WOLFRAM NOTEBOOK

Reimagining DeFi

Challenge—Fund 8—Miscellaneous Challenge

Wolfram Research
Wolfram Blockchain Labs

Proposal Summary

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We need to move from current DeFi that is zero-sum in nature to financing positive-sum initiatives that create real wealth.

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We would do research and hold workshops to redesign DeFi for the real economy (not speculation) that protects our natural environment and supports human dignity.

Relevant Publications

Ussher, Leanne, Laura Ebert, Georgina M. Gómez, and William O. Ruddick (2021) “Complementary Currencies for Humanitarian Aid.” Journal of Risk and Financial Management 14, no. 11: p. 557. https://doi.org/10.3390/jrfm14110557.

Barinaga, Ester, Andreu Honzawa, Juan Ocampo, Paola Raffaelli and Leanne Ussher (2021) “Commons-Based Monies for an Inclusive and Resilient Future.” Climate Adaptation: Accounts of Resilience, Self-Sufficiency and Systems Change. pp. 301–321. https://arkbound.com/product/climate-adaptation-accounts-of-resilience-self-sufficiency-and-systems-change (paper).

Ussher, Leanne, Chris Hewitt, David Cagan, and Robert Nachbar (2019) “Network Analysis of the Hudson Valley Current.” 5th Biennial Research Association on Monetary Innovation and Community and Complementary Currency Systems (RAMICS) International Congress, Hida-Takayama, Japan, September 11–15, 2019. (paper).

Timeline

We have a 12-month timeline for the execution of all items in the plan, assuming a start date of Monday, May 16, 2022.
Intervals on the timeline represent periods in which our work and activities will occur.
For each of the three workshops, there would be four months of lead time for preparation: recruitment, modeling, research and the creation of workshop materials.

Recruitment Phase: Community recruitment for the workshop.
Modeling Phase: The modeling and coding of agent-based simulations in the Wolfram Language.
Research Phase: Write up of the agent-based simulation in the form of computational lecture notes for the workshop. These lecture notes will be used to create online lesson videos and will form the basis of the publishable research papers.
Workshop Phase: Each of the three workshop periods will have online synchronous and asynchronous video content and community engagement on Discord or through video conferencing.
Wrap Up: Research publications will include Cardano Community projects and ideas where applicable. The presentation of the research will occur at conferences and in media blog posts.

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recruitment

modeling

research

workshop

Workshop Case Studies

1. Special Purpose Currencies for Matching and Clearing

By democratizing and localizing finance for specific business systems or community groups, decentralized finance can scale in a distributed manner. Multiple special-purpose tokens can be independent of collateral when non-convertible or with smart discretionary conversion. Rather than liquidity, mutual credit platforms, similar to carbon offset markets, allow individual members to issue their own credits endogenously in a decentralized manner. As in most financial systems, debits and credits cancel out and the purpose of money or tokens is their use as a medium of exchange and for short-term loans. Mutual credit tokens circulate with total supply expanding or contracting as necessary to utilize resources efficiently within a local ecosystem. Each token can be designed for different stakeholder networks and for a variety of specific purposes. Monetary pluralism, where each person has a wallet with multiple currencies, could be facilitated by DeFi practitioners. On-chain and off-chain data collection, transparency, and privacy are key for successful testing and tweaking by architects and users. Nonlinearities and feedback effects can be analyzed, visualized and explained with the Wolfram Language, greatly assisting ecosystem management.

An example of a highly successful mutual credit is Sardex in Sardinia (see Ussher 2018).

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Here is a visualization of Sardex, which is a business-to-business currency, similar to industry trade credit. Each industrial sector balance, aggregated positive balance and aggregated negative balance is plotted over time below. The years are not listed, but it runs from February 2013 to September 2014. Note that as with all mutual credit, credits and debits sum to zero. Each individual can create their own money simply be going negative, which automatically means a positive on someone else’s account. By adding up all the positives (all the blue bars) we get an aggregate supply of money. In a mutual credit, money is created and destroyed when accounts with negative balances earn money back. Hence the supply of money is endogenous; it goes up when more is needed and down when less is needed. Another interesting element of a mutual credit is that it is rarely convertible. Liquidity is not of importance. Rather, import substitution and infant industry protection is more important, and thus for businesses that have Sardex, they give priority to spending it on other businesses that accept Sardex and not on converting it into euros.
For more details on the Sardex non-blockchain alternative currency, see (Iosifidis, Charette, Airoldi, Littera, Tassiulas and Christakis 2018).

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Most cryptocurrency is designed to be scarce, but this is not a necessary criterion for money to function as a clearing mechanism. Credit money is designed for clearing and settlement. Since credits are promises or IOUs, there is no such thing as scarcity; rather, there is a need for diversity (borrowers and lenders). In exchange, this notion of money is better described as mutual credit or reciprocity. Reciprocity over time depends on accountability—what I give away is owed back to me in exchange at some later date.

2. Smart Accounting Systems with Self-Sovereign Data

Money keeps account of who is owed and who owes and how much—it is a network or social accounting system tool. Most of us use national money or bank money as their accounting protocol in their ecosystem of production and trade, but special purpose money, blockchain tokens or electronic messages can also be used to keep track of who owes and who is owed. Accounting need not only be for transactions of goods and services, but it can also be a transfer of rights, a record of events, the execution of an action within a firm’s production process or external to it. Supply chain transfers between businesses can be recorded on a ledger; even transfers between natural entities can have digital twins that record transactions. If nature has events, then it can also become an agent and have rights. Votes, decisions or any event might be tallied if important, and it can be aggregated and disassociated with its identity. Enterprise accounting can be built out into an ecosystem accounting format. A transparent mapping or accounting system for an entire ecosystem is highly valuable, but openness can also compromise issues of privacy and lead to unfair competition. To protect privacy but still utilize common knowledge, calculations for ecosystem management, pricing or rewards, bonding curves or smart computational contracts can be created through algorithms and computation that keep identities hidden but allow for smart event execution.

3. Universal Basic Income for New Economic Relations

Decentralized markets, with private property, work well when they satisfy something called “perfect competition,” situations where participants are not large enough to set prices themselves but rather are subject to competitive pricing with normal (not perverse) supply and demand dynamics. A state that approximates “perfect competition” happens when marginal costs in an enterprise or production process are rising over the size of the firm. Monopolies and imperfect competition occur when marginal costs are falling in the production scale (see the Wolfram Language Demonstration on monopoly pricing). In the latter, barriers to entry are naturally constructed and growing market share and network effects lock in monopolies or oligopolies that are incentivized to collude, bypassing all threats of competition. Digital products and services are rife with falling marginal costs that go quickly to zero. These markets are known as “club goods,” or artificially scarce goods and services. Big tech and social media companies are the most familiar but so too are digital financial services. These zero marginal cost digital industries explain why most big tech and social media companies are now becoming fintech companies. Payment platforms, insurance, money and credit are centralizing not only in the CeFi world but with DLT too.

Inequality is stark with one percent of the world’s population owning half the world’s wealth. Maximizing profit in such systems will always mean artificial scarcity, discriminatory pricing and growing inequality. The unbanked exist not just because of asymmetric information but because monopolies get larger profits when access to financial services are scarce. Monopolists maximize profit through artificial scarcity and endemic discriminatory pricing, which will always mean that some people (most people) won’t be able to afford digital and financial services even though the cost of providing them is zero.

The waste and extraction of a hierarchical CeFi or the process of recentralized and hierarchical DeFi systems that exclude people and add third parties to extract surplus is the way our system is set up. Systemic change will require a new understanding and a reconceptualization of production, distribution and economic relations. One policy growing in popularity and identified in David Graeber’s 2018 book Bullshit Jobs is the proposal for a universal basic income (UBI). Graeber argues that sanity can reign in an economy where everyone has a basic income and people can freely come together to solve their social problems in creative ways. In a closed-circuit financial system, implementing a sustainable UBI is an engineering or systems problem. It is also a political problem. Finance sits right in the middle of these economic, political and social interests and can’t be separated out as an independent area. We consider this problem, that finance is not independent of real-side issues, emblematic of this entire proposal, where DeFi for RealFi requires a broader imagination.

Reimagine DeFi as RealFi

There is a lack of imagination and systems thinking in utilizing decentralized finance for the real economy. By real, we mean anything that is non-financial. Finance is not an end; it is a means. In the real world, the wealth of a nation is its access and ownership of resources, how those resources are distributed, and how productive and innovative its citizens are. Increasingly, we must also recognize that our ecosystems are also made up of natural, social and digital capital. Arguably, the best purpose of finance (which includes insurance, credit, investment, money, payment and settlement) is to facilitate exchanging, investing, producing and distributing real goods and services in ways that minimize risk, promote innovation and create prosperity. What is also important is that we do this in a sustainable and inclusive manner that protects our natural environment and supports human dignity. A financial system should not be an end unto itself where speculative value, rather than fundamental value, determines our economic path. Remembering the words of John Maynard Keynes (1936) “speculators may do no harm as bubbles on a steady stream of enterprise… the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done .”

To reimagine DeFi, we will reframe the problem and look at the purpose of DeFi from a different perspective. By reframing the purpose of DeFi as RealFi, Cardano Community members can imagine a better world and then design a financial side to service their ideal real-world ecosystem.

Using an ecosystem mindset, we will create three workshops, with several lessons in each workshop over a number of days, with a focus on the evolution and management of decentralized ecosystems on a blockchain with global smart contracts. Wolfram Language technologies, simulated agent-based visualizations, semantic accounting and community engagement with self-sovereign data experiments will be the basis of each workshop. Agent-based simulations help wind-tunnel test models. By modeling different monetary regimes in the Wolfram Language, Cardano Community members can potentially understand better the mechanics of a blockchain monetary system from an ecosystem perspective.

Three areas have been chosen that leverage the research team’s expertise, experience with ecosystem builders, utilization of Wolfram computational tools and respective avenues for the greatest social impact:

1. Special Purpose Currencies for Matching and Clearing
2. Smart Accounting Systems with Self-Sovereign Data
3. Universal Basic Income for New Economic Relations

Since the 1980s, in an era of post-industrial capitalism, the financialization of our economy has been a growing concern. The increasing importance of financial markets, financial institutions and financial elites in our economy has prioritized shareholder payments over other productive uses of corporate resources. This went hand in hand with wages for non-executive workers stagnating and debt, inequality and financial fragility rising. While many believed that DeFi was a second chance to address these issues, it would appear that today's DeFi raison d'être is to imitate the rentier capitalism of CeFi. Changing the mindset of participants in the casino of DeFi is not our goal. Rather, our focus will be in partnering with community members who question the current DeFi path and would like to consider new kinds of decentralized digital economies where finance and money is repurposed for economic inclusion, financial stability, environmental sustainability and human dignity.

One way out of this trap is to reconceptualize DeFi from a tool for micro action and reward toward a mechanism for collective action to solve real-world problems and manage complex systems. Macro financial design and system-wide computational tools that take account of our interrelationships, interlocking economic systems and externalities can support a new economic order that is comprehensive, equitable, inclusive and environmentally sound.

Core Team

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Team Introductions: Watch the video here.

Jon Woodard—CEOjwoodard@wolfram.comJon Woodard is the CEO at Wolfram Blockchain Labs, where he coordinates the decentralized projects that connect the Wolfram technology ecosystem to different DLT ecosystems. Previously, at Wolfram Research, Jon worked on projects at the direction of Wolfram Research CEO Stephen Wolfram, and prior to that, he was a member of the team that worked on the monetization strategies and execution for Wolfram|Alpha. Jon has a background in economics and computational neuroscience. He enjoys cycling in his spare time. (LinkedIn)Johan Veerman—CTOjohanv@wolfram.comJohan Veerman is General Manager at Wolfram Research South America and CTO at Wolfram Blockchain Labs. Previously, he was Science Advisor at the Ministry of Foreign Affairs in Peru and Chief Scientist on two Antarctic expeditions. Johan’s background is in physics and business management. He enjoys playing soccer and is a certified cave diver. (LinkedIn)Christian Pasquel—VP Connectivitychristianp@wolfram.comChristian Pasquel works as Connectivity Manager at Wolfram Research. He manages a group focusing on connecting the Wolfram Language to external services and technologies and has been an instructor at the Wolfram Summer Programs since 2016. Christian has a background in physics and has written and published peer-reviewed research related to computational molecular biology. He enjoys coding generative art and recently worked on an interactive art installation commissioned by the Contemporary Arts Museum in Lima, Peru. He is a cat lover and had the main part in an official music video available online. (LinkedIn)Dr. Leanne Ussher—Economistleanneu@wolfram.comDr. Leanne Ussher is a Blockchain Research Fellow at Wolfram Blockchain Labs. Leanne is an economist that specializes in monetary theory, complementary currencies and the history of economic thought. She is a Researcher at the Copenhagen Business School, a Center for Civic Engagement Fellow at Bard College and an Associate Editor of Frontiers Blockchain. Leanne has spent 17 years in academia as a professor in economics and finance. She has peer reviewed publications in agent-based modeling, network analysis of local currencies and the international monetary system. Outside of academia, Leanne was a Senior Researcher on blockchain ecosystems at ConsenSys, a Consultant to the CFA Institute on international monetary reform and a Securities Analyst at the Reserve Bank of Australia. She is an advisor to startup crypto collaborative entrepreneurs like the Economic Space Agency (ECSA), Open Farming, the Hudson Valley Current and the THRIVE ON! Network in the Hudson Valley. In her spare time, Leanne likes to bake bread, compost and nurture a garden for butterflies, bees and hummingbirds. (LinkedIn)Dr. Michael Kelly—Financial Engineermkelly@wolfram.comDr. Michael Kelly is currently a Senior Technology Consultant for Wolfram Research. He has a BSc (Hons) in pure mathematics from the University of Sydney and a PhD in applied mathematics from the University of New South Wales, the two foremost universities in Australia. He was formerly a tenured Senior Lecturer in mathematics and economics at the University of Western Sydney and an Associate Professor of finance at the Stuart Graduate School of Business at the Illinois Institute of Technology, Chicago, before designing automated trading systems at the Chicago Board of Trade. (LinkedIn)Steph Macurdy—Blockchain Analystsmacurdy@wolfram.comSteph Macurdy is a Blockchain Analyst at Wolfram Blockchain Labs and has a background in economics, with a focus on complex systems. He attended the Real World Risk Institute in 2019, led by Nassim Taleb, and has been investing in the crypto asset space since 2015. He previously worked for Tesla as an Energy Advisor and Cambridge Associates as an Investment Analyst. Steph is a youth soccer coach in the Philadelphia area and is interested in permaculture. (LinkedIn)Karla Santana—Project Managerkarlas@wolfram.comKarla Santana is a Technical Project Manager at Wolfram Research. She manages projects at Wolfram Research South America and has been with the company for six years. Karla has a background in computer science and has worked in the blockchain initiative since she joined the company. She is a certified aerial arts instructor and enjoys crocheting and spending time with her many pets. (LinkedIn)Jesús Hernández—Senior Technologistjhernandez@wolfram.comJesús Hernández is Senior Technologist at Wolfram Research, where he helps various business units explore new opportunities and partnerships. He has been with the company for 10 years and is continually learning how Wolfram technology can be applied in new areas. He has a background in theoretical atomic physics. Jesús enjoys cooking, listening to almost all forms of music and watching his favorite sports teams inevitably lose. (LinkedIn)

About Us

About Wolfram Blockchain Labs

Wolfram Blockchain Labs (WBL) is the four-year-old subsidiary of the 35-year-old Wolfram Research that is exclusively licensed with high-performance Wolfram blockchain technologies and specifically designed to extend ecosystem tools for application development for distributed ledger technologies (DLTs). WBL provides four distinct areas of ecosystem support for DLTs: computational intelligence for blockchain-based smart contracts, direct access to blockchain data through blockchain integrations, blockchain educational programs and crypto asset analytical tools.

WBL often uses additional expertise in specialized areas like machine learning from both Wolfram Research and Wolfram Technical Consulting. The latter is an organization that has completed over three hundred consulting projects in the past decade.

The Catalyst Fund 8 projects serve WBL’s overall long-term mission of ecosystem collaboration, enabling blockchain-based commerce and business model innovation for the Cardano ecosystem.

Wolfram Project Catalyst Proposals

WBL plans to use its position in the Cardano ecosystem—as a builder of tools and business operator—to assist with mentorship and collaboration within the Cardano ecosystem. We can take our experience in both working on opportunities and technical work to help accelerate the vision of members in the Project Catalyst Community. At times, people have reached out to us for assistance on Cardano projects and making sure there is a uniform criterion for outreach will help our ability to assist everyone who is interested.

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