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Encountering the Invisible Enemy of Coordination Failure

Introduction

If the Web 3/DAO space had a doctrine, it could easily be that most of the global problems humanity faces today are products of coordination failure.

In the 2018-2019 Ethereum bear market, MolochDAO introduced the idea of “Moloch”, the “final boss of humanity”. Something which humans have struggled with for centuries and need to overcome to ensure the long-term survival of our species.[1] The Moloch meme never gained much popularity or attention outside of crypto Twitter or a few echo chambers. However, I do think the idea is brilliant as it concretizes the rather abstract problems DAOs and the Web 3 movement strives to solve.

Who is Moloch?

The Moloch character is adapted from an essay “Meditations on Moloch” where the blogger Scott Alexander reflects on the character Moloch from an Allen Ginsberg poem called “Howl”. If we go much further back to the Canaanite religion in ancient times, Moloch was the God of child sacrifice. Practitioners of the religion believed that sacrificing a child to Moloch in times of war would increase the odds of their tribe’s victory.[2]

Image of Moloch 

In Allen Ginsberg’s poem “Howl”, the opening line is:

I saw the best minds of my generation destroyed by madness, starving hysterical naked,

dragging themselves through the negro streets at dawn looking for an angry fix,”

At the beginning of Part II, “Moloch” is introduced as the answer to the question:

 “What sphinx of cement and aluminum bashed open their skulls and ate up their brains and imagination? Moloch!”

It may not seem obvious how Moloch, the God of child sacrifice, could destroy the best minds of Ginsberg’s generation by madness or eat their brains and imagination.

Scott Alexander explains in “Meditations on Moloch”:

The implicit question is – if everyone hates the current system, who perpetuates it? And Ginsberg answers: “Moloch”. It’s powerful not because it’s correct – nobody literally thinks an ancient Carthaginian demon causes everything – but because thinking of the system as an agent throws into relief the degree to which the system isn’t an agent.

Simply put, Moloch is the image of coordination failure. The answer to the question of why a failing system, is failing.

The Problem of Coordination Failure

The problem of coordination failure in a nutshell can be explained like this:

In a game where every player follows the rule, one player can gain an advantage by bending the rules in their favor. This changes the nature of the game.  Eventually, the other players have no choice but to bend the rules in the same fashion to catch up with the cheating player.

One example of this dynamic playing out in a real-world scenario is the freeriding problem.

If one of your friends is paying for a Netflix subscription and offers you to use his account for free, you are inclined to take his offer, rather than paying for a subscription yourself. You are acting out of rational self-interest, but also cheating Netflix for a subscription fee. They could have used your subscription fee to improve the quality of their service to your benefit as a user.

If enough people decided to freeride, Netflix would eventually go out of business. From a god’s eye view, Netflix would be a better streaming service if every user paid for a subscription. But looking from within the system, users can gain an advantage in the form of saved expenses by freeriding. As a side note, Netflix is coming out with a new account-sharing policy in early 2023.      

Or take a possible coordination failure on another Web 2 application, Twitter. Twitter would be a better place to hang out if everyone acted civilized and only made valuable contributions to the network. However, the algorithm seems to be designed in such a way that you can gain more followers by shit-posting, trolling, and spam-posting meaning less stuff at least five times a day than you can from trying to initiate balanced and thoughtful conversation.

By mindlessly tweeting stuff or deliberately trying to provoke, a user can gain a slight advantage over honest users in the form of more reach and exposure. Over time, a new norm in the system is established, as more and more users are incentivized to act this way.

Scott Alexander gives a number of good examples of coordination failures in “Meditations on Moloch” (he calls them multipolar traps). I will summarize one of them here, The fish farming story, which is about water pollution. It plays out as follows:

  1. A thousand companies each own a fish farm in a lake. Each farm earns a profit of $1000/month.  
  2.  Each farm produces waste that pollutes the water and causes a loss of productivity of $1/month for every company. Therefore, none of the fish farms are making any money.  
  3. Someone invents a new complex filtering system that removes waste products. It costs $300/month to operate. All fish farms voluntarily install it, so the pollution ends. Each fish farm is now making a profit of $700/month and the water is clean.
  4. One farmer, Steve, decides to skip the filtering system to earn more money. He now earns $999/month, while all the other fish farms earn $699/month.
  5. When the other fish farms see how profitable Steve is, some of them decide to unplug their filters too. Once four hundred farms disconnect their filters, Steve is earning only $600/month – less than if everyone had kept their filters on. The noble, filter-using fish farms, are only earning $300/month.
  6. Now, no one is happy. The water is still polluted and everyone earns less without the filtering systems. To increase productivity and revenue, while keeping the water clean, everyone decides to sign a voluntary pact to use filters.
  7. One person, Mike, refuses to sign the pact. Now everybody is back to using filters, except for Mike. Mike earns $999/month, and everybody else earns $699/month. As time goes by, other fish farms contemplate disconnecting their filters too for a $300 extra profit.

The fish farming story reminds me of the green energy transition. For companies in the developing part of the world, fossil fuel-based energy may be cheaper than renewable energy. For the sake of the climate, everyone can make a pact to use only clean energy from wind, solar, hydro, and other renewable energy sources. However, if the gas and coal companies earn more, capital will inevitably keep on flowing in their direction.  

The coordination failure problem probably has a role to play in any major issue humanity faces.

All jobholders in developed countries could make a pledge to donate a certain percentage of their salary to a good cause like feeding starving children in Africa or building sustainable energy solutions in poor, vulnerable countries. However, as we have learned, once a large enough group of people decides to keep their donations for themselves, the system as a whole is not working.

Laws and regulations can incentivize people and companies to “do right” in the gods-eye-view by threatening with fines and time in prison. The media and social media mobs also have the power to nudge people’s behavior in a desired direction with the threat of public shaming. But let’s face it, many areas of tech and the science of climate change are extremely complex. Neither governments, elected politicians, media companies, and even less, regular people, possess the knowledge or impact to fully protect common interests against powerful private actors such as large technology and finance companies.

The people who act out of rational self-interest are not necessarily evil. And the people who fail to keep the system as a whole secure are not necessarily incompetent. The systems are just broken.

Fixing Coordination Failure

A coordination failure occurs whenever an individual can gain an advantage by acting against the common good of his group.

We can protect the interest of society against criminals by putting them in prison. And we can protect the interest of a social group by isolating a member who displays inappropriate behavior. Comparably, it is much harder to regulate the behavior of a large digital business company. And as soon as problems move across and between land borders, outside the scope of any single government’s jurisdiction, countries are forced to cooperate on finding solutions, and Moloch roams freely.  

I hate to sound like a Bitcoin maximalist. But the reason why Bitcoin keeps running year after year is because of sound game theory. Participants in the Bitcoin network gain more from contributing to the system than from trying to cheat it. If they should succeed in cheating the system, the value of Bitcoin would collapse, and so would the value of their holdings. So, cheating, if possible, would harm themselves.

I also hate to sound like a living commercial for Web 3 – I am not trying to sell anything to anyone. The only purpose I have for writing this is to convey knowledge. The world needs better mechanisms for coordination and realigning incentive structures so bad actors cannot successfully make profits in a system by undermining its rules. Transparency, immutability, decentralization, and accountability are important ingredients to create more robust, game theoretically sound systems which we need to tackle the complex problems of the present and the future.


[1]Ameen Soleimani et al. (2019), The Moloch DAO – Beating the Tragedy of the Commons using Decentralized Autonomous Organizations.

[2] Ibid.

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