Niles and Frasier on the Blockchain
A Token-Curated Registry (TCR) works like a club that Niles and Frasier Crane would join. Members of the club actively seek out people who will raise their prestige, and exclude those who drag down the club’s reputation.
Like any good social club, the value comes from other people seeing you in it!
Because anyone can start a club, and the members do the voting, a TCR is decentralized. TCRs could decentralize many important lists, such as A+ students, or the list of AAA-rated financial instruments (like the ones that caused the 2008 crash).
How to Make a TCR
The steps for a TCR are pretty simple.
- Buy tokens (the TCR’s own monopoly money), with BTC or ETH.
- Use the tokens to pay an application fee, a bond, to apply to the club.
- If someone deems you unworthy (!), they put up an amount equal to your bond to challenge your application.
- If you get into the club, you keep your bond, though it remains in escrow.
- If you’re rejected, the club members add injury to insult by splitting your bond (application fee) amongst themselves.
- At any time, someone can challenge your membership, again by staking an amount equal to your bond. The loser loses the money they bet.
- If you get too snobby for this club, you can walk away with your bond.
How You Make Money
Here the token value comes from consumers who trust and look at the list, since a trusted list sharply increases demand for the services or products of the list members.
As a result the club members badly want to build a prestigious club, a trusted club, so consumers will pay attention! The value that comes from consumers’ attention transfers to the token in two ways.
First, a really prestigious club will get more applications, and can raise the application fee, which means more bad candidates to reject and more bad candidates’ bonds to take. Second, the price of the token will increase as more people want to apply.
Crucially, the price of the token forces the club members to behave reasonably when judging candidates’ applications. A club that always rejects candidates, the way Niles and Frasier would, will see its token value drop quickly. No one wants to apply anymore, and so no one wants to buy the token anymore.
This is why a TCR needs its own token, and can’t just use BTC or ETH. BTC and ETH value won’t drop when the club/TCR behaves badly. The TCR token helps balance long and short term, tactical and strategic incentives.
Notice, though, that the price of the token increases because of normal supply-and-demand reasons: we have a limited number of tokens, and more people who want to buy them.
Suppose the price of the token didn’t increase according to supply and demand, as determined by sellers and buyers. Suppose instead the price of the token was determined by how many tokens existed.
As more people buy tokens so that they can apply to join the TCR, the price of the token increases. As more people sell tokens to quit the club, the price of the token drops.
We would never have a fixed number of tokens. We create more tokens when we need them. We have a continuous supply of tokens.
Here’s another way to express this method: the demand for tokens determines the supply-at-a-particular-price of the tokens. Instead of sellers and buyers figuring out how much the price should be, the price gets determined automatically.
This method could be an advantage if it made running the TCR easier and more transparent. You don’t need to decide how many tokens to create upfront, you don’t have to haggle over the cost, and you’ll never run out of tokens to sell to newcomers.
One disadvantage: how to decide how steeply the token price should rise?
Currently I’m considering setting up a “TCR Factory” in the future, a group to build various TCRs.
Why not start making a TCR for as many important lists as we can think of? The best newsletters, the best MOOC students, the best freelancers, the best blockchain projects.
The new coordination tools provided by smart contracts and Web3 are only worthwhile if they improve work efficiency or product quality or both. And the best tools are worthless without a community that knows how to use them. Blockchain hype and penny-stock fluctuations in token prices at least have the effect of educating a community who knows how to use this new social technology.
One benefit to building a TCR factory would be learning how much work coordinating via TCRs will be, and hence where they can be applied, and when they must be combined with other cryptoeconomic primitives.