 This talk was kind of inspired by like the last four months of this economic governance almost phenomena that happened in the Falcoine Network. So it's not actually going to go too deeply into the details of what that specific incident or not incident but a process was. We'll touch on it briefly as like a case study example but I think what I want to do here is talk a little bit about like the kind of underlying issues that presented itself on a more holistic or deeper level so not necessarily the economic trade-offs that happened with this specific let's say policy change that some that was being debated about being included in the Falcoine Network but more about how do we think about economic trade-offs in general writ large in these open decentralized permissionless you know blockchain spaces. So I think this this talk is situated in the context of the Falcoine Economy and the Falcoine Network but it can be like generalizable to any any open permissionless like blockchain network when it comes to kind of analyzing governance or policy changes from a from an economic lens. So I think to start like I want to take a step back and talk a little bit about what you know what how do crypto economics and blockchain governance kind of fit together and I think they they intimately overlap because as we are both in encrypted econ lab we're both researchers and practitioners and to me what that means is it matters to do research it matters to have you know kind of theorize and have like a vision of what our world ought to look like or in this smaller example what our network or protocol ought to look like from an economic perspective but that doesn't that doesn't mean that much unless something is implemented in practice or realized and when you ask a question about how can something be implemented in practice or realized that then becomes a kind of governance question so this this graphic kind of illustrates all the different fields that contribute to what it means to be a crypto economist and I think the part that how can I be mobile the part that I want oh I have a laser the part that I think we can talk about in this talk is this part the but like the public political science and governance part so you know with that in mind let's say I want to set the stage a little bit to introduce the concept of Filecoin as this this island economy so this has been done in many ways to explain the crypto economics and the tokenomics of Filecoin I think we can also do that use use this to explain the governance portion but to take a step back like what is Filecoin at the core of it Filecoin isn't island economy but island economy that exports a certain good or goods and in my view these are storage and storage related services so part of what Filecoin is exporting is yes raw storage capacity yes archival cold storage capabilities but it's also exporting the composable usage of things like compute retrieval and the the modular nature of how you can combine all of these things into this like truly trustless open open system or open services for data so that is what we are doing and then the next thing is who comprises or what comprises this island economy and I think it's this diverse you know collection of researchers many of whom you've been hearing from today it's token holders because the token is what allows you it's you the Filecoin is a utility token that allows you to interact with all these different services it is storage providers who are offering up their hardware their resources and their time to store data and it's the developers and ecosystem partners that are building on top of the IPFS and Filecoin stack then but the way the way an island economy works though is it's not completely insular in that everything that happens within the economy isn't just limited to its borders it also touches the outside world so Filecoin touches other cryptocurrencies it can touch things like Ethereum it can touch things like Solana etc and this will become even more apparent when you have F or you know the Falcon virtual machine that comes out next you know that will be rolled out next next next year but it can it does much more than that even it can also touch things like web to like if we want to be more be the decentralized infrastructure infrastructure stack not just for web 3 but for for the world then you can imagine this island economy touches things like gaming and content delivery and video streaming etc in in worlds that are entirely removed from from cryptocurrencies and and web 3 and the reason I bring this up is that also means this is an open economy that has open governance associated with it so in a similar way that anybody can be a part of this economy anybody can be a token holder anybody can be a storage provider anybody can be a developer that also means anybody can participate in economic governance which is a unique twist to like how things happen in in web 3 and it presents as challenges which I think you know what kind of delve into deeper so I think when we think about economic governance a lot of a lot of the ways we think about it is okay you have all of these different economic trade-offs between all these different groups there are economic trade-offs when I say trade-offs I mean when you have an economic policy or when you have economic parameters or or or decision you know or let's say like parameter spaces or or trade-offs what you what you're considering is economic trade-offs between certain groups like clients storage providers ecosystem partners token holders and developers the interesting thing about took about economics is that not all policies affect all groups equally and some might benefit at the expense of others and then what you're kind of trying to do as an economist is balance out all the different interests of these stakeholder groups but I think there's one more thing to add which is the idea of the network being a stakeholder group and what I mean by that is the the protocol itself also has interests the protocol itself also withstands the brunt or the impact of some economic trade-offs but the interesting thing is the protocol itself is not an explicit stakeholder group and therefore it doesn't have its own its own voice so so so so so what I'm trying to really articulate here is the little mass notation here all that is trying to say is the network is not just the composable some linear some of all the individual parts it's much more than that like similar to like in crypto when you know the whole composability thing is that you can take the sum of the hole is greater than the sum of all of its parts I think I kind of want to argue that the network is greater than the sum of all these individual components because the network cares about you know it's it's it's like it's take holders now for sure but also it cares about all but also it cares about all this other all these other people the network cares about the people who are part of it now but also the people that could be a part of it in the future the network cares about its potential clients like the network should also care about who else will be contributing to this pie because at the end of the day if Falcon wants to be a decentralized foundation for humanity's information this pie needs to continue growing we are very far from getting to that vision right so as a as a stakeholder that is what the network might value much higher above let's say the individual interests of a specific client or source source provider or developer so that also means I think that the network's voice must be very highly valued when we make economic decisions and when we look at they're like questions of economic governance so when we go from the bottom-up model of you know we make economic policies and we try to balance out the viewpoints of the clients and storage providers and developers and token holders and ecosystem partners etc that's all very good but that is a six voice or six you know thing that we need to balance out as well which is the interest of the network and the interest of the economic interest of growing this this this kind of pie and the reason I think that is because this island economy that we're creating is quite literally what sustains and allows for the actions of all those individual stakeholder groups anyone contributing to Falcon and building on the IPA and building on the Falcon stack is implicitly and and greatly like contributing to the island economy but also being sustained by it so when we when we you know look look look towards economic policy I think if the network would speak it should be a very loud voice but unfortunately it doesn't have one so then that brings me to like and oh so so and I think like to kind of illustrate the earlier point about how how powerful this island economy is and the underlying tokenomics I think this graph is the easiest one to kind of explain it because in case you didn't know Falcon recently celebrated its its second birthday we are two years old and yeah and we are a very very large like we are entering what is it our terrible twos and we are a pretty large two-year-old you know like it the the network is at about like 16 ebobites over 16 ebobites of committed storage capacity on that is massive it took Google or Amazon orders of magnitude of time longer to get to that same point and then the question like you have it is is why did why did we do it so so much faster and a lot of it is base is is the economics and the tokenomics that underlie how you can create sustainable scalability and value creation via via this you know decentralized open network where anybody can contribute their resources so I think this illustrates a little bit about like how the island economy sustains all it's like sustains all of us and also how we should you know place a lot of credence on making sure that the island economy continues to still have the economic parameters designed to to enable that that that value creation to continue so that you know I've talked a lot about how the network is as mute like omniscient kind of thing and then so then the question is like who's who speaks for the network and who can safeguard the safeguard the economics you know the network's economic interests some might say is it protocol labs maybe is it the falcon foundation like potentially in part is it crypto econ lab is a network is it me am I the network no but I think the answer is that when it comes to economic governance and open and open and open systems and open like decentralized networks I think all of us have to be prepared to wait the economic interest of the network in our decision-making processes because there is no centralized body to take on the position of being an economic safeguard there's no Federal Reserve right there's no body that has the ability to solely care about the economic viability and the economic safety of the the economy and that is I hope a feature had not a bug of decentralized and open like you know an open networks do I think we should have a Federal Reserve that dictates economic policy in in Falcoyne I think that would be antithetical to a lot of the ethos of Web 3 but then that also introduced its own challenges it introduces its own challenges so this is the part where we talked about 536 so I alluded a little bit earlier to like this this four-month process that was very interesting in the Falcoyne ecosystem which was this this improvement proposal that introduced a lot of economic changes to the Falcoyne ecosystem for some shared context a FIP is similar to an EIP which is a Falcoyne and it stands for a Falcoyne improvement proposal and this all FIPs introduce some kind of protocol change to the Falcoyne network and in order to be accepted the general process is they achieve some kind of like nebulous soft consensus approach where there's general agreement or maybe a better term is general lack of disagreement and then a FIP is is introduced and introduced into the protocol and in network upgrades FIP 36 was a was a economic change which at the core I'm not really going to go into whether or not I think FIP 36 is good or bad or the case for or against but I think the takeaway is FIP 36 introduced a lot of economic trade-offs introduced trade-offs for storage providers it introduced trade-offs for deal clients or you know people looking to store deals it introduced a trade-offs for token holders and and various different ecosystem you know partners and the the idea is you have these like different levers and you had this thing that you wanted to like this parameter that you were kind kind of trying to affect with all these different levers and one of those was the percentage of supply lock like this this like little diagram isn't wholly encapsulating all of the levers and all the things that we're trying to be done with FIP 36 but it this is an easy you know this is an example of it and I think what inspired like this this talk was this idea that you have all these rational agents in Falcoyne that are primarily speaking from their position of self-interest when it comes to economic policies and that's very very good right like you it would be kind of hard to have crypto economic systems when your agents or actors who are participating aren't rational agents because then how would you model a system like the base assumption in a lot of economics is that you have utility maximizing actors who are looking to maximize their expected payoff and people did just that when it came to FIP 36 like many people spoke from that position they spoke from the position of how do I like why how does this policy affect my expected payoff and therefore how does that impact my like perception or whether or not I think this is a something that I would support and I don't fault anybody for that I think that's great that makes me very happy that we have a network of rational actors but I think there's like one more thing I'd want to add though which is if you wait your like is is yes wait your own self-interest very very very importantly but keeping in mind that we have no Federal Reserve and we have no voice for the for the network we all have to include at least some part of the network's interest in our own decision-making keep because if we look back like the network again is what is what sustains us and allows us to continue growing this economy and I call that winning the long game which is it will take a long time to get to the vision that we are trying to achieve that comes to falcon it will take many more developers it'll take many more storage providers it will take a lot more tooling it will take all the things you have heard from people like Maria in my treat my trivial markets and the impact evaluator talk that we just we just happen all all of that will have to will have to happen and that might be there might and there will be more 536 after this like this wasn't a one-off thing there'll be more cases where economic trade-offs will be hard and their rational instinct the natural instinct will be to be your exercise your own hyper rationality and self interest as an agent in this economy I think my only one takeaway is let's think about the network to a little bit because as we move on for like more like longer and longer into the future it becomes even more important to have robust economic tooling to create economic you know policy for this network to grow and the stakes only become higher as a network becomes bigger so you know I know we all want that what's best for us and I and I don't blame anybody for that I think that's that's perfectly natural in any system full of in any decentralized you know network for in which anybody can be a participant and leave whenever they want but you know if our vision is to be a decentralized economy for open services on data then the economic health of that network that sustains us should be maybe a paramount consideration over time when it comes to economic policy making so thank you so one thing the Federal Reserve does that's fairly useful I think in tethering the function between risk and payoff like the time value trade-off that's sort of fundamental for any financial market is they set sort of risk-free interest rate is there a decentralized way on the Filecoin network to set a decentralized risk-free interest rate or at least create some distribution between risk and payoff especially when hedging risk of unexpected behavior by Filecoin storage providers yeah that's an interesting question I think like there's a lot of work that's being done to quantify what might you know characterize this idea of a risk-free rate in blockchain in spaces that aren't fiat denominated I think when you have the ability to have more robust like D5 protocols in in Filecoin something like this yield will like naturally kind of emerge and my suspicion is when we have things like the Filecoin virtual machine which will enable these D5 markets to kind of kind of be built you will see some market equilibria yield curve kind of forming and that that might inform this idea of risk-free rate rather than you know the FOMC coming out and you know adjusting their monitoring you know adjusting monetary policy disclaimer none of this is financial advice so you should all do your own research these are these this is just my these just my thoughts but that's my suspicion okay thanks for the talk so I'm just a bit curious about the decision to have like a general lack of disagreement as the main criteria for adopting a FIP or an IPIP I mean I know you're saying it's good not to have the Federal Reserve or the centralized systems that decide such things but it seems like you're kind of asking people to do a lot in terms of the discussion of whether or not these things get approved they have to take their own self-interest into account the network interest but really from what I've seen it's a lot of like just general github discussions that can get very long it's kind of hard to track like what the general sense of agreement or disagreement is so I'm just curious if you could speak of it on how things actually get adopted and why that is yeah that's a that's a good question so when I say like general lack of disagreement basically what I mean to say is because it's a completely open governance technically everybody is a part of Falcon governance like technically every single person who in some way touches a Falcon ecosystem which depending on how you slice that can be a humongous stakeholder group is a part of a Falcon which means that it would be kind of and it would probably cause a fair bit of policy paralysis if the criteria for governance meant explicit agreement from all these groups which is why I say there is soft consensus includes this idea of if you if you didn't care then then you're okay with it kind of kind of idea was there was a second part to your question I think a little bit about but and if you want could you repeat that or did that answer most of it I want to make sure I answer exactly what you were asking yeah I think you mostly answered it just it seems I'm still a little bit confused about like if you have some hundreds of github comments on a fit discussion like how do you achieve consensus yeah and yeah got it got it yeah and so that's a trick that's that's the next so this talk was about like how do we value things or how do we come to as rational agents how do we include something that might be more how do you fix maybe this kind of blockchain tragedy of the comments so that was like the nature of this talk but the second question is okay when we have all this massive disagreement how do we resolve this and the short answer is I don't know like the short answer is we tried polling methods etc. and in 536 like at some point you're gonna have to come to a concrete decision and I think that maybe that could be my next talk but the the question of how to resolve like the very disparate group of different stakeholders etc. kind of a disagreeing and fighting about something like that you know well you can you can look to how 536 did it do you think if you do you think that's optimal I'm not sure I don't think so but it's it's a starting point and then we can always build better tooling as we become more mature remember we're still in our terrible twos. Hey there so it was a really nice talk so thanks for that you mentioned that crypto economic systems are based on having rational agents who try to maximize their own utility but then at the end you've said that sometimes these agents should prioritize the health of the network over their own personal benefit how do you think these agents can come to this trade-off in a non-bias manner and we require some more nuanced governance mechanisms to do so yeah I yeah so I think to kind of read from the question what I what I really mean to say here is as rational agents it might be in your best interest to sacrifice your shorter-term payoff for the interest of the network writ large over time because if you're because that's why I spent a lot of time kind of emphasizing the idea that the network itself is what sustains all of us as as as these agents so if your actions and acting if your actions are sorry if acting in your own self-interest kind of like let's say is is almost predatory on the network or predatory on the economic interest in the network that short-term like payoff might be good but if you're like a longer-term agent who is more concerned with how they're like their their participation over time will yield them rewards then you should care about the network as as this important stakeholder group when thinking about economic policies