Sustainable financial model for continous research and development

General
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#Mind dump of the ideas related to this topic

Generally when speaking about funding cryptocurrency or cryptocurrency related projects we speak about pre-sale of tokens, whatever those tokens represent. This is usually referred to as “IPO” in which people can invest in and what gives a project some money to pay for development until there is sustainable business model. Such model is the most logical at first though, and sometimes seems as the only solution.
However when you look at the scene of cryptocurrency and related projects you can see that most IPO’s end up as P’n’D (pump and dump) [1] and the people who issued the tokens for the IPO never get to the point where they can sustain themselves so they run out of IPO money and project dies. We all know at least one project that ended like this, no need to debate it now.

The trend and logic of doing the IPO is sometimes disrupting the sanity of project design, sometimes people who want to build something force “tokenization” just so they could sell the “premined” tokens to someone and pay the bills with the money the got. Due to this you have several projects who have no need to have any tokens whatsoever but they have included them in design, needlessly complicating the implementation and disrupting the user experience.

A different approach to funding problem seems to be taken by Ethereum foundation, that is having corporate sponsors who see their interest in continual development of the technology. Unfortunately this means lost sovereignty over the blockchain and direction where development is headed. Results of such politics are visible now where Ethereum has forked into two projects who differ in ideology. One side is protecting the big (and dumb) money while other is more about being open and public and keeping the set of rules as they were originally designed.
Something similar is going on with Bitcoin, where you have Blockstream company which is controlling most of development. Blockstream is classic venture capital funded startup. Their agenda is still unclear, but their funding has to come from somewhere and that someone must have his/their agenda.

Peercoin has started as a one man show, that is Sunny King was the only developer and he did not ask for funding, probably as he was one of the first miners anyway. Later when Peercoin grew larger and needed more developers to continue the growth, problem of funding was tackled with Peer4commit - which is essentially a donations platform akin to commercial ones like Flattr. TL;DR it does not work, as people never donate as much it would be necessary to bay the hours of developer. I’ve read some articles about this, and it is claimed that people donate under 10% of what the hours actually cost.
This has to something with human psychology, and even though I can speak about it I wont - at least not in this post. One other reason is that there is very few of those who see Peercoin as something that is more that an speculative “altcoin” on the exchange. There is no sufficient interest to make it better. This is not only about Peercoin, Ethereum and Bitcoin are in the same problem - that is why they have switched to previously mentioned funding models. Donations just don’t work for continual development.

I’ve noticed that NXT is now trying to make a hybrid solution between donation and IPO. Their NXT 2.0 token (called Ardor) will be 50% fork of old chain and 50% of it will be IPO’d to keep up with the development. So they did not take whole of communities bread, just 50%. Quite generous for community which has successfully gotten rich (150M+ market cap at peak) and then went bankrupt (7M market cap at bottom) while not donating to their developers. But that is just humans, who do human stuff. It is normal and expected.

As both of this solutions to funding (IPO and corporate sponsor) are not optimal and third one is just not working, I am trying to find one that we could use to fund development of Peercoin and keep our developers while not giving up on freedom.

Alternative approach

To shorten the story I will not explain how I got to the proposed solution but simply explain the rules which served as a background for it.
So the rules are:

  1. keep the blockchain public and free for all
  2. try to come up with more ways to utilize the blockchain we got
  3. avoid changing the way our network works (for the most part)
  4. allow private projects that use the public blockchain and open underlying technology

It is quite obvious that rules are there to keep the Peercoin as it is (mostly), and keep it open and free (sovereign) but still allow flexibility for the companies.

What is the only model that I could think of is to make Peercoin more interesting to companies and by bringing more utilization bring more value to the chain. Any companies, as long as they don’t require some silly legal frameworks from our side. But in general I can imagine various forms of DAO’s to be 99% of said companies.

We should offer a some sort of framework which would make DAO’s want to become a part of Peercoin ecosystem, and allow Peercoin chain to be utilized in such manner that allows more flexibility about it’s uses. This is indeed what I am designing right now. PeerAssets is the step one.
Such framework should strive to reduce the cost of launching DAO to bare minimum, and keep operational costs as low as possible while providing decentralized alternative to classic Internet toolkits on which people run their businesses on.

As shown in Peerbet [2] example any kind of service which can turn profit can also generate income for developers, managers and other personnel involved. Also if such a service sees some upcoming technology in the ecosystem as a way to improve it’s service and increase the profits then such service will probably donate/invest some profit to such a project. DAO’s might be even interested in permanently hiring skilled developers, as Nu project has already shown. Nu naturally has/had a deficit of being independent chain and thus it brought no value to Peercoin.

Now DAO’s should step up to provide services and try to generate profit. Those services can be simple in start.
Each transaction over the Peercoin network is paid by the user to the network as a whole, as each tx (monetary or asset transaction) burns some PPC. This incentives all Peercoin holders to support DAO’s by investing in them as DAO’s can work to reduce inflation or even start a deflation process. This is not the end of this cascade or mutual benefits. Users want to invest in DAO’s as they are after dividends, so external capital is drawn in our ecosystem. Developers want to join DAO’s and our ecosystem as there is money to be earned by developing.

Flexibility is the key here, as it will allow great variety of DAOs to operate. Which allows Peercoin supporters to diversify their investment in several sectors, reducing the risk of total loss like what happened with Nu/B&C and allowing continual dividend payout even if some businesses enter recession for some periods of time.
With decent enough liquidity, community members will have resources to invest in upgrading Peercoin website, developing blog and other activities that interest them.

What I lack in general idea is a way to fund the development of such platform. Now, relatively simple parts like PeerAssets can be implemented for “free” so to say but bigger project that would round up the whole are far more complex and will require external help in terms of manpower and monetary resources.
One solution I can think of is to start a DAO which would develop the needed technology and then open it up after a while so community can keep building on the platform. However there is no guarantee that such DAO would open the tech instead of keeping it for itself and profiting of it.

[1] It is easy for such projects to become pump and dump schemes as big investors hold enough tokens to sway the markets to dance as they play.
[2] Peerbet project has donated some of it’s profits to PeerKeeper project, and has resulted in some technology which was later merged with Peerbox.

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Once again I completely agree with your point of view!

We don’t want venture capital or public offerings to fund framework development.
Just like the W3C, it should be a non-profit funded by commercial users.

Just like the www, PeerAssets is a protocol implemented using standardised technology: peercoin vs IP.

That people donate under 10% of what the hours actually cost.

This is exactly why PeerKeeper is using the peer4commit funds solely for to pay for demo update commits. Source commits are not made yet as there are not enough funds to cover those.
I silently hope that once the project goes live, there will be enough funds to open up the source code.

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[quote=“peerchemist, post:1, topic:3992”]We should offer a some sort of framework which would make DAO’s want to become a part of Peercoin ecosystem, and allow Peercoin chain to be utilized in such manner that allows more flexibility about it’s uses…

Such framework should strive to reduce the cost of launching DAO to bare minimum, and keep operational costs as low as possible while providing decentralized alternative to classic Internet toolkits on which people run their businesses on.[/quote]

I agree. Like you said, PeerAssets is the first step towards achieving this. I believe you’re right about striving to keep operational costs as low as possible to incentivize DAO’s to operate on Peercoin’s blockchain rather than elsewhere. Ease of use accompanied with proper tools to fulfill most operational needs of companies is essential for increasing adoption.

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Disadvantage of relying on ‘burns’ only e.g. transaction fees only is that is is heavily relying on the popularity and there fore it may be hard to maintain a steady stream of income which I think is required for development of the ecosystem.

I think it is important to start thinking about using a slice of the minting for development. Instead of 1% going to the minters of blocks, we will have e.g. 0.75% going to the minter and 0.25% into a multi-sig address which can be used to fund development. This is just an example in its simplest forms. More advanced implementations with voting for specific addresses receiving funds could follow. OP-return provides new opportunities.

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This is an idea I already investigated.
We can create a modified client that does exactly that without changing the protocol.

What this means is that users can choose to donate a fraction of there minting revenue to a different address, both can be made configurable.

My idea was to do exactly that with the PeerKeeper minting implementation. So that people minting using PeerKeeper would donate a little to the project.
However, the revenue would be extremely limited, so I’m still not sure if it is a good idea.

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This is an idea I already investigated.
We can create a modified client that does exactly that without changing the protocol.

What this means is that users can choose to donate a fraction of there minting revenue to a different address, both can be made configurable.

My idea was to do exactly that with the PeerKeeper minting implementation. So that people minting using PeerKeeper would donate a little to the project.
However, the revenue would be extremely limited, so I’m still not sure if it is a good idea.[/quote]
But choosing to donate is exactly the weakness of the system. It will need to become mandatory to work for reasons peerchemist already alluded to in OP.
I appreciate that this requires a protocol change which is probably controversial.

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I don’t like to have this donation hardcoded in the protocol.
This would also mean having the donation address hardcoded and would restrict the peercoin “freedom”.
In case of donation disagreement this can even lead to hard forks.
So bad idea.

Setting up minting using the reference client is not a simple process for most people, so they don’t participate.
I think everyone should be free to setup his minting rig and take the entire fee.

A wallet like PeerKeeper would make minting much simpler and this client can enforce a donation per minted block.
And this is already possible today without any protocol change.

A client that makes donations can also be shipped with Peerbox.

I hope you agree that hardcoding it in the protocol is a bad idea.
And it can give peercoin a scam reputation.

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[quote=“hrobeers, post:7, topic:3992”]I don’t like to have this donation hardcoded in the protocol.

…

I hope you agree that hardcoding it in the protocol is a bad idea.
And it can give peercoin a scam reputation.[/quote]
I agree that hardcoding an address is a bad idea.
Hardcoding to designate a portion of the minting fee (or transaction fee) is not a bad idea imo. We just need a smarter way to collect and distribute the resulting funds.

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You two must have misunderstood me. I do not want to take minting revenue from anyone, going that far is not needed and it is just wrong.

Disadvantage of relying on 'burns' only e.g. transaction fees only is that is is heavily relying on the popularity and there fore it may be hard to maintain a steady stream of income which I think is required for development of the ecosystem.

I guess it started from this.
It is not about burns, burns are just a cool and desired side-effect that is beneficial to all the holders.

My idea is going for the common economic interest between users/holders/miners and on other side entrepreneurs (investors) and developers (who are also investors, but they invest time and skill rather than money.)

P.S.

I would never use PeerKeeper if developer bothered me in any way and kept itching me to donate.

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No, I did understood you correctly.
I just picked in on the idea that Cybnate has put forward.
As this was something I’ve been thinking about.
And I want to prevent any protocol change around this.

About PeerKeeper, you would only pay for using the minting service.
This is an extra service on top of the wallet/platform, usage is not forced.
You can mint the addresses on your Peerbox if you have one set up.
But again, I don’t plan on implementing this. I just thought about it.

I agree that this discussion somewhat deviated from your ideas.
My excuses to highjack the thread, I just wanted reply to [member=28779]Cybnate[/member]

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support：
Just do it,sometimes, we need a change in order to get rid of things which aren’t working.
But please take more time to thinking, to make sure that we don’t make mistake like nxtcoin

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@hrobeers

np, I just wanted to make sure that it is not about donations or tx fees.
As for PeerKeeper and “minting service” - that might be a good idea. However more discussion is needed. Maybe the finer approach would be some sort of “prepaid” service for minting, rather than fees. Lets keep it for different thread.

@D Winters

Yes, I am thinking :slight_smile:

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Well, apologies that I apparently went on a tangent here. Probably too much inspired by the title of the thread.

Your are trying to find a business model like there is now profit in creating/hosting website and 20 years ago we only had something called the internet.
The internet is roughly still the same and profits are made on top of it.

The blockchain is now the internet and you are looking for profit models on top of the blockchain. The Holy grail I would say.
Providing a framework for DAOs is definitely an interesting concept and PeerAssets is an interesting step. However I think more governance tools, like voting, asset management, reporting are needed before DAOs get interested. As you said it would be hard to pull that off without pre-funding. I don’t see that happening and that is where I went of on a slight tangent to create such funds.

Hope I’m making sense and let’s keep thinking. 8)

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Ok, so you want to create a sustainable financial model for funding continuous research and development without relying on donations, IPOs or corporate sponsors which result in the loss of sovereignty/freedom and control over the direction of development. And you plan on doing this by creating a framework that allows for the creation of various types of DAOs on Peercoin’s blockchain. This framework will be flexible in order to support as many different types of DAOs as possible. It will be easy and intuitive to use as well as inexpensive to launch and maintain, incentivizing DAOs to build on Peercoin’s blockchain, rather than our competitors.

Peershares for example are not easy to use and they can be very expensive to launch and maintain, because it’s a separate blockchain. In order for a Peershares implementation to succeed, it needs a business model that can bring in enough revenue to turn in a profit after all expenses like development have been paid. DAOs using PeerAssets on the other hand don’t need to worry about the complexities of launching and upgrading a blockchain, because that will be handled by Peercoin’s developers. They can simply focus on their business without worrying about the blockchain itself.

Providing a framework which is easy to use and inexpensive will incentivize DAOs to choose Peercoin over our competitors. These DAOs will have an incentive in making sure Peercoin and its framework continue being developed and Peercoin holders will have an incentive in supporting these DAOs, because it provides opportunities for profit through dividends, funding for development, burned Peercoin which could lead to deflation and developers interested in helping to continue building out the platform.

I really like this way of looking at it and hrobeers post sums it up…

[quote=“hrobeers, post:2, topic:3992”]We don’t want venture capital or public offerings to fund framework development.
Just like the W3C, it should be a non-profit funded by commercial users.[/quote]

The problem as you have identified however is getting to this point. It requires a lot of development work, which is not free. You mention that the PeerAssets protocol is only step one and that there is a larger part that comes after this that will require a lot of money and development manpower in order to complete. I imagine this latter part is what you have been talking about with Sunny in your meetings with him. Is there any way to estimate how many developers it would require and how much money you would need to complete the project? You mention creating a for-profit DAO as a possible solution to funding development of the project, but if the owners of this DAO don’t see the potential value in opening up the source code, then Peercoin will not expand as a host network for DAOs as quickly as it would if the source code had been publicly released.

The above mentioned DAO is basically an IPO, with the risks of the source code not being released after it’s finished being developed. Here are some more ideas. All of the changes are only temporary while the project is under development and would return to normal once it’s completed.

  1. Make it so that Peercoin transaction fees don’t get burned and instead end up in a development fund, however there probably aren’t enough transactions on the blockchain in order to fund development of the entire project.

  2. Take a percentage of all minting rewards as others have mentioned, however this could be seen as unfair.

  3. My personal favorite would be temporarily implementing Nu’s custodial grant system in Peercoin. This would allow Peercoin holders to vote to create the funds necessary to develop the project to completion. Then once the project is finished, the custodial grant system would be removed, allowing the new sustainable funding model to take over.

The reason why the grant system would need to be removed after completion of the project is because keeping it would negatively affect Peercoin’s strict economic model in regards to inflation of the supply. Inflation needs to be predictable and determined automatically by the Peercoin protocol. Leaving in the ability to vote in new Peercoins would not only make the inflation rate unpredictable, it could possibly be abused in the future.

I’m suggesting it here only as a temporary feature that would allow Peercoin holders the ability to grant the development team the funds necessary to build this framework and that hopefully it will enable the sustainable funding model you speak of afterward. And even though it’s only supposed to be a temporary feature, it should come with some built-in protection mechanisms that Nu currently doesn’t have, like limiting the amount of Peercoin that can be created at one time and in total, that way it can’t be abused. Funds would only be voted into existence until the project is complete. Then the network would fork once again to remove the custodial grant system and return to the normal inflation rate as dictated by the protocol.

The code is available to use in Nu’s source code. Maybe Sigmike would need to modify it for us. This solution may prove to be too complicated though, so hopefully another way can be found, or maybe if the DAO route is taken, there is a way of ensuring the source code is opened up eventually so that everyone can benefit from it. I personally don’t see why shareholders in the DAO would keep the source code closed when opening it could potentially benefit them and Peercoin holders in a much bigger way. Anyway, these are just my thoughts on it.

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Why not use transaction fees that would be otherwise burned to fund development?

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Because the burning has an important side effect, it balances saving vs spending.

When too many people start saving, inflation goes up, which incentivizes spending.
When the coin get’s more use, deflation kicks in which encourages saving and attracts more money from the outside due to the good saving properties.

So the burning is crucial.

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Certainly seems attractive on first thought but pushing opinions on wealth redistribution down into the protocol can have some very strange and undesirable consequences. Peercoin should remain as simple and oblivious to the whims of “politics” as possible, imho :slight_smile: Culture, usage, and the good will/hard work of the “peercoin people” should add value on top of the system in most cases.

See http://www.devcoin.org/ for a possible case study on how things get weird when the funding idea is tightly coupled to the technology :-/

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  1. if B&C in operation, we have continuous revenue to support research and development.

2)after more eligible signers are setting up, we can easily donate to anyone providing address.

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If there were 100 profitable commercial enterprises running on this platform (I will call it PeerAssets+, meaning PeerAssets plus expanded platform), each one would be incentivized to pay for this platform to be maintained and improved, especially if these enterprises desired specific features to be developed.

The problem, of course, is that there are not yet 100 profitable commercial enterprises running on PeerAssets+.

The question is how to bridge the gap between 0 and 100.

The solution is to first bridge the gap between 0 and 1. Bootstrap by launching one successful commercial enterprise on a barebones PeerAssets+. This accomplishes two important things:

a) The profits from the first successful company will flow into subsequent enterprises. Just as the original investors in companies like Kraken went on to invest in other companies in the same space, often involving the same people, one successful peercoin community enterprise would provide the financial basis for many subsequent enterprises.

(This original group of founding members and investors might later be known as the Peercoin Mafia. https://en.wikipedia.org/wiki/PayPal_Mafia)

b) The success of the first company would serve to demonstrate the capabilities of PeerAssets+ and encourage others to migrate to this platform or launch new enterprises on it.

Again, once there is a critical mass of profitable enterprises running on PeerAssets+, they will be incentivized to either perform or support continuous research and development.

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