Prisoner’s Dilemmas- XII: Juno, Proposition 16, and A Community Sanctioned Asset Seizure

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The decentralized governance on many cryptocurrency networks can be advantageous. Especially, when compared to the centralized authority of the legacy banking and monetary systems. There is a caveat; blockchains have well-touted advantages outside of crypto circles, but what about the design of the consensus mechanism? How transactions are validated can have a litany of ramifications rippling outside of the bounds of the DAO (Decentralized Autonomous Organization). For example, the environmental impact of proof-of-work validation, the consensus protocol used most notably by Bitcoin. Because this consensus mechanism requires several crypto miners to utilize large amounts of electricity as they race to validate the transaction on the blockchain and create a new block in the chain, Bitcoin has naturally become a target environmentalist.

One solution to the energy consumption conundrum is to shift the consensus protocol from proof-of-work mining to proof-of-stake validation. Several sources have noted that proof-of-stake consensus reduces energy consumption. In proof-of-stake blockchain operations, validating the new block by the machines of token holders, their holdings function as collateral for the ability to confirm the transaction. The validator is randomly selected based, avoiding the competition to finalize the new block. Even the popular cryptocurrency Ethereum is looking to transition to a proof-of-stake protocol. Are there any potential drawbacks to this governance model? One major issue that can arise from the proof-of-stake method of transaction consensus; is highlighted in the Juno Network’s Proposition 16 controversy.

The incident occurred back in October 2021, when the Cosmos Network launched the new token Juno. Cosmos initiated a stakedrop, similar to a cryptocurrency airdrop where coins of a new digital currency are sent to “.. wallet addresses to promote awareness of the new..” digital assets. Except, a stakedrop entails awarding individuals a sum of new tokens for holding an existing cryptocurrency on the blockchain network. At the time, Cosmos had an original coin offering, ATOM; the network matched an individual’s ATOM holdings with Juno with a ceiling of 50,000 tokens. One of the “whales” or entities that hold a large amount of ATOM on the blockchain contrived a crafty remedy to game the asset drop limitations. The “Whale” portrayed itself as but an investment group, acting as multiple individuals, and divided wallet addresses across several users and funneled it back to a single coin wallet.

The network community passed the resolution Proposition 16 purposed:

By voting yes on this proposal, you agree to reduce the gamed whale address to 50k (Whalecap set per entity before genesis).

Note: The facts are that the Juno genesis stakedrop was gamed by a single entity. Willingly or unwillingly is not relevant to this matter. The whale gamer poses a growing risk to the network and the stakedrop error may be corrected. Gamed funds were consolidated into 1 address right after genesis which proves that 1 entity had custody over all addresses (linked below). This considerably broke the stakedrop rules of having a max 50k ATOM: 50k JUNO per entity. At the time of the genesis stakedrop, there was no way for Core-1 to pro-actively counteract this behavior. If this information would have been known before launch, 51/52 of those addresses would have been removed entirely.

https://www.mintscan.io/juno/proposals/16

 Effectively, the resolution aimed to confiscate all but 50,000 tokens of the Whale’s Juno tokens. The Whale’s holding exceeding the cap has three consequences: a concentration of on-chain voting power (proof-of-stake consensus mechanism the more you hold the decision-making authority you possess), the Whale can bribe other validators on the blockchain, and this entity can wipe out all the liquidity in the exchange. This has resulted in a Prisoner’s Dilemma. Instead of negotiating a compromise, both parties acted in their interests by defecting.

 The Whale initially defected by attempting to violate the terms of the drop. The network defected by seizing the purported collectives’ coins. The results have been lackluster; this policy transgresses against one of the core pillars of blockchain currencies, the “immutability” of the blockchain. Some pundits have expressed that this move could shake the confidence of prospective investors. There is some fear that other networks adopting similar policies without any impartial due process. Madison’s “tyranny of the majority” problem assumes its most modern incarnation, perhaps? Aside from this issue, what if Whale acted as middleman holding assets for other investors? Is it just for innocent third parties to suffer? If this entity was a consortium or an investment firm, the commandeered funds did not even truly belong to the Whale.

Bootleggers and Baptists- XLII: The Procedural Rules of Baptismisal Rites

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Constitutional economics is the “.. research program in economics and constitutionalism by applying tools of economics to constitutional matters. It studies the compatibility of effective economic decisions with the existing constitutional framework and the limitations or the favorable conditions created by that framework”. The canonical definition; can be simplified as studying the rule formulation process for group decision-making through an economic lens. Most people may find the term constitutional confusing and assume that this school of the political economy only explores the decision-making processes of government institutions. This inference is false. The principles of Constitutional economics apply to a wide range of informal governance structures, for example, homeowners’ associations, biker gangs, prison gangs, and even the “codes of piracy” (p.601). This validates the famous quote from Aristotle identifying people as a “political animal”. This quote is open to interpretation; civilization requires cooperation and coordination. The Calculus of Consent (1962), addresses the conflict of cooperation and coordination by defining constitutional decision-making. Constitutional rule promulgation entails any system where a set of rules (two or more) govern the decision-making process. Structurally chartered bylaws are not limited to formally codified laws; such guidelines can be only be applied to a single person [1] to be constitutional. 

Given the findings of Public choice and Constitutional economics, it is not outlandish to apply the concept of political decision-making to the rule promulgation process within the Catholic church. This is salient in the sphere of regulating the validation of religious rites. Some shrewd observers may point out that the Catholic Church has similar features to formal government. There is some veracity to this claim. The Vatican does operate like a city-state. However, to what extent does papal authority have much impact have on Americans outside of the church? Virtually none. For the context of this brief essay, the Catholic church is a non-governmental institution. 

The author views the rules of religious rites and ceremonies within Catholicism as being stringent. For example, the Catholic church does not recognize divorce. The conservatism of Catholicism is a matter of individual perception. Catholicism is far from being the strictest religious tradition on Earth. Like any other variant organized religion, the Catholic church has several ornate and intricate procedures guiding the officiation of religious rites (often referred to as sacraments). The complex array of rules governing the process of validating sacraments leaves open a large margin for error. This is true of individuals in leadership who opt to inflexible enforce Church directives. The most salient example in the headlines of this problem is the controversy that has emerged in the Catholic Diocese of Phoenix. 

For many years, Fr. Andres Arango has officiated many religious rite ceremonies that have now been deemed invalid. The reasoning? Fr. Arango did not use the precise wording required by the Vatican to validate a Baptism. He utilized the phrasing “…we baptize you in the Name of the Father and the Son and of the Holy Spirit..” instead of “… I baptize you..”. Purportedly, he has used this incorrect wording since he has entered the priesthood in 1995. Purists and the most devout Catholics may perceive uttering “we” instead of “I” as being a matter worthy of splitting hairs, but it also could be possible for the pope to pardon this minor transgression. The magnitude of this error in judgment is minuscule after being compared to some of the darker and more pervasive scandals, whose ugly specter has been haunting the church for decades (molestation scandals).

Unfortunately, due to this scandal Fr. Arango has since resigned, leaving one to speculate why the church could not forgive such a small mistake. However, in terms of these governance decisions, it is clear that the potential of Bootleggers and Baptists’ (1983) dynamics are present in the Baptism scandal. The undeniable dynamic of strict rule enforcement and the need to obscure more egregious scandals creates opportunity coalitions. In this case, this coalition where sub-factions are distinguished membership to various tiers within the Catholic organization. We must consider the principles of methodological individualism. Because some members of the Catholic Church are acting as Baptists while others are the Bootleggers. The prima facie impression of the careless observer would be that such a coalition would be a paradox, as they are all members of the same organization. Such an erroneous observation treats the church as a solitary unit, ignoring the preferences and incentives of various actors within the organization.  

The individuals advocating for strict adherence to procedural requirements would be Baptists. The majority of the moralistic arguments are somewhat tautological, but a rule is a rule. Regardless of whether the enforceable edict is irrational or even unjust, there are consequences for violating formal decrees of institutional fiat. There is relatively little to gain from rigidly adhering to tradition for its own sake, feasibly making this a moral purity argument. From an administrative standpoint, if all priests follow standard procedures, it is easier to validate the ceremonies. The author is not well versed in the logic behind the specific wording requirement for Baptisms; any further commentary would merely be armchair speculation. 

“It is not the community that baptizes a person and incorporates them into the Church of Christ; rather, it is Christ, and Christ alone, who presides at all sacraments; therefore, it is Christ who baptizes,” it said. “If you were baptized using the wrong words, that means your baptism is invalid, and you are not baptized.”

https://www.npr.org/2022/02/15/1080829813/priest-resigns-baptisms

The Bootleggers in this scenario are not quite as evident as the Baptists. In terms of determining the Bootleggers; it is imperative to consider the individuals that stand to benefit from the “Baptism Scandal”. Several sub-factions comprise the beneficiary coalition, which silently allows this minor controversy to hit the headlines. Temporarily feels the relief of being out of the spotlight. It is common knowledge that the Catholic church attempted to cover up incidences of sexual abuse around the globe. High-ranking administrators at the Vatican; would welcome any distraction from this hideous fact. Although, it must be a legal and publicity nightmare navigating such treacherous waters, especially when the optics are not in your favor. A more insidious subset of this coalition, callously gaining from the inadvertent distraction campaign, priests guilty of sexual misconduct, hoping that the current controversy will delay further investigations into new allegations. 

Footnotes:

  1. Elucidated in James Buchanan’s Limits of Liberty (1975), as mentioned by Horwitz (RIP) & Skwire(2021) (p. 350).

The Paradox of Implicit Logrolling Has been Accepted by the Journal of Brief Ideas

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Click here for the Link

The process of Implicit Logrolling (Buchanan & Tullock,1962) is a form of indirect vote-trading that heavily relies on the bundling of wedge issues. By way of tying specific groupings of policies to attract targeted demographics of voters to a political platform. This political strategy is especially effective in capturing the commitment of single-issue voters. These voters need to tacitly accept the rest of the policies on the political platform to have their one area of interest acknowledged. This is why implicit logrolling is such an effective mechanism in shaping the American political landscape.

Most analysts ignore how voters reconcile selecting programs and political candidates that hold logically inconsistent views. For example, an individual that defends abortion rights on the grounds of a bodily integrity argument concurrently favoring vaccine mandates. Here is where the Paradox of Implicit Logrolling comes in; voters then must rationalize these discrepancies due to the lack of logical consistency. In vote trading, the individual voter expects to make some concessions. However, when these concessions present logical and philosophical contradictions, few people question the conflict. In short, the paradox describes how people are willing to accept contrary political positions if parceled with a party or policy they favor.

Clark, Peter. (2021). The Paradox of Implicit Logrolling. https://doi.org/10.5281/zenodo.5606090


The Abilene Paradox And The Collective Action Problem Are Both Cut From The Same Cloth

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This observation may be self-evident or even shallow, however, the Abilene Paradox is nothing more than the complete opposite of the Collective Action Problem. Both concepts demonstrate the pitfalls of the decision-making process but embody the extreme ends of the distribution. One demonstrates the follies of too much agreement in the decision-making process and the other details the difficulties of coordinating action when there are dissenting opinions and interests. These conceptions of the difficulties of managing agreement and disagreement provide us with the precepts to navigate the traps that impede effectual action.

In the Abilene Paradox, we drive towards disaster choices due to no one wanting to be the voice of dissent. The Collective Action Problem details how disagreement can paralyze us in the decision-making process which will immobilize the entire group from acting. Through understanding how to navigate these speedbumps in reaching unanimity will help us more efficiently coordinate various forms of group decision-making. Each of these concepts is applicable in a diverse number of settings ranging from the arenas of public policy, the boardroom, and even in the bedroom. I consent and or agreement is required it is imperative that everyone is on the same page. Not just merely trying to appease one another or being too bellicose and unwilling to compromise.

Why more theorists and management experts have not compared and contrasted these prevalent “agreement traps” is perplexing. However, from a superficial standpoint, one is nothing more than the inverted version of the other. The major difference between the two is most like the conditions under which both arise. These reciprocals may be linked a demonstrating the same problem, however, the defining variable that influences economic agents to either excessive amounts of agreement or following their divergent interests are likely context contingent. Contextual attributes such as incentives, personalities, external costs, penalties, cultural norms, societal affiliations, etc. can sway actors towards committing one of these fallacies over another. Neither of these challenges in the bargaining or agreement process yields optimal results, even us with either poor decision or incapacitated by inaction. Whether you are managing a nation, a company or a household all of these societal structures represent graduations in the scale of decision-making units. Making them susceptible to either over agreement or paucity of agreement, either is detrimental to all parties involved.

It is difficult to ascertain if a “golden-mean” can be found in striking the right degree of agreement. Again, what would strike the right ratio of consent-to-descent is highly contextually based. Choosing the wrong ice cream flavor does not carry the same magnitude of consequences as bombing the wrong country (hypothetically this is not an appeal for a hawkish foreign policy). The stakes are much higher in the latter example than in the first example of a decision gone wrong. A lot of this can be resolved through the constitutional basis for decision-making. In other words, what set of rules are established governing the initiation of choices. The seminal text of Public Choice Theory, The Calculus of Consent (1962) loosely defines constitutional decision-making as being any set of rules (two or more) governing the decision-making process. These rules do not need to be formally codified nor do they need to extend beyond a single person to be constitutional. Any means of quelling the concerns of group members of the fence can secure unanimity, whether it be through persuasion or compensation/ lessening of any external costs imposed on them can settle a disagreement. The role of the compensation would have to be implied in the rules guiding decision-making. Much how the articulation of opposition needs to be tolerated from group members to avoid an agreement for a course of action everyone knew would be calamitous. All because the group members want to conform to what they perceived was the desired action of the group. Anyone in leadership needs to have a tacit or formal understanding with their subordinates or constituents that constructive criticism is welcomed. If not you may be taking a long ride to Abilene!

Thier’s Law Applied to Human Capital

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This blog entry was inspired by feedback from Enrique at the Prior Probability blog.

If Gresham’s Law applies to retain human capital in the job market, is it possible that Thier’s law (p.9) could also be applicable in certain contexts? On money, when legal tender laws forcing vendors to accept both forms of money at nominal value, economic agents will choose to transact with the higher valued currency. Presenting an axiom that is the opposite of Gresham’s Law, “ Good money drives out bad money”. Typically in the arena of monetary economics, the divide between advocates of Gresham’s Law and Thier’s Law is a sharply delineated dichotomy. Most proponents of one will not defend the possibility that the principle could apply to the circulation of money.

However, in terms of the circulation of human capital these concepts are not necessarily opposed. Employee retention is the byproduct of several highly qualitative attributes that are generally specific to a certain firm. In corporate vernacular, the term “culture” is thrown around so frequently that it has become a buzzword deeply embedded in the American psyche. Companies such as Google, go to great lengths to demonstrate that they have a flexible, open, and innovative corporate culture. The veracity of the claims is ultimately judged by the perceptions of the individual employees. One employee may adore working at Google, while their colleague completely despises the company’s ethos. Making the ebbs-and-flows of human capital even more complex. Employee retention at the individual level is based upon a multitude of various factors. The aggregated collection of the opinions of all the individual employees regarding their work-life satisfaction tends to paint a fuller picture. If while perusing Glassdoor, you happen to see a company with eighty-five two-star ratings, chances are this is not the petty slander of a few disgruntled employees. This is why oftentimes companies will periodically send out surveys to their employees in an attempt to measure overall morale throughout their organization.

Putting aside the highly individualized variable of career satisfaction metrics for an entire firm, if there is a pattern of talented employees leaving, there is a retention problem. Sometimes this may be isolated to a specific department even if the firm as a whole has no issues keeping competent and productive workers. Certain companies and even job roles select for specific attributes that may not be conducive to attracting skilled and reliable labor. Some industries are notorious for high turnover rates, one salient example being the hospitality industry. I remember a few years back, being in between jobs, so I briefly worked at a call-center. For me, this was an income stream until I found something else, for many of the people in my training class it was a lifelong career path. This path was a volatile one. Staying only a few months at one company and then abruptly quitting, generally with no notice. Upon receiving a new job offer, I gave my supervisor my two-week notice and he was astonished by the fact I even bothered to take this step. After only six months, only five people (including myself) out of the twenty-five in my training class remained. Industries and job roles with high turnover may be more willing to retain employees with fewer skills or with a poor performance history, due to the outflow of higher-skilled employees. Perfectly mirror the effect described in Thier’s lawinstead of money, the commodity that is flowing out of the firms is quality human capital.

The question becomes how can these opposed ideas transpire concurrently in the same labor market or even the same company. The answer to this question is predicated upon a “rules of the game” type logic. Each company and each interior department within a firm operate as governing bodies directing the task of workers. Meaning both varying capacity function as “ruler-makers” within the company. Think of corporate policy as being analogous to the federal government, while the department formulated rules are similar to state law. Clearly, in most cases, corporate policy supersedes department policies. If these rules are too onerous or unjust there is little a qualified and skilled employee could other than leave. Either accept and abide by the rules set forth or resign. Resignation being a clear withdrawal of consent on the part of the employee. One relevant example of this is companies still drug testing for marijuana in states where it is legal. Granted, it is an organization’s prerogative to make employees refraining from drug use a contingency of employment. However, if enough high-caliber job candidates take to smoking cannabis they may be in a bit of a quandary. A few years back the FBI ran into this problem due to their “drug-free” employment policy.

If the rules governing the management of a firm are too oppressive, people with options are going to find another job opportunity. What the company is left with are those who lack the skills, ambition, and conscientiousness required for productivity. The employer is left with the staff that clings to their jobs for dear-life as odds are they do not carry too much value on the job market. Much how department policies such as catering to senior and skilled workers can impose an effect similar to Gresham’s Law the opposite is also true. If you create rules that disincentives tenure and self-development, odds are you will lose a lot of great workers. The kind of workers that can be a game-changer in managing strategic customers. As we have observed with the call-center example, frequently due to the oppressive rules, low pay, and dismal work environment people with potential tend to leave these positions. Leaving you with the unskilled and the desperate who are locked-in to the role due to their circumstances. Keeping this dynamic in mind, it is a wonder why people expect quality service whenever they call tech support.