An Analysis of Token Curated Registries
What TCR’s are, why they’re exciting, and where they need to improve
What are TCR’s?
One of the more recent developments in the blockchain space, in addition to NFT’s, is the interest in Token Curated Registries. To lay the foundation for those readers who may not be familiar…
“Token-curated registries are decentrally-curated lists with intrinsic economic incentives for token holders to curate the list’s contents judiciously.” — Hunter Gebron of adChain
What’s so great about a list? While on the surface it may seem simple and minimally useful, it’s anything but. After digging into the world of TCR’s for a few weeks now, I’ve realized that there is an enormous need for well curated and agreed upon lists in a multitude of different industries. To illustrate one use case, I’ll describe the basic value proposition of the adChain registry.
adChain is working on a TCR to alleviate problems in the advertising business. Currently, in order for advertisers to find and purchase ad space on websites, they actively bid on these open spaces (called inventory) on ad exchanges that are quite similar to auctions. The problem is, many of these ad exchanges are riddled with fraudsters and bots who attempt to sell advertisers poor ad space in order to make a quick buck.
In his post, Hunter mentions that, in 2017, an estimated $20 Billion in advertising funds went to fraudulent parties. The solution that adChain has proposed is a token curated registry consisting of reputable websites that advertisers can use to find ad space and be absolutely sure that their advertising dollars are not going to waste.
Incentive Structure
As you can see, there is definitely a need for something like TCR’s. But are the cryptoeconomic incentives aligned for each party in order for it to ultimately succeed? Let’s take a deeper dive.
“So long as there are parties which would desire to be curated into a given list, a market can exist in which the incentives of rational, self-interested token holders are aligned towards curating a list of high quality.” — Mike Goldin
Anyone who wishes to add a listing to the registry may do so at any time. All it requires is that you pony up a minimum deposit (in the registry’s native token). After that, there is a minimum required wait time before your domain is officially added to the registry. During this time, any other curator can challenge your listing if they believe that it is not worthy of being included.
In order to do this, they must match your initial deposit of tokens. Throughout the challenge period, any curator can vote on whether they deem the applicant’s listing worthy of being included in the registry. Votes are weighted proportionally to the amount of tokens the voting curator possesses.
Challenges introduce an additional incentive layer for curators. If the voting concludes in favor of the applicant, their listing is added to the registry and the challenger’s deposit is forfeited. If the vote concludes in favor of the challenger, the applicant’s deposit is forfeited and the listing is not added to the registry.
As for the forfeited deposits, the winning applicant or challenger is awarded a reasonable percentage of the tokens staked in the challenge. The remaining percentage of tokens are then distributed amongst the voting parties proportional to the weight of their vote.
So what are the incentives for the other parties? In the case of adChain, if token holders can curate a high quality list of domains with valuable ad space, advertisers will use that list to determine where to delegate their ad dollars. If publishers want advertiser dollars, they will buy adTokens in order to add their domain to the registry. More curators will then continue to buy adToken in order to maintain the list and ensure that it remains of high quality. And with this, the cycle repeats.
[Note: Different TCR’s will most likely have varying incentive structures]
The Hidden Value
When I first learned about TCR’s, and specifically adChain, I thought of the process as being very black and white. As long as a well known domain with a certain amount of web traffic applies to the registry, it should get in right?
Wrong.
The adChain registry has been live for approximately a week now and something very interesting has already occurred. Thus far, four domains have been challenged. Included in these four are ‘facebook.com’, ‘nytimes.com’, and ‘reuters.com’. You would think that these websites would be obvious shoe-ins for addition to the registry. However, registry curators are challenging these domains on the basis of company conduct. The most recent being Facebook’s stint in the limelight regarding the Cambridge Analytica fiasco. As for NY Times and Reuters, curators are clearly not pleased with the quality of news in which they are reporting and therefore do not believe they are reputable enough for the adChain registry.
(See the ongoing Reddit discussion regarding if Facebook should be added or not)
The whole point of the adChain registry is so advertisers know where the best quality ad space is in order to connect with their target customer as optimally as possible. Therefore, advertisers want ad space on websites that consumers deem reputable; regardless of their popularity or traffic the website may garner.
This fact is particularly exciting since it adds an entirely new dynamic to TCR’s. If registries like adChain gain enough traction to the point where they become the first stop for advertisers before they go spending advertising funds, then listed companies will be incentivized to remain in the good graces of the public or risk being removed from the registry and suffering a serious financial loss.
Dream with me for a moment. Assume that token curated registries become the gold standard of value signaling in industries such as advertising. Companies such as Facebook or Google now rely on their listing in the registry in order to attract advertiser funds. In this world, the masses essentially have the power equivalent to having a seat on the board of directors at these companies. With simply a wallet full of tokens and a click of a mouse, society suddenly has more influence over large corporations than ever before.
Coming Back to Earth
It’s very easy to get excited about about the potential of TCR’s. However, it’s important to remember that this is all still very experimental and there are plenty of hurdles that must be overcome in order for them to grow effectively. So what are a few of the things TCR’s need?
Order
As registry growth accelerates, it will be crucially important to have an ordering system. According to a January survey conducted by Netcraft, there are approximately 1.8 Billion websites on the internet. Imagine if the adChain registry grew to even a fraction of the total domains on the web. It would be virtually impossible for advertisers to sift through the list in order to figure out where they want to deploy advertising dollars. In fact, it would most likely deter advertisers from using the list.
In a recent post by Achill Rudolph, he addresses a few solutions for the ordering dilemma. The most promising of the solutions is a separate voting system within the registry in which you give weighted endorsements to registry listings. Each user can give as many endorsements as they want, but only one per listing (i.e. can’t vote for google.com twice). This allows every curator of the registry to rank the listings based on their own personal preference and point of view. Now, aggregating every curator’s personal ranking, the registry will arrive at a collective general consensus on order. Implementation of this mechanism has promise, however curators probably won’t put forth this extra effort out of the goodness of their hearts. This will require an additional incentive system for the users so that they are motivated to rank their personal preferences. One way to do this is to introduce some kind of rewards system in which users are compensated if the rank of that listing trends in the direction of their weighted endorsement.
One issue with this approach, as Achill mentions, is that it could give way to bribery. Listed parties hoping to climb the ladder could bribe token holders to rank their listing higher on the registry. However, I do not believe this to be a substantial issue. If ordering of the registry becomes obviously corrupted, then users can easily fork the code and continue the registry elsewhere. Those who rely on the quality of the registry for their businesses will therefore flock to the more honest and useful registry and, consequently, so will curators in pursuit of maximum profitability.
Competition
As I mentioned previously, the token curated registry space is still in the very nascent stages of development. As the space evolves, there will be an growing need for competition between similar TCR’s in order to ensure the highest quality registries. For example, we need to create more registries that are also trying to curate the best publisher domains like adChain. By doing this, you create competition between registries to curate the most useful list; thereby improving the overall quality and usefulness of these registries for advertisers.
More Curators
Last, but certainly not least, we need more people to curate these lists. The only way TCR’s and their underlying tokens are going to accrue value is if we can create lists of high quality. In order to do this, we need millions of individuals with different perspectives providing their unique input. If we only have the blockchain community curating these lists, we get a very siloed result that will be of little use to entities like advertisers.
We all, collectively, need to do a better job of educating our neighbors on what this technology is and how it can be useful for them, too. So, instead of getting into fights with people on Twitter or trolling those who ask beginner-level questions, try to understand where they are coming from, foster intelligent conversations, and help further their knowledge. The success of projects such as TCR’s may depend on it.
Closing Thoughts
It’s clear that there’s a need for token curated registries in various industries today. For the first time in history we have a mechanism that allows us to arrive at an aggregate consensus on inherently subjective questions. As noted, the path to an optimal TCR is not going to be easy. We will undoubtedly need to iterate on things like cryptoeconomic design and registry governance again and again until we get it right. But as the pretty picture above states: where there’s a will, there’s a way.
Resources
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