This is a broad concept which I don’t have a full mechanism for yet – the aim of this post is to articulate the rough goal and open discussion.
The basic aim of “mutual network credit” is to allow participants of two distinct networks – let’s call them A and B for the purposes of discussion – to continuously (or periodically) decide how “aligned” or “correlated” their networks should be, where the mechanism for alignment is for each network to distribute some tokens to the other. Crucially, these tokens must not be exchanged – that would have net zero impact – but rather they should be held by the networks themselves in some fashion, perhaps with a mechanism for some future disbursements to network stakeholders.
Let’s take a very basic construction as an example to demonstrate the power of this concept:
We have two networks, A and B. Each have the ability to hold tokens of the other, and some sort of distribution governance mechanism governing how tokens held are distributed over time (see here for more context).
Suppose that stakeholders of A and B agree (somehow) that each epoch (perhaps a day), A will mint 1000 A-tokens and give them to B, and B will mint 1000 A-tokens and give them to B.
Over time, the value of the networks will then become more correlated.
Moving numbers around accounts obviously doesn’t do anything itself, but the idea here is to give “incentive cover” for participants of A and B to actually collaborate, with the guarantee that collaboration will pay off for both sides in the future. One could imagine that the negotiation of these mutual flows could also include a specific agreement or agreements as to how to actually collaborate.
One can imagine many changes to this mechanism, for example:
Setting a fixed rate of mutual issuance means that the networks themselves must value their “mutual collaboration”. Sometimes, this might be desired, but sometimes, it might be difficult, and participants might just want to vote to make the networks “more correlated” but defer some valuation assessments to the broader market. Should they desire this, a price oracle could be used to instead select an A:B ratio, and change the exact number of tokens of A and B minted per epoch according to the price oracle to match this ratio in “external value”.
How might the tokens be used, once owned by each network? The answer will vary depending on what affordances owning tokens provides in the first place. One imagines that the tokens might be usable as collateral to take loans (and perhaps offer them transitively to A-holders and B-holders, respectively), vote in governance, claim portions of a fee revenue share, etc.
Perhaps the trickiest mechanism design (or political theory) question is how best to facilitate negotiations of agreements, specific conditions, etc. in association with these flows. A topic for a subsequent post…
The most interesting types of mutual credit relationships that the Anoma Foreign Reserve could engage in at a network-to-network level include:
Cross-Network Liquidity Pools:
Creating shared liquidity pools between Anoma and other networks, enabling seamless cross-chain swaps and liquidity provision, thus increasing capital efficiency.
Collateralization Partnerships:
Allowing assets from partner networks to be used as collateral within Anoma’s reserve system, increasing utility and demand for participating assets.
Risk-Sharing Mechanisms:
Developing shared risk mitigation protocols where networks collectively insure or guarantee certain transactions or asset holdings, enhancing overall trust and stability.
How do you envision (1) the “issuance” mechanism? Is it minting of new tokens, disbursement from fees, or something else? (note: I see that this question is addressed in the Ethereum integration post)
and (2), what is the underlying incentive to agree to participate in such a scheme? What does this scheme provide in terms of collaboration than any other collaboration lacks? Do we tie any form of integration to this exchange, so that the integration itself can be governed by the governance mechanism of each network?
If the projects belong to the same ecosystem, I could imagine them willing to strongly signal this relationship by tying themselves to each other on this base level. Could this similarly be done by creating a mutual ecosystem fund, with a treasury made of both tokens, where, to qualify for the grant, grantees would need to integrate both networks?
In principle this could vary, although minting of new tokens is certainly the simplest and most predictable mechanism. Networks could also agree to share specific fractions of fee revenue, which is an interesting concept that creates somewhat different incentives.
Personally, I would understand the advantage of this kind of setup as potentially aligning financial returns / ownership stake with actual collaboration, such that the network participants who take actions which benefit both networks don’t need to worry too much about which network will “win” and capture the resulting value (since they’ll benefit even if they hold stake in the other network).
Suppose, for example, that we have networks A and B, which both benefit from fundamental research / technology / public good G. If I want to work on G, and I hold either A or B, I might be incentivized to develop G in such a way that the token which I hold benefits especially from it, and the other one does not (especially if there are first mover effects / power laws / etc. in play). If A and B have a mutual network credit mechanism, however, I don’t need to worry as much, since I’ll benefit a lot even if the token I don’t (directly) hold benefits from G.
I think a mutual ecosystem fund could be complementary, for sure, but that also includes aspects of technical governance (e.g. picking which grants to fund) which this scheme intentionally does not – the idea here is for the networks to align on a very high level by issuing some tokens to each other, such that stakeholders of either network also benefit if the other network does well, and leaving all the “implementation details” up to other mechanisms.
I understand this as artificially creating conflict of interest to incentivise a more collaborative game. I would love to see a simulation of this, to see if this new interest in the profitability of another project will impact dynamics or remain marginal.
Yes, I think you can think of it like that (but where the conflict of interest is really “collective”, which definitely changes the dynamics vs. an individual one)!