September 5, 2018

Token Curated Registries: Features and Tradeoffs

by Tushar Jain

A short overview is presented below. To download our full 10-page report, please click the link below:

 

Executive Summary

Token Curated Registries (TCRs) are an idea that gained a fair amount of traction within the cryptocurrency community throughout late 2017 and early 2018. While the idea has yet to be implemented at any meaningful scale, there are a few TCRs live on the Ethereum mainnet and over a dozen projects are considering building TCRs in some form.

TCR Design

In its most basic form, a TCR is a list whose items are decided upon by a set of token holders who have staked deposits in a one-token-one-vote system. In many TCR designs, a user’s tokens can be slashed—aka programmatically and automatically confiscated—under some set of (presumably bad) circumstances. Users who propose that an item be included in, excluded from, or removed from a list must stake a deposit, or in other words, put their money where their mouth is.

Most TCRs have three types of participants: consumers, candidates, and token holders.

  • Consumers are those who utilize the lists for information discovery
  • Candidates are those who wish to be included on the list
  • Token holders are those who participate in list curation

In addition to the three major categories of participants, each TCR has a native token. The native token of the TCR represents ownership in the curation rights of the list being generated. Token holders can vote on many things: what is included in the registry, who can be added and removed and when, who wins in the case of disputes, what the system parameters are, and more.

Advantages of TCRs:

  1. Decentralized Curation
    • The primary proposed benefit of TCRs is that the curation process becomes decentralized. Instead of having a single company, individual, or organization that controls the list, TCRs empower a decentralized group of actors to do so.
  2. Censorship Resistance
    • TCRs, by their very nature, offer a form of censorship resistance that centralized services cannot.
  3. Transparency
    • TCRs record all actions and decisions on a blockchain, so there is a clear audit trail of every decision that was made. The entire history of the list, with its various additions and removals, is recorded.
  4. Up-to-date Information
    • TCRs offer incentives to keep curators engaged such that the information in the list is curated on an ongoing basis. Rather than creating a single list that is then published in its final form, TCRs are ongoing lists that can change as new information is incorporated.
  5. Rewarding Moderators
    • In other models (Yelp, for example), any user can participate, but these users aren’t rewarded for their work. Only a small set of users actually participate, and their inputs are often subjective and unreliable. Because participation doesn’t have a cost, the system can easily be gamed.
  6. Economic Incentives and Penalties
    • Existing curation models don’t always give participants economic incentives. In some cases, list providers are motivated to increase page views in order to earn more from advertisers. These incentives don’t always directly result in high-quality curation.

Disadvantages of TCRs:

The foundational assumption of TCRs is that token holders will be incentivized to honestly curate a high-quality list because doing so will cause the value of their tokens to increase. However, in many instances this fundamental assumption fails in the real world. The dynamics of TCRs do not necessarily incentivize high-quality curation. Rather, they incentivize token holders to act in a way that maximizes the value of their holdings and earnings. Further, there are many scenarios in which TCRs are objectively worse than centralized list-making services.

  1. Open Market Competition
    • One can reasonably argue that decentralized list curation offers almost no tangible benefit over centralized list curation given open market competition among centralized list providers.
  2. Addressing Subjectivity and Unobservable Truths
    • Another major issue with TCRs is that they can only function when the information being voted on is publicly observable, objective, and easy to verify. For token holders, the rational strategy is not to vote on the candidates that they personally find to be of the highest quality, but rather the candidates that they think other voters will perceive to be of the highest quality.
  3. Token Pricing and Customer Acquisition
    • One major issue with TCRs is that the price of entry must be high enough to discourage bad candidates, while also being low enough to not price out honest entrants entirely.
  4. Utility of Public Reputations
    • When consumers seek lists, one of the primary attributes they assess is the public reputation of the entity providing the list. This is one of the main reasons why centralized list providers are able to attract consumers—they build a public reputation for providing high-quality signals over an extended period of time.

Conclusion

TCRs are nascent and experimental. The few existing implementations are in their earliest stages, and leave critical questions unanswered. With a dozen or more TCR implementations slated to debut within the next year, we’ll soon see market stress test core TCR mechanics. We expect that most TCRs will be unable to compete with centralized alternatives. We also expect to see some TCRs successfully attacked by malicious actors. However, we believe it is possible that we will see some successful niche TCR implementations that function as intended and provide robust information signals.

In this analysis, we’ll examine Token Curated Registries in-depth, looking at the features, tradeoffs, attack vectors, and use cases. Download the full report below:

 

Disclosure:

As of the publication date of this report, Multicoin Capital Management LLC and its affiliates (collectively “Multicoin”), others that contributed research to this report and others that we have shared our research with (collectively, the “Investors”) may have long or short positions in and may own options on the token of the project covered herein and stand to realize gains in the event that the price of the token increases or decreases. Following publication of the report, the Investors may transact in the tokens of the project covered herein. All content in this report represent the opinions of Multicoin. Multicoin has obtained all information herein from sources they believe to be accurate and reliable. However, such information is presented “as is,” without warranty of any kind – whether express or implied.

This document is for informational purposes only and is not intended as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy, are based upon selected public market data, and reflect prevailing conditions and Multicoin’s views as of this date, all of which are accordingly subject to change without notice. Multicoin has no obligation to continue offering reports regarding the project. Reports are prepared as of the date(s) indicated and may become unreliable because of subsequent market or economic circumstances.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This report’s estimated fundamental value only represents a best efforts estimate of the potential fundamental valuation of a specific token, and is not expressed as, or implied as, assessments of the quality of a token, a summary of past performance, or an actionable investment strategy for an investor.

This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment or token discussed herein.

The information contained in this document may include, or incorporate by reference, forward-looking statements, which would include any statements that are not statements of historical fact. These forward-looking statements may turn out to be wrong and can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond Multicoin’s control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all tokens discussed in this document and develop a stand-alone judgment of the relevant markets prior to making any investment decision.

 

 

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