The Rationale Behind Reputation DAO

0xCdE1
January 20th, 2022

The Nobel laureate George Akerlof’s most famous idea is the market for lemons. As he argued in his paper published in the Quarterly Journal of Economics in 1970, markets have a problem with information. If a buyer is too uncertain whether a secondhand car they’re being offered has been well maintained, they’ll just walk away. There is an asymmetry of information between the buyer and the seller — the seller knows more about the product than the buyer.

The question for Akerlof was this: information asymmetry is everywhere; so how does the market function at all? The answer is institutions. Some of those institutions are laws and regulations that protect consumers. But others are brands, social identities, credit scores, and rating agencies that allow us to trade confidently even when we can’t personally verify everything about the products we buy and the services we interact with.

The goal of Reputation DAO is to provide that institutional layer for the cryptoeconomy. How do we know how reliable a service is? How do we know which of our counterparties are trustworthy? Which Oracles are reliable?

Often everything we need to know exists in public and on-chain. But just as the secondhand car buyer could personally inspect every part of the car for wear and tear, participants in the cryptoeconomy rarely have the skills or time to personally inspect every smart contract, to analyse how closely an Oracle tracks the underlying price, or conduct due diligence on the developer of a new protocol or NFT launch.

This is where Reputation DAO comes in. Reputation DAO is building the reputation layer for blockchain. The DAO’s first product is Oracle Reputation. Oracle Reputation converts on-chain information about Oracle quality into knowledge, something that humans (and machines) can use to make decisions. Oracle Reputation uses a Relative Performance Ranking (RPR) model called Repscore. The Repscore coordinates and aggregates reputation metrics, which attach human-readable and programmable knowledge into Web3.

Transparency

Reputation DAO won’t achieve this mission unless it has — and is held to — the highest standards of transparency, quality, and propriety.

When a philosophical concept such as reputation holds as much influence as it does over a user’s decision making process, the reasoning behind every design choice of the protocol must be clearly and fully communicated to the community.

Reputation has been built with the sole intention of it serving as a public good. As such, all motivations and intentions should be publicly declared from the outset, and continued to be communicated throughout the evolution of the project.

Community guided

Reputation should never be imposed upon a community. Not in the traditional sense of reputation, and certainly not in our decentralised future. Accordingly, Reputation DAO governance should be guided and controlled by the community, including but not limited to the creation and evolution of reputation metrics.

It is imperative that there exists the ability to add and remove the metrics used to calculate a node’s Repscore, as well as the ability to completely rewrite the Repscore function itself. Not as an optional extra to be added on at a later date and hailed as an upgrade, but rather fundamental functionality of Reputation: something that the Reputation DAO won’t launch without.

Furthermore, the community member role that is granted the ability to update the metrics and Repscore function as they see fit, must be permissionless. There will be no whitelist: the only entry requirement is membership in the DAO, which is obtained by possessing a Reputation DAO governance token.

Why a DAO

As the community — and in turn the DAO — grows, it is anticipated that the metrics will be further refined as the collective wealth of expertise expands.

The method by which reputation is calculated is unlikely to ever reach a state of finality. An ever changing ecosystem is likely to mean:

  1. New metrics may become vital and need to be added;
  2. Old metrics may no longer hold meaningful influence and need to be removed;
  3. Current metrics may remain relevant but hold more or less influence than they previously did, and their weighting needs to be adjusted.
  4. The Repscore function itself may need to be adjusted.

The DAO exists to facilitate these community driven changes. There is no external party whose approval is required to facilitate updates; all proposals for change will be executed at the complete discretion of the DAO.

The Open Reputation Foundation

To fulfil the Reputation DAO mission, there needs to be governance that both tokenholders and the rest of the crypto ecosystem can feel high confidence in. In order to ensure that governance is of the highest standard, Reputation DAO will be establishing the Open Reputation Foundation — an entity responsible to the DAO but with a high degree of autonomy to focus on the sustainable development of the Reputation ecosystem.

With targeted investments in development, research and community outreach, the Open Reputation Foundation will be able to streamline the provision of reputation services across the entire cryptoeconomy.

At the same time the Open Reputation Foundation will be fully subordinate to the sovereign authority of the Reputation DAO — acting on its behalf and in its best interest. The Open Reputation Foundation will be governed day-to-day with a board (and in the future an executive). The board will be subject to election and approval of the DAO. It is envisioned that these board members will be individuals that are held in high regard by the community and we hope are drawn from a cross section of industry and academia.

The Open Reputation Foundation will be funded by a share of the Reputation DAO which will be under strict constitutional controls. These include a funds vesting schedule, minimum dispersal requirements, and a mechanism enabling the DAO to recall board members if the Open Reputation Foundation is diverging from its mission.

Stay tuned for further details about the Open Reputation Foundation. The Open Reputation Foundation and the Reputation DAO are setting up an open infrastructure, ensuring that everyone — from retail users to wholesale fund managers — can engage in DeFi with greater security and confidence.

As George Akerlof found half a century ago, the more trust there is in markets, the more market exchanges there will be. Reputation DAO is laying the foundations for a massive expansion in DeFi and unlocking the full potential Web3. Please join the Reputation DAO discord to contribute to fulfilling this mission.

**Join the Reputation DAO community on Discord and follow Reputation DAO on **Twitter

Stay tuned for a white-paper release for Reputation DAO!

Thank you to Darcy Allen, Chris Berg, Sinclair Davidson and Jason Potts for their contribution to this post and the broader Reputation DAO vision.

Reputation DAO is a blockchain data analysis platform. The platform collects, decodes and visualises data from several blockchain networks. Reputation DAO uses the data to create visualisations and Reputation scores, using a Relative Performance Ranking (RPR) model. The DAO creates specific reputation products using the Reputation platform.

Oracle Reputation is the first product of the DAO. Oracle Reputation monitors, visualises and ranks Oracle performance on the Chainlink network.

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