Pacenotes: Exit to Community and Personal Tokens with Nathan Schneider

In the last edition of Pacenotes I dove into the thinking around co-operatives, and the notion of “exit to community”. Nathan Schneider is the academic who helped coin and popularise the term. He’s dipped into the cryptocurrency world before with projects like FairCoin, and encountered the Ethereum white paper in 2014 after hearing about Bitcoin during Occupy Wall Street. He told me he’s been interested in cryptocurrencies’ potential for decentralised governance ever since (he also contributes to the very interesting MetaGov project).

Since personal or community tokens are all about distributed ownership, I tried to explain some of the ideas to him and apply concepts from co-operatives and exit to community to them. Here’s our conversation, edited for clarity and length:

You’re familiar with the cryptocurrency space in general, so let me tell you a little about personal or social tokens. There’s lots of people experimenting in the space right now, and the idea is both creators and fans should be able to capture more value than they currently do from platforms. Adding a crypto token in the mix is believed to help align those goals.

Yeah, absolutely. I think that challenge of aligning incentives with users in the online economy is something that a lot of people are after. I mean, even to the point where Uber and AirBnB have submitted letters to the Securities and Exchange Commission asking, “can we please share equity with our leading users so that we can align incentives with them?” And they haven’t been able to do that so far. And of course, in the early tokenized experiments, this has been a major goal.

At the same time, I think there’s a real challenge around over-economizing some of these spaces. My experience in some of the early tokenized social networks is kind of this icky feeling that you’re not just talking to each other for, you know, for its own sake, but you’re trying to somehow exploit the relationship for monetary gain. If you look at the the work of anthropologists like Marcel Mauss [Ed: who wrote ‘The Gift’ on gift cultures]or, Pierre Bourdieu, [Ed: who coined the idea of cultural capital] they emphasise the importance of non-monetary capital, the way in which, what we call social capital only functions if it didn’t feel transactional, if it didn’t feel like economic capital. And the idea of the gift only functions if it doesn’t feel like a transaction. And so that’s one challenge.

And it’s something that cooperative businesses that I’ve spent a lot of the last few years working on, have tried to address in different ways [by]creating economised and kind of non-economise spaces within their ecosystems, to make sure that there’s a space for both.

This notion of the the economised and non-economised space— is that the same thing as financialisation? Like gig work and things like that?

In cooperatives, one of the principles common in cooperative businesses is the sharing of surpluses. So the idea that everybody kind of gets a dividend at the end of the year, or something like that, that’s the kind of the classic 19th-century version that is sort of carried out still. For instance, REI, the outdoor goods store where customers get a little dividend at the end of the year. So there’s a little bit of a financial incentive.

But there’s also incentives like, okay, we really want to prioritise high-road ethically made things. Like a food co-op might advertise its low prices on the one hand, but they also have meetings where they prioritise ethically produced food and this sort of thing. So there are spaces of one-person, one-vote democracy, and there are spaces of proportional distributions based on how much each person is using the business. Traditionally, they’ve had to these cooperatives have had to figure out the right balance between those two so that you can privilege cultural goods, while also having a space of financial co-determination and shared benefit.

In my experience so far with the crypto world, a lot of the technical designs are built around the pure financial incentives. And there is a robust culture, around these technologies, otherwise they probably wouldn’t be used by anyone. But they’re really off-chain. And as much as possible, these systems are often designed to get people using these incentives, where what the cooperative tradition encourages is the need for creating non-financialized or monetary space, where people can interact without incentives, without having to worry about the question of who’s benefiting from what I’m doing; and instead feeling like they’re just participating in a community.

I wonder if there’s a tension here, because it seems like, part of the rhetoric of user owned networks is that we are converting the social capital to financial capital. And so if you’re an early early fan of a musician and they become a huge superstar, you should somehow be able to benefit from that from that rise. So are we saying, we want users to own these communities, but at the same time, the very process by which they do so is by converting all of this social capital into some kind of financial capital?

Well, I think there are ways of doing both right. With the classical cooperative model, you might just see that dividend once a year, right? Or you might even not see it, you would hold it in a capital account. You know, there are rural electric cooperatives across the United States that provide electricity in most of rural America. And the way they work is people’s dividends often just accumulate in what are called capital accounts. And so they act as kind of like savings accounts for these people. [The accounts] are kind of quietly accumulating a bunch of money in the background, but they don’t see it. And so they’re not primarily thinking of their Electric Cooperative as a savings account, which in some ways it is.

Similarly, I think one of the challenges of some of these tokenized projects is to actually kind of put the token in the background and create experiences that people really want to have. But also have that long-term anchoring that ensures people know that in the long-run, this business is on my side, or this this project, this technology, this infrastructure, whatever, whatever the most appropriate term is. And and I think that’s one of the problems we, of course, face with the big platform models.

The venture-backed models is, there’s always that creeping knowledge that I know, in the short-run, you know, Googling is really easy, and Facebook is where all my family is. But I know in the long run, they’re not really on my side, and that kind of contributes to the hermeneutic of scepticism that, anything that looks weird, makes me feel weird, right? Rather than a business where maybe some things do feel weird, but in the long term, I know that this business can self-correct in my direction. Because ultimately, it’s us who it’s accountable to; the users have some governance rights that can cause the thing to correct when it goes too far. And so I think that’s a way of thinking about how to allocate those incentives: It’s to think about them long term, in a lot of cases, when your primary activity is kind of social capital oriented.

Tokenizing everything has the potential of … turning all of our behaviour into a game of financial incentives

I’m concerned both about the sustainability of some of these models, if they get too short-term, but also just what they do to us as people… during the 2017 boom I got kind of the experience of what it feels like to be riding these crazy markets up and down, and there’s something that it does to your humanity, that is troubling. There’s something that tokenizing everything has the potential of doing to us, turning us all and all of our behaviour into a kind of game of financial incentives that are measurable, that I think is, from a perspective of just concern for human nature, very troubling. And we want to make sure to be holding space for the incalculable.

In your primer on Exit to Community (pdf) there’s an example of a group called COOK Alliance, and they talk about how they capped returns for investors. What are some tactics you’ve seen in the designs of these organisations, to tamp down the speculative instinct?

One thing is that temporal delay. Recognising that if you’re giving people constant financial feedback, you will financialise those people. Another i how you make deals around financing; capped returns are a structure built around a more patient financing. It’s a very different model than than the venture approach which is eventually designed to exit a company to further forms of investor ownership. Capped return says ultimately, it is for the contributors and investors can come along for the ride. But they’re not in the driver’s seat, right. And drawing that line is a powerful step.

Another thing is just old-fashioned separation of powers, recognising that there are different kinds of talents, different ways of doing participation. And one thing that I’ve noticed in a lot of early crypto stuff is the desire to have one beautiful governance algorithm, you know, that determines how decisions are made, how value is allocated, and so forth. When you look at effective governance systems in the wild, and this is something kind of born out by the research of the political scientist Elinor Ostrom [Ed: Who got a Nobel for figuring out a solution to the tragedy of the commons], is that when you have a complex community, you need complex mechanisms.

When you have a complex community, you need complex mechanisms.

One way of thinking about this is the executive, judicial and, and legislative branches of government. This is an example of three different ways you can have power in a central government. Of course, there are other ways like lobbyists and so forth, but intentionally creating multiple forms of input into a system recognising that some people might be people holding lots of tokens; some people might be charismatic; some people might not have so much charisma, but they have really good ideas. How do we make sure that each of these types of people have a form of input into the governance system that you that can make a difference.

So just humanising these systems rather than trying to create systems that that funnel the diversity and complexity of human nature into a single algorithm, to instead create multiple forms of input, and to balance them against each other. This also is really important for resisting gaming. If there’s one algorithm, someone’s always going to figure out how to game it, right. But if the if the one algorithm can always be counteracted by other algorithms, you know, the ability for one actor to dominate this system becomes significantly diminished.

I think the the funny thing with a lot of crypto protocol governance so far has been, you know, people govern it in spite of the design. So there’s all of this off-chain coordination, all of this stuff that happens on Twitter and at conferences, and, you know, forums and Telegram.

I’ve tried to get into some of these on-chain governance projects and experiment with them. And so quickly, it always becomes clear that actually what’s happening on the chain is not what’s happening, and there is this really important thing for us to recognise, to use a term from feminist economics: feminised labour, which is certain forms of often community management that are really important. And you know, by “feminised”, it’s not just that it’s done by women, though, often, you know, it’s disproportionately so, but that it set apart from and devalued in the same way that women’s work has historically been devalued. So soft-skill labour.

In the background behind the guys talking about engineering was a group of women who were running a newsletter so that people could actually figure out what was going on

I remember being involved in a protocol that was designed to help facilitate surfacing priorities and sorting through large amounts of proposals and identifying the ones that are worth paying attention to. So it’s really an attention economy protocol. And yet, in the background behind the guys talking about all the engineering, there was, you know, a group of women who were running a newsletter so that people in the community could actually figure out what was going on and could manage their attention economy in in the most old-fashioned sort of way. So their work was essentially propping up the fiction that this protocol was functioning as designed.

And this pattern happens over and over. And it’s something that I think rather than saying, okay, we just need to design the protocol better, I think we need to recognise actually, that these any — I hate this term—but socio-technical system is going to involve human and non-human activity, and we should really make sure to value and hold up and recognise and appreciate any of that good human labour that is going into making these things work to the extent that they do.

I was diving into the anthropology of money, and what struck me is that Keith Hart and others point out barter takes place in these very low-trust environments. By contrast lots of historic local-money projects have been about turning high-trust relationships into money. So it seems like with personal tokens, there is a sort of confusion going on here where people are bartering crypto-commodities, and it’s not really social money backed by trust.

I think that the anthropology literature captures this really well, just as you said, that the mythology is that before money, everybody bartered and the anthropology suggests, no, actually, before money, people had trust-based credit systems. And barter was this freakish thing that would only happen at the edges of the trusted world. I think it suggests something interesting about what crypto technology might be useful for: it’s is this very specific layer of, moments and challenges where trust is an issue, or censorship is an issue; there’s very specific things that crypto technology does well. But actually most other things, it doesn’t do so well and it introduces more trouble than it’s worth. And so we need to be really intentional about where we put the crypto as opposed to all the other stuff.

Barter was this freakish thing that would only happen at the edges of the trusted world

It’s actually a kind of liberating experience, as someone who’s been really interested in crypto governance for a long time … I’ve recently started just kind of going back to things that you can run on a centralised server, and you know, suddenly the possibilities just open up again. You remember, oh, if we can just take identity for granted, or let the platform handle that, oh my gosh, you can do so much stuff. And you don’t have to worry about all the crypto economics.

And actually, it’s a perfectly reasonable assumption to make that under these conditions, identity is not a problem anymore. So this explosion of interest in in crypto has been exciting, because it’s kind of rejuvenating the possibilities of creative new strategies for governance and value. But I think the challenge that we face now is to put it back in its place, among all the other tools we have at hand. And to recognise that it can be very powerful in very specific ways, but not without a bunch of other stuff also in play.

In the Exit to Community primer, a UK-based co-op called the Community Shares Company notes that UK securities laws make it easier for some co-ops to raise money. Are there certain jurisdictions where exit to community might be easier to do? And on that note, if securities laws went away, would that actually solve all the problems we have with issuing personal tokens?

The question of a global framework is really interesting. I mean, we’ve more or less done that for capital markets … whether you list in Hong Kong or New York, there’s considerable uniformity in how they function, even without multilateral agreements enforcing some of these things. So I think that’s probably not as radically difficult a problem as you’re suggesting. I think you figure it out in a few places, and other places are going to have good reasons to do the same thing. And I would see it less as a matter of unlisted offerings and more a matter of creating a framework for listed offerings that are for regular people.

Finally, do you see a difference in the type of labour done by, say, factory workers versus digitally native workers like streamers or newsletter writers?

It’s really important to recognise when you’re thinking about these kinds of challenges to bridge the digital and non-digital gap, that the workers in the factory and the people trying to buy in on a crypto project are actually doing the same thing. And that we shouldn’t imagine that they’re magically different because of the technology.

When I think of a framework for the gig economy, one of the most powerful examples that we might learn from—it’s very flawed—but in the Hollywood system, it’s been running an employment based, union managed, profit sharing gig economy for generations, right? It’s a total mess—I’ve looked at the the charts of how the financial flows go—but you can update that, we can build a better version of that, and technology can help. But the basic idea that I think a lot of people today are missing, that the Hollywood system really gets is, you build on solidarity. You build on a kind of basic logic in which workers have power over their work in which they have; they have a collective bargaining and negotiation. And upon that basis, they also gain flexibility to be creative and to move from workplace to workplace really quickly.

In many cases where we think we’re inventing things for the first time, it turns out, actually, we’ve seen this problem before

In so many of these cases, where we think we’re inventing things for the first time, it turns out, actually, we’ve seen this problem before. And we’ve actually created partial solutions to it. It’s just insane to me that, how did we ever get to the situation where, you know, Google can read your emails, and deliver you advertising based on it? I mean, phone companies were barred very explicitly from listening to your phone calls and delivering you targeted robo-calls, you know? I mean, so many of the problems that we’re facing in the digital economy are actually problems we solved already. And we’ve forgotten those solutions, and we imagine that we’re facing these problems for the first time.

So I think it’s really important to to just stop whenever we face problems in the digital economy and reconnect them to the rest of the economy and to history and say, okay, where else are these problems arising? So I think a lot of these problems start to become a lot simpler the moment we realise that the internet didn’t invent them.