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I also think that looking at extra-protocol incentives is critical as well, since e.g. SNX holders paid sETH pool Uni LP's to provide a service to the Synthetix protocol, this is 100% legit revenue for Uni LP’s who provided this service. It was liquid and convertible to cash.

kain.eth

@kaiynne

Jul 20, 2020

So you can now raise a small round, create a coordination game, then have that game produce significantly more revenue for the players than you even raised to create it.

kain.eth

@kaiynne

Jul 20, 2020

This is fundamentally different than running a centralised service where you need to keep paying everyone in the firm continuously forever to run the thing or it will implode on itself.

kain.eth

@kaiynne

Jul 20, 2020

To go back to the uniswap example, it is a little like someone in the Amazon marketplace making more revenue than Amazon the company. It is pretty astounding.

kain.eth

@kaiynne

Jul 20, 2020

The open question here is incentive alignment. Bezos started Amazon presumably so that one day he could launch himself into space or something, being the largest shareholder in the largest retailer ever is a pretty good incentive to grind away at it for years.

kain.eth

@kaiynne

Jul 20, 2020

With these DeFi coordination games, the incentive for founders is likely going to be getting an upfront allocation of governance tokens, which I think is totally fine and good, if we have no incentive for founders to experiment very little experimentation will happen.

kain.eth

@kaiynne

Jul 20, 2020

For everyone else the incentives will be either direct, in the form of revenue from participating as an LP or indirect via governance token revenue capture or both. But the solution space here is huge and we are just starting to explore it.

kain.eth

@kaiynne

Jul 20, 2020

Can Uniswap or Curve run indefinitely without injections of outside capital, I think the answer is almost definitely, but governance tokens are kind of a blunt instrument in that there are a lot of functions required to keep a protocol relevant.

kain.eth

@kaiynne

Jul 20, 2020

One thing I hope to see is experimentation in revenue distribution to various protocol requirements, x% to engineering etc. A team can form and provide this service and gov token holders can grant or revoke this revenue stream based on performance.

kain.eth

@kaiynne

Jul 20, 2020

Firms have undoubtedly been the optimal coordination mechanism for capitalism but smart contracts are a new enabling technology that could disrupt this... Someone much smarter than me needs to update Coase to the nature of the protocol, imo.

en.wikipedia.org

The Nature of the Firm - Wikipedia

SBF

@SBF_FTX

Replying to

@kaiynne

I totally agree on revenue that goes to protocol token owners and should have made that clear--that is legit revenue! Disagree on LPs though. If A buys TUSD/USDC from B @ 0.999 and pays a 10bp fee to B, that's just the same as A buying TUSD/USDC @ 1 from B with no fees.

3:45 AM · Jul 20, 2020Twitter Web App

Replying to

and

That makes sense, though I think if an LP puts $1k into an AMM pool and then a year later pulls out $1.1k it is pretty clear especially for something like Curve that the 10% yield came from fees. Agree for not parity assets it is more complicated though.