Economic Insight on the Application of Emerging Technologies
Prysm Group assists in identifying and answering practical questions relating to economics and governance of emerging technologies with the intention of implementation in mind. Whether seeking increased platform adoption through the proper set of incentives or aiming to implement a governance model, Prysm Group provides the understanding of how to optimally structure economic systems for emerging technologies.
Our Framework
A Framework for Blockchain Economic Design: The Prysm Group House
Prysm Group's established framework has been developed to guide economic analysis and design for blockchain platforms. This framework is the basis for Prysm Group's products and custom economic design solutions which provides the blueprint for designing economic systems through a first principles approach.
- Contract Terms
- Dispute Resolution
- Escrow
- Search / Matching
- Pricing / Auctions
- Negotiation of Terms
- Reputation Systems
- Identity / Anonymity
- Education
Our Framework
A Framework for Blockchain Governance Design: The Prysm Group Wheel
Prysm Group’s approach to on-chain, off-chain, and consortium blockchain governance relies on a seven step structured process for project planning, designing, and auditing any governance system. These seven elements are intended to be designed in order and should be done so with the understanding that each piece will require updates as situational components evolve over time.
First Principles Approach
Prysm Group follows a rigorous social science-based first principles approach, comprised of the following steps:
Technology Agnostic
For open or closed platforms, Prysm Group's products and services are tailored to the client's selected underlying emerging technology. Whether proprietary or built on an existing platform, Prysm Group provides expertise working with platforms developed on all prominent blockchain and metaverse platforms.
How We leverage economics
"Economic design of emerging technology implementations is extremely context-specific. It does not copy-paste well. It requires a deep understanding of the economic principles at play to achieve the desired platform outcome."
Products
Prysm Group has developed a set of products tailored towards platforms at different development stages based on its established frameworks.
The Blue Paper is a first-principles, ground-up assessment of the key economic design issues that a platform will face and the steps required to address them. The Blue Paper highlights the tradeoffs that the executive team will face when making decisions for their token and/or platform, with the goal of assisting the team in refining and further delineating those objectives so that the economic design of the system can be specified.
Following the structure of the Prysm Group House framework, The Blue Paper is composed of three sections: Contract and Transaction Design, Market Design and Information Systems, and Token Economics and Design.
Each of these three sections contains:
- An overview of the top issues that the platform will need to address;
- Preliminary recommendations;
- An outline plan of action for mechanism design;
- An estimate for the time required to complete the design.
The Blue Paper is recommended for pre-testnet staggered platforms.
The Economic Audit is a qualitative and quantitative report providing an analysis of the economics and governance of a platform based on the following four primary sections:
- Contract and Transaction Design: contract terms, performance verification, dispute resolution, and escrow.
- Market Design and Information Systems: buyer and seller matching, pricing mechanisms, and supporting information systems.
- Token Economics and Design: participant incentives and markets for goods and services.
- Governance: participant selection, proposal mechanisms, and decision mechanisms.
Each of these four sections contains:
- An analytical assessment of the top identified economic points of concern within the platform's current design;
- Key findings with associated risk grade of Pass, Challenge, or Fail;
- Preliminary recommended plan of action.
The Economic Audit is recommended for testnet-ready or post-testnet staggered platforms.
The Metaverse Readiness Report is a proprietary framework to help organizations move beyond jargon and focus their efforts on how exactly embracing the metaverse economy will allow them to deliver long-term growth to their firm.
The Metaverse Readiness Report is organized into the following sections:
- Targeting: This includes whether a firm is attempting to interact with an existing customer or whether they are trying to reach a new audience.
- Offering: Firms must decide what goods, services, or experiences they will offer to have a meaningful impact on the market.
- Location: Identifying the best and most relevant metaverse technologies and experiences to engage will depend on where the target customers are currently or where they will be.
- Monetization: The analysis of the short-term vs. long-term optimal monetization trade-off will be essential to ensure the success of any chosen strategy.
- Readiness: There are three main components of enterprise readiness, these are: (i) Business readiness; (ii) Technical readiness; and (iii) Regulatory readiness.
The Metaverse Readiness Report is recommended for companies in the early stages of the business journey into the metaverse.
Economic Design
The vision of a platform’s leadership team determines the objectives of the platform’s design. Contract and transaction design, market design and information, token economics, and governance all interrelate. To achieve a properly designed platform, the design of each of these aspects must be done with the others in mind.
Contract and Transaction Design highlights the contract theory and transaction design issues that will be most important to the platform's overall function and success. In a typical transaction, one party pays another party to provide a good or service. There are a variety of problems that can arise in the execution of contracts, such as the buyer not sending payment or the supplier not providing the service as described.
Problems may also arise from moral hazard (the inability to properly share risk and monitor behavior) or adverse selection (asymmetric information regarding the quality of goods or services). Blockchain is often described as a trustless system which helps to alleviate these sorts of problems. However, in order to ensure that a contract is executed as agreed, and that all parties receive the benefits they expected, the design of the contract and related mechanisms must be designed correctly. This area assesses the design of the platform’s contracts and/or transactions in order to determine whether they sufficiently align the parties who will enter into them. This can include contract terms, performance verification, dispute resolution, and escrow.
Economic design can be implemented in the following aspects of transactions:
- Contract terms - Who is agreeing to provide what products or services, and in exchange for what?
- Performance verification - How do we prove that what was agreed to in the contract has taken place?
- Escrow design - What escrow should each party provide so that all feel safe entering into the transaction?
- Dispute resolution design - If the contract terms are not fulfilled, how is it decided what will happen?
- Information structures - What information must the platform provide to support these systems?
Depending on the specific context in which a transaction takes place, what is traded, and the behaviors required of participants in order for the transaction to be fulfilled, the level of importance of these elements may vary. Two goals of economic design are constant to all types of transactions:
- To increase the probability that parties behave as expected, thereby increasing the probability for a contract to be completed successfully.
- To increase confidence of potential participants that transactions will be successful, thereby increasing participation in this type of transaction.
Market Design and Information Systems highlights the market design and information system issues that will be most important to the platform's functioning and success. Before transactions can be executed, buyers and sellers must be able to find each other on a platform and negotiate mutually beneficial transaction terms. Designing well-functioning marketplaces is a complex endeavor. Some of the many issues that can arise in marketplaces include congestion (buyers and sellers not being able to find each other), unraveling (users choosing to opt out of the market), inefficient matching (users would be better off transacting with alternate trading partners), suboptimal pricing mechanisms (one or both parties does not receive the appropriate surplus), and inefficient or ineffective procedures for negotiating terms. This area assesses the design of the platform’s market mechanisms and information systems to determine whether they will successfully facilitate the marketplace the platform hopes to serve. This can include buyer and seller matching, pricing mechanisms, and supporting information systems.
Economic design can be implemented in the following aspects of marketplace design:
- Matching of transaction partners -- How do buyers and sellers find each other (search, recommendation engines, etc)? Is the process centralized or decentralized?
- Pricing -- How is price determined (posted, bargaining, auction, etc)?
- Transaction terms -- If other contract terms besides price are flexible, how do parties negotiate them?
- Reputation systems -- What information does each side need about the other to find high-value transaction partners? How should the information be aggregated and displayed?
- Education -- Do participants need instruction on how the platform functions in order to participate?
The relative importance of each of these elements depends on the specific setting at hand. An online e-commerce platform such as eBay, which sells many highly differentiated goods and has thousands of users, relies heavily on effective matching of transaction partners and reputation systems. In contrast, a procurement auction may depend less on matching and focus more on the design of the pricing mechanism. However, the goal for all marketplaces is that they facilitate the creation of transactions that are mutually beneficial to buyers and sellers.
Token Economics discusses the economic trade-offs inherent in creating a token and the implication of the token design for the functioning of the broader platform. A well-designed token is more than a means of exchange or a store of value. It must be designed so that it supports the incentive, market, and transaction design of the platform, as well as fulfilling the needs of those who use it for traditional currency purposes. Designing appropriate token economics involves creating a token that fulfills the fundamentals required by the platform, and then verifying that equilibrium token values will sufficiently compensate any platform participants who receive their compensation in tokens. This area assesses the design of one token to be used on the platform to determine whether it meets the goals of the client team and the needs of the potential platform participants. In most cases, this focuses on the role that the token plays in participant incentives and markets for goods and services.
The critical design choices in the economics of tokens include:
- The fundamental drivers of the token value -- What goods or services does the token grant the rights to?
- Token monetary policy -- Who are the intended users of the token, and what rate of growth supports their adoption of the token?
- Initial token allocation -- Who will receive tokens, and for how long are they vested?
- Distribution mechanisms -- Through which channels will inflationary funds enter circulation?
- Token storage -- How can tokens be removed from circulation, and what are the incentives to do so?
- Impact on incentives and compensation -- Does the token design ensure that participants are sufficiently compensated for their contributions to the platform? Are participation constraints satisfied?
Designing appropriate token economics involves creating a token that fulfills the fundamentals required by the platform, and then verifying that equilibrium token values will sufficiently compensate any platform participants who receive their compensation in tokens.
Governance is the set of decision processes or systems that allow for a platform to adapt over time to changing conditions or new information. The design of a governance system must be flexible enough to allow for adaptation under unforeseen circumstances, which is when it will be most needed. However, rules, mechanisms, and processes are typically put into place in order to ensure that the needs of particular stakeholders, such as platform users, are served by the decisions that result from a governance system. The economic fields of social choice (the study of decision making by groups) and contract theory (which covers decisions made by representatives) both provide frameworks for analyzing the quality of a governance system. This area uses those tools to assess governance processes, systems, and/or mechanisms of the platform in order to determine whether they will result in decisions that facilitate the long-term functioning of the platform from various stakeholders' perspectives.
The optimal design for a governance system depends on the decision-making context and the types of decisions that need to be made.
1. How will power be balanced?
- Will entities want to join?
- What will encourage them to stay?
2. What will processes look like?
- How will proposals be made?
- What is required for approval?
3. What types of information are required to make good decisions?
- Is expertise required?
- Who will provide it?
A Trusted Advisor to Corporate and Government Executives
Prysm Group provides advisory to corporate and government management teams working on emerging technology projects, evaluating opportunities for the highest possible economic impact to allow for informed project prioritization.
