In this talk Brandon Ramirez, Research Lead at the Graph, provides an overview of the tools, processes and knowledge domains relevant to the emerging field of cryptoeconomic mechanism design in the blockchain space.

1. TITLE TEXT

2. THE PROCESS & TOOLKIT OF
Layer 2 Mechanism Design
Brandon Ramirez
RESEARCH LEAD - THE GRAPH
@REZBRANDON

3. Our Story

4. Decentralizing the Query Layer for Web3

5. • 10+ years working in tech
• Software Engineer & Product Manager
• Mostly working on data-intensive
products
• B.S. in Electrical Engineering w/ Robotics
& Control Systems Emphasis.
• Studied Economics in College
• Not a cryptographer!
RESEARCH LEAD
Brandon Ramirez

6. RYAN GENTRY, MULTICOIN
“The operation related to ZKP is the so-called
‘modular exponentiation,’ which is the heaviest
operation in [Bulletproofs]. In order to improve the
performance, a lot of blinding elements and vectors
could be removed, and saves modular exponentiations
on all these elements and vectors.”

7. Decision Points
• Native Token vs No Token
• Utility Token vs Work Token vs. Governance Token
• One Token vs. Many
• Inflation vs. No Inflation
• SNARKs vs STARKs vs Bulletproofs
• Reputation vs. Token Voting
• Protocol Upgrade Through Forking vs. On-chain
Governance
• Payment Channels or State Channels
• Smart Contracts vs. Application Specific
Blockchains
• Markets vs Auctions
• 100+ More

8. Talk Goals
• Grow your anti-library
• Advocate a process
• Share tactics & key considerations
• Umberto Eco, Italian Novelist & Philosopher

9. Quick Recap

10. Blockchains & Storage Networks
Scaling Solutions
Decentralized Applications
Services
Web3 Stack

11. Web3 Stack
Blockchains & Storage Networks
Scaling Solutions
Decentralized Applications
Services

12. • Inherits Security
• Prioritizes Performance
• Inherits Data Availability
• Inherits Consensus
• Inherits Logical Centralization
• Inherits Randomness
• Inherits “Timing”/Causality
• Layer 1 as Trusted 3rd Party
KEY CONSIDERATIONS
Layer 2 vs Layer 1

13. The Toolkit

16. • Economics
• Cryptography
• Blockchain
• Distributed Systems
• Control Systems
• Game Theory
• Public Choice
• Social Choice
• Computer Science
• Applied Mathematics
• Complexity Theory
• System Dynamics
• Finance
• User Experience
• Behavioral Psychology
• Customer Development
• Law
A MULTI-DISCIPLINARY APPROACH
Cryptoeconomics

17. The Process

18. Problem-Market Fit
Technical System Design
Qualitative Mechanism Design
Quantitative Mechanism Design
Empirical Evaluation
Evolution

19. Problem-Market Fit
Technical System Design
Qualitative Mechanism Design
Quantitative Mechanism Design
Empirical Evaluation
Evolution

20. Problem-Market Fit
Technical System Design
Qualitative Mechanism Design
Quantitative Mechanism Design
Empirical Evaluation
Evolution
Smart
contracts
Store
Queries
Graph node Graph node
Transactions
GraphQL
API
dApp
Events
Mapping
WASM module

21. Smart
contracts
Store
Queries
Graph node Graph node
Transactions
GraphQL
API
dApp
Events
Mapping
WASM module

22. Prior Art
IN SEARCH OF…
Smart
contracts
Queries
Graph node Graph node
Transactions
GraphQL
API
dApp
Events

23. Problem-Market Fit
Technical System Design
Qualitative Mechanism Design
Quantitative Mechanism Design
Empirical Evaluation
Evolution

24. Primary Actors
ROLE BEHAVIOR INCENTIVE
SERVICE PROVIDER Provides service XYZ.
SERVICE CONSUMER
Consumes service XYZ. Pays
Service Provider.
Fees,
Inflation rewards, Slashing
Implicit, trying to
accomplish ___
Curator, Fisherman, Oracle, Keepers, Miners, Validators, Arbitrators, etc.
Secondary Actors

25. Primary Actors
Curator, Fisherman, Oracle, Keepers, Miners, Validators, Arbitrators, etc.
ROLE BEHAVIOR INCENTIVE
SERVICE PROVIDER Provides service XYZ.
SERVICE CONSUMER
Consumes service XYZ. Pays
Service Provider.
Fees,
Inflation rewards, Slashing
Implicit, trying to
accomplish ___
Secondary Actors

27. Motivation
Ability
B=MAT
Triggers
Triggers
Fail Here
Succeed Here
Action Line
FOGG BEHAVIORAL MODEL

28. Loop Diagram
DIAGRAMMING Locked ETH in
CDPs
Price of DAIStability Fee
-
+
+
BALANCING
LOOP
DIRECT
CAUSATION
DIRECT
CAUSATION
INVERSE
CAUSATION

29. Machinations.io
DEMO

30. Problem-Market Fit
Technical System Design
Qualitative Mechanism Design
Quantitative Mechanism Design
Empirical Evaluation
Evolution
Iterate!

31. • Determinism
• Standard Units of Price & Goods
• Fault Attribution
• Verifiability
ASIDE
Desiderata

32. WHO? DID WHAT? WHEN?

33. WHO? DID WHAT? WHEN?
Cryptographic Signatures Determinstic….
Interfaces
Runtimes
Encodings
Verifiable Computation
Authenticated Data Structures
Block Hashes
Notarization
Nonces
Consensus

34. WHO? DID WHAT? WHEN?
Cryptographic Signatures Determinstic….
Interfaces
Runtimes
Encodings
Verifiable Computation
Authenticated Data Structures
Block Hashes
Notorization
Nonces Speaker/Listener Fault
Equivalence
Subjectivity
Block Reorgs
Asynchronous Network Setting
Fisherman Incentives

35. Problem-Market Fit
Technical System Design
Qualitative Mechanism Design
Quantitative Mechanism Design
Empirical Evaluation
Evolution

36. Parameter Tuning
• Static (Open Loop)
• Dynamic (Open Loop)
• Dynamic (Closed Loop)
• Governance (Closed Loop)
• Market Mechanisms (Closed Loop)
• AI/ Machine Learning (Closed Loop)

37. Open Loop
Control
Closed Loop
ControlVS.

38. Analytical Methods
• Microeconomic Analysis
• Classical Control Theory
• State Space Representations
• Game Theoretic Analysis
• Etc.

39. Numerical Methods &
Simulation
• (Non) Linear Programming
• Optimal Control Theory
• Mechanism Design Optimization
• Dynamic Systems Modeling
• Agent Based Models
• Network Models
• Etc.

40. Block Diagrams
DYNAMIC SYSTEMS MODELING
Controller
Target Temp
-
Error
Controller
Output
Furnace
Output
Temp
Temperature
Sensor
Measured
Temp

41. Simulation
DYNAMIC SYSTEMS MODELING

42. Maker Example
DYNAMIC SYSTEMS MODELING
Maker DAO
Governance
Target Price
-
Error
Stability
Fee
CDP Creation/
Destruction
USD Price
of DAI
Price Oracles
Reported
Price

43. Simulation
AGENT MODELING

44. Problem-Market Fit
Technical System Design
Qualitative Mechanism Design
Quantitative Mechanism Design
Empirical Evaluation
Evolution

45. Problem-Market Fit
Technical System Design
Qualitative Mechanism Design
Quantitative Mechanism Design
Empirical Evaluation
Evolution

47. Governing Upgrades
Opportunities
Challenges
Arrow’s Impossibility Theorem
Bribing Attacks
Regulatory Capture
Identity
Collusion
Dugan-Schwartz Theorem
Gibbard-Sattherwaite Theorem
No stable equilibrium in some cooperative games
Conviction Voting
Continuous Organizations
Rough Consensus
Liquid Democracy
Prediction Markets

48. Q&A
Brandon Ramirez
RESEARCH LEAD - THE GRAPH
@REZBRANDON