Sponsorship

Contributors to SourceCred (or other projects using it) are rewarded by earning grain. However, flows of grain are not very predictable. This can be a problem, since people need consistent financial flows in order to budget and make rent.

Traditionally, this is solved via employment. A company promises an employee steady money (a salary), and in exchange the company owns 100% of the value that the employee creates.

In SourceCred, we’re developing a sponsorship model instead. A Sponsor can sponsor a Contributor for a particular time period (for example, the month of April, 2020). In exchange, the Sponsor receives a share of the rewards that flow to that Contributor during the sponsorship period.

A simple approach would be to have sponsors and contributors come to an agreement like:

Sponsor agrees to pay Contributor $x per week. In exchange, for the duration of the sponsorship, y% of the Contributor’s cred will flow to the Sponsor.

This has some similarities to income share agreements. Generally, we might refer to this as the “equity” model, since the sponsor receives a share of the upside (whatever it may be).

It would be up to the individual Contributors and Sponsors to decide on an appropriate $ amount for the sponsorship (i.e. it would be up to negotiation and market forces). However, I think projects should set a project-level cap on how high y can go; i.e. the percentage of a contributor’s cred they give to sponsors. I feel strongly that this value should not go above 50%, i.e. contributors always keep at least half of their cred. I don’t want to see economic structures where contributors become alienated from the value of their labor.

This approach has a lot in common with “boosting”. As a recap, a booster spends grain to Boost a particular contribution; the booster then receives a fraction (currently 20%) of the contribution’s cred. If we treat “all of a contributor’s contributions in a given month” as a single “contribution”, then we can think of sponsorship as a “boost” of that contribution. However, there are a few differences:

  • Sponsorship is an ongoing agreement, whereas boosting is a one-off transaction
    • this is important so that contributors can have some confidence about their future income
  • Boosting mints more cred, but sponsorship does not
    • If sponsorship minted new cred, it would be easily gamed via “back scratching agreements” where people sponsor each other, and mint a ton of cred in the process
  • Sponsorship directly pays the contributor, while boosting indirectly rewards the contribution
    • Boosting creates cred, which (eventually) produces grain. But sponsorship is a direct transfer of value
  • The “price” of boosting is discovered algorithmically (via a “boosting curve”), whereas the “price” of sponsorship is negotiated between the parties.

As an alternative model for sponsorship, we could consider “the debt model”. In this model, the sponsor gives the contributor a payment, in exchange for a promise of future grain. For example, the sponsor could pay the contributor $10k, with a promise that 50% of the contributor’s grain will go to the sponsor, until the sponsor has made back (say) $11k worth of grain. This was first proposed in a post about how the SourceCred Foundation could operate.

My concern with this model is that contributors may get “underwater”, where they are progressively getting deeper and deeper into grain-debt, potentially leading to “grain bankruptcy”. It could be messy and lead to a lot of stressful situations. The “equity model” could get complicated as well, but generally I think it is more forgiving, and therefore prefer it.

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The equity model is more equitable and thus seems like the better of these two scenarios. That being said, one of the core concepts behind SC is that if you do work that is underappreciated in the moment, if it ends up creating long-term value you can be recognized and rewarded for that. In the equity mode the sponsor would only receive immediate Cred, not long-term Cred, which incentivizes sponsors to only support short-term work. To address this, perhaps the sponsor could choose to support the championing of an Initiative, and as a result, get a percentage of the cred that flows the champion as a result of that initiative?

Also, since players are nodes just like everything else, is it possible to just directly boost a person? If so, that might be even more powerful. With great power comes great responsibility, however, and this might create perverse incentives (ex: if an entity you dislike boosts you, then as you contribute to SC you also contribute to their Cred, creating cognitive dissonance and misaligned incentives). No idea how to address that, but… rolling out this thought experiment a little further it could also create a very interesting “market” on players. Of course this wouldn’t be a real market as one could only buy (no ability to sell or short), but it would still be interesting! Has the idea of boosting players directly been explored yet, and if so, where can I find more on that topic?

The idea is that the sponsor would receive “long-term cred”. For each time period—say, each week—that the agreement is in effect, there would be an edge from the contributor’s epoch node for that week to the sponsor. Thus, if a contribution made during some week is later found to be more valuable, more cred will flow from that contribution through the epoch node to the sponsor.

We’ve generally tried to focus on creating sources of value at contributions rather than contributors. This makes it easier to dispassionately discuss and adjust valuations. There has been some discussion of boosting people directly, but we’ve usually found that the intent can be accomplished by “refactoring” the boost into boosting a new node that flows cred to the person. Certainly open to more discussion here, though.

Also leaning towards the sponsorship/“equity” model.

I think a debt-based system could work. As laid out in Debt: the First 5,000 Years, our modern conception of debt (and its inherent exploitive properties), is relatively new. It wasn’t always “stealing” if you didn’t repay a debt. There wasn’t always recourse. If a borrower walked away from a debt, well, that’s what interest is for. To compensate a lender for that risk. I can imagine a debt system working if:

  • No recourse. If a debt relationship becomes unfair or exploitive, the borrower can walk away. No state violence, no garnishing of their future cred earnings elsewhere. The consequence is a hit to the borrower’s reputation (i.e. other potential lenders may be more wary to lend to them).
  • Jubilee’s possible. Throughout history, many societies have simply wiped all debts clean and started anew. This should be possible, should a community finding itself entering into expliotive dynamics.

But, I think an “equity” model could be better.

Part of me just wants to implement boosting. It would be more volatile for contributors, but that volatility could be hedged in other ways. E.g. a “sponsor” could commit to boosting all contributions from a particular contributor, boosting $X/mo. It could also incentivize people to add outside capital to the system, growing the pie for all contributors, and encouraging more active vs passive investors.

I also like @burrrata’s boosting idea:

This could incentivize a contributor to be a little “territorial” around their Initiative, as it’s their only sure source of income. But I imagine in practice, this is unlikely to be a problem, at least at our current trust level.

Boosting has a few issues though currently. It isn’t implemented yet, causing delays in payouts. Also, hedging volatility will take time and resources, and may not achieve the stability we want, at least in the short to medium term.

As someone who wants to commit more to the project, I like the sponsorship model. A couple questions on the implementation:

  • Assuming most of the funding comes from @protocol, how would it interface with contributors? Is there a point of contact person negotiating deals?
  • What is the length of engagement? Renegotiating agreements could get expensive. My experience as a freelancer tells me weekly or monthly could be a pain. If there is a process in place to just roll these agreements forward into the future, unless either party initiates a re-negotiation/termination, then it could work on shorter timeframes. Otherwise, something like a 3-6 month agreement maybe? Are there simple, robust mechanisms that could be used to automate contract negotations, perhaps making use of new CredRank capabilities?