Simulation storytelling: Impact and value dynamics

Part 1 of a series creating a systems model of web3 value dynamics

An interesting tweet about governance and value sparked my curiosity recently.

Jon Hillis (🏡,🤝) @JonathanHillis

would you rather have $100 or 1/100 votes to govern a shared treasury of $10,000?

The discussion introduced the concept of a coordination discount and opportunity multiplier.

Jon Hillis (🏡,🤝) @JonathanHillis

@spengrah Love this reframe. To put it mathematically: Value = $ / voting shares * (coordination cost discount) * (coordination opportunity multiple) The discount and multiple are affected by the size of group, strength of connections, quality of leadership/vision, etc

What I like about Jon and Spencer’s thoughts here is the beginning of a model to quantify the relationship between different aspects of a community.

So in this series I will conduct a journey of model thinking and build a simulation of these dynamics to amplify our intuition about the dynamics of governance value. And you, as a reader, are welcome to join this journey. I begin without an end result or final system of equations determined yet. Discussions will be encouraged on various platforms and your feedback will influence the outcome. As I release this series I will keep a Python notebook of code to generate data based on what’s written.

Truly an emergent outcome.

Opening musings

I am interested in the way value and impact influence each other, both at the micro and macro levels. So we have two levels of scale: individual and the community as a whole. Also, I want to think through the coordination parameters mentioned in the tweet.

Here is a Python Jupyter notebook with code to work through these ideas as they evolve in this newsletter series: Governance Value Curve.

Base value

Moloch is a DAO and governance framework with an interesting history. Unlike token governance Moloch DAOs use non-transferable shares to vote and give claim to a proportion of the treasury. Read so much more about them here. I am a fan.

Base value is the proportion of the treasury you can claim with your shares.

TREASURY_AMT = 100000

SHARES_PCT = .03

base_value = SHARES_PCT * TREASURY_AMT

Base value is 3000.

Source code

Coordination cost discount

There’s a “tax” we pay to coordinate in a DAO. Checking chats, hopping on community calls, sifting through documents, forum posts, proposals, timelines.. this takes work! So this parameter must reduce the value of governance shares as coordination becomes harder. To be extreme, governance is worthless if it takes infinite energy to coordinate.

Let’s assign a number between zero and one to a variable. This is the percent of value leftover after to spent your time keeping up with the community.

coordination_cost_discount = 0.85

Value is 3000 * 0.85 = 2550.

Source code

Coordination opportunity multiplier

While coordination takes effort, it can bring multiplicative value in the right community. For example, in well connected groups coordination in one area brings about value in another because of social dynamics.

What is the range of values that can take on? From 1-1000? 0-1? -1000 - 1000?

This variable is trickier for me to work out. If there is no value to the adjacent opportunities in a group, it shouldn’t penalize the base value. At a minimum it has no effect at all, so I think a minimum value of one accomplishes that.

The hard part is deciding a maximum. How to quantify the most economic value one could possibly achieve given their connections to others? I’m going to make a modeling decision for now and declare that the most one could ever benefit is by doubling their current base value. 2x. Simple, for now. This one I’m sure I (and hopefully you) will come back to and help define more thoughtfully.

coordination_opportunity_multiplier = 1.19

Value is 2550 * 1.19 = 3034.5

Source code

Finding equilibrium

An important I have to ask: is the juice worth the squeeze?

Are you getting enough value in exchange for the time it takes you to maintain it? That’s a personal and complex question but in this model we’ll make it simple: does the base value go up or down after adjusting for coordination?

If up, it’s worth it. If down, it’s not. The choices an agent makes can be programmed in; I’ll leave that for another deep dive. To simplify, an equation.

coordination_eq = 1 / coordination_cost_discount

Equilibrium is 1 / 0.85 = 1.1764..

Source code

Calculating value

In this simple world value is (currently) calculated as the product of each above term. Economic claim associated with that governance, times the effort and benefit of coordination. Visualizing this coordination adjustment as a heatmap shows that we want to be up and to the right - low friction, high opportunity. Sounds reasonable.

Source code

Next up

Now that we have a rough equation of value, next we’re going to think about impact. After that, dynamics, simulation, visualization, interpretation. Like I said, I do not have the end result already created. The notebook for this analysis is here.

Inform the direction of this series by leaving a comment. Here are a few prompts.

• How do you think about impact, both at the individual level, and community as a whole?

• What should the max value of coordination opportunity multiplier be?

Follow JonathanHillis and spengrah for some of the most thoughtful, forward looking takes on DAOs, governance, and web3 meets irl culture building.