This is part 2 of a series of articles on TCR, where i discuss the recent trends in TCR evolution, general observations and issues pertaining to system design.
Here is the first article of the series, if you don’t know about TCRs please read this amazing list to get more on the topic. This article is more focussed on the economic principles of the TCR system and related concepts.
Brief Introduction:
Humans have always been penchant about making lists, ranging from mundane things like shopping list to most bizarre list like Top 10 Common Methods of Suicide.Even Albert Einstein made a very famous list. So it is not by coincidence that after “hello world”, we programmers generally try*sic* to make a to-do list the second thing while learning any new technology.
“The list is the origin of culture,” Umberto Eco proclaims in his book entirely devoted to importance of list-making
TCR:
TCRs have emerged as a crypto-primitive in the past year, and opened the doors to a host of applications built on top of it, be it governance, reputation management system, data-exchange protocol or a list of highest quality physicians, many use cases still remain to be explored.
TCRs from an economic perspective:
VALUE CREATION
Value of an TCR can be attributed primarily to two factors:
- Information costs
These are the costs that in the absence of a TCR, the consumers will have to bear to get the information. It includes the internal costs such as the effort/efficiency in searching, sorting and integration of information as well as external costs as monetary cost of acquiring same information, and opportunity cost of time for both the cases. - Centralisation Cost due to inefficiencies like market power and corruption
These are the costs related with centralisation while depending upon third party for acquiring the information. These arise due to market power of third parties. A trustworthy entity can quickly get corrupt in case of monopoly and can start charging consumers above its marginal profit or can degrade the information to boost its top-line performance.
In case of TCRs, Curators(token holders) create this value by curating the list with high quality information that conforms the properties of the list. This decreases the external cost of information for consumers. TCR further reduces the centralisation cost by employing strong skin in the game incentive structure for token curators and candidates.
VALUE CAPTURE
Value of the list is captured by the listees of the list in the sense that they get the attention/trust of the consumers and can leverage that trust for financial gains (eg: National Register Listing for US real estate market, top colleges list)
VALUE TRANSFER
Value is transferred to the curators by supply demand dynamics of the token market. If the value of TCR increase for consumers, the incentives to get into the list increases for candidates, which increases the demand for underlying tokens, in turn increasing the price for the tokens given that the supply of tokens is constant.
Pros of TCR
- High quality information for users at marginal cost
- Decentralised trust where trust is secured by underlying incentive structure for curators and consumers don’t have to rely on a central party
These two factors result in huge economic surplus for consumers as the decentralised system acts as a natural anti-monopoly and market power costs are eliminated, providing information to consumers at marginal cost. Also, due to the incentive structure, the system is highly dynamic and receptive to changes in the quality of the information.
Cons of a TCR
- There are multiple redundancies due to the need of consensus at multiple levels, at the information curation level between curators and at the blockchain level.
- This system generates an consistent economic rent for listees while the curators are only paid marginally via demand, so the market dynamics might not be able to sustain the demand for tokens and underlying incentive structure in the long run.
- Cost of value transfer to curators is born evenly by all the consumers, whether they use the registry or not in terms of higher price for products and services
Although this model has a factor of redundancy on part of curators by design but it is still can be considered a cost-efficient way to maintain the quality of a list in an trust-less and decentralised manner.
In the next article I’ll write about the current state of TCR implementations, their quirks and issues related to system design in general.Looking for suggestions and feedback