4. (Philanthropic capital requirement & Incentive for resellers to research). The capitalist IC system gives non-altruistic people an incentive to do altruistic work, scout talent, and research activities’ impact, and it rewards altruists for these. Moreover, it reallocates capital to individuals—altruistic or otherwise—who perform these tasks better, which allows them to do more. Nice features, and very standard ones for a capitalist system. I do agree that the ratchet system will allow altruists to fund some talent scouting and impact research, but in a way that is more in-line with current philanthropic behaviour. We might ask the question: do we really want to create a truly capitalist strand of philanthropy? So long as prices are somewhat tethered to reality, then this kind of strand might be really valuable, especially since it need not totally displace other modes of funding.
What if no one buys it?
If the market value of the IC is 0, then ICs aren’t gonna work. But it’s OK if very few ICs are sold, so long as the market clears at a decent price.