Blockful
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Web3Dev/MelkDAO
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Version: 0.1 (oct-23)
The shift from “Web2 Era” to “Web3 Era” is upon us, even though we cannot agree on what Web3 actually means.
Some will say that it is about data and money ownership, others will say that it is about the metaverse, and some will even argue that it is about privacy and the decentralized foundations for a crypto-anarchist future.
All in all, it seems that what Web3 is really trying to encompass is an amalgam of social, economic, and political shifts in how we perceive and engage ourselves as individuals within collectives
Not to be surprised, the creation of digital communities in Web3 is prevalent, and it seems to be at the heart of what we can observe as the “Web3 phenomenon”, in which lots of communities are attempting to thrive through the experimentation of different and recent technological building blocks, such as social media and blockchain.
Nonetheless, some of these communities, in particular the ones that attempt to be more inclusive and democratic in the form of DAOs, are failing to escalate and to create proper incentives that actually promote true social, economic, and political shifts in human relations.
Hence, “Valocracy”: A novel and structured social, economic, and political framework that attempts to leverage blockchain technology in order to create new forms of organizations with the goal of empowering communities along with their individuals and their combined efforts.
Why do we need new social, economic, and political models?The answer is both simple and complex.
First and foremost, because our current models are unsustainable and are evolving towards an inevitable dystopic endgame, be it from social, economic, or environmental collapse.
But secondly, and most significantly, because we can actually do much better than we do right now, as we have new technologies and experience at our disposal that enable us to do so.
That is the simple part…
The complex part is that whatever models exist that can surpass our current models are yet to be known and will have to be discovered through the old and good “trial and error”.
And what does that have to do with Crypto and Web 3?If we go back to the middle ages, we would have the established power as the “Church-State” arrangement, where the Church legitimizes state power, and the State then exhorts power and finances the Church.
That, of course, until the invention of new technologies, such as the printing press and banking, which not only subtracted power from the previously established elites but also bred the emergence of a new one: the “Banks”.
Eventually, the Church ended up (mostly) separated from the State, and we saw the rise of the “Secular State” that configured a new kind of dominant establishment: the "Government/Central Bank” establishment, where governments legitimize banking with the rule of law, and in return, banks finance the government's operations.
That was a massive shift in the world order due to the invention of new technologies, but one that would hardly be conceived by early peasants watching a printing press work for the first time; about which one of them could then say: “Well, that printing press is amazing, but it is only a machine that does the work of a scriber”.
Similarly, we can also go back to the early days of the internet, when one of its first killer features, and which greatly contributed to its mass adoption, was the e-mail.
While contemplating the electronic mailing technology, we can find some of our great minds and famous individuals of that time clearly stating: “Well, that internet thing may be amazing, but it is only a computer that does the work of a fax machine”.
Well… the true revolution from the mass adoption of the internet came later on, when we saw the rise of a new established power: the Big Techs, which are now actually rivaling governments and banks in terms of global influence and once again promoting a shift in the world order.
That leads us to two important hypotheses:
At last, we get to the present time, where new technologies such as Blockchain and A.I. come into play, allowing mankind to engage in fast-paced experimentation with the creation of alternative “digital societies”, each and every one free to stipulate its own platforms (new social dynamics), consensus mechanisms (new political dynamics), and tokenomics (new economic dynamics).
However, we argue that what we see today as the “Web 3 Movement” is not yet fully embracing and still not showcasing the true potential of these technologies; that we are still trying to replicate “Web 2” (the traditional social, economic, and political dynamics) in a tokenized/decentralized fashion — or in other words — that we are still trying to “put the fax on the internet”.
A decentralized and tokenized apple is still an appleWe owe much of what is now the blockchain universe to the ideals and technology that originated from the High-Tech Hayekian and Cypherpunk movements, and as such, we are still embedded by several traits and thoughts cultivated by them.
One of the most prevalent ideas seems to be that we should “pursue decentralization of power to prevent the formation of elites” as a response to “dangerous forms of control enabled by those power elites”.
From a cypherpunk perspective in the likes of Timothy C. May, that means that government should be abolished and that we should aim to live in a global unregulated market, enforced by absolute individual privacy technology rather than state law — or be it, “systemic-privacy” and “systemic-decentralization”.
But we can also recall the perspective of another cypherpunk, Julian Assange, who advocates for the use of technology to force “transparency” upon governments and companies, thus pushing them to behave better and to evolve in a fairer direction — or be it, “systemic-transparency” and “systemic-accountability”.
We could all agree that centralization of power leads to the formation of corrupted elites and that those elites will, to their best effort, attempt to preserve power and wealth at the expense of the masses or even the system itself.
If we go by the mainstream mindset of today’s Web 3, the answer to that problem is to pursue “systemic-decentralization”, or the idea that if something is decentralized, it will not be corrupted.
But the harsh reality we are facing is that “decentralizing” only for the sake of “decentralizing” is not an infallible formula for social, economic, and political improvement.
For instance, most DAOs that exist for the sole sake of decentralization showcase severe inefficiency and often converge on impractical decisions that hurt the community itself, or even end up overtaken by whales that form a new elite within the DAO.
Why does that happen?
Our answer is: “Because in a DAO where you can pay to acquire a token that gives you governance power, you are still reproducing a system where ‘more money’ equals ‘more political power’, an arrangement that is not so different from what we already have.”
Or in a more generic fashion: “If you attempt to decentralize an organization via a tokenized system that has bad economic incentives, you will still end up with a bad organization that has bad economic incentives” — “A decentralized and tokenized apple is still an apple”.
Why decentralization > When decentralizationBefore attempting to “decentralize” something, we should ask ourselves why something needs to be decentralized, and only then attempt to decentralize it.
For instance, if one forms a DAO over tokens or PFP sales and then gives their members political power proportional to their share of the tokens and PFPs, then it is a fact that the DAO is subjected to being ruled by whales that can subvert the governance to their own interests.
In the end, that is eerily similar to how companies, governments, and banks run today, where an elite makes the ultimate decisions that influence the lives of everyone involved.
That, we argue, is because we are still using fiduciary purchasing power as the ticket to political power and that the very same political power can (and mostly will) be used to further increase fiduciary purchasing power in a self-reinforcing loop.
If such a setup runs over a blockchain, it may be securely settled in a decentralized operation of miners or validators, but the fact is that the setup itself does not truly decentralize economic and political power within the organization that runs over it.
Of course, having an independent, trustworthy, and decentralized infrastructure for settlement is a great foundation. But if we mean to disrupt the current establishment, we also have to explore new ways to organize what is being built on top of such infrastructure, considering innovation in sociological, economic, and political aspects.
We present: ValocracyIn the same way that it was hard for a peasant to foresee the implications of the printing press and, for someone sending their first email in the 90’s, the implications of social media and big tech, it is also hard for us to foresee what can actually be achieved in the future of Web 3 and that may drastically alter the way society works.
However, that doesn’t prevent us from trying to build our own way into this future, venturing into novel social, political, and economic experiments using the building blocks provided by blockchain technology.
That is Valocracy, a proposal for an alternative organizational framework designed as a response to the aforementioned issues.
It is important to note that Valocracy does not aim to be a holy grail or the definite and ultimate challenge to traditional models, but just one step closer in such a collective effort.
We also must acknowledge that there are several kinds of collectives, including physical and digital ones, and that not all collectives have profit in mind, nor do all of them engage in economic activities.
As we stand, there are plenty of organizational models for such collectives, and Valocracy does not aim to replace them.
Valocracy is initially thought to leverage digital communities that want to be economically sustainable. In particular, communities that are sprawling within the Web 3 movement, as several of these communities comprise people that are dissatisfied with traditional economic, social, and political arrangements and that are migrating to Web 3 in search not only for a breath of fresh air but also to engage in economic activities and to make a living out of it.
Born out of this realization, Valocracy is a system that aims to economically incentivize individuals to generate true value for their organizations and for themselves, all while being free to choose between one or several organizations and the activities that better fit their life ambitions.
One may argue that this is true today, and that the stories of self-made millionaires are proof that entrepreneurs who generate value with great products and services are made rich as retribution for their fair contribution to society.
And indeed, it is, but only to some extent.
The fact is that once individuals and companies are rich enough, it becomes cheaper to use their accumulated wealth to bend the system in their favor rather than to further improve society via a fair contribution. This results in the inevitable and ever-widening gap between the ultra-rich and the masses, or shareholders and laborers.
By attempting to learn from history, Valocracy was designed to operate in such a manner that “purchasing power” does not easily translate into “political power”, and that individuals are incentivized to constantly generate value, being rewarded by their capacity to contribute to the collective rather than by their capacity to extract from the collective.
In order to achieve that, our framework has several design principles…
In our current model of work relations, effort is employed in exchange for money. The exchange of money for effort settles the contribution and most individual effort is then forgotten and becomes fungible.
It also becomes corporate property, owned by the shareholders of the company and eligible to be leveraged in order to generate profits that may be orders of magnitude greater than the initial and individual exchange itself.
In Valocracy, we propose that human effort is not fungible and that it should not be exchanged directly for money, but rather through an intermediate layer that “tokenizes the individual effort contributed to the collective”.
In Valocracy, those who perform an effort for any collective are granted a NFT from the collective that states and preserves the non-fungible aspects of the effort.
This is the first step towards building Valocracy: the tokenization of an asset that so far has not been completely materialized and appreciated, the “effort put forth by an individual for a collective”.
So instead of saying that an individual effort is worth X fiat currency or Y tokens, we first state and register that the effort took place, along with the characteristics that make this effort unique.
It may seem that we are only bringing task management on-chain, but an effort here may include several tasks, and it is not meant to be applied at the micro-management level.
What we are trying to do is give acknowledgment and ownership of the effort to the ones who actually perform it.
As such, individual effort then becomes an asset that is the property of the performer.
As we are still working on an intermediate layer, the asset by itself has no absolute value or precification; it merely states the share of the current contribution within the whole effort put forth by the collective. The absolute value in terms of purchasing power or political power then has to be dynamically derived from the whole and not be pre-fixed.
In result, as a collective evolves and changes, so should the economic and political relevance of their individuals.
Every effort employed shall entitle the performer with a share of economic power and governance power within the collective. Both are independent from each other, being two separate sub-assets contained within the effort asset.
If we aim to better separate “economic power” from “political power”, then the first step is to tokenize those two assets as independent tokens. That allows us to subject those assets to different rulesets, thus creating new, and more sophisticated, coordination incentives.
For instance, in Valocracy the Economic Power may be sold and negotiated at the secondary market, but Governance Power cannot, and it is meant to behave as a “soul-bound token”.
The Pareto Principle states that 80% of any outcome comes from 20% of the effort put to it.
If we reflect this to collectives then, at large, 80% of the collective outcome will be due to 20% if its individuals.
We assume this rule to be true and Valocracy is designed to accommodate it. So, a valocratic collective does not aim to enforce the concept of equality/equity by completely eliminating social or wealth disparities among members of a collective.
Instead, Valocracy emphasizes the principle of isonomy: ensuring that the same set of rules is applied consistently to all members of a collective, regardless of their economic status or governance influence.
As such, individuals who contribute with more effort shall be rewarded more governance and economic power within the collective, but all contributors shall agree to the same rewarding and contributing mechanism.
Also, for that to work, not every effort can be considered equally important, as some efforts require more work and a scarcer skill set, which means that different efforts can aggregate more or less value, or even be more or less critical to the collective.
The obvious answer to this problem would be that “the more important the effort, the more political and economic power it should be rewarded”.
And the tricky part is, “by how much”?
If we set up some kind of fiduciary auctioning system or fixed-reward over a common treasury, then we are once again giving fungible aspects to the effort all while attempting to settle on how much fungible fiat coins or tokens the effort is worth.
Valocracy instead proposes the application of a “rarity” system to the Tokenized Effort, a subjective evaluation rather than a quantitative one, where the “rarity” of each NFT adds to its weight on the participation of the collective Governance and Treasury.
Each collective is free to define how they want to ponder the rarities and/or define their own categories. For instance, one community could use a Fibonacci or a Power of Two rule to ponder the weight of each rarity:
| Common | Uncommon | Rare | Epic | Legendary | |
|---|---|---|---|---|---|
| Fibonacci | 1x | 2x | 3x | 5x | 8x |
| Power of Two | 1x | 2x | 4x | 8x | 16x |
As such, the sum of all the Tokenized Governance Power of an individual over the total Tokenized Governance Power of the collective represents this individual vote weight. In the same way, the sum of all the Tokenized Economic Power of an individual over the total Tokenized Economic Power of the collective represents this individual share of the treasury.
Which means, that although we do not fix specifically fiduciary returns for any specific effort, we are able to fix the individual’s share of the whole fiduciary result. In such a system, if the individuals collaborate to a great collective, then they get their specific share of a great result, or in the reverse situation, they all share their specific burden and prejudice of failure.
The greater the individual relevance to the collective, the greater is their share of collective gains and losses.
Joint-stock companies, as collectives that engage in economic activity, are to a large extent a reflection of modern society. They have their own private elite, as shareholders, and their own private masses, as laborers.
The potential for joint-stock companies and the figure of shareholders was first popularized with the creation of the East India Company, in the 1600s.
In those times, the venture of overseas trading was extremely costly and dangerous. So, in order to mitigate those risks, the company introduced the sale of shares that allowed them to raise capital and distribute the risks associated with the venture among a large number of shareholders.
The principle was very straightforward: if the venture succeeds, shareholders get a share of the profits, and if the venture fails, then they all share the prejudice.
While such essence remains true to this very day, the dynamics over shareholder interest have evolved. Over time, shareholders understood that there’s more to gain in elevating stock prices rather than actually fostering profitable and sustainable ventures.
This shift in focus led to the formation of a new market, in which “stock price” often becomes the primary metric of success, even if it comes at the expense of broader social and economic considerations, or even at the expense of the long-term goals and sustainablity of the venture.
A blunt manifestation of this trend was the phenomenon of “mega-corporate buy-backs” during the quantitative easing (QE) policies of the post-2008 USA, where companies would rather borrow to buy back their own stocks than to improve competitiveness and working conditions to join the overall campaign for social and economic recovery.
In simple terms, at some point shareholders are no longer incentivized to add true value to their collectives and the individuals that comprise it, but rather to artificially inflate the stock-price value.
As a response to these challenges, Valocracy aims to blur the distinction between shareholders and laborers (or stocks vs salaries) by introducing the concept of “Value Holder”.
A “Value Holder” of a collective is anyone who possesses a share of “Tokenized Economic Power” within that collective.
There are two means to become a Valueholder:
It also becomes corporate property, owned by the shareholders of the company and eligible to be leveraged in order to generate profits that may be orders of magnitude greater than the initial and individual exchange itself.
So, while “Tokenized Economic Power” behaves as a “stock” in the sense that it denotes a share of collective profits, it also remains grounded in reality, because it is pegged to the current wealth of the treasury. As a tangible share of a real treasury that can be claimed at any time, each and every “Tokenized Economic Power” always has an intrinsic and “guaranteed floor value”.
This dual functionality means it can also serve as a “salary” if the original contributor decides to regularly claim their earned shares via the burning of the “Tokenized Economy Power” instead of selling or holding it.
Thus, the “Valueholder” concept blurs the distinction between shareholders and laborers, offering individual freedom to decide when to act as a paid laborer and when to act as a shareholder, or even to do both at the same time with different parcels of their earned “Tokenized Economic Power”.
It also allows foreign individuals to take a stake in the treasury by acquiring “Tokenized Economic Power” in the secondary market if they believe their bought shares are to be worth more in the future. In that sense, Valueholders can sell their “Tokenized Economic Power” on the secondary market for more than the guaranteed floor price, as an “advance against receivables”.
In Valocracy, if we take the Treasury over the Collective Effort put together by individuals over time, we can derive “Collective Efficiency” as a metric.
As both Treasury and Collective Effort are subject to changes over time, so is the derived Efficiency.
If a collective treasury grows at a higher rate than the collective effort, it means that individual effort is being put to good use, it is efficient. And, as such, individuals are further incentivized not only to hold their treasury shares but also to further collaborate and increase their stake in the collective.
This “holding” mentality is not meant to reflect the goal of flipping assets that have no tangible value by themselves (i.e. true floor price) but to reflect that individuals may prefer to be “shareholders” than “employees” if they are engaging in prosperous collectives.
In this sense, Valocratic collectives are subjected to efficiency. They need to be efficient, or else individuals will be incentivized to not only sell their shares but to also stop putting effort into the collective altogether.
This may seem harsh, but we must recall that Valocracy is thought for collectives that want not only to do things differently but also to engage in economic activities and to survive in the real world.
As collectives get bigger and (ideally) wealthier, Governance becomes of more importance.
The separation of economic power and governance power aims to mitigate governance attacks, as governance power is soul-bound. It cannot be bought at market and must be earned from collaborative effort.
However, Valocracy aims to go even further and implement a governance effectiveness curve over each and every individual instance of Tokenized Governance Power, where effectiveness is null at birth, grows over time, and then decreases until it becomes null again.
Such measure aims to reinforce the governance power of individuals who consistently contribute effort, to the detriment of those who may have been great contributors of the past, but who have abandoned the collective, or even those who are newcomers and are still beginning to understand the collective, and as such lack enough experience to properly engage in governance.
As a consequence of this measure, Valocracy governance is not static, it shifts dynamically giving more decision power to those who are contributing to the collective on a regular basis.
It is important to note that Tokenized Economic Power is not subjected to this curve.
This document is only a draft. Valocracy is a model in development, and there is much yet to be thought and done. We are open to feedback, discussion, and collaboration.
It is not our goal to give instructions on how Valocratic collectives should implement themselves, but only to give an alternative framework to both the traditional corporate structure prevalent in Web 2 and the current struggling attempts of Web 3 communities.
Valocracy aims to provide basic building blocks for more decentralized collectives. It is meant to be experimented with in the creation of several different communities.