A Novel Framework for Reputation-Based Systems - a16z crypto

Drawing on our knowledge of economic theory and game design, we argue for a reputation system design based on a pair of tokens—one for signaling reputation and the other for offering liquidity—which could serve as tangible representations of meaningful contributions.

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.

This presents a paradox: if a token can be transferred easily, then those without reputation can simply purchase it, which reduces the token’s ability to serve as a reputation signal.

Reputation tokens on digital platforms typically serve two purposes:

Reputation tokens on digital platforms typically serve two purposes:

Yet these two roles are in opposition to each other. A token needs to be exchangeable in order to be liquid. But the more liquid a token is, the less effective it can be as a pure signal of reputation.