Guest post by Arwen Smit, Co-Founder & CMO DOVU.

Networks. It’s what made companies such as Uber and Facebook near-monopolies. Connecting people, such as you and me, to co-create value together. Traditionally, the fastest way to grow an ecosystem or network was to optimise resources via a centralised business model. Two examples in the mobility sector are Lyft and Uber. Pooling resources to optimise services has been a lucrative model for shareholders. But what about you and me? What about the incentives for people without whom these networks wouldn’t function? The question begs, how sustainable is this approach really?

In a world where the majority of issues stem from collective action problems and incentive misalignments of one sort or another, it is no wonder these voices grow louder.

What if business models were designed to align stakeholder interest? To reward those who create value for that value?

In order to devise such a system, we need to set out to understand three components:

Why we do what we do How to direct value creating activities How to reward those value creating activities

The marriage of game theory, nudge economics, and blockchain marks the beginning of a new paradigm for representing and communicating human value.

Game Theory

Game theory is the study of strategic decision making. Using game theory terminology, blockchain is a non-zero-sum game (= a game where the gain of one player doesn’t come at the expense of another player). The Nash equilibrium is a solution to a game where each player chooses their optimal strategy given the strategy chosen by the other and they have nothing to gain by shifting their strategy. Thus, if properly designed, stakeholder incentives are aligned and all players will act in a predictable manner. Blockchain protocols such as Ethereum take great care to design a decentralised network where all incentives are aligned. In theory, the blockchain is “cheat-free” because the entire protocol is in a Nash Equilibrium.

This stands in stark contrast with centralised services such as Uber. Theoretically the ultimate benefit to a player (rider) is an infinitely decreasing price through optimisation. However, in practise, this upside is capped to prevent unfair competition. The benefit to the rider is limited, whereas the benefit to the shareholder is, in potential, unlimited. Furthermore, early adopters are not rewarded for their critical contributions. Companies such as Uber or Lyft are often cited as examples of the sharing economy, but it could be argued that they are not exactly because they are centralised.

Nudge Economics

This is reminiscent of what Richard Thales, father of ‘nudge theory’ argues. Want to know the secret to successful innovation? Simple. You need to create innovations that are designed to be chosen.

The concept of nudge economics is a relatively subtle policy shift that encourages people to make decisions that are in their broad self-interest. It’s not about penalising people financially if they don’t act in certain way. It’s about making it easier for them to make a certain decision.

The basic idea is that the success of innovations shouldn’t rely on changing peoples’ perceptions — trying to change what people think — whether by force (coercion) or argument (persuasion) — is costly and rarely successful. Instead innovations should gently nudge people by influencing what people think about. Nudging is about prompting people to think, often in new and different ways, in order to elicit a desired response.

Enter tokenised incentivisation.

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Wait, what’s blockchain again?

There is a difference between blockchain technology and a token. Simply put, a blockchain is a digitised, decentralised, public ledger of all cryptocurrency transactions — recorded on a ‘chain of blocks’. A token is a unit of value that an organisation creates to self-govern its business model, and empower its users to interact with its products, while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders.

Tokeneconomics is split between currency, reward, and economy creation (and sometimes governance). Together these factors construct token utility. Tokens are digital, instantly transferrable, and can be linked to smart contracts.

“Smart” contracts are contracts written as software, rather than written as legal text. Because you can encode them directly on the blockchain, they can involve the transfer of value based directly on the cryptographic consent of the parties involved — in other words, they are “self-executing.” In the words of the Bank of England: “The blockchain is a technology that allows people who don’t know each other to trust a shared record of events”.

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Tokenised Incentivisation

How can a token be used to nudge behaviour and align stakeholders? In essence, tokenised incentivisation is about architecting choices.

Let’s take DOVU as an example.

DOVU’s DOV is a unit of value you can earn and spend by sharing and changing the way you travel.

Earn Rewards

Through their actions individuals contribute to the future of their cities. Guiding these actions, may that be incentivising mobility data sharing or rewarding green behaviour, there is a role to play for transportation companies and government. In exchange for specific activities, such as sharing connected car data related to windshield wipers or driving outside peak hours, DOV’s can be earned as a reward. In other words, tokens are being used to nudge players (mobility participants) towards a certain action. An action which adds value to the ecosystem/network as a whole. Tokenised incentivisation unlocks a unique reward system, instantly redeemable across borders and services. Spend Rewards

These tokens then feed back into the ecosystem through mobility related transactions, be that offsetting the cost of a car, fuel for that car, paying for a flight, or just riding the bus. Connecting closed ecosystems, the DOV token is ubiquitous, providing instant liquidity and utility. In other words, there is a real benefit to the player to act in the interest of the network.

Implications

What does this mean for companies?

Precise, targeted incentives will allow monetisation of previously unmonetisable assets and services.

Stakeholder relationships will change. Early adopters will become even bigger advocates for their financial interest is aligned.

Enhanced brand loyalty through micro-rewards and (liquid) micro-transactions.

Similar to corporate social responsibility, tokenised incentives to reward stakeholders for value is something people will come to expect from their favourite brands. Rewarding micro-value will become a hygiene factor.

In sum, Blockchain Nudge Economics opens new business models, and has far-reaching potential beyond the transportation sector.

www.dovu.io