District0x Feedback 2 — Building a strong network effect

District0x crowdsale has already raised around 5 Million dollars which is 3 Million more than the minimum funding goal. The crowdsale will remain open for more contribution, but even if it were to close without any further funding the team would have enough resources to execute on their vision.

By setting a high cap well in excess of the minimum that they needed they ensured that everyone who was truly interested in the long-term prospects of the project could be involved in the crowdsale, and discouraged speculative ICO flippers from participating. This is a fantastic start for the community and I’m stoked that the crowdsale has been executed so well.

That being said, the concerns I raised previously about the utility of the DNT token are still present, and I think that addressing those concerns should be the highest priority. In order to allow the network to signal what the development team should build next, District0x will be using a custom implementation of CarbonVote and allowing DNT holders to vote for the next districts which will be built — this is fine for now, but is not self-sustainable.

All of the big DAO-based projects — Aragon, Status, Maker and District0x are struggling with this because the vision and value proposition relies on a network of token holders being able to govern and improve the network over a long period of time.

District0x in particular will struggle because there is not a significant incentive for individual districts to participate in the the network until this problem is solved. If you are a district creator you can leverage the opensource d0xInfra framework and not let DNT users stake into your district or participate in district voting and rewards.

The argument used to encourage District Creators to allow DNT staking is that it will create a stronger network effect, but allowing someone to stake using a different token that is part of a larger network (ETH for example) would likely result in as much or more of a network effect bonus for the district. Therefore a creator would only value DNT staking over ETH staking if the staking of DNT offered some inherent utility beyond what could be done by hiring someone to work on their project or improve the d0xInfra using ETH.

In addition the proposed staking mechanism is unclear, but it sounds like it would be 1:1 DNT to the districts governance token, which means that the district creator gets no personal benefit from creating the district and allowing staking, there is no bonus for coming up with an innovative district idea or building the required new d0xInfra modules to support the district.

So the community has a choice, they can rely on the core development team to build every district and govern the district directly with DNT without any staking mechanism, or we can focus the initial core development effort on ensuring that their is a strong value proposition for participating in the network and then allow the community to grow organically.

How do we build a strong network effect around DNT?

In order to make DNT inherently useful we need it to function as the governance glue that connects districts. We need to disconnect its utility from directing the the development efforts of the core team, and instead have it be the preferred way to direct the development effort of the entire community.

These same challenges apply to any network-based DAO projects including Status, Aragon, and my own project — Hive Commons. So I have been thinking about the economics of this challenge prior to learning about District0x and have been working on potential solutions for quite some time. Ideally, this could be built as a collaboration between all of these projects as each would benefit tremedously.

The solution is 1Hive, a community governance portal that enables a mutually beneficial relationship between a larger community and many smaller autonomous communities. I proposed the first stage of 1Hive, the funding platform as a district proposal and it will be included in District0x’s first CarbonVote — but I thought it would be useful to share the larger vision for 1Hive and why it would be so valuable to DNT holders.

Proposed Roadmap for District0x — 1Hive components could be a collaborative effort between Distrix0x, Aragon, Status, and Hive Commons.

Step 0: Ethlance, NameBazaar, and Meme Factory

Goal: Provide core d0xInfrastructure functionality to enable a wide range of community created districts.

The existing Distrixt0x roadmap covers the creation of districts that require Basic Market functionality and Curation Market functionality. This functionality will provide the basic foundation for d0xInfra and will enable the community to support a wide range of compelling use cases.

Step 1: Funding Platform

Goal: Make it easy to bootstrap district creation and reward innovators

The 1Hive Funding Platform operates on the Curation Market Model that enables creators and early adopters to benefit from their contribution of valuable projects and ideas.

This means that participants are rewarded for sharing their ideas as early as possible and collaboratively working on them together with the community rather than trying to develop it on their own in secret and launch first.

This proposal is very general and could be use for all sorts of funding initiatives similar to Patreon or Kickstarter, but would be particularly useful for kickstarting DAO based projects, because the project tokens created from the curation market could be used directly as DAO governance tokens.

In that case, the contributors could use the DAO governance to fund bounties through CommitEth or hire contractors on Ethlance in order to execute on the projects goals.

Funding Model Diagram

Certain tokens could be preferred by funders depending on the project intended purpose, for example a district creator might prefer to mint project tokens from DNT contributions because those contributions could be used to direct d0xInfra development, other projects may prefer to receive contributions in ANT or SNT or even a combination of multiple tokens at different rates because those tokens offer specific utility for the project.

Ideally, it would be possible to participate in governance for these preferred tokens indirectly through the projects DAO — thus a district that recieves DNT from the funding platform could use their project tokens to direct the DAOs voting in DNT related issues.

This model creates the basic foundation for sub-communities which are autonoumous but still deeply integrated into a larger network. In terms of District0x — Districts which are independent but still deeply intertwined within the District0x network.

Step 2: Consensus Prediction Market

Goal: Use a prediction market to help more active community members curate the most important governance decisions within a DAO.

In order for Districts to both be effective and truly decentralized, there needs to be an effective mechanism for community and sub-community governance tuned to the needs of Districts specifically. Governance of large, semi-public organizations have particular challenges around issue visibility, discussion and participation that are less of an issue for more traditional structures.

The 1Hive solution for this is to use the Project tokens generated through the funding platform to enable owners to participate in a consensus prediction market. This is a special case of the general prediciton market concept intended to allow a smaller subset of a community to help curate what decisions need the most attention from the community. The required components would also make an excellent general addition to the District0x framework.

Aragon is actively working on modular approaches to entity governance, however, this particular concept may not be their highest priority. A collaborative effort would be mutually benefit as it involves improvements to DAO governance (Aragon) and novel d0xInfra market functionality (Distrixt0x).

In addition all districts and aragon entities would be able to use this module increasing the value proposition for people interested in building communities on top of either network.

Step 3: Liquid Democracy

Goal: Use Liquid Democracy to enable large, open communities like districts to effectively balance decision fatigue with direct governance.

The Consensus Prediction market solves the problem of making imporant issues highly visible, but there is still a challenge of enabling users to make well-informed decisions about a wide range of issues and topics.

If you’re unfamilliar with the concept of liquid democracy, I recommend reading my recent post which offers a quick primer as well as discusses the technical considerations of implementing Liquid Democracy on Ethereum.

Hive Commons is actively working on an implementation of Liquid Democracy already, and I know that Status and Aragon are also considering integrating it into their network — so from the District0x perspective it would likely not be necessary to actually build a Liquid Democracy implementation but instead simply integrate a front-end onto the Consensus Prediction Market interface.

These three things should provide the necessary tools for district creators bootstrap a district from concept to production. Attract a community that is able collectively execute on the project vision.

The District0x network as a whole could use the same tools to tie all the districts together and collaborate on the improvement of d0xInfra.

Step 4: District Creation Interface

Goal: Further reduce the barriers to creating new districts by reducing the technical complexity for district creators.

Once the initial challenge of tying the DNT network together through the 1Hive initiatives is comeplete, the network can expand rapidly by making it as easy as possible to create a new district.

I imagine this interface would make the process of creating a new district as simple as creating a new sub-reddit. The initial creator could build a community and marketplace around their idea with very little effort. Instead of focusing on the technical implementation, they can instead focus on the specific needs of their users and build strong network effects for their markets.

I expect that after reaching this point their will be a huge explosion of creative and novel decentralized marketplaces that will all be deeply connected to d0xInfra.

If you’ve made it this far — thanks for reading! If you have any questions about this feel free to leave a response or reach out to me (@lkngtn) on either the District0x Slack, or Hive Commons Slack.