Sifchain and the Dao of Cryptocurrencies
Preface
When you break something up, you create things.
When you create something, you destroy things.
Material things have no creation or destruction.
Ultimately these concepts connect as one.
Only the enlightened know that they connect as one,
So instead of debating this with your preconceptions,
Approach it in an ordinary way.
Those with this ordinary approach, simply apply the idea.
Those who apply it, connect with it.
Those who connect with it, attain it.
This easily attained understanding is not far off.
It all flows naturally.
To attain this state and not even know it,
Is what we would call Dao.
- Chuang Tzu
Sifchain’s Community
Sifchain is possibly the fastest growing cryptocurrency in the market. The platform raised a Tier 1 roster of private investors in August and immediately deployed a testnet that was 8x oversubscribed in validator interest. Deploying the first Ethereum <> Cosmos Network bridge to Sifchain with mainnet Ethereum tokens is a monsterous task. We are coordinating cutting edge development and ideologically resonant marketing to a passionate audience of cryptocurrency investors who want to help Sifchain succeed in being a premier cryptocurrency DEX for all relevant users.
There certainly are quite a lot of users across different types:
- Validators — They want to receive block rewards in exchange for running the most current version of Sifchain. They want to increase the number of transactions that occur on Sifchain so as to maximize transaction fees paid to validators.
- Delegators — They want to receive a percentage of block rewards for custodying their funds with a validator, sans a commission rate.
- Traders / Swappers — They want to earn a profit by buying and selling cryptocurrencies on a deployment of Sifchain with mainnet Sifchain and external chain tokens.
- Arbitrageurs — They are a type of trader or swapper who want to earn a profit by trading or swapping on Sifchain and an external chain simultaneously in such a way as to profit from differences in prices on the same assets on different exchanges.
- Liquidity Providers — They want to earn swap fees on users swapping Rowan and pegged Ethereum assets.
- Centralized Exchanges — They want to list premier assets and improve their technology stack through integrations such as shared liquidity with premier decentralized exchanges.
- Developers — They want to implement the most elegant, secure, extensible, complete code on an ongoing basis to create and recreate Sifchain in line with the wishes of its investors and the greater software development community.
- Testers — They want to inspect the security of Sifchain and the degree to which its implementation matches its intended implementation.
- Protocol Politicians — They want to monitor cryptoeconomic behavior such as transactions and swaps alongside key metrics like hash rate, transaction fees, and swap fees and the equations and algorithms that they influence or are influenced by. They also want to deliver Improvement Proposals to contribute to the wellbeing of the cryptocurrency across a decentralized pool of contributors and their available budget.
- Investors — The prime and most important constituent. The investors in the Rowan (RWN) token are responsible for voting on Improvement Proposals, contributing funds and attracting other investors to contribute funds, studying cryptoeconomic activity on and around the market to identify ways to increase the price of Rowan alongside other assets in their portfolio. Investors are also responsible for supporting the goings on of the activities from the other participants mentioned above so that the entire Rowan ecosystem runs smoothly.
- Other Parties — The list above does not include operational support staff, business development, legal, and other roles served by the core Sifchain team whose functions must be continued in some fashion as the Sifchain core team hands its responsibilities to Sifdao. In this article, we will focus on the parts of the ecosystem whose members are in the immediate focus of senior investors and the target of a lot of active research.
The above members list summarizes the most likely constituents of Sifdao and the groups primarily affected by the goings on of Sifchain and the Rowan economy. Anyone who participates with Sifchain in any of those roles should buy into the vision for its community as described below.
As the Sifchain community coalesces into Sifdao, it will have dozens of cryptoeconomic variables for protocol politicians to tweek to tune returns. It will also have a tremendous amount of technical complexity to manage as it inherits development responsibilities. Few if any DAOs can be said to credibly manage an on-chain treasury to fund the cryptoeconomists and developers responsible for the upkeep of a highly trafficked DeFi protocol. It’s important to identify the key characteristics of Sifdao’s governance along with pitfalls to avoid.
Singular Vision, Decentralized Execution
The primary benefit of an organization with decentralized execution is that value creators do not need to wait for approval from a centralized gatekeeper to take action. In a decentralized organization like Sifdao, members are empowered to take responsibility for outcomes by accumulating required resources and executing the best game plan from their own perspective.
This is not to say a DAO cannot have a singular vision. Sifdao’s success will rely on its members rallying to support the Sifchain software and the Rowan token price, as other DAOs have for other cryptocurrency protocols and tokens. This can even lend itself to rallying behind unified leadership. Outside of cryptocurrency, the free, open source software movement prizes itself on providing global access to software creation; anyone can contribute. That said, many cornerstones of open source software like Linux, Wikipedia, and Python are run by people with the title “Benevolent Dictator for Life.” They oversee all operations of their project and are the final word on any key decisions. Decentralized execution can be combined with singular vision so long as communication of strategic plans and tactical iteration is sound.
Consider the following successful organizations that used decentralized execution outside of cryptocurrencies:
In the Apache case, by becoming nomadic and decentralized, they preserved their civilization from the same Spanish army that defeated the centralized Aztec Empire. In all of the above cases, participants were aware of a higher purpose that helped them coordinate their roles without pure hierarchical management. Kristen Stone (former Product Manager at Coinbase and Dfinity) suggests a promising framework for codifying these principles into a class of organization.
Teal Organizations
The Teal paradigm refers to the next stage in the evolution of human consciousness. When applied to organizations, this paradigm views the organization as an independent force with its own purpose, and not merely as a vehicle for achieving management’s objectives. Teal organizations are characterized by self-organization and self-management.
https://reinventingorganizationswiki.com/pages/tealconcepts/
Any self-respecting VC will agree that strong culture is positively correlated with success among startups. Teal Organizations take this a step further by allowing the culture to extend the desires of the community, acting as a backchannel among all members of the organization and those in connected organizations.
The hierarchical “predict and control” pyramid of Orange is replaced with a decentralized structure consisting of small teams that take responsibility for their own governance and for how they interact with other parts of the organization.
https://reinventingorganizationswiki.com/pages/tealpractices/
The history of decentralized organizations includes Grokster, Youtube, Kazaa, Alcoholics Anonymous, CraigsList, Apache (the software model), The Apache Native American tribe, Wikipedia, Burning Man, The Animal Liberation Front, and terrorist organizations. Each one used a combination of centralized control and decentralized control to accomplish what hierarchical “predict and control” pyramids could not.
Notably, most of these organizations engender a stronger sense of purpose than a “predict and control” pyramid. Society often relies on such pyramids for businesses with the assumption that people farther down the pyramid will totally subordinate themselves to people at higher levels of the pyramid for money. With investors accustomed to these standards, they can have trouble with wealth-generating organizations in which hierarchies are not defined by money.
Open Source Development
Massive open source projects exhibit purpose so completely that they are responsible for the frameworks behind trillions of dollars of software products. No financial incentive is as strong as the simple desire to improve the world through foresight, elegance, and diligence developing free open source software for others to use. This does not mean that open source software developers cannot collaborate with people in a hierarchical organization to allow a competent strategist to lead them cohesively.
It does, however, mean that those hierarchies are not readily understood to investors, nor can they be directly engaged through purely market-driven forces. Instead, open source developers are more interested in the status and credibility they receive from their peers for making useful tools that other developers can benefit from. This can lead to bizarre outcomes in which tech investors’ dollars do not end up going to the developers of key libraries on which their portfolio companies’ products rely.
This is a critical flaw in the labor economy for developers that all cryptocurrency projects inherit.
“No matter how hard the programmers worked, most ‘still felt underwater in some shape or form,’ Eghbal told me.
…
Their burdens, Eghbal realized, felt like those of YouTubers or Instagram influencers who feel overwhelmed by their ardent fan bases — but without the huge, ad-based remuneration.
Sometimes open source coders simply walk away: Let someone else deal with this crap. Studies suggest that about 9.5 percent of all open source code is abandoned, and a quarter is probably close to being so. This can be dangerous: If code isn’t regularly updated, it risks causing havoc if someone later relies on it. Worse, abandoned code can be hijacked for ill use. Two years ago, the pseudonymous coder right9ctrl took over a piece of open source code that was used by bitcoin firms — and then rewrote it to try to steal cryptocurrency.”
It’s worth acknowledging a public example of investors failing to internalize this in their analysis of an asset class and thus failing to coordinate with a highly successful open source developer, Andre Cronje from YFI, despite receiving over a billion dollars collectively from his efforts. Investors certainly endorsed part of Andre’s open source ethos, coining the term “fair launch” to describe Andre’s distribution of 100% of Yearn’s tokens with no founder allocation as a model, promoting it as a model for other cryptocurrency developers to take on. They did not, however, internalize the reduced accountability Andre was signaling with this act.
Paradigm: Do you think “fair launch” is fairer than a founder getting at least something to pay off his debts accumulated while building the project?
Andre: Nothing “fair” about it, if speculators made money, they will say its fair, if they didn’t, they will say it wasn’t. That simple. Founders should be rewarded for their work and commitment, more so than random users that purchase tokens off of a secondary market. The only reason I gave Yearn away was because I wanted to give it away. It wasn’t fair, it was selfish, I no longer wanted to be the sole person responsible, so I gave away my responsibilities.
Ultimately, demands from investors to increase prices became too much for Andre, who left Yearn and nearly left the industry.
Paradigm: How do you envision Yearn Finance will evolve over the next years? What are you excited to build next?
Andre: That’s up to yearn, I am no longer a driving force behind it, you can’t exit to the community unless you are willing to exit.
Paradigm: What’s behind the toxicity in the crypto community that almost drove you out this summer?
Andre: Lack of personal responsibility and the delusion that token price dictates value.
We want Sifdao to institutionalize best practices for open source compensation and processes so that Sifchain’s engineers can focus on their passion of delivering quality features that will contribute to Rowan’s token price. This is why we’re collaborating with groups like UC Davis and MetaGov to get a wide perspective on how other leading open source projects design their governance. By pouring through data on how developers impose hard and soft rules on each other in successful open source projects, we will be able to emulate success from the best projects and protect investors from unnecessary drawdown due to labor disputes.
Cryptoeconomic Features
Sifdao won’t just be responsible for incentivising developers to implement features but also cryptoeconomists to design them. Sifchain’s primary features like token swaps, margin trading, and limit orders will be implemented as part of its core roadmap. That said, secondary features like impermanent loss insurance or options trading can be easily added if the community galvanizes resources behind them. Ideally, Sifdao follows YFI’s lead where multiple cryptoeconomic features are incubated by the community in a decentralized fashion. Moreover, Sifchain will need to tune its primary cryptoeconomic features to deal with behavior in other token ecosystems as it becomes more composable with partner networks like Ethereum and Cosmos Network.
Sifchain will undoubtedly rely on cryptoeconomists to maintain Rowan’s market viability in an ever-evolving landscape. We define “maintain market viability” to mean delivering returns that are as close to optimal as possible for every Rowan-holder. To design Sifchain in this way, we need cryptoeconomists to take Rowan’s viability to new heights through a process that routinely assesses the viability of its existing cryptoeconomics and any new modifications to them over time.
We see cryptoeconomic ideas as having five stages of development:
- Idea — The first stage where someone thinks something might be useful and considers adding it. A lot of ideas come from research papers or from what people mention in passing on Twitter or Telegram.
- Specification — Here, a cryptoconomist formally describes the system and the variables at play. The Sifchain token economics paper does this.
- Design — In this step, a specification is enhanced to describe the favorable economic states participants want to move towards as well as the states to avoid. The Sifchain token economics paper does this as well although this can be done in a separate document from specification.
- Multi-Agent Simulation Models — This stage involves creating a set of profit seeking agents in a simulation to identify what they would do under a cryptoeconomic system with a proposed design. Here is an example Gauntlet Network did for Thorchain whose foundations apply to Sifchain.
- Ongoing Real-World Data Analysis — Finally, we compare the multi-agent simulations to the actual output from the blockchain as deployed live with real profit seeking agents (traders, swappers, pooler, validators, funds, etc.). We could integrate this data into services like Boardroom or Gauntlet’s Automated Governance so that protocol politicians can easily evaluate the outcomes of their decisions.
We will curate Sifdao so that it progresses cryptoeconomic features through this development cycle. Right now, our intermediate term features like margin and limit orders are in the specification stage, we’ll release more information about them in time. Our swap and pegged token cryptoeconomics are in the design stage, we’ve already released material on them and they are largely solidified. We haven’t yet released cryptoeconomic features at stage 4 (although Sifchain’s strong cryptoeconomic resemblance to Thorchain means its dynamics bear a resemblance to Gauntlet’s multi-agent simulator work on Thorchain).
Features at stage 5 are not mature in a public domain for any project. Investors privately conduct analyses of on-chain behavior but tools to use those analyses for on-chain governance like Boardroom or Gauntlet’s Automated Governance are in their infancy. We expect to need several months to achieve this vision as the entire industry catches up to this point.
Computer Aided Governance
Over time, Sifchain’s cryptoeconomics will become more complex because of its own product and its composable relationship with other cryptocurrency ecosystems. Sifdao’s discussions on how to modify existing cryptoeconomic parameters or add new features will become more nuanced. As complexity increases, we expect computational modeling and keen investor intuition to be combined for decision making in future product direction and portfolio composition across all investors regardless of their risk profile. This would lead us to computer aided governance (CAG).
An easy way to define CAG is to distinguish it from what it is not. CAG is not governance by computers. It is very important to us that humans stay in charge — we just also want them to be well-informed!
CAG is a decision-support process that leverages blockchain technology and cadCAD to simulate the potential results of governance policies, leading to better informed decision making.
The Commons Stack proposes to improve our current governance systems by creating tools to model and test policy outcomes, so that participants have better information and make the best possible decisions. Just like CAD revolutionized pre-digital drafting processes (and in the process gave us safer cars, roads, buildings and widgets), cadCAD + CAG have the potential to fundamentally optimize governance processes. CAG doesn’t undermine human agency; it just gives governance actors a clearer picture of what it is they are doing — and planning to do.
Regardless of how well investors like the basic token economic model they’re pitched, all should seek a computer aided governance model that can handle complex economic challenges as they’re presented. Consider the following real world situations:
Many of the above represent cases where the tokenomics of one cryptocurrency are considered secure by the core team but they do not scale with composability because their tokens did not have the governance capability to recognize odd market activity from another DeFi token or exchange. Such odd market activity would need to be detected through computer-aided governance; they’d happen way too suddenly for stakeholders to vote on an action in real time, but they can vote on how to act when certain events occur (or delegate that vote to qualified protocol politicians who likely have strong knowledge of crypto economics). In some cases, like the 51% attacks on Ethereum Classic, the change happens in a slow and visible way but investors are not capable of thwarting the issue because of limited attention rather than the lack of a technical solution. It is clear that the theoretical incentive for investors to secure their money will not lead to better outcomes if friction is too high. Computer aided governance reduces the friction for achieving optimal outcomes.
In an algorithmically defined economy, we are not telling people what they “have to” do, but we do have a strong leverage point in defining what they “can do” and “what will happen if they do”.
Due to these imposed system restrictions, we can use machine learning and AI models to estimate agent behavior, aggregate economic data and extract very useful system behavior data from rigorous analytics which are aware of these feedback mechanisms and the associated system dynamics. From this data, Computer-Aided Governance could suggest effective policy leverage points that may otherwise have been non-intuitive to decision makers, or identify risks that a proposal has undesirable, unintended consequences.
A democratic breakdown can occur when people are misled about the facts, or when short term desirable outcomes have unintended long-term consequences (i.e. when local and global maxima are not aligned — the tragedy of the commons strikes again!) Communities these days rely on influence and messaging from peers and other groups, which can be easily skewed to suit alternative agendas. Although we cannot mitigate this skewed influence entirely, we want to reduce the leverage that such tactics have on our decision-making systems.
This can seem far from the current cryptocurrency market in which investors’ choices are largely driven by unsubstantiated hunches and market hype. On the market cap rankings, we don’t see a strong enough correlation between the total amount of money invested in a public blockchain and that blockchain’s level of financial innovation. The rise and fall of fly-by-night DeFi tokens is another example of the same problem.
Those two cases were largely funded in eras of cryptocurrency and through different investment vehicles but they both represent cases in which investors and engineers could not align on expectations and governance failed to innovate quickly enough to meet one or both groups’ expectations. As a result, investors are holding tokens whose value, though potentially significant, is decoupled from the cutting edge of cryptocurrency functionality or any measure of fundamental valuation through asset utility. Investor expectations may be that on-chain governance of a communal treasury and a well endowed token foundation should be enough to fund development of useful features. However, we have many examples of prominent cryptocurrencies that lack the market design needed to achieve idealized outcomes even if the incentives exist in theory.
A conceptual level above mechanism design, market design was pioneered by Alvin Roth and combines aspects of computer science, mechanism design, operations research and economics to ‘steer’ systems that cannot be totally controlled, but rather guided and maintained according to metrics encoding desirable or healthy system states, even as they evolve over time.
While Crypto-Market Design may be challenging, we can expect it to be in the same difficulty class as Market Design. In some cases, it might actually be easier.
Obviously a lot of Sifchain’s market design will focus on optimizing investors’ returns through the modification of existing cryptoeconomic parameters like block reward rate and swap fees. However, we expect many elements of Sifchain’s market design to be oriented around the labor force that is ultimately responsible for Sifchain. That is, when thinking of the market design for Sifchain’s AMM model, we must be thinking in part about the labor market for cultivating and maintaining the code that underlies it.
A Vision for Sifdao
Sifdao’s on-chain treasury will eventually fund all development for Sifchain. To do this effectively, Sifdao must allow decentralized execution on the tasks that members see as most critical, even as it maintains a singular vision around optimizing returns for Rowan holders and the technical leadership of Sifchain’s most dedicated maintainers. Sifdao must act as a teal organization in which this purpose serves as a tool for coordination over any centralized or hierarchical leadership.
The elements self-organize, that is, change the relationships between themselves to adapt to changes in the environment,” …
Teal organizations are run by self-managing teams. These teams consist of workers who each fulfill certain roles, including functional and managerial duties. All decisions are made using a simple advice process and/or a conflict resolution process when appropriate. There is no centralized control. Values are no longer given perfunctory attention but are actually lived in how people behave in the organization. Everyone listens to the organization’s purpose and takes action accordingly while sensing for changes in the environment. Out of these collective actions, the behavior of the organization emerges.
https://reinventingorganizationswiki.com/theory/teal-paradigm-and-organizations/
Sifdao should address the oft overlooked issue of compensating open source developers effectively without imposing large corporate-style hierarchies on them. This will give them the resources to build a large suite of cryptoeconomic features for investors and a framework for governing the economy in which they exist. Such a governance framework will inevitably involve a combination of human and computer-based decision making. It may even evolve into a decentralized hive mind.
This is why these programs have come to be known as “smart contracts.” A better term for them, however, might be “sovereign programs” because, once deployed, they are independent — they deterministically execute themselves, instruction by instruction, subject to nobody’s authority.
It is this inviolable sovereignty that allows a smart contract to credibly act as a trusted intermediary between strangers.
…
let’s imagine for a second if we could take a smart contract and embed within it a deep neural network.
The trick is to create a two-sided market by building the right incentive structures into our smart contract. On the supply side, people who have access to the prized bits of data can get paid if they contribute them (in labeled form) to our nascent neural net. And, on the demand side, developers who would like to leverage the intelligence of our neural net can pay a fee to make use of it as an API.
Once this kind of economic venue is bootstrapped and reaches critical mass, it sets off a self-reinforcing feedback loop of improvement: More capital deployed by our neural net leads to the crowdsourcing of more esoteric data, which leads to improved model accuracy, which leads to increasing demand from developers, which leads to even more capital deployed by our neural net. And around the flywheel we go.
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This is a fundamentally more efficient capital structure for a multi-sided market. There is no reason that the capital that is needed to get it off the ground has to be entirely financial in nature and come from external sources. Some of it can come from the participants themselves, for they have human and production capital to contribute.
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Remember that the smart contract that houses our neural net is fully programmable. So, why not build into it the ability to mint freely tradable tokens that grant whoever holds them a claim to all revenue that flows through it?
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With this new bit of logic, our neural network begins to take on a life of its own as a self-funding, autonomous entity. And, as the flywheel is set into motion, the service it offers will begin to become useful to the demand side too — i.e., developers willing to pay real money
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The key idea is that a market that is owned by its participants acts on its region of influence like a magnetic coil does on iron filings. It is a force of alignment between people — a force that revs the market engine by its shaft at its crucial starting moment.
Let’s call these things Autonomous Marketplaces.
We expect this to be an ongoing process and want to attract community members who are excited by the kind of long-term wealth this can generate for Sifchain. If this sounds like you, we encourage you to follow us on social media to participate in the conversation. When Sifchain’s token sale concludes, we’ll deploy capital that Sifdao can control independently to kick off this exciting mission!
Sifchain community channels
🌾 Telegram: https://t.me/sifchain
🌾 Twitter: https://twitter.com/sifchain
🌾 Discord: https://discord.gg/fJhux6DKYx
🌾 Website: https://www.sifchain.finance
