• Wiki topic: Public Goods Problem

Jeff Emmett

Jeff Emmett is a Token Engineering researcher and Communications Lead at BlockScience, and co-founder of the Commons Stack. Drawing inspiration from mycelial networks and biomimetic processes, his goal is a toolkit for customizable regenerative economies that support purpose-driven communities. Jeff is the author of 'Rewriting the Story of Human Collaboration' and 'Challenges & Approaches to Scaling the Global Commons'.

Episode notes

• What is regenerative finance (ReFi)?

  • "The term DeFi means decentralized finance. This would be contrasted to centralized finance. In our existing economic system we have markets which are often intermediated by major players. We buy ETFs created by Blackrock or JP Morgan etc, and they basically centralize and control a lot of our financial infrastructure. So what DeFi offers is sort of decentralizing that capacity to create instruments for borrowing, loaning, leverage. But what a lot of critics have mentioned is that it's kind of empty finance, which it is. So where ReFi comes in is trying to take those same mechanisms, mechanisms like liquidity mining, or proof of work and proof of stake in general, and rather than using it for finance for the sake of finance, it's putting regenerative practices and principles at the heart, and then using those mechanisms to support that regenerative endeavour." - Jeff Emmett at 6:08

• You’re one of the founders of CommonStack. On the site it says you’re about “sustaining public goods”. Could you tell me a bit more about that …

  • What do you mean by public goods and what’s the challenge in sustaining public goods?
    • See the work of Eleanor Ostrom.
    • "There's a matrix of four types of goods: private goods, club goods, common goods and public goods. We have mechanisms that are very good at producing private goods and club goods. Private goods are things that are mine and not yours and which are scarce,there's only a certain number. For example, my shoes are a private good; my shoes are not your shoes, when I'm wearing them, you can't wear them. A club good would be something that you can put a gate around, but it doesn't actually run out. For example a golf course, or a movie theatre would be a club good. We have effective business models for these types of goods." - Jeff Emmett at 13:58
    • "Where it gets a little more tricky is on the other side of the matrix, to common goods and public goods. And the tricky part is we can't control who accesses them. So things like clean air, or clean water or open source code, or anything that is freely available, and thus can be overrun. - Jeff Emmett at 14:50
    • Streetlights are a classic example of the publics good problem. They are non-rival and non-excludable: my use of the street light doesn't diminish your use of it, and if we put in streetlights in a town, there's no real way to put a barrier to stop someone who hasn't paid for the streetlights from using it. What we are seeing today and going back in history, is that there is a challenge in maintaining those kinds of goods. The problem that can happen is, for example, if Jeff is paying for the streetlights, but he knows that Rufus is benefiting from the streetlights but not paying the taxes that he should, then Jeff might think 'why am I paying taxes?'. Before you know it, no one is paying for streetlights and there are no streetlights anymore. - Rufus Pollock at 18:16
  • How do you support “sustaining public goods”?
    • "At the common stack we're aiming to build tools that improve a community's ability to raise funds, coordinate on the use of those funds, and make decisions together on how to allocate their collective resources." - Jeff Emmett at 16:57
    • "How these tools help us coordinate is less about excluding the people who don't pay and more about aligning the incentives of the people who do such that it's a win win." - Jeff Emmett at 22:27

• Could we walk through a basic model of public goods funding and how web3 (e.g. blockchain, smart contracts, DAOs, bonding curve) help address this?

  • Public goods walkthrough

  

  • Beach clean-up project, TrashHero, example set out in Jeff's 2018 article. Explored from 24:03

    • Annotated version:

    

    • Jeff: The aim is to clear beaches of trash (cleaning a beach is a public good). An issue faced is how to raise funds for materials to help the volunteers clear beaches (an example of the public good problem). One tool in addressing this issue is a bonding curve. A bonding curve is a mechanism to issue a token based on assets placed into reserve. So we establish a DAO and issue trash tokens, THC. We issue these tokens at a price that is defined by an algorhythm that icreases the price of shares as more shares are sold - bonding curve.
    • Jeff: What this tool is trying to do is align the incentives of people who want a clean beach. They contribute the money to fund the cleaning of a beach and in return get a token. Tokens are good for two things: you can sell them back, probably for less than you put in because the project needs to fund itself; and use them to vote on how the money is spent/ what projects are funded.
    • Rufus: I spent time as an economcis researcher working on this problem, how to fund public goods. The way we address the public goods issue at the moment is often by institutional means, eg the state: if you live in the US, you pay taxes, and then get access to the ediucation system and other public goods. My question is in relation to TrashHero is, why would people put money in? What's different here than just donating to a cause?
      • Jeff: donations fall pray to the free rider problem. With donations, you give and get nothing back. What if we take a non profit collaboration like cleaning beaches and we make it investible, we allow people to speculate on cleaning beaches. Look at the rampant speculaiton in hte stock market these days eg Tesla. That means Elon Musk is capitalized to fund any project he wants. What if rather than buying tech stocks, blue chips, or governemnt bonds, I could invest directly in trash change token. That DAO is funding grassroots projects in my neighborhood solving public goods problems.
      • Rufus: People invest in Tesla because they think Tesla is going to make them money, they anticipate a return, getting more money out than they put in. How does that work here? With TrashHero, how do I get my money out in the end? If everyone get the money they put in at the end AND we spend money on the beach clean up, how does that add up, how is that possible?
      • Jeff: Is it possible for everyone to enter this community and exit with more money than they started? No. Especially if you are looking at it as something that begins and ends with no other money coming in, then no. But you could have revenue coming in from elsewhere. Eg is TrashHero said to the Thai Government, we're going to clear up your beaches. If we do that, can we get an outcomes payment of $500,000? If we weren't to do that the cost of aquatic damage would be $1million, so you're saving $500,00. So the Thai Government say yes and pay $500,000.
      • Rufus: At that moment, you've moved from trying to solve the public goods problem using a DAO, to some other entity funding public goods. So TrashHero is not solving the public goods problem any more, the Thai Government is. This is an age old thing, governemnts give money to fund public goods.
      • Jeff: I disagree, this is a union of concerned citizens who come together and crowdfun the money. The new part is not the outcome of the government giving money, the new part is what incentivised the government to give the money. We're not saying this is an entirely new thing, what we're doing is using interesting incentive mechanisms to crowdfund money and give local, democratic, participatory budgeting of those funds.

Some left over questions

• Bonding curve just seems to be a way to automatically issue shares at a preset rate in an enterprise. How is this helpful?
• What problems are there? For example, what stops someone with private information about the success of enterprise buying tokens early?. Or conversely, who hears bad news from selling back on their news?
• And doesn’t that undermine trust in the markets which is a crucial ingredient in their functioning? Trust in securities markets is in fact a public good - and a very valuable one.
• What happens if a gap opens up between the secondary market for your token and your bonding curve, why would you buy from the bonding curve system (i.e. entity) when you can buy cheaper on the secondary market?