Finding a Business Model for HyperStructures with Connor McCormick

Transcript

foreign [Music] ation on the Pod today we have Conor McCormick and we are talking about whether or not hyperstructures can be free forever but also simultaneously valuable to out so a hyper structure is a new type of infrastructure that exists in ethereum or in the blockchain think about a physical structure as something that exists in a city or on land a hyperstructure is that it's something that exists in ethereum so you can think about something like rocket pool or something like uniswap as a hyperstructure in that they're a Unstoppable free uh permissionless positive sum credibly neutral structure

that exists in ethereum that allows humans to coordinate on top of them so uniswap basically is a market that allows people to trade tokens with liquidity providers and amms and that is the hyperstructure that is uniswap rocket pool allows you to stake RPL and to run an ethereum validator with less than 32 each these are hyper structures these are infrastructure in ethereum as opposed to infrastructure in meat space that were exit where they were used to like a like a structure in a city one of the ideas that Connor and I have been debating on Twitter we've been debating this for like six or nine months on Twitter is can a hyper structure be both free forever and Incredibly valuable to own so can we use private capital in

order to bootstrap these infrastructures and make them into public infrastructure that will not be rent seeking it's kind of what's at stake here and if you're a region who cares about funding public goods this is obviously extremely germane to you because if you build something if you can Channel Innovation into building public infrastructure 21st century infrastructure hyper structures and you can Channel Capital into it and you can make a salary working on public infrastructure then that's huge for creating an ecosystem of public goods in web3 and Connor has kind of been on the side of this that no a hyperstructure can't be free forever and valuable to own and I've been sort of wishing it into existence and we've been debating a

lot on Twitter and that's why I invited him to be on the podcast to just let's hey let's have a high resolution conversation get into a place where we can actually have nuance and I actually think that this episode we created a lot of synthesis about when and where a hyper structure can be free forever and valuable to own and I think that this is at least for me an unlock in thinking about how we can fund public goods and create a plurality of hyperstructures that fund public goods in the web3 ecosystem so if you're into all of these nerdy subjects funding public goods using hyper structures to do it then I think you're going to enjoy this episode Conor is such a good faith debater in this episode um this is my first time stepping out of the host chair and playing both host and

debater and Conor just handles it with such uh such Grace and articulateness that I think that we reach the synthesis in the end that is valuable for me and I think that it was valuable for me then hopefully it's valuable for you listener coordination without further Ado I give you Conor McCormick and we're discussing whether hyperstructures can be free forever and valuable to um enjoy Athena Dao is addressing the underfunded areas of women's health such as menopause and endometriosis Athena is a Community Driven doubt giving women a say in decision making and funding the scientific breakthroughs that impact their lives with cutting-edge technology like molecules IP nft framework they invest in research IP that ensures exclusive licensing rights Athena Dao is Raising awareness to women's health

research working alongside existing organizations so join Athena Dao today to help change the landscape of women's health research hey Connor what's up hey how's it going pretty good really excited to have this conversation about whether or not hyperstructures can be valuable to own and free forever which is you and I have traded Twitter exchanges on this for I think the last six or nine months um and so really excited to have a high fidelity conversation about it that's about time yeah Twitter is uh too low bandwidth so here we are so maybe we'll start with defining hyperstructures hyperstructures are an idea from Jacob from Zora and basically the the idea is that a hyper structure is a crypto

protocol that is imbued in the blockchain and Jacob defines the hyperstructure as a crypto protocol that can run free and Forever Without maintenance interruption or intermediaries how does that definition sound to you it's good it's good as a starting point and I think where we'll get eventually is we'll um we'll point out you know maybe some ways in which the definition that he gives um at the top is insufficient to capture everything that we want to talk about maybe something that's worth mentioning about hyperstructures is why they're important because one of the big problems that we face in the world right now is that um you know companies are building these incredibly value incredibly valuable uh walled Gardens

which then aren't owned by their users and aren't controlled by their users in any way and um so what this means is that when somebody does come along and create you know the the Linux for example they have to do this as a passion project they can't do it because it's going to be incredibly valuable um and and that's because you know when you create that Walled Garden well then you have IP and you own the user set and you can do kind of whatever you want with it including running ads that your users don't like and so if it's true that a hyperstructure can be built then this is really exciting because it means that there's a totally new uh game that can be played a totally new business model that can be built where we can have kind of our cake and eat it too we can have

this uh incredibly valuable for society thing you know beneficial thing alongside a um something that's valuable in that it it rewards the entrepreneurs and the people who did the work to build it so it's I think it's kind of a high-stakes conversation because if we can find a way to make this work then there's a new business model on the line um which is able to reward the people who built it and beneficial for the people who use it and then if not then we're just fooling ourselves right and that has its own consequences yeah so I mean I think what's at stake is what's the funding model for 21st century digital infrastructure

and can we take all of the Innovation that happens in the open market and pointed at the building out of public infrastructure in the metaverse in the uh it's 2023 saying we're going to build infrastructure and metaverse is not hot anymore it's the year of AI but um you know assuming that this digital infrastructure does over time become very important to society and the free exchange of ideas and and assets then this could be important public infrastructure for the world and that's to me what's at stake when we talk about hyperstructures and and so how does that resonate with you totally the thing that I am most interested in by far is how do we uh how do we make it profitable for companies to do good especially for the things that today are not profitable

um and in particular how do we make it only profitable for them to do things that are good um you know so non-exploitative behaviors are become expensive but the beneficial ones become become uh sustainable so I want to Rattle off a couple of attributes of hyperstructures from Jacob's post and then we can get into the to the meat of the discussion from there um and maybe we'll talk about an example of a hyperstructure sure while we're at it so um one of the examples that Jacob uses in the blog post is uniswap as a hyperstructure and uniswap is for the listeners listeners probably know this already but it's so uh an amm an automated Market maker that allows you to exchange asset extra asset Y and Jacob's criteria for hyperstructure are

one that it's Unstoppable two that it's free three that it's valuable for that it's expansive five that it's permissionless six that is positive sum and seven that it's credibly neutral so um I think when I when I think about unit swap versus this definition it's definitely not free in the users pay nothing since you are paying ethereum gas fees but you're not paying anything to the protocol um you are you're paying for the lp fees and the ethereum protocol fees but not anything back to the protocol itself um and you know maybe maybe it's not completely permissionless because you have to have a certain asset in order to

use it but the fact that it's universally accessible and censorship resistant to me this still feels like it it checks all of these boxes to me and I'm wondering if you have any reaction to a uniswap as an example of a hyperstructure or any of those seven criteria that Jacob lays out for hyper structures so the ones that really matter to me is rent free and valuable you know those are kind of the most important components in my mind and everything else is is nice to have um and and and I think beneficial but really my my contention is around whether it can be rent free and valuable and um I'm using rent free here because I think that it helps to clarify you know between the lp fees and that like there's a cost of operating the thing

and everybody's fine paying that like you understand that you need to put gas in your car um but really we're talking about you know um an example of rent as well is if somebody owns you know a piece of land then they can charge people to live there and if they own sufficient land then they can like hike up the prices really high we see of course Google charges enormous rent on their uh dominance their Monopoly of search uh until maybe now uh now that uh llms are going to change that so that's that's a that's the example of of rent and we want to design structures that um don't charge aren't able to charge these extractive rents and yet are still valuable for the people who help to create them just just a clarification on the the Google example so uh Google

search is free but the rent that is being charged is in the form of harvesting of our data and selling it to advertisers and bidding up the prices of ads did I get that right perfect okay and I'm wondering you know since uniswap the ethereum protocol charges gas fees when you do a swap on uniswap um and LPS liquidity providers in uniswap can charge a fee on their LP um the fact that you can deploy a uniswap to any L2 or you can just choose not to use a specific LP uh means that even though rent is sort of being charged there is a fee then it's not this sort of like overly dominant monopolistic rat whereas if you had a protocol a wide fee then that's really

what's at stake to you in matters with the term free like free forever at the protocol level yeah and um you know if you have something that is truly forkable so this is where we get into like there's a there's a hidden there's actually a hidden assumption as you get later into the article which is that it's possible for anyone to come along and um uh fork uniswap in case the fees get too high right um so this is the the um the hidden assumption that's there and this relates to the fact that uniswab has this token and this token is um you know people hold this token for some reason and um whatever price they bid it up to they

must be bidding it up to because they think that in some way either other people are going to come along afterwards and also bid it up so there's going to continue to be you know a market that uh uh either uh it must grow right because otherwise their Capital could be deployed more efficiently elsewhere um and why would somebody do that um well uh maybe because they think that somehow the market size is going to grow so that's one reason and then the other reason is due to um some sort of profits that are going to be returned to the people who own those tokens right um so yeah protocol fee and um uh this is where you and I kind of like get into the meat of things because I think that if uniswap was truly forkable all the way down to the for you know forking the

liquidity providers then that token wouldn't have um uh I'll say as much value but I I think it would really wipe out a lot of the value of the token um because of course we know that the code is forkable but what is is not for forkable are all of the all the liquidity providers on it so I think that it does have kind of this um it does have kind of a a Walled Garden sort of feel to it because it has captured those Network effects um and and I think that what you're doing if you're buying the uni token is you're buying it because you expect that one day you will actually be able to charge a protocol fee because there will be so much uh lock-in and that will be a profitable thing to do

um and it's just for now that that people are not doing it and so the heart of um maybe I can let you react to that and then we can talk about you know this idea of the threat of the fee and how um Jacob had said that he thinks that this is what gives you know this is that tension that in principle is going to give rise to value in the uni token let me just try to reflect back to what I said which is or what you said which is um there's the users in the general the general public and then there's the holders of the uni token um and there's this this incentive pressure between them where the users of the protocol want it to stay free

forever because that's their rational best interest and then the uni tolders want to be able to um have more value in their uni or create a dividend on their uni and so they want to turn on the fee switch and these are two opposing zero-sum forces with each other and and so at risk here is um the people who are in control of the protocol have the ability to turn on the fee switch through uni governance but there's a threat of a fork coming from the users on the other side and the game theory is slightly different if you could Fork out the liquidity providers and do a vampire attack versus if you could only fork the protocol and not

take the network effects and the liquidity you provide arguably it's it's the liquidity and the brands that are like the two things that aren't forkable that are extremely valuable there and so at at um that question here is can web3 protocols be free forever and Incredibly valuable to own so can uni still have a market value on secondary markets without turning on the fee switch and I think that right now we're in this place where uni because of the threat of the fee can have a rational market value um but the question I think for me the question is it's free for right now it's it's I think it's inarguable that uni is is valuable right now and it's free right now but can it be free forever

does does this stasis between the two opposing forces last forever um is the is I think where there's daylight between us and I'm curious what you how you react to that yeah is it stable because of course um if it were the case that any token had some value in time you could make the argument at that time that that was an instance of a hyperstructure the question is just does the hyperstructure you know maintain is it is it is it a forever thing um and so just just because a token has some value at some point in time doesn't mean that that's a good example of uh it being able to maintain that you you want to look at the underlying you know Game Theory or the the the the structure to see whether it has properties that you think like oh yeah actually probably

this is gonna make it and that's what I'm saying isn't here um I think that what uh what that there could be many explanations some of it of course like a market has many different kinds of players in it and so it has like very sophisticated people who are maybe actually looking at the network Dynamics and the positioning of uni and the value of the brand and the probability of a of a fork being successful um and estimating the total amount of profit that they could gain before a fork would be successful and the cost of switching and all of this stuff right there's probably people doing that on one end and there's probably other people who are just like well it seems to be popular to buy this and so I'm going to buy it too um and that's fine right that's how

markets work um but you know if if it just turns out that um this is this is and so this is why I would say that I actually think that many elements of uni make it not a good example of a hyperstructure because as you pointed out it's really difficult to Fork the network effects and it's really difficult to Fork the brand and so one way we could maybe try and resolve this like a thought experiment that helps us get a moment closer is to imagine if there's an alternative to UNI and don't know what do we want to call it poly and the the poly swap protocol allows um uh it's it's the brand but what it it is incapable of charging a fee um but there are many like sub swaps under it that um that can charge fees

and it always chooses the cheapest one right and so now we've put ourselves in a situation where we have made the brand irrelevant because everybody you know the brand can accrue value but it's impossible for it to charge a fee um and so there wouldn't be a token for example associated with poly swap um and then there's all these uh sub amms um that have a uh that are competing to be selected and they're the ones that have tokens associated with them but what this means of course is that we have now made everything forkable so the brand is is irrelevant essentially it's forkable to any of these amms and the network liquidity is forkable to any of these amms and now the question is if

there were two competing amms under that you know number one and number two then um and they both had tokens associated with them how valuable should those tokens be and my claim is that they should be essentially valueless yeah so I mean I this might be too reductionist but it feels like in in the poly example say that you could Fork out the liquidity and could Fork out the brand then there seems to be like that hyperstructure would be much less valuable to own because the the threat of the internet forkability of it pre means that there's much less leverage on on behalf of the people who want it to be that want to give it a fee

that might be too reductionist but that's kind of what I heard I think that's right that's what I agree yeah I think it's really like kind of fun to pinch and zoom on where we agree and where we disagree and again like I'm in the camp that I have a hyperstructure can be free forever and also valuable to own I think you're in the camp that it could be free but not forever um invaluable to own and I think that you know the variables we can play with here are how forkable is the brand in the liquidity and then the other variable I think we can play with is how forever is forever are we talking about the heat death of the universe are we talking about 10 years from now are we talking about two years from now are you talking about two days from now so

there's like a gradient there and then the other gradient I feel like is who are the market participants are we talking about family offices are we talking about central banks are we talking about retail investors are we talking about institutional investors because those people might have different valuation models and now I'm starting going to see a gradient of of where there's daylight between us and how to sort of uh pinch and zoom and and resolve that that gradient uh is that fair which I I've tried this is my first time being a host and also like debating uh at the same time so I'm trying to play play both hats yeah I'll do my best to find find the uh the point with you too um so yeah I think maybe the way that you could it sounds like then and this is where

I'm a little confused is it like it sounds like you agree that the more forkable you make something in other words the less leverage it has the less valuable it will be I think it depends on who's valuing it well let me let me unfurl a little bit of my thinking and maybe that'll illuminate the differences between us and I'm sorry for not just giving you a yes or no I have a thought that the existing pricing model for companies is based off of P to e ratios on top of their revenue so apple has a value a market cap um and it trades at a relative value to its forward Revenue uh so this is what's called price price to earnings the price of the stock relative to the earnings of

of the company that it's based on and I think that you know there are some hyperstructures that will be valued in that way the ones that are Revenue generating but I think that there is a possibility of Novel pricing models in the web 3 space in in the information economy so basically we the pde ratio was conceived of and works really well in Industrial Age capitalism and I think it's stable and I think that that's a good thing but I think that in an information economy where attention is the most valuable commodity it's possible to create new valuation models all the things that command detention this is interesting and novel but it's also dangerous right because this is how pump and dump schemes work this is how Pepe works is that people just create meme stocks Dogecoin and pepe that don't

have a stable attractor to them and that's how you get like the pump and then you get the dump in which all this attention flows in the stock Rises and then the early adopters dump it on the late adopters and then the whole thing collapses but I think that it would be and so I don't I'm not advocating for that nor do I think that it's valuable to even entertain that as a valuation model for hyper structures which I think we're talking about internet at age infrastructure what I do think is interesting is that you could have a protocol that's built off of something other than Revenue like I don't know say fundamental value creation for the world or just a strong brand that has staying power and that could command lasting attention over time um the attention is the selling point

and I think that there could be uh instead of price to earnings there could be like price to attention or price to legitimacy and so I think that um it's that it's there and and I'm acknowledging that this is sort of a little bit of an out there Theory but I do think that you know from first principles we are in an attention economy we've seen seen things valued off of attention and so it's not that much of a stretch to say oh you could create a stable attractor here I think and so in this unit swap example or the poly example if you had a brand that was so strong and you were creating such a pro-social uh impact out for the world then would it be possible without ever making any revenue for for something to be valuable forever if it commanded

lasting intention and and you know the gradient is here is like maybe it has you know maybe like in this can it's into like the whole meme stock thing with game stock where it's like the retail investors don't even really care about it's it's Revenue it's just like we like stock you know that's that's a meme from the whole GameStop thing and like maybe central banks in like family offices wouldn't buy because of the attention but but maybe there will be a certain subset they have such a brand Affinity that they'll buy the token anyway and so anyway sorry I know this is a long diversion from what you asked me no this is great I I have a I have a bit of a response to it because I so I'm recognizing that we've we've there's a little Fork we've made I want to come back to the to the the point

that we are on the on the graph but I think that there's um I think there's something really interesting here this notion of of um a recognition of the fact that if all of us have find some way to agree that there's something that we consider valuable then that's what makes it valuable um and so I think that that's absolutely true it's like a coordination game yeah yeah it's yeah far out there I mean it's it's how it works right um and we know that we can like if you want examples of this we can look at fashion and we can look at design you know these are things that um accrue value because we have all agreed that they're valuable they're just shelling points um the the problem is well there's two things to say about this one we don't need a hyperstructure for this

um you don't need the threat of the fee for this you can just have a token you know like you said Dogecoin or Pepe that everybody agrees is valuable um and people can buy into it and then it can have value for everybody who has bought into it and this is where you get the Huddle mean right this is where you get everybody trying to tell everybody else not to um and I think that much of the crypto culture that has come out of these these coins comes from a recognition of this game theory right this is why you wake up every morning you hit you put GM into your Discord channel is because you want to remind everybody that you're all in this game together right and if you defect on that then everybody's gonna be like what the heck why did they defect

and so um I think that I think that all of that's fine but the problem is that you need to recognize that those games are um uh they are tragedies of the commons waiting to happen right is is the value of that thing is itself a public good and everybody has a reason to defect right now if they think it's in any way unstable and so you actually have to find the right like like uh uh game theoretic landscape to put that thing in so that when you know when when the energy flows downhill it all collects at you know an appropriate value for that thing um that's non-speculative right that's that's somehow like game theoretic or structural and I don't think that hyperstructures offer that

um so I don't think the threat of the fee is that example of that thing but I do think that there are examples of that thing does that uh map onto at all how you're thinking yeah I I think somewhat I I you know I think that like things like Dogecoin and pepe are poor examples of this and I don't even like using them because to me they resemble uh things that aren't stable attractors for Value but you know um something like something more like rocket pool which doesn't have a fee at all but um you know gives you gives you creates value for someone who's staking I think is is a really interesting mechanic so like rocket pool basically solves the problem that I need

32 eth in order to stake on the ethereum network and with a certain amount of RPL I can stake with only 80. and um the RPL just serves as collateral and so um you know because of that it gives you a superpower you can stake um on behalf of others and can stick with less money and you have to purchase RPL and stake it in order to um in order to to use that but there is not there's not a fee um in there and so there's a community of people who are uh revolving around rocketpool and using the tech stack and and they're not generating revenue for the rocket Global organization in any way but they've created a stable attractor in which uh people want the tokens there's locked up Supply and

there's demand for the token because people want to use the tech and I'll be curious to see like will people Fork rocket pool or do they just have such an affinity for it it uh for the brand that that and what it's doing for the decentralization of ethereum that that they that they won't do that and so I'll just enter I guess tldr Rocky pool is it with the chat as an example Rock and pull is here I think that's fine the question for us is does rocketpool have a token that um another way to to get your your token to be valuable is of course to give it some sort of utility um and that's fine right so people are getting their returns but they're getting the returns from staking essentially right so the returns are coming from outside of the system and um and that's where you get and so you

that that can't be an example of a um public good right because instead those returns are coming from ethereum right and so there's a rival riseness to staking on the the ethereum network um and so you're saying it's not a public good because well in from that angle it's not a public good some proportion of these tokens are now owned by the creators of rockapool right they've given themselves a a cut then I guess I guess yeah they'll have value because they're in demand yeah I think that's fine so it still feels like to me the the Nuance is like can something be free forever um and there's a couple examples at play here uh free forever and valuable tone

the in the examples I play here are uniswap and polyswop which is an example of unit swap where you can Fork out the liquid be in the brand um and then something like rocket pool which creates demand through something other than than profits and dividends for the holders we can just think about um you know it's basically a fancy way to charge a fee and maybe it's useful in some way but uh you know what you've done is you're asking people to lock up their capital and they're giving up the counterfactual earnings that they could have if they were to put it elsewhere and they're allowing you then to cash out on your tokens um and so it's it's just a fancy way to charge a fee and one of the problems with um public goods is that you can't charge

a fee very very easily right it's non-excludable um so rocket pool is excludable I'm a big fan of public goods it's one of my favorite memes I'm actually looking at the hyper structures um post and I'm curious how important is it that the hyperstructure is a public good he does use the word public goods a couple times in the post and one of the nuances that I'll just introduce here we're talking about public goods is that many of these things are double-sided markets upon which one side is the public good and the other is a rival risk good and the example that I'll give here is that ethereum uh being able to read the blockchain is a public code it's not excludable and it's non-rivalous but to write to the chain there's only a certain amount of block space and because of that scarcity and

that congestion um writing to the chain is not a public good similarly the fact uniswap exports on-chain pricing to every asset in the ecosystem that is is uniswappable and um and so in that sense it is a public good but when you look at it from the perspective of an LP uh who has to put tokens in in order to access that part of the hyperstructure or someone who is using it to trade it is not a public good because you're so so basically I think there's a Nuance here where each of these things are an end cited market and one one part of them is a public good and the other ones are are more rival risks and so it just depends on the angle that you that you look at them yeah I guess

um I'm interested in finding business models for Pure public goods so an example is an open space park right or free software um you know someone had to develop Linux and it took them a lot of time and energy and effort and um and uh I would like there to be like at least three competitors to Linux um out there um but it's not in any way profitable for someone to make free and open software and so instead we have you know you know we have you know I guess Unix based um Mac OS and we have Windows and and I guess that's kind of about it so um this is

this is what I'm interested in finding in finding business models for yes of course there are creative ways that you can you can arrange businesses so that they solve certain public goods problems while still having um uh you know a a business model and this is like the domain of social entrepreneurship and stuff like that um and maybe that's the best we can do if that's the best we can do I'm really bummed but like sure I can imagine that you could start a business that like you know sells hot cakes and uses the revenue from the hot cakes to improve the um the Forest Trails and uh when people come in they um purchase the hotcakes and maybe that's maybe that's sufficient

um but it seems to me that there's a and actually if you think about it that's a little bit what coffee shops are is they're like they're providing this uh public good which is you got to go and hang out in this great space where you can work and focus and and meet people and then you know they're doing that by way of kind of this like social Norm that we've created which you really should buy something if you're going to go and use their Wi-Fi and you should probably buy something like once every hour and that seems to work right that seems to be a stable way to fund the that particular public good because they're not charging you per minute like a co-working space would um but I want to know is there a way to design something that can fund a a

public good and and that's what brought me to hyper structures was the thought that made maybe that was that was going to work well let me just um this is a really great tweet from vitalik that I just pulled up that I want to I want to read off to you and I want to get your response to it so um this is a tweet from March 25th 2020 from metallic uh and it goes like this remember the primary dictum of good economic design that taxed the congestible AKA are they scarce aka the scarce resources and subsidize the public goods so things like transaction inclusion into the into the ethereum blockchain are the congestible asset that allows you to have the public good of network security um and so maybe in the in the park example I there's a park near my parents house that does this is that the the

park itself is a public good but they they make you pay for parking uh if you're going to drive there because that's the congestible asset is the re the the resources and so um to me I think it's useful to have a high resolution view of what's a public good and what's not um the park itself will be free forever well hopefully free for the foreseeable future because nothing is forever but the congestible asset um which is what supports the park is is is not free forever and so um again this is like a multi-sided Marketplace and one spot one part is free and one part is congestible and I think this is rooted in sound economic theory like ostrom's eight principles

for for design for managing the commons is um you know one of them is is clearly defined boundaries and and I think that a boundary between the congestible asset and the public good asset is maybe the key delineation point there so what's your response to that this is great and um we should do as much of you know this creative sort of like social entrepreneurship and Hyper structure funding for public goods as possible but sometimes the congestionable congestible isn't enough for the demand for the congestible isn't enough to fund the public good or to fund it at a sufficient level um and so if you have a sufficiently small park with lots of visitorship then yeah maybe it's maybe it's an enough to cover all the requirements of

maintaining the park but if you have this sprawling park that has you know hundreds of miles of trails like think about the Appalachian Trail then maybe it's just not enough and then the question is well who should pay this is always the question well who should be which congestival are we going to to um to tax a great example of this is um uh Carmen credits right or carbon sequestration it has proven challenging to find ways to to find a congestival that can be sufficiently taxed in order to cover um the amount of you know funding that should be available for CO2 sequestration or avoidance of CO2 emissions there are times when the congestible asset there's no guarantee from the universe that says don't worry

the congestable asset will always be valuable enough that it will be able to cover the the value of the public good right the funding that's that's needed for the public good and so perhaps a canonical example of this is um uh see two credits right so carbon credits are something that we have a lot of trouble figuring out how to fund and basically the best congestible asset we figured out is that there are brands that don't want their brand tarnished right so this we're like in some sense we're taxing brand value and um if they uh if so what we do is we try and apply social pressure we say that if you aren't gonna you know buy these these uh CO2 credits then you know you're kind of a bad brand and we're not

going to buy from you and so then they do and then if they you know do it poorly then we accuse them of green washing and that's how we get them to like have integrity and so but that's really uh it's it's kind of first of all it's kind of weird to put all of that on you know public Brands because there's many other companies that contribute to the problem other than just these Brands um and then you know it's a really unstable uh form of funding that just doesn't quite cover the entire need that we have and so um that's an example of like a a public good that is really difficult to find a stable funding source for I'm wondering

where you sort of see the biggest differences between uh it feels like we're agreeing a lot when we dive into the Nuance um but it just had like the highest level this idea that a crypto protocol can be free forever and valuable to own that like at the highest level there's distance between us but when we drive into the Nuance it feels like we're building a lot of consensus here and it feels like the knobs to tweak are the value of the brand the forkability of the liquidity the um the model of of why things are valuable in the first place the fact that these are double-sided markets where one asset one side of it can be congestible and the other side can be a public good and I'm wondering if we've gotten to a synthesis where maybe maybe there's a shade of gray on

free forever uh and it and on it like would it be true to say that we agree that if a uh if something is a pure public good and there's no congestible asset and the brand and and it's forkable and uh then it can't really be valuable to own but if it's if it's got defensibility against fork in the form of liquidity or brand Halo um and there is a congestible asset that can be monetized and it can command lasting attention then it could be free for a long time and valuable to own like I'm trying I'm trying to go back up to the main disagreement which is free forever and valuable to own and and build a high resolution map of the synthesis that we that we've just built

uh built here and so how where do you think that we're that we're far apart from each other and and how would you respond to this to pull out uh polarities that I that I just articulated or tried to articulate so what I would say is that I think where we disagree is that I say that as forkability goes up value goes down and um that I agree with that this is this is synonymous with saying as forkability goes up the Horizon the time Horizon goes down right so if you have a if you have a and and I you know I think it makes sense that those those go together because of course if you make a lot of money over a short period of time that can end up being equivalent to making a small amount of money over a long period of time

um and so then the question is just if you agree with that then hyperstructures become more akin to um somebody buying a token because they think that everybody else is also going to buy that token right so it becomes much closer to speculation and this isn't to say that um speculation can't create stable value right we we could like you me and a bunch of our friends could create a private market for a token and we could all buy into that thing and we could just never sell right and that could be stable because we're all friends we trust each other but the point is just that speculative tokens have intrinsic dynamics that tend towards um you know people defecting and selling their tokens you know once they go up

sufficiently and so then they you know this stability itself becomes uh subject to um these these like game theoretic properties that we we already worry about right tragedies are the commons um where every single individual defects and and what's even worse is they are tragedies of the commons with like this um this extremely non-linear uh collapse because as soon as one person defects that's information for someone else to also defect so the the summary then is just that um if you accept that as forkability goes up and then value of the token should go down then um at some point we just get back to the same point of saying that hybrid structures are isomorphic but they're

the same as uh a a token that you're speculating on and you hope that it's going to retain its speculative value I I mean one area where I I maybe think we might diverge and I'll be curious if you let me go and go let's go into it is so there's this idea of a tractor which is basically um an incentive field that warps behaviors and um you know like physical attractors are like a mini golf Hill where it's like it's easy to to putt into a hole that is downhill from you because gravity will just carry the ball to to that place and then um you know it's it's the cut the inverse is true or is is true where it's it's uh it's hard to putt uphill because gravity is working against you and so

there's psychological attractors also where um like for example it's it's known that this is a Colorado example but at night if we're camping then we'll just gather around the fire the fire is a shelling point that is the psychological attractor and so um I think thinking about the attractor dynamics of these tokens and how stable those attractors are is extremely important and something like Pepe which to me feels like a not very stable attractor because it's just memetic value and become is because and because when memes grow too big then they're not cool anymore they're not a stable attractor um anymore it's like it's like the same criteria where like Facebook was super cool uh when we were in college but as

soon as our parents were on it then it it wasn't cool anymore so you have either attractors that are stable um and you have attractors that aren't stable and and I think that for me the difference between like a pump and dump a tractor that is not stable and an attractor that is based off of the the value of the token is based off of attention but if there's some sort of stable and growing Dynamic to the attractor to it those are two completely separate scenarios for a hyperstructure being free forever and valuable valuable to own and and I think the Nuance here is that like the example that you gave is that if you either three fans buy a token you agree not to sell because

you're high trust then like you know it there's no defection um it's it's a very different scenario if you decide that you want that token economy to grow if they're if there's not a stable attractor underneath of that then the incentive to defect becomes large merger whereas if you're starting a token that has a tam of two trillion dollars and eventual Tam Network effect Tam of two trillion dollars and it's just five of you that have it at the start and there's a credible path to getting to realize that two billion dollars of two two trillion two billion of Tam then there isn't as much of an incentive for people to uh defect on each other and so I guess what

I what I'd say in response to that I agree with the Nuance the one-dimensional Nuance the more affordability equals a shorter time period um I'm wondering if you would um accept the the take that a more stable attractor and uh and like maybe the attractor is like value creation for the world um will create will increase the time Horizon for which something can be free forever and and valuable to own does that land yeah 100 percent yep okay um but I think it takes us out of the domain of talking about hyper hyper structures and we are just in the realm of like you don't need hyper structures for this right the the my criticism of of hyperstructures comes down to the

fact that I I don't think it has the game theoretic properties that we're promising right and so if it turns out that you can move you know you can put attractor basins wherever you want we're we're the humans that control the shelling points as much as the shelling points control us yeah there's something profound there but um I'll just interject that I do think hyperstructures matter here because hyperstructures are unstoppable and they're on a global credibly neutral Ledger and we haven't had the ability to have digital hardness digital certainty before blockchains and Hyper structures and that creates a foundation for more stable attractors and so I think that we may disagree a little bit there if if what you're saying is that um they will have more durable speculation then I agree

um but I think it's still I think it's still speculation well I think they have more durable attractors like so imagine if unit swap was a company it's a building and let's call it New York because that's the financial capital of the Americas so you have to basically uh assume that New York is gonna stay there and like the sea levels aren't going to rise and that people will continue to go into work every day and it'll continue to be valuable and that all those people are gonna you trust those people keep showing up to work but hyperstructures um to me are unstoppable because they're on the blockchain and the blockchain is anti-fragile and you don't have intermediaries that you need to rely on to keep showing up to work and keeping the computer systems online um they're you don't they don't have

maintenance or interruption or intermediaries and to me that creates a more stable Basin of an attractor and yeah I mean you could speculate on top of anything but it to me it's about creating a more stable attractor and and yes there can be speculation on top of that um as there can be speculation on top of anything because we could we could gamble on what the weather will be tomorrow but I think that that stable attractor makes like a really big difference um in when you're talking about something that's supposed to last for Generations I would agree the risk is lower right and and um it's an incredible technical achievement but you know like um if it's not a if it's not providing value if whatever that smart contract

that you emitted is not providing some value and is not extracting some of that value then um you're not actually buying it because you're hope you are hoping to get a return you're buying it for some speculative purpose and so it can be anything right as as our um our friend and founder of FTX would say it can be a box just imagine there's a box and just go and put some money in the box and that causes the value of the box to go up and then everybody else says oh wow the value of the box has gone up maybe I should put some value the money in the box and and so this is like you know this is the thing that I am really anti so if you want to like simplify um uh the whole conversation I think is that

I'm totally friendly to the idea that you can have attractors and attractor basins um I think though that the attractor Basin needs to be uh kind of like game theoretically real right and many things go into to proving something about um whether you know which direction is down downhill in a in a game and it's it's non-trivial to find these things are reflexive and network based right and so the fact that one agent thinks that it's a coin and or conversely they think it's the next Bitcoin can alter the incentive Dynamic and so um you know how do you create an attractor Basin that is anti-fragile against that is is more complicated and

network-based reflective world yes and yes I mean I had I had this so I'm I'm kind of souring on um I'm not as excited about prediction markets as I was before and markets in general as tools for um Collective uh sense making um because of this whole reflexive aspect and I had a conversation with Robin Hansen are you familiar with Robin Hansen he's like the person who came up with the idea a really popular as the idea of of prediction markets essentially what a prediction Market is is it is a tool for making decisions uh collectively um you know not only inference but then you know he imagines them as tools for actually deciding things um so a example is you and I could set

up a betting Market that says is it going to rain tomorrow and what Robin imagines is that there could be a world where you know in cryptopia where we bet on who's going to be the best mayor of the town and maybe we bet based on a very simple criteria we say who's going to reduce crime the most right and so there could be one uh mayor that is thought to you know she's going to be the one that is going to reduce crime the most and there's another one that's thought to be you know he's going to be a really bad mayor but the problem that this introduced is it gives an incentive to the bad mayor to um potentially like take out a massive loan or get money from his supporters that then can influence the market right so that he's more likely to become mayor in fact it

can be more nefarious than that um the mayor could uh potentially hire some people to go and like break a bunch of Windows and you know on the on the rock say on the rocks that they threw Through the Windows they say you know if mayor becomes if uh the mayor becomes president if my competitor becomes president uh or becomes mayor then we're gonna commit more crimes so that there's actually like all these adverse incentives that can exist in that environment he doesn't think that this is correct he thinks that um it's it's not true um that markets can influence themselves but I think we've seen in crypto that of course is the case that markets can influence themselves um it's part of what creates the booms and busts so this is what worries me about prediction markets in general

um as a tool for uh you know collective decision making and one of the decisions that we can make is decisions around value and um and so I think that it will be as stable as prediction markets are right there can be manipulation yeah this is you know in the green pill book one of the things that we model that we put a a graphic for uh and this is an idea from block science is that crypto economic systems are a subset of economic systems which are a subset of social systems which are a subset of of complex systems and when you put humans into something they're very irrational and it's hard to model their behavior and so I mean I guess it might be reductionist but I would say if you're trying to create a stable attractor creating it around human incentives and human behavior is not a a solid

foundation unless you can create a really solid rational shelling Point around one thing it has to be very intrinsic um would be a way I would translate that back to our discussion um about structures and their value maybe there's something to say here on our way out which is that I have found a mechanism set that I'm really excited about which I think is a stable attractor for valuation of um of uh of public goods and and you know it kind of inverts the theory which is it says that if you don't value this public good as much as I do then it's going to be expensive for you and I to transact and so this actually gives your the people that you buy from an

incentive to increase their valuation of these public goods um and so uh there's lots to say about this um there's a podcast that I did with a friend um and I think he'll have it up by the time we have this out which is I think his podcast is called connected dots it's Steven Hurtado so you know maybe there's an interesting uh thing to explore there around alternative mechanisms that I think do have this desirable property of having the ability to fund public goods without speculative Dynamics um or with you know another way to say this is maybe it's still speculative but it seems to be stable um long term you know if we're funding public goods with it then I think that that's uh that's really great and um

yeah just send me a link to it and I'll make sure that it makes it in the show notes of this show we started this episode diverging on can hyper structures be valuable to own and also free forever and I want to pinch and zoom on the word forever um because there's a giant gray area there um I think that we decided that the more of a stable attractor you can create around the hyperstructure the longer they can be free and the less forkability the hybrid structure is the longer it can be free and I think that that's what we've really pinched into it's a reductionist take but that's that's kind of the synthesis of where we where we got in this episode and and you know before we were recording you were saying like I want to be able to put this to bed so that I can like free up

my memory and be able to sleep free at night and not worry about this anymore have we gotten a do you agree with my my summary of the episode and B are you going to be able to sleep at night because you feel like you've gotten it out of your system this whole free forever invaluable to own uh debate that we've been having on Twitter for six to nine months let me just say that I think that there might actually be a way to save the mechanism and I've spent a little bit of time um playing with the game theory and seeing if I can make it make sense and I haven't yet um but but maybe it could be made to make sense and so I think in that sense I'm still curious because um and maybe a listener would have uh a lot of fun going and looking at the game

theory and seeing if they can find a way to make it um uh have this property I think you know you talked about these attractor basins um I think that how I would summarize what we talked about is that it seems like you and I both agree that you can place these attractor basins kind of wherever you want and it sounds also like we agree that speculation is a is like the top of the mountain and not the attractor Basin so it's the attractor Peak which means of course that easily things are going to flow down elsewhere and so you're you're looking for social solutions to the problem um put in a tractor base in there which kind of modifies the landscape in order so that people so it's no longer a mountain it's it's now a valley and I'm interested in game theoretic solutions

to this and I think they both complement one another so I don't I don't think that um this makes me feel better because I think nothing that you've said has has maybe been like no no I don't think he has I think he has a fundamental misunderstanding I think we're just interested in optimizing different places and I will say that if you're interested in optimizing the the social showing point that um this requires you to tell a story that that selling point is stable because if everybody believes that shelling point is stable then it will be stable um but that only works until the moment when it becomes clear that it's no longer stable so if you can manage to engineer into the bottom of the mechanism you know a mechanism design that's itself stable or that's self-regulating um then I think it'll be even easier to

engineer that social uh showing point above it I don't think that you can put an attractor Basin anywhere I think you have to put it somewhere in a game theoretic optimal place it's like the same reason why cities have evolved around Rivers is because there's economic and resource advantages to having that shelling Point around a river and so there's a difference between a con game where everyone says hey this is around the river and it's stable even though it's not you know this is the whole Emperor's has no closed social phenomena there's a difference between a shelling Point set around Emperor has no clothes type of Dynamics versus uh a shelling point in a tractor that's genuinely around some sort of spigot of economic value and maybe that's why we've seen rocket pool oriented around eat sticking which is a

source of economic value uniswap oriented around token swapping which is like the most fundamental thing that blockchains do and that's my equivalent of like 17th century cities evolving around around riverbeds as stable stable attractors how does that resonate it's beautiful um it unfortunately opens another question for me and I'd love to hear your answer to if that's possible then then it seems like kind of the analogy of a river is something like um uh the claim that humans are valuable or humans uh you know human well-being is valuable right let's let's say that there's this there's this claim that you can make which is that human well-being is valuable why is it not possible to just put that on a

blockchain and it automatically becomes its own attractor Basin um that's kind of like self self uh stabilizing so that to me it feels pretty clear that if humans are valuable and you know let's just sit with the awkwardness of that statement for a second there are we talking about their financial capital and the most commodified way are we talking about their spiritual and intellectual capital and their uh they're they're they're zest of Life the second yeah in the human world yeah right or or eudaumonia or whatever find the meme that you really like that you think everybody else can also really like I I think that like in the most commodified Financial sense global capitalism use humans as valuable because it can extract money

from them and and um and I think that's what the old model is in my mind but you know if there was a way to create a stable attraction around creating value for people in more positive some games then I think that that that's what's at stake here when we're talking about can hyper structures be free forever and and valuable to own like can we create a stable attractor around providing value to people instead of extracting value through people and um I I'm I'm not sure what the answer though is I mean ideally that's what governments would be is that they're they're creating so much public good that uh uh that they're creating a stable attractor for the public good of the nation um and I don't know I feel like we're trying to converge and now we're just

diverging again but that would be my my my trying to get swing at uh creating a stable attractor off of the value of people in in like a non-modified sense how does that resonate it's right yeah I think it's right is is you're just pointing out that it's not enough to have the uh like there must be something that you do in addition to just the fact that people like it as an idea right um there's a combination of like the action that you take alongside like what your what Your what you say is going to happen and so um I think I think that's where you and I you and I meet is that you know you need the you need the memes uh to create the shelling point and you need the the mechanisms or the action uh to create the shelling point and

stability um okay well uh are you gonna be able to sleep at night can you free up that memory space now that we've had this converging conversation I'll say yes but I I know that I'm now gonna go back and I'm gonna check uh to see if if there's any way to fix it um I'll let you know if I make any progress we started off with fan hyper circus be valuable to own and free forever and then I think we identified pinch and zooming on the Forever part and we've identified where we were apart and we've created synthesis around that and so I think that um whenever I record a green cool episode I while I'm recording it I'm like a deer in the headlights just like trying to hang and but then I listen to it later and I absorb the points and so

what it proposed is that let's both listen to the episode let's figure out if there's anything we missed and we can pinch and zoom again and do another episode uh if we didn't quite get there but I think we got an order of magnitude closer to synthesis on this point and I think we illuminated some pretty valuable stuff when it comes to hyper structure design at least it's something I'm going to take with me in my future projects so um y'all thank you for the episode and I'm and like I also think I just want to just call out this is an example of we disagreed on something on Twitter and it didn't turn into a flame war and said we created synthesis and nuance and and that's a beautiful thing in itself yeah same to you well and and thanks to you for your your behavior on

that because I think it was exemplary of uh what we can do yeah likewise um well um I enjoyed the conversation I hope listeners do too and Connor it was a pleasure so thanks again you too thanks thanks for putting up with the internet I'll talk to you thanks to the editors who have displaced together four different recordings of this I'm so sorry like [Music]