Economic / game theory questions & discussion of core sales / polkadot 2.0

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Im confident in the future of polkadot, but wanted to see some more discussion around the implications for future and current projects/parachains when polkadot 2.0 / core time sales begin, which is a great concept and certainly innovative .

doesnt the new model add burden on projects/parachains to become “profitable” in some way, in order to pay for the coretime leases ? if the project is a small organic team, with no venture capital / other financial backing, but have a great idea / coding skills - wouldnt this added burden perhaps make them consider launching on another chain, where they would not face “charges” for using block space? would these added costs be potentially added onto end users - ontop of the usual transaction fees maybe?

If a project doesnt gain significant traction, early on - would this mean they are financially restricted from accessing the ecosystem then - with lack of funding ?

this made me wonder too, would this open an avenue for new projects, being able to request funding from the treasury to cover their first coretime lease periods? - would parachain token generation / auction model still be able to fit into the new 2.0 core time sales system? so projects can still crowdloan , in some form ?

Via opengov referenda - Could slot lease time be granted to projects which have no financial backing - but an interesting / welcomed idea for the ecosystem ?

im aware of cores being able to be sliced down into even per block sales, and the dot required could be relatively cheap overall - theres just some added layers of depth / thinking about the economic / game theory side which could be discussed too

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A lot of questions here, so I think it is best to respond by establishing the foundational ideas, and then perhaps letting you arrive to the answers yourself.

First, I think we can agree that blockspace has inherent costs and value. Same can be said with any cloud computation, however in Web 2.0 a lot of cloud computation is offset by other profit models. For Blockchain/Web3, computation is quite a bit more expensive, since there is the redundancy required to run multiple nodes, create and verify new blocks, etc…

So the costs need to be paid by someone, and it seems a lot of your questions revolve around who is going to pay those costs, and what that might mean for adoption and onboarding into this ecosystem.

Fortunately, the underlying philosophy of Polkadot is to make accessing blockspace as flexible as possible, and thus there should be many avenues for teams to acquire it no matter their specific situation.

Here are some of the options, non-exhaustive:

Direct Purchase

As you noted above, the most obvious way to access blockspace would be a team to directly purchase it. This does work well for high quality and established teams, which have the financial capital to acquire blockspace for themselves. I don’t think there is much to argue against this model as clearly blockspace is a market, and those who are willing to buy it should be able to.

With this model, it is possible that all costs for using a parachain are obfuscated from the user. Chains could literally provide free transactions to their users and pay for the blockspace themselves, assuming they build the right system to support that.

Funded by Users

If a team does not have the capital to purchase blockspace themselves, then end users who find value in using the parachain can pay the costs. This is pretty much the same thing as paying for Gas costs to execute a smart contract on Ethereum. This has been described since the beginning of parathreads:

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I write about it a bit more here: On-demand parachains - #13 by shawntabrizi

Basically the idea is that getting a block published will cost some amount of DOT. If the Parachain provides an increasing reward in their own token for a block submitter, then users are incentivized to submit blocks on behalf of the parachain and arbitrage the difference in costs between the two.

Or, perhaps it isn’t even you directly paying them with your token to compensate, but the user extracting their own value from the creation of a block, and them paying the blockspace costs to ensure those actions are executed.

In either case, you can be a team which only has great engineers and a great idea, and users who are excited to use your platform will pay the costs needed for your chain to run.

Governance Allocated

Finally, we must remember that the ultimate controllers of Polkadot are the token holders and the governance system in Polkadot. It is already an option that governance can be used to allocate blockspace for chains. This hasn’t been explored as much, but it has happened already with Encointer.

But, if you have a world changing blockchain idea, and you are providing an amazing service to all the users of Polkadot, then you are perfectly capable of opening a proposal to ask for blockspace, and let the Polkadot token holders vote on whether you should get that.

With this model, you can imagine the creation of non-profit chains, charity chains, carbon-offset chains, identity chains, and more. The hard part of these products is that founders of these chains need to understand their role in the ecosystem, and what it means to receive free blockspace from Polkadot. Usually this means:

  • Not having a separate native token. Using DOT for all functionalities, and thus providing your services to all DOT holders.
  • Delegating ultimate governance and decision making to DOT token holders.
  • Not capturing significant value to the founders of the token. i.e. not creating some kind of for-profit business or ponzi on top of free blockspace.

Beyond these different models, we must remember that we are still very early in the development of blockchain and Web3 technologies. We should expect that amount of high quality blockspace will increase exponentially over time, and the costs of this blockspace will also go down proportionally.

I think Polkadot has focused on keeping things flexible, and allowing the end developers to decide which of the options is best for them. As we see in just these three models, you can either: hide DOT costs completely from the user, have users decide if they should pay the DOT costs relative to your own native token / on-chain value, or base your entire chain around DOT and provide a new set of services and features to all DOT holders.

This kind of flexibility doesn’t exist in other ecosystems that I am aware of, and I think will actually be more friendly and stimulate more adoption to those onboarding into the Polkadot ecosystem.

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The costs are and will be neglible - right now 12 months of ‘coretime’ in Kusama costs approx $1 so this is not a problem.

When coretime eventually launches, even if costs are set higher than this, demand will demonstrate this resource as essentially free, no matter how many times people talk about ‘quality’ or ‘flexibility’.

Kusama is exactly the same incentive structure as Polkadot, so despite the branding, sense of scale and diffference in valuations/treasuries, they share the same futures - its just reality has hit Kusama sooner.

So I would turn your attention not to the costs, but to the essential demand drivers, since the whole system steadily collapses in on itself without successful Blockspace Products and Mechanisms in Polkadot as they are currently defined/discussed.

In this regard it is inevitable that network treasuries will need to bootstrap demand for blockspace by betting on teams who can acquire this resource for pretty much nothing, and then refine it in such a way that it has a much higher value.

If one team acquires a resource for $1 and then makes it worth $1m using a repeatable process, this will in turn demonstrate a price arbitrage opportunity that will in time create demand pressure on the network token, since there is clearly a good business opportunity.

In time it will become accepted wisdom for treasury proposals to be directly focused on bootstrapping coretime demand, with success measured objectively based on the ability to resell for a higher price, which opens the door to understanding spending effectiveness at a fundamental level.

https://twitter.com/monsieurbulb/status/1700047821599023352?s=20

This will be structured in a new form that blends much of what Shawn notes above, since these are just current examples of experiments to date, taking the best of each design to more effectively align core incentives.

Buy low, sell high - there is nothing new under the sun, just the business fundamentals of these networks are obscured by the massive over-valuations due to unregulated speculation.

Crypto often feels like an exaggerated version of the same infrastructure supply glut seen in the launch of cable and satellite communications which ultimately paved the way for world famous media networks like HBO, ESPN and MTV that were enabled by the 0 marginal cost of launching a new network internationally.

See The Rise and Fall of ESPN’s leverage which is worth a read.

I can still remember the conversation. Bill said, “Let me get this straight. You mean to tell me, for no extra money — for no extra money! — we could take this signal and beam it anywhere in the country?” And I said, “That’s right.” And then he asked again, “Anywhere in the country?” And I said, “Anywhere.” I remember we went back and forth like this a couple times. Bill and Scott were looking at each other, and they might have been getting sexually excited, I’m not sure. But I can tell that they were very, very excited.

You don’t have to stretch the analogy too far to see these networks through the same media distribution opportunity lens since they are effectively unbounded in their ability to reach supra-nationally and hyper-locally.

I would also highly recommend Tim Wu’s The Master Switch, The Rise and Fall of Information Empires related to these same points. It’s the best book on media and distribution I’ve read - and it seems highly likely blockchains are a new subset of media.

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Yes, things cost money.

The Polkadot ecosystem is generous, though. I’m sure there will be an on-chain accelerator that provides blockspace for incubating projects with a promising idea.