Bonding Tokens for Moonshot Fuel
Invocation Markets in Action
If nothing else, smart contracts have proven an excellent means of aggregating capital. I shouldn’t even have to source the truly outrageous sums raised by the relatively simple OpenZeppelin contract Crowdsale.sol.
But it’s one thing to aggregate capital and quite another to leverage that capital toward producing real-world action. Only one out of ten traditional startups succeed, and even that rate seems generous for the ICO space.
Project success depends upon more than just funding an idea: Team, Timing, and Implementation are all factors that ultimately determine the likelihood of successful disruption.
What if all you cared about was achieving that disruption? What if you simply wanted to raise capital directed at a goal, without pinning the project’s success to a particular team or implementation?
Invocation Markets are cryptoeconomic mechanisms for proposing goals and distributing pursuit of those goals across multiple teams testing divergent implementations over arbitrary long timescales.
Invocation Markets:
- Empower existing communities to devise and fund incentive competitions.
- Reward contributors for successfully curating competitors.
- Reward teams that accomplish the goal of the competition.
The Invocation Market model draws inspiration both from proven incentive competitions like XPRISE as well as the token bonding functions outlined by Curation Markets proposals. Let’s review the first of these two components:
A Brief History of Incentive Competitions
In 1919, the hotel magnate Raymond Orteig offered a $25,000 prize to whoever achieved the first nonstop flight between New York and Paris. The Orteig prize inspired nine teams to spend over $400,000 over eight years before the then-unknown Charles Lindbergh completed the challenge.
The sixteen-fold impact of Mr. Orteig’s financial contribution is impressive alone, but the innovative impact was greater still. Many of the competitors who lost to Lindbergh went on to leverage their technology and experience to achieve other aviation firsts, accelerating innovation across the industry.
This outsized impact is what led Peter Diamandis to resurrect the incentive competition model in 1996, with a $10 million dollar competition that inspired twenty-six teams to invest over $100 million dollars over eight years in pursuit of suborbital spaceflight.
Incentive competitions produce outsized economic impact over timescales longer than most startup’s runways.
Historically, incentive competitions have been the exclusive purview of eccentric millionaires, but with the rise of crowdfunding, even niche communities can aggregate enough capital to fuel disruption at this scale. And by leveraging recent innovations in cryptoeconomics, it’s possible to amplify this impact even further.
A Brief Overview of Bonding Functions
Bonding functions are smart contract market makers that provide buy and sell side liquidity according to preprogrammed price functions. These price functions can range from exponential and sigmoid bonding curves to linear, step, and piecewise functions.
Bonding functions produce tokens that can arrive at meaningful price points without having to get listed on exchanges or achieve high trading volume.
If you haven’t yet read up on curation markets and bonding curves, I’d highly recommend you check out these excellent articles before continuing on:
On Bonding Curves as Funding Mechanisms
Approaches for extracting funds from bonding curves
medium.com
The best maintained open source code for bonding functions can be found at Zap Project. Other implementations exist but are less expressive in practice.
We’ve adapted this codebase and set up a template for invocation markets:
How does one go about leveraging this pattern? Let’s look at a three-step process for launching, funding, and resolving a competition.
Launching a Competition
When launching a competition, you must specify both the goal and the method of resolution. The goal should be clear and concise, as follows:
Lunar Competition: “Propel at least two humans to the moon, film them walking across the surface, and return them safely to earth.”
The method of resolution is an address empowered to select the winner of the competition. This address can in practice take a wide range of forms: a single arbiter, a seven-member multisig, a data oracle, a DAO, a token curated community, etc. The choice of resolution method is limited only by what best inspires confidence in the legitimacy of the competition.
“NASA, Lockheed Martin, and XPRIZE have been selected as members of a two of three multisig for resolving the Lunar Competition.”
Funding a Competition
Once the goal and method of resolution have been selected, the competition is launched as a bonding function with no sell side. This gateway function ensures that the prize pool cannot decline prior to resolution, empowering competitors to plan out multiyear projects with confidence.
Contributors send ether to the gateway function in exchange for competition-specific tokens. Although the underlying ether can only increase, the competition token can still be actively traded, enabling contributors to exit their position so long as they can find a willing counterparty for exchange.
Alice bonds 1 ether to the Lunar Competition, and recieves 100 Lunar tokens.
Bob joins later, and bonds 2 ether to the Lunar Competition for 100 Lunar tokens.
Competitors join the competition by launching their own candidate bonding function. These candidate functions only accept competition tokens, not ether, ensuring that only contributors who have committed to achieving a goal are empowered to curate competitors pursuing that goal.
Alice bonds her 100 Lunar tokens to Space X and recieves Space X tokens.
Bob bonds his 100 Lunar tokens to Blue Origin and recieves Blue Origin tokens.
Resolving a Competition
When a candidate accomplishes the goal and the competition is resolved, the underlying ether is distributed proportionately between the holders of the successful candidate token. The goal has been achieved and the prize won.
The multisignitories agree that Space X has succeeded, and the underlying ether is split between the Space X token holders. Alice’s 100 Space X tokens are redeemed for ether. Bob’s Blue Origin tokens are worthless. Space X holds roughly half of all Space X tokens, and is rewarded with proportional ether.
For long-term competitions lasting years or even decades, it may be preferable to accept ERC-20 stablecoins instead of ether. This small change could serve to substantially increase confidence in the prize pool.
Summary
Invocation Markets are, in short, mechanisms for marshaling capital toward a clearly defined purpose and holding that capital in escrow until that goal is accomplished. They combine the practical power of incentive competitions with the novel technology of bonding functions to produce a powerful means for galvanizing innovation.
Invocation Markets could be leveraged towards accelerating innovation in everything from pharmaceuticals (drug discovery for rare diseases) to artificial intelligence (defeating champion esports teams). They might also find use in less exciting but just as important local concerns (fixing potholes on a regularly traveled road) and could very well prove a more effective expenditure of capital than, say, local taxes.
This initial exploration should serve as the first step toward these wider applications, all of which we’re currently assessing at Moonbound. You can follow ongoing development on GitLab and our latest deployments on Kovan.
If you’d like to collaborate on incentive design or have proposals for great use cases, reach out to me at abby@moonbound.tech!
GitLab Repo: https://gitlab.com/moonbound/prizepool/tree/master
