Goals & concessions

Network money is responsible for operating the network and facilitating transactions. Network money has a number of goals that it needs to achieve if a network is going to survive over the long term.

Goal - Maintain high availability of network money

Network money needs to always be available so that anyone can use it to pay for usage of the network. Every user of the network relies on ongoing access to network money. If network money becomes extremely expensive this could lead to an environment where network money is not easily available for people to use. Expensive transactions could hinder economic activity. Large amounts of idle network money sitting in peoples wallets is an example of when network money would become less available. One responsibility of network money should be that it is always available to facilitate economic activity and that it should never hinder it.

To achieve this goal networks will need to disincentivise the idle storage of network money. Networks can incentivise people to use network money more productively and in a way that makes it more widely available for others to use. A network can incentivise a higher velocity of money through the adoption of ideas such as demurrage via a network coin tax.

Goal - Achieve balanced demand for network money

Web3 networks need to balance the demand for network money so that it is not too desirable to use and hold with it also not being too undesirable that it is only used for transaction fees. If network money only has demand for the use case of transaction fees there is a risk that the security of the network could become increasingly compromised. This is because the value of network money will play an important role in determining how easy it is for someone to attain a large supply of it in a short period of time. If network money is used to govern the network itself it would be of paramount importance for the network to ensure that the price of network money remains sufficiently high. A sufficiently high price would mean the network cannot be easily attacked. On the other side of the demand scale there is a risk that network money could become too desirable. In this scenario users could start accumulating as much network money as they can due to price appreciation and/or income that they can generate from just holding it or lending it to other people. Storable money increases the likelihood that wealth concentrates into the hands of a few people over the long term. Networks need to strike the right balance of generating just enough demand for network money, meaning the network remains reliably secure but also so that money is sufficiently distributed and not concentrated into the hands of a few people.

Achieving this goal will likely require the implementation of ideas such as demurrage which can help with increasing the velocity of money by reducing the effectiveness of network money as a store of value. The key to achieving this goal effectively will be to make sure the rate of demurrage is sufficiently high enough to increase the velocity of money but not too high that it wipes out any demand for network money entirely. Introducing financial liquidity incentives could be one solution that helps with reducing price volatility and increasing the long term demand for network money beyond just transaction fees.

Goal - Create a sustainable economy

Web3 networks need to reliably incentivise node operators to maintain and operate the network. These networks are also complex, and will often require ongoing maintenance and improvements to the infrastructure if they want to remain competitive. A sustainable economy will be one that can reliably incentivise node operators and developers to maintain and operate the network over the long term.

Achieving a sustainable economy will likely involve creating a circular economy where transaction fees or other forms of taxation can be combined together to provide a sufficient amount of income for the ecosystem to sustain itself. Web3 networks compete with one another to provide the lowest possible transaction fees, the adoption of a network coin tax would likely become increasingly important for maintaining and operating the network over the long term as the income from transaction fees needs to remain as low as possible.

Goal - Maintain a predictable, reliable and secure network

Web3 networks will eventually get adopted at a global scale. These networks will become increasingly mission critical for society as an increasing number of people depend on them for their daily lives. This scale and responsibility creates a need for these networks to become increasingly predictable, reliable and secure. A network implementation should be as simple as possible so it is easier to maintain and so there are fewer attack vectors that could be exploited. A network should also benefit from having the minimal amount of governance processes involved to operate the network, as this will reduce the cost and complexity of operating a global network. Simpler governance structures can help to reduce the possibility of these decision processes becoming an attack vector for malicious actors.

Achieving this goal for network money will involve ongoing efforts to make the monetary policy and governance mechanisms as simple as possible whilst also providing the necessary functionality that the network needs. Complex supply change mechanisms would need to be thoroughly justified over simpler solutions. Self correcting and automated solutions are desirable implementations if they are feasible to implement whilst also being reliable and secure.

Goal - Achieve global network effects

Many Web3 networks already compete with one another for market share. Society benefits from ongoing competition from new and emerging networks to ensure that the most effective network is adopted over the long term. Networks have no choice but to compete in a free market if they want to survive. Achieving global network effects will be an important part of determining which networks succeed over the long term and which ones fail.

Part of surviving over the long term will involve the identification of any network effects that could make a network more useful and sticky as it scales with more adoption. One example of this could be the number of users, apps, use cases or the amount of financial liquidity that is deposited and used across the network. The network will need to identify how network money could be used in a way that makes the network more useful and valuable as it is more widely adopted. Prioritising the most important use cases for network money and incentivising those use cases should help with creating better network effects. Financial liquidity is one of the more compelling use cases for network money. Liquidity incentives could be used to create global network effects due to the increased efficiency of financial markets at a global scale.

Concession - Adoption of other mediums of exchange

Network money needs to be incredibly reliable and secure if the network is going to be adopted at a global scale. If network money wanted to compete as a medium of exchange it would need to consider factors such as price stability and how the supply is managed to accommodate changes in the economy. The problem with this is that it would be very difficult to create a single medium of exchange that can function well for the entire population and that fulfils every community use case. Some economies would outgrow others and the requirements and preferences for some countries and communities may differ from others. The governance complexity and cost of making changes would also be astronomically high. These complexities do not need to be handled by network money. The network money can focus entirely on maintaining and operating the network itself and ensuring that it is always available for anyone to use the network. Network money needs to be widely available, predictable, reliable and secure. Minimising the responsibilities for network money wherever possible can help with achieving this outcome.

Web3 networks introduce the possibility for people to create as many token based forms of money as they want to. This creates a truly open and permissionless market for mediums of exchange to compete with one another. Tokens represent a compelling reason why network money doesn’t need to handle the responsibility of being a widely adopted medium of exchange. A third reason is that competing as a medium of exchange would mean less network money would be available for other use cases such as financial liquidity and transaction fees. This could create an opportunity for another network to incentivise deeper and more efficient financial liquidity. Network money would be more effective at facilitating token exchanges if it is able to focus on this key responsibility instead of trying to be responsible for too many things. A final reason that token money is a more desirable solution for mediums of exchange is it enables a community to create the exact form of money they want. One that functions in any way they prefer and that will be governed in a way that works for them. Token money is completely context and environment specific. Many forms of token based money can be created to handle the responsibility of being a medium of exchange.