The Invisible Economy: The Commons
Blockchain token economies are the merging of economics and information networks. By launching a blockchain token, peer-to-peer networks can self-manage their own business model.
By Beatriz Ramos and Yehudit Mam
Part 11 of 12
Part 10: Interdependence
In the last decades, the economy has expanded but this financial expansion has not stemmed from productive capital. The extreme wealth inequality we see today is not driven by the extreme differences in salaries. According to economist Glen Weyl, there has been a 10% drop in labor share across the board from factory workers to CEOs. 60% of the income of the 1% of earners doesn’t come from salaries but from capital gains; that is, from the sale of assets such as stocks, bonds, luxury goods like works of art, or real estate that are bought at a low price and then sold for a profit. Excess profits from capital gains have risen four times since 1980 in tandem with lower labor share and rising inequality.
Financial capitalism takes the form of a rent economy, which some economists describe as a lapse back into feudalism. Savings and wealth are no longer being used to launch new products and services that benefit the economy by creating jobs that raise living standards and help build an egalitarian middle-class society. Even the banking system’s role has changed from providing credit to invest in new businesses to providing credit to buy real estate and other capital assets. Moreover, economist Thomas Piketty found that inherited wealth grows faster than wealth generated from work. He demonstrated that when the return on capital is higher than the growth rate of the economy, “it is all but inevitable that inheritance predominates over saving. Wealth originating in the past automatically grows faster, even without labor than wealth stemming from work, which can be saved.”
The 2018 World Inequality Report states that economic inequality is largely driven by the unequal ownership of capital. Poverty is created when the economic system takes sources of wealth away from some people, like peasants’ land or artists’ intellectual property, and transfers it into the hands of other people like landowners or company shareholders. Under capitalism, true economic freedom can only be possible by controlling the sources of wealth and the means of production. On one hand, the 1% of earners create wealth from the passive returns of their capital, on the other, the most valuable companies in the world are information networks.
Propelled by network effects, which means that the more people use the platform, the more valuable it becomes for each person, information networks accrue value as they grow. Facebook, Tumblr, Twitter, Instagram, and Pinterest are all examples of content networks that were valued at over a billion dollars before they generated any revenues. The network value increases as more people join the network, but the cost of maintaining the network does not grow as fast as the value of the network. This is known as zero marginal cost, in which the value of the network increases exponentially, while its costs increase linearly.
Online platforms function as coordination mechanisms between consumers and service providers. We’ve come to understand that the world’s largest taxi company, Uber, owns no cars. The world’s most popular media company, Facebook, creates no content. The world’s most valuable retailer, Amazon, carries no stock, and the world’s largest accommodation provider, Airbnb, owns no property. These platforms are valued in billions of dollars because they control the interface used by millions of people.
Blockchain token economies are the merging of economics and information networks.
By launching a blockchain token, that is, a specially designed cryptographic token, peer-to-peer networks can self-manage their own business model. In the case of token economies, the network’s growth is tied to the appreciation in the value of the token.
If a network finds a token valuable, as in the case of Bitcoin, the token accrues value as more people join the network. This puts the enormous value creation of information networks in people’s hands. Tokens can coordinate networks in the same way prices coordinate markets. Markets can coordinate millions of people through price fluctuations that signal a direction for supply and demand. Similarly, tokens signal the value of a network through its price. Like free-markets, token economies leverage the wisdom of the crowd but better align people’s incentives, making it possible to advance cooperatively rather than antagonistically.
DADA coordinates people through its interface and it has the potential to grow to millions of people. It is an online infrastructure for the creation of content, with a unique value proposition, a passionate community, and the largest collection of rare digital art in the world, created on our site with our tools. Through DADA’s token economy, the community will collectively own the code and the art, allowing people to create long-term wealth beyond wages and hourly rates.
When we developed DADA, we followed the standards and practices of the tech industry. DADA is a C-corporation with a clear division of labor whose founders have a monopoly of control and information, with a business model dependent on venture capital. We tried raising capital through crowdfunding platforms, startup accelerators, and both accepted and walked away from VC investment offers. As we looked for ways to secure investment, we experimented with different revenue models, like selling merchandising, selling prints, charging for job postings, crowdsourcing content, and selling rare digital art in our marketplace. Throughout this process, it was clear that traditional business models and investors that are narrowly focused on revenues would end up undermining the social norms and intrinsic motivations of our community.
Fundraising is a winner-take-all market where only a few startups get funded and eventually succeed. But what is less understood is that the much-touted innovation and disruption expected from startups fits a narrowminded box of milestones and metrics based on traditional ideas about economics. At this point, these ideas seem limiting and obsolete.
We are removing these limitations by creating our own token economy.
DADA’s corporate structure will evolve into a decentralized organization. We built DADA with the support of many people who believed in the project. As we transition to a token economy, we should recognize the early risks taken by our investors and the value created by the team, our advisors, and our early adopter artists. This value should be transferred into our new currency, the DADA token.
The Invisible Economy reinstates the commons, which are the resources accessible to all members of society, held in common, not owned privately. A token economy allows DADA’s sources of wealth to be the commons and transfers the decision-making process from the company to the network.
The community owns and self-governs the DADA platform and its business models, allowing people to build wealth beyond their productive hours. We are implementing an open-source development process, opening the platform to anyone who wants to contribute their time and expertise to help develop DADA. This not only aligns with our values of free associations and cooperation, but it also makes business sense. Leveraging the wisdom of the crowd, we can advance faster with the contributions of thousands of people with shared values. Because of its collaborative and communal nature, introducing a token economy is an organic evolution for DADA. By launching a DADA token, artists, developers, and art lovers will be able to interact autonomously in a truly decentralized, peer-to-peer fashion and will receive DADA tokens for their contribution.
At first, the community can bootstrap the value of the DADA token through mutual exchange. People can add value to the DADA token in two ways: by working and creating value in the platform or by buying the DADA token and spending it within the system. The value of the token economy is directly related to the number of participants in it. As more people use tokens to engage in the platform, and more people receive tokens for their contributions, the community benefits from network effects.
The more people draw, the more they collaborate, and the more they collect, exchange, or gift art, the more everyone benefits.
If only a few artists made drawings on DADA it wouldn’t be very useful, but when hundreds of thousands of people make hundreds of thousands of drawings together it becomes very powerful. The more people collect and appreciate art, the more artists DADA attracts, the more value they create, the more collectors arrive, and so on. This is known as a virtuous loop where the system produces more value by itself and returns it to its participants, eventually reaching critical mass and becoming self-sustaining.
As we explained above, our incentives framework requires the DADA token economy to be invisible. This can only be possible through blockchain technology which allows the economy to be both invisible and transparent. It is invisible because we’ll use different mechanisms to separate artmaking, code writing, and contributions in general from any market transactions. On the demand side, we will implement economic incentives and sales mechanisms for collectors and consumers that encourage intrinsic motivations and social norms. And it is transparent because all the transactions will take place on the blockchain, where everyone can track them.
Blockchain’s immutable ledger is a list of transactions that can’t be modified. Once a transaction happens, as in the sale of an artwork, it’s recorded on the ledger and made publicly available to anyone. Blockchain allows for an innovative triple entry form of accounting in which a transaction involving the buyer, the seller, and the artwork is cryptographically sealed through a smart contract to a third entry that links them forever, making it impossible to alter or hide the transaction. This is the reason why blockchain technology is called trustless: there is no need to trust a third party like a bank, a lawyer, a government, or a company.
The system will be run by Ethereum blockchain smart contracts, which are code that executes itself trustlessly and can automatically distribute funds based on our rewards’ guidelines. Our community can trust that their rewards are distributed peer-to-peer according to our smart contracts. If they so desire, anyone will be able to track all transactions made at any given time. Just like we use email without the need to understand how the IMAP protocol works, similarly, people would contribute to DADA and receive tokens for their contribution, regardless of what’s happening within the market.
We are launching the DADA token in the Ethereum blockchain.
Tokens can be programmed to be inflationary, like the US dollar, or deflationary, like bitcoin. Tokens like bitcoins that have limited supply are usually a de-facto store of value because the price of those tokens is likely to rise as the system’s network effects kick in. This spurs investment but it also leads to speculation. As the token rises in value, it becomes useless as a unit of account because goods and services have to be priced dynamically due to the token’s volatility. It also discourages spending because people won’t want to use the token if they know its price is likely to go up. To prevent this from happening, DADA’s Invisible Economy separates the three functions of money in the following way:
DADA token as a store of value: The DADA utility token will serve to store value and it’s backed by our entire art collection of over 120,000 drawings at the time of this writing. The DADA token is required to participate in DADA and to pay for transaction fees. It’s used to reward artists, developers, collectors, and contributors in general. It’s fungible (identical and fractionable), it is deflationary, has a fixed supply, and it is transferable. Holders of the token have voting rights on DADA’s governance. People are incentivized to hold it as it will accrue value as the community grows.
A stablecoin as a unit of account: A stable coin like the DAI, which is pegged to the dollar to protect the community from speculation and inflation.
NFTs as a medium of exchange: Digital artworks represented by NFTs are the medium of exchange. These tokens are unique, are unlimited in supply since new drawings are constantly being created, and are transferable. Artworks are used as currency in the system; that is, people can pay and get paid with drawings. Drawings can be used to place bids, purchase other artworks, license artworks, and any other economic transactions. This incentivizes spending and trading. The value of the drawings is tied to the stablecoin. Their base value may be determined by their total quantity in relation to the value of the market cap and is related to the level of the artists in our gamified system.
In other words, the market cap can be divided between the total number of drawings in the platform, but the base value of a drawing of an artist in level 5 is higher than the value of a drawing from an artist in level 2. This is in accordance with the rules of our incentive framework. The artist who is on level 5 has spent more time and effort and made more relationships on the platform than a relatively new artist who may be more famous or accomplished but who has not really created value for the community yet.
Let’s say that a very well-known and expensive artist joins DADA, their base price will still be determined according to their effort and participation level. Collectors will still be able to bid as much as they think the art is worth. This artist may bring value to the platform because of their notoriety, but our system makes sure that the people who have contributed more time and effort are not eclipsed by such stars.
It is also possible to fractionalize an artwork when smaller denominations of value are needed, for example, by minting limited editions and holding the token in escrow until all editions have been sold. If an artist’s drawing base value is $100, they could issue limited editions of 5 at $20 each and pay $20 to someone with a print edition.
Money comes into the system through our separate marketplace, which accepts the DADA token.
To be able to use the DADA marketplace people will need to acquire the DADA token. Think of it as an amusement park or a casino where you need to exchange your money for tickets or chips in order to enjoy the experience. Exchanging fiat money for DADA tokens is not a precondition to participating. Just as you can use your credit card in a foreign country, people will also be able to purchase artworks using their credit cards, and the exchange from fiat money to DADA tokens will happen automatically in the background.
Initially, we’ll create demand by attracting buyers of digital artworks, and later we will expand to other media, including physical art and art objects. We have a substantial repository of original DADA artworks that run the gamut from commercial art to museum-quality art. There is no limit to all the ways in which we can market and promote the entire range of art in our collection. Some of our artworks are great as gifs, for memes, or on t-shirts, posters, or mugs; others belong in art fairs and museums. We have already tested these different approaches: We have sold merchandise and physical prints through online platforms like Teepublic and Curioos. We have tested crowdsourcing content on-demand, and we have exhibited DADA art at CADAF and independent galleries in the US, as well as at the Tate Modern Gallery in London.
DADA artworks will be easily searchable and sortable. Using NFTs and smart contracts, it will be possible to license thousands of artworks for commercial use. We can partner with on-demand production platforms to sell merchandise, framed prints, and publish our own curated books, making it easy for people to buy these products quickly and reliably with their credit cards.
We can also experiment with new and innovative ways to experience art that can generate revenues, like selling tickets to live performances, charging fees to virtual exhibitions, or streaming content like video tutorials and games, all made by people within our ecosystem.
Given the high amount of experimentation required and the evolving nature of the blockchain technology, we should design the token for a five-to-seven-year timeframe with a longer tail end to increase the capacity to continue distributing rewards for many years. Our goal is to focus the largest incentives on building community during the early years of the economy, especially as we bootstrap the development of the platform through the token economy. More capital should be flowing into the system than out. We design this through our incentives framework in which people have more ownership and governance power as they make progress through our system, and are incentivized to hold the DADA token.
The Invisible Economy leverages the two main ways to create value and wealth today: through information networks, and through financial assets. In DADA we have an information network, and if we launch our own currency, we’ll be co-opting two of the most powerful social institutions that exist today.
Part 12: Art As Currency