The Power of Incentives : Token Engineering @ WU Vienna — Recap/Outlook — Meetups 2018/2019

Overview

On October 1st, 2018 the Cryptoeconomics Research Lab at our University started it’s Token Engineering activities. This project is conducted in two parallel streams, a backwards-looking theoretical stream and a forward-looking practical implementation stream. The theoretical stream focuses on existing scientific papers and literature and investigates how solutions from other scientific disciplines can be applied to explain cryptoeconomic mechanisms. The practical stream focuses on current projects and best-practices in the crypto-space and invites the community to contribute to the identification and definition of standards in ecosystem design.

Cryptographic Token are a new application of the Blockchain and Distributed Ledger Technology (DLT). With smart contracts it became very easy to create tokens and sell them on the market, however most of these new tokens and the ecosystems they operate within do not have a proper design. Most current projects lack clearly defined and implemented functionalities. The field of Token Engineering aims to provide a framework for the design and implementation of token ecosystems. This is done by combining scientific research in the fields of mathematics, engineering, economics and social and political studies with best-practices analysis of existing projects.

To provide a fruitful environment for discussions a monthly token engineering meetup is organized. The first two events took place on November 13th and December 11th 2018. The first meetings showed that a core group of enthusiastic and competent participants with various backgrounds is highly motivated and interested in contribution to the creation of this new scientific field. The positive feedback encouraged us to continue our work and schedule subsequent meetups beginning from January next year.

This article aims to summarize the first two events of late 2018 and to give an outlook on how we aim to structure our future work and events in the upcoming year 2019.

Summary 2018

After joining the Research Lab in October it seemed clear to me that both a structured approach and inspiration from the community are necessary ingredients for successful future work. Some quick brainstorming with Shermin Voshmgir resulted in a rough plan which we wanted to follow to bootstrap our activities. First, we decided on the two-pronged approach described briefly above and in more detail in this introductory article. Second, we decided to go to Berlin in late October and attend the global Token Engineering Gathering for some creative input from the international community. All talks from international experts including our keynote speech were recorded and can be found and rewatched in this YouTube playlist. Moreover, this article describes the key elements of our talk.

Back in Vienna and without much hesitation we decided to schedule our first two meetings before Christmas to get a feeling for the local community and it’s needs as well as knowledge of the topic and motivation to contribute to its research. Expectations for the first event were not easy to define, since we didn’t know who would attend and how the evening would turn out. Our plan was simply to send out an invitation, find out who is interested and what kind of expertise, experience and background they bring to the table.

1st event

Around 20 guests followed our invitation to the first meetup on November 13th, where my colleague Tatjana Novakovic and I had the chance to introduce ourselves, our Institute and our envisaged approach on the next activities. What followed was a fruitful discussion among all participants on how they see cryptographic tokens and what they wish to know about them.

What we found out during this discussion is that knowledge of the topic is very fragmented and that predispositions toward research and design are very heterogeneous. Most participants were generally well informed, however they came from very different backgrounds and thus almost everyone had a different angle on the issue. We all agreed that in a broad sense the community wants and needs to define standards on how to build tokenized ecosystems. What became obvious to me is that clarification is needed with respect to different phases of the ecosystem design process. Therefore we classified various questions posed during the first meeting and thanks to many contributors to the discussion we identified four subfields that need to be considered in more detail:

1. Ecosystem / Business Case definition (in a general sense: what do we want to build?)

This field is not at all limited to token and blockchain. It has more in common with business planning in general: To realize any undertaking an analysis of stakeholders, markets, products, behaviors, mannerisms, trades and incentives has to be conducted. In the form of market research, studies and bench-marking information about the situation is collated and subsequently it is transformed into a business model and later into a business plan. Afterwards organisational, structural, administrative, technical and legal questions are addressed. This results in a definition of the appropriate technological and organisational framework and enables the best set-up for further proceedings.

2. Token Model Engineering (in a (socio?-)economic sense: how can we use a token to incentivize behavior?)

If the decisions of the first phase call for a decentralized tokenized structure the underlying token model needs to be designed. Cryptographic token take many different shapes, and can be set up to serve for various business and governance applications. However, the envisaged process must be understood very well in order to result in the most suitable design. To do so, a deeper look at the transaction of goods and services between the stakeholders of the ecosystem and the resulting value exchanges needs to be taken. Agent-based models from Economics and Mathematics can be applied to understand the system better. In the end all possible actions and incentivising benefits as well as disincentivizing punishments have to be combined into a closed economy and will result in a description of a protocol of conduct.

3. Token Model Implementation (in a programming sense: how can we write the code and build the architecture to enable these systems?)

Once the set of behavioral actions (=the action space) is defined a technical solution has to be found and implemented. From the wide perspective of the general system architecture to specific details in blockchain and smart contract programming developers and system architects have to find a way of how to implement the protocol defined above. Afterwards applications can be built on top of the technology and devices can be connected.

4. Token Ecosystem Valuation (in an investment-economic sense: how much are these systems worth?)

Systems can be evaluated at any stage of the project. Beginning from a “start-up” valuation based solely on the business plan or the white paper to more sophisticated approaches on running businesses many methods from economics and corporate finance can be applied. One take is to use macroeconomic models and valuation methods that include monetary economics. Another angle is to utilize discounted cash flow models or project financing calculations. As a result an estimation of the ecosystems value is expected which might lead to a justification of a price of the network token.

Although this breakdown is not exhaustive, it seemed like a good start that allows for a structured approach for further discussions.

2nd event

The plan for the second meetup on December 11th was straightforward. Based on the conclusions of the previous gathering I wanted to sharpen the understanding of all phases of the ecosystem design process by specifying questions we need to discuss. I was more than happy that most of the guests came again to the second meeting, providing evidence that we are on the right track with our approach.

For this time, I prepared a presentation about one publication about “Token Ecosystem Creation” by Outlier Ventures, a document that was created in collaboration by many pioneers working in this field. I would consider this paper a must-read for everyone interested to learn more about how to realize ideas on the blockchain. It gives an excellent overview of all required steps and issues that need to be taken into account during the discovery, design and deployment phase of the project. Based on this document we discussed all phases that are required in the design and creation of a tokenized ecosystem, following this agenda:

1. First I presented and briefly discussed the document
2. Next we all in depth discussed the suggested roadmap and collected questions from the audience
3. This allowed for possible adaptations and extensions to this roadmap and revealed what topics our local community is interested in most
4. Finally we brainstormed which projects, methods, practical use-cases, academic approaches, literature and papers could help us to increase our knowledge on the topic

The interactive brainstorming resulted in these questions with respect to the three subsequent project phases:

1. Discovery:

• What are contracts? Can they be designed technically?

2. Design:

• Lock up time for management, VCs , Whales and Hodlers
• Maximum number (%) of tokens and lock-up for VCs and Whales
• Where do sinks and siminal stacing design elements fall under? Do we need them?

3. Deployment:

• I come from “Scrum” projects where delivery/implementing is merged. How can this be done when tokens are already in circulation?
• How to calculate Return on invested Capital after pre-defined project-phases?
• How to measure fail or success?
• Are there only mega-launches or do small sandboxed projects with trial & error approach exist?

With respect to the four categories defined during our first meetup our guests contributed the following remarks:

1. Ecosystem / Business Case definition (in a general sense: what do we want to build?)Does community-management replace things like employee management and client management?

• What kind of blockchain do I need? Which one is the most fitting for my use case?
• Should I build my own blockchain or a token on an existing one?

2. Token Model Engineering (in a (socio?-)economic sense: how can we use a token to incentivize behavior?)

• Stakeholder Framework Models? Do they already exist?
• How can I transform economic ideas into programming language?
• How do I formalize my ideas of incentives?
• What kind of algorithms exist as a template? Are they understandable for non-programmers?
• Which monetary school is applicable for my token model?
• How to simulate token economies using AI agents

3. Token Model Implementation (in a programming sense: how can we write the code and build the architecture to enable these systems?)

• What about sandboxes?

4. Token Ecosystem Valuation (in an investment-economic sense: how much are these systems worth?)

• Can I use PPP ( Public Private Partnership) valuation methods?
• Which discount rate to use for valuation? Are there benchmarks?
• How can I apply business/enterprise valuations to ecosystems that have properties like nation states and macroeconomic institutions?

This list of questions unveils how wide-ranging the interests of the community are and that tackling them in a coordinated manner is required.

Outlook 2019

Our plan for our 2019’s meetups is to define a framework for token ecosystem design with a strong focus on actual realization. Building on existing material we want to establish a standardized approach including a clear taxonomy, formalism and guidelines covering all possible use cases. The envisaged deliverable of our work shall be a blueprint for the whole process allowing to create every token for various applications.

The more specific we want to become, the more basics we have to establish. Most importantly we need to understand what we are talking about, how to talk about it and finally how to use it for system design. Therefore the major milestones for the next 6 months are:

1. Define a clear token taxonomy, to explain in detail which token types can possibly exist are available to be used in practical implementations. We aim to finalize this within the next two months.
2. Propose an universal token formalism capturing all token types, their characteristics and properties defined by the taxonomy. This abstract mathematical structure will introduce a precise perspective on the subject and clear the fog currently present in many discussions on token economics. We aim to finalize this within the next four months.
3. Connect to related scientific disciplines. A formalism will allow to proceed with scientific activities and research and also connect the subject to various other field of science and existing theories. Especially mathematical, engineering, economic and programming theories and methods can be built upon next. We aim to finalize this within the next six months.

We will conduct these tasks by continuing our two-pronged approach combining analysis of scientific papers and best practice examples. With the help of our community we will discuss interesting papers and projects. If you are interested in contribution to our work, please find below information in the ‘links and resources’ section.

Next Events

• Meetup #3 on 15.01.2019
• Cryptomonday on 17.01.2019
• Meetup #4 on 12.02.2019
• Meetup #5 on 12.03.2019
• Unblock3d Conference on 01 and 02.04.2019
• Meetup #6 on 09.04.2019
• Meetup #7 on 14.05.2019
• Meetup #8 on 11.06.2019

Dates of meetups 4 to 8 are subject to possible changes. Always refer to the meetup group for final information.

Links and Resources

The dates of the next meetups can be found here. The agenda of the next event is discussed in this telegram channel and afterwards set by Krzysztof Paruch, the head of the Token Engineering project, to satisfy the interests of all participants. You are welcome to suggest a topic that you want to present or discuss, we will help you to align it with our general agenda. Scientific questions can be submitted here, interesting projects can be submitted here and research material such as papers, books or articles can be submitted here.