December 20, 2018 . 5 min read
Property rights and the enforcement of contracts make up the foundation of markets. Without protected private property, participants can’t lay claim to the goods they sell or buy in the market. Without contract enforcement, participants have to trust trading counterparts because there is no route for seeking redress.
Throughout history, the above describes the early days of frontier markets. The most risk tolerant participants lay claim to property with neither backing from the state (at least enforceable backing) and without recourse.
For markets to mature and for anyone but the most absolutely risk tolerant actors to participate, however, rights and contracts must eventually be addressed.
Cryptocurrency has already reinvented property rights. In his essay “ How Bitcoin Functions As Property Law,” Eric D. Chason writes:
“Bitcoin replicates elemental pieces of property law, but it does so wholly outside of traditional legal structures. Ownership is based on computer protocols, computer records, community expectations, and nothing more. Bitcoin functions as law, even though it operates outside of the law.”
Crypto researchers Su Zhu and Hasu go a step further, arguing that Bitcoin “detaches property rights from the legal system and the monopoly on violence. For the first time, we can have property that does not rely on a local authority to enforce and protect. It is easy to conceal, defend, divide, move, and verify — all by yourself, granting you the highest level of personal sovereignty.”
In his look at cryptography and property rights, Hugo Nguyen reinforces this point, saying: “For the first time in history, a form of private property exists that is completely independent of jurisdiction or the law. Private keys and the bitcoins they control are private property de facto, not de jure.”
It’s hard to overstate just how significant a change this is. Indeed, we’ve yet to see the full social and societal ramifications of it.
That said, if the rights of ownership are guaranteed by the technology design of cryptoassets, a different set of questions around enforcement remain.
Cryptoassets are secured and maintained by decentralized networks of participants who play key functions such as validating transactions. Each cryptoasset network has a slightly different set of rules and expectations around how those participants behave vis a vis their roles and one another. Those rules can either be enforced informally through social consensus or formally through governance processes.
One of the arguments against many proposed governance models is that they create new vectors of attack and opportunities for some group of actors to exert centralized control. In many cases, this isn’t a function of the initial rules of governance, but the opportunity to exploit them to accrue power, as happens in any political system.
With this challenge in mind, Storecoin’s proposed governance model is designed to prevent "Centralization Creep".
One part of this is the systems of checks-and-balances at the heart of our system. But if separation of powers among different groups of actors within the Storecoin ecosystem is an essential bulwark of decentralization, how do we ensure that actors play the roles that they are intended to?
The key, we believe, is enforceability of the rules of participation. It’s all well and good for an ecosystem participant to agree to their roles and responsibilities when they formally join the community. It is another thing entirely for there to be specific penalties and punishments for violating those rules and obligations.
In Storecoin, there are two types of enforceability: enforceability via code and enforceability via contracts.
Enforceability via code refers to the idea that the software Storecoin runs on has the ability to automatically mete out penalties for violations it can detect. Most of the participants in the Storecoin ecosystem participate by staking some amount of $STORE. When they fail to comply with a rule they’ve agreed to by being a part of the ecosystem - such as participating in voting or upgrading to the latest version of the software - their stake can be slashed along specific guidelines.
Importantly, this punishment is not enforced by any person, but automatically via software. If a punishment happens in error, humans can overrule the decision and return the slashed stake, but this is considered a monetary policy change and must go through a multi-body review and voting process.
Enforceability via contracts refers to rules that relate to people within the Storecoin ecosystem hired under the rules of US contract law - namely, the Executive Director of the Storecoin nonprofit and the Chief Security Officer. When a person accepts either of these roles, the contract they sign enumerates roles and obligations and defines “cause” in the context of potential future termination. So, whereas the removal (i.e. impeachment) of an Executive Director must normally be recommended by one branch of governance and approved via vote by another, in a circumstance where they have failed to implement a change request approved through governance within 6 months of the measure passing, they can be fired for cause without a vote. In this way, punishments that relate to certain specific hired roles are determined by governance and enforced, ultimately, through contract law in which those roles are organized.
Taken together, these systems enable a governance model that doesn't just cross its fingers and hope things work out, but responds with real penalties when network actors violate the policies they agree to follow when they decide to participate.
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Nothing herein is intended to be an offer to sell or solicitation of offer to buy, Storecoin tokens or rights to receive Storecoin tokens in the future. In the event that Storecoin conducts an offering of Storecoin tokens (or rights to receive Storecoin tokens in the future), Storecoin will do so in compliance with all applicable laws which may include the Securities Act of 1933 and the rules and regulations promulgated thereunder, as well as applicable state and foreign law. Any offering for sale to US Persons in a regulated transaction will be pursuant to a registration statement qualified by the Securities and Exchange Commission, or an applicable exemption from the registration requirements.