Crowdfunding the Commons

Last week at ETHDenver, we built a proof-of-concept interface for launching curve bonded crowdfunding campaigns for social impact causes and organizations.

Community funding for social good is broken. Why? Because the main vehicle of funding for social goods, programs, and services are donations. Donations are made at a loss to the individual and only incentivized by an individual’s value of that social good/cause. They are admired as a form of social action and can result in positive externalities for donors, but aren’t a sustainable community funding model because of their inherent misalignment with traditional incentive models (i.e. profit motive). Even so, donations are almost exclusively delineated as the primary method for community funding of social goods & services. How can we sustain community contribution when community members are always coming out at a loss?

To combat economic phenomena like the free-rider problem and prisoner’s dilemma, we’ve seen the limitation of social good funding to centralized funding sources (i.e. governments, foundations, wealthy individual benefactors). Most people don’t donate, so their money is allocated through taxation and disbursal by the government. While this ensures everyone contributes and prevents free-riders, it puts funding at the whim of party politics, government activities, and other external forces. Meanwhile, a focus on reducing spending has meant that many once public goods have been fully or partially privatized. The underfunding and privatization of public goods has led to an unsustainable community funding model. In more extreme cases, we see the depreciation of social goods due to lack of funding despite having active and dedicated communities who care (e.g. National Parks during the government shutdown).

🌳 Revisiting the commons

When approaching the community funding of social goods we revisit the concept of the “commons”. We’ll skip the deep dive and instead direct you to Elinor Ostrom and Garrett Hardin for their work on defining, governing, and restoring the commons.

We believe the answer to the underfunding of social goods and underserved community contribution is to reframe social goods (e.g. national parks) as self-governing and continuously funded commons. As Simon de la Rouviere wrote:

“Instead of trying to force actors to curb the inevitable abuse of a commons, one could instead make it profitable to protect it.”

Recent advancements in blockchain technology have spurred the design of new cryptoeconomic primitives that enable the evolution of traditional organizations to decentralized, self-organizing networks powered by market forces & network effects.

By building for social commons that are funded and governed by their respective communities we can offset the disservice of our current social systems by redesigning incentive models that drive sustainable and socially beneficial behavior.

📈 The value of token bonding curves

Token bonding curves are a cryptoeconomic primitive that can re-structure the way commons are funded by their communities. Simon de la Rouviere and Jeff Emmett have put forth arguments for bonded curve economies (and curation markets!) as a way to protect, fund, and govern social goods. Simon provides a simple explanation::

“Curved Token Bonding” works by staking a token of value (say ether) in return for a new set of tokens (say: #savewater), costed according to a curve. As more tokens are minted, the more costly it is to mint new tokens. At any time, participants can sell back their tokens on this curve and exit (reducing supply and thus reducing subsequent cost to buy in again).”

Emily Williams from Level K also gave a great description:

The top three value propositions in our eyes:

They offer the continuous issuance of tokens on a needed basis, without a central authority while maintaining liquidity.

on a needed basis, without a central authority while maintaining liquidity. They utilize market forces to align profit incentive with socially beneficial behavior by rewarding early contributors.

to align profit incentive with socially beneficial behavior by rewarding early contributors. They create new value networks and incentive models around community contribution by enabling decentralized governance.

Token bonding curves lay the perfect foundation for another primitive — token-curated registries (TCRs). Once again, we’ll pass off the description to others - Simon de la Rouviere with an introductory primer and Aleksandar Bulkin with an important discourse. The token bonding curve and curation market combination act as an organizational model that allows communities to more effectively coordinate and co-create around shared goals by providing value signals. In the case of the funding of public goods, these signals can be used to curate the projects that receive funding based on a community’s conviction and belief in the potential impact of the project. With this example, we see thee unrealized value in the curved bonding + curation market combination lies in what it can capture outside of the traditional business profit equation, when money isn’t the primary currency, and value signals in human networks can direct collaborative action without central authority.

🌱 Curve-bonded crowdfunding

As Emily pointed out in her tweet, token bonded curves are a double-edged sword — their ability to facilitate a Ponzi/pyramid scheme is real and palpable — unless they are designed not to be.

Our project at ETHDenver was based upon a augmented bonding curve designed by Michael Zargham at BlockScience. The curve models a Token Pool (a Reserve of bonded DAI and a Supply of tokens) and a Funding Pool (floating supply of DAI available for use) that work together to create a self-sustaining and governing system for funding “labor” within a commons — aka any socially beneficial behavior which has positive impact on the commons as a shared resource. This “labor” could be defined as anything from trail maintenance in a National Park to contributing code to a free and open-source software project. We’ll be diving into Zargham’s design in a secondary article (coming soon!), and focusing on the key principles of the design here.

The most novel part of the augmented bonding curve is the introduction of a vesting process for participants in the system. This vesting process locks tokens (burning/selling is disabled) when they are bought to eliminate any harmful early speculation/arbitrage that would affect the stability of the Token Pool. Although burning and selling is disabled, the tokens can still be used to make or curate decisions on current and future capital allocation. A majority of the tokens are unlocked after a certain amount of time and the rest are slowly unlocked in correlation to how much capital has been allocated to fund “labor” within the commons. This means that for tokens to “vest”, capital (floating DAI) from the Funding Pool has to be allocated to fund projects that positively impact the commons. With the vesting process and introduction of a governance model, members of the commons (token holders), are economically incentivized to allocate funding to curated projects that have the most beneficial impact on the commons.

Finally, whenever tokens are burned and sold, a liquidation friction fee is enacted. This fee takes a small percentage of the returned liquidation back into the floating supply of DAI within the Funding Pool, allowing for the simultaneous funding of the commons while contributors are earning returns. So, even when tokens are sold for DAI, the commons is still receiving more capital to allocate within its system. Win win!

Beyond the jargon lies our guiding question: Doesn’t this sound a lot like a crowdfunding campaign?

We realized that by modeling the launch of an augmented bonding curve system as a crowdfunding campaign, we could introduce a minimum-viable approach to launching centrally funded public goods as decentralized, community-funded, social commons.

We want to introduce curve-bonded crowdfunding as a sustainable funding model that utilizes augmented bonding curve systems for the creation, funding, and management of communally-governed social commons.

👾 The Project

The Newsweek video covering Pactful and the ETHDenver Impact track

This modeling and implementation of an augmented bonding curve system is way more than we could do in one hackathon. Instead, we focused on communicating the value proposition of curve-bonded crowdfunding. During our 36 hours at ETHDenver we tried to answer the question:

How can we introduce and communicate the potential of new networks of value to align economic incentives with socially beneficial behavior and community contribution to social goods, programs, and services?

From that question stemmed our solution design for Pactful: A proof-of-concept user interface for launching curve bonded crowdfunding campaigns for social impact causes and organizations.

Pactful is a platform to launch and manage curve-bonded crowdfunding campaigns and the subsequent launch of community-based commons. Our hack focused on mapping and designing an adoptable user experience for launching a curve-bonded crowdfunding campaign. Our approach:

We re-communicated curve parameters in “user friendly” terms

Curve parameters were defined as campaign constraints. Initialization funds for the Token and Funding Pool were transcribed as fundraising goals. “Vesting periods” were re-framed as fundraising deadlines.

We leveraged social forces to accentuate and communicate market forces

From this came our integrations with 3Box and Portis. 3Box profiles aren’t just a nice social feature — they enable the trust and transparency necessary to get contributors to put their money into a campaign. Portis gave us the simplest user experience for launching a digital wallet — something we believe is top-of-mind when designing for communities outside of the crypto space.

We designed against manipulation by introducing safety factors

These safety factors included 1) a global settlement process for the restoration of funds to contributors in the case of a un-obtained or “tainted” fundraising goal and 2) a requirement for pre-set milestones at campaign creation that define fund allocation. By “constraining” campaigns with the context of solutions ready to be enacted, we were able to ensure the allocation of funds the moment the reserve/pool ratio is reached. Having solutions to explore, learn, and visualize was a way to boost user engagement. To do this, we integrated with Giveth, an open-source tech stack and platform that enables the secure peer-to-peer donation and allocation of funds.

We chose a real human use case — the funding of National Parks

National Parks are facing a major pain point in light of the recent government shutdowns. Government regulated funds are cut and National Parks are left to fend for themselves. From our research, we knew that communities worked to organize and support National Parks in their times of need and could validate the desire for National Parks to coordinate and incentivize community contribution. One example of validation came from exploring the Rocky Mountain National Park page — we took their long-form volunteer projects and reframed them as a pre-set projects within a Giveth campaign page. The only difference is that within a curve-bonded campaign, these projects and associated community members have the potential to be funded and supported by the greater commons. It’s seriously a win-win.

When the fundraising goal is completed, the campaign becomes a living, breathing commons with continuous funding, governance, and value networks developed around associated community contributors. This interface is just the start — the visualization of curve-bonded crowdfunded commons has the potential to change the way we interact and contribute as communities.