New Essay: Crypto's Three-Body Problem
A weekend read, and some reflections on the writing process
A new essay from Sam Hart, Laura Lotti, Toby Shorin is out this week. Read it on the Other Internet site, or click below.
https://otherinter.net/research/three-body-problem/
Discuss this article on the Summer of Protocols forum: https://forum.summerofprotocols.com/t/rotw-cryptos-three-body-problem/52
What follows is a brief preamble for this essay—or a post-amble, if you’ve read it already. It explains a bit about how we came to our ideas and the twists and turns the project took over the last two years. To read the essay itself just click above.
In March of 2022, we started to think about whether it was finally time to write “our DAO piece.” Sam was deep into his tenure at Interchain Foundation, wrangling the largest blockchain ecosystem outside of Ethereum.1. Laura and I had recently begun governance work on a grant from Uniswap. And as a trio, we had just finished up a project with artist Hito Steyerl on remaking public arts organizations. With all this top of mind, we began to explore one of the fundamental premises of crypto: its potential for bringing new types of institutions into being.
The question of the “new institution” has been in the spirit of our work since the beginning. Our first essays, Headless Brands and Market-Protocol Fit, discussed the unique institutional properties of Bitcoin and amorphous cryptonetworks. In Squad Wealth, we depicted an internet-native proto-institution in our caricature of ragtag vibing group chats. And an important point of our essay Positive Sum Worlds was that “public goods are enacted by social institutions that reproduce patterns of behavior in the public interest.” In 2022, in a moment when the narratives of the last bull run had exhausted themselves, it seemed an auspicious time to tackle the “crypto institution” in a more serious way.
This effort led us to pursue a more traditional line of inquiry to our past work—an independent study in statecraft and power. For the last two years, we’ve submerged ourselves in institutional thought both classical and modern, from legal theory to political philosophy, and have tried on and invented all sorts of frameworks. None of these, however, gave us a satisfying answer to the question we started with: “just what sort of institutions are crypto protocols?” We’ll leave our findings for the essay itself. But here are a few reflections on the stakes and importance of this question.2
Some people compare blockchains to states. Others have it that blockchains are more like corporations. Still others say that blockchains are an entirely new way of coordinating people. These competing claims are not just an intellectual debate for crypto enthusiasts; they represent three different ideas about how to build blockchain projects, what they are for, and what values they should uphold. The conflict between these three “institutional traditions” has already had enormous consequences for how and what protocol designers and entrepeneurs build in the crypto space. Consider a small sampling of these different modes of thought.
Blockchain advocates have long promised that cryptocurrencies and blockchain technologies like smart contracts would provide non-extractive, incorruptible alternatives to legacy institutions. Novel mechanisms, such as automated incentives, have been celebrated as foundational to new types of “autonomous organizations.” The overuse of incentives, however, has led to the launch of dozens if not hundreds of languishing copycat networks and vacant “infrastructure projects.”
Yet all the while, plenty of voices have stubbornly pointed out protocols’ similarity to corporations. Treasuries full of native tokens, says DeFi luminary Hasu, are more like unissued shares than assets, and heavy venture investment into crypto has indeed tended to create further equivalence between tokens and equity. Crypto “projects”—an industry term selected to avoid use of the term “company”—have, with a few notable exceptions, largely been operated by small teams, just like any other startup.
Finally, those who think of blockchains as essentially political institutions have had an equally large impact. Protocols engage in “public goods” funding, and the rhetoric of democratic participation has been influential on direct voting models and surprise token airdrops. In this tradition, one also finds projects like Bitnation, Aragon Court, Nation3, CityDAO, and Balaji Srinivasen’s Network State—attempts to bootstrap new civic communities on top of crypto infrastructure. The crypto-political rhetoric has no doubt been effective in recruiting both altruistically minded and libertarian supporters, but has demonstrated the fewest accomplishments of any of these three visions.
These 3 different strands of institutional thought leave us with a confused crypto lexicon. So what, then, was a DAO? They weren’t something new altogether, but an incoherent mixture of these forms. DAOs were ugly chimeras, entities trying to hold to state-like principles of public service while in practice being dominated by financial incentives and the politics of corporate governance.3
It is our opinion that without clearly parsing out these institutional frameworks, cryptocurrency technologies will continue to be viewed with bewilderment and suspicion by outsiders. Insiders need clarity as well—we’ll keep encountering problems until better mental models are reached. In those frothy market moments where capital inflows to crypto assets exceed outflows, exuberance about crypto’s inevitable success drowns out ambiguity around basic institutional questions such as sustainability and member rules. In the bear market these institutional design problems come to the fore.
States, corporations, cooperatives, platforms—each has its own traditions, modes of organizing, and privileged parties. It is the choice of institutional framework that will determine how history sees this technology.
In future ambles, we’d like to take you through how our thinking evolved. We explored too many frameworks to cover here, from Hannah Arendt’s philosophy of violence and power, the competing state formation theories of Weber, Schmidt, and Graeber, institutional competition and Herman Kahn’s nuclear deterrence theory, even pirate institutions and self-regulation in international waters.
These frameworks did not add up to a Grand Unified Theory of the protocol-as-institution. The fruits of our labor, Crypto’s Three Body Problem, relied mostly on Lawrence Lessig’s influential theory of different regulatory forces. We wrote about 6 drafts of different pieces, and this is the one we went with. We believe that our essay exposes something fundamental about crypto protocols that hasn’t yet been learned—that needs to be learned by protocol designers and builders. But we uncovered other mental models with equally important lessons.
Inasmuch as these different theories reveal how inappropriate comparisons between protocols and nation states are, they also show the ways in which crypto’s behavioral regulation capabilities are indeed powerful. Exploring these frameworks can show us the “source code”—and the consequences—of our own choice of institutional metaphors.
Read the essay, or join discussion on the Summer of Protocols forum.
The Ethereum Foundation’s Summer of Protocols program, started in 2023, was sparked by many of the same questions. We ended up cross-pollinating a few ideas with that program, with Toby and Kara from Other Internet participating in SoP.
Other Internet’s Web3 Work project (https://otherinternet.substack.com/p/web3-work-research-report) illustrated the diverse combinations of organisational archetypes and institutional logics its ethnography of DAO contributors.
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