Building on the notes from:
https://imeom-tistory-com.translate.goog/96?_x_tr_sl=auto&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp
https://www-umlcert-com.translate.goog/crypto-economy-1/?ckattempt=1&_x_tr_sch=http&_x_tr_sl=auto&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp
In blockchain and technology systems we can divide the entire system into three layers, Layer 1, Layer 2 and Application Layer.
- The language that these systems run is called protocols.
- Layer 1 protocol form the base technology layer.
- Ethereum as a protocol. Sending data from one node in Ethereum to another.
- Layer 2 are usually resolving scalability problems in Layer 1.
- ZK-rollups aggregating transactional data offchain and updating Ethereum block at once.
- Application layers are where specific applications are being used.
- MakerDAO's $DAI being used in Aave's protocol and sending data and digital tokens to each other.
- In this book, we will dive into DApp protocols, the math and economics of them.
- We will focus on the mathematical models required to develop the various incentive mechanisms and other economic considerations that impact users' behaviours in a closed looped ecosystem.
Economics is three simple things
- Incentives
- Punishments (Disincentives)
- Behaviours
- The main difference between the physical traditional world and the digital decentralized world (eg a token-based economy) is the state of the economy.
- The physical traditional world is an open-loop system. The system (aka economy) has no capacity for any state feedback. This gives the engineer (aka policy maker) a limited level of authority to engineer the state towards the outcome desired with a high probability.
- On the other hand, the digital decentralized world consists of closed-loop systems which can be defined dynamically through state feedback. This gives the engineer (aka economics designer and systems engineer) the ability to achieve the stability of desired outcomes and behaviors in the system. There is also a greater variety of governance or control over the system in a digital decentralized system.
Token based economy