Cool, thank you for the comment! Sorry about the late reply; I didn’t get a notification. I’m part of a team now, and we have a big post coming out, hopefully in a few days. Then you can check there how your model compares to ours, and maybe we can synthesize the best of both!
With carbon credits you have governments forcing companies to either stay below pollution limits or buy carbon credits on the market. So to force companies to buy other, maybe generalized moral credits, we’d first have to get buy-in from governments or otherwise exert sustained pressure on them. That will probably take a while to set up, but I’m no policy expert.
Otherwise I totally agree on the first point. We have a list of benefits and a matrix of market donations and funder temperaments because not all benefits apply under all conditions. But the reduced need for due diligence (I’ve been looking for a good term for this!) is probably a major benefit for any impact-minded, hits-based investor in a relatively large space.
The continuous funding trades off against incentives for seed funders. One of our ideas is a Harberger tax type of auction that would have that property (there’s even a prototype already), but the greater the share that the issuer receives, the smaller the share that the investor receives (of all profits). Since investors have to do all the due diligence, they may just figure that it’s not worth it for them if the share is too high. Our post will have more considerations on this point. By and large we lean towards giving issuers the choice between different auctions and then to double-down on whichever is most popular.
The urgency is a good idea! That’s a benefit that hadn’t occurred to me.
Some people are now using normal tokens as fractional NFTs. Dunno, whatever works, I suppose. Maybe we can even do these markets while completely cutting the concept of the impact certificate as separate entity. That might obviate the need to solve the problem.
VCs often manage to buy stakes in companies privately. Wouldn't it be natural to sidestep that issue by copying what VCs do (and staying off the blockchain)? i.e. step (1) is privately traded patronage certificates, then step (2) is public ones? If so, then one could imagine a scenario where all you need for now is to do some research, and write up a pro forma contract?
Heh, yes. That’s an option. But I don’t suppose having a contract template has been the bottleneck why this hasn’t happened over the past years? I made a Google Doc for this for one impact purchase, and it worked just fine. They even have a version history that’s a bit like a blockchain. Writing contracts is rather far from my absolute advantages, so maybe it’s also far from my relative advantages…
I can envisage a lot of ways to ensure some lending, so this seems like a small advantage.
Yeah.
It would be better if we could get charities to pay for their negative impact somehow.
No mechanism comes to mind, but that general problem is one I want to think about more.
It's quite messy to require an external panel to divide up the tokens between orgs.
That’s just for the initial allocation. So long as no one (other than me) has the tokens, no one (other than me) can vote, which is boring. But once I’ve allocated some 50% of them to MIRI, FHI, CLR, AISS, et al., the actual voting can start. I haven’t researched how that is usually done on Solana, but surely there’s some elegant mechanism for it.
It incentivises people to start new incompetent orgs in an intervention area, (or to keep incompetent orgs running) just because there are existing competent orgs. Conversely, it punishes competent orgs for the presence of harmful orgs implementing their same intervention.
If the existing shareholders – MIRI et al. – initially vote to get Evil Org accepted into their ranks, but then it turns out that Evil Org is evil and they regret the decision, then yes, that’s a problem. But if they set a high bar and only vote in orgs that have proven over many years to do high-quality and conscientious work, the risk from that failure mode can be minimized. So for this to become a problem, a new org would first have to impress MIRI et al. a lot, but then completely fall short of their expectations after all.
And if the problem with the disappointing Evil Org gets too bad, someone (me) will deploy an alternative intervention token, and the market will decide which one people like more. There might even be a market of one token against the other.
I can't promise I'll have much more to say in this thread, but in case I don't, let me say that I've found this an illuminating discussion. Thanks!
I think the process of issuing charity shares could be automated for the charities.
Yes, that’d be awesome!
Creating a wallet is so easy, there is virtually no need to automate anything further.
Creating a bonding curve auction on Serum is something that would be valuable to automate.
Raydium integration, lending, etc. are slightly less essential, but that would also make sense to automate at some point.
But researching the legal environment in the state where the charity is registered and coming up with creative ways around local regulations or going through complicated registration procedures such as the ~ 1.5 year long one with the SEC are not things that I can automate (I think).
So it varies – a lot of things can be automated but what remains is probably still prohibitively complicated. There are also more things that charities can do with their shares to make them more attractive, such as governance mechanisms. Finally, I don’t want to put all the work into automating the system so long as its demand and product-market fit is unproven.
If desired, it seems not out of the question that these entities could even run as for-profits - given that you are proposing a revolution of the NGO sector, it seems weird to restrict yourself to the most common current legal setup.
I’m taking two different perspectives in the comment based on the following steps: (1) What is realistic to realize now to get the idea off the ground, and (2) what is realistic to expect to happen in 5–10 years assuming that step 1 has succeeded. Now that we’re at step 1, I think it’s unrealistic to think that almost any charity will be ready to run these risks and invest any time given the unknown value of the fundraising system for them. But once we’re at step 2, the value of the system will be proven (or else we won’t reach step 2), in which case charities will hope to raise tens of millions or more through the system, and it will be worth going to great lengths for them, e.g., founding a for-profit, hiring lawyers, and going through SEC registration processes.
US for profits of course also have to register their securities. They can do a lot more with them, so doing this as a for-profit is probably necessary, but it’s still very costly. Founding a for-profit branch in another country may be an option, but I don’t know enough about that to tell.
although I agree that tax deductability is nice to have
I don’t see a way to get that unfortunately, but then again the money with the least valuable counterfactuals comes from for-profit investors who don’t expect deductibility anyway. The legal risks I’m referring to are not simply that it might not be possible to get tax deductibility. It’s rather that in the worst case the responsible people at the charities may need to pay 8–9 digit settlements to the SEC or go to prison for up to five years for issuing unregistered securities. Especially the second would be a tremendous risk to the whole AI safety ecosystem. Even if the risk of that happening is small because they’re likely to be able to reach a settlement, it may still be too great of a risk for any AI safety charity to touch tokenized impact at all.
I can see that (3) pushes weakly toward impact certs, but not strongly because ideally you also want to have specific markets, and the benefits of liquidity and specificity trade off against one another (in terms of the information that readers can gain). And even if resale markets are fairly dormant, I don't think it's a disaster - it should still be at least as good as the status quo (donations), and in many ways better (valuation is done retrospectively).
Yeah, makes sense.
Re charity Vs intervention shares, my thinking was just that it would be more transparent for intervention shares to be constituted of charity shares, and for such shares to be issued by charities. Based on reading your comment, I'm not sure whether you agree?
Ah, you actually intended it exactly like SECO, okay. :-)
My thinking has gone through the following steps: (1) I want to create charity shares. (2) Oops, charity shares are prohibitively difficult to do because of legal risks, effort, and hence very low chance of getting the buy-in from all the US- and UK-based EA charities. (3) So I need to come up with something that is almost as good but is more achievable: Project shares, because individuals are more likely to be outside the US or UK, and intervention shares because I can do them from Switzerland with minimal buy-in (just an okay) from charities.
So once we are in a position where it becomes realistic to expect charities to issue their own shares, we don’t need intervention shares anymore. They may still have their various benefits, like governance and maybe higher liquidity, so they may continue to be developed, but at that point they can become an afterthought. And maybe there’s a way to convert them into a pool of charity shares too.
Re (4), why can't charity shares be bought/sold?
Ah, my point here was more that an evil charity that is afraid that it’ll get shorted can decide not to offer the (say) 99% of its shares that it still holds for borrowing. The only shares shorts can borrow will then be those that some others have, directly or indirectly, bought from the charity, so relatively few. Conversely, the smart contract that manages the intervention shares could just be developed such that it automatically puts up all the shares it still holds onto a lending platform. It’ll probably take a few years before that proportion is down to 1% and by that point the shares will be distributed across a number of charities of which hopefully very few are evil. ;-)
Re (5), what is the built-in mechanism?
I’m referring to this one:
There could be, e.g., quarterly events where a new organization can receive a fraction (which decreases every time) of the remaining shares. The shareholders would vote on who the new awardee will be, and the issuing organization or a smart contract will donate the shares accordingly.
I’m currently very concerned about prices not reflecting downside risks, and this mechanism is the only one that may be able to keep risky charities out, so it seems very important to me but unfortunately also rather unsatisfactory.
Nomenclature: I’ll need to think about that at some point… I particularly like the analogy with for-profit shares, so having a name with “shares” in it would be useful. Not if it creates legal problems though. I also like “public good” more than “impact” because it sounds more reputable to me and makes clear that we’re talking about positive impact and not random perturbations or negative impact. “Public good patronage share” is getting a bit wordy though… It seems too early to think about this in earnest though.
Discreteness: That is indeed desirable, and charity shares are probably top on that metric, but I don’t see the differences between the models as particularly great. Intervention shares are almost as discrete as charity shares in that they are simply a few charities pooled together with the option to add more, sort of like the Serum Ecosystem Token. At every point, it’ll be complete transparent who has been voted into the pool and how much tokens their wallets still hold. Projects are a bit more vague in that no one goes out of their way to write binding by-laws for a research project and lock themselves in to some particular mode of operation through expensive marketing – but then again charities can gradually change their complete staff. A project will rather tend to be discontinued when a key person (maybe the only person) stops working on it. But in the end, I think charity shares still win by a small margin.
But charity shares are probably a nonstarter for different reasons: (1) So long as the benefits of fundraising through impact stock issues is avant-garde, speculative, and legally risky, charities will be loath to invest any time into it. That might be avoided by me issuing the token for them and donating them all to them, but I don’t know if that really makes a difference legally. Besides, they need to be auctioned off in some fashion, which will again cost staff time. (2) The legal situation will probably be determined by the location where the charity is registered, so it would be infeasible for a third party to do the legal research on behalf of all the charities. Even if most of them are in the US, the laws there vary a lot between states. (3) Liquidity will be a huge bottleneck so long as the markets are not yet well established. Even the liquidity on the SECO/USD market I mentioned above is rather meh, and that’s listed on big exchanges. This will be more manageable when there are fewer markets. That may also make it easier to get someone like Raydium on board with the project. (4) To be able to short bad charities, there needs to be lending. The smart contract that could manage the remaining intervention shares could, for a long time, see to it that these can be borrowed at high interest rates (e.g., > 500% APY, so that lending still incentivizes hodling). (5) Intervention shares have a nice build-in decentralized mechanism for keeping bad actors out. For charity and project shares, only centralized mechanisms come to mind.
So for better or worse, I don’t think anything other than intervention shares will be feasible at all at first. But if the system catches on, charities and projects will want to jump on the fundraising train, and then the incentives would be right, so that they’d be happy to put some work into issuing and auctioning off their shares. Note that the idea behind project shares is to remove the legal risks from the charity, so the charity would never touch them or do anything with them; that would all be managed by the employee who runs the project and is in the right jurisdiction to issue the shares safely.
Past activities: Only selling impact in past activities would seem odd to me. Of course there are a lot of established companies that have their quarterly earnings calls where they report on various fundamental and how they changed over the past quarter, and then shareholders react to that. But most EA charities are more like startups. If we want to grow the community, then hopefully most EA charities are entirely in the future. That may be analogous to how one can base the valuation of a profitable company on EBITDA but has to come up with othermethods for early-stage startups. AMF might have quarterly net calls, but the valuation of most charity startups will probably also be based on such criteria as the soundness of the strategic plan or path to impact, the team, the network, the marketing, etc. There might of course be Safemoon-type charities in the end, but I don’t see how that could be avoided. All we’ll be able to about it is education, centralized vetting, and using the classic legal system against them. Besides, we at least already sort of know how to do that, to some extend, since we’re currently allocating our illiquid donations according to similar criteria.
Public endorsements from trusted experts in relevant domains, such as crypto, econ, impact certificates, EA-style prioritization. Yes, that’d be great! I’m closest to knowledgeable on the last one, and I’m very concerned about Ofer’s concern above. So I want to come up with a promising solution to that before I move forward at all.
A series of blog posts detailing how different actors can use the system. Yes, very good. I’d also explain the reasoning behind various design decisions in these posts. Something that irks me about a lot of crypto projects is that they have a very specific fine-tuned byzantine architecture that they explain in detail but never mention why they made all these design decisions.
A software that abstracts away all the unnecessary complexity. That is probably something that I’ll need to build gradually as I see signs of adoption. It’d be too easy to waste a year on building a software that no one uses. (I’ve worked for a startup that did that.) So I hope I can do it in a way where the complexity doesn’t itself impede the adoption too much…
On the flip side, I think there's a lot of potential for such a system, so I'd see this work as quite plausibly very high impact and thus hopefully a mini-cause around which folks can coordinate. Personally, I can try to rally support once a system exists (see above), but I'm not currently in a position to rally community leaders nor get crypto experts to scrutinize the plan.
Suppose there's 50% chance that next month a share will be worth $10 (after the project turns out to be beneficial) and 50% chance that the share will be worth $0 (after the project turns out to be extremely harmful). The price of the share today would be ~$5. Why would anyone short these shares if they are currently trade at $5? Doing so will result in losing money in expectation.
Ah, you’re right. Not sure why I was so confused about this before.
I might’ve implicitly been thinking about the case where the bad news about the intervention gradually comes to light (in the worlds where it turns out to be bad) and the shorter regularly increases their short to maintain the same leverage while the market drops. Would that work?
I’ve been under the impression that that’s how the HEDGE tokens work, specifically with a rebalancing interval of one day or less (extra rebalancing during the day in case of high volatility), but the result is weird… DMG dropped 77% all at once on Feb. 5, 2021, so I would’ve expected DMGHEDGE to go up 77%? Instead it also dropped 55%. Maybe there was not enough buy-side liquidity to rebalance properly because everyone just wanted to sell?
I wonder if negative impact tokens would work or would fall short for similar reasons. Is there some sort of software for simulating markets? Otherwise I might just try to put together a little custom agent-based model for this.
I wonder, what would happen if we created a USDC/TOKEN market instead of a TOKEN/USDC market?
That's a great point. This also applies to traders who go long on a share (potentially making them give less weight to the downside risks of the project).
Yeah, sadly.
I think something like this can potentially be a great solution. Though there may be a risk that such a market will cause other crypto enthusiasts to create competing markets that don't have this mechanism ("our market is truly decentralized, not like that other one!").
Hmm, it would be completely decentralized. Only the “ICO” would consist of giving the token to specific charities and funds, which would thereby obtain particular voting rights. If a project wanted to avoid that, they could exclude the funds, but they can’t exclude the charities as that would defeat the purpose of the token…
But that’s not much consolation. A lot of the charities I do want to see supported run interventions with potentially vast downside risks, in my opinion. I don’t know if they really have vast or rather limited downside risks, so I would like the market to know more than me about that, not less.
Token lending seems like a really good thing here since it would allow people to short and it would generate passive income for hodlers. Since the tokens will be fairly obscure compared to BTC or USDC, the interest will be high, provided there is any interest in shorting in the first place, right? So the shares of controversial projects like playpumps will yield high interest but will remain cheap while, say, AMF shares will yield low interest but appreciate. I’ll need to think about whether that’s good. And what the interest currency should be.
Perpetual futures would be another proven solution to this problem. Bonfida already offers three of them based on Serum, so they seem like an obvious partner to try to get on board with this. Moët is another one but hasn’t launched yet. Considering that Bonfida only has three and they have low volume, I suspect that it’ll be hard to get this off the ground…
A completely out-there idea: Instead of just having one dimension – price up or down, crudely representing positive impact – you could have a multidimensional market. A charity could get their token listed on markets of happiness/USDC, suffering-reduction/USDC, eudaimonia/USDC, edification/USDC, progress/USDC, existential-safety/USDC, experience/USDC, etc., so a token/USDC market with many dimensions. Then traders could buy or sell arbitrary vectors on that market, and their PnL could be something like the cosine similarity to the current multidimensional market price times their investment. But that would require a lot of liquidity since an order can’t go through if even along one dimension there are not enough offers at the price. In any case, just a random phantasy, not actionable for me. xD
Yes. I think we have different types of asymmetries in mind here. I can see three types at the moment, but maybe there are more that I’m overlooking? How do you define “net-negative” if not in terms of expected value? Stochastic dominance? Or do you mean that the ex ante expected value of an intervention can be great even though its value is net-negative ex post?
Different asymmetries that come to mind:
Investors should be able to short just as easily as they can long, and their profits from correctly predicting downside should be just as unbounded as their profits from correctly predicting upside. This can be approximated with borrowing and lending or with a perpetual future. The first approach requires that someone offers the tokens for lending and that the short trader is ready to pay interest on them. The second only has minor issues that I’m aware of (e.g., see Calstud29’s comment), so that, I think, would be a great feature. Then again the ability to lend tokens that you have would create an incentive to buy and hold.
Profit-oriented investors only care about profits that they make in futures in which they can spend them. So if a trader thinks that a project is vastly net negative, shorts it, then the news spreads (maybe aided by the proof that traders are putting their money where their mouth is, namely in a short), and the project is discontinued before the risk materializes, then everything is fine. But if a trader shorts the project, few others follow the lead, and then we go extinct because of the project, the mechanism failed. So in particular traders who don’t have a big audience will the uninterested in shorting bad projects. I don’t know how to solve that elegantly but getting sophisticated altruists to vote on what projects to include in intervention shares can serve to include only fairly robust projects (to the best of our current knowledge).
Various ethical asymmetries, such as how to weight suffering vs. happiness, making happy people vs. making people happy, maybe stuff like how to think about logical counterfactual, etc. I have various opinions and intuitions about these, but I (tentatively) feel like if I built nudges into the marketplace that push in one direction or another, half the potential user base would perceive the market as unfair and acausally somewhere in the universe someone very much like me would build a marketplace where the nudges push in the opposite direction. So I feel like it’s more fair to resolve these through discussions and trade than through marketplace mechanisms.
If you were just referring to the ex ante vs. ex post distinction, then I think it’s fair that people can get lucky by betting on risky projects (risky in the sense of downside risks) because (1) they need to bet on a lot of them to get lucky, so their contribution to each is smaller, and (2) they can get equally lucky by betting against risky projects. I don’t want people to support risky projects, but so long as we can figure out problems 1 and 2 above, the share prices of risky projects should remain quite low.
Or are you thinking of problems along the lines of the St. Petersburg game? I.e. the expected value is unbounded so the share price of a St. Petersburg game charity should go to infinity to the degree the available capital allows? I don’t think that will happen. The upside of various technology companies is virtually unbounded due to transformative AI and yet the share price remains finite and the market capitalization well below the capital that is available in the world. Admittedly, it makes me uncomfortable to rely on “It’s not happening now, so it’s unlikely to happen in the future,” but in this case it seems like a pretty strong reason to me…
This post gives an overview of the general vision.
Cool, thank you for the comment! Sorry about the late reply; I didn’t get a notification. I’m part of a team now, and we have a big post coming out, hopefully in a few days. Then you can check there how your model compares to ours, and maybe we can synthesize the best of both!
Would you be interested in joining our Impact Markets Discord server?
With carbon credits you have governments forcing companies to either stay below pollution limits or buy carbon credits on the market. So to force companies to buy other, maybe generalized moral credits, we’d first have to get buy-in from governments or otherwise exert sustained pressure on them. That will probably take a while to set up, but I’m no policy expert.
Otherwise I totally agree on the first point. We have a list of benefits and a matrix of market donations and funder temperaments because not all benefits apply under all conditions. But the reduced need for due diligence (I’ve been looking for a good term for this!) is probably a major benefit for any impact-minded, hits-based investor in a relatively large space.
The continuous funding trades off against incentives for seed funders. One of our ideas is a Harberger tax type of auction that would have that property (there’s even a prototype already), but the greater the share that the issuer receives, the smaller the share that the investor receives (of all profits). Since investors have to do all the due diligence, they may just figure that it’s not worth it for them if the share is too high. Our post will have more considerations on this point. By and large we lean towards giving issuers the choice between different auctions and then to double-down on whichever is most popular.
The urgency is a good idea! That’s a benefit that hadn’t occurred to me.
Some people are now using normal tokens as fractional NFTs. Dunno, whatever works, I suppose. Maybe we can even do these markets while completely cutting the concept of the impact certificate as separate entity. That might obviate the need to solve the problem.
I’d be delighted to welcome you to our Discord!
Thanks! I’m in touch with them now.
Heh, yes. That’s an option. But I don’t suppose having a contract template has been the bottleneck why this hasn’t happened over the past years? I made a Google Doc for this for one impact purchase, and it worked just fine. They even have a version history that’s a bit like a blockchain. Writing contracts is rather far from my absolute advantages, so maybe it’s also far from my relative advantages…
Yeah.
No mechanism comes to mind, but that general problem is one I want to think about more.
That’s just for the initial allocation. So long as no one (other than me) has the tokens, no one (other than me) can vote, which is boring. But once I’ve allocated some 50% of them to MIRI, FHI, CLR, AISS, et al., the actual voting can start. I haven’t researched how that is usually done on Solana, but surely there’s some elegant mechanism for it.
If the existing shareholders – MIRI et al. – initially vote to get Evil Org accepted into their ranks, but then it turns out that Evil Org is evil and they regret the decision, then yes, that’s a problem. But if they set a high bar and only vote in orgs that have proven over many years to do high-quality and conscientious work, the risk from that failure mode can be minimized. So for this to become a problem, a new org would first have to impress MIRI et al. a lot, but then completely fall short of their expectations after all.
And if the problem with the disappointing Evil Org gets too bad, someone (me) will deploy an alternative intervention token, and the market will decide which one people like more. There might even be a market of one token against the other.
Awesome! Thank you for your input! :-D
Yes, that’d be awesome!
So it varies – a lot of things can be automated but what remains is probably still prohibitively complicated. There are also more things that charities can do with their shares to make them more attractive, such as governance mechanisms. Finally, I don’t want to put all the work into automating the system so long as its demand and product-market fit is unproven.
I’m taking two different perspectives in the comment based on the following steps: (1) What is realistic to realize now to get the idea off the ground, and (2) what is realistic to expect to happen in 5–10 years assuming that step 1 has succeeded. Now that we’re at step 1, I think it’s unrealistic to think that almost any charity will be ready to run these risks and invest any time given the unknown value of the fundraising system for them. But once we’re at step 2, the value of the system will be proven (or else we won’t reach step 2), in which case charities will hope to raise tens of millions or more through the system, and it will be worth going to great lengths for them, e.g., founding a for-profit, hiring lawyers, and going through SEC registration processes.
US for profits of course also have to register their securities. They can do a lot more with them, so doing this as a for-profit is probably necessary, but it’s still very costly. Founding a for-profit branch in another country may be an option, but I don’t know enough about that to tell.
I don’t see a way to get that unfortunately, but then again the money with the least valuable counterfactuals comes from for-profit investors who don’t expect deductibility anyway. The legal risks I’m referring to are not simply that it might not be possible to get tax deductibility. It’s rather that in the worst case the responsible people at the charities may need to pay 8–9 digit settlements to the SEC or go to prison for up to five years for issuing unregistered securities. Especially the second would be a tremendous risk to the whole AI safety ecosystem. Even if the risk of that happening is small because they’re likely to be able to reach a settlement, it may still be too great of a risk for any AI safety charity to touch tokenized impact at all.
Yeah, makes sense.
Ah, you actually intended it exactly like SECO, okay. :-)
My thinking has gone through the following steps: (1) I want to create charity shares. (2) Oops, charity shares are prohibitively difficult to do because of legal risks, effort, and hence very low chance of getting the buy-in from all the US- and UK-based EA charities. (3) So I need to come up with something that is almost as good but is more achievable: Project shares, because individuals are more likely to be outside the US or UK, and intervention shares because I can do them from Switzerland with minimal buy-in (just an okay) from charities.
So once we are in a position where it becomes realistic to expect charities to issue their own shares, we don’t need intervention shares anymore. They may still have their various benefits, like governance and maybe higher liquidity, so they may continue to be developed, but at that point they can become an afterthought. And maybe there’s a way to convert them into a pool of charity shares too.
Ah, my point here was more that an evil charity that is afraid that it’ll get shorted can decide not to offer the (say) 99% of its shares that it still holds for borrowing. The only shares shorts can borrow will then be those that some others have, directly or indirectly, bought from the charity, so relatively few. Conversely, the smart contract that manages the intervention shares could just be developed such that it automatically puts up all the shares it still holds onto a lending platform. It’ll probably take a few years before that proportion is down to 1% and by that point the shares will be distributed across a number of charities of which hopefully very few are evil. ;-)
I’m referring to this one:
I’m currently very concerned about prices not reflecting downside risks, and this mechanism is the only one that may be able to keep risky charities out, so it seems very important to me but unfortunately also rather unsatisfactory.
Nomenclature: I’ll need to think about that at some point… I particularly like the analogy with for-profit shares, so having a name with “shares” in it would be useful. Not if it creates legal problems though. I also like “public good” more than “impact” because it sounds more reputable to me and makes clear that we’re talking about positive impact and not random perturbations or negative impact. “Public good patronage share” is getting a bit wordy though… It seems too early to think about this in earnest though.
Discreteness: That is indeed desirable, and charity shares are probably top on that metric, but I don’t see the differences between the models as particularly great. Intervention shares are almost as discrete as charity shares in that they are simply a few charities pooled together with the option to add more, sort of like the Serum Ecosystem Token. At every point, it’ll be complete transparent who has been voted into the pool and how much tokens their wallets still hold. Projects are a bit more vague in that no one goes out of their way to write binding by-laws for a research project and lock themselves in to some particular mode of operation through expensive marketing – but then again charities can gradually change their complete staff. A project will rather tend to be discontinued when a key person (maybe the only person) stops working on it. But in the end, I think charity shares still win by a small margin.
But charity shares are probably a nonstarter for different reasons: (1) So long as the benefits of fundraising through impact stock issues is avant-garde, speculative, and legally risky, charities will be loath to invest any time into it. That might be avoided by me issuing the token for them and donating them all to them, but I don’t know if that really makes a difference legally. Besides, they need to be auctioned off in some fashion, which will again cost staff time. (2) The legal situation will probably be determined by the location where the charity is registered, so it would be infeasible for a third party to do the legal research on behalf of all the charities. Even if most of them are in the US, the laws there vary a lot between states. (3) Liquidity will be a huge bottleneck so long as the markets are not yet well established. Even the liquidity on the SECO/USD market I mentioned above is rather meh, and that’s listed on big exchanges. This will be more manageable when there are fewer markets. That may also make it easier to get someone like Raydium on board with the project. (4) To be able to short bad charities, there needs to be lending. The smart contract that could manage the remaining intervention shares could, for a long time, see to it that these can be borrowed at high interest rates (e.g., > 500% APY, so that lending still incentivizes hodling). (5) Intervention shares have a nice build-in decentralized mechanism for keeping bad actors out. For charity and project shares, only centralized mechanisms come to mind.
So for better or worse, I don’t think anything other than intervention shares will be feasible at all at first. But if the system catches on, charities and projects will want to jump on the fundraising train, and then the incentives would be right, so that they’d be happy to put some work into issuing and auctioning off their shares. Note that the idea behind project shares is to remove the legal risks from the charity, so the charity would never touch them or do anything with them; that would all be managed by the employee who runs the project and is in the right jurisdiction to issue the shares safely.
Past activities: Only selling impact in past activities would seem odd to me. Of course there are a lot of established companies that have their quarterly earnings calls where they report on various fundamental and how they changed over the past quarter, and then shareholders react to that. But most EA charities are more like startups. If we want to grow the community, then hopefully most EA charities are entirely in the future. That may be analogous to how one can base the valuation of a profitable company on EBITDA but has to come up with other methods for early-stage startups. AMF might have quarterly net calls, but the valuation of most charity startups will probably also be based on such criteria as the soundness of the strategic plan or path to impact, the team, the network, the marketing, etc. There might of course be Safemoon-type charities in the end, but I don’t see how that could be avoided. All we’ll be able to about it is education, centralized vetting, and using the classic legal system against them. Besides, we at least already sort of know how to do that, to some extend, since we’re currently allocating our illiquid donations according to similar criteria.
Awesome, thank you!
Thank you! 😊
Ah, you’re right. Not sure why I was so confused about this before.
I might’ve implicitly been thinking about the case where the bad news about the intervention gradually comes to light (in the worlds where it turns out to be bad) and the shorter regularly increases their short to maintain the same leverage while the market drops. Would that work?
I’ve been under the impression that that’s how the HEDGE tokens work, specifically with a rebalancing interval of one day or less (extra rebalancing during the day in case of high volatility), but the result is weird… DMG dropped 77% all at once on Feb. 5, 2021, so I would’ve expected DMGHEDGE to go up 77%? Instead it also dropped 55%. Maybe there was not enough buy-side liquidity to rebalance properly because everyone just wanted to sell?
I wonder if negative impact tokens would work or would fall short for similar reasons. Is there some sort of software for simulating markets? Otherwise I might just try to put together a little custom agent-based model for this.
I wonder, what would happen if we created a USDC/TOKEN market instead of a TOKEN/USDC market?
Yeah, sadly.
Hmm, it would be completely decentralized. Only the “ICO” would consist of giving the token to specific charities and funds, which would thereby obtain particular voting rights. If a project wanted to avoid that, they could exclude the funds, but they can’t exclude the charities as that would defeat the purpose of the token…
But that’s not much consolation. A lot of the charities I do want to see supported run interventions with potentially vast downside risks, in my opinion. I don’t know if they really have vast or rather limited downside risks, so I would like the market to know more than me about that, not less.
Token lending seems like a really good thing here since it would allow people to short and it would generate passive income for hodlers. Since the tokens will be fairly obscure compared to BTC or USDC, the interest will be high, provided there is any interest in shorting in the first place, right? So the shares of controversial projects like playpumps will yield high interest but will remain cheap while, say, AMF shares will yield low interest but appreciate. I’ll need to think about whether that’s good. And what the interest currency should be.
Perpetual futures would be another proven solution to this problem. Bonfida already offers three of them based on Serum, so they seem like an obvious partner to try to get on board with this. Moët is another one but hasn’t launched yet. Considering that Bonfida only has three and they have low volume, I suspect that it’ll be hard to get this off the ground…
A completely out-there idea: Instead of just having one dimension – price up or down, crudely representing positive impact – you could have a multidimensional market. A charity could get their token listed on markets of happiness/USDC, suffering-reduction/USDC, eudaimonia/USDC, edification/USDC, progress/USDC, existential-safety/USDC, experience/USDC, etc., so a token/USDC market with many dimensions. Then traders could buy or sell arbitrary vectors on that market, and their PnL could be something like the cosine similarity to the current multidimensional market price times their investment. But that would require a lot of liquidity since an order can’t go through if even along one dimension there are not enough offers at the price. In any case, just a random phantasy, not actionable for me. xD
Yes. I think we have different types of asymmetries in mind here. I can see three types at the moment, but maybe there are more that I’m overlooking? How do you define “net-negative” if not in terms of expected value? Stochastic dominance? Or do you mean that the ex ante expected value of an intervention can be great even though its value is net-negative ex post?
Different asymmetries that come to mind:
Investors should be able to short just as easily as they can long, and their profits from correctly predicting downside should be just as unbounded as their profits from correctly predicting upside. This can be approximated with borrowing and lending or with a perpetual future. The first approach requires that someone offers the tokens for lending and that the short trader is ready to pay interest on them. The second only has minor issues that I’m aware of (e.g., see Calstud29’s comment), so that, I think, would be a great feature. Then again the ability to lend tokens that you have would create an incentive to buy and hold.
Profit-oriented investors only care about profits that they make in futures in which they can spend them. So if a trader thinks that a project is vastly net negative, shorts it, then the news spreads (maybe aided by the proof that traders are putting their money where their mouth is, namely in a short), and the project is discontinued before the risk materializes, then everything is fine. But if a trader shorts the project, few others follow the lead, and then we go extinct because of the project, the mechanism failed. So in particular traders who don’t have a big audience will the uninterested in shorting bad projects. I don’t know how to solve that elegantly but getting sophisticated altruists to vote on what projects to include in intervention shares can serve to include only fairly robust projects (to the best of our current knowledge).
Various ethical asymmetries, such as how to weight suffering vs. happiness, making happy people vs. making people happy, maybe stuff like how to think about logical counterfactual, etc. I have various opinions and intuitions about these, but I (tentatively) feel like if I built nudges into the marketplace that push in one direction or another, half the potential user base would perceive the market as unfair and acausally somewhere in the universe someone very much like me would build a marketplace where the nudges push in the opposite direction. So I feel like it’s more fair to resolve these through discussions and trade than through marketplace mechanisms.
If you were just referring to the ex ante vs. ex post distinction, then I think it’s fair that people can get lucky by betting on risky projects (risky in the sense of downside risks) because (1) they need to bet on a lot of them to get lucky, so their contribution to each is smaller, and (2) they can get equally lucky by betting against risky projects. I don’t want people to support risky projects, but so long as we can figure out problems 1 and 2 above, the share prices of risky projects should remain quite low.
Or are you thinking of problems along the lines of the St. Petersburg game? I.e. the expected value is unbounded so the share price of a St. Petersburg game charity should go to infinity to the degree the available capital allows? I don’t think that will happen. The upside of various technology companies is virtually unbounded due to transformative AI and yet the share price remains finite and the market capitalization well below the capital that is available in the world. Admittedly, it makes me uncomfortable to rely on “It’s not happening now, so it’s unlikely to happen in the future,” but in this case it seems like a pretty strong reason to me…