Nov 18, 2020

4 min read

Decentralization, Composability and the Vision of Debaseonomics

Defining Decentralization

In other words, decentralization should be contextualized in a specific socio-economic situation at a specific time.

For instance, assume that voting is mandatory in an economy to determine governance decisions. Let’s say every agent gets one vote with equal weight, and a 51 percent threshold is needed to pass each vote. Such a governance style can be said to be decentralized with respect to the mathematical distribution of voting power.

However, this decentralization is moot if the majority of the agents in this economy do not represent the broad interests of the entire economy (say the distribution of the demographics is 60 percent green people, 20 percent red people, and 20 percent blue people). This mechanism needs additional constraints to prevent the privileging of one particular people’s interests over others. It has to be noted that this hegemony can occur without any centralized coordination amongst the group as each agent could vote in their own interests without consulting a central plan. However, the outcome is identical to if there was a centralized system of governance privileging green people.

The point of failure in this specific case is the ideology of the majority, which skews the distribution of power towards certain interests, so one person-one vote in this society does not lead to decentralization in the sense a reasonable person would conceptualize it. Such realities specific to the situation need to be captured by decentralization and alleviated by additional constraints incentivizing shared beneficence. Shared beneficence could work be incentivized if there was such a shared goal that could be clearly conceptualized and reached even if people choose to work towards their own interests.

In other words, decentralization cannot ensure that all competing interests are satisfied with the ideal comprises, but the aim should be to distribute power and create incentives for actions in such a way that approximations to ideal outcomes are incentivized (even if never perfectly reached).

In the context of the DeFi, it’s tempting to define decentralization based on maximizing regulation arbitrage. While certain distributions of governance power to agents in diverse legislative jurisdictions can minimize state interference in the project, there is no guarantee that this means governance will benefit this project’s users. This point is pertinent given that governance decisions have to balance investor, user, and developer considerations, which can be in tension with each other.

So when do we say when a project is decentralized? We could say a project is decentralized when there is a balance in the distribution of power in the governance, that incentivizes benefiting all involved because their interests are explicitly or implicitly represented in governance decisions, while the governance also satisfies other properties like maximizing regulation arbitrage. Needless to say, the projects also run in a trust-less and permission-less manner.

Debaseonomics: Enabling Decentralization in Stable Coins

To understand why this dual function is possible, it is important to remember that a stabilizer pool is any contract that satisfies the following constraints:

1) It should have a function that informs governance if it is requesting rewards for stabilization of Debase or not (and if so, how much)

2) The owner of the stabilizer should be as same as the owner of the Debase policy contract.

Game theory dictates governance will ensure an additional constraint:
3) It should work to stabilize the price of Debase and benefit Debase holds either by providing buy pressure, removing tokens from the supply, or any other means including but not limited to yield farming, debt mechanisms, etc.

Given that these stabilizer pools are flexible enough to mimic or improve upon existing elastic and collateralized stable coins, whatever the solution for an algorithmic stable coin to be stable, Debaseonomics can incentivize finding it. Therefore, you can theoretically have various interests like leverage traders, yield farmers, options traders, other stable coins, other DeFi projects, who all work together to stabilize the price of Debase to target price through stabilizer pools that pursue their own interests composed with Debaseonomics governance. This means these interests must be represented in governance, and hence Debaseonomics is currently working to onboard a diversity of crypto interests into governance.

This is one in a series of educational articles explaining Debaseonomics.

By: anon18382 & punkUnknown