The Impact of Governance Token Design in Platform Strategies
This article marks a step further from the previous experiment in decentralized governance in July 2020. I believe that the domain of token design, with its tools and methodologies, has the potential to serve fairer organisational dynamics. To fulfil that potential, the shift of governance innovation in platform strategies and economy needs a sense-making journey with tools in the decision space and in the voting space.
The token economies domain needs continuous dialogues to educate the community with different approaches to (re)tool individuals, collective and organisation mindsets. In April 2021, Berchain launched a series of Token Systems webinars which has sparked off the important dissemination of perspectives from experts. In one of the sessions, I delivered a sense-making talk on the impact of governance tokens design on platform strategies.
Let’s connect the dots between Platform Thinking and Governance Token Design!!!
Platform Ecosystem Thinking
Each platform strategy has a set of purposes, products/services and markets that work best when they are engineered to create self-sustained network effects. The current platform economy driven by accumulating and centralising wealth and resources just does not help to fix systemic problems. Platforms as ‘scalable collaborative agreements’ can support this process.‘The New Foundations of Platform-Ecosystem Thinking’ white paper outlines with necessary lenses why platform designers — everybody is a designer! — should be aware of the 21st century organizational design trends that will drive human collective power. I selected three relevant challenges to bring my intent forward:
1 — The development of platforms into marketplaces is becoming more complex, heavily regulated, and investment intensive;
2 — The need for more interconnected, distributed and collaborative ways of working requires new governance models;
3 — Emerging tech like blockchain, machine learning, AI, open up new possibilities to mobilize and connect ecosystems;
These challenges inevitably expand the perception of the problem space. Traditionally, we’d use user-centric methodologies to tackle these problems, but with added complexity, these won’t be sufficient. The user-centric methods need to blend with a more systemic approach. The technological layer that guides the decision making process and interactions should be designed to reduce as much as possible the exploitation and extraction of social, economic value. Nora Bateson urges us to shift our mindset and perception of complexity with shared integrity and systemic accountability to deal with complexity: “you create the context where epistemologies and ways of perceiving shift, and then the structures change”.
How are the marketplaces evolving in the ecosystem?
One of the key elements mentioned in the Platform Ecosystem Thinking white paper is the element of how marketplace evolutions play a role in governance innovation and therefore have an impact on our daily life.
We are at the age of maturity with the internet, we are on the cusp of being fully empowered in the post industrial value flow era, with the three buttons on the buzzer: from product to service economy, from consumer approach to ecosystemic approach, from centralization to redistribution of value. Rita McGrath pointed out the reversed scenario, where traditional firms can only watch at tech-powered marketplaces leading the way towards access-based economies through which assets and resources can be used more efficiently.
In the marketplace analysis, I consider the following three aspects, also highlighted in the white paper:
• Horizontality drives commonality of solutions and favors centralization;
• Vertical integration ask for more context specificity and decentralization of solutions;
• Managed-ness further favors entrepreneurship, managerial leadership and skin-in-the-game;
Products and services are becoming embedded in an ecosystem of relationships. Meanwhile, the network effects, like vessels, spread the footprint of the given value proposition. The digital marketplace evolutions hold the coordination of transactions that used to be run by a firm. This introduces the pervasivity of the marketplace where roles in the market can move along the three digital layers: long tails, aggregators, infrastructure. More here
With the saturated horizontal marketplaces — e.g. Uber, Airbnb — new entrepreneurship creates new space for niche-optimized experience. It occurs by replicating the same strategy in new space or designing new value propositions unlocking a vertical marketplace to specific niches that are under-served. Example of verticalization of market opportunities is taking place in healthcare, a good example is Buurtzog and its business model with a web of self-managed units.
The evolving marketplace landscape unfolds warnings about a regression in our ecological conditions, vulnerabilities towards radical unpredictability, within a dismantled socio-political system we live in. These chaotic and complex tissues are the sense-making challenges that require new dynamics of decision-making process between and across platform layers, for example: fund, cultural and technical.
With one of the most advanced methodologies to understand the platform economy — platform design toolkit (pdt)- I want to raise dynamic awareness and questions about the current state of the ‘sharing economy’ and its limitations. The internet and Web2 have allowed the reduced transaction costs with flatter organisational forms — with the advent of eBay, Uber, Airbnb — so the platform became the holy space where the service economy thrives with a strong power in the hands of mostly privately held companies.
Platforms have embedded, mostly, strategies with setting contexts for monopolies and centralized power. Here is the link with the three highlighted challenges that I mentioned: they set the scene to rethink and leverage the scalability to serve principles that channel a fairer shared distribution of value. Business and organisations are to serve society and not the other way around. So where do we go from here? How could we shift monopolies and centralised resources into a fairer economic landscape through a networked governance engine?
Road to Governance Innovation
Governance: proposal, discussion, voting, execution.
Currently, governance structures fill in our existence through a legal system with a succession of third parties involved to enforce a certain rule or agreement. This will prove the given interaction as valid. In organisations or between two communities the flow of agreement goes from supply, purchasing, sales to employment, bilateral or multilateral agreements between governments. Yet our society needs tools to turn the top-down & control fashion into a collective ongoing engagement in the decision making process.
An interesting example comes from the Taiwanese vPlatform, where there is an ongoing discourse to debate citizen led proposals. For instance, when Uber arrived in Taiwan, thousands of participants helped build a consensus on how to regulate the company and its drivers and workers. This marks the potential of governance improvement through platform technology in one world’s most active civic-tech communities.
Too often, the platform designers make a bravado of efficiency or differentiation (innovation), but they are missing one dimension: the expansion towards an economy of scope as Jabe Bloom explains further. It means an economy of commons, teams, with a set of shared resources that nourish entrepreneurship without a pre-packaged product. A potential setting for this scenario might come from Ostrom’s principles. The Commons Stack has been deploying a great deal of work to investigate the principles in the token engineering commons.
One of the technological impacts of platforms are the interaction lenses through which we can improve our world. These lenses are undeniably becoming more and more networked, fractal, autonomous and borderless. A promising technology that mirrors those lenses generating innovative governance are the distributed ledgers technologies. If we consider the voting space for a proposal, the blockchain network could offer a better alternative to the multiparty verification that we are accustomed to, with a set of incentives to maintain a decentralized and censorship-resistant ledger. Think of a Wikipedia-like structure, properly incentivized to ensure there’s no fraudulent behavior within its network.
Blockchain as technologies of governance
Think of tokens. They have already been in our common life for a long time. For example, when we bring back recycling material by returning the token that you received when you purchased it. Then crypto tokens can represent any programmable assets or access rights. If we consider a network using tokens for voting and reaching consensus over a protocol, tokenized networks and smart contracts have attributes to disintermediate and redistribute the decision making process with coordinating circles of people with common economic intent, assignments allocation. Smart contracts — a self enforcing piece of software managed by a P2P network of computers- set the scene for coordination and enforcement framework for agreements between network members without any third trusted parties.The blockchain with its shared ledger acts as incorruptible storage with the underlying values and access rights.
If blockchains enable cryptocurrencies, they can be technologies of governance. Distributed ledger technologies can support governance rules, for example, by assigning varying levels of access and rights to network participants. Within a complex system of interaction and monetary policies, distributed ledger systems are a matter of effective governance on multiple scales enabling new capability to design financial instruments. This aims to maximise welfare from the point of view of communities and autonomous players in an ecosystem.
The anchor here is that blockchain technology, when paired with new voting models (conviction voting, quadratic voting), can facilitate participation and allows organizations access to rich data streams of continuous community preference signals. Also, Blockchain networks do more rather than just enforce consensus. In the context related to trust and the decision making process — it is worthwhile to clarify consensus versus consent. The first — one potential definition — does not require every participant to agree to reach consensus. It is achieved when those who disagree with the outcome agree to be governed by those who do. Consent, it means no one has an objection. If there are, they should be on an objective basis and should be solved one by one.
Commons Stack and Conviction Voting: Enabling DAOs
In the previous workshop with Commons Stack, we engaged participants proposing an approach to a decentralized decision making process. To bootstrap the research on decentralized governance, I have harvested the conviction voting footprint again and investigated the link to decentralised autonomous organisations (DAOs).
The above scenarios pave the way for new forms of entrepreneurship and cooperation that offer a better resource allocation and more capital flow. Examples of developing implementations are happening at 1hive.org and in Commons Stack. These projects, with distributed decision making systems and tools, guided me to argue how and why conviction voting could support the enhancement of DAOs:
- Set the scene to enable DAOs to thrive: new tools improve real time collaboration
- Create better coordination of resources: continuous signaling provides better collective sentiment
- Foster problem solving locally : move from majoritarian decision making to sufficient local support
- Trigger new forms of entrepreneurship and cooperative: continuous resource flows unlocks new opportunities for cooperatives
My endeavour is to investigate voting systems enhanced by token design, driven by the boost of a polycentric and modular way of organising networks and commons. This introduces the thread of analysing DAOs.
The focus will be less on the technical aspects: ‘the code is law’ has been a failure to learn from in 2016, which shows that blockchain does not eliminate the need for trust. Instead, I aim to consider the implication of DAOs as social institutions that provide governance innovation.
Governance is about dealing with clear agreements, so DAOs could solidify agreements in networked organisations and communities, with self managed teams taking ownership and sharing transparency. Check this example of community-governed and decentralized drug development, VitaDAO.
DAO’s Impact on Platforms: An example
Another example that triggers a new market perspective is the “Three sided market”. It is a cadCAD model produced by BlockScience — see below — which encompasses three entities: DAO, service provider, consumer. It replaces the traditional two sided market (business, consumer). In the example,the platform is in the middle. This would be equivalent to melting down the company Uber and replacing it with a DAO that matches riders (consumers) and drivers (service providers).
The above image provides the scenario to model market mechanisms and map out stakeholders unbundling financial rewards, reputation systems and incentives with a distributed approach. Hence, the DAOs offer a new socio-economic frame to embrace the strategy and design process for platforms with a networked governance. It also resembles Elinor Ostrom’s work about governance polycentricity: ‘’The humans we study have complex motivational structures and establish diverse private for profit, governmental, and community institutional arrangements that operate at multiple scales to generate productive and innovative as well as destructive and perverse outcomes.’’
The junction with networked governance and decentralized organising might raise another point of shared understanding. Kevin Werbach frames it nicely: ‘The need for decentralization is less about preventing government censorship and more about the practical limitations of the system itself. Decentralization allows blockchain networks to provide the benefit of centralized power — scale, clarity and support for complex transactions — without the decision making power of any intermediaries’.
Connecting the dots
Platforms can become DAOs as new scalable collaborative agreements through mechanism design based on polycentricity via tokenization.
The concept of a “Minimum Viable Governance’’ is a starting point to test assumptions and strikes the balance between coordination, complexity, and cost associated with introducing governance mechanisms by being ‘’simple, effective, accountable, and transparent (SEAT)” as explained by Outlier Ventures.
I believe that governance token design implications for platform strategies are the following:
- Micro-entrepreneurship will thrive with the emerging shared coordination infrastructures and cooperative integration layers
- Conviction voting is a new governance tool for aggregating collective sentiment. It can ensure composability when integrating multiple mechanisms into more complex governance systems.
- The domain of organisational design needs new capabilities to design financial flow and co-manage capital allocations into a progressive decentralization mechanism to build resilient communities.
These interdisciplinary lenses are to provide an experimental framework that can leverage the distributed ledger technologies’ impact and a firm reminder to ignite inclusiveness.
Below, I propose an expanded version of the digital market theory. With a flipped triangle, it invites to look at upcoming dimensions to enable a systemic change through cryptographic tools.
A final reflection
I believe that DLTs are social design technologies. Our individualism will shift into collectivism if we manage to generate ongoing human development through these technologies. If we design it based on human relationships, participation and not financial capital, new forms of governance will act as the vessels to our human development in the ecosystem platform economy.
If we repeat the same mistake with ‘extreme accumulation’ of resources and knowledge, it means we keep creating a deficit somewhere else. We need less crypto elite and more positive narratives that avoid confusion to the widening gap between those who benefit from new technology and those excluded.
This sense-making ride is to embed governance innovation as a network element in platform strategies. I aim to keep expanding and experimenting with decentralized governance innovation to design tools that enable change. My latest example is the exciting collaboration with Token Engineering Commons in our last workshop. See the recording here — upload link. If your team or project is interested in learning more about governance innovation, feel free to reach out.
Watch the Token System Talk on the 16th of April on You tube here
