Hard Times Create Good Ponzis: The Innovation Paradox

Hard times create good ponzis. Good ponzis create good times. Good times create bad ponzis. Bad ponzis create hard times. With nothing to lose, experimentation flourishes. That's why Minecraft > DAOs.

Minecraft Player-Driven Innovation

As a very online teenager, one of my favorite past-times for several years was being way-too-involved in a very niche, very robust political Minecraft subgenre community. Running an aggressive election campaign as a war mongering madman (and getting third, fwiw) is just one of many, many charades on these serves I’ve poured countless hours into as a fun way to spend my time.

Without getting too deep into the weeds, Minecraft is a heavily programmable sandbox where many independent developers codify their own rules on top of the game to facilitate some unique experience to players on their customized server.

The base (vanilla) game lacks a balance of “law and order”, it’s very easy for players to fuck each other up without any protections against such behavior by victims. Most server owners will ban or moderate nefarious activity and place restrictions to keep people from doing crime (like robbing another player or lighting their house on fire). Additionally, there isn’t much incentive for players to work together. The game is easy enough to go through the progression in isolation. Minecraft without modification is not good for governance/politics because there is a lot of downside and little upside to human coordination.

The “Civ-Style” sub-genre of Minecraft introduces robust rule changes and new mechanics to appease each of these concerns. The game is made incredibly more difficulty (to the scale of magnitudes). So difficult that it’s infeasible for players to progress from start-to-finish without working with others. Cooperation and coordination become integral to success.

Additionally, CivServers provide players the tools for self-policing. Players can spend significant resources to track down players and indefinitely imprison them. There are surveillance systems in place to monitor your property and accumulate proof of any wrongdoing while you’re away. There are additional mechanics in place to fortify your house from robbery and destruction.

But beyond that, administrative affairs are completely hands off and players are left to themselves to organize, compete, and prosper.

The Real Governance Sandbox

For close to a decade straight, and across over a dozen of instances of different worlds/servers, this community has sustained thousands of MAU that devote a significant amount of their time to playing into the civilization experiment.

The output has been remarkable: Robust, autonomous, transcendent works in culture, literature, and religion. Well thought out, polished, and battle-tested governance articles and structure— In my link above, I am running for mayor in a group that operates according to a judicial-autocrat separation of powers with democratic appointment and homestead citizenship. The constitution and bylaws that govern this group is longer standing than some real world regimes.

Each iteration of the experiment, new and old players take on different personas, align with different groups, and try out different governance structures. In the past, the most successful and dominant groups have ranged from kumbaya communes, to brutal dictatorships, to amoral commercialists, to indiscriminating warmongers.

And separate from industry, commerce, and conquest, many other groups have been successful in crafting their own experience: built around geopolitics, architecture, and community.

Perhaps one day I can create a documentary-style report on the history of Civ. For now, check out some of the interesting activity happening on the active experiment today and sort through some of the greatest events of the original server.

Civ Flourishes where DAOs Falter

Let’s bring it all in. Why the fuck am I writing about a bunch of Minecraft nerds? Collectively, the Civ community has made incredible breakthroughs in topics like open contribution, governance implementation, and unstoppable recordkeeping. More exotic innovations yet have proven fruitful in open-ended problems like oracles (taking in-game assets offline), autonomous litigation, and even sybil resistance.

If these terms sound familiar, they should. These are all open problems that DAOs as a whole have yet to successfully solve. The biggest and most successful DAOs of tomorrow will have these questions answered, but they remain question marks today.

How could a group of gaming nerds drive further innovation around decentralized coordination than the trillion dollar web3 space, in less time?

Well, it’s not entirely apples-to-apples. Minecraft is a familiar environment for those who opt-in to participate and offers a sandbox where everyone can contribute meaningfully, immediately. That is, there is a much steeper learning curve to becoming an effective DAO contributor. The scope of success is also more defined— while players make a lot of their own “goals” through abstract, player-made understandings, the core tenant of the game remains to advance through the tech tree and acquire more resources faster than the others. That’s a strong north star that guides every group to some degree.

But I don’t think that accounts for all of the success that Civ has had in their political experimentation ambitions. If “faster progression” disguised itself as innovation, we would see the same ideologies, structures, and individuals rising to the top each iteration of the experiment. That couldn’t be further from the truth— the community and its groups remain incredibly diverse in ideology and structure.

Additionally, there are several open issues that persist time and time again without any real consensus. These include:

• Self-Policing: The existence of a global militarized enforcer collective that targets-and-destroys criminals vs groups taking care of crimes locally.

• Property Rights: How do you assess legitimate claim to land ownership? Under what grounds can this ownership be challenged?

• Transportation: The burden of responsibility on building out modes of transit between nations and across different regions of the map.

• Sentencing and Imprisonment: Under what grounds, if any, should punished players be permanently imprisoned and effectively banned from playing on the server?

There’s another key differentiation in the world of Minecraft: There’s nothing at stake, and that’s a good thing.

The Cost of Failure and its Impact on Innovation

In Minecraft, there is no tangible real-world consequences to fucking up. This is very important for innovation. Governance and coordination is a spectrum that ranges from kumbaya circle to absolute dictatorship. In Civ, governance has been tested and shown varying degrees of success across the entire spectrum. While many groups take inspiration from real world nation states, many invent their own systems and influence one another. They do this because it’s fun and interesting to participate in these experiments, and it’s OK if these experiments fail.

We’ve seen “little at stake” driving significant innovations throughout the crypto space, too. Whereas real world monetary policy has very little innovation (because a bad monetary policy causes genocide), degen-powered stablecoins have enabled the space to iterate over a thousand different models through real life trial-by-fire.

In the same vein, DAOs have iterated on governance much more rapidly than real world governments. However, most DAOs today look more-or-less like some choice between: a loosely-democratic multisig wallet, a quasi-decentralized veil over a private team coordinating their own project, and theatrical governance injected for the purpose of having it.

The human-centric nature of DAOs (in theory) may be to blame here. A failed DAO can rekt livelihoods, and core members are intimately familiar with the people around them. Experimentation is not risk-free, like it is in Minecraft.

The Bull Market Conundrum

With the notion that “what’s at stake” is inversely proportional to innovation, the bull market plays an inverse role to innovation. With lots of capital flying in from everyone, project founders are more and more pressured to “do things right” versus trying something new.

With less at stake, developers and communities can get creative and break things. The free-for-all food farm is a testament to this. Behind the fair launch farming ponzi food token memes, a ton of new and innovative token mechanics were unlocked. Rare Pepes, launched before the 2017-2018 bull cycle, remain the most innovative NFT community ever. This may be due to the fact that everyone was trading around $5 NFTs like trading cards and building interesting shit for fun.

The recent free mint meta has introduced a bunch of unique mechanics, too. It will be interesting to see any lasting output from any of the recent class of NFT mints.

As money dries up, perhaps groups will find new ways to coordinate in a DAO manner that isn’t capital or token-centric. If this trend takes hold, the rate at which DAOs can innovate should accelerate tremendously.

There is at least one good example of not-entirely-capital-driven DAO coordination: Aavegotchi. Aavegotchi DAO is, by many metrics, the most active and successful DAO in existence. With a gaming-driven (not dollar-driven) community, Aavegotchi has hundreds of fervently active contributors and countless independent sub-DAOs (guilds) that practice their own governance experimentation.

As a play-to-earn ecosystem, its community members must make good governance decisions to drive the value of their own gameplay. They also need to coordinate amongst themselves to outcompete their competitors at a guild vs guild level.

Innovation: The Anti-Reflexive Bear Market Bottom Signal

With all of the above understood, the rate of innovation plays an interesting inverse relation against the strength of the market. The best innovation should happen at the pico-bottom, with the fewest dollars at stake. The worst innovation should happen at the top.

Then if innovation is a leading indicator to output, and output drives the market conditions, the relationship between innovation and strength of market should look something like a graph of y=sin(x) vs y=cos(x).

In the meantime, projects experimenting in the realm of low stakes coordination can look to the successful examples in the Civ community for inspiration towards new experiments in our own space.