Bringing Truth to Market with Trust Communities & Product Information Markets
The incentives in the global marketplace are utterly broken, giving rise to drastic inefficiencies, environmental harm and human rights abuses around the world. How do we create a market economy that doesn’t consume the world?
Intro: Fix the Incentives, Fix the World
As it currently stands, centralized institutions are incentivized not to secure truth in their products or services but rather shield themselves from potential liabilities. While many companies offer warranties to their products, these are limited almost entirely to the primary markets. As soon as an object begins trading in the secondary markets, liability dissipates.
The only other sources of truth available beyond the manufacturer are the specialist firms which rate and certify objects of a particular domain: fine art, collectible cards, instruments, etc. However, these institutions are limited in their capacity by their lack of a shared record of an object’s history. Best case there’s an entry in a single database. Worst case: a single paper certificate.
This disconnected certification system and lack of initiative and coordination in securing product information has incredibly adverse effects on society: counterfeiting abound, environmental harm, and human rights abuses.
So how do we break out of the silos of separate “truths” and crowdsource expertise to build a better marketplace that doesn’t absolutely consume the world?
Our answer: Trust Communities
What are Trust Communities?
Built on the Mattereum Asset Passport
Before diving into this concept it is important to discuss the core component of the Mattereum Protocol: the Mattereum Asset Passport (MAP).
In short, a MAP is a bundle of legal warranties tied to an object. While these warranties can vary with the object in question, the initial warranty is often some form of identification. Other warranties in a MAP may include authentication methods, carbon offsets, anti-slavery certification, tokenization (or connections to any smart contract or software system), and many others. These warranties are essentially “legal lego” of various contract terms that will range greatly between different asset classes and will accrue around assets over time.
The warranties within a MAP are not informal handshakes on the internet but rather legally-enforceable terms of a contract that the buyer opts into, evidenced by cryptographic signatures which bind counterparties to the underlying legal agreement. All claims are backed by financial stake, giving all warrantors accountability and skin-in-the-game for their assessments. This framework also provides access to dispute resolution protocols in the event of systemic or commercial fallout via an arbitration clause in the contract.
Later this year we will integrate UNN.finance risk management pools so that there is a DeFi-native way of supporting product sales using Mattereum. We are also building bridges with the regular insurance industry. This approach means a single asset can be protected by both DeFi-native and fiat-native risk management protocols.
Once a MAP has been generated, we must then have a system in place to incentivize and secure this object warranty system over time without centralized institutions.
Building Product Information Markets with Blockchain
Commerce on the internet is both a technological and social phenomenon, so any proposed system must address the fundamental social and technical challenges that go into curating and securing product information.
Socially, in the absence of centralized trust we must incentivize experts to apply their domain-specific knowledge to supply warrantied information around goods and services.
Technically, we need a shared, open database for recording the provenance of an object and a programmable transaction system which powers the aforementioned incentive mechanism. This system must also overcome the transaction costs of bringing in experts (who are not dealers) to rapidly and efficiently deploy their expertise.
Mattereum Trust Communities
With blockchain and smart contracts, we can power commons-based peer production of product information with built-in crypto-economic incentives and clear lines of accountability.
With product information markets enabled by Trust Communities, we can incentivize truth in markets by allowing experts to make money on their expertise and face consequences for erroneous claims. Simple concept, powerful implications.
Let’s look at some examples.
Eliminating Counterfeit Goods
According to a joint report by OECD and EUIPO based on 2016 data, counterfeit and pirated goods accounted for over $500 billion in international trade in that year alone: up to 3.3% of world trade!
The range of markets affected include common consumer goods such as clothing and electronics, B2B products like chemicals and construction materials, luxury fashion, fine art, and even pharmaceuticals, food, and medical equipment.
This scale of fraud doesn’t just burn the top 1% with a forged Monet or Picasso discovered in their collections. This can have a real impact on public health, safety, and infrastructure.
The product information market method could adapt to ALL of these industries at the consumer and business level. The main difference is where the Asset Passport is generated in the product lifecycle.
With consumers, we can generate MAPs to secure the storied value of unique or limited objects such as art, instruments, cultural artifacts, or precious metals, leveraging a network of third-party, independent certifiers with relevant expertise to stake their assessments via warranties, challenge any existing claims, and even earn from the continued sale of these items.
At the business level, we could embed MAPs within corporate supply chains even before the manufacturing stage to have a truly transparent and information-rich view of the entire product lifecycle, from design and specifications, to production, to purchase and resale. Cryptographically verifiable by any and all parties. Think of something like KickStarter: you put money in at the design stage and get an NFT. You can resell that NFT as the product approaches physical delivery. The new owner of the NFT will get the final product when it ships: ideal for rarities and exciting new drops.
Most industries feature third-party expertise outside of the key corporations such as certification firms and engineering tear-downs. With Mattereum Trust Communities, we can build product information markets that aggregate and incentivize the use of this underutilized knowledge, restoring value, increasing liquidity, and bringing peace of mind to trade at all scales.
Powering the “Lean Green” Circular Economy
Before we can ever achieve an ultra-efficient and sustainable circular economy of goods, we must first solve for the deep lack of trust in online transactions. Just as liability dissipates when goods reach the secondary market, so does their value. E-commerce platforms like eBay and Amazon provide incredible reach with their two-sided marketplaces, but the frequent fraud, dodgy dispute resolution procedures, and high fees severely hinder the valuation of secondhand goods. The “doubt discount” runs far and wide in these markets, where the vast majority of all material goods reside.
As an example, let’s look at a useful item in virtually any setting: the Honda EU20i portable electric generator. By reputation, these generators run forever: it’s the Rolls-Royce of small generators. On eBay, they’re roughly 60% discounted from new, even if they’ve only been run a few hundred hours. Enter our Trust Community experts:
Examine the generator. Write a warranty on its expected future lifespan. If it breaks down before that, the buyer gets paid. The simplest form: “I’ll buy this generator for $1000 if it breaks down in the next two years.” This gives the expert the chance to repair it and resell it. Simple market mechanisms.
The result is the second hand generators are worth a lot more if they last. Garbage units can’t be warrantied, so they don’t attract higher resale prices. This produces a flight to quality in the market, reducing the overall number of failed generators sitting in the scrap heaps.
This has two benefits: those goods which are produced in a re-identifiable form and can be warrantied will sell for higher prices initially, because of more stable, higher secondhand value, and these goods will provide more hours of service for lower landfill cost than low quality goods. The “secondhand circular economy” then kicks in. There’s less unused cheap and nasty generators gathering dust in garages, because people buy a good generator secondhand when they need it, and sell it again for nearly what they paid for it — a rational price given how long these things last.
Now imagine this system for any product of lasting utility.
Using product information markets, the secondhand marketplace suddenly evolves from the place where value goes to die to the ideal means of acquiring goods of tested, durable worth. As a society, we could do more with less, increasing profitability in peer-to-peer economies and greatly reducing waste.
Revealing the True Costs of Trade
Trade globalization is rife with negative externalities. For the purposes of this article, let’s look at two examples of suffering imbued within the global machinery of trade, and how Trust Communities and Product Information Markets can help combat this systemic injustice.
Climate
With unchecked carbon emissions being an accelerant of climate change — which will have cascading effects throughout our agriculture, infrastructure, and general quality of life now and in the future — we can view this by-product of trade as contributing to suffering in the world.
Despite the threat, there’s plenty of greenwashing and CSR/ESG theatre from the corporate sphere, as well as gaslighting of the populace.
Global coordination to avert the worst-case scenarios in the future is a combined policy, social, and technological challenge: a veritable “wicked problem.” Policy and social awareness are beyond the scope of this article, so let’s look at supportive solutions on the tech side.
Even though we have carbon calculators for individuals and businesses alike as well as marketplaces for purchasing carbon offsets, there still lacks a fine-grain accounting of C02 and energy costs across all of industry.
For assets secured by the Mattereum Protocol, carbon offsets can be purchased through third-party marketplaces and be warrantied within the Asset Passport. For products which emit carbon throughout their lifecycle — such as gas-powered vehicles — multiple offsets can be purchased and warrantied over time.
In a future where net-zero products gain a premium over non-net-zero goods and services due to demand and possibly mandate, Trust Communities can help facilitate Product Information Markets for end-to-end carbon accounting of trade and push us further to a greener future. Decentralizing this process is necessary to maintain accountability for all parties involved — in particular corporations and governments which have the largest carbon footprints and therefore the most responsibility.
Slavery
The most pernicious and hidden suffering of trade globalization lies upon the millions of slave laborers which exist in the world today. While exact numbers are of course impossible to count, the ranges estimate the total number of slaves in the world today to be 20–40 million, with 10 million estimated to be children and the vast majority being women and girls.
The clothes on our backs. The minerals in our smartphones. The likelihood of anyone reading or writing this not owning a product touched by a slave is incredibly slim. The truth is that throughout the global supply chain, there are shadowy areas far removed from the corporate offices or warehouses where material and labor is sourced by stripping the basic rights and dignity of other human beings.
While fair trade products are prevalent, they are limited in number and scope. In reality, slavery-free trade and decent labor conditions should be the standard mode of industry rather than a unique offering.
Similar to climate, the path forward for meaningful systemic change will be a combination of progressive policy, social awareness, and technological innovation.
On the tech front, Mattereum is actively researching and developing methods of warrantying anti-slavery certification. In practice, an independent, expert individual or firm within a Trust Community could investigate the supply chain of a particular product for any labor abuses, either supplying the warranty or checking an active claim if there is any suspicion on its authenticity.
The exact implementation of this is a work in progress, but we are joined in the effort by human rights activist and anti-slavery expert Helen Burrows to design the process in the context of the Mattereum Protocol.
This work is a culmination of decades spent thinking on how to manage scarce resources on the planet such that people’s basic necessities of living are secured, even in the worst of situations.
For a longer read, Mattereum CEO Vinay Gupta distilled his insights on the technological and social transformation of material culture in his book, The Future of Stuff, where he explores how material culture has made monsters of us all and how we can build a better path forward where humanity can live in equilibrium with the planet at the expense of no one.
Better Markets Make a Better World
The potential of Product Information Markets as described here is a reformation, rethinking, and possibly a path to redemption for the markets consuming the world today. If taken to the nth degree, Product Information Markets could create a multi-dimensional pricing mechanism beyond supply and demand: energy costs, material costs, C02 emissions, labor hours, worker conditions, etc. Imagine if we were able to index and filter markets along these lines. We could virtually eliminate fraud, piracy, environmental harm, and root out human rights abuses all across the world.
With this information at hand, people could engage in material culture in a way that does not conflict with their core principles. They can even configure tools to prevent them from contributing to negative externalities like accidentally buying products with unchecked carbon emissions or slaves in the supply chain: automated morality systems that overcome the mental transaction costs of simply not doing harm to society. .
This vision of a market economy which incentivizes truth and prices out societal harm does not require central command economies, heavy bureaucracy, or some undiscovered paradigm-shifting technology.
It simply demands a will to change, and the technology to make sure that people’s decisions are correctly implemented.
About Mattereum
London-based Mattereum was established in 2017 by a trans-disciplinary team with a track record in designing and launching nation state-level infrastructure and headed by former Ethereum release coordinator Vinay Gupta. With blockchain-enabled authentication and tokenization of physical assets with built-in legal guarantees, Mattereum removes the fear, uncertainty, and doubt that has plagued digital commerce for decades.
Follow us as we bring the Mattereum Protocol to an expanding variety of markets ranging from memorabilia, gold, wine, to prized classical instruments, and more.
More at: http://www.mattereum.com
Twitter: https://twitter.com/mattereum
Telegram: https://t.me/mattereum
