Bootstrapping new economic paradigms

Transcript

flew in yesterday yeah you live here man all right it's 10 30. welcome everyone to my talk uh my name is michael o'rourke and my talk is about bootstrapping new economic paradigms i wish i had time to talk about the black market of fcc tickets that was happening as an economic paradigm but unfortunately i didn't have time to to do that um so i'm just gonna move forward uh give you a little bit about myself um i've been in the space since 2013 when i bought my first bitcoin

mainly because i read an article about the silk road on on wired and just fell in love with the space basically had a history degree in college learned a code before i graduated we started writing some smart contracts in late 2016 after the dow hack and kind of came up with the idea for pocket for context pocket is a protocol that incentivizes people to run full nodes so it's a developer platform you can think of us as like a decentralized api so it's a protocol that's a middleware and we launched it almost four years later uh after uh uh lots of iteration as we actually launched our main net almost a year ago to the date uh about eight days from now will be our year birthday of

our main net which is pretty exciting and since then there we support over over 12 chains so these are 12 full nodes and or nodes full nodes for for 12 different chains and we've served over 1 billion requests on the network on pocket which is pretty cool so moving forward i'm just going to give a quick uh overview of setting expectations of this talk i'm going to give a quick history of other bootstrapped economies and then i'm going to talk about just some through lines and lessons that hopefully you guys can take away from this so so moving forward first off this is really hard um as protocol builders application builders decentralized application builders we have to worry

about economics governance markets the current state of the technology all the different stakeholders supply demand uh so many things and uh this is really a really difficult thing all of us builders are are doing um i just want to say that we're standing on the shoulders of giants from as far back as the early 70s and i think it's really important that in this open source world that we really build things from first principles it's so easy to just copy paste someone's model into your own project and and honestly most of the time it probably won't fit um so i really heavily recommend uh building and thinking about these uh economic

crypto economic models that we're building uh from first principles uh because what works for you may not work for someone else uh so so just keep that in mind uh moving forward um so to be clear um this is not a comprehensive list i'm just gonna give uh uh i'm gonna talk about some topics that you know i'm close to or are near uh to me in some form of fashion um you know i just want to make sure that you'll understand that this is meant to be kind of like i want you to see this from a 30 000 foot view and more look at the kind of the trends of the kinds of decisions that have been made and how that's affected the various markets and economies that i'm about to talk about so with that i'm going to i'm going to move forward

and give a really short history of the u.s dollar you'll see a couple dates here and i'm gonna start talking about it a little bit right here um so first off uh usd was like literally one of the worst stable coins of all time going back to the 1700s we had this bi-metallic system so we had silver coins and gold coins and the thing was that the government decided to to peg the price of these coins to a ratio of silver or gold on these coins so regardless of what the market price was which is why you kind of see a flat line here until about the late 1800s regardless of what the actual market price of these coins were

the government said that the price was you know x or y uh based on this ratio and this kind of reminds me of back when i was in like argentina like years ago and i remember the the the government quoted price for the dollar was something like seven eight pesos uh but in reality the the real market price was something like 14 to 16 pesos and really we had a similar situation in the us for like over 100 years where the government said the price was one thing and really the real price of gold or silver was another and one of the problems with this was the government in trying to control this the prices would just fluctuate so much of gold and silver so the demand for gold would go up and that would actually cause the supply of gold coins in circulation to

completely get uh to disappear because the inverse would happen with the silver coins where the ratio was one thing but in fact it was worth less than a dollar so i would pay for five dollars for something and i'd in fact be paying like 450 or four dollars and you'd have these weird incentives happen where um you know there would be a discovery in gold in california and australia which crashed the price of gold and the inverse happened so all of a sudden all the silver coins were taken out of circulation this was really horrible ux for people you had to know like what the prices were and all these things it was just a really it's a really big pain um uh so so that's kind of a quick history of kind of like the early usd in the mid-1800s [Music]

we still had a pretty laissez-faire pretty decentralized system actually we had thousands of banks open up in the 1800s and what's really interesting about this is there was really very little financial infrastructure available the u.s was like pretty hands-off that the government was so as a result all these banks were kind of building their own systems and all their own things and uh one of the main takeaways i want you to take from this is is the fact that um money wants to be used um and it tries to find ways to to have leverage and to get for people to get loans and and these sorts of things and credit um and i found this quote really interesting it was really hard to find what the supply was of usd at the time uh but with all the

banks and all the uh notes of credit they had at the time uh they had about uh you know this was you know they had about 400 million dollars worth of credit from all these kind of independent decentralized like thousands of banks you know totaling about 400 million dollars and in this quote it says it's like almost the amount of supply of usd in the system so it's kind of an interesting contrast of like where we were 150 years ago in terms of usd in the system versus where we are now um but nonetheless uh the really important part of this is is that um people went and built their own things because they had the incentives to do so and that's that's pretty important i think um so this was for me like the biggest turning point uh for the u.s um the us actually

centralized usd um the supreme court struck down all these bank independent vapor notes and basically took complete control of the dollar and uh part of the challenge of for example having a bi-metal monetary system is that you can't control the supply and demand of this of these metals right like you can't determine whether you know some new object gets made or there's some new coinage or some new mint or some new jewelry or something that increases the demand of of of gold or silver and and conversely with the supply of this right you can't guess when gold will get you know discovered right um so this was a really big deal for the us um you know like moralities aside um just the impact of

unifying the dollar and having one place that uh uh people could use or one thing that people could use was pretty impactful particularly when it comes to liquidity and an impact of the dollar as you can see as over time the the the you know paper currency and circulation just exploded and this is only up to 1940 i mean i don't even want to look at the chart that's that's today obviously but um i just want to really just highlight the the fact that um uh the unification of this uh was actually quite powerful uh particularly in the context if you think about it with like um with like bitcoin and eth today um so the last piece of this uh uh is actually when bretton woods and the demonitators of gold so we kind of

we got things locally in the national side of things and then after world war ii we basically traded security for liquidity um and that's kind of how the us dollar became more or less a settlement layer of much of the world today and in 1971 we demon demonetized gold so no longer could you officially actually trade your dollars for gold and as a result the dollar ended up becoming kind of the dominant settlement layer and again i just want to kind of talk about how like really these paper notes are credit and that's what kind of gave the us so much leverage in these kinds of conversations and we had the control of the supply and the demand up until the demonetization of gold in terms of you know bringing

dollars out of supply uh and as a result you know that's kind of how the us dollar became but it's just really interesting to think about in terms of context of you know how btc and eath are kind of the dominant settlement uh currencies or cryptos that we have today and it just kind of highlights how early we are uh particularly because you know we've had this kind of hegemonic dollar for so long now um you know i'd love to see a future where we see like many different dominant settlement layers and how that interacts with each other in a proper way so um moving forward i'm gonna fast forward a little bit in time i have a pretty deep history in playing lots of video games uh so i'm gonna talk about a couple important video games that are near and dear to my heart

but first i want to talk about this paper that this guy zachary booth wrote in 1999 he was one of the developers for this game called ultima online and it's actually a first mmorpg that reached a hundred thousand users live right and he kind of defined uh five essential roles of online economies um uh the first one being rationing power which basically if you're a new person in a in a game you can't have like the most overpowered weapon right you kind of have to work towards getting the kind of most important things in the game and so on and so forth um specialization is like you know the same thing as we do in real life you know we get really good at one thing we you know earn some wealth and then we trade

it for you know for other things other goods and services and so on and so forth interaction also very much real life right you want to interact with people you want to interact with people online right providing goals again another pretty real life thing you know we all want to have goals whether it's gaining levels or or getting weapons or or whatever it might be or beating people in battles you know however whatever it is you know these goals and games and i think in life are pretty important and role-playing so so what i mean by this is people want to be able to um you know be an artisan or a merchant or a trader or you know whatever a warrior whatever it is these are pretty important when it comes to online economies and with that i'm going to talk about the first game

which is neopets has anyone here played neopets any any people yeah nice i played so many hours with this game it's ridiculous so um i'm gonna give a quick overview of the i know you remember these games yeah i know you know this yeah yeah um so the neopets economy it's it's really interesting and one of the things that zachary booth defined in his paper was this idea of sources and sinks sources being where does the native currency of this game where how does that get created and the sinks are where does it get deleted or depleted in neopets you would play these flash games and you'd earn neopoints

and you'd actually spend them so they'd exit the system completely when you'd go to these shops and actually spend money on these items so that was kind of the the main kind of way of which you know if you want to think about it as minting and burning how neopoints were minted and burned was the games and kind of these shops interestingly enough there was some data and this is you know this may not be true or not but new points were traded about 100 times before they actually exited the system between players in the game um uh and there was kind of a kind of like a 99 and one percent kind of a situation going on where 99 kind of created everything through the games and the one percent kind of like bought sold and traded items from these shops and stuff like that

you'd like you know try to get this really rare item that was worth millions of neopoints try to sell it you know i spent lots of many hours pressing f5 in these shops unfortunately um so i want to talk about you know a couple examples of what happened so this game by the way has been in existence since 2001 and they had this problem where you could ddos their servers and duplicate the most expensive items in the game so for example this super attack p used to cost 250 million neopoints you had like almost a thousand of them uh for sale at a hundred thousand dollars so this lasts for like four days i'm sure you can imagine this crash the prices of all these really expensive items so the team had kind of this choice of either do we go nuclear and kind of roll

back the servers or do we kind of go and ban people and try to track down everyone so they kind of like got a lot of feedback from the community and stuff like that and they actually decided to not roll back the servers but actually just going forward and kind of ban people and so on and so forth this settled down like the super attack p ended up being like a fourth of what uh it originally cost so there was some damage to the pricing of these things but nonetheless i just think it's an interesting parallel to like the dow hack and and how he kind of grew forward and how these guys kind of had the same situation in like 2001 or whenever it was so um it's quite interesting in that front um i'm gonna be talking about friction a lot uh and and this was interesting

because uh if you were familiar with the game basically there were two ways to buy and sell things uh one was through this thing called the trading post which is this really like opaque difficult uh annoying thing where people would be like oh i'm selling this thing you neo mail them and after a few days you'd like try to haggle and then you say okay this is the offer and then you finally like get the items and the other way was through the shop wizard which was like super simple really transparent um you'd see you know if i searched my mega piget smoothie for example on this picture you know you see the items that are there and the costs and so on and so forth and the problem was that they only let you uh list items up to 100 000 neo points on

the shop wizard and as a result there was a whole set of items that were only available through the trading post and one thing that the neopets team did was they increased the maximum price you could actually post items with up to a million neo points and what happened was all that opacity all these difficult transactions all moved over the shop wizard and actually lowered the prices of everything because the liquidity and the availability of all these items and just by adding all this transparency it actually made things much easier for people and improve the economy of the of the system interestingly enough um there's another uh kind of concept called donation sync so back to kind of the sources and syncs concept that i talked about earlier

um if you guys are interested in like nfts or gaming or anything like this i think this could be really interesting for you um so there's two kinds of kind of syncs in in most games there's item syncs and there's like the currency syncs the item syncs so in this case on the left you'll see the charity corner um you had so many items in this game and uh some of them were you know they had these kind of these like rarity uh uh numbers so in this charity corner you could donate any item that was between rarity 90 and 99 to um to get some random item that could be worth a lot of money like you know you could trade something that cost 5 000 neopoints into something that's worth like millions for example and people found some of these items that um

were worth like 45 neopoints at the time and kept kind of farming this charity corner and in fact this actually caused the price of these things to increase a thousand fold from 45 new points like 50 000 neopoints so i'm curious as to how people you know if you all are building you know some application or thinking about nfts or anything like that how you could how you might be able to implement some mechanism like this i haven't seen this too much yet and the second one so the other kind of sync is actually the currency sync so this is something called the lever of doom where you just spend a million 100 neo points and just pull it and nothing would happen uh absolutely nothing just spend 100 new points and that's it um but what happened was you would actually have a very tiny chance of getting an

avatar from the forums uh so people would end up spending millions of neo points literally pressing pulling this thing for hours to try to get this avatar so it's a pretty creative sink in terms of um exiting uh the currency out of the system uh so again i just want you to think about like minting and burning and staking in in the crypto context and how creative we can get with these kind of things so moving forward i'm going to talk about another game near and dear to my heart uh runescape we only had one person here playing neopets before did anyone else play runescape when they were when they were younger no okay another one person um cool so so runescape is an interesting game um it was a mmrpg so it was uh uh you know uh uh you know

more fantasy based uh whatever and um what's really interesting about the over uh kind of comparing from runescape to neopets is that neopets had a couple sinks that were really powerful um runescape had many sinks that weren't that powerful and a lot of people actually complained about how there was so much inflation in the runescape economy as a result and the team didn't seem to be very keen on you know increasing the incentives of these sinks interestingly enough for whatever reason but if you ever played the game um it was a huge pain to like buy and sell things like you see this like massive words that's just incredibly hard to get around you basically go to this place and try to buy and sell things and it was just really you know not fun um

uh and it wasn't really until uh six years in they launched something called the grand exchange which uh basically unified all these runescape servers so one thing i didn't mention was that there were hundreds of these runescape servers you could only have 2000 people in each server and you just kind of had these kind of you think about like uh kind of like cosmos and how each tendermint chain has like its own independent thing really the cosmos or the runescape servers are kind of like that or each they each kind of have like their own independent economy and you can think of the grand exchange as like the hub of of cosmos and how it just kind of interconnected everything and actually really increased liquidity increase decreased friction and and just really improve the economy of the of the runescape world um which is pretty interesting i

remember buying an item uh selling buying and selling items you know i started earning 50 more on some like iron ore i was i was mining um as a result of of the grand exchange opening which is pretty cool so i was like yeah i get some more money now um you know so those are kind of just some quick examples um i just want to talk about some of the lessons that that i think you might be able to take away from this um so you had the kind of five roles for online economies i kind of remixed this a little bit into five rules for crypto economies um rationing power you know i think in these permissionless systems um uh it's less important for someone to to you know be forced to have to be new right if you want to come in with a

million dollars or with all the effort in the world to to get a dow grant for something well then go for it right i don't think that you necessarily have to be limited like that in real life uh so i replaced it for communication um i think it's super hyper critical as we bootstrap these new economies that we communicate there's so many stakeholders users you know supply demand side you know investors speculators there's just so many different things that we have to worry about when we're building these things and communication is just so incredibly important i think specialization is i think i kept that the same i think that's just exactly how it should be you know you have people who are you know in pocket for example people who are running nodes you have locations you have people who are voters in the dow

right so so you have different kinds of specializations that these protocols can participate in um instead of interaction i kind of leveled it up into community this is probably one of the biggest moats that we can have in crypto today particularly when it comes to leveling up your protocol you know collective action and dowse and so on and so forth instead of providing goals i kind of evolved that into liquidity i think that's so hyper critically important in their space and even you know this is kind of difficult for me because as a u.s based entity we have to kind of be very careful about this but nonetheless it really is important and that's why we've seen um for example the success of uniswap uh balancer

bancor and so on and so forth is because this is just really it's important i mean you know how many tokens have no usage but massive liquidity and it's a it's also a really big moat actually um and i think role-playing is also important right like you've got protocol politicians you've got core developers you've got you know just so many different roles um you know research analysts you know economics so on and so forth i still think that that's pretty important for crypto economies regardless um i think that launching your product uh and or protocol as bare bones as possible is really important too um you know in pocket's case we launched with barely anything we just launched a blockchain uh barely a block explorer barely a wallet

and really nothing else um i think this is a massive opportunity for people to who believe in your project to actually contribute and and participate uh whether it's you know asking for a dell grant um you know especially if they believe in the project right because it you know one it gets people more bought in two it allows people who are building on your project to learn about it even more deeply right um and it's just an incredible opportunity to in my opinion to really build community so make sure you just find that one thing that that you know you're solving uh and and just launch it um uh to be honest i don't think it needs to be perfect or anything like that uh personally um also think about your sources and sinks um so this is also from the paper um that i talked about earlier um this

is kind of the original economic flow that they had you can think of this as like some erc20 token that just has a stable supply and uh uh you know they kind of have to find ways for people to use it right um they evolve their flow into you kind of see the faucet and the drain here which are sources and sinks and they actually found that their the success of their economy was much better uh things moved much more fluidly uh and and so on and so forth um uh this might not be a popular opinion but i kind of think of fees within blockchains and protocols as kind of like the banner ads of the early 90s right so so when netscape first came out we first had these um these first websites and stuff people took

kind of the ads from the newspapers and kind of just slapped them on these kind of netscape websites and stuff like that and it wasn't until 10 15 years later that we kind of saw like mobile native advertising and these kinds of things i personally think that things like staking minting and burning are much more crypto native and and allows for much more um granularity creativity and really much more efficiency in terms of how we transfer value like if you think about it if i send a fee to someone on some layer one blockchain how many nodes are having to reach consensus about this simple fee right whereas if i'm staking you know think about the amount of energy of staking once and then you know people doing a bunch of work as a result of that is intuitively much less energy being spent which i think is important um

find your fulcrum what's the thing that people use your service for um you know for pocket it's it's requests it could be anything if you're building a game you know whatever it is right um interestingly enough you know the most popular fulcrums in crypto today are our memes and speculation um i hope that in the future we start to get uh more product focused fulcrums although to be fair having a really strong product with a really strong meme game is like like uh you know the the best thing you could probably do to be honest uh so really what's the thing that's gonna really push your project forward and create demand for it right and of course remove friction um this is kind of a common theme uh uh you know you want to increase the surface area of interaction

right you know you know before i was staking earning some yield now i'm staking earning uh you know creating a synthetic with with lido and f2 and now i can make more money from that um you know we're kind of just increasing the leverage and reducing friction uh which is you know you know comparing to where kind of like the us was in the 1800s and where we are today um you can kind of just see how how early we are on all this and just wrapping up um you know just this gives us some context of kind of the importance of btc and eth in today's terms markets want to find some liquidity give your community a chance to build what you need and um yeah i'd say experiment with different ways of minting burning and staking within your protocols and with that uh i'm done thanks everyone

[Applause] yeah i have a few minutes i don't know if you have any questions if not no big deal no cool thanks everyone you