Designing a New Collective Decision-Making Mechanism

This episode of the podcast features Matt Prewitt, co-founder and executive director of RadicalxChange (RxC), who focuses on how to leverage decentralized technology to build a fairer and more efficient democratic system in the digital age. RxC aims to conduct bold experiments in the field of political economy through the use of emerging technologies to find innovative solutions to urgent social and economic issues facing the world today.

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Prewitt believes there is a serious problem with the current democratic system—power concentration—and points out that to address this issue, better collective decision-making mechanisms need to be designed and deployed. In this episode, Prewitt discusses four feasible collective decision-making mechanisms: quadratic voting, quadratic funding, Harberger tax, and SALSA (Self-Assessed Licenses Sold via Auction).

The application of these mechanisms can promote diversity and ensure that the design of decision-making processes includes various perspectives and voices, thereby avoiding the negative impacts of power concentration. Quadratic voting allows individuals to express the intensity of their preferences, rather than just their preference for a particular option. Quadratic funding is a funding allocation mechanism that distributes funds based on the number of contributors rather than the amount contributed, ensuring a fairer distribution of funds. The Harberger tax is a form of property tax that encourages more efficient resource use by allowing property owners to self-assess their taxes. SALSA, proposed by economist Glen Weyl and law professor Eric Posner, aims to address land ownership and taxation issues, but its core principles can also be applied to design new NFT ownership management mechanisms.

This episode contains many abstract political and economic concepts, and all political and economic issues are open-ended; there will never be a single "correct" solution, even if a solution seems reasonable for a period of time, it may become ineffective as social environments change. Therefore, this article will take the form of a dialogue, first paraphrasing Prewitt's views, followed by the author's opposing viewpoints, hoping to help readers avoid getting trapped in endless contemplation about whether a particular viewpoint is "correct," as any attempt to propose definitive solutions to such issues is destined to yield a one-sided and dangerous solution. Maintaining discussion and adapting solutions according to changes in the environment is the foundation for keeping society functioning well.

Bounty for this episode 丨 $201.00

Class Representative ｜ Haoyang

Review ｜ Mai Dou

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｜All "unique" things have happened before 丨#

Before entering the formal dialogue, it is necessary to take a step back and carefully observe the world we currently live in, as any thinking that lacks a foundation in reality is destined to be mere fantasy. Highly globalized, information explosion, and leaps in productivity are three words I would use to summarize the current world. The information explosion has given humanity the ability to see events happening thousands of miles away at almost any location and time for the first time; you might witness the brutality of war from afar at a party, or see peers vacationing in Europe while you are unemployed and drinking to forget. Changes in production tools and work methods have allowed more people to have the energy to observe the world around them. "Amusing Ourselves to Death" and "1984" are often referred to as allegorical works, but my personal view is that they faithfully recorded the era in which their authors lived, and the reason they seem astonishingly similar to the present is that human behavior has not fundamentally changed; as a whole, we are still doing similar things.

The news media is doing the same thing, creating targeted topics to generate arguments rather than discussions, deliberately fostering a narrative that we live in a very unique era, facing unprecedented challenges and injustices.

｜The Danger of Technological Centralization 丨#

At the beginning of this podcast, Prewitt throws out his motivation for creating RxC. He believes that the power structures humans have adopted over the past few hundred years have always allowed a minority to hold most of the power, making it difficult for ordinary people to participate in the decision-making process. This phenomenon occurs not only in politics but also in law, technology, and business. In the technology sector, for example, a few tech giants like Google, Facebook, and Amazon control the vast majority of user data, significantly influencing how people access and use information.

This trend of power concentration can lead to many groups being treated unfairly in the decision-making process and can result in the abuse of power. To change this phenomenon, Prewitt decided to design fair and reasonable diversified collective decision-making mechanisms using emerging technologies like blockchain to avoid the severe consequences of power concentration. He hopes that RxC can practice these mechanisms, allowing more people to participate in decision-making and making the process fairer and more democratic.

The core idea of a democratic system is that power belongs to the people, which in the tech sector means that if companies use user data for commercial activities, users should have the power to participate in the company's decision-making process. However, due to the lack of effective channels, users are almost completely excluded from the decision-making process. Prewitt elaborated on several possible designs for collective decision-making mechanisms that RxC is trying in subsequent interviews to address the existing unfair decision-making mechanisms.

丨 1≠1 丨#

In this episode, Prewitt first introduces quadratic voting and quadratic funding as two mechanisms that can better promote community user participation in the decision-making process. Both methods emphasize that when designing voting systems, the traditional one-person-one-vote system should not be used, as this system's flaw is that voting results often do not reflect voters' concern for the topics they are voting on, and those with substantial capital often have greater influence. We can use two examples to better understand what Prewitt's mentioned flaws specifically refer to: 1) voting in a blockchain community to decide whether to upgrade the protocol version; 2) voting to decide how to allocate funds from a public funding pool to projects in need of financing.

丨 The Power of Community and Collaboration is Key to Success 丨#

Quadratic Voting

Suppose there is a blockchain project X, which requires users to vote on each protocol upgrade, and only if the number of supportive votes meets the requirement can the protocol version be upgraded. X requires users to purchase its issued currency XCOIN as a ballot, with each XCOIN representing one vote. In this case, using the traditional voting model would present two problems:

If one person can only vote once, then if there are 49 voters who are very knowledgeable about the protocol voting in favor, while 51 who do not care about the development of X and only want to speculate vote against, the protocol upgrade will not pass;
If one person can vote many times and each vote costs the same, then when a user with ample funds decides to stifle X's development, they can purchase a large number of ballots to veto any protocol upgrade.

The design of quadratic voting can effectively solve the above two problems. In quadratic voting, each voter can cast an unlimited number of votes, but the resources required to purchase votes are the square of the number of votes. Suppose the initial price of XCOIN is $1, then voting once requires $1, voting twice requires $4, and so on. Through this design, it can effectively suppress users with ample funds from purchasing a large number of votes to manipulate the voting results, while also prompting users who do not care much about the protocol upgrade to think carefully about the number of votes they cast, thus allowing those who genuinely care about the protocol's development to have a greater voice.

Quadratic Funding

Suppose project X manages a funding pool intended to invest in projects that have the potential to promote the development of X. Now there are four projects 1, 2, 3, and 4 applying for funding from this pool. The purpose of quadratic funding is to efficiently and reasonably allocate the funds in the pool using mathematical methods. To help readers understand the effects of quadratic funding, we used the quadratic funding calculator from this website https://wtfisqf.com/, and the results are shown in the following image.

Assuming there is a total of $1000 available for distribution in X's funding pool, if the traditional method of allocating funds based on the amount raised through crowdfunding is used, these four projects will each receive $250 in funding. However, as seen in the image above, although the crowdfunding amounts for these four projects are the same ($20), project 1 has 10 users participating in the crowdfunding; although each user only contributed $2, project 1 clearly received more support from the community of X. We can see that under the quadratic funding algorithm, project 1 received more than half of the funds in the pool, which also reflects the importance of this project within the community.

Quadratic funding is mostly used in investment decisions regarding public goods, such as upgrades to the front-end interface of open-source projects. In this funding allocation method, user participation directly determines the amount of funding a project receives, avoiding users with substantial funds from manipulating the distribution of the funding pool by donating large amounts of crowdfunding money.

丨 How to Avoid Hoarding and Speculating on Digital Assets 丨#

In April 2021, Yuga Labs released the "Bored Ape" series of NFTs, which, according to CoinGecko data, had a minimum price of an astonishing $110,000 as of March 19, 2023. Although this episode of the podcast does not explicitly mention Yuga Labs, Prewitt uses the example of real estate to discuss more reasonable asset pricing schemes with the host, as well as the potential application of these schemes to NFTs and other digital assets. Prewitt believes that the skyrocketing prices of houses in Manhattan are due to the contributions of all residents within the Manhattan community, which increased the community's value, attracting more people and consequently driving up housing prices. In this case, those holding substantial assets can choose to purchase and hoard houses within the Manhattan community for profit, but this behavior does not positively impact the residents of Manhattan; this hoarding of houses leads to prices soaring to levels that normal residents cannot afford, creating an exclusion effect for both current residents and potential residents who could contribute to the community's development, harming the long-term development of the community.

Prewitt introduced two possible solutions that RxC is considering, through taxation (Harberger tax) and compulsory auctions (SALSA), to design new pricing logic for NFTs, allowing more people the opportunity to experience NFTs. The origins of these two solutions target how to use real estate more effectively. Prewitt did not specifically point out how to use these two schemes to design NFT pricing logic in this episode, so the following text will use real estate as an example to illustrate the characteristics of these two methods. Interested readers can follow the RadicalxChange official website (https://www.radicalxchange.org/concepts/plural-property/) to track the deployment of corresponding NFT solutions.

Harberger Tax

The Harberger tax is a property tax proposed by economist Arnold Harberger in the 1970s, and its most unique aspect is that it allows property owners to self-assess the value of their property. Suppose Xiao Wang has a house in downtown Shanghai and must pay a certain percentage of property tax each year. According to the rules of the Harberger tax, Xiao Wang can self-assess the value of the house and pay taxes based on the assessed value rather than the market price. This method may seem unreliable at first; if Xiao Wang claims his house is worth only $1, can the government really only tax him based on that $1? Prewitt first explains in the podcast how this tax avoids property owners from making unreasonable assessments of their properties:

The first step of the Harberger tax is to require owners to assess the value of their property and report the assessment information to the government.

The government will tax the property based on the assessed value.

If the owner needs to rent or sell their house, Xiao Wang must transact based on the price he submitted.

If Xiao Wang submits a price that is too low, the government has the authority to impose fines or confiscate the house.

The revenue from the Harberger tax will be used for community development, improving the quality of life for community residents, and further enhancing the community's attractiveness.

However, we can see that in the above design of the Harberger tax, the government still holds significant power. If this tax scheme were directly applied to the NFT field, it would mean that NFT issuers have the power to reclaim sold NFTs, which contradicts RxC's vision of weakening technological centralization. Therefore, Prewitt proposed that the issue of unreasonable property valuation could be addressed using SALSA.

SALSA (Self-Assessed Licenses Sold via Auction)

SALSA is a system that auctions licenses through self-assessment, and one of its features is that if someone bids higher than the assessed price, the property owner must sell the property to the highest bidder. We still use Xiao Wang's house in Shanghai as an example; under the SALSA system, if Xiao Wang decides to assess his house at $1, although he can reduce his tax burden, if someone bids $2, he must sell the house for $2. This method encourages property owners to assess their properties more reasonably.

Digital Asset Management

At the end of the podcast, Prewitt discusses the possibility of using the Harberger tax and SALSA for price management of NFTs. He believes that taxation can be used to avoid hoarding and speculation on NFTs, and the SALSA system can incentivize users to price their NFTs more reasonably, with smart contracts acting as enforcers to prevent any management entity from holding excessive power. It is worth noting that this episode of the podcast does not mention any specific deployment plans. Readers interested in the solutions mentioned in this episode can refer to the book "Radical Markets: Uprooting Capitalism and Democracy for a Just Society," one of the authors, Glen Weyl, is also a board member of RadicalxChange, and the book contains a more detailed explanation of the motivations behind the founding of RxC.

丨 Returning to the Original Intention 丨#

ICO, DeFi, NFT, metaverse—over the past few years, the web3 field has almost become a machine for generating buzzwords. Waves of speculators have come and gone, leaving behind countless stories of overnight wealth or bankruptcy. However, due to the ripple effects of the global economic shutdown caused by the pandemic, signs have begun to emerge in 2023, such as plummeting cryptocurrency prices, company layoffs, and systemic risks in the banking sector. The Bitcoin white paper that initiated the web3 wave was also released under similar social conditions, so in the aftermath of the bubble burst, we should return to the original intention of blockchain technology and examine what long-term value it can bring to human society beyond rapid wealth creation.

The vision of RadicalxChange is to conduct radical experiments with web3 technology, designing new collective decision-making mechanisms to return the currently overly concentrated power to the users who actually create value, hoping to spark a global reform of existing political and economic systems. Currently, the application of web3 technology is mostly concentrated in the financial sector. As a non-profit organization, RxC showcases the application prospects of blockchain in the fields of politics and economics to the entire web3 community. Although designing collective decision-making mechanisms or reforming democratic systems is not a task that can be achieved in the short term, RxC's bold attempts in this direction have already opened a window for the web3 community to glimpse the future, allowing us to imagine a richer and more valuable future for web3.

Ref

[1] Proof of Humanity:

Vitalik on Harberger Tax: https://diode.io/blockchain/Vitalik-Buterin-at-RadicalxChange-Taipei-on-Harberger-Taxes-19199/

[2] SALSA:

https://www.radicalxchange.org/concepts/plural-property/

[3] Vitalik on Quadratic Funding:

https://vitalik.ca/general/2020/01/28/round4.html

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過往節目

Imagining a New Utopia: An Anti-Competitive Society Realized Through Blockchain Power

Talking with Chapman about Evolutionary DAOs

Roaming Public Goods with Vitalik

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