Mechanism Design for Onboarding Agencies
One of the biggest challenges that most apps face is the "cold start" problem: how do you get initial users to come onboard a service.
Blockchains solved it for some projects by providing a bootstrapping flywheel.
But what are the mechanisms when working with larger institutions to move faster?
The project to watch is Bitcoin, which is tackling the most bureaucratic of institutions, sovereign funds, as well as national and corporate treasuries.
These organizations have governance and regulatory scrutiny.
What has been at play for many is the "game theory" -- the mechanism that implies a dynamic relationship between the benefit one accrues and the timing of their move.
Bitcoin's dynamic is one that encourages such bureaucratic organizations to think strategically while staying as neutral and focused on its core objective function.
A similar concept is in play with the Chariot Protocol.
What are the incentives?
When designing a protocol, the most important concept to understand and validate is the incentives of all the stakeholders.
A blockchain-powered protocol generates activity when the incentives align to achieve its primary objective.
It might be one of the most unique mechanisms to do this.
So what are the incentives around the transit agencies (and do they need to be the first set of customers?)
In classic product management, finding customers who are agile and underserved is typically a better solution. And so that consideration is a factor: maybe the agencies, by their nature, will not be teh first movers int his; but we want them to be motivated to move.
So let's set aside the order of operations for now, and instead just ask, "What will get them to do something great with the Chariot Protocol?"
Here's a spitball list of incentives, and we'll go through them in more detail.
Earlier agencies get revenue share of later agencies
Each supportive agency, whether with a population of 10,000 or 100,000, will have a revenue share of the subsequent ridership fees.
The concept should be that the agencies that come earlier will benefit, perhaps for a time-period or on condition of continued growth and adoption, from the fees generated by subsequent agencies and their onboarded riders.
This is somewhat similar to the Bitcoin mechanism, whereas sovereign treasuries have to play out the scneario that if they join Bitcoin too late, they will pay a higher price to harden their reserves than those nation states or large corporations that come in early.
Those who come in early recognize they will benefit from the demand generated by their first-mover behavior, and the subsequent buying by second and third movers.
This is because the constraint supply should align those who move more quickly to a preferential price.
There are a couple of different protocol designs for this, but let's work out what the attributes are for the protocol, meaning, what are the incentives for different players.
What does the protocol want?
The protocol values ridership growth and usage. This means more routes, more riders, within a given geographic area, typically a dense city.
So the protocol wants to encourage rapid adoption in areas that have higher density.
However, the protocol also wants net new cities to also adopt the protocol. In terms of preference, the protocol would ideally prefer to acquire geographically dispersed cities that have high ridership and adoption. These potentially form anchor tenants.
However, if it had a choice of 1 anchor city or 20 smaller cities that have similar ridership, the protocol doesn't care.
With one caveat.
That the operational time and expense to spin up a city doesn't weaken the protocol.
Most companies value high utilization because of the up front capital expense.
But if the protocol can be designed to shift those expenses to the city, entrepreneurs, riders for the sake of getting up and running much faster, then it solves this issue.
In fact, that should be one of the design principles.
The protocol, then, should incentivize transit leaders to spread the good news and want to encourage other cities or regions to also participate.
The most typical referral type mechanism and also bonding curve is probably something where earlier players benefit from revenue from later players. This revenue should be focused on the growth expenses, rather than being extracted.
What are some ideas?