Decentralised Patreon via Harberger taxes plus ERC721 non-fungible tokens
Yos Riady and Melodies Sim participated in the NBC'19 Hackathon recently, and we caught up with them in the week after the event to ask them about how it went for them.
You can also watch a demo video of their project in action.
Yos & Melodies: Hello!
Brendan: You built the Crypto Collectibles project during the hackathon … and won second place overall - congratulations! Tell us a bit about your project.
Yos: Thank you! Our project is Patronage Collectibles, a protocol that allows anyone to crowdfund on the blockchain.
We believe crowdfunding today doesn't work because of high fees, unfair curation, and most importantly: It's BORING. When you support someone, you often only get a cold and impersonal thank you message.
Brendan: … and you have found a way to solve this, using blockchain technologies, I understand.
Yos: Yes, crowdfunding doesn't have to be this way! What if you can do it directly on the blockchain using smart contracts in a decentralized way? It would lower fees, be open to everyone, and become more fun and gamified through crypto-collectibles!
With Patronage Collectibles, Creators can create and sell unique ERC721 crypto-collectibles to fund their work. Patrons can buy a Creator's collectible to unlock exclusive content and other rewards. The catch is, Owners of Patronage Collectibles have to pay a recurring pledge (Harberger Tax) to the Creator in order to continue their ownership. This gives Creators a recurring source of funding to continue their creative endeavours.
When you support a Creator with Patronage Collectibles, you receive a unique and personalized collectible on the blockchain that gives you a true feeling of ownership in your relationship with the Creator. It's more fun, too!
(Editorial note: ERC721 is an Ethereum standard for non-fungible tokens.)
Brendan: So, specifically, your project made use of non-fungible tokens, in combination with Harberger taxes. Could you briefly explain what those terms are for those who are new to them?
Yos: First of all, it's worth mentioning that the human instinct to collect runs deep in our evolutionary history. Practically all human cultures, even those that do not engage in substantial trade or that use more modern forms of money, make and enjoy ornamental jewelry. Historically, these physical collectibles had to be time-consuming to create (a human proof-of-work) or it would've been easy for forgers to create fakes.
Non-Fungible Tokens (NFTs) are the next step towards bringing scarcity to the digital realm. NFTs are digital collectibles. They are unique cryptographic tokens which are not interchangeable, in contrast to currencies such as Bitcoin which are identical and fungible in nature. Cryptography and computational proof-of work ensures that each NFT is real and verifiable. CryptoKitties were among the first NFTs.
Through NFTs, the blockchain offers us a new model for digital ownership. Digital assets can be registered as a ‘token’ and tracked on a secure, immutable public ledger. You can preserve scarcity and verify the chain of provenance for each token. Even as the asset gets passed through multiple hands, its data remains immutable and intact. Each transaction is also publicly viewable on the blockchain, creating an audit trail of the collectible’s history.
Harberger Taxes is an economic policy that recently gained popularity due to the book, Radical Markets. We used this taxation system to give Creators of Patronage Collectibles a recurring income stream from their Patrons. You can think of Harberger Taxes as a variation of the 'pay-what-you-want' model. Harberger Taxes works as follows:
This system incentivises Owners to set a low price to minimize the amount taxes they have to pay. On the other hand, Owners are also incentivised to set a price high enough to discourage others from buying it away too readily. What ends up happening is you have to price a Collectible at the value you are willing to pay to keep it.
Melodies: The idea of using Harberger taxes in personal collectibles is also interesting as it creates a balancing act where owners is incentivised to set the price of the collectible at the owner's self-assessed value.
As Yos mentioned, owners cannot set a price too high or risk suffering from high taxes or set the price too low and risk having the collectible bought of. Consequently, owners have to set the price where he is feels he is willing to pay a recurring tax to maintain ownership of the good.
This is unlike in traditional marketplace where the price is less transparent as an owner often tend to set the price higher than he values before asking for offers from interested buyers.
In this light, I believe that the Harberger taxes can bring about better information and also more allocative efficiency in the marketplace as now owners have an incentive to set the price more reasonably and closer to the actual market assessed value of the good.
Brendan: To understand your project, and how it works under the hood, looks like we'll all need to brush up on economics too!
On that note, what was most interesting to me about your project was that you were able to design a novel new system of your own by leveraging both technology - in this case, smart contracts - and economic design. What are your thoughts on that?
Yos: I'm a huge believer that blockchains offer much more than cryptocurrencies. Let me elaborate on that in two parts.
First, economists have long dreamed about problems that could be solved by market mechanisms. Through blockchains, the laboratory of mechanism design has been opened: By issuing a token and a few transparent rules on a smart contract you are free to run your own cryptoeconomic experiment.
Brendan: I'm digging that phrase, the laboratory of mechanism design!
Yos: Well-designed protocols have the power to change the way humans coordinate at scale. Let's look at the Ethereum cryptonetwork for example. Nodes validate translations to profit from gas fees. While pursuing their own self-interest, participants end up cooperating and attaining a common, noble goal: A decentralized world computer.
Blockchain technology has created this emerging intersection of software and economics that's opening up a whole new realm of possibilities on how we can coordinate in a more trustless way.
Second, decentralized protocols are composable and permissionless. This is a huge enabler for innovation and empowerment for developers.
Brendan: How do composability and permissionlessness change the game, so to speak?
Yos: So, startups today need to navigate a complex landscape of walled garden ecosystems and platforms with huge proprietary data advantages. Centralized platforms like Twitter can and have changed the rules on developers and terminated great products.
With smart contracts, you don't have to ask for permission to build something useful. New product ideas and technologies can be developed, tested and iterated without being blocked by dominant platforms. I believe this is a move in the right direction.
Melodies: I like how Yos described that through blockchain, the laboratory of mechanism design is opened. I absolutely agree with that. The decentralised and transparent nature of blockchain has unlocked many more possibilities in terms of protocol designs. For instance, decentralised file systems like IPFS, identity and reputation systems, and even DAOs!
There are so much more to be explored! Just in the space of cryptoeconomics, trustless and transparent nature of blockchain provides a platform to explore how we can reduce inefficiencies due to the lack of perfect information in traditional markets.
(Editorial note: DAO stands for decentralised autonomous organisation, and IPFS stands for inter-planetary file system.)
Brendan: Was that the idea that you originally started with, or did you change things along the way?
Yos: The problem we wanted to solve had always been crowdfunding, but the idea we originally started with was something quite different.
Our team's original idea was around 'personal cryptocurrencies.' Creators would issue an ERC20 token that can be redeemed for work from the Creator. It's like selling tokenized equity of yourself.
For example, let's say Alice is an illustrator and issues an ALC token. Patrons would be able to buy these tokens from directly from a smart contract and redeem it to request a piece of artwork from Alice. The tokens would be issued by an Automated Market Maker and a Bonding Curve ensures that prices are determined by market forces. The cryptoeconomic model was pretty complex.
(Editorial note: ERC20 refers to an Ethereum standard for fungible tokens.)
Melodies: Yup, it was only during the hackathon when an innocent suggestion to use robohash to generate unique cat images led us towards pivoting towards personal crypto-collectibles not unlike cryptokitties. In hindsight, it also makes the platform more fun and exciting to use!
Yos: I'm glad we decided to pivot because the new idea was both simpler to implement and easier to explain.
Brendan: Do you intend to continue working on the project, now that the hackathon is over?
Melodies: Yes, we're thinking of fleshing out the project and sharing it with real users in the future, starting on a testnet. There's a lot of work to be done before it's ready, though!
Brendan: That is awesome, I really do want to see a working version of Patreon out there! Whether or not it is built atop a crypto-network, I do still one to see one … but the fact that the one that you have made here is fully decentralised makes it that much more appealing to me. Be sure to ping me again when you launch!
Was there anything new that you learnt during the hackathon?
Melodies: I have learnt a lot from this hackathon especially gaining a new respect for crytoeconomics. I have always had a fascination for blockchain and how much it can offer besides cryptocurrencies. However, I never really thought much about the different economic models blockchain can emulate to reduce the current inefficiencies in our traditional models.
I'm also pretty new to the blockchain space and have a lot to thank to Yos for being patient and guiding throughout the hackathon.
I would say this hackathon has ignited a new passion in me to continue learning and exploring blockchain!
Yos: Personally, I learned a lot about pitching and presenting your ideas across to others. It's not enough to just build something - you have to sell it too!
The hackathon also made me realize that the best ideas aren't developed in isolation but out in the open. I am very thankful to Melodies and to all the folks who dropped by our table and gave us feedback. Their valuable inputs helped shape our idea in the right direction, making it more approachable and easier to understand.
Brendan: That's great to hear, and I'm glad that you had a conducive experience. My personal view is that hackathons are both about competing and about learning, and there's always going to be a natural tension between the two.
Did you attend any of the workshop events that were held in the lead up to the hackathon?
Yos: No, unfortunately. I learned about the hackathon late and by that time, most of the workshops had already ended.
Melodies: Unfortunately, it's the same for me!
Brendan: Fortunately, we have recorded some of the workshops, so watch this space!
What did you think about the hackathon in general?
Melodies: NBC is my first hackathon and I was really impressed by the welfare given - amount of food, snacks and goodies that was offered. Those really supported me in my 2 days of hackathon.
Yos: I thought it was well organized and I'm a fan of the longer session of 48 hours. Any shorter and we probably couldn't have shipped on time.
Brendan: That in itself paints a very cool picture - for one of you, it was a first time, and for the other you've been to a few - and you teamed up, and built a cool project together - I like it!
What was your favourite part about the hackathon?
Yos: Pitching and demoing our project to the judges and audience.
Melodies: Designing and refining our product in terms of the user-usability was the most interesting part for me.
Brendan: Thank you very much for your time, and good luck with launching this!
We were quite excited to see all of the cool projects that were built during the event, and hope that you continue building them.
For many participants, this event was not just about the competition, but also about the learning.
If you would like to continue on this path, and learn about how to build decentralised applications, come along our in-person DApps Dev Club sessions!