# SESSION 5: TOKENS IN THE ECONOMIC SPACE PROTOCOL

THURSDAY 4.6.2020 10amPST/1pmEST/7pmBERLIN/3amFriSYDNEY

PLACE: ECSA ZOOM https://zoom.us/j/2022138511

Telegram: https://t.me/joinchat/IivZHxdMBb3PKtNDr5QdVg

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READING: Section 6: TOKENS IN THE ECONOMIC SPACE PROTOCOL

6 Tokens in the Economic Space Protocol
6.1 Token types
6.2 Unit of account
6.3 Commodity tokens
6.4 Liquidity tokens
6.5 Stake tokens
6.6 Exchanges between tokens
6.7 Why have 3 different tradable tokens?
6.8 Three circuits of value
6.8.1 The performance circuit: the
circuit of value creation
6.8.2 The collateral circuit: the
circuit of growth
6.8.3 The credit circuit: the circuit
of stability

LINK TO THE TEXT: [**THE ECONOMIC SPACE PROTOCOL (ECSA ECONOMIC PAPER)**](https://docs.google.com/document/d/1TuTnsh50jtB710D5YwEuIxPG-bT1ZkokCLErV0l8Z60/edit)

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# [VIDEO: Tokens in the Economic Space Protocol, 4.6.2020](https://youtu.be/DDHcbUjGVec)

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# NOTES

Akseli: Today, it is section 6. Tokens in the economic space protocol, which is an exciting and difficult section.

In previous session, we talked about a value theory of performance. We started to decompose market and information, especially as understood by Hayek and neoclassicals. The point was to show that we can reshape the markets to allow different goals, taking stake in these goals.

Then, we started to redefine the realtionship between information and exchagne, differently than done in HAyek, where we show that price is not the key to the value creation.

Then we went on to define key categories that we have.Even as anything that the network recognizes performance as a series of causally connected events. Performance derivative as these consequences articulated
financially. And stake then as a position investment in the ownership of these performance derivatives.

Opens our imagination about what these performances could be.

This section
When we move to the token system, which is about the different relations that, they are kind of economic verbs in the economic space grammar, they make economic relations happen.

Dick: I think we would claim there are three irreducible, fundamental processes that have to be explained and we need to use in building economic space protocol: exchanging- commodity trade-, staking, and liquidity. No one would deny that they are really critical goals, the question is can they be done in one token or with three seperate tokens. In this section, we say that we would like there to be three seperate tokens because it has agency to play out. Why do we need three tokens?

Does liquidity, or credit, and staking need to be specified as different tokens, or different roles within a single monetary unit? The case is made in the paper, we think each of these goals expressed in different tokens. Today we not only talk about tokens but one of the processes within the reproduction of economy, the circuit of accumulation that says these are the three core processes that occur.

I would like us to start by talking about the case for three tokens before we had nearly given to their very precise dimensions and attribute.

Akseli: What I must remember to open, what is behind it, the idea that money is not just one thing. I was going to ask Collin about this. Why it is important to break it apart?

Collin: You say somehting about how money can be different things. Money is always different things. The idea is that it is one thing is a delusion that has to be carefully maintained. Top everyone living before 18th century it was obvious that money was different things. In 16th century I contract debt in different account, but I trade with different money, you have medium of excahgne, store of value, silver plate that you melt down for example. You dont have to big case, things are very simple.

Akseli: Right now it seems self evident that money is one thing. We try to make the point that it is really a system of relations. Normally, there is delusion and it is kept well but in times of crisis it breaks apart and we see that money is just not one thing. Perry G Mehrling for example, saying that all money is swap of IOUs.

There are difffernt IOUs,then and it is the institution and, what it can do in this network that actually backs this makes the money where it is. And that starts to open it for our case.

Then let's think that maybe we can actually separate these different functions in a way and put them into different protocols and to play the game. Or it starts to open in a different way. That is in fact we bring the politics of money to the table, showiung that it is npot one thing.

Colinn: I think, to push further, this is I would argue, there are three differnt moneys. They need to be held in some kind of parity, system can only tolerate certain degree of spreads. That's the function of monetary institutions, to contain the contradictons between them. What I argue is you cant have three of them together, it is actually a trilema. The problem is that there are contradictions between each leg of the triangles. The most famous one is called Gresham's law.

Gresham's law is the statement that bad money drives out good. The point is quite simple. If your money is really good money it is not really going to circulate. Good money will be stored, bad money will be circulated. So, there's a contradiction between the role of money as a unit of a store of value and as a means of exchange. And the better store value it is the worse it's gonna be as a means of exchange. And there is a political conflict about that, because there are three classes of people in society: there's people who want hard money who are landlords- there's people who want stable money who are merchants- and there's people who want cheap money who are debtors. There's a constant conflict between those three things.

And so, the question arises for me is what are the instituions in the system that manage these contradictions. There are a lot of gesture towards stability in this essay, my challange to offer you is that monetary history suggests there are not stabilities to this trilema. Whatever solution you pick, you're gonna end up following on one the other horn of the dilemma. Then what happens is that you have to constantly shift which side of trilema you are following on.

Jonathan: It actually de-fitishizes money. Money appears as one thing, it appears as fetish because it is a combination of desire and disawoval, all other realtions that make money a complex network. Precisely by opening spaces of that network, which division of money into these three different money suggests, and I would actually argue there is overmphasis on stability. But we try to create ways that new forms of agency can enter managenement risk relations. All these institutions are quite rigid and hold money in place for certain privileged actors are entrenched, and they have a system of controls. They've organized the network in a particular way that they miss fetishize and appears to be inviolable.

But as you are saying Collin, we know from monetary history that these things are all negotiable, historical relationships that have no equilibrium. But who has access to these realtionships, who has access to renegotiatie these protocols. Right now very few people.

Collin: That's the kind of thing that civil wars are fought over, for example the English Civil War.

Jonathan: How about the one now.

Leanne: I like Jevons' four characterizations where he puts a fourth function, where it is standard of value. He is primarily putting it in terms of future, so deferred value, you can think then as a stable value of time, or not, depending on how you want to manage it.

Jorge: That particular last function, the role of stability in a monetary unit of accounting comes from the capacity to be able to denominate long term debt. It is correct in that sense. In a system where some form of stability cannot be provided, that discourages long term debt. We think about what role, if there will be a role, can be taken by long term take. Will it exist or will the stake token will subsume the function of long term debt.

There is really no need for the long term stable unit of account.

Leanne: Jevons was one of the first who came with writing contracts are linked to a basket of commodities. It has realtion to realy world, may not be stable, but certain relationship that you have nondiscretionary control over that value. So I would put him in that monetary policy that prefers non-discretionary rather than discretionary.

He is trying to come up with a basket, then later on you have Benjamin Graham with his turbulent standard also as an international reserve that is stabilized by international basket of internationaly traded raw materials. Keynes did the same thing, prior to the clearing Union. He had in that commodities and commodity buffer stock, he wanted to stabilize those.

Jorge: What is really interesting about the sttem we are describing, is precisely that when there is no such a thing as money, and evryone can issue money, and liquidity tokens have to be ocnstantly cleared, unit effectively becomes basket of everything in the system. You could say average volatility of every single commodity over time would be the average volatility of the unit of account. The thing is for every tug in one
direction in the system there is a tug in, it is something togging back when these add over time that'll
end into like the unit of account effectively being the the least volatile.

Leanne: That was exactly Graham's point as well. But you can have an index collecting each of those baskets, but he also wanted to stabilize some of those commodities, so he had buffer stocks. You can tie it to Keynes' idea of stabilizing income of those people who produce those goods.

So he was generating a revenue stream and creating this
backing. Then, having buffer stocks, I would argue that he would be stabilizing those commodity prices. But there is argument that he might actually be estabilizing them by stabilizing that index. That is only in the case where he is actually having buffar stocks of physical goods. So I presume in your case it's
an index, you're not actually holding reserves of anything.

Jorge: absolutely right,. When you try to stabilize something, it goes at the expense of something else. If you don't favor any particaular one thing, every commodity has a certain tug on that unity, then basically the system stabilizes itself. The picture we like, one imagines a wheel turning around, the heavier the wheel is , the fsater it goes, it finds its own center of mass.

Akseli: maybe I can ask also, how does this realte to stable coins, or our take in realtion to stable coins?

Jorge: we mentioned before , funny thing about stable coins is they are basically pegging themselves by very creative means. to a nation of fiat currency, like the USD. In what we discover framing of stability and what it actaully creates is that the US dollar is gaining stability from the size of the network and the size of what they are traded, in which everything, like there's
this sort of like a eight gravities things tugging on the unit of exchange and the unit of long-term debt, including the Futurity of debt itself. That's actually what stabilize it over time.

Then that's going to become the most stable asset in the system just by virtue of it being one things are donimated, becomes self-fulfilling in a way . We want to use that understanding in the sense that, if we want a unit of account, and it's not necessarily pegged to something external, then we must have two goals we must pursue in this economy. Scale the network so it becomes more stable. The other is make it more active, more trade. The only limits of making sucha a coin stable, is by making it through network. But it is not really coin, it is an index of everything that is being traded,it's a market made index.

I think the term stable coin is an oxymoron. You have something that is a coin as something that can be manipulated in its worthiness measures. It's like
having a standard of like the kilo but then someone can change the size of the the mass of the kilo.

The closest thing to that would be this center of mass. That's what I have to say, we have to really create a stable asset, think it thorugh the lens of network, not pegging to another network that's out there already.

Akseli: That's where the real possibility is to actually really think it as kind of a network and the kind of stability that we want there.

Joanthan: It is not clear to me that the introduction of a new network necessarily has the follow up of stability because of its internal integrity. National currencies are effectively networks, and they have stability internally to certain extent, they buffer volatility because people accustome themselves to the value of the unit of account, or the presumed value of the unit of account. For a while that works but like any other network, they can be radically destabilized. Various historical events, or forms of fallout, or monetary policy or many other things...And so introducing a network of the kind of you're describing, even
self-consciously, doesn't really guarantee functional stability in and of itself. I think correctly you're
suggesting only if it's fully scaled you have kind of greater stability than anything else that might be available now.

Jorge: Absolutely. You mentioned actually one of the reasons why monetary measures can become stable and it's the fact that they can be used as tools of monetary policy. That means they can regulate and controlled by a single party however big this party name is, usually the state.

Most americans here take for granted that the USD is in kind of stable for a long time, but this is not true in Latin America. Always massive devaluation in the peso and necessary adjusments of all the prices, not necessarily the salaries, at large scale because we are in a globalized economy, it does show the need for something that is not by governments but rather is shared globally. So it is not at the whim of one particular institution, whether the US or the banker, but rather it is designed and baked in directly into the
system. That we would argue strongly for that need. Whether how do we achieve it, how do we get there, that's a different question. But I think that's in essence a little bit of a hidden promise in what we're offering.

Collin: I think it woul be important not to overestimate the agency of the US government over controlling its monetary policy, in particular because a reserve issuing hegemon is subject to imperial monetary limits so like there might be contradictions between domestic policy objectives and foreign policy objectives. And so in a way the United States is really screwed because the imperative to maintain the international dollar system really limits its policy space. So there's something called the Mundell trilemma which i think is really important here.

There's three things you can have, an independent fiscal policy, you can have free flow of capital, or you can have price stability. You have to take two. And so basically like in order to defend dollar hegemony the USA has to kind of actually voluntarily constrain its own policy space in order to maintain free flow of capital and stability of dollar as a asset accumulation. I think the United States is actually fairly impotent and that's part of the problem. I think that there's this whole discourse about whether the exorbitant privilege has become an exorbitant burden, I think Trump is really involved in this discourse. I think Trump
is of the party that says basically dollar hegemony is bad for United States, we want to blow it up.

Jorge: Thank you.

Akseli: Dickm do you want to continue on the stable coins?

Dick: Just a little comment, we already talked a little bit about our Big Put, and the spread between performance in capitalism and economic space protocols. We want to open a spread between our unit of account and the USD as monetary of a spread between the performance of capitalist economies and the performance of this new economy version. The monetary version is not an exact fit on that spread, but it is a proxy for.

Another thing about Collin made this section gesturing towards stability. It does, because that's the easisest way to write it, and the following section is about volatility nad stability. But the idea of designing a crypto coin stable in relation to USD, it always strikes me that, I understand why people would want to temporarily hold some form of wealth in a crypto currency linked to the US dollar to cover their risk in relation to the US dollar. But I would have thought the whole point was actually to get into monetary forms that weren't linked to the US dollar because there's a belief that the US dollar is not safe, stable, reliable, or when the future lies that if you want to short the US dollar, you don't want to be in stable coins so we're explicitly wanting to describe ourselves as not stable with respect to the US dollar because we're going on a different path. And it doesn't mean that our token or our economy is unstable. In fact, we may be the stable ones and the US may be the one that finishes up depreciating rapidly that's the way we frame it.

Collin: At the risk of using a buzzword of the enemy or something like this, stability is not what we want. What we want is resilience. Stability is to build agility. Resilience is the ability to dynamically respond to new
contradictions that you can't predict as they emerge. I mean this is the problem with monetary history, you cannot, people have tried before to make algorithms that remove sovereignty from the monetary system, but the problem is you don't know what the contradiction is gonna be yet, and you need some way of dynamic responding to that.

Jonathan: I think that's a really good point, and I just want to quickly say something about stable coins. Not that I know that much about them, but I think they serve as places to retreat to when people feel that the short-term outlook on whatever their holdings are in crypto, they're not good, and then the dollar all of a sudden or the Euro becomes a better bet in the short term. It avoids the necessity of having to move through the whole banking system and also all the reporting that is implied by that, so you could still keep it technically in crypto but you just can move back and forth between the stability of a national currency versus the volatility of crypto when you think that that's the right move.

But on the question of the stability of the ECSa unit
of account, that to me is a really interesting problem because as an index of the relationship of you know the
affect of a network towards what it's supposed to accomplish it's a matter of belief. I'm channeling Jorge here, his definition of bitcoin. The viability of unit of account depends upon how much people take the owner of the account seriously. And it's not magic, it's not sort of like pure ideation. It's actually a result of practical activity in the network and an understanding of that networks dynamism and its economic possibility in relationship to other economic alternatives. And so the experience of that will also affect the value of the unit of account in comparison to other currencies.

Akseli: Yeah, that's kind of the wager we are putting out there. To everybody, does it resonate? You think it is possible?

Eric: Just observation, the language you are using is similar to R Chain cooperative. They are saying that they need this widespread adoption to function. They are creating scenearios of how to take people into this system. Why not develop a very specific use case that works as sort of a micro economy, rather than sort of try to develop something that everyone's supposed to buy into. It's like the classic kind of, I'm designing a business and I'm really bummed because 98% of you know
the potential customers I'm trying to design my marketing for 98% of potential customers instead of
they're like point zero five percent that my business can actually handle. Does that make sense?

Felix: reading this chapter today, I find it rather difficult. I dont have a background in finance, so I guess that's related to my troubles. I don't get it, and many other people will also not get it, and will not use it because of that. Making it more understandable would be more practical example that continues throughout whole document would be really helpful. Making one exmaple and expanding it.

Dick: What Felix and Eric is saying is similar. The marketing pitch that you frame to national audicence who would be potential users, and Felix says the role of example help in abstraction. My view is both of these entirely legitimate propositons. But I think we cannot do case study robustly, until we have the overarching system broadly designed and coherent to oursevles and hopefully to others. When we come back in the other direction if you like, and do the case studies, but build from the individual case the individual user up
or put in the illustrations that need to be built after
this. And we haven't got that far yet. I'm sorry that to
communicate this more clearly I agree with what both Felix and Eric are saying as a point of emphasis, and
it's our intention to get there, but we analytically can't get there yet.

Jonathan: You would think the challange we are trying to adress is making cooperatives co-operable. Their limited scale also limits their contagion. If there are spaces of virtuouss behavior and happiness, the possibility of scaling those relationships is very difficult. We want to make cooperatives-entities interact with one anohter. So that this logic of social cooperation which is non exploitive can actually scale That's the vision. We're actually trying to think of a way to make you know cooperative entities interoperate with one another so that this logic of social cooperation which is non exploitive can actually scale, and that's the vision. So you have to have a really dialectical approach thinking about this. We are thinking about the individual use cases and specific needs of particular people and players but you're also thinking about the entire ecosystem and that is the challange.

Claire: So, all of the conversation about particualr examples, and discuission about cooperatives, speak to my quesiton, which is that I don't really understand, ECSA way of shorting US dollar or the existing system, I dont fully understand how this system is supposed to sit next to the current system, and the relationship between them. How does one have one foot in both economies? How would that relation be like? The new economy, but I still need to buy groceries. That's also speaks to the problem with cooperatives, the problem arises out of contradictions of capital, those kind of projects struggle to deal with those contradictions.

Jonathan: I think if you want to know how it feels, it looks as we are doing right now. We are actually staking right now, our time and energy, putting our life eneregies into the production of an alternative future. This opening to another future, opening of spread, as we substantiate the attack, produce these tokens, the network, and connect with other people, then this becomes more of our lives in that spread.

Akseli: This is what Ben originally came with, leading in the spread.

Ben: I have a lot of FElix's problems. I'm probably most radical in internal things in asking for clear exegeces and practical example, but I actually think there is another way of looking at it. I don't know whether this will be productive.

I've always looked at, when I teach Volume 1 of Marx, I alwasy find students understand money better because of MArx's analysis of money, which is unfolding from simple one form to totatlity, moving from barter to totality. We don't have anything like that in terms of presentation. So, we have to rely upon our common sense notions of money, which get in the way, and which MArx was essentially trying to deconstruct. There's no simple form of value in Grundrisse. That's the last thing he discovers, simple form of value. And he says then you can reverse the order of discovery and the order of presentation and all this kind of stuff and then he does vol 1 as an eminent critique.

But there's a certain advantage of an eminent critique is that it makes it look like a totality comes out of a very simple beginning. I actually think Jorge and Dick opened a very different beginning because the simple form of value is not a matched distributed network, or netting in distributed network. Actually, distributed network allows you to compare everything with everything else in the very beginning, it's also been through netting which sets up a problem of liquidity.

I don't know how yet we are going to present that, to unfold it, but I think that's an insight that Jorge and Dick in their paper have actaully buried. In a way it's there, but it's not pointed at. The major entre has been Hayek, which starts with this issue of information, which I think is equally important, but I'm not sure it helps people understand why we get to the tokens. The reason Akseli's question, the reason I look at that is, I'm anthrppologist and I work with gift, so all functions of money are functions in different spheres in gift soceities. So, my qustion was how do you bild up when you begin to have more complicated forms of mediation? How do you redo those functions? That's actualy living in spread. Claries' question, what's the realtionshiop between inside and outside of system?
In our system they are both commensurated in terms
of at least you know ordinal scales, ordinal measurement, which is not the case in gift societies.

So that's the kind of question that I would pose. I assume that Jorge and Dick will actaully get to this stuff, because the ywill give us practical example. Who it distributed, issues, how token commodities really work? So, I think that will come in section 6, but again it is pretty hard read. I have the same problem with my graduate students. They wanted to keep on going, but I couldn't explicate it further.

I think it is actually something that we will get the entry points that we need, but we obviously dont have the ramps for a lot of readers. When I taught it, I thoug students would see easy ramp points, but Felix gave the same feedback as my students. So I feel emboldened to mention that as a real exegetical problem.

Eric: Do you guys have a list of recommended readings?

Akseli: We actually do. We are creating a library for the subjects mentioned in the paper.

FElix: I'm very curious to read the next chapters, because I think that some crucial points have not been covered yet. Main challange will be translation, translating your terms to different terms. I see with ECSA this need of taming down the language to translate it to wider audience.

Dick: A few things to say, I do appreciate that this paper is written in quite a complex way, and it seeks to embed a certain circularity in its concepts because each conept depends on each other so it's hard to find entry point, therefore hard to find explanation of building point. I think in a sense that part of confronting the hegemony of standard categories is that if you try to explain this in the standard categories, it's gonna fall down quite quickly. And all that sort of is an apology as a motive, saying that the communication I agree is complex, and it needs to be simplified once the complex has worked out. But just going back a little bit on to what Ben said, and then I want to go back to Claire's first question really quick, it seems to me that when Marx talks about the simple form of value in Volume
1, he's actually talking about something that is recognizably still feudal, barter and money being used in barter and affect of the good and manufactured linen and coats is a twist, but the logic of the connection was recognizable, it would have been recognizable in a feudal economy. Swapping coats for linen.
We could have done an equivalent of that, which would have been to say how would this work, what's the simple form of what we're trying to articulate but done in terms of capitalist markets. And we do that, but of course the trouble is that the simple form of capitalist
markets is finance. I don't mean simple and easy to understand but simple as in the basic essential. And with finance, this is much more difficult to get a handle on than exchanging linen for coats. So, our simple form of value is already quite an advanced
financial derivative relationship, and that just escalates the problem of explanation. I agree it puts the pressure on to say, well, how about throwing in some simple illustrations to move it along and as I said before we'll get there.

But I do want to, maybe now's not the right time, I do want to come back to Claire's question, which I think was somewhat different. It was about living in this economy and either you know, how do we stop thinking of it as a sect or a cult. You will go off and trade tokens and and say goodbye to the rest of your life or the capitalist economy, how do you keep those two going in parallel. I don't want to talk about that now, but I don't want us to leave that issue unaddressed

Collin: I would like to walk through the process of throqewing off liquidity tokens, it is confusing that you are saying that because evrybody can do it, there is no liquidity scarcity and no interest. This was curious to me because a few paragraphs earlier you said that finance isn't defined as unproductive. And so my question is if finance isn't unproductive, then what's the problem with interest, why are we saying that there's no interest?

I am confused about incentive about exmaple of me throwing off liquidity token. Can we go through one exmaple of me throwing off liquidity? What is it in me to do that?

Felix: to try, you buy something from me, you dont have money, I just give it to you and tell me to give later.

Collin: This is just a fancy way of what people have always done, which is to sell goods on credit and what you have is some sort of fancy way to mediate and sell that counterparty risk. So the point is that I generate liquidity by selling on credit and now I have counterparty risk in the system. Is gonna help me deal
with that in a way that a medieval tavern keeper can't this is this the point?

Jonathan: Your interest is in that person, in that network, rathet than expectation of paying interest. The risk you trake is developing that relationship.

Collin: I am selling credit, I am supplying liquidty , so what do I get? Is it just baked into the price of your getting the commodity or something?

Jonathan: You are getting the commodity, Felix is getting your liquidity.

Collin: If I sell on credit my counterparty is getting both the commodity and my liquidity. Every tavern keeper in Engaldn did this, they give beer and give credit- hence liqudity. The person who gets both are the same. This is what I don't understand, that you're talking about a trade one person gets commodity the other person gets the liquidity, this is the transaction that I don't understand.

JOrge: Everone is and issuer of credit. That means that like in tavern, when I buy my beer, then I'm indebted to tavern, you could represent that as IOU, or a record writing in the ledger. That is issuing credit, utilizing debt as payment mechanism. Connected to question of settlement and difference with clearing. You are issuing now an asset that is backed by your work, the question is what is it that you have to offer. The particular IOU is redeemable, that's the first and foremost obligation you have to the network, to whatever you have to offer for a later time. Obviously, this doesnt scale. My question is, how does your relatioship with me could give you access not only to me but also to the whole network? How does that single node gains liquidity to not only my offer but to the whole network? This is where really understanding for instance Perry G Mehrling, how banks give to each other, reciprocal credit lines and what not, allows them to maintain the illusion of there being one money even though every the racking system as a measure of credit and And evrey dollar issuance is a differnt dollar. IFfdollar is a better contract, there is alwasy a counter party. Usually the counterparty is the bank on which the record is.

But how does it that me holding one dollar makes it acceptable on the whole network of the bankers is precisely because of the clearing realtionship they have.They have allowed like to exchange to each other. Liquidity token is actually its functionality is predicated on the fact that they can do what we're referring to this distributed clearance.Maybe we need to open it a little bit more. This is the expectation, like in any debt, of future settlemetn event, where if rhere's no such thing as base money the settlement doesn't happen in external currency but happens in commodity themselves, so the base money is really the actual edges of the economy, which are the commodities
themselves- the performances themselves.

Collin: I think you are conflating liquidty and credit in what you are saying. There is difference. In our
transaction, the seller is giving the buyer a commodity, the buyer is issuing credit to the seller, but the seller is issuing liquidity to the buyer.

Jorge: Maybe, but the reason we name it liquidty is because introducing that token is creating liqudity. Whether it is going in that direction or the other direction, we define liquidty by the capacity to convert anything into anything.

Collin: I am not satisfied with this. You are conflating liqudity and credit. If I write you an IOU, you are selling me liquidity, if you accept my IOU as payment, the liquidity you are producing, the liquidity for me . I'm issuing you credit but you are making my credit liquid and so my question is as the seller ,so I'm in this interaction, I'm now short a commodity and I'm long your credit, which means I'm now also exposed to your counterparty risk. And my liquidity is the price, the additional price that I'm gonna get for taking on your counterparty risk. But that's what I'm saying is that's different than the-- the liquidity is the price of me accepting your credit. So if we say that the credit is
liquidity we're conflating this. The seller in your transaction is short liquidity and the commodity and what they are long is your credit and your counterparty
risk.

Jorge: We are not making the claim that liquidty token sells or provides liquidty to the counterparty, it is more like the name that role plays in that system. MAybe we need to specify that liquidty token doesn't provide liquidty to holder but the other way around. Effective role is one of creating liquidity systemically.

Collin: I create liquidity for myself by issuing it but the point is that my counterparty, when they accept this thing that I issued, they are the other side of the trade. So I'm creating liquidity for myself but I'm getting it from them. And normally, they charge a form of premium for that, like interest.

You can chop this up, can make derivative of it, make liquid, but you gotta keep the sign straight, of which sign it's on.

Jorge: This is a p2p network, realtonship reciprocal. So when everyone can issue, you have reciprocal credit agreements, then basically the question is who gets to charge more- less interest depending on the risk they represent to the network. We are saying there is not going to be such a thing. WE are going to shift interest away from the liquidity token and we're going to put it in stake token.

So the stake token, how liquidity is created in the system is if steak is the preferred form of collateral, then the mutual exchange actually is the opening of credit line where the interest is striking on the value of the stake, not necessarily the value that remains stable or pinned, and how much credit you get is corresponding to how much value you are, how much a subject of risk you are perceived to be.

Collin: This is what began to make sense to me as I read text this morning, and I still don't understand the details exactly, but there is some kind of swap in which
essentially what's happening is that when I sell liquidity, when I go short liquidity in order to take on somebody else's counterparty risk, the point simply is that the price of liquidity is equity form.

What I get as a price for generating this liqudity is I get equity. I want to see details of such a transcaction walked through. What you are saying is that we are going to create a way in which equity will be the only payment for liqudity, therefore we avoid certain kinds of problem. I get that.

Jonathan: The thing about the IOU Collin that you wished Jorge when he gives you this beer that the IOU that you issued now is spendable. That's the other thing, it's transitive so you can take that IOU and use it as effectively what we think of as money.

Collin: People have been doing this for a long a
time. I mean this is a bill of exchange and now what we're talking about is discounting. so I mean just discounting is another version of the liquidity premium. So if I write a bill to Jorge, and then Jorge sells the bill, I mean generally whoever buys the bill from Jorge it's gonna be like okay well, this is not really money, there's counter-party risky here, so I'm gonna buy it from you at discount. So, there is discounting and all of this.

Jonathan: Systemically that discount is not taken because of the way in which the netting structure and netting and clearing are organized, so that you basically have issued money when you issue IOU.

Collin: I get it.The point of the system is to allow every agent to issue money at par. I get that. It's always been the case that anybody can issue money. The trick is issuing money at par because most people don't want to take my money at par.

So what you're saying is okay, so we have this distributed protocol, everything gets collateralized and when liquidity is created it's collateralized by stake, etc, and this will allow everybody to issue money at par. But like, there is still counterpaty risk, how is it priced? Counterpartyy risk is real, otherwise you are going to have cascading payment collapse in system when people default.

It is one thing to say our system works like this, but how does it actually work?

Jorge: I want to put a couple of things that are relevant to that. I'm not going to go directly into the answering how do you price that bad risk, yet.Although that's an important question to answer. But I will allude to how do you make that cheap. And one of them is a distributing the risk like it's already been whether
it's opaque to us or not. Because of the illusion maintained by the banking system we're exposed to that
information.

The second oen is you are no longer by yourself in this network, not the sole backer of your issuance. In a network where you can create clearly distributed, is all your network that is backed because your IOU can be changed for another IOU and that by another IOU.

So everyone needs to make not only the judgement of how much of a subject of risk is this particualr agent is going to get, and how does that agent relate to credit line, amount of risk I'm exposed to through equity. It's already operative, that's what banks do with each other.

Collin: We already have that, it's called interest.

Jorge: That's not necesarily what we are saying, we are saying that will be shifted into stake.

Felix: Banks employ armies of experts to determine those prices. How do we individuals keep track of network?

Jonathan: Rhis is the social dimension of shared risk, this is the idea of risking together. The notion of p2p networks. Even though it is staranger mediated economy, it is till network of peers. People have taken on risk in direct relationships to other people so that they have some kind of relationships and they've trusted it
enough to exchange the liquidity at par. And that's why interest is not qualified, it's actually inrerest in something, and that is the price of risk.

You are accepting a quality of relationship as you accept liquidty, and people are trafficking on that in order to get liqudity.

Felix: I'm happy with tradeoff.

Akseli: that's gonna be the new sensitivity.

Jonathan: That's really well put. New sensitivity- is not maybe using the same sense organs that we're used to have it. As you enter into an economic monetary system as you basically entered a new mode production and new form of value creation, there's going to be a prosthetic extension of the senses through the indices, through the network, through the developments of data visualization, all of which will give us a whole new set of tools and only way of evaluating the risk that we engage in.

The point is that it will not be necessarily indexed in a one-to-one way to the value form. It won't be like 3% or like 80% of your credit card. It'll be like well, do I want a risk on this group who's actually working for environmental cleanup? Do I want to work on this group who is working on anti-racist activism in Baltimore? So you'll be able to, by partitioning the network, by sort
of selecting the peers you engage with, you'll be able to sort of like pay your interest that way.

Akseli: And stake in those performances.

Felix: Can one ever expand beyond very niche settings? Can we erve imagine a general economic system where you consider whether buying my chocalte is trustworthy or not?

Jonathan: Right now when you buy a bar of chocalate, because of fetushism you dont give a shit about where it's from. Maybe you read on the back this was organically farmed, and fair wages were paid, at best. The sensitivity at this economy is that you can get a much more robust kind of tracking and sense of relation between any engagement you have, the same way that you get a full band with some connection in social media or in cinema or in literature. You might have that kind of bandwidth on your on the contract if you choose to receive it. But there's so much information that could actually be communicated in this process of exchange, which is actually repressed because of the current financial system. We can't take it in. That's how price actually works, by disavowing all those other things- externalities. But now we're sort like re-internalizing the externalities in a way that can be selected.

Akseli: There is interesting chat going on about inflation-- Jorge?

Jorge: We're talking about like what is it, what is this particular interest being shifted to and what is best describing it? It's related to this conversation turned like that do we really want to shift away all the risk, or we tend to? Or we want to be exposed to it actually as a feature.

Leon asked what's stopping a run on this. I was answering, so how run work in a place where there's not a central place ,where not everyone is using. I just want to first understand what that will look like in order to see like if it could happen.

Collin: The goal of the system is to create a system with no external drain, but the point is there might be external drain because you're not the whole world. Just saying there's no outside money like, okay, but you might need some outside. I mean you might be constrained in bills in outside money. That's what a run is, so I mean a run is a run on the clearinghouse.Yeah, you have a clearinghouse, everybody in the network it's just internal drain. But like this might kind of mean you need to meet bills in outside money and then how do
you?

Jorge: from our perspective, outside momney is a commodity. You cannot net and clear directly through banks, so, the way to indtrouce it is a commodity.

I think what causes a run is a condition of there
being more liabilities than there's assets. And that is not by rule. What I understand is like if everyone wants to get their money and there's not enough, not everyone is going to get it, right?

Collin: Don't confuse solvency and liquidity. Insolvency
means that you have more liabilities than assets, but you can be insolvent without there being a run as long you know meet your funding constraints.

Jorge: I know, meet your funding constraints. But what I'm saying is, if your system imposes from protocol level that for every liability there's an asset always
available, how could a run occurr? The reason again why the banking system can maintain this illusion of there being enough for everyone, is basically there being more assets than liabilites is as long as it circulates, it doesn't matter.

Collin: Even if liabilities match assets, there can be a
run if the demands for payment mismatch in time. This is why solvency and liquidity are not the same. Perry G Mehrling explains this.

Jorge: What would cause a run in a system where there's not outside money. In the hierarchy of money, there's different levels of power of money so to speak. In the
base of the pyramid you have like a base money and force like gold and then forcefully like the greenbags and fiat.

My question to you then, where theri s no hierachy of money, where every IOU is only settled in form of commodity, how could there be a run?

Collin: There be a run there could be a run if my survival constraint depends upon me cashing out of the system and and trying or need transfer whatever assets I had in the system for assets that are only for salient outside money.

If there is not enough food for sale in the system, I need to sell everything to get out of it.

Jorge: I'm thinking about the run is everyone trying to get the money thing within the system. If we include an external system, I would answer differnetly.

Jonathan: If people are offering comomdity, other currency as commodity, say my agent is offering bitcoin fiat whatever, if there is a concetpion that there is no integrity in the paltform, people will start to move out of the sytem quickly to solidy their gains. I don't think we don't have an aswer here.Which would create a crisis becasue unit of account would collapse.

Collin: You have two possibility. One is you create a system in which you say we've guaranteed that this can't happen and we promise.

The other one is you say yeah it's a real possibility. the system is going to price the risk of its own death. This is more interesting.

JOrge: For me the quesiton is what are the the right analytical framework because crisis can happen because a crisis like the one your discovery can absolutely happen but. For me that doesn't technically qualify as a run. So it is in a very ambiogious and big sense, but when we are speaking of thdse things particularly for someone that is designing the protocols and bla bla, everything has a name every process has a distinct name for me really to adress that question, I would need to name that scenario a little bit differnt from run. It is basically offloading, or rather it is almost like if this was a country or a network, everyone is getting out. .

So, in a moment of crisis, but half of them would not be able to. Because every asset is a liability.

Leanne: So that's why everyone is getting out. And the
price is going to zero, so even though it may sum to zero in quantity, the value is zero.

JORge: But what is the price, price of unit of account or price of commodity?

Leanne: The unit of account.

Jorge: Okay, so every price is actually an exchange rat,e so what is the unit of account being priced
with, that's the price internally. We're are
conflating terms here, so zero in terms of the US dollar, you mean?

Leanne: Zero in terms of me using oranges to exchange apples.

Jorge: The price of their apples going to infinity?

Leanne: Bo it's the price of your currency going to zero ,but yesm zero in terms of the currency, yeah apples go infinity.

Jorge: There is hint of balancing effect. So who is
going to accept apples are going to infinity, or what you're saying is trade will stop?

Leanne: No I'll trade apples for oranges, I'll trade it for something else, I won't want to use your currency, I'll go somewhere else.

Jorge: But the whole point is that is not my currencym is your currency, it is a debt.

Leanne:I'll invent my currency I'll start one up.

Jorge: That is what it is. The only a liquidy token doing is opening the interval. Actually there can be no credit whatsoever in the system, zero. All the agents express the offers in terms of this unit of account, no one gives credit to each other. And the matching algorithm will still be able to clear even, given there'
enough offers both on the buy and on the sell for every agen.

Leanne: But I think people would leave. The transaction volume goes to zero.

Jorge: That's a different question.

Leanne:I think it is related.

Jorge: I'm just not quite following the relationship of something that is taking something going to zero, trades might go both 0 for sure.

Jonathan: Because the unit of account will be priced against exit money. Basically the unit of account will
be put because people will start selling, you know they'll start accepting discounted unit of accounts. The price of Bitcoin versus unit of account will increase
tremendously as people start to seek exit. They're gonna wanna get as much of that hard money as they can.

Jorge: But what does exiting mean? What I'm seeing in here is the logic of external central money attempted to be applied into something that doesn't have it. It doesn't really work like that in here.

Jonathan: If I'm position that's a risk on platform and I realize that the platform itself is at risk that makes my positions much more risky, I will try to consolidate my assets whatever they might be off platform.

Felix: I think that Leanne maybe is talking about the risk of stake value going to zero, then money itself because moeny does not matter. Unit of account doesnt matter if I can exchange my appel for organe. But if my stake in ECSA space or in organge space goes to zero because noone is using as performance goes down, that would be the reason for me to exit, try to get rid of my stake and get Bitcoin.

Leanne: I'm gonna stay away, but I only feel that if
you have these three tokens, that liquidity token one could go to zero. I would be interested to see how they're connected and where the value is coming from these other ones, gut I can see how the liquidity bit-token might go to zero. But sorry guys, I didn't get a chance to read.

Jorge: The key in the paper is that if anything can go to zero, would be the state token. And he would be going to 0 in regards to the unit of account of liquidty token. ANd liqudiity token, it's being just a unit, could go to any direction depending on what you're comparing at.

Dick: Ive been following this conversation with treal interst because it is about what is inside and what is outside. The problem is that terms change, because inside and outseide is relative to position you are holding, relative to the token. But they are really
critical categories that our explanation has to clarify in order to address these issues of exiting. Because in certain dimension of our nalaysis it is a closed system, at least in a monetary sense, and it will sum to 1. In other dimensions where outside is availbe, then it is not going to sum to 1. We need to be clear about which is which, and hence what the circumstances of a crisis or unwelcome volatility, what circumstances will let arise it?

I think we need to clarify that.

Akseli: Good feedback, both inside and outside, and kind of entrance to how to start explaining it. I always thought that performance would be the best, but well it
kind of went further with the liquidity token, that's how it started. I think we need to play those.

Jonathan: every interface with outside is a potential point for systemic risk, which is not a bad thing but how it is managed. Is like the key question which for me
points to a better articulation of the social dimensions of the economy.

My understading of building this at all, is building systematically fair and jut realtionships that would enfranchise participatns's value in the way they want be recognized. If there is a way of articulating that as a kind of investment which vests participants that can be called upon in a variety of ways, then you have at least a semiotic system which can manage that risk. The other
system translates into economics by you know complex mesh, which I can't really quite describe in a sentence, means that there are techniques of risk management but that doesn't mean that it runs impossible.

People are gonna ask, do you really want to run from revolution, retreat into fascism? Those are the questions people would confront if the platform works in the way we imagine.

Dick: What you say is true in broad. The techincal difficulty we find is the outside is also in inside.

Then is the rush to fear the commodity form, how does that play out within the system? If we cast the outside in simple terms, it's feared. Yet fear is inside this economy as Jorge says it. It comes in commodity form that then is the rush to feared in the commodity form for example. How does that play itself out within the system?

Jonathan: That happens if people lose faith in the mechanism or vision of system or faith. If the system is functional as an economy, and there is a shared sense of building sociality, people will continue to stay in. If not, people will abandon it. There's just no doubt about it, and I don't think we can press on, and we shouldn't actually.

Dick: Staying in could also be the rush to the assets that have a denomination closely tied to fear, which is still in. I think we need to think through the epxlanation of this rather more craefully.

Jonathan: Good point.

Dick: i know there is an answer, I just dont know what it is.

Felix: One thing about feedback. I couldn't comment on the document.

Roberto: I was just thinking about the liquidity tokens and collateral. Maybe an example or something that can drive this narrative of illustrating this kind of abstraction, the Euro Dollar monetary sysetm, there are purchase agreements that actually become the primordial moment for these collaterals to exist in the first place, which has happened not very long ago and which we know very little about. So I'm wondering how we can perhaps you know react to this event or events that have happened progressively, and how we can maybe have a completely different take on what we mean about?

I dont know if it sounded okay.

Jorge: We have to think of it as well.

Jonathan: im not sure what you are invoking in a full sense, but one of the things the platform enables is colalteralization of whole new asset class: collaterazliation of performances.

Roberto: In a moment we were talking about the deciison to network, if if we're gonna bring the network in, or if the collateral and liquidity starts with with the networking itself. As opposed to the Eurodollar system the network is actually being built by these repurchase
agreements. But these agreements are not being talked about today, we don't really know much about them. These are intrabank loans, thery are not in any sort of accountancy. So how in ECSA or in other modes of staking, thinking about these performances, how can we think about these collaterals in a more cooperative way.

For example, cooperatives can scale as much as we want them to. Maybe we can identify some cooperatives already engaged in sort of exchange, we can think of them as preexisting collateral for other forms of exchanging. This is idea, I'm trying to think about network and how we can think about these liquidity tokens.

Jonathan: In earlier iterations of this thought experiment, zero barrier to entry to platform would mean expressivity itself, attention cognitive capcaity, or ways of forming collateral. You're seeing input, your participation, all these thingsö which now are basically
caughtö captures metadata or information on meeting other kinds of media interfaceö or geolocationö or that
metabolic activity which becomes informationö would be a way to collateralize your own presence in your own existence. Not the only way, but one way.

Akseli: It has been a good session.

Zoom Chat:

From Leanne Ussher : I like Jevon’s breakdown into 4 functions of money. he adds - “standard of value” which is the stability over time.

From Colin Drumm : That may be purely imaginary is the problem

From Leanne Ussher : that was his point
From Leanne Ussher : should long term debts be measured in terms of a standard - e.g. a basket of goods
From Leanne Ussher : stable is in relation to something else
From Leanne Ussher : not the unit of account
From Leanne Ussher : Graham had the index as a moving average over time
From Leanne Ussher : so that as the ecosystem changed, the basket would be updated.

From Colin Drumm : how did he deal with the addition of new items to the basket or qualitative changes in basket items? You just need a bureau for it?

From Leanne Ussher : there was a bunch of technocrats that would account for it. But to make it apolitical, he weighted everything as a proportion of trade.
From Leanne Ussher : He excluded monopoly goods
From Leanne Ussher : but even an index (like the S&P) is not anchored. It is not related to some external physical part of the real world.
From Leanne Ussher : So isn’t it average opinion of average opinion?

From Jorge : The unit of account?

From Leanne Ussher : It sounds like Eric is connecting its value to “use value”
From Leanne Ussher : “use value” independent of the network.

From Eric Drasin : to what extent does the technical infrastructure provide that interoperability
From Eric Drasin : i.e. object capabilities

From Jorge : That is the very definition of “shared protocol”
From Jorge : To interoperate through it.
From Jorge : So every economic agent can be seen as an “API” to the system.

From Jonathan Beller : Sorry to interrupt, Claire. Was trying to interject that we are doing it right now.

From Dick Bryan : we seem to have moved beyond the Ben graham and commodity money issue , but it is really important. I’m a bit uncertain as to whether ECSA’s tokens are a version of commodity money - it is a question of how you frame fundamental value

From Jorge : Is that the sort of interoperability you speak of Eric? Or did I misread?
From Eric Drasin : yes. but I am interested in understanding beyond the conceptual underpinning of a token, i.e. erc 720, 1155 as a protocol which enables interoperability across blockchains and networks
From Eric Drasin : the technical infrastructure determines how these protocols operate

From Jorge : yes… so what is the question precisely?

From Eric Drasin : what is the underlying structure that will enable the interoperability
From Eric Drasin : i asked once whether it was a blockchain, and was told it isn’t
From Eric Drasin : i saw some videos referencing object capabilities
From Eric Drasin : and mark miller

From Jorge : What do you mean by structure? (If it is not the protocol implementation and its exposed API through the agent)?
From Jorge : Ah
From Jorge : There is blockchain… but it is a loaded term. Lets take this convo “”off chain” :) And I can explain a bit if you like.

From Eric Drasin : otherwise you’re saying that everyone needs to sign up for your network, which is the same ponzi scheme that the rest of these people are putting
From Eric Drasin : ok

From Jorge : I do not get the Ponzi relationship… but maybe voice it here? It should be obvious that it is far from that.
From Jorge : And if we have not made it so, then we might need to address that.
From Eric Drasin : all of these blockchains require network traffic to drive gas prices
From Eric Drasin : which makes the originators of the blockchain money
From Eric Drasin : rchain included

From Jorge : Ah, we will we get on how to monetize a new economy in further chapters. We have not covered or implied that in any way yet.

From Jorge : Eric, a couple of recommendations that would open up on one hand the technical dimension, and the other, the financial one:
From Jorge : http://erights.org/
From Jorge : https://www.coursera.org/search?query=perry%20mehrling&

From Eric Drasin : is this like ERTP

From Roberto : Perhaps one may think of liquidity as implying fungibility within a network.

From Colin Drumm : That’s negotiability

From Leanne Ussher : counterparty risk is translated into inflation.
From Leanne Ussher : inflation might be replacing interest.

From Colin Drumm : makes ense
From Colin Drumm : sense
only one directional.

From Jorge : I am not sure inflation is the right term… but perhaps volatility on the value of the stake? Risk is not only one directional.

From Leanne Ussher : inflation doesn’t have to be one way.can be negative.
From Leanne Ussher : but it is general

From Jorge : Ah :) I come from a place where inflation is always the “bad” kind.
From Leanne Ussher : depreciation and appreciation

From Colin Drumm : Inflation is a tricky concept. 1) it is not well defined. 2) there is a qualitative distinction between inflation and hyperinflation

From Jorge : Inflation, deflation… both are global or network wide terms, that do not quite capture it.
From Jorge : But yes the answer is circling around there…

From Leanne Ussher : So what stops a run

From Jorge : How would a run work in this network? (There being no central issuing agent)?

From Leanne Ussher : lack of confidence in the number of defaulters in the system

From Eric Drasin : ive also been wondering the same thing
From Eric Drasin : i can’t quite articulate it
From Eric Drasin : but what is preventing hyper inflation

From Claire : ^^relates to a quesiton i have - are there any limits to people’s capacity to issue? chronic defaulters? what would that mean for the new economy?

From Leanne Ussher : It the value of the currency goes down and everyone wants to sell or exit the value goes down further.

From Eric Drasin : secondly, what role does social service have in this new economy? If it is still an economy, although purported to have less imbalances, what is preventing similar forms of wealth inequity
From Eric Drasin : governments provide basic social services to help mitigate the effects of capitalism

From felix : we have that Problem with every voluntary distributed system

From Leanne Ussher : Everyone is trying to go negative

From Eric Drasin : yea

From Leanne Ussher : they can’t, so price falls to zero

From Eric Drasin : the more i talk with crypto libertarians the more of a statist i become

From Leanne Ussher : currency becomes worthless

From Colin Drumm : a run is when all actors are long liquidity at the same time

From felix : @eric HAHAHAHAHA

From Roberto : Not a run but low transactional volume that inhibits feedback on value creation.

From felix : the longer they are libertarians the more they come to appreciate the state as well

From Eric Drasin : infinity apples is a good project title

From Eric Drasin : will there be artificial actors to pump exchange rate?

From felix : Exchange rate of?

From Eric Drasin : the rate to which a token is being exchange?

From Leanne Ussher : I’m imagining you can leave the network

From Eric Drasin : rather then letting it go to zero, you can have bots trading assets to create the illusion of traffic

From felix : hmmm which Tokens are being exchanged against which other Tokens? stake for liquidity? commodity for liquidity?

From Leanne Ussher : I just feel even if it sums to 1 - you are speaking about quantity.

From felix : okay good q - can Performance be faked?

From Leanne Ussher : But I can leave it in my wallet and leave.
From Leanne Ussher : Exactly - how is it managed. And whether it has value beyond the market price which is what I’m talking about when it goes to zero

From felix : so Exit/run would be if all short stake and Long commodities (e.g. Gold)
From felix : sorry for caps, german autocorrect!

From Jorge : Yes!

From Leanne Ussher : Intrinsic value or use value of the token is different from market value.

From Leanne Ussher : I agree that collateral is important. But what you describe can be withdrawn.