"Why all these tokens?" - An attempt to answer this common question

Bitocracy
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Continuing the discussion from [DRAFT] SIP-00XX Origins subprotocol update:

To the people wondering about “why all these tokens”, in reference to OG and other tokens that have been proposed. The reason for creating these new tokens are all the same, whether they are bonded to SOV or not: they enable incentive isolation and focused attention. It’s the same reason that every company doesn’t have the same stock, every home owner’s association doesn’t vote on the same issues, etc.

On the one hand, you want people to be incentivized to help their specific project succeed. People are not going to put in as much effort if they feel like their rewards are going to be diluted by people who had nothing to do with their project. On the other hand, we also have to recognize that people have limited time and attention, which leads to the specialization of labor. If everyone had to vote on everything all the time, the decisions made would be very poor due to the lack of knowledge (or else the decisions would be dominated by special interests, since the default mode for most voters would be apathy; in a blockchain-based governance context we would call this a “51% attack”).

Specialized protocol tokens provide a solution: holders of a protocol token are uniquely incentivized to ensure the success of that specific protocol, aligning their incentives with users to build a protocol that works well. And if the token is used for governance, then it means that only protocol stakeholders will need to concern themselves with the specialized knowledge required to create, review, shape, and vote on proposals.

Not every protocol needs a token for governance or value-capture, but some really are better of with a well-designed token. Mike’s cryptosystems manifesto has some good principles to follow here. Hasu also wrote a good post explaining the value of protocol tokens.

If you want to know “why token?”, think about why SOV made sense in the first place, and consider that the same or similar reasons apply to the new token too. Consider too that not everything should be governed by SOV. Sovryn should not be trying to be an empire with one token to rule them all – quite the opposite, it is probably better for everyone (including SOV!) for there to be more tokens, not fewer, even if they opt to not be SOV-bonded subtokens.

My 2 sats

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The case in favor continues to strike me as just utterly unconvincing.

  • “Tokens enable incentive isolation and focused attention.” That is true but there are very natural limits to such a focus, beyond which they become too narrow and not interesting enough for them to still bind a community, or hold any interest. The incentive behind Sovryn, and its focus, is to build the tools that indirectly give Bitcoin stronger monetary functionalities, to give people a way to use their Bitcoin, and so on. This is something that people can stand behind, that can bind a community. Now consider going narrower, and take the incentive behind a launchpad only: to launch tokens and help projects raise funds. This is simply not interesting enough to build a community around. Tokens are as strong as their communities. What if Origins wants to have a new feature, but needs to expand the team to build it? New token again? Even narrower focus? That’s just silly. Any project needs to draw a line beyond which the focus should not go narrower. That focus is the natural and inspiring focus of Sovryn. There is a reason why companies don’t all have the same stock, sure, but there is also a reason why Apple doesn’t create a new stock for every new product or for every new expansion.

  • “We also have to recognize that people have limited time and attention, which leads to the specialization of labor. If everyone had to vote on everything all the time, the decisions made would be very poor due to the lack of knowledge”. This argument again. Really? People who understand Sovryn will not have the “specialized knowledge” required to decide what projects to launch, and how? Come on, this point is just not remotely plausible. If someone has no time to put into reading up on some feature, they can just abstain from voting; as long as there is enough interest and some people put time into it. To ensure that, you need to have a large community, not a small one. And what about the delegate system that Sovryn has, does this not already allow for a division of labor?

  • The reasons why it made sense to have a SOV token simply do not apply to having a new token for every big new feature of Sovryn; in fact, it is in deep conflict with it. One of the reasons to have SOV was for governance needs; the new tokens take away those governance needs and hence undermine the original need for having SOV. It also goes against the investment thesis that draws people in: people invest in Sovryn because of the new features it would have in the future. If it turns out these features will be features of other projects and not of Sovryn, people will go elsewhere.

  • “Sovryn should not be trying to be an empire with one token to rule them all”. I find this just rhetorical framing. There is no sense in which Sovryn rules any other token or project. Sovryn doesn’t “rule” Babelfish, it doesn’t rule RIF. Sovryn rules its own features, and there is nothing odd or bad about that. Sovryn needs to be a platform with a wide range of features; and it needs to have a token with a promise of future value capture through the addition of new features. If that promise is taken away, the community behind it just crumbles because that community is build from investors that need some hopium.

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I think it’s important to look at this issue from different angles.

If the Sovryn ecosystem continues to grow and more external projects want to be connected to it, Sovryn staker should not and cannot dictate to these projects if or how more tokens are generated. It’s a free market, do what you want. Especially for Sovryn, that’s true. Freedom is one of the main pillars for Sovryn. Likewise, I personally think it’s good when more tokens are integrated into Sovryn amm’s and bridges, because it increases the range. Despite additional tokens, sovryn can remain “bitcoin defi” because it runs on a bitcoin layer 2 and because rbtc will always be the underlying currency. Even silly “bitcoin only” views won’t change that.

But most importantly, Sovryn needs to stay strong. The SOV token must remain in the center.The Sovryn token must be valuable, otherwise governance, robustness and decentralization are a farce. For the SOV to remain important, it needs a high market capitalization. This will only be achieved if the token can also represent such value. If basic systems like Origins are spun off, SOV will inevitably lose value and influence. The whole ecosystem then loses. Critical systems should therefore remain in the realm of SOV governance. Origins was such an important component. A distinction should be made between Sovryn base systems and external projects.

What about the possibility of a veto right for Sovryn staker? If I remember correctly, the SOV governance could intervene in decisions of the subprotocols by means of a veto right. Using Origins as an example, would this change with the new SIP? I see a split off token and no mention of veto rights as very dangerous. The way origins goes, who can make sure that they are not going to launch a shiba-inu and cumrocket on rsk? That would destroy SOVRYN’s credibility.

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The Bitocracy is holding VETO even in this latest sip. The only thing that is changing is the USE of the Bonding Curve

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I agree to a point, but until Sovryn itself starts bringing in more users and volume, its just the same 13K wallets spreading the same money around into all these different tokens. Hoping one will moon before the other. More adoption first, then start introducing new tokens.

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Personally, I could accept this argument for a token like MYNT where I would feel pretty unqualified to help govern decisions on stablecoins etc.

However when I came to Sovryn in May 2021 Origins was already an integral part of the Sovryn proposition and a big part of what attracted me; and I don’t think that its scope is so technical or specialised that it would necessarily benefit from being removed from day to day Sovryn governance.

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@light I broadly agree with your over-arching thesis, but it is lacking nuance. How do you suggest we differentiate between individual project proposals that do in-fact warrant a token, versus projects where a token is extraneous? For example, I personally look at something like Mynt and say that project absolutely does not need a token. It has no plans to generate revenue and really don’t think it needs individualized governance. But for other, bigger and more independent projects I could be persuaded. So, my question isn’t around the sub-token concept itself, but instead what are the specific criteria that you look at to warrant whether a project is a good fit for a sub-token?

Further, every time we get a new token proposal I think back to the movie the Social Network where Zuck’s character adamantly claims ‘We don’t even know what it is yet. We don’t know what it is.’ I think this is especially relevant here. We don’t even know what these sub-protocols are yet! It feels like all of these token proposals are getting ahead of themselves before there is a proven product-market fit. I think we need to incubate and run all of these under Sovryn then explore the necessity of sub-tokens once we know what they are.

Essentially, we have no idea if any of these proposals will actually generate revenue. Nor do we even know if they will require individual governance. Nor do we know if it will actually get built. It’s just all unknown. The only known is that people want to use tokens as a fundraising mechanism and honestly I am sympathetic to that. However, does it out-weigh all the other unknowns and also to the chagrin of the community? I’m leaning towards no.

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Simple is always the best for users. Simple messaging and communication will help with adoption and onboarding.

RBTC, SOV and Stablecoins is all Sovryn Ecosystem needs to suceed as best Bitcoin DEFI focused platform.

Maybe from a Developer point of view subtokens are helpful, but from a users point of view who just wants to trade, lend, borrow and yield farm, the subtokens are pointless. As a community and as SOV staker, we want to see SOV price increase not continuously dump every 2 weeks. We want our investment to go into improving and building Bitcoin products like perp swaps, margin trading, ZK-rollup technology, Lightning Intergration, Simple UI design, adoption and marketing, not wasting time launching bonded tokens, bootstrap sales and airdrops.

We need to focus on user experience more before trying to make the protocol more complex for users. This is just my opinion.

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Completely agree with this, well said.

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100% agreed! Users look for simplicity not complexity. How you are gonna attract new user to Sovryn when the exisiting users can’t work their way around the system? Introducing more tokens just complicates things for user. It may simplify thing for developers but definitely not for user. How you are gonna get a new user into the ecosystem? buy SOV to do this and then buy OG to do that and buy MYNT to be able to do this and if you want to do that you need to buy ZERO. No that’s not a product new user will be interested to invest in!

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Users don’t need the tokens to use those protocols. The tokens are for specialists who want to take on governance roles. End users don’t even need to know the protocol tokens exist. Same way someone doesn’t need to know about SOV to trade on the AMM or borrow from the lending pool.

Another metaphor: does the complexity of a car engine stop someone from buying a car? Generally, no. Same principle applies here.

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Not sure how you can read this paragraph and say it’s lacking nuance:

I also notice the link to Mike’s cryptosystems manifesto hasn’t been clicked yet… please, read my references before asking questions answered by my references :wink:

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Mike’s Cryptosystems Manifesto

A token must work as a necessary element of a self-sustaining system which is a public utility.

A token is a necessary element of a system if the use of any other in its place would damage the system’s normal functioning.

A system is self-sustaining if it would continue to function normally in the indefinite absence of its creators.
A system is a public utility if it is permissionless, rent-free, and does something useful.

I think it’s a good overview and can be applied when considering new tokens. Maybe we should apply it in our decision making. I am not against new tokens per-sé. So let’s check for the current case:

A token must work as a necessary element of a self-sustaining system which is a public utility.

Origins already has a token that does this. Creating a new one is not necessary. Giving VC’s other sale conditions than the public like it is stated in the current SIP shows that Origins is heading away from being a public utility.

A token is a necessary element of a system if the use of any other in its place would damage the system’s normal functioning.

So far, origins worked good. Another token (SOV) did not damage the system’s normal functioning. A case could be made that a new token is not necessary.

A system is self-sustaining if it would continue to function normally in the indefinite absence of its creators.

This is not the case, neither for Sovryn nor for Origins…yet (maybe?)

A system is a public utility if it is permissionless, rent-free, and does something useful.

I stated my concerns towards public utility above. Whether this is really a public good, i would doubt, however there are arguments for both sides.

I would add that governance should not be done by specialists only. They are very important. But different views, including newbs/retail or various other expertises can provide additional value to specialist only governance. Only a broader sovryn governance can provide that.

Let specialists provide most arguments and then let everyone debate on them. People are not stupid, even if they do not have a deep understanding of a certain field. Especially the ones that chose to participate in governance with their money. I think there are a lot of smart Sovryns around and they would be able to do good governance on Origins.

When @light first introduced bonding curves, there was a lot of misunderstanding and scepticism. When you look at the recent OG-SIP thread you’ll find an overwhelming majority speaking in favour of bonding curves. A specialist provided arguments / a solution and people adopted it. This is a great example of a working broader governance system.

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Lacking nuance probably gave the wrong impression. I’ve also read Hasu’s piece as well as all of your bonding curve posts. I assumed the Mike’s Manifesto I had read, which was incorrect so thanks for clarifying.

However, I meant it feels like most people don’t actually disagree as much with tokens or the bonding curve concept. But instead, it feels as if they just aren’t convinced any of the proposals thus far warrant needing a token.

I was trying to shift the conversation away from ‘this is why tokens and bonding curves are good’ to ‘this is why Origins or Mynt or any other proposal specifically needs a token’?. The former I am very much in agreement with, the latter I have yet to be convinced of. I optimistically voted yes for prior proposals but I am not as much convinced anymore.

Perhaps this post is better suited specifically in the Origins and Mynt threads, but we appear to be going in circles so I felt it relevant to post here.

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Edit: wrong info. Check Sitizen’s post for correct info.

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## The Advantage for SOV Token Holders & Stakers

*** Veto Governance power over the Origins Governance. (unchanged)**
*** Staking Reward from Origins Revenue. (unchanged)**
*** Token allocation for SOV Stakers through various reward programs. (improved)**
*** SOV Stakers who participate in Origins launches & Governance will be eligible for additional rewards (improved)**

This is quoting the present SIP Update Document.

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Thanks for clarification, must have missed that passage.