What Could a Network Token Do?

The data governance protocol consists of a set of smart contracts that govern the construction of data markets (see overview). This set of contracts makes a data market a self contained entity which doesn’t need to interact with a broader ecosystem. This focus on simplicity allows for making faster progress on designing and deploying the protocol in practice. At the same time, it’s clear that there’s value in having data markets know about one another. Data often gains additional value when it’s combined with other datasets. Derived datasets are often considerably more valuable than raw source data. So it feels like creating some mechanism to encourage interoperability of data markets could prove to be very valuable. What could such a mechanism look like?

I’ve previously reviewed a wide variety of token designs on this forum. As I mentioned in that post, tokens are often designed as bookkeeping systems that reward participants who’ve performed useful service to the network. The most popular example is securing the decentralized ledger via proof-of-work or proof-of-stake. Or in more next-generation networks such as filecoin, tokens are issued for storing files securely. There’s also a growing network of governance tokens, where the token provides rights to vote on decisions such as setting interest rates or authorizing network software upgrades.

Could there be a design for a token that incentivizes the growth of useful data on the Computable ecosystem? A few ideas spring to mind. For example, perhaps there could exist a governance token that coordinates investment in interesting data markets. Suppose that a promising new data market has been started that lacks reserve funds to motivate makers to contribute. It might be useful to have a DAO of some sort that coordinates investment into such a data market. In this case, the DAO would act as a network level vehicle to encourage the growth of data supply in the ecosystem.

Another possibility is that the network layer could encourage the growth of a datatrust ecosystem. It might not be feasible for a data market creator to run their own datatrust due to the required expenditure. (Deploying a market will take a small amount of ETH to pay for gas fees, but that expenditure will be a few dollars at maximum. Running a datatrust could require buying and hosting your own server or running on the cloud, both of which take expertise and money.) If the network could incentivize the growth of a decentralized set of datatrust operators, it might become much easier for a prospective data market creator to get started. For maximum effect, such an incentive should be coupled with an upgrade that decentralizes the datatrust so that multiple datatrusts can serve a single market. We could use a proof-of-purchase (PoP) style mining reward to reward datatrust operators

R \propto \frac{S_j}{\sum_i S_i} d_j

where S_i is the reserve for the i-th data market, and d_j is the payment accruing to the datatrust from a purchase in the j-th data market. This design uses the weighting scheme from PoP mining to control for sybil attacks. The reward network provides an extra incentive to datatrust operators for their work on top of their usual payment from the market.

It would be ideal if there were a stick to match the carrot: ideally, the network level should provide some guarantee that the datatrust operator is behaving correctly and rendering the services it’s supposed to. It might be possible to use the network layer as a governance system for datatrust operators. A buyer who wasn’t satisfied with the service obtained from a datatrust could post a challenge against a datatrust. If the datatrust is staked into the network by a deposit of network token, that deposit could be slashed. The challenge in such a scheme of course is that deciding whether service has been rendered correctly is an act of arbitration. Designing a suitable verification scheme might take considerable effort. But there might be considerable value in establishing a set of “legitimate” datatrusts governed by the network. The network governance could ensure that datatrusts remain interoperable with one another allowing for growth in data liquidity. Data markets might eventually choose to only authorized “legitimate” datatrusts. This would mean that datatrusts have a strong incentive to cooperate in network governance in order to earn potentially lucrative service fees from markets that require the network certification. As the service fee market grows, the need for network level datatrust rewards could diminish and such rewards could be removed over time to curtail inflation.

It’s also worth noting that a PoP mining reward has an additional governance requirement: there must be an up-to-date list of markets currently deployed accessible at the network level. This could perhaps be an additional governance function undertaken by holders of network token.

Another alternative mechanism might be to encourage the growth of a network of makers. Makers earn listing rewards and usage rewards in market token (which is backed by ETH). For smaller data markets without large reserves, this reward may have more speculative value than actual dollar values. The investment DAO might be able to solve this challenge by supporting the reserves of promising markets. An alternative strategy might be to provide a network level reward for makers. For example, perhaps if a maker succeeds in adding a listing to a data market, some corresponding amount of network token could be minted

r \propto \frac{S_j}{\sum_i S_i} \ell_j

where S_i is again the reserve for the i-th data market, and \ell_j is the current listing reward value for market j (denominated in ETH). It’s not clear whether such a reward would become superfluous with an investment DAO.

It’s also critically important to note that the creation of a network comes with considerable risks. For one, crypto networks are prone to forks. What would prevent a group of datatrust operators from forking the network to achieve greater profit? This isn’t an idle thought; the 0x protocol was forked by one of its relayers recently. The 0x community responded to this fork by announcing a plan to create a network level DAO that would guide network updates. Such a DAO provides fork protection since a minority cannot fork away the funds present in the DAO. This suggests that an investment DAO might need to be combined with other network structures to prevent greedy minority forks.

At present, the ideas in this post are speculative research thoughts. But it’s important to note that cryptoeconomics provides a unique superpower to projects like Computable, so it’s worth doing the homework to see if there’s a way to use crypto tools to encourage ecosystem growth.

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This is a very good addition to conversations we’ve been having over at deip.world along these lines. Thank you!

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@zigzagzilla Welcome to the forums! I’d encourage you to introduce yourself on our intros thread The Introductions Thread!