Token Curated Registries: An Experiment in Game Theory, Part 3

Potential Pitfalls, Challenges and Caveats

If you haven’t read parts 1 and 2 of my series on Token Curated Registries, check them out first!

For my final post in this series, I will discuss the potential challenges facing TCRs and potential solutions to these challenges as described by various TCR proposals. The objective of this article is not to diminish the importance of TCR projects or the hard work put in by the teams behind these projects. My goal is to increase my understanding of TCR concepts by analyzing everything that could potentially go wrong.

Voting to Win, Not to Curate

A major assumption made by TCRs is that token holders will always vote objectively when an applicant is challenged. In other words, voters will always vote in a way that reflects who they believe should be on the list because this is the best strategy to make profit.

There is, however, a short-term financial incentive for token holders to vote with the majority even if they disagree with the majority. Voting with the majority leads to being awarded with additional tokens while voting in the minority leads to losing tokens. If a token holder can successfully predict the outcome of a vote before they cast their vote, their best strategy for making profit may be predicting the outcome of a vote instead of curating the best list possible. For the purpose of this article, we will refer to this strategy as vote-to-win.

Predicting the Majority Vote

The vote-to-win strategy is dependent on the ability of a token holder to predict the outcome of a vote before voting is complete. Current TCR proposals dissuade this strategy through what is known as a commit/reveal mechanism. That means that token holders will not know how others voted until everyone has cast their vote.

While this solves the problem of token holders using casted votes to determine how they can vote with the majority, there may be other ways to accurately predict the outcome of a vote before a token hodler casts their vote.

Let’s use ETH Moon Cafe once again as an example. The Best Cafes in San Francisco TCR is a subjective list. Token holders will need to communicate in forums like Reddit or Slack in order to discuss whether ETH Moon should be included in the registry.

Even with the commit/reveal mechanism in play, the outcome of a vote may still be obvious to a token holder based on the discussions taking place on these forums.

Consumer/Curator Synergy

TCR proposals imply that the long-term goal of appreciating the value of your tokens by curating a quality list is enough to resist the short-term impulse to accumulate more tokens by constantly seeking to vote with the majority.

Their may be less of a short-term incentive to vote-to-win if token holders also benefit financially off-chain. An example of this is the Adchain TCR.

Adchain seeks to solve the problem of trust between advertisers (those who create advertisements) and publishers (those who post advertisements on websites and make them viewable to potential consumers). Currently, many publishers defraud advertisers. Advertisers pay publishers on a “per click basis” and many publishers fake traffic using bots in order to maximize their clicks. In the Adchain TCR, token holders curate a list of trustworthy publishers so that advertisers can avoid being defrauded.

If advertisers become the majority token holders of the Adchain TCR, they will be both the consumers and curators of the registry. This consumer/curator synergy may be enough to convince token holders to resist the short-term temptation to vote-to-win.

By curating a quality TCR, advertisers not only benefit financially through token accumulation and appreciation, they also profit off-chain by having a list of trusted publishers that put their advertisements in front of real consumers.

Curating the Synergy

Companies creating TCRs may find it useful to purposefully reach out to potential consumers of the TCR in order to encourage them to be voting token holders. Some people may not like the idea of a central entity actively recruiting TCR curators. Although I think that this may be necessary to bootstrap TCRs, there might be a way to create this consumer/curator synergy in a decentralized fashion in the long run.

This can be accomplished by requiring token holders to go through the TCR application process themselves before they are eligible to vote. First, a potential voting token holder would have to attach their identity to a public key using Civic, Uport or Sovrin.

After their identity is tied to a public key, potential curators would submit a deposit to apply, be subjected to a vote if challenged and may be rejected if token holders do not believe they qualify as good curators.

TCRs Can Have a 51% Attack Too

In a TCR, a 51% attack can come in the form of a whale token holder owning 51% of the tokens.

If you vote against someone owning 51% of the tokens, you will lose every time you choose to vote against this token holder.

This may be easy to recognize via etherscan if the tokens are all held on a single public key; however, if a whale token holder spreads their tokens over multiple public keys, detecting a 51% attack is more difficult to identify.

One solution to this attack is hard forking the TCR after it becomes evident that a 51% is taking place.

A Potential Preventative Solution

We may be able to prevent a 51% attack by attaching a token holders identity to a single public key using Civic, Uport or Sovrin. By requiring token holders to reveal their identity before being eligible to vote, the TCR community might be able to prevent a token holder from using multiple wallets to mask their total holdings.

How Big is Too Big?

Some people suspect that as a TCR list grows token holder incentives will be negatively impacted.

Let’s say that a TCRs has 20,000 items in its registry. This may reduce token holder incentives to curate a quality list because each new addition to the registry has less of an impact on the overall quality of the list compared to when the list contained only 50 items. This might mean that each additional entry to the registry has less of a positive impact on a TCR token’s value.

If this turns out to be the case, token holders are only motivated to curate the list from the token accumulation that takes place when you successfully challenge an applicant or vote in the majority.

Will TCRs Work?

It is a little early to tell. Most of these projects are still being developed on the Ethereum testnet; when TCRs do go live, we shouldn’t be quick to give up on TCRs if they do not work immediately. Developing is an iterative process and, after launch, we should expect projects to gather data and make adjustments as necessary.

So far, blockchain technology has successfully removed the need for a bank to store value and transmit value from one peer to another. What attracted many of us to this space is that we believe that this will have a massive impact on society because it increases the autonomy of the individual. TRCs are aiming to further extend the autonomy of the end user by removing the need for yet another central entity.

Let’s root for TCRs because they are attempting to take us one step closer to a decentralized future.

I would like to thank Mike Goldin for his work on TCRs. He first inspired me to think about TCRs after I watched him on a panel at ETH Denver. In his writing and presentations, he frequently credits those before him and mentions that his work and writing on TCRs is an aggregation of the hard work of others. This of course should not diminish the hard work that he himself has put in this field.

I would also like to thank MetaX CEO Ken Brook for taking the time to answer questions for me about TCRs over the phone. MetaX is developing Adchain and I can’t wait to see Adchain hit mainnet.

Follow Mike Goldin on Medium

Follow MetaX CEO Ken Brook on Twitter

Follow me @jmartinez_43 on Twitter

Citations/Resources/Learn More

• The Token Curated Registry Reading List — Medium
• Token-Curated Registries 1.0 — Mike Goldin
• Token Curated Registries 1.1, 2.0 TCRs, new theory, and dev updates — Mike Goldin
• The Adchain Registry Whitepaper — Mike Goldin, Ameen Soleimani, James Young
• District0x White paper, pg. 11
• City Walls & Bo-Taoshi: Exploring the Power of Token-Curated Registries — Simon de la Rouviere