While Davos jet-setters discuss global warming, skiing is still going downhill
It turns out that we can do more today to combat climate change than ever before. With ElectraSeed Fund we’re technologists on a mission to help power-up the planet with clean energy, crowdsourcing and crowdfunding: We’re developing a curated investment pool with token engineering, some red balloons, and direct sunlight to do just that.
Our economies are wired such that if they go “up and to the right”, all will be good. Whilst this was generally true for GDP of nations in financial terms, it did nothing to ensure equality. Making more money, by selling more energy, at “low cost”, powering our economies with “cheap” fossil fuels, only played out well for a select few.
The social, environmental, and economic impact accounting of that era is embarrassing: After 150 years of electrification still 800 million people have no access to electricity in the Global South. The Global North are still driving all of us into climate crisis.
But economies who made it have more to give, right?
If we consider that 30% of all charitable giving made in 2019 came from the wealthiest 0.5% of the population alone while the total number of individual donations has steadily decreased for the last 15 years — and before we get a little peeved with how income inequality manifests itself here — it’s important to realise that the social and environmental impact potential of investing in the Global South is often not enough for the current players to attract the kind of investment that can make a difference.
Even when solar is the cheapest source of power in these regions and despite access to clean affordable electricity (SDG 7) being at the foundation of all sustainable development from now on in the Global South and the North, there seems to be a blockade.
This is because the challenges associated with sourcing, vetting and on-boarding value-aligned, many, distributed clean energy projects is a modern problem that requires a modern solution. It involves rewiring the system by rewiring its incentive mechanisms.
Why does ElectraSeed Fund pool projects in the first place?
The pooling of projects from the Global South and North provides investors with a low risk and highest impact alternative where they can, either as individuals or as organisations, direct the investments made by the fund.
Hence, the pool consists of solar smart micro-grid projects within well known and trusted legal jurisdictions and structures in established economies, and of projects from emerging economies, where higher risk tolerance is needed, but where the social impact of clean energy access is nowhere to be had in the matured economies.
Who is it for?
ElectraSeed Fund should attract both the global diaspora and the family office to the community driven investment pool with the potential for a modest (?) but ethical and reliable financial return and data-driven evidence of positive social, environmental and economic impact realised with the provided funds.
The ElectraSeed Fund governance processes are designed to encourage active community participation regardless of individual economic power. These signals of participation are captured as part of the process to direct the funds, without a single fund manager, but through collective, data-driven decision making.
The incentivised curation opens the doors for bootstrapping a “query propagation network” for climate action that can provide us with the reach and capabilities to rival some of the largest NGOs and asset managers. And with us, I mean you, too.
The Solution Stack
Whilst the smart micro-grids are distributed across the globe, brought to local communities by operators (physical plane), the decision of how to value these and direct funds to this objective value of clean energy access is typically entirely subjective (social plane). We create a new solution to improve and scale funding decision in an algorithmic, data driven way (digital plane). The solution stacks cryptoeconomic building blocks, which can be subsumed under the term “smart tokens”.
These tokens not only help fund and transparently capture network value, but also provide their own transparent data-driven exchange mechanism. With the recent advances in token engineering, we came to theorise smart tokens as efficient price estimators for network value.
Augmented Token Bonding Curves — and their raison d’être
The “move-fast” ICO era left us with a few good building blocks and many lessons learned. The “ERC20”standard for money-like tokens has largely proven itself, but the token sales practices of that time invariably left investors vulnerable to speculation due to a combination of factors such as low market liquidity, information asymmetry and deficient price discovery mechanisms.
The teams, once funded, had very little extrinsic motivation to complete their work because of the upfront capital allocation and the lack of urgency, ineptitude or downright fraudulent behaviours we have witnessed since then. This technological revolution as implemented in 2017 was not a solution, on the contrary, it digitally amplified death by overfunding.
Cryptoeconomic thinking evolved with the introduction of reverse-ICOs, gamified grants and “ecosystem funds” as a response, but the damage was done to that funding model and investors demand something “safer”.
From a “perceived safety” perspective, the Initial Exchange Offering (IEO) model is probably the easiest to reason about — it simply involves centralising the fundraising event at one “brokerage”, with the expectation that some professional due diligence is present in the listing process, as well as solving for liquidity in the short term.
IEOs, however, do not allow for better accuracy in the price discovery process because the relationship between token issuer and broker tends to work against… the investor. Frankly, having been involved with crypto-exchanges in the past, I have some ethical reservations about this model, after all what can be expected from listing “utility tokens” at an exchange? Would day trading BigMac Coins increase the price of the hamburger or decrease its size?
It’s unsurprising then that crypto-economists chose to focus on public governance models, liquidity and algorithmic price discovery instead, and that’s how Token Bonding Curves (TBC) were memed into the design space.
Taking inspiration from fractional reserve banking, the Bancor team developed the original Bonding Curve library for their Smart Tokens which can take a basket of different currencies like tokens as collateral to launch new tokens deterministically priced based on a ratio between the total supply and the value of the basket.
In contrast with a regular ICO contract where tokens must be listed somewhere before they can be traded, the TBC also allows for autonomous liquidity given that part of the money from every token bought from the contract is kept in a reserve fund. This means that tokens can be sold back to the contract directly and the seller is paid in the currency from the reserve basket of value.
As a funding mechanism, the TBC model allows for progressive capitalisation of founding teams since its price only moves in accordance to the curve’s configuration parameters when triggered by either direct trading or some form of donation that increases the reserve basket without increasing the total supply. These configuration parameters essentially set the ratios that determine the token price, token supply and reserve basket value, making the price discovery process far more transparent than the “coin market cap” standard in use today.
Token holders can still trade in secondary markets for a speculative future price, however, since the token contract itself works as a decentralised exchange, there is a publicly known and verifiable price floor of sorts.
With a trust-minimising solution for liquidity and price discovery on hand, token engineers set out to enhance the TBC design space with mechanisms that address front-running and rampant speculation, either by applying an exit tribute or even by having different price curves, meaning that a token bought from the contract increases the price by a different percentage than a token sold to the contract would decrease it.
The Augmentation Bit
For tokenisation use cases where community governance is desirable throughout the lifetime of the token or where it’s unclear at launch time if the configuration parameters chosen are sustainable in the long run, there are two different strains of democratic haze:
- DAOs where members propose and formally vote on said proposals with their tokens
- Token Curated Registries (TCRs) where curators are incentivised to create markets for token holders to invest in, therefore tying their “job security” to the profitability of the common enterprise. Truly common, as in decentralised and at the stake of all involved parties.
The Token Curated Registry
For ElectraSeed Fund’s purposes, the TCR presents the best trade-offs between explicit governance and usability for the community.
Let’s first have a short recap of community members, of those people committed to creating access to clean energy at digital pace and scale:
Asset (=Value) Creators: Smart micro-grid operators and the energy consumers, the community powered by it. Currently we have curated four asset creators with their unique solutions to smart micro-grids, who have projects lined up and who put sustainable growth capital to good use. They bring in quantitative data about the projects to be (re-)financed. They create value (revenue & impact) by bringing access to electricity and creating social, environmental, and economic impact by using that energy accordingly. This group in the initial fund consists of smart micro-grid operators and the energy consumers/prosumers.
Asset Curators: Curators in this group have deep knowledge of the smart micro-grid domain, the geographies and jurisdictions the micro-grids are deployed, and first hand experience in working with the project operators, i.e. the asset creators. These are adding value by adding qualitative data, and scale using socio-digital networks.
Digital Asset Creators: These are data scientists, token designers, and smart contracts developers. Either they can collaborate well with asset curators, or are even in both groups (super rare!). They are the value creators of actionable information from raw data, and digital automation through code.
Digital Asset Curators: Curators in this group verify data, model and simulate token designs informed by the emerging token engineering scientific discipline — as well as rigorous code reviewers, testers, and code auditors of smart contracts. They are adding value by making sure the digital assets infrastructure (digital plane) is adaptive and resilient.
Token Owners: all of the above member earn and own tokens. The value of the projects (revenue and impact) and of the network comes to be represented as the token. In addition, any one value aligned donor, sponsors of SDG7 (Clean Energy Access), institutional token investors or corporate social responsibility departments of multinationals or you can own a token by buying it from the TBC (will be elaborated in the next article).
No governance is bad governance, but over-regulation and centralised decision making paralyses common action as we saw in COP25, Davos (consistently) and even in handling the Coronavirus.
When it comes to directing funds, even a community built around a common goal can have opposing views on what qualifies as sound investment choices. If we were to opt for an explicit on-chain voting process as in a DAO we would need to address the following concerns:
- Identity: how to ensure one-person one-vote (regardless of amount of votes/tokens used) when many won’t be able or willing to complete KYC
- Privacy: the need for verifiable identity is tempered with the need to protect the individual voting histories from being used against the voters
- Manipulation: both “whale voting” and the centralisation of power around influencers and VCs transforms democracy into trickle-down freedom, and a blockchain into an artificial morality machine
- Representation: different voting mechanisms can be employed in weighted score voting governance to protect minority views, but the community needs to know the difference between Liberal Radical, Futarchy and Liquid Holacracy to fully appreciate the nuances
- Inclusion: over 90% of the world’s population has never voted and it’s unclear how limiting participation to only a subset of users who are familiar with dApp UIs, wallets and political science will attract wider participation.
While not insurmountable, the challenge of creating and managing a fund focused on social impact and clean energy with active stakeholder participation is such that introducing formal voting would be a distraction at best and lead to delegated voting at worst — and would introduce yet one other problem: Reputation.
DAOs and formal voting processes can create voter fatigue, as people ignore or get tired of voting on every little issue or otherwise simply don’t want to validate another person’s desire for power.
What is a TCR then?
Simply put, a TCR is a public list where curators collectively decide on the listing and preferential ordering of its entries through a voting process that uses tokens as signals. Participation is encouraged with economic incentives usually tied to a token that tries to capture the utility value of said list to said community. While still quite experimental, there are already a number of advanced implementations in the wild.
The ElectraSeed list holds the projects (incl. curated data on them) we are looking to fund. So “voting” can be as simple as choosing whether or not to buy the token and fund the projects we list.
The more sophisticated voting mechanism involves the locking and burning of tokens and can be quickly explained by its outcomes: if your “vote” is on the winning side, the tokens you used are locked for a period of time so you “go long”, whilst on the opposite end they’re sold, so you “go short”. That makes the ElectraSeed TCR a curated list of markets with associated quantitative data that individuals can research and “invest” by putting down any given fiat amount.
Somewhat like how an exchange lists individual companies, but you can simply invest in an index and be done with it.
We are definitely open for feedback from the community at large, but we are contrasting two systems designed to capture the intentions of stakeholders and set the direction of the commons — the ElectraSeed Fund, where one of them requires far more education and “process” than the other. I propose that the difference in cognitive load alone makes the TCR model appealing to a wider audience, with minimal training required.
The TCR is the engine that allows token owners to express their will in the service of the community.
In Summary
The Augmented Bonding Curve design allows curators to define policies such as the exit tribute applied when selling tokens directly to the contract, the current split between investment and reserve fund pools, or the risk-to-impact ratio of the projects accepted for listing. We as founders take responsibility for setting these initially and steer the platform with the goal of progressive decentralisation and community involvement.
ElectraSeed Fund will fully reach its potential once regulators and society at large start seeing token holders more as curators and creators (stakeholders) than as investors. To this end we are designing the incentives for curators to converge on long term benefits (reward) and “vote” (by literally putting their tokens where their mouth is) according to their tolerance (risk) as well as designing bounties to attract talented contributors and their domain know-how.
If you want to go fast, go alone. If you want to go far, go together. If you want both, do it in online scale-free networks.
We set the parameters by using open source model- and data-driven optimisations with Computer Aided Design for complex adaptive dynamic systems. Building on and enhancing the Commons Stack tools allows us to align profit motive with socially beneficial behaviour — including bringing value-aligned project operators and investors on board, or by surfacing relevant information and extending our reach and capabilities regardless of geolocation or economic power.
