|5 Feb 2019|
*maybe not trillion, but certainly billion(s)
The way I see it, I think a digital jurisidiction benefits greatly from the macro trend of people working remotely and collaborating on a global scale. Collateralized agreements help facilitate that in an efficient way (because you know you don’t need to fly to another country to settle a dispute).
The biggest barrier to widespread adoption is the capital efficiency problem of collateralized agreements.
One of the other interesting things that could potentially happen, as the court proves itself as an efficient and reliable arbitration process, is that it could be used for as “binding arbitration” in the traditional legal sense.
If we get to that point its not just the market for collateralized agreements, but then the TAM becomes the entire alternative dispute resolution market.
That’s not really something we are focused on right now, but in 5-10 years its certainly a possibility.
My brain will need enough hammering and squeezing before I could think of any better proposal than the experts over here . That’s a fact 😬 . That aside, implementing any idea at this point might not be possible, and things would continue to evolve. But I think we can come to a consensus on how ANT would be utilised if possibilities x1, x2, x3 etc. happens in future. That will help us in rightly evaluating the value of ANT. I don’t want myself and all early supporters to repent just because we couldn’t evaluate it properly and accumulated enough when the opportunity was great.
I've got a bunch of scratch notes scattered around about how to value governance tokens like ANT, the short version is that as the tools for issuing governance tokens (eg aragon) mature, you will have specific rights and privelleges associated with a token. Those rights and priveleges will likely provide similar assurances as you get with traditional equity stakeholdership, so can be valued in a similar way.
Right now the rights and privelleges encoded in ANT are somewhat limited (eg you can participate in the AGP process), but there is no direct claim on the organizations assets and there is even no direct control over upgrades to the core infrastructure at this point. Obviously our goal is to transition more and more direct authority to ANT holders as the specific mechanism to encode important rights and privelleges become available (eg the court), but from a valuation perspective those are future expectations that obviously must be discounted.
I feel the escrow market and the invoice factoring markets could be huge potential target markets for Aragon.
The counterbalance there is that you want to ensure that the amount of locked collateral is at low risk of being under-collateralized, and also (especially for longer term agreements) the collateral that is locked does not increase in value (it is okay for the collateral to earn a return, or increase in value but not have that increase be locked)
One approach to solving this is to allow ANT be locked and generate a “stable” asset (this is sort of the model used by Maker for DAI, and has been adopted as a key part of the token model for Gnosis and Spankchain)
then the user could use the stable asset for collateralizing agreements, while keeping and experiencing the growth/value accruale of a productive asset.
Another approach is to use ANT directly as collateral, but use an algorithm to “split” ANT (similar to a stock split) on an ongoing basis as it increases in value. This way the unit count (which is locked in the agreement is fixed) but the holder still benefits from value accrual. I think this mechanism is really interesting, but untested and probably more complex – the nice thing is the UX is better, users don’t have to manage the cognitive burden of locking up a productive asset seperately (and maintaining a specific collateralization ratio).
The other angle for improving collateral efficiency, is to eventually establish a way for multiple agreements to share the same collateral pool (this obviously creates a risk in that there is not sufficient collateral to cover all outstanding agreements a person has) but has clear efficiency advantages and more closely resembles the existing credit system.
Ultimately though, (and my thinking on this has evolved as I’ve thought about it more), I think that even if you are completely agnostic wrt to what assets are used as collateral, so long as the fees generated for arbitration, and the demand for arbitration services correlates with demand for ANT you can have a healthy valuation model for ANT
and I think valuing ANT based on the demand/fees associated with the court should be relatively straightforward (whereas demand for collateral I think would be significantly more difficult to model)
|9 Feb 2019|
Very interesting links Luke. Do you agree with the author of the Law Merchant article that the reason contracts were enforced was because traders were afraid of being ostracisation? He dismissed the “shadow of the state” theory and states: “The community of international traders uses the threat of destroyed reputation and the associated loss of business to encourage losing parties to comply with arbitration decisions. This threat is highly effective”. I think he has a very simplistic viewpoint and I dont think ostracisation by itself motivated compliance. I suspect it was ostracisation in conjunction with the underlying threat of force and retaliation from other participants in the system (not necessarily the state). I suspect if the court ordered you to pay, you either paid or you would “pay”, and good actors were more than happy for defiant bad actors to get their comeuppance. I could be wrong but suspect this underlying threat was an essential component that made the system work.
Not being able to punish bad actors could potentially be a limitation in a digital jurisdiction.
Bit of a side-note but its quite interesting how in ice hockey there is this endless debate on whether fighting should be allowed in the game. While most people want it banned, nearly all the players dont because they feel being able to retaliate to unsportsmanlike behaviour with violence deters bad behaviour far better than any regulations imposed by the league. Essentially players feel much safer and trust justice will be served better in a system in which players are immediately held accountable for their actions, immorality is immediately met with reprisal, and order and balance is maintained.
Id be very interested to know how much of the law merchant trade was insured. If participants knew they were insured against participants not paying their judgement debt, then that would have instilled more trust in the system. I really like the idea of insurance as another option to collateralizing contracts on Aragon. I feel it could be done quite easily. If 90% of participants are honest and pay, then you really only need to cover that 10%.
Very interesting links Luke. Do you agree with the author of the Law Merchant article that the reason contracts were enforced was because traders were afraid of ostracisation? He dismissed the “shadow of the state” theory and states: “The community of international traders uses the threat of destroyed reputation and the associated loss of business to encourage losing parties to comply with arbitration decisions. This threat is highly effective”. I think he has a very simplistic viewpoint and I dont think ostracisation by itself motivated compliance. I suspect it was ostracisation in conjunction with the underlying threat of force and retaliation from other participants in the system (not necessarily the state). I suspect if the court ordered you to pay, you either paid or you would “pay”, and good actors were more than happy for defiant bad actors to get their comeuppance. I could be wrong but suspect this underlying threat was an essential component that made the system work.
|13 Feb 2019|
@pj_crypto I think that ostracisation in the context of merchant relationships would have a pretty significant financial consequences. Its certainly possible that some socially enforced use of force also played a role, but im not sure it would be necessary. I do agree though that the extent that we can rely on reputation in the context of a digital jurisidiction where someone can just create a new address is somewhat limited (and as a result it is probably sensible to require full collateralization to ensure agreeements are enforceable, atleast until the address has built up a substatial history)
@pj_crypto Don’t know with regard to the law merchant, but an insurance provider could eventually provide collateral on behalf of various parties, the insurance provider could even pool collateral (eg not be fully collateralized) but because they would be vouching for multiple parties and wouldn’t actually be involved in the specific agreements they would have significantly less “exit risk”, they could also privately leverage traditional legal agreements with the individuals they vouch for, such that they could seek recourse with the counterparty while keeping the link between a users real-world legal identity private and their on-chain identity private.
Certainly interesting to think about, but probably too far out to be practically concerned with right now :)
|14 Feb 2019|
|15 Feb 2019|