Sybil Resistance and the Web3 Ownership Chasm

August 18th, 2021

Before web3, our information flowed freely into unfederated platforms owned and governed by a minority of technocratic elites. After Web3, platform ownership and governance will be shared, but network creators have a responsibility to design fair ownership distribution algorithms.

Bitcoin and Ethereum distribute ownership, but have also enriched overly powerful entities on the basis of information asymmetry. Hear Vitalik:

...was Bitcoin really a fair launch considering how few people had a chance to even hear about it by the time 1/4 of the supply had already been handed out by the end of 2010?

The Uniswap airdrop distributed ownership retroactively to any address that had interacted with the protocol - all of whom were DeFi early adopters. Combined with the team and VC distribution, I'd argue this approach creates a challenging chasm, and perhaps an illusion of truly decentralized ownership:

The information asymmetry that creates this inequality is due to attention being scarce. If ownership is distributed via airdrop, it rewards these early adopters who paid attention to something weird that was going on - like the sale of a $SOCKS token on a website made by some kids in Brooklyn. Certainly, early believers helped the platform succeed and should be rewarded, but often these rewards end up being outsized as the network grows exponentially.

It's still incredible to me that some early co-founders of Ethereum have large ETH positions, but now actually compete with the network rather than help build it.

Vesting schedules help with this a lot. But even better is to drip distribution algorithmically. Compound has been innovative here, dripping COMP from a reservoir according to the current users risking their assets in the protocol. But the drip mainly goes to the richest users, and it also further "compounds" for early adopters (COMP itself has a distribution APY). Some might think that, for certain use-cases, it would be better if a drip like this flowed more equally across a community of contributors.

Another approach is to have a linear "universal basic drip" for each unique individual within a community. In other words, every community member should accrue ownership and governance over time, and it shouldn't necessarily compound for early users. In order to have this, the network needs a superpower: sybil resistance.

Sybil resistance is a network's ability to resist counterfeit identities. When a single person in an NFT drop uses 200 addresses to purchase all of the tokens and resells them on a secondary market, the integrity of that NFT community has unknowingly been hacked. Because of the pseudonymous nature of web3, many communities don't have a clear sense of the integrity of their ownership distribution.

Mirror has minimal viable sybil resistance, via the $WRITE Race. External accounts connect their Twitter profiles, and are voted into the network ten-at-a-time each week primarily by existing members (with signal boosts from other external voters). This is hard to fake, and it bolsters the community's integrity. Over time, sybil attacks become much harder still, and as long as the network increases in diversity. In a diverse network, members will tend to vote differently, and that makes sybil attacks harder to coordinate.

This is why it's been so important for Mirror to go slow with onboarding, and to try its best to diversify its membership. We've received some criticism for this, but ultimately this will enable true decentralized ownership. If we can accelerate membership over time while maintaining integrity, then we can create universal ownership drips that enable hard-to-fake, true decentralization.

The plot twist is that this is already happening, but nobody has noticed it yet. So, stay tuned.

Final note: Financial contributors and developers should be rewarded, too. But the distribution algorithm needs to keep this in check so that it can't be gamed, and that it's set up to allow for long-term rewards, and doesn't just enrich the early contributors. We want to make a new and better world through decentralized ownership, and that means we have to steer clear of the old patterns where early contributors and adopters get too much.

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