Ether's Phoenix, Airdrops, and Grabby Aliens
Can mechanism design learn anything from religion?
The fundamental weakness of the 1920s prosperity ran contrary to the common wisdom of the era. The problem was not supply nor inadequate savings for investment (as many would assume), but rather insufficient consumer demand for the products that America could now make. In the words of the future patron saint of the Federal Reserve, Mariner Eccles:
We did not as a nation consume more than we produced- far from it.
We were excessively thrifty. While the national income rose to high levels, it was so distributed that the incomes of the majority were entirely inadequate and business activity was sustained only by a rapid and unsound increase in the private debt structure, including ever-increasing installment buying of consumption goods.
The solution to the insufficient consumer demand was heretical to the Protestant Americans of the early 20th century. In effect, the US federal government borrowed capital from the wealthy and spent it on productive investments like factories, highways, and other public goods projects. This created productive assets and placed money in the hands of wage laborers, whose demand jumpstarted other sectors of the economy. The government purposefully lived on debt in order for this process to occur.
The injection of savings into Capital formation ultimately lead to the greatest economic boom in the history of humanity. Had capital owners in America been allowed to hold their money entirely in savings, untold human misery would have resulted- particularly since Germany whole heartedly embraced the deficit spending described above and stood some non-zero chance of winning a protracted land war against the Soviets had Americans not been in a position to give massive lend-lease aid to the Kremlin. At the very least the war on the Eastern Front would have lasted until approximately 1947 and taken even more lives.
The success of deficit spending converted Keynesian economics from fringe theory to academic consensus. Keynes theories likely saved millions of lives and dramatically improved the quality of life for hundreds of millions or billions of people around the globe. It was only during the stagflationary crises of the 1970s, in which high unemployment accompanied high inflation, that Keynesian economics ran into serious problems.
The lessons to draw from this is that some amount of debt and credit is necessary for modern economies to function, so long as the created credit is backed by enough future productive activity.
Retroactive Rewards
A common form of retroactive rewards in crypto are “Airdrops”. Essentially, many DeFi protocols resemble platforms like Amazon marketplace or Ebay, which benefit from both a large supply side (e.g., lenders on AAVE) and a large demand side (e.g., borrowers on AAVE). As the supply side increases in size, protocol risk goes down and the protocol becomes better to use for the demand side. Thus, there is a “virtuous cycle” to TVL for many DeFi platforms. Bigger is in fact better.
In order to solve the cold start problem, in which no one uses a platform because there is no supply, and no one supplies because there is no demand, protocols use “airdrops” to reward equity to early participants, essentially rewarding early users with fees paid by later users. This is unfortunate because it makes every single DeFi platform resemble a ponzi scheme, but it also has been used to successfully bootstrap multiple billion dollar protocols, so, c'est la vie.
Much like the creation of credit in the modern economy, future “productive activity” backs the leasing of current capital. DeFi credit markets are thus much more complex than they initially appear.
Gitcoin and Ether’s Phoenix
“Ether’s Phoenix” is an inversion of “Roko’s Basilisk”. Instead of being retroactively rewarded for aiding an AI gods birth, speculators and builders are retroactively rewarded by future capital for their hard work creating future GDP through public goods in our present (Capital’s past).
So long as the GDP created in the future by current lending and investment in public goods exceeds the cost of capital, it seems reasonable to believe that users will be retroactively rewarded, because cooperation today encourages more cooperation in the future. Just us we today stand to benefit by investing in public goods, future generations stand to be retroactively rewarded as well. Even better, there is considerable reason to believe that vast quantities of resources exist to be exploited in by future generations of humans.
Grabby Aliens
If you want to find out a more elaborate explanation for the “Grabby Alien” theory, feel free to watch the video above or read the attached paper. In any case, a summary of the paper is that it appears that Human beings are at the absolute latest in the first 10% of time where intelligent life could appear, and more likely we are extremely absurdly early in the life span of the universe. This doesn’t make sense, until you consider that we couldn’t have gained sentience as a new race later in the life of the universe because all habitable planets in the universe will be inhabited by species who gained intelligent early into the life span of the universe, even given a maximum expansion rate less than 1/4th the speed of light.
This is good for us, because it suggests that humanity will have access to untold GDP in the future if we are able to make it to the next stages of civilization. Consequently, even if very small amounts of that GDP are redirected backwards as retroactive goods, cooperators today will be incredibly handsomely rewarded.
Religion and Incentives
As we can see, the incentives are greatly in favor of early cooperation. Additionally, human beings need life meaning as much as they need food and water. As such, more religiously inclined people will cooperate even if the incentives are not obviously in favor of cooperation. This increases the odds of an eventual optimistic outcome greatly.
Ethereum’s community could choose to cooperate today by building public goods, but it could also simply donate large amounts of money to malaria nets, EA style. This should save something like 1.5 lives per $5,000 spent. Since this would greatly aid human capital development over long periods of time (people * productivity = GDP), it would be a great place to start.