On the Utility of the GEN Token
“In the same way that ether is gas for the collective attention of computers, the GEN token is gas for the collective attention of human beings.”
- Matan Field, DAOstack Architect
“Do we really need a token for this?” is a common and important question in the blockchain space, and it’s one we want to make sure we answer clearly. DAOstack’s collective attention token, GEN, is designed to have a core utility in the governance of decentralized organizations: helping them scale efficiently without compromising their values. Decentralized autonomous organizations (DAOs) can have any conceivable goal or purpose, and so GEN, not unlike Ethereum, has the potential to fuel a diverse ecosystem of collaborative organizations and applications.
Understanding GEN’s utility requires a quick description of the token’s mechanics. First, let’s picture a typical decentralized governance scheme: members submit proposals, then vote on them, with a proposal passing if a majority of members vote yes.
It works at small scale, but quickly becomes unwieldy in larger organizations, as members don’t have enough time to evaluate every proposal. If you require 51% of the DAO–an absolute majority–to pass every proposal, larger DAOs are at risk of getting very little actually done.
This 51% requirement is the DAO’s quorum. Set it too high and the DAO is paralyzed. Set it too low and the DAO can be easily manipulated by a minority coalition. It’s a tricky problem that GEN is designed to help solve. A DAO using the GEN predictor network has a middle layer between proposal submission and proposal voting that filters proposals by their predicted chance of passing, with the best, most value-aligned proposals boosted to the top of the list. Boosted proposals no longer need 51% of voting power to pass; instead, they require only a relative majority, a majority of the voting power that weighs in on the proposal. DAO members can still vote on any proposal, but they now have a useful guide on where to invest their limited attention.¹
In such a DAO, both members and non-members can stake GEN on a proposal, betting that the DAO will either pass or fail it. They have strong motive to do this since correct predictions will earn them a reward. Essentially, both DAO members and outsiders have the opportunity to offer a DAO their expert attention in exchange for a GEN reward, helping the DAO focus on the highest-leverage proposals and make smarter collective decisions. Put another way, any individual who confidently believes a particular proposal will pass can boost it by purchasing a large prediction stake, directly influencing the DAO’s collective attention. This set of incentives is a core part of what we call the “holographic consensus” approach.
The GEN Predictor Network for DAOs
All organizations built on DAOstack are free to install the GEN prediction system in their own governance schemes, and there are some good reasons to include it: 1) GEN prediction puts an existing network of knowledgeable, active predictors to work for you, 2) the module to activate it is pre-built, and 3) it gives the entire GEN ecosystem skin in the game of your DAO’s success.
DAO founders can use GEN prediction simply by including the module for it and purchasing some GEN to start incentivizing predictions. The GEN prediction module is functional now and will be included in DAOstack’s first official Dapp, Alchemy, an application for decentralized fund management. The parameters, such as how much GEN to offer predictors as rewards for staking, will be configurable.
The community of GEN predictors is already gaining members and experience. The Genesis DAO, which will manage a large portion of the funds from DAOstack’s token launch, is currently using GEN prediction on the Ethereum mainnet. All DAOs deployed during Alchemy’s pilot phase will use GEN and so continue to grow the predictor community. By the time of Alchemy’s first full release, the predictor network will likely have hundreds of members who have staked on hundreds or thousands of proposals.
Predictors are motivated to help new DAOs not only because of the rewards inherent to the staking system, but also because, as holders of GEN, they benefit when the organizations that utilize GEN become more successful. When a DAO commits to the GEN predictor network, the network also becomes invested in the DAO’s success.The prediction network has skin-in-the-game of all participating DAOs.
Ultimately, we foresee a large community of predictors with wide-ranging expertise advising DAOs through staking. We expect predictors will gravitate toward DAOs related to their particular skills and experience, and each will have a set of DAOs they track and stake for.
Since the protocol is open source, it is possible for developers to fork the GEN network to use a different staking currency, like Ether, which would weaken the GEN ecosystem, but as Vitalik Buterin has pointed out, this risk is less threatening than it seems, partly because “the ‘pirate’ version would have to compete with the ‘official’ version for network effect.” GEN will have a long, hopefully successful head start on any alternate-stake forks, so a number of different network effects should defend it from upstart protocols.
The Game Theory of DAO/Staker Alignment
As mentioned above, predictors are rewarded for successfully forecasting the outcomes of proposals. Monetary rewards are a self-explanatory motivation, but it’s also worth mentioning the prediction system’s interesting game-theoretic dynamics, which DAOstack architect Matan Field articulated recently. In summary:
Good staking strategies align organically with the DAO’s wishes. The biggest rewards for staking come from:
- staking correctly, meaning your pass/fail prediction comes true,
- staking against the highest possible opposite stake, and
- staking larger amounts, since rewards are proportional to both your total stake and your fraction of the proposal’s total stake.
To win at the staking game, then, predictors should learn the DAO’s values and recent voting behavior so they can make accurate (and value-aligned) predictions. They should search for proposals with pre-existing stakes they believe are wrong, helpfully correcting ignorant or malicious predictions. And they should stake as much as they can afford to lose. Over time, we expect skilled predictors to have greater success and generally continue to play, while unsuccessful predictors will lose money and self-marginalize. Therefore, the predictor network should learn to direct DAO attention increasingly toward the most aligned proposals.
The Long Term Value of GEN
In our opinion, GEN compares favorably to the usual criticisms of utility tokens. Most utility token critics argue that the tokens’ limited initial purposes make them unlikely to become stores of value — instead, they’ll be spent at a high velocity and have a correspondingly small total value according to the equation of exchange. That’s the traditional theory, but crypto-economics is a new field, and this critique paints an incomplete picture of it.
First, utility tokens are not necessarily less likely than other crypto-assets to become stores of value. Value store commodities typically need to be nondegradable, portable, divisible, relatively uniform, limited in supply and/or production, and most importantly, widely demanded. Most national currencies and precious metals meet these criteria well. Bitcoin, the prototypical crypto-store of value, does okay, too, but crucially, so does Ether, a token with a clearly defined use.² By all appearances, every ERC20 token satisfies the store-of-value prerequisites, and so ERC20 tokens like GEN are just as able to become stores of value as Bitcoin: consistent, broad demand is likely the deciding factor for both.
Which Dapps and cryptocurrencies grow to be widely sought is, and pretty much always has been, the big question. One of Ethereum’s defining characteristics is its wide range of possible applications. While ETH has a single, stated use — fuel for the collective Ethereum computer — that computer is massively multi-purpose. If even a small fraction of Ethereum Dapps achieve widespread success, they may drive ETH’s use for a long time.
GEN is one of Ethereum’s strongest parallels: unlimited DAOs for any conceivable human purpose may be built on DAOstack, and if even a small percentage become successful organizations using GEN prediction, they alone may drive a broad, consistent demand for GEN. DAOstack is kickstarting the collaborative DAO ecosystem by moving raised funds into the Genesis DAO and other, yet-to-be-announced DAO pilots using Alchemy. As Genesis’ budget grows, and more capital is deposited into other new DAOs, stakers will have a wider array of DAOs to stake in and greater potential staking rewards awaiting them.
Concisely, GEN incorporates many of ETH’s positive features:
Learn More and Get Involved
In this blog, we’ve tried to present a clear explanation of GEN’s mechanics and why the token might one day power a thriving network of decentralized organizations. To find more information about the protocol or our design approach, please connect with us:
- Part of an organization interested in funding a pilot DAO or building on DAOstack? Connect with us here.
- Experience Alchemy, DAOstack’s first Dapp, currently live (in alpha) and in use on the Ethereum mainnet
- Check out and/or follow the DAOstack Github, or jump into the stack with our friendly Hacker’s Kit.
- Interested in joining our official early adopter community and participating in a pilot DAO? Email our Pollinators program coordinator.
- Follow DAOstack on Medium, Twitter, or any of the other channels you’ll find on our website.
- Starting October 9th, GEN will be listed on Liquid, the new cryptocurrency exchange by QUOINE, with GEN-ETH, GEN-BTC, and GEN-QASH to start, followed by GEN-fiat pairs in the near future. GEN is currently available on Hotbit and IDEX.
¹ In DAOstack’s first Dapp Alchemy, DAO membership is represented by reputation, which is earned and lost in various, evolving ways. Voting is done using reputation, and a user’s voting power is tied to the amount of reputation they currently have. In the Genesis’ DAO‘s current round, for example, most members currently have between 1.5% — 2.5% of the DAO’s total reputation.
² Is ETH a utility token? It isn’t often referred to that way, but it certainly has an explicitly defined use: “a fuel — for operating the distributed application platform Ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operations.”