Capturing Stakeholder Dynamics
How to start designing the objective function for your token economic system
The token system's objective function is like the the directive for a cyborg like the Terminator or AI like Skynet. It is the optimizing function across multiple inputs and agents.
This is what makes it so powerful. Bitcoin's objective function is to maximize security of its network. To achieve this, the token (BTC) is the incentive machine that drives different Stakeholders to maximize the value of the objective function.
These Stakeholders include miners, speculators, businesses accepting payments, wallet manufacturers, mining pools...basically the set of players across the ecosystem.
Before the token economics can be designed, having a clear sense of the stakeholders and their individual incentivies, can help. After all, the stakeholders, as agents, will want to maximize their own objective function. They aren't thinking about the system's objective function.
A good design, however, should ultimately maximize the system's overall objective function even while each agent pursues their own for maximum value.
To do this, we need to write down all of the possible Stakeholders.
To help, we can break down the possible categories as follows [1], [2]
So, get a big whiteboard or sheet of paper and start listing the different players.
It may need different categories to spark your thoughts. The first list is smaller and less descriptive in order to help get the juices flowing:
Supplier ("Good", "Bad")
Consumer ("Good", "Bad")
Here's a matrix and why I use this approach (it may not work for you, but let's give it a try):
In many cases, the blockchain should have some kind of value exchange. Some entity must want something produced by the chain. This can the tokens themselves, as in the case of Bitcoin, or it can be a service provided by the blockchain directly (storage), or it can be services that are coordinated ontop of the blockchain (ISP connectivity).
Similarly, there should be providers who deliver the "work" to be performed.
Because the blockchains depend upon some entity to provide the compute, they are likely the "supplier" in a sense. And the work performed is the "consumer."
It would be interesting to hear about viable blockchains that don't have some supplier-consumer dynamic (please let me know if you think of one.)
The second quadrant is whether these are "good" or "bad" actors.
Because the blockchains presume an adversarial environment, you should too.
Bad behavior that can occur on either side includes:
Fraud / Theft
Misinformation
Denial of Service
So, for example, in the Helium blockchain, there are good miners who are supplying the network service. However, there are also "bad" miners who want to fake their location to maximize HNT.
I think starting broad is better to start thinking about the primary market dyamics.
Once you have that and want to bucket further or come up with more ideas, you can use this list as well:
Evangelists, core team, early adopters
Supporters, who benefits from positive externalities
Beneficiaries, free-riders
Partners and suppliers
Passives and observers
Opportunistic attackers, disgruntled
Attackers, competition, abusers
Coming up with the list and working through the right buckets and characterizations is a good first start.
Once you're done, then we'll go into more depth around understanding the objective functions and incentives for each stakeholder.
This is a good high level canvas: https://github.com/A-Hitchhiker-s/Guide-to-Token-Engineering/blob/master/content/en/chapter-4-token-model/ecosystem-valueflows/course/TMG1-Templates-2.Stakeholder-Universe-Oct-2022-PDF.pdf↩︎
This is a more detailed one that I use: https://github.com/A-Hitchhiker-s/Guide-to-Token-Engineering/blob/master/content/en/chapter-4-token-model/ecosystem-valueflows/course/TMG1-Templates-3.Stakeholder-Vortex-Oct-2022-PDF.pdf↩︎