Skip to content
Index Wallets for Funding Public Goods
Valuing Impact Certificates
The Mechanics of Index Payments
More
Share
Explore

icon picker
Valuing Impact Certificates

A new path to funding public goods?
Ken Yie has convinced me that I’m going about explaining index wallets all wrong. So in this short post I’m going to explain it according to his outline:
⁠
image.png
⁠
⁠

In typical fashion, I’ll be publishing first, writing later. Reload the page for the most recent version.



Current World / Problem / Potential Future, Potential future is alignment of public goods and personal interests

Imagine a world where public goods - things like public health, education, pandemic preparedness, basic research, open spaces and national parks, roadways and highways, utilities, public transportation, fire fighting and police services, climate change mitigation and prevention, and open source software - are funded not by centralized entities but through a decentralized, dynamic process. This is the world that Impact Certificates (ICs) seek to create.
An IC is a reward given to social entrepreneurs who contribute to public goods. They essentially act as a form of retroactive funding. When someone helps create a public good, they receive an IC, which has some economic value. This means social entrepreneurship could be regular entrepreneurship. Someone could secure funding by promising an investor a share of the IC they will receive on completion of their public good project.
However, in practice, this doesn't work out as smoothly as it sounds. The main issues are:
ICs are illiquid, so where does their value come from?
Price discovery: what value should they have?
In crypto terms, ICs are often considered a 'shitcoin.'

Understanding the Keynesian Beauty Contest

The problem of illiquidity is comparable to a Keynesian Beauty Contest, a concept introduced by the economist John Maynard Keynes in 1936. Keynes told the story of a beauty contest popular in newspapers of his time, where readers were asked to choose the six most attractive faces from a hundred photographs. The winner of the contest was the one who picked the faces that most other people also picked.
As you might expect, this contest tends to select for the most conventionally attractive face. Instead of the great diversity of preferences that humans can express, Keynesian Beauty Contests collapse the range of possible preferences down to merely those that are most commonly expressed.
In essence, when you accept a currency, you're considering whether others will also accept it. This often leads to communities using only a single currency - an 'index currency' - because everyone knows others will also accept it. This could be Yen, Bitcoin, USD, or any other established currency, but it will never be Impact Certificates because they're always new, so no one will accept them for fear of being left holding worthless tokens.

Introducing Index Wallets

Index Wallets might be a solution to the Keynesian Beauty Contest. They work by ensuring that everyone always pays with a weighted sum of all the currencies they hold, and recipients decide how much they want to value each of the currencies they receive.
If you’re not familiar with this process, here’s a short primer on
The Mechanics of Index Payments
⁠
⁠
In the world of Index Wallets, if you get paid with an IC, you always pay others with it. This way, the currency flows through the economy because all currencies are bundled together in every transaction. From the Impact Certificate’s perspective, it has nice flow and people are willing to accept it, but it's still priced at zero.

Price Discovery: The Key to IC Value

The next challenge is price discovery. How does an IC gain value, and what should it be priced at?



ok the rest is just garbage notes. I don’t know how to finish this section. At this point should we tell the story of the open source software?

⁠


In conclusion, Impact Certificates and Index Wallets offer a promising path towards a decentralized, dynamic process for funding public goods. While they face challenges in terms of liquidity and price discovery, the game-like structure of Index Wallets holds the potential to overcome these obstacles and revolutionize social entrepreneurship.

⁠

Start with Impact Certificates. The idea with an Impact Certificate (IC) is that they are rewards you return to social entrepreneurs. When someone helps create a public good they can receive the IC in return for their work, which has some economic value. In other words, they’re a type of retroactive funding (Vitalik article, Optimism stuff, the Hypercerts people, Dawn Dresher’s impact markets?). The cool thing about ICs is that if you could make them work then social entrepreneurship could be regular entrepreneurship. Someone could tell an investor about a public good they want to create, the total value they expect the Impact Certificate will have upon completion of the public good, and then that investor could give them funding in exchange for a fraction of that Impact Certificate. What this would mean is that things that we currently have to turn to centralized funding for: public health, public education, pandemic preparedness, basic research, open space and national parks, roadways and highways, utilities, public transportation, fire fighting and police services, climate change mitigation and prevention, and open source software can also receive dynamic funding according to decentralized dynamics (what are decentralized dynamics?).
however, this doesn’t work in practice. High level there are two problems:
they are illiquid, so where do they get their value from?
price discovery, what value should they have?
In crypto words, it’s a shitcoin.

The first problem we can frame as a Keynesian Beauty Contest. [explain what that is and its history].
The problem of illiquidity is a Keynesian Beauty Contest because whenever you accept a currency what you’re really wondering is who else will also accept it. This tends to push communities to collapse to accepting only a single currency, because that way they all know that everyone else is also going to accept that currency. These currencies that everyone collapses to using we can call index currencies. It doesn’t really matter whether it’s a crypto currency or fiat, the point is that it’s whatever currency solves the coordination question that asks, “what currency will other people be willing to accept?” It might be Yen or Bitcoin or USD, but by definition it will never be multiple ICs because ICs are always new, so no one will accept them for fear that no one will accept them.

How do we solve the Keynesian Beauty Contest? Enter Index Wallets. [describe how they work]
everyone always pays with a weighted sum of all the currencies they hold
recipients decide how much they want to value each of the currencies they receive

Now we’ve solved half the problem. In Index Wallet World if you get paid with an IC you always pay others with it. By default the currency has flow through the economy because all currencies are bundled together in ever transaction. So now from the perspective of the IC it has nice flow, people are willing to accept it, but it has no value, it’s still priced at 0.

This brings us to problem #2 — price discovery. How does an Impact Certificate gain value? What’s the proper price for a particular Impact Certificate?
Maybe talk about how it’s done today? E.g. people try to model the “social cost of carbon”. But the problem with this approach is it requires you to make assumptions about the value of a human life or to have to make decisions about what people should want and should not want — in other words you have to engage in centralized planning.
Instead of centrally deciding on a value for each good and bad thing, we want to define a game for discovering values. We’re already familiar with this idea. None of us know the true proper value of Amazon stock, but we all know the game for finding a value of Amazon stock — it’s called a market.
There’s a lot of focus on the magic of markets, but I think they often miss the forest for the tree. The tree is called a “market” and yes it has some cool (and some not so cool) properties. But the forest is called games. And that’s a much broader and more interesting space.
Almost by magic, Index Wallets come with their own game. Players of the game of Index Wallets have two degrees of freedom:
they can set prices for the goods they sell
they can choose who they buy their goods from
It turns out this, coupled with index payments, is enough to constitute our entire game. When someone buys from you, you can charge them more if they’re paying in a currency you don’t consider to be valuable. And if you’re buying from someone and they charge you a lot because of the currency you’re paying with you can walk away and buy from someone else.
That’s it. It’s a lovely level of simplicity.


Notes from 5/16 conversation
2d graph of clusters
Direction of the transaction matters
water/trough visualization
Contribution through shared bag holding of the IC
The experience of getting wealthier as there’s more production
Index Tokens = just price (expensive or cheaper), Wie payment = it matters what tokens you have

Messaging
Set the tone for the set of articles (1000 Fans)
Hard People who are altruist (soft motivated)
What story for our example story
What tone, what arguments
OSS software - purist public good, one time work, good exists forever
open source maintainers have a hard time making a living doing open source
(ignore attribution for now, all labor and funding contributed gets tokens. Token has a fixed supply)
Why would anyone want this token?
You can spend it to buy things
Why would anyone want to accept it? That’s exactly what we’re going to cover
Motivates introduction to the index wallet mechanism - gives other people a reason to accept this token as if it were valuable
Problem? KBC.
Motivates “basket of currencies” index payments - Mechanism of spending multiple currency at a time allows new currencies to be easily adopted
The experience of using index wallet

Draw the final section - propinquity circles
Article 2: endorsements
Want to print your doc?
This is not the way.
Try clicking the ⋯ next to your doc name or using a keyboard shortcut (
CtrlP
) instead.