Rethinking token incentives for consumer adoption @ETHChicago

Thank you. Nice to be here. So I am going to be speaking about incentives today, because when we first started Icebreaker, we wanted to re engineer the way that online advertising works by giving users the lion's share of the revenue that they generate and giving them better ads. And we first asked, do advertisers want this? The answer is yes. Then we asked, is it technically possible? The answer is yes, using some cool magic with zero knowledge proofs and decentralized identity. But then we asked, do users want this? And although people do like receiving good ads when they're good, when you pay them money for changes things very much, and specifically to get high value people to do stuff, you can't just pay them money for it, not on a consumer scale. And so we've been obsessing for a long time over how do you incentivize people using more powerful mechanisms than we're used to in crypto. So today I'm going to go through a couple different lessons that we've learned and then try to frame them in very practical ways as we're building products in crypto for how we can use them. So first of all, like, why do we even care? Obviously, incentives, tokenomics, they're big things that we talk about a lot in crypto. And one of its superpowers is in figuring out how to do decentralized incentives. But also from a different perspective, if you're just a technologist, the ROI from studying why humans do the things they do is actually very high relative to studying the new tech that's coming out. Because as tech changes quickly, its users do not. And by that we're products of hundreds of millions of years of evolution before we even became primates and then humans. And all of this is basically baked into our operating systems which do not Upgrade on a 18 month basis or in crypto, 18 week basis. And yet we're used to, in crypto talking about tokenomics. And just think of the word tokenomics, it comes from economics, right? And yet economics is actually a terrible model for thinking about why people do the things they do and how to get them to do things. There's a whole body of research that has basically shown that economists, models of human behavior are wildly wrong. And actually there's a whole new field of research that has become more popular with things like thinking fast and slow and some of the popular books on behavioral psychology where actually people are very irrational and you can ask them the same question but in a different way and they will answer completely differently. And so just recognizing that people are irrational will allow us to start thinking about how to use incentive systems better. So before we continue, we're actually going to play a game today, and we're going to do a live exercise. But may I ask everybody who is sitting past the fourth row to actually move forward, please, but not too close. Nobody should sit here, really. This is just so that the talk appears more packed. Cool. All right, so now we're about to do a live exercise where hopefully we will experience some of these human incentives ourselves. So what I'm about to do is I'm going to ask you to scan this QR code, which should take you to a Typeform that I've set up. And so if everybody can scan this QR code, and then I'm going to tell you to do something, and that is going to govern how you answer the Typeform. So if everybody could please, and if you really, really don't want to play the game, that's okay. But it should display as type form, and that'll allow you to do the rest of the exercise. All right, does anybody need more time? Okay, great. Also, please come forward if you'd like to play the game and sit in one of the second through fourth rows. What did you. So, yeah, don't go forward yet. All right, Just scan it. Can you sit in one of those seats, please? All right. And also, if you want to play the game, you also have to sit in one of those chairs. Sorry, I'm a little bit of an introvert, so I want to keep this. Okay. And thank you for humoring. Hopefully this will be an enjoyable experience for everybody today as we learn about why we do the things we do. All right, so now if you could please reach under your chair and see what you have. And try not to look at what everybody else got. And now just look at it and answer the questions on the Typeform, please. And if. If you don't find anything, you should find something taped to the chair. If you don't, just raise your hand and Emma can help you. Okay, did anybody have trouble with the Typeform? No. No. Okay, apparently Typeform's real time integration is not working. Let me try again. Okay, so the Google sheet integration appears to have stopped, but let me see. Okay, Great. We have 28 submissions. Okay, so I'm just going to do a little bit of spreadsheet magic right now. Did the Typeform not work for anybody? Okay. And now you can look at what other people got. Ah, nice. Okay, here we go. All right, hold on. I'm just gonna put this down. Do a little bit of mag. This was supposed to live populate in the sheet, but let me see if I can fix it. There we go. All right, so now here's what we're going to do. I was like, am I on a show of Oprah right now? What's about to happen? Great. So what we had underneath was basically a live test of different things. And so some of you got a card. Who got a card? Yes. All right. And who got Monopoly money? And who got something else? I got something else. Something else. I'm sorry about that. I like chocolate. All right, so there are. Thank you. Okay. I think I'm now done with my spreadsheet jockeying for now, so thanks, everybody, for bearing with me. All right. All right, good. 29 respondents. So for people who got the card, this is a Genesis icebreaker card. And the question was, how much money could we give you to buy it back from you? And the median number that people gave was $25. Now, other people who received Monopoly money got a different question. And the question was, how much money would you pay to receive one of those cards? And the median answer looks like it was between 50 cents and $2. So this is what's known as the endowment effect, which is fairly well known in behavioral psychology, where when you give somebody something, they now value it more than if you give them the opportunity to get something. And so that mere fact of just giving somebody something and then asking them, can I take it back? Frames things completely differently than saying, would you like something? So this is a really, really powerful principle that I think we can start thinking about how we use it in crypto systems. Even if you're giving out tokens or even if you want people to buy your tokens, it can be a lot more powerful if you find a way basically, to put them in people's hands and then allow them to sell them back or to ask them if they actually want them, than just asking them if they want them before they are actually in their wallets. Now, there was. Oh, thank you. Now, there was another little hidden experiment in here that I don't think we had a large enough sample size. But there were two denominations of Monopoly money here, $1 and $100. And I think because we only had, like, six to nine in each group, we didn't really see anything manifest. But there is another psychological effect known as an anchoring effect, anchoring bias. And what this does is basically, you could ask somebody, how much are you willing to pay for something? And if before you ask Them that you say, I'm just going to start rattling off 60 digit prime numbers that have nothing to do with the question at hand. You now will anchor them to guess a higher number or to use a higher number. And so we sometimes see that with token denominations. I think this is another really powerful principle that is something to keep in mind that even though you might be using fungible tokens, the way that you frame things can have a strong impact. All right, well, thank you for playing the game. And by the way, you can keep those cards. So the point of that is to show that even among really smart people, there are ways to play with incentives. And I'll just pause and let everybody appreciate this cartoon because this is one of my favorites. So this is an old school XKCD talking about nerd sniping, where you can find the same person who might geek out and design the perfect tokenomics model and be like, this is exactly how we motivate somebody. You hold up a sign asking a really academically interesting problem, and all of a sudden they'll just go off on that and you've actually just motivated them to do something that you couldn't do with $100 worth of tokens before. Which brings me to the next point, that when comparing to utility, utility is actually at the bottom of the spectrum when it comes to motivating people and particularly high value people to do things. And what's higher than that? Curiosity. We have a colleague who frequently gets nerd sniped by things, and yet there are so many protocols that would probably spend thousands of dollars just to have him think about their protocol design for a little bit. But we'll just like tee up a little idea for him. And not in a manipulative way, of course, but he just geeks out on that stuff. And so if you find a way to tap into people's love of curiosity and of stories, then that is a really strong way to build something more than just utility. And what's higher than utility and curiosity? You see it every single day. If you took a flight here, you experienced this in the airport in so many different ways. Signaling. These boarding groups are just one way of artificial signaling status, social status in public. But there are so many other different ways. The, the things that we wear, the places that we go, the clothes, the schools, everything is basically a complex game of social signaling. And again, this is all coming back to evolution over 100 million years. Like, if you think about which weapon this guy was probably carrying around, was it the sharpest or most lethal One or was it the one that conveys the most status? My money would be on the latter. So compared to curiosity and utility signaling is the most potent of them all. And so all of this basically is what I was geeking out on over the last year. And a couple weeks ago, I put together this framework, which is not complete, but is meant to basically be a better way of thinking about different types of incentives when we are trying to design distributed systems to basically bootstrap adoption from the ground up, instead of as a centralized team. And so at the kind of bottom is the utilitarian, the utility and the money types of incentives, which, don't get me wrong, they can be quite powerful on their own, but if we can start going upstream, these are much more powerful incentive systems, experiential, where gambling is kind of between utility and experiential. And this taps into people's storytelling and love of stories and journeys and experiences. And then even higher than that are the social types of incentives which are around access, being able to reach people or organizations, being able to signal that access or that status. And finally, kind of at the top is our fear of missing out, like fear of desertion by the tribe, which has been ingrained into us almost like the strongest fear that we have socially throughout human evolution too, because throughout evolution, if you got left behind by your tribe, you were done. So we went through all that and we were thinking about, okay, how do we now build a product around that and build into some of these systems? And how do we give people these incentives in exchange for, let's say, using our product or viewing actually good ads in a privacy safe way? Which was our initial thesis. But then I was speaking with my wife a couple weeks ago on this topic, and she said, you know what, I kind of like the ads that I get on Instagram, even though I know that they're spying on me. And that was very strange to me because I had been thinking about everything in the wrong way when I posted that article on Mirror, which, by the way, that framework is a Mirror post that we released a couple weeks ago. It was all based on this idea that you give people stuff in order to get them to do stuff. But actually, in the case of Instagram advertising, that's an example where people actually want to receive those advertisements if they're good, and they're actually willing to be spied on by Meta because they still like getting those good ads. And TikTok is kind of a similar example. So at the top of everything is sort of this notion of Serendipity of, like, finding something that you didn't even expect. And if you can find a way to give people that, that is like the pinnacle of incentives. That is what we're seeking, even though we don't know it. And we don't always have a way of directly seeking it. And that's part of what makes it special. So I'm going to not spend a lot of time, but there are a bunch of different ways that you can think about how to build serendipity into your products. This is one model that has come through video gaming thinking about different types of people actually have different systems for what they value and what gives them serendipity. But at the most general level, I think it boils down to expectations and outcomes. And if you can find a way to basically maximize the delta between what people's expectations were and what the outcome was, then you can deliver serendipity and happiness. So to recap, because we're almost at time, tech changes, people don't. Humans are irrational as well as rational. Social is stronger than experiential, is stronger than utilitarian, and serendipity rules them all. And now who got the something else again? Was it you, sir? So actually, let me just go back to your happiness afterwards. So the person who received something else, you were the least happy of everyone. And actually, I don't know why, because you actually got the most valuable prize of everything. You actually won, sir. And what you won is the choice of One of these two books, Thinking Fast and Slow and the 1923 Treatise on Scientific Advertising. Or your own personalized metal card, if you've read both books. So come see me afterwards for your prize. All right, so last slide and then we're done. Just thinking about how do we practically use these as we're building crypto products or building crypto. One is just give people stuff without any expectations, set expectations low. The second is add social and experiential incentives whenever you can. Third is use blockchain permanence to retroactively imbue value and meaning. And the fourth is to recognize that sometimes the journey or the story is the actual thing that people care about and not necessarily the destination. Thank you.

All right, we have maybe time for one question for Dan. Dan, are you taking questions? Sure, we have time for one question for Dan, if it's in the audience.

Okay, who had the question? And do we need a mic?

Do we have any questions for Dan?

Raise your hand.

All right, then I think we're good. One more time. Big round of applause for Dan. Thank you.