Liberal Radicalism: Breaking down Buterin, Hitzig and Weyl’s paper for a self-organizing decentralised ecosystem of public goods

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Vitalik Buterin, Zoë Hitzig and E. Glen Weyl yesterday released their paper Liberal Radicalism: Formal Rules for a Society Neutral among Communities.

As prior readers will know, I tend to break down whitepapers I suspect most of the community won’t have the time or inclination to do. This falls squarely in that bracket given it is self admittedly ‘strange’ and weighs in at a healthy 41 pages.

My formal economics training is essentially limited to some cursory reading and a module in an MBA six or seven years ago. Obviously I smashed it, but I suspect that my understanding may be slightly below the curve needed to properly interrogate this paper. That said, let’s go through and try to break it down to understand what they are arguing for and proposing. Usual disclaimers apply:

  • I will explain the key concepts of the paper but not go through every single piece– the whitepaper serves that purpose. As such, some of the intricacies, exceptions and smaller aspects that take many words but have a minimal impact will be omitted
  • I will avoid validating — or refuting –claims made. There are others better placed to do so. I am just explaining what the paper is outlining for those who might not have the inclination or background to read it

As usual I’ll write as I read the paper through myself.

Abstract

Breaking down the entire abstract bit by bit:

We propose a design for philanthropic or publicly-funded seeding to allow (near) optimal provision of a decentralized, self-organizing ecosystem of public goods.

A decentralised, self organising ecosystem sounds very much like the concept of the DAO (decentralised autonomous organisation). The difference here is presumably going to be in the details of how they intend to achieve near optimal provision of public goods out of this organisation, which is something the DAO didn’t cover.

As a reminder, the now infamous DAO was essentially a decentralised crowdfunding organisation which aggregated pledged ETH into a pool. Investors were then able to vote, proportional to their DAO token holdings, on which projects they wanted the DAO to fund.

An important definition is that of public goods. Public goods are nonexcludable (i.e. impossible or at least very difficult for one person/group to exclude others from using said good) and nonrivalrous (i.e. if I use said good then it doesn’t stop others from using it). If I buy a house then that stops someone else from buying and living in that house. Something like national defence, however, would be a public good. I cannot choose to not be protected by my country’s defence force and I cannot arbitrarily stop anyone within my country from being defended by it either if they don’t pay their share for it.

The concept extends ideas from Quadratic Voting to a funding mechanism for endogenous community formation. Individuals make public goods contributions to projects of value to them. The amount received by the project is (proportional to) the square of the sum of the square roots of contributions received.

Quadratic Voting (QV) is a concept Weyl has previously put forth. Simply put, rather than the usual 1 person 1 vote (1p1v) or using capital as voting weight (e.g. those who can afford the most can buy the most votes in a linear fashion e.g. 1 vote costs $1, someone with $1m can buy 1 million votes), QV sees a voter purchase the square of the number of votes they wish to buy per issue.

For example, 1 vote would still cost $1. But 3 votes would cost $9, 8 votes would cost $64 and so on. The rationale behind QV is that voters would therefore use their resources to buy the votes for the issues that affect them the most and they feel the strongest about, but equally if they were to spread across all issues then they would achieve a more efficient use of resources (e.g. a voter contributing 4 votes to a single issue would cost them $16, but if they were to vote on 16 separate issues it would still only cost $16).

I assume endogenous community formation means that the community forms from within. I’m not entirely sure what it means in practice, I guess we’ll find out later on. I’m guessing it’s around ensuring there is no need for a centralising or controlling force to bring and keep different parties involved.

Under the “standard model” this yields first best public goods provision.

Tied to the above, the theory being that because people allocate their votes to the issues they most care about then it will lead to the best provision of public goods.

Variations can limit the cost, help protect against collusion and aid coordination.

Self-explanatory. The variations are where I guess a lot of the detail will arise, to explain the extension beyond just utilising QV and how it can be used by decentralised organisations.

We discuss applications to campaign finance, open source software ecosystems, news media finance and urban public projects.

Self-explanatory.

More broadly, we offer a resolution to the classic liberal-communitarian debate in political philosophy by providing neutral and non-authoritarian rules that nonetheless support collective organization.

If you’re like me then you don’t even know what the classic liberal-communitarian debate is. I guess we’ll come to this later.

Introduction

I won’t go through every line of the introduction and subsequent sections but let’s highlight some of the key points.

The basic problem being addressed within this paper surrounds how to fund public goods, with two examples given of the problems this can lead to:

  1. If we simply ask people to contribute to public goods then it leads to the free-rider problem. This is essentially a market failure. If everyone else is paying in for national defence then why should I bother? I’ll be able to enjoy the benefits even if I don’t pay. When played out at scale this therefore leads to either unfairness, under-resourcing or ultimately a failure to provide the public good
  2. A system which is 1p1v also has issues, because it means that goods may not be created according to the importance individuals place upon them. Therefore the ‘wrong’ public goods may be created, according to the paper

The authors note that this solution derives from the quadratic voting explained previously. They note that the “funding principle may, at first blush, seem strange or abstruse” but at first glance it makes a fair bit of logical sense to me. Subsidise those less able to contribute to minimise the dominance able to be achieved by those with the most, therefore incentivising the least resourced to still contribute (because the value of their vote is worth more proportionally and can have an impact) whilst still allowing the well resourced to contribute larger amounts to the causes they deem most important.

They then go on to note existing systems which follow a similar principle (e.g. many companies match charity donations by employees up to a defined contribution limit. Therefore an employee donating say $100 gets that $100 matched, whereas an employee donating $1000 would get the $100 matched and donate a total of $1100 — so still far more than the $200 of their colleague, but proportionally less according to the resources put in. The issue with them? That there is no systematic design and funding ratios/maximums are defined arbitrarily.

Essentially what the paper is trying to solve is to avoid the issues of (1) and (2), as well as these arbitrary limits which means that they are ultimately suboptimal for capturing (or rather facilitating) value.

Background

This section begins with returning to the free-rider issue, noting that “because each individual, if she acts selfishly, only accounts for the benefits she receives and not the benefits to all other individuals, funding levels will not scale with the number of individual beneficiaries as would be desirable.”

You may be wondering why this matters — national defence and other public goods are generally provided just fine in most countries thanks to taxation. This can be seen as more an attempt to provide a means of funding to public goods which historically (or currently at least) are not seen as such and therefore aren’t current beneficiaries of such funding.

Furthermore, public goods aren’t stagnant — they can change. For example, is data collection a public good? Open source software? And what of journalism, an industry in crisis which could undoubtedly benefit from being seen more as a public good than the cheap and easily discarded commodity it is currently viewed as?

Additionally, goods of value to smaller communities (or ideas which may be misunderstood or not widely known at the time when funding is required) will likely be ignored in favour of more majority desired ideas. The authors note that this means these small groups “may well receive no funding from democracy; this is an important reason why most small communities are funded primarily by charity or Capitalism rather than 1p1v”.

The authors then go on to note some of the other problems with these current methods:

1p1v

  • Based on the will of the majority — and often directly opposing what creates the greatest overall value
  • Can oppress minorities
  • Costly

Private exclusion-based efforts

  • Inefficiently exclude potential users
  • The lowest valuation citizen determines the provision level
  • Costly

Charities

  • Rely on motives which are frequently not aligned with common good and are susceptible to conflicting motivations

So why can’t we just use QV to solve this? Because QV alone only solves the inefficiency of the systems described above in 1p1v for a “given set of decisions and collectives”, rather than solving this issue with flexibility.

It is useful here to define flexibility? Flexibility is the idea that all the above forms require a centralised authority to define what public goods we’re going to vote on to allocate resources to. The whole point of this paper, remember, is not just to provide a new way to vote but also includes the reference in the abstract to “a funding mechanism for endogenous community formation”. I presume this flexibility is the community formation referred to, because we want decentralised organisations to be able to form a means to organically push new public goods to the forefront.

I would also note here that the idea of philanthropy (and the well-intentioned but unable to achieve maximal deployment of funds benefactor) is a consistent theme in this paper. Many of the applications described seem designed to fit this need, rather than a wider societal raise.

Anything else?

A few other bits I picked out when browsing through:

In particular, there is no sense in which the set of public goods need be specified externally or in advance; any citizen may at any time propose a new public good.

This rather neatly encapsulates what I was just trying to explain above.

Our interest here is in maximization of dollar-equivalent value rather than achieving an equitable distribution of value (we assume that an equitable distribution of basic resources has been achieved in some other manner, such as an equal initial distribution of resources)

This isn’t an attempt to create some egalitarian utopia; it is to maximise the value we (as a society) can generate. The latter half of this line, regarding an assumption of equitable distribution of basic resources, seems a rather big assumption to make. I’m not entirely sure of the purpose for its inclusion since it is hard to imagine that ever being a viable starting point. I may be missing something here.

Some improvements are possible, depending on how the funding mechanisms are adjusted; as Bergstrom (1979a,b) argued, if there is some reasonable proxy for which individuals will benefit most from a good and we can tax them for it, 1p1v democracy may yield reasonable outcomes as everyone will then agree on whether a given good is desirable. But in this begs the question: in this case any consensual mechanism will agree. Our goal is to find appropriate funding level without assuming such prior centralized knowledge.

I think this paragraph is fairly self-explanatory and does a good job of summing up many of the issues the authors are contending we face with current funding mechanisms and why they are proposing the need for a decentralised means.

The mechanism reverts to a standard private good in the case that a single citizen attempts to use the mechanism for her own enrichment. In the case where the overwhelming bulk of contributions come from one citizen, other contributions to the sum of square roots approximately drop out and we are left with the square of the square root, which is simply the contribution itself. More broadly, as we go towards goods that are approximately private, the mechanism treats them as approximately private goods.

Makes sense — this prevents the mechanism being hijacked by a dominant actor.

Any citizen could at any time propose a new organization to be included in the system…there might be a more or less extensive process of being approved to be listed in the system by an administrator;

I guess either the administrator would be all holders voting or a similar set up to Token Curated Registries?

Citizens could contribute their funds towards (or possibly against, see§5.3 below) any listed project at some regular interval, such as monthly.

Regular intervals would solve some of the issues with current governance/voting, which relies on users basically being available to vote and plugged in at all times — an unrealistic expectation.

Citizens would be given some (possibly imperfect and delayed, for security purposes) indication of the total funding level of various projects

This allows contributors to know the impact of their contribution, if a project would have enough funding to work and to stop the fragmentation of funds by lots of similar proposals being listed.

In some cases, we may want to allow for negative contributions because certain “goods” are public “bads” for some, such as financing hate speech. Allowing such “shorting” may be undesirable in some cases, as we discuss in §5.3 below, but assuming we do want to allow it does not immediately ruin everything.

This is an obvious flaw in the mechanism; how do we disallow ‘bad’ public goods?

Conclusion

It is quite easy to get bogged down in the sheer amount of detail in the paper, and it’s one that I certainly intend to revisit later on (at which point I’ll probably be embarrassed by the lack of depth to the above).

I would contend that it is important to focus on how the idea of Liberal Radicalism could appear at first, and crypto provides a natural area because it is:

  • Full of suddenly very rich people likely open to funding new ideas and public goods
  • By the same token, many of the richest in the space would be amongst the initial adherents and thus likely ideologically more open to attempts to reform current methods of distribution and power structures
  • Also ideologically more likely to be open to tech first and decentralised solutions
  • Already experimenting with new forms of governance and organisational structuring (e.g. TCRs, Aragon etc)
  • Many of the efforts in the wider ecosystem could benefit from being perceived as public goods that can be funded (such as underlying protocols)
  • In a prior article I wrote that eventually we would find a better funding mechanism than the ICO. At some point this deep ICO well is inevitably going to dry up. Although it may have been dropping this year, I have no doubt it will return in the next bull market; however, ICO donations with no investor protections won’t be sustainable in the long run

Buterin, Hitzig and Weyl’s post will likely get dismissed in short order by a large amount of people because it has ‘Liberal Radicalsim’ in the title and because it is very high level and simultaneously extremely detailed. Hitzig even admits that ‘the mechanism may seem esoteric…[we] worry about a situation in which LR becomes a nice abstraction that never gets put to work and only a select few understand”.

However, I think it has what on the surface appear as some important ideas and principles to offer, including how to avoid the tyranny of the majority and to provide public goods with better funding mechanisms less reliant on central authorities.

It’s also a further example of why I find crypto so interesting, because there are so many different areas of study which cut across it.