This post is a collection of thoughts on using crypto to create economically aligned incentives for change. Mostly made to serve as a precursor to future planned posts on ReFi and the mass adoption of blockchain technology beyond projects on the internet.
How do we get people to do what we want? For us to do anything, there needs to be an incentive- they’re what encourage communities of participants to actually work together and create the value that could define success.
Incentives are used as design elements of a system for the purpose of influencing the behaviour of the participants of this system where the relative value created as a result of these incentives outweighs the cost of putting them in place.
In school, grades are incentives for students to study. Money is an incentive for professors to teach. Companies, platforms, and governments all operate systems in which each individual participant makes choices that best suit the individual. These choices involve trade-offs, which balance costs and benefits. Costs and benefits can be immediate and monetary, but they can also be long-run and/or non-financial.
When those costs and benefits stem from a system that has been chosen by an entity, they are incentives.
Startups usually lack money to pay high salaries to their most valuable employees. Instead, they often give some combination of a consistent salary (which is generally lower) and equity. Equity becomes valuable if a company gets acquired or has an IPO. Equity doesn’t mean anything if a company doesn’t make money, so it’s often used as a way of aligning employees directly with the goals of the company. If the company does well, employees with equity are automatically benefited.
Every individual makes choices that are best for themselves. So, how can we create a world where what’s best for the world aligns directly with what’s best for individual people.
Let’s think about incentives differently. Specifically tackling inefficiencies. Why is everyone in a company not operating at their full potential? Why are students failing classes? Why are we not using every resource possible to fix climate change knowing the severity of the problem? Why do we continue to do things that we know aren’t beneficial to our success as a species?
It’s not hard to figure out what’s better for the world. The reality is in most cases, short-term and long-term goals are misaligned. In the case of politicians, most are influenced heavily by trying to appeal to voters which usually ends up leading to the endorsement of bills that don’t have any long-term benefit.
The reason I bring this up now is that I realized that there’s massive potential for crypto to be able to incentivize people in the right ways.
Systems in which we can create the right incentives to maximize output are bound to be more efficient. The question now is where do we begin and how do we start.
If you back money with more of the things you want to see in the world, you’ll get more of those things - Sacred Economics
How can we tie economic incentives to see more of the things we want to see in the world? By rewarding people who act in favour of long-term goals, we can create an economic system where money can be the technology to fuel a new, different type of growth.
Instead of students being incentivized by grades and institutions acting for money, if we placed a monetary value on a student’s success, all parties, still driven by money are forced to act in the best interest of the students by helping to maximize learning (cool article here).
That’s just the beginning though. Some of the biggest applications of incentivization and leveraging these crypto-driven economic systems are yet to be scaled or even created. From solving issues like electricity access and unbanking to poverty and internet access, most of the noise in the web3 ecosystem can be seen as experiments to better understand what drives people and eventually solve some of these big problems by changing the way people think about money.
Learn more 👇
Celo
Incentivizes structures
I’m learning by writing about ideas in blockchain, crypto, etc. If you find errors in my understanding or would just like to talk, reach out @_anyasingh