Composable Systems of Value

Today, the monetary basis of society captures only a single good: trust.

While the cumulative physical and human capital of a society function to back the perceived value of a currency, they still rely on a fundamental social agreement. People need to agree to use it in order for currency to carry value.

The currency itself must be managed in a way which represents the interests of the greater whole. It is an alignment through social consensus which states that neutral economic value may be abstracted and normalized through currency, so long as it is in service to those it represents.

However, it is distinctly unlike other representative institutions in that it purposefully seeks to pursue neutrality through ignorance of the underlying values which form it.

Today, currency is not value neutral, it is value agnostic.

This can change.

The composition of values held by a currency are mutable, and the emerging financial technology behind stablecoins have the potential to remake currency into a democratic institution by allowing this determination of value to happen at the individual level.

A neutral, stable currency has clear benefits in enabling trade and prosperity, but it is unnecessary to disconnect the values held by people and the values upheld by neutral financial institutions.

While currency has been successful at representing the national economy, has it been successful at representing the interests of its people?

What is a dollar worth?

Does the dollar represent you or I?

More importantly, would everyone else agree that they are represented by the dollar?

The dollar is not apolitical and neither are the global institutions which support it.

When a dollar printed is in service to the economy, why are some forms of economic function prized above others? The increasingly unequal privileges of the modern national economy are expressions of underlying political values. The byproduct of a preference for capital accumulation is that financial might makes right, and yield is king.

Monetary policy is inextricable from the universal well-being of all people, whether they are directly represented or not. The financial system today privileges its own existence at the expense of the exploitation and harm which it continues to enable. It legitimizes all capital accumulation as being fundamentally equal, while in reality this fails to account for the inherent values which are neglected by currency.

Its concept of value lacks a humanistic perspective.

Value in a classical monetary system is derived from trust in a central authority, a kind of social consensus which places its value in the perceived stability of this central institution and the national economy it represents. Since it’s agreed that this institution will remain stable over long periods of time it acts as an effective store of value.

Participation in the national economy often requires the holding or exchange of its currency. This may be through regulated debt instruments or direct cash reserves, which then stimulate demand for national currency and bond participation in the national market economy to participation in the national currency regime.

This cyclical process allows for significant control to exert itself through both fiscal and monetary policy, in effect defining the boundaries of the national economy itself. Together, the national economy and national currency form a single self-referential entity.

Central banks act as a buffer to extreme market events and to market forces considered dangerous to national security. They act to control the money supply in line with policy directives which seek to increase overall prosperity and keep an eye on inflation. This central control also provides various policy levers which are capable of reacting to irregularities and diminish their final impact on the national economy.

This process, however, is value agnostic apart from the self-referential value of overall economic prosperity.

Overall economic prosperity could just as easily refer to an authoritarian petro-state as it could a state of advanced semiconductor manufacturing, or vacant infrastructure projects.

While these variations could be considered different forms of value, such underlying values are not captured within the monetary system, allowing them to instead be driven by immediate-term market forces and obfuscate the interests they represent.

While federal and global policy orders act as an external layer of additional controls which attempt to capture externalities, they are a downstream effect which must act in careful coordination with market forces to achieve the desired outcome while minimizing negative complications and deadweight loss.

Additional complications then ensue when these disconnected systems are prevented from moving in lockstep due to the pace at which policy can flow through multiple layers of complex institutions in different jurisdictions.

The result is a mechanism with inconsistent frames of value, moving at different speeds, and reacting to disparate market forces ignorant of timeframes.

Value, then, is captured not by the monetary system, but by the momentary intersection of social consensus between different systems of rational and irrational actors.

As such, we can treat social consensus as an essential form of currency itself, even beyond monetary systems.

Social consensus is the process by which value is embedded systemically, and ultimately the destination to which market forces return. This process captures esoteric values by collecting, averaging, and representing them through structural systems of social consensus.

These may include but are not limited to currency, markets, democracy, labour organizations, religions, nation-states, and other institutions. The accuracy with which these structures can represent social values may vary considerably, and as such will always fluctuate through social changes.

Tokenization has now become another process of the representation of value.

By publishing a decentralized framework of internally consistent value, tokens are capable of representing any predefined set of values, implicitly or explicitly defined by the ability to verify, store, model, and validate external criteria. Composability and the ability to fork these criteria mean that they too will be able to fluctuate to meet and respond to social change.

The extent to which any form of value may be tokenized is limited only by the ability to track and quantify its occurrence.

Networks like bitcoin are able to maintain total internal consistency because its behavior is captured internally in its entirety: all transactions are safely and verifiably tracked and recorded.

Moving beyond bitcoin’s example, the Ethereum network extended this framework of value to include complex behaviour through the use of smart contracts.

Similarly, oracle networks like Chainlink use their tokens to represent services by exchanging them to provide accurate price data. Other examples include commodities and derivative markets, which also represent external functions of value executed through contractual obligation.

These examples are explicit forms of social consensus, where value derives from network trust and incentivized mutual agreement between market actors to use the instruments for their designated function.

Given that the ability to tokenize any asset is limited only by the accuracy of data, and that there is an accelerating trend of verifiable on-chain data, it is likely that tokenization will begin to capture ever greater degrees of productive and consumptive processes.

The industrial use of blockchains to track and quantify production, labour, and trade is only in its nascence but it is rapidly developing new use-cases and means to express real-world functions. It would not be absurd to assume that we will reach a point where all such data is verifiably maintained and query-able.

As such, we can expect that new financial instruments will emerge to represent this data as an asset.

Currently, stablecoins, cryptocurrency, and social impact bonds provide means of converting such data into liquid assets, and they also provide the framework to include the programmatic logic to model complex interactions between currencies.

It’s not difficult to extrapolate this to a logical extreme where systems of production, consumption, and taxation are increasingly modelled directly through these instruments, approaching a tokenized economy. This has major implications for public goods, taxation, and systemically embedded value.

By collateralizing these instruments through decentralized treasury, it opens up a wealth of possibilities for reforming the base currency to align with democratized conceptions of value.

Treating data as an asset allows us to specify more complex systems of value and open up new forms of democratic involvement. By making these systems of value composable, built on the individual values of many, we are able to more accurately describe social consensus on what is valuable.

For example, if a token is minted when carbon is removed from the atmosphere, then the value of that action becomes tokenized and may be further composed into carbon bonds and stablecoins. The secondary market trading of these bonds and stablecoins are now able to represent demand for the primary token, meaning that individuals who wish to express that the removal of carbon is something that they agree is valuable may use the derivative stablecoin to stimulate demand for the primary token.

By storing wealth based on a personal conception of value, demand is passed into the market for that value. That is to say that if more people agree that carbon sequestration is valuable, and more of them store value in carbon derived stablecoins, the value to generate these tokens rises and increases the premium on any newly minted supply. This consumer behaviour can be repeated in order to be composed with an infinitely granular set of values, simply by using stablecoins backed by token bonded collateral.

A composable system of value refers to a currency that is backed by a mutable basket of assets and used to represent a higher order of value than any individual asset used as collateral.

If a composable system of value were used to represent the public good of science, for example, then its treasury would agree upon a set of tokens which validate contributions to science. This could include tokens which reward validated research, tokens which validate education, tokens which reward replication, tokens which reward peer review, and tokens which reward the creation of research datasets.

Any number of assets which are chosen as representing the public good of science could be used to collateralize this composable system of value. Any demand for its bonded stablecoin derivative is then reflected as demand for each of the composed values and any underlying tax structure, such as gas, which may be involved during the use of underlying assets.

Composable systems of value democratize the meaning of value, and allow for currency to act as its own representative institution.

Decentralized Treasury

Decentralized treasury refers to the use of autonomous coordination to collectively agree upon the set of treasury collateral. It can be in the form of stablecoins, which are pegged or backed by an underlying asset and maintain value through a combination of arbitrage, minting, bonding, and burning. Social impact bonds and other crypto bonds and derivatives act as a means to collateralize additional sets of value which can be held in accordance with a decentralized treasury’s risk profile.

Decentralized treasury can be used to further democratize and refine the impact of consumer behaviour. For instance, by taking the aggregates of individual preferences and computing the treasury collateral quadratically (see: quadratic voting), a stablecoin can avoid allowing the largest holders of wealth to determine more than their fair share of a currency’s value. Similarly, by using decentralized governance to determine purchase agreements for treasury collateral, treasuries may also maintain a preferred risk profile and specify ratios between potential collateral. The use of governance is necessary to prevent collusion and to investigate potential collateral for risks, bugs, and hacks.

This creates a new self-referential entity, the internal tokenized economy and the external stablecoin economy. When the treasury purchases assets for collateral, who does it purchase from? Tokens which align with an individual’s personal values may also be those which they have the greatest financial interest in. A token minted in exchange for verifiable labour, for example, may also be the asset which the labour provider prefers to vote for as treasury collateral. A liquidity provider is incentivized to also mine the assets which they are providing. Self referential frames of value are able to define any kind of tokenized value within an internally consistent economy.

Self-referential economic entities are able to exist independently, concurrently, interoperably, and composably.

Examples of decentralized treasury include MakerDAO, OlympusDAO, KlimaDAO, and other forks of these projects. The protocol owned liquidity model allows for the creation of decentralized reserve currencies, and the governance of these institutions are all potential models for decentralized treasury.

Human Oracles, Human Validators

The definition of public good is one which is as elusive as it is granular, subject to political and ideological divisions right down to each individual’s own personal definition of value. You and I may have completely different ideas about what is beneficial to society.

Agreeing on such a sociopolitically constrained and esoteric definition, then, seems like an impossible task. At best, it appears to be the role of political institutions rather than any currently proposed economic system on its own. However, independent human actors acting to confirm and agree on a value is something which is possible through modified market structures.

While the market has been generally successful in agreeing on the economic value of goods, it has had markedly less success in agreeing on clearly beneficial and profitable non-economic sources of value which enable economic operations. The individualistic nature of private capital often fails to sufficiently incentivise co-operation where that co-operation is not immediately linked to producing goods or services which have been assigned economic value.

If economic value were sufficient to capture all sources of public good, then externalities such as environmental degradation and other tragedies of the commons would not exist.

Similarly, vital internet infrastructure maintained through open source development would not be as underfunded as they have remained for decades, despite the access to trillions of dollars in market operations they continue to enable.

To this end, I propose an expansion of the idea of economic value to include greater degrees of social consensus than solely consumptive trade.

Blockchains provide a trustless ecosystem for the definition of value based upon social consensus. By tokenizing such values it is possible to assign value to any form of general non-economic value provided by human oracles and publicly trusted data models.

To accomplish this, we must confirm two forms of abstract social consensus: defining a public good; and determining its market value.

Public goods are often defined by their availability, that they are non-excludable and non-rivalrous, with an assumed general benefit to society.

However, the benefits that they confer are not necessarily distributed equally, nor does every society or individual consider them beneficial to the same degree. These characteristics each lead to failure in determining fair market value. For this reason, pure market systems are insufficient for determining the social consensus of the definition of a public good.

Instead, I propose defining public goods by sorting and aggregating consensus values through a series of trustless audits by human validators, resulting in a collectively determined qualitative value for all forms of public goods.

Human oracles are market actors who act to take information and verify it on-chain. When information is confirmed by trustless audit, it can be built upon as the basis for tokenizing data. Auditors are actors who work to find network consensus. In the same way that a bitcoin miner validates the bitcoin network by hashing transactions, a human auditor validates information to confirm it meets network specifications. In the case of public goods, this means allowing validators to collectively agree upon the qualities required to confirm a public good transaction.

By allowing auditors, validating users of a public blockchain, to confirm data gained through human oracles, we increase the system’s trust. We also gain their processing power to calculate the definition of a public good and an observed transaction’s proximity to that definition.

By allowing auditors to qualitatively rank the proximity of a specific value to their own conception of a public good, we are able to approach a soft definition of the public good’s specific definition and value.

For example, when a neural network is being trained to identify an image’s proximity to the definition of a cat, it cannot rely on a specific hard-coded boundary of what a cat is, due to the vast permutations of features like coat type, size, posture, colour, stance, or fluffiness. However, by relying on auditor validated images of other cats and computing the proximity of particular features to this soft definition of what other cats look like, a neural network can output the confidence with which it has identified an image to match the definition of a cat.

If images of cats are defined as a public good, then a network of auditors over time would be able to qualitatively rank the proximity of the values which determine its goodness, and approach a definition of the ideal cat image which all new cat images would be computed against.

Further, tokenizing the production of cat images by mining against a theoretical ideal supply which are emitted upon auditor confirmation of a provably ideal cat image allows the market value to be determined through the trading of such tokens. As such, we have used social consensus mechanisms to find and verify the creation of a public good as well as allowing for the determination of a market value. However, the issue remains that if these public goods are indeed non-excludable, then validating production alone is insufficient to determine a fair market value, and so additional measures are required to consider the demand scenario which may find the fair consensus value of public goods.

Providing a demand model for tokenized public goods can be carried out through the governance models of existing decentralized treasuries, or by a treasury model which collateralizes based on the individual preferences of all token holders.

For example, if a holder of a stablecoin can determine the fractional collateral of each token they hold based on their own preferences, such as 50% ETH / 50% DAI, then this preference can be recorded and added as a vote towards the reserve collateral. If the next holder prefers 50% BTC / 25% USDC / 25% ETH, then each of their tokens votes for those collateral types. The result, once computed quadratically, is that each token is collateralized according the end user’s fraction of total preferences.

By including public goods in treasury collateral, these too may be included in one’s own conception of value.

Each token is ultimately consistent with each individual’s voting preferences, and ideally their personal conception of value.

Given sufficient data collection, or sufficient incentive to represent these values, data models would emerge which capture a wider variety of human, community, and societal values apart from exoteric global monetary systems which currently represent economic value.

Deriving currency from such tokens then becomes a matter of philosophical representation of these values wherein data models would compete based upon their closeness to an individual’s determination of value. A tokenized public good could grow in complexity by wrapping or collateralizing other tokenized public goods.

Such a system of value would be both intensely localized and universalized, dependent upon all layers of organizational and societal consensus and further capable of representing competing interests simultaneously.

The tokenization of social values through this process allows for them to be subject to market forces, but also to function as a store of value through the use of decentralized treasury. If an individual’s wealth is denominated based upon the store of individualized value, then the growth of their personal wealth is then ultimately consistent with their conception of social value and the appreciation of such value.

To summarize, we can use DAOs to validate social incentive currencies, use them to back stablecoins so that they can act as a medium of exchange, then DAOs can hold each others protocol tokens to keep abstracting that value further.

This opens the doors of possibility to new and more expansive self-referential economic entities. A system where labour, commerce, and services performed are tracked, quantified, and distributed according to their benefit to society. A community or DAO can choose to distribute rewards according to marginal utility, not only according to need or contribution.

Most importantly it is the commons that chooses what is valuable and where it is that its own social benefits derive from.



  1. Markets, Institutions and Currencies - A New Method of Social Incentivization by Vitalik Buterin
  2. Hyperstructures by jacob.eth
  3. Quadratic Voting and the Public Good by Eric A. Posner and E. Glen Weyl
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