The ongoing experiment with bootstrap equilibria, also known as tokens

There are many economics papers on bootstrap equilibria, for instance if agents in an economy expect it will do well, maybe that translates into actual results through the mechanisms of confidence, investment, and so on.

Right now we have a huge and unprecedented laboratory for testing claims about bootstrap equilibria, namely crypto and in particular the markets for tokens.  Imagine you are a private entrepreneur, and you have a new idea for how a money or store of value should be run.  Yet, to give your asset some value, you need to convince others your idea is valid.

One option is to write better software than that governing existing crypto-assets.

Another option, increasingly popular, is to use your market power in some good or service to make your “gift certificate” (read: token) more focal.  Let’s say for instance that you have invented a new computer game that in some regards is better than that of the competitors.  The “old school” approach was to sell the game for a profit, and of course that still often goes on.

Yet there is now another option.  Try to cash those potential profits into yet higher profits by using them to build focality for a new money.  Issue tokens that can be used to play the game.  You hope that will create a demand for the new money you are issuing and thus bootstrap its value.  If requiring money to be used to buy a “get out of jail card for having paid your taxes” works for Uncle Sam, might not “get to play this computer game token/card” give your money positive value too?

Let’s say the market can support 4000 different monies, one public the others private.  In equilibrium, which are the services that get tokenized?  Is it?:

1. The services with high mark-ups?  Low mark-ups?

2. Big consumer bases?

3. Well informed and well coordinated consumer bases?

4. “Influencer” consumer bases, in the Gladwellian sense?

5. “Trivial” consumer bases, that you don’t mind risking?

6. Some other properties?  What I observe so far is that crypto-assets are being created by nerdy tech types, and thus they are linked to goods and services that also are created by those same nerdy tech types — a classic economies of scope, lack of trust on the supply side question.  I doubt if many of the top executives at Nordstrom are sitting around wondering whether their next Fall sale should be attached to a crypto-token.  But exactly why not?  This probably boils down to trust issues, rather than any intrinsic suitability of the product.

Is there any good theory paper on these questions?

Note that Heinrich Rittershausen, writing in the early twentieth century, thought that eventually most goods and services would be self-financing through their own currencies.

What theory of bootstraps can we divine from the data on which tokens meet the market test?  (Or is it too early to say?…but surely we can start in on a measurement…)  Am I correct in thinking that the really successful consumer products just want to take the profits and run, without bothering with tokenization?  There is no such thing as an Apple token, is there?

Help!  And no, I am not giving away free tokens…for any good or service.


All in BTC. I believe that future folks will want to hold cryptographical assets in some way. If you were an investor in the first stock coronation, you likely lost everything. But if you invested in each stock corporation after that, you likely did quite well.

You are underestimating the number of all stock corporations that ended in bankruptcy and total loss. The indices stay high because they swap out losers for winners and are a very bad indication of accumulated corporate performance.

Apply has iTunes store credit as well as a gift card scheme

Gold is primarily valuable because it's shiny and rare. A regular currency is primarily valuable because everyone, including banks and governments uses it. Tokens are the next marketing gimmick, we shouldn't think of them as real currencies at all, at least not any more so than Chuck E. Cheese tickets or gangsters who trade in stolen paintings. Effort involved in obtaining the token makes it seem more valuable to the winner, while the masters devalue the token's purchasing power to extract profit in an actual currency. The nerds are duping us all, like the Chuck E. Cheese's and Star Alliances of the world before them, but that does not a currency make.

Gold is valuable because it has used that require constant production of gold, heavily from recycling gold in discarded useful objects, and the marginal labor cost sets the price of gold over the long term. A huge portion of the labor cost is in startup, commonly called capital.

The barrier to entry is high because most gold production involves small portions of huge masses processed by low labor processes. Ie, .2% of the 10% copper yield from high grade ore. The margin traded by speculators even in the worst crisis is never more than 1% of total stocks, and large consumers of gold have long term contracts, eg, electrical, art, dental. 30% of all gold is in art which can be defined to meet demand of speculators who want more gold than mining and recycling produce.

The dollar has value based on the price government pays for labor. Government pays 20% minimum of all labor cost, mostly indirectly, but enough to set a benchmark labor value for a dollar.

If you eliminate labor, robots that can do everything including deciding to and building robots, then money has no meaning. The supply of robots would be so high, nothing, including robots, is scarce. The price goes to zero.

Tyler, there's a lot to dig into here. Some things to consider:

Tokens are taxed as assets, so every transfer is a taxable event.

We have a lot of data from the world of startups. What we know is that for every success there are thousands of failures. The #1 factor in success from the idea + seed funding stage is luck. Idea and execution are second. Venture capitalists are terrible at predicting which group will win any particular race. We can expect to see much the same thing in Tokenland: many projects, some very well funded, some have strong communities, some have experienced teams. Yet in the end a mix of projects will be winners, it's impossible to tell which ones. Investors (token buyers) are generally fooled by randomness and their belief in a particular project, when the reality is that shit happens and none of this is predictable.

I've written that large companies won't find success issuing their own coins, because that's not an ecosystem. Byron Sharpe has shown that reward points don't work as well as marketing people think they do. What should Apple do after receiving Apple coins when they sell a product - take them back to the exchange and see how much they've appreciated? I think dollars may be a better solution to that particular problem.

Today, tokens are in their infancy. We're seeing a huge amount of variety in token-design space. Most are fixed in number, but new tokens can now be created and destroyed on demand. The ecosystem is splintering into many niches and exploring new models. Current trends include curved bonding, token-curated registries, digital scarcity, blockchain-based collectibles, local money, tickets, government registries, DAOs, voting, new governance models, long-term store of value, stable coins, and much more.

One theory that keeps popping up over and over is MV = PY, which I believe is wishful curve fitting. People keep talking about velocity as though it were a useful measure of a token's value. I don't think it is. These things are not money. The volatility in our world is so extreme it would shake the pencil out of an economist's hand. Fully 2/3 of any particular coin or token's value can evaporate in less than two weeks after a scare - this doesn't happen to money. I think micro-economics may be a better way to understand our world than macro.

It helps to look at tokens as an expression of community. For example, Colony has a very long-lasting community building their "future of work," with no token yet (we have been waiting for it for years), and the community remains solidly together, while other communities have supported a token for a few months, only to abandon it when something shinier comes along (or the founders have committed fraud).

In almost all cases, we're really not thinking of these things as money. They are shaky units of value just learning how to walk. The vast majority of tokens in circulation today will be worthless in short order. Some may well survive (I hope ours does), some may be eaten by others, most will vanish only to pop back up again in a new smart contract with a new community. I think we'll need to rely on markets, rather than theory, to show us the way forward.

How will these companies balance their sheet if their assets are in their own currency/tokens and their liabilities mainly in government currency? No one will ever offer a hedge against this mismatch.

The driving technology is the crypto web wallet. One can have a wallet on the web that secures an ownership contract. We now see that multi-currency wallets are appearing. Wallet users wan to move coins in and out and they got stuck in a liquidity shortages,block chain isn't fast enough for wallet. They solve the bottleneck by having more coins with smaller block chains

That solutions yields an over the counter market, as the inability to do comparative coin pricing when market sizes are so different. Coinbase cannot match a bitcoin queue to sarah's sunday poker night queue.

Over the Counter markets are needed, we get web based swap nets where trading groups can organize their own liquidity mechanism using any coin, including fiat.

However, in the new swap nets, trading groups replace the coin with a contract, an accounting rule, built into the trading bot for all players.

That was the path, and it was driven by web wallets. I am looking at a technology rush, right now, to duplicate Telegram. Telegram, a swap net with python trading bots is exploding with trading groups, and they can connect between themselves, they have accounting, almost instant, zero transaction cost liquidity..

Driven by web wallets, I was a bit surprised.

Here's a real world example of using "tokens" to expand a business:

The nice thing about using USD is that they provide an easy framework for price comparison.

There are limited examples of token based markets, like using airline miles to buy magazine subscriptions, timeshare points for hotel stays, etc. but I think they are rare for that reason. How much am I really spending? How portable is my holding? It is hard to tell with funny money.

So maybe Heinrich Rittershausen was right that there was open potential, but the market spoke.

Yes, in extreme form, having thousands of tokens floating around means they have to be limited to specialized uses or markets, figuring out prices would be a nightmare with thousands of floating exchange rates. But if I only need to worry about the price of a Chuck E. Cheese token when I go to Chuck E. Cheese, that works fine.

One example that I haven't seen Tyler or the commenters mention is the company store with the company scrip. I don't know if that has applicability to the 21st century though.

Basically I am saying funny money should end up as a similar size to things like airline miles and timeshare networks. They can be sold to specific buyers without being universally useful or held.

Is there already a CouchCoin? Earn by sharing a room, spend by renting one?

I need to study this bootstrap literature, but my initial impression is one of Humean skepticism. After all, it's still kool-aid no matter how many people are drinking it!

I would go with large consumer base. Although not exactly the same, look at Epic Games which produces Fortnite a game that is obtained free of charge. They have a currency within this game called VBucks. This company brought in over 200 million dollars in April alone per The NY Times. My children will convert their dollars to VBucks to purchase all sorts of of virtual items. This is a worldwide consumer base and may be at the frontier of normalizing the “token” culture for millions of children around the world.

I posted a longform answer here:

- To make the jump from token to money, most people (within some community) must be willing to accept the token without common knowledge that everyone else will do so.
- That means the token issuer should exchange it for something which everybody already spends lots of money on.
- There also needs to be some kind of credit market inefficiency between the issuer and the issuees, to create a positive incentive.
- Common knowledge should just happen spontaneously, if the previous two conditions hold.

For the clueless, these creative companies issue "tokens" (i.e., a form of cryptocurrency) because they believe it's beyond the reach of securities laws. No doubt Cowen believes it's a great idea because it's beyond the reach of securities laws, government being the source of all that's wrong in the world. Order and stability are the sina qua non of investor confidence and prosperity.

from,%202017.pdf :

“The EOS tokens do not have any rights, uses, purpose, attributes, functionalities or features, express or implied, including, without limitation, any uses, purpose, attributes, functionalities or features on the EOS Platform.”

Valuing medium of exchange and store-of-value tokens is a really thorny and complex problem that we really don't have good models for.

I'll just link two articles/posts I wrote on this...


In terms of on-paper wealth of the commenters, this post is Tyler’s richest ever.

Nordstrom won't accept crypto because it is not legal tender to pay taxes. Crypto fan boys / girls don't care or even don't pay taxes directly.

I, for one, would collect MargReveum coins just to read the musings of Tyler and Alex.

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