## A Novel Framework for Reputation-Based Systems Future-2 ### A Novel Framework for Reputation-Based Systems | Future  #### Metadata * Author: [[Under a]] * Full Title: A Novel Framework for Reputation-Based Systems | Future * Category: #articles * URL: <https://future.a16z.com/reputation-based-systems/?cmdid=DJXDRM87EH7PI7> #### Highlights * For example, a charity could start minting NFTs that it awards to people who've completed over 500 hours of community service. But if those recipients can sell their NFTs to whomever they want, then any time you come across a holder, you have to wonder: "Did that person earn their NFT or buy it?" Even if nobody trades their community service NFTs publicly, the possibility of private sale reduces the signaling value. And in a fully liquid market for such tokens, the signaling value washes out completely. * Making reputation tokens transferable not only reduces their ability to serve as a signal of reputation, it can also diminish their ability to serve as valuable compensation. Thus, establishing reputational capital requires fully (or at least mostly) non-transferable tokens. The question, then, is how to translate reputation into liquidity. * We propose a two-token reputation system, whereby one token, which we call "points," serves as a non-transferable reputation signal. A second token, "coin," is a transferable asset dispensed to holders of points on a regular cycle. Effectively, points spin off dividends in coins that can be used as tradable currency. Moreover, because coins accrue to holders of points, coins also have a link to the underlying reputation. * At a high level, this design promotes a feedback loop whereby users derive points from high-quality contributions on the platform such as contributing content, moderating, or winning gameplay. And then, when the users with points receive coins, they can be traded as a currency. Users' demand for coins drives the need to acquire points, which in turn incentivizes high-quality contributions. * Unlike with points, it is important that coins be relatively scarce in order to give them value as a currency. Many currencies (such as Bitcoin) benefit from a long-run limit on coin supply — there's only so many of them that can ever be minted. In such cases, the average total dividend must be decreasing over time, unless there is some mechanism by which coin is absorbed back into the system (such as through within-platform payments). # A Novel Framework for Reputation-Based Systems | Future  ## Metadata - Author: [[Under a]] - Full Title: A Novel Framework for Reputation-Based Systems | Future - Category: #articles - URL: https://future.a16z.com/reputation-based-systems/?cmdid=DJXDRM87EH7PI7 ## Highlights - For example, a charity could start minting NFTs that it awards to people who’ve completed over 500 hours of community service. But if those recipients can sell their NFTs to whomever they want, then any time you come across a holder, you have to wonder: “Did that person earn their NFT or buy it?” Even if nobody trades their community service NFTs publicly, the possibility of private sale reduces the signaling value. And in a fully liquid market for such tokens, the signaling value washes out completely. - Making reputation tokens transferable not only reduces their ability to serve as a signal of reputation, it can also diminish their ability to serve as valuable compensation. Thus, establishing reputational capital requires fully (or at least mostly) non-transferable tokens. The question, then, is how to translate reputation into liquidity. - We propose a two-token reputation system, whereby one token, which we call “points,” serves as a non-transferable reputation signal. A second token, “coin,” is a transferable asset dispensed to holders of points on a regular cycle. Effectively, points spin off dividends in coins that can be used as tradable currency. Moreover, because coins accrue to holders of points, coins also have a link to the underlying reputation. - At a high level, this design promotes a feedback loop whereby users derive points from high-quality contributions on the platform such as contributing content, moderating, or winning gameplay. And then, when the users with points receive coins, they can be traded as a currency. Users’ demand for coins drives the need to acquire points, which in turn incentivizes high-quality contributions. - Unlike with points, it is important that coins be relatively scarce in order to give them value as a currency. Many currencies (such as Bitcoin) benefit from a long-run limit on coin supply — there’s only so many of them that can ever be minted. In such cases, the average total dividend must be decreasing over time, unless there is some mechanism by which coin is absorbed back into the system (such as through within-platform payments).