First Principles Thinking: Incentive Design In Web3

First Principles Thinking On Incentive Design

To incentivise people, we need to promise them a reward (e.g. a bonus) conditional on an event (e.g. performance), and people need to trust our promise. A trustworthy promise must be enforceable, which traditionally means that we’ve written a contract that is enforceable by Law.

  • an army of lawyers
  • budget for lobbyists
  • budget for legal fees
  • patience, patience, patience
  1. Digital money: cryptocurrencies that can be traded for products and services (or other currencies).
  2. Smart contracts: contracts that are enforced by the code that is written in them instead of by a court of law.

Why Does It Matter?

Incentive design is humanity’s highest leverage tool to run complex organisations and complex networks of machines. Our current tools for incentive design had an enormous impact on our progress, but it is essential not to stop there. We should have lower barriers to innovation in incentive structures to speed up our progress as a civilisation.

Tools to run machines and organisations at different degrees of leverage.

How To Design Good Incentives?

Good incentive design is similar to AI design. Here are the three steps to make it work:

A Concrete Example

My favourite example is Numerai which clearly shows that doing incentive design is similar to building AI.

  • Filecoin: A commodity market for storage
  • Helium: Incentivisation layer for the LoRaWAN network
  • Golden.xyz: Incentivised structured knowledge protocol

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João Abrantes

João Abrantes

AI researcher into reinforcement learning, complex systems and collaboration tech.