Session 8
Agenda
- Welcome
- Hello
- Logistics: We will get the exam questions for the other modules
- Topic of today
- Module 2 Part 2: Introduction to discovery phase
- Step 1: Defining System Goals
- Open questions
- Closing
Topics of Today
Module 2, Part 2: Introduction to discovery phase
When a client comes to a Token Engineer with an idea, there are seven steps for translating the client's vision into a workable form.
The 7 Steps:
- Defining the System Golas
- Defining the System Requirements
- Stakeholder Definition and Analysis
- Definition of Interactions and Value Transfers
- Metrics Definition and Analysis
- Causal Relationships and System Thinking
- Identification of Stocks and Flows in the System
Step 1 - Defining System Goals
Each system has a design objective, a raison d’etre that drives its creation. All subsequent phases of our work will be focused on achieving this objective, so we need to be very sure that we know what we are aiming for.
After we have identified the overall objective, we can then define specific system goals. These goals help make our objective more concrete and measurable. Often, there will be several different system goals, some of which are in tension with each other, and we will not be able to optimize all of these goals simultaneously.
It helps to locate these goals in various categories (like e.g. technical, economic, etc.) to understand the trade-offs between them. Doing so will lead to recommendations and guide decision makers through the process. Discussing the system at these levels also allow us to look for parallels that exist in other projects or domains, allowing us to borrow these ideas for our projects.
In addition to the high requirements for technical knowledge, effective Token Engineering requires strong communication skills. Token Engineers need to be able to communicate with clients to clearly identify what the client wants from the project.
Token Engineers also need to build models that accurately translate ideas to the models that are then used to build a working system. Before we can build the technical parts of the system, we need to have a clear mental model of how the component parts interact. There are a wide variety of tools, including diagrams and mathematical formulas, that can help with building this system-level understanding.
Design Objective
Determining the design objective for a system is a crucial first step. In the context of cryptoeconomic systems, the objective is to build an infrastructure for economic interactions between agents so that the system will achieve the objectives of all participants over the system’s full life cycle.
For each individual project, the most important questions will remain the same (e.g. what does good mean? or what is the purpose of the system? or what is the economic transaction and who are the agents?), but the answers to these questions may vary. Generally speaking this objective has to guide the project in the right direction and make it aligned with the system’s mission or purpose.
Due to the nature of the blockchain and how it is used, there will be many analogies to traditional economics. It is a good idea to consider similarities and differences to existing projects to prevent critical failures. It is much cheaper to learn from other people’s mistakes than from your own.
System Goals
After defining the overall objective, we define system goals.
Typically, the system goals are more concrete than the overall objective, which can be somewhat abstract. Often, there will be several different system goals, and it may not be possible to simultaneously fulfill them all. Therefore, explicitly putting these goals in various categories helps us to understand the trade-offs between them.
Since Cryptoeconomic systems are Cyberphysical Systems - connecting humans and technology - there are two natural categories of goals: technical and economic. However, there are many other types that could be considered as well.
We can separate 2 types of goals:
- Technical Goals
- Economic Goals
A firm understanding of the system goals, the business requirements, and the technical restrictions allows to optimize for different parameters in the design phase and in the deployment phase.
Stability is also a desired economic goal in many cases. If the system reacts too strongly to changing market conditions and shocks, it may become unusable. For the system to survive economically, it is crucial that there are control policies that can bring it back to favorable conditions. Later, in the Deployment phase, we will test simulations on a model of our system to make sure that all of the system’s goals are met.
When we set goals, we also need to think about how we will know if those goals are met. It is common to define Key Performance Indicators (KPIs), which are numerical variables whose measurements should tightly track into the system being designed.
If goals are clearly defined and consistently monitored, there is less risk of major deviations from the system’s intent.
The economic and technical goals that we define at the project’s outset will guide and inform all decisions regarding design, policy, and governance of the system. However, sometimes goals are allowed to change over time. For instance, if the environment changes due to something like market forces or government regulation, some objectives may no longer be accurate or will not support the system’s originally intended purpose. Consequently, a system needs a well-designed governance policy that allows for adaptations to varying external circumstances.
How Token Engineers determine the systems goals:
- Understanding Stakeholders
- Understanding the System
- Understanding the Market
Goal Setting Tools:
- Talk to Stakeholders
- Ask them questions
- Types of Questions:
- Open Questions
- Closed Questions
- Use Metaphors
- Metaphors for AMMs
- Market Analysis - SWOT
- Market Analysis - Porter’s 5 Forces
Tools for a Competitive Market
The world of Decentralized Finance has grown highly competitive.
Someone designing a new product really needs to understand the competitors they will face for the resources of users.
We can identify several specific goals for an AMM
Economic Goal
Low Cost of Operation
One key economic goal for an AMM is to provide a system that will have a low cost of operation.
Economic Goal
Low Market Risk
Another economic goal of the system is to have low market risk. No matter what market we are in, we don't want our resources to vanish.
Technical Goal
Reliable Operation
The system needs to work consistently in a predictable way.
Technical Goal
Secure Code
We want to ensure that any code we use is carefully tested to ensure that it can not be exploited by malicious users.
Agent Goal
Traders
Traders desire cheap and effective token exchange with low price slippage.
Agent Goal
Liquidity Providers
Liquidity providers want the value of fees earned to exceed any impermanent loss. They will choose to provision liquidity to an AMM if they believe the expected returns are likely to outweigh the risks
Once goals are identified, metrics for their measurement need be defined.
We will discuss metrics in more detail later, but in brief they are the key in evaluating a system's performance. Effective goal settings are measurable - and metrics translate goals into quantifiable objectives.
There are both internal and external key indicators that can be used to monitor the performance of a system.
Metrics for both the global system variables and the individual agents' performance are relevant. These different types of metrics will be used to connect multiple perspectives of the cryptoeconomic system.
Often, the metrics are not clear from the beginning but emerge during designing the system. Despite that, it is important to start with some good ideas about possible metrics and think about how they can be quantified and measured.
A Hitchhiker’s Guide to TE
Comments & Questions
Just type here your comments and qustions 😄
Open Questions
Make a summary of AMMs
Closing