Burning Bridges to Greener Grass: Incentivizing Tokenized Forking

One thing Bitcoin got right is that those who defected early (from USD), got rewarded for the risk they took.

In many blockchain projects there exists tokens that are used for various purposes. In the potential scenario where there is a desire to exit or fork, the new project should just design similar incentives: reward those who defect early. Reward those who burn their bridges to greener grass.

Those who burn their tokens in Project A, gets a bonus in Project B for doing so. Those who leave early are rewarded more. The last person to burn and leave Project A does not get a bonus allocation. There is thus always an incentive to leave.

An example could be to do this with Bitcoin. For example, a one-way, trust-less burn is possible from Bitcoin to an Ethereum Bitcoin token (E-BTC) using BTC-Relay. Those who destroy their Bitcoin early get more E-BTC tokens. This way, those who want to exit Bitcoin have many more doors available for them to leave.

An eventual equilibrium will be reached when the bonus to leave is not as valuable anymore vs the value in staying.

Making it beneficial for early defectors to defect not only rewards those defectors in believing their new opportunity is a better choice, it also strengthens the value of the focal point of the existing group (think: “All the non-believers left. Thus, I can believe in those that are still here, more”).

When no other options present themselves, humans are pretty good at assuaging themselves of their predicament. When no other doors are open, it’s easier to argue that the metaphorical room you are stuck in isn’t too bad after all.

When we have many options available on the other hand, exiting also becomes a stronger signal for those who actively does not. This is apparent in countries that are in decline. Over time as people emigrate, those that stay are actively signalling that aren’t exiting. It thus reinforces the bonds of the groups who are staying. This is also apparent in relationships. Those who stay when they have options, is a strong signal to the partner of commitment.

Let’s experiment with more forking. Giving people incentives to exit that want to exit means you map Coase’s Theory of the Firm closer to its effective boundaries.