Session 10

Agenda

Welcome

Hello

Logistics

Topic of today

Module 2

Step 4: Interactions and Value Transfers

Step 5: Metrics Definition and Analysis

Open questions

Closing

Topics of Today

Step 4: Interactions and Value Transfers

Once we have a solid overview of the members in the system, we look at how they 
interact with and transfer value to each other.

One tool for defining value transfers is the Ecosystem Motivation Matrix.

We assume that all members are contributing something positive to the system -- if they are not, they should be removed.

An ecosystem motivation matrix defines the value transfer between every stakeholder. It serves as a clear overview of members' motivations to participate.

The members are placed in both rows and columns in the same order, generating a grid. Each box contains the motivation from the member in the column towards the member in the row.

A Mapping Workshop is another method for gaining insight into the connections and interactions between actors.

Question: 

Which of the following best describes the roles of an
ecosystem value matrix and a stakeholder mapping
workshop in system design?

O It is only necessary to do one of the two, since they
provide overlapping information.

O It is important to do both, to gain a thorough
understanding of the system from various perspectives.

O An ecosystem value matrix is typically only created after
a stakeholder mapping workshop.

O Stakeholder mapping workshops are often less efficient
than ecosystem value matrices at generating the same
information.

Key Features of a Mapping Workshop

When mapping stakeholders, we want to know:

what participants want

how participants can be given what they want

who gives participants what they want

Step 1: Identifying all possible stakeholders.

Using a variety of ideation methods, we ensure we have a comprehensive list of all stakeholders that will interact with our system.

Question:

True of Fales: It’s important for a TE to communicate with project stakeholders to be sure that system goals and requirements are accuratly represented.

Step 2: Identifying Key Stakeholder Properties

Defining and analyzing the stakeholders, their roles, and their relationships to each other.

Step 3: Whiteboard the system as a pathway/network.

Here, we draw and position the present relationship and prioritize them based on impact.

Example of Agents and Motivations

In the Uniswap ecosystem, arbitrageurs are one example of a type of stakeholder. Their motivation lies in the profits they make from arbitrage opportunities between exchanges.

The activities of arbitrageurs benefit the ecosystem because arbitrage trades lead the exchange to reflect real market prices.

If it were not for the arbitrageurs, a person making a large trade could cause a bad rate for the following trader (unless they are trading in the opposite direction).

The arbitrageur's actions also benefit the liquidity provider since the liquidity provider earns fees on the arbitrageur's trades.

Using information from the Stakeholder Mapping, a Token Engineer can begin to formulate a system of value exchange.

Step 1

Use results from Value Mapping Workshop

Take the definitions of agents and their roles as defined in the Value Mapping Workshop.

Step 2

Explore how each actor benefits from the system.

This can be through both monetary and non-monetary rewards. The idea is that everyone in the ecosystem should benefit.

Step 3

Illustrate the value exchanges between various stakeholders.

It may help to use tactile and visual representations, such as whiteboarding and post-it notes.

Step 4

Look for Other Sources of Growth and Revenue

This is an opportunity to see additional revenue streams beyond what we've initially identified.

Step 5

Make a Comparative Analysis

Consider both direct competitors and the whole market to determine the strengths and weaknesses of existing systems.

Step 6

Hypothesise, design, iterate, and refine an initial prototype of the system.

This will help the team realise if the system is economically and technically viable in the long term.

Step 7

Find the unique core of the system

What does this product have that makes it unique? What is its foundational idea or concept? These are the things that can be emphasized to promote market success.

After the Stakeholder Mapping, the next step is to design an 
incentive structure for the system. The Token Utility Canvas helps in designing that structure.

Example: Fees are an Incentive in AMMs

In an Automated Market Maker system, fees serve as an incentive for liquidity providers. Uniswap compensates liquidity providers with a share of the transaction fees made in the liquidity pool. This fee parameter can be changed and will affect the profitability of liquidity provisioning. The higher the fee, the more motivation agents will have to provide liquidity.

Connecting Goals to Incentives

At this point, we as the system designers have laid the foundation.

We know

the stakeholders,

their potential roles

how value can be transferred between them

what influences their decisions.

Now, we need to figure out how to use these factors to trigger specific actions and behaviors that we view as desirable. In other words, we want to design an incentive structure for the ecosystem. We hope that this incentive structure will act as a kind of gravitational force, keeping the actions of agents in predictable and stable orbits. This  helps to make sure that everyone is motivated to perform the actions that their role requires.

If designed correctly, these actions will in aggregate ensure the system's smooth operations. It is important to craft these mechanisms with careful consideration, as there will be trade-offs between conflicting goals.

Game theory is a very useful tool here, as it is a key scientific domain for analyzing potential outcomes of a given decision structure. Analysis of incentive structures often uses game theoretic principles to predict (see the Refresher on Game Theory).

Network Design

Our goal in using the Token Utility Canvas is to look at two aspects: the market layer and the ledger layer.

Market Layer

This is where the token is used to create an efficient ecosystem, with participants incentivized towards desired behaviors and disincentivized away from undesired behaviors.

Ledger Layer

This layer is focused on what is happening on the blockchain and how to ensure that secure and inexpensive transactions can be executed and recorded.

The Token Utility Canvas

The Token Utility Canvas helps to answer four important questions for both the  market layer and ledger layer:

1. What roles are different participants taking in each layer?

2. What undesired behavior can occur on each layer?

3. What are the desired behavior of different roles at each layer?

4. What incentives can be used on each layer to promote the desired behaviors?

Why use the Token Utility Canvas?

Using the Canvas can also guide the Token Engineer to identify the value proposition: how does this system create value, and how is this value captured? Finally, it is important to consider the experience and design of service. We need to identify what the systems should do, how  users can interact with it, and what steps are part of the user's experience.The Token Utility Canvas connects the incentive structure to the goals (both technical and economic) , as well as to the requirements definition. By understanding these goals, we want to be able to to control actions both on a market and ledger layer. We want to create a system which limits or even eliminates the possibility of undesired actions being made.

Step 5 - Metrics Definition and Analysis

At this point, we know what we want the system to do.

The next question is: how do we know if the system is actually doing what we want it to do?

Metrics are a key tool in tracking how well the system is meeting its goals.

Important Note about Metrics

One important caveat: there is no one right metric, or even one right process for determining metrics. This is one area of Token Engineering where it's very helpful to have the ability to translate between words and mathematical formulas.

While we're going to list examples of metrics that an AMM might use, it's important to recognize that this list is not exhaustive. There are other metrics that could be used to give insight into the performance of an AMM.

Some Metrics for AMMs

Capital Efficiency. Capital Efficiency measures how effective a given quantity of assets is with respect to the achievement of desirable performance metrics of an AMM (slippage, impermanent loss). An AMM1 is said to be more capital efficient than AMM2 if with the same amount of assets lower impermanent loss and lower slippage can be obtained.The notion of captial efficiency appears in a wide variety of business contexts and has many different methods of measurement. For more information, see this article: https://www.mosaic.tech/financial-metrics/capital-efficiency

Return on Investment.This is the amount of gains made by traders, usually measured monthly or yearly.

Impermanent Loss. Here we track the difference between providing the liquidity to a pool vs. simply holding the two assets in a wallet. Providing liquidity exposes the assets of risks related to trading activities (see "Introduction to Automated Market Makers" earlier in this module).

Slippage. The difference between the quoted price and the actual price as determined by a trade - is considered by traders before making a trade at chosen exchange. Hence, the project needs to know how much slippage occurs. and how much this might impact traders (see "Introduction to Automated Market Makers" earlier in this module).

Trading Volume. The total value of all trades made during a given period (e.g. one day).

We can also use some metrics for external purposes, such as evaluating the market and competitors. Here, we can look into the token prices and slippage on other exchanges. It is also valuable to look into other spaces where asset holders can provide their liquidity and gain returns and how they differ.

Session 10

Agenda

Welcome

Hello

Logistics

Topic of today

Module 2

Step 4: Interactions and Value Transfers

Step 5: Metrics Definition and Analysis

Open questions

Closing

Topics of Today

Step 4: Interactions and Value Transfers

Once we have a solid overview of the members in the system, we look at how they 
interact with and transfer value to each other.

One tool for defining value transfers is the Ecosystem Motivation Matrix.

We assume that all members are contributing something positive to the system -- if they are not, they should be removed.

An ecosystem motivation matrix defines the value transfer between every stakeholder. It serves as a clear overview of members' motivations to participate.

The members are placed in both rows and columns in the same order, generating a grid. Each box contains the motivation from the member in the column towards the member in the row.

A Mapping Workshop is another method for gaining insight into the connections and interactions between actors.

Question: 

Which of the following best describes the roles of an
ecosystem value matrix and a stakeholder mapping
workshop in system design?

O It is only necessary to do one of the two, since they
provide overlapping information.

O It is important to do both, to gain a thorough
understanding of the system from various perspectives.

O An ecosystem value matrix is typically only created after
a stakeholder mapping workshop.

O Stakeholder mapping workshops are often less efficient
than ecosystem value matrices at generating the same
information.

Key Features of a Mapping Workshop

When mapping stakeholders, we want to know:

what participants want

how participants can be given what they want

who gives participants what they want

Step 1: Identifying all possible stakeholders.

Using a variety of ideation methods, we ensure we have a comprehensive list of all stakeholders that will interact with our system.

Question:

True of Fales: It’s important for a TE to communicate with project stakeholders to be sure that system goals and requirements are accuratly represented.

Step 2: Identifying Key Stakeholder Properties

Defining and analyzing the stakeholders, their roles, and their relationships to each other.

Step 3: Whiteboard the system as a pathway/network.

Here, we draw and position the present relationship and prioritize them based on impact.

Example of Agents and Motivations

In the Uniswap ecosystem, arbitrageurs are one example of a type of stakeholder. Their motivation lies in the profits they make from arbitrage opportunities between exchanges.

The activities of arbitrageurs benefit the ecosystem because arbitrage trades lead the exchange to reflect real market prices.

If it were not for the arbitrageurs, a person making a large trade could cause a bad rate for the following trader (unless they are trading in the opposite direction).

The arbitrageur's actions also benefit the liquidity provider since the liquidity provider earns fees on the arbitrageur's trades.

Using information from the Stakeholder Mapping, a Token Engineer can begin to formulate a system of value exchange.

Step 1

Use results from Value Mapping Workshop

Take the definitions of agents and their roles as defined in the Value Mapping Workshop.

Step 2

Explore how each actor benefits from the system.

This can be through both monetary and non-monetary rewards. The idea is that everyone in the ecosystem should benefit.

Step 3

Illustrate the value exchanges between various stakeholders.

It may help to use tactile and visual representations, such as whiteboarding and post-it notes.

Step 4

Look for Other Sources of Growth and Revenue

This is an opportunity to see additional revenue streams beyond what we've initially identified.

Step 5

Make a Comparative Analysis

Consider both direct competitors and the whole market to determine the strengths and weaknesses of existing systems.

Step 6

Hypothesise, design, iterate, and refine an initial prototype of the system.

This will help the team realise if the system is economically and technically viable in the long term.

Step 7

Find the unique core of the system

What does this product have that makes it unique? What is its foundational idea or concept? These are the things that can be emphasized to promote market success.

After the Stakeholder Mapping, the next step is to design an 
incentive structure for the system. The Token Utility Canvas helps in designing that structure.

Example: Fees are an Incentive in AMMs

In an Automated Market Maker system, fees serve as an incentive for liquidity providers. Uniswap compensates liquidity providers with a share of the transaction fees made in the liquidity pool. This fee parameter can be changed and will affect the profitability of liquidity provisioning. The higher the fee, the more motivation agents will have to provide liquidity.

Connecting Goals to Incentives

At this point, we as the system designers have laid the foundation.

We know

the stakeholders,

their potential roles

how value can be transferred between them

what influences their decisions.

Now, we need to figure out how to use these factors to trigger specific actions and behaviors that we view as desirable. In other words, we want to design an incentive structure for the ecosystem. We hope that this incentive structure will act as a kind of gravitational force, keeping the actions of agents in predictable and stable orbits. This  helps to make sure that everyone is motivated to perform the actions that their role requires.

If designed correctly, these actions will in aggregate ensure the system's smooth operations. It is important to craft these mechanisms with careful consideration, as there will be trade-offs between conflicting goals.

Game theory is a very useful tool here, as it is a key scientific domain for analyzing potential outcomes of a given decision structure. Analysis of incentive structures often uses game theoretic principles to predict (see the Refresher on Game Theory).

Network Design

Our goal in using the Token Utility Canvas is to look at two aspects: the market layer and the ledger layer.

Market Layer

This is where the token is used to create an efficient ecosystem, with participants incentivized towards desired behaviors and disincentivized away from undesired behaviors.

Ledger Layer

This layer is focused on what is happening on the blockchain and how to ensure that secure and inexpensive transactions can be executed and recorded.

The Token Utility Canvas

The Token Utility Canvas helps to answer four important questions for both the  market layer and ledger layer:

1. What roles are different participants taking in each layer?

2. What undesired behavior can occur on each layer?

3. What are the desired behavior of different roles at each layer?

4. What incentives can be used on each layer to promote the desired behaviors?

Why use the Token Utility Canvas?

Using the Canvas can also guide the Token Engineer to identify the value proposition: how does this system create value, and how is this value captured? Finally, it is important to consider the experience and design of service. We need to identify what the systems should do, how  users can interact with it, and what steps are part of the user's experience.The Token Utility Canvas connects the incentive structure to the goals (both technical and economic) , as well as to the requirements definition. By understanding these goals, we want to be able to to control actions both on a market and ledger layer. We want to create a system which limits or even eliminates the possibility of undesired actions being made.

Step 5 - Metrics Definition and Analysis

At this point, we know what we want the system to do.

The next question is: how do we know if the system is actually doing what we want it to do?

Metrics are a key tool in tracking how well the system is meeting its goals.

Important Note about Metrics

One important caveat: there is no one right metric, or even one right process for determining metrics. This is one area of Token Engineering where it's very helpful to have the ability to translate between words and mathematical formulas.

While we're going to list examples of metrics that an AMM might use, it's important to recognize that this list is not exhaustive. There are other metrics that could be used to give insight into the performance of an AMM.

Some Metrics for AMMs

Capital Efficiency. Capital Efficiency measures how effective a given quantity of assets is with respect to the achievement of desirable performance metrics of an AMM (slippage, impermanent loss). An AMM1 is said to be more capital efficient than AMM2 if with the same amount of assets lower impermanent loss and lower slippage can be obtained.The notion of captial efficiency appears in a wide variety of business contexts and has many different methods of measurement. For more information, see this article: https://www.mosaic.tech/financial-metrics/capital-efficiency

Return on Investment.This is the amount of gains made by traders, usually measured monthly or yearly.

Impermanent Loss. Here we track the difference between providing the liquidity to a pool vs. simply holding the two assets in a wallet. Providing liquidity exposes the assets of risks related to trading activities (see "Introduction to Automated Market Makers" earlier in this module).

Slippage. The difference between the quoted price and the actual price as determined by a trade - is considered by traders before making a trade at chosen exchange. Hence, the project needs to know how much slippage occurs. and how much this might impact traders (see "Introduction to Automated Market Makers" earlier in this module).

Trading Volume. The total value of all trades made during a given period (e.g. one day).

We can also use some metrics for external purposes, such as evaluating the market and competitors. Here, we can look into the token prices and slippage on other exchanges. It is also valuable to look into other spaces where asset holders can provide their liquidity and gain returns and how they differ.