Jamming on Crypto Economics: What Comes After the Summer of Love?

But while the world was getting hyped on ICOs, here at the Polychain office, we were spending most of our time "jamming" on crypto-economic models with our portfolio entrepreneurs. The results have been very compelling.

In case you are unclear on the meaning of cryptoeconomics, it is the emerging field of study of how we use digital incentives to drive specific resources and behaviors on decentralized networks that lead to some globally desired result such as security or network effects.

I call the brainstorming process of designing the right cryptoeconomic model "jamming," as a tip-of-the-hat to the music creation process. I observe that very few technologists possess the entire suite of competencies necessary to build a great crypto-economic model alone. It requires expertise in game theory, computer science, behavioural psychology, various fields of economics, math, logic, distributed computing, security and a deep understanding of blockchain technologies and their limitations.

So as in music, the best results are achieved when a fantastic group comes together and each talented individual shares their respective skills in a complementary fashion while being open minded to improvisation.

Anecdotally, this term has been inspired by my friend, the great musician and technologist Simon de la Rouviere, who is great to jam with either on music or on crypto-economics.

The following are some observations that have came from the many jam sessions of this year:

We are starting to see more projects plan to sell only a minority of their tokens to fund project development and instead intend to distribute their token over time to coherently incentivize an array network participants.

An elegantly designed block reward scheme (ideally adjusted periodically via a governance model) that incentivizes the different key players – keepers (i.e. miners, validators, etc.), core protocol devs, application devs, and the wider ecosystem participants is an incredibly powerful concept and will be important as the battle for developer mindshare intensifies moving forward.

In part, Juan Benet and his team at Protocol Labs can be credited for the return of the block reward. Juan decided to sell only 10 percent of his network in his high-profile SAFT round in August and instead prioritized the block reward with 70 percent of the filecoin allocation.

I predict this prudent design will drive an amazing amount of professionally operated storage providers to the IPFS network, pushing the cost for retail users to store their files on IPFS to nearly zero.

There is a thoughtful debate around protocol layer vs application layer as an investment thesis, and we recognize that there is considerable grey area in the classification of projects within the taxonomy of our ecosystem.

However, I observe that outlier value will continue to accrue deeper down the decentralized software stack known as Web3. We still have a long way to go to have adequate infrastructure for Web3 that will subsequently provide a platform for consumer applications at scale. We still require multiple orders of magnitude improvement on scalability, para-chain deployment, more robust developer tools and applications that make interacting with blockchain technologies far less cumbersome for non-technical users.

Yet, this industry moves faster than any other on the planet, and I’m confident that we will see the emergence of the ‘application era’ far sooner than we would guess today.

At the core of our thesis, Polychain remains laser focused on investing in and supporting the infrastructure layer of Web3, and there are two implications for the year ahead that we draw from this thesis – the emergence of Major Ecosystems & Meta Protocols.

Ethereum was the first "major ecosystem" to emerge beyond bitcoin and present a rich topography for open source developers to create decentralized applications and higher-layer protocols.

Entering 2018, we are seeing the emergence of other major ecosystems that have aggregated lessons learned and present considerable performance improvements above what is available today. These new major ecosystems will spawn their own communities of developers, entrepreneurs, researchers, investors, users, evangelists and so on.

Polkadot, Dfinity, Tezos, and Filecoin are all positioned to trigger a Cambrian explosion of innovation and novel applications across the space.

I'm incredibly excited to watch this story unfold in 2018 as all four of these major ecosystems will go live and begin to capture developer mindshare and notoriety and some will become crucial components of the decentralized web.

One of the many amazing contributions to crypto-economics that my brilliant partner and the Founder of Polychain Capital, Olaf Carlson-Wee has made during our jam sessions is the idea of the "meta-protocol."

This is a protocol that is applicable to many different underlying blockchains and actual generates further security and network effects by supporting different ecosystems simultaneously. A great example of a meta-protocol is 1Protocol, which will be a relevant tool for staking across the space.

Other examples of meta-protocols are Truebit for off-chain computational verification, NuCypher for proxy re-encryption and Keep for private data management on-chain.

I offer a few other predictions for the year ahead:

Through the emergence of crypto-economics, I believe the study of economics will forward more in the next 24 months then has occurred in the last 24 years.

While there are so many reasons for gratitude as we conclude this remarkable 2017, what I am most grateful for is to be able to come into the Polychain office every day to join a wicked-smart team that is constantly challenging my assumptions and theories on cryptoeconomics as we chart new territory.

I am incredibly lucky and deeply humbled to work closely with the top technical teams in the space, who come from all over the world to jam on their crypto-economic models and share lessons learned for the continued evolution of our community. The results of these jam sessions is what drives my great optimism for where we are headed in crypto.

Here’s to 2018 and more jamming on crypto-economics.

Have your own crypto-economic model? CoinDesk is looking for submissions to its 2017 in Review series. Email news@coindesk.com to pitch your idea and make your views heard.

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