Reputation Incentives

Permissionless identity’s biggest use case

As each successive airdrop happens in the space, the meta becomes more tired, gamed and controversial. Airdrops are a losing proposition except for the most elite farmers and bot operators. Forget genuine users, even mid-curve farmers are starting to experience negative ROIs on farming a lot of the latest hot trash coming out.

Some are declaring the death of airdrops, but that I think defeats the purpose of why we’re here in the first place. Solving the token distribution problem is one of the highest order problems we can solve to unlock a new generation of use cases. So how do we actually solve this? My belief, and slowly many others, is that reputation incentives are the answer. But before we get there, let’s understand the problem in more depth.

DEX #432 on L2 EVM #42 has acquired a “community” of users and is trying to figure out how they’re going to figure out who to give tokens to. The obvious things they start off with is factors such as:

• How much volume has a user traded

• How much have they contributed in liquidity as an LP

• How much has the user contributed in fees

But the problem is that they end up at a perfectly linear airdrop. So then they start adding arbitrary tiers to ensure that the lowest tier of users get something at the minimum. Now the question becomes how do you ensure that people at the lowest tier are “legit” or worthy. Or even better, how do you farm them and put your bot army to work? Well, you start to figure out what metrics you’d like to juice at a social layer. Examples include but are not limited to:

• Discussion on Discord

• Twitter engagement

• GitHub contributions

• Governance participation

As the teams try to juice the lower tiers for their money’s worth, they end up creating lots of hurdles for genuine users that the most probable case is that anyone real is going to opt-out. The incentives of the system end up in a way that to get your money’s worth you adversarially select for the worst users that will go through as many hurdles to get their life changing airdrop. However, if we re-express this another way, what we’re saying is that teams want to collect more data on their users to form stronger local reputation. I want you to understand what that term means because we’re going to be contrasting it. In my view, local reputations are activities that an address performs within an ecosystem to build a sense of who they are. These are all the things I’ve listed above. The problem with local reputations is that you have to restart from scratch all the time. By the time you’re at your 10th Discord saying gm for 100 days in a row you’re tired af. The memes are tiring. Everyone’s probably using ChatGPT to mass generate memes now anyways. The founders feel great though. “Look at all this activity we have Morty — we made it”! We have a system of local, usage-based metrics in a single ecosystem.

What we want to transition to is global, reputation-based metrics over multiple ecosystems. If only we had a system of persistent identity… which we do with public keys that are tied to all your activity! There’s some hard engineering challenges with creating global incentive based reputation systems that I’ll save for another article. However the underlying thesis of how it reputation incentives work is that rather than basing your incentive criteria on what someone has done purely in your ecosystem, you start to benchmark their reputation/usage is similar or other ecosystems. With this, genuine users who inhibit desirable behaviours can import their prior actions into a new context. We already see this thesis playing out with things like Farcaster and SocialFi apps where your social graph can be imported into many contexts. The reason why it isn’t super strong though is because many of the permissionless social graphs like Farcaster have very noisy datasets that make it hard to separate signal from noise. Bots can fudge large followings, text data is cheap to generate and transmit through the network etc. However, it does give us a glimpse at the minimum!

However, there is one directional trend that will need to happen or will happen as reputation incentive systems come online: the fact that wallets with longer histories will be worth more than wallets that were created yesterday. If you fast forward approximately 10 years into the future, you’ll actually have market prices for public keys. These keys will have unfudgeable identities that people will want to acquire for a variety of reasons. The more actions and time a wallet has, the better it can be observed and understood by observers. The less history a wallet has, the less it is likely to benefit from observers of the network. Our current airdrop meta trend encourages new wallets and the splitting of wallets numerous times which will be net value-destructive as the opportunity to build valuable identities is being fore-gone. This does mean that privacy does come with a real cost, but I think that’s always been true — it will just be more pertinent in this new era.

Anyways, that’s about it for this piece. It’s a matter of when, not if, this world will become materially true. However, it won’t happen without solving some underlying challenges at an engineering and social layer. If you’re interested to learn more, reach out to me.