Harberger Commons / Rethinking Incentives for Open Source

One of the projects I’ve been interested in pursuing for the past few years was to apply DAOs to the challenge of open source sustainability and improving the incentives around developing and maintaining open source software. The 1Hive Commons is a convergence of ideas related to effectively funding public goods, coordinating collective action via decentralized protocols, and improving the economic viability of creating and maintaining fully open source end-user facing software products. It leverages a creative open source licensing model alongside a decentralized coordination protocol in an effort to improve open source sustainability and disrupt the commercial software industry. The goal is ultimately to make open source software more “investable”.

Overview

Open Source Software is everywhere, nearly . It has become an essential foundation for much of the wealth that has been created within the technology industry. Open Source has succeeded in permeating the industry by enabling businesses to coordinate and share public software infrastructure. However, nearly all end-user facing software products are still proprietary. As a result, end-users lack compelling choices to use open source alternatives and often become locked into abusive relationships with b2b vendors and consumer platforms.

A commercial software company is able to leverage public open source software, make minor improvements, and capture all of the economic value for themselves. In some cases the company will deem it is strategically valuable to contribute back to the open source projects they leverage in some way. But, similar to other public goods supported entirely through charitable donations, most open source projects are severely underfunded relative to what would be socially optimal. Additionally, when voluntary reciprocity does occur, the projects that receive support are only those projects which are strategically aligned with a company’s private profit interests rather than those which might compete with the company’s commercial software and benefit users and consumers more directly.

The two dominant open source licensing strategies that have emerged approach this challenge from opposite angles. Permissive Licensing has flourished through voluntary contributions from major tech companies that prefer the no-strings attached licensing model. Whereas the Free Software commons has succeeded by imposing restrictions on creating proprietary derivative works and grown in a viral fashion fueled at its core by a fervent ideology that users should fundamentally have the freedom to run, review, and redistribute exact or modified copies of their software. In the former case there is very little incentive to voluntarily contribute to a software product that could feasibly be commercialized, and in the latter there is simply too little latitude to profit from derivative works to drive large amounts of self-interested contributions.

The 1Hive Commons aims to provide an alternative licensing model for open source software, designed to enforce partial reciprocity directly rather than the voluntary or fully viral reciprocity associated with permissive and free software respectively. The Commons License allows for software to be modified and redistributed as a proprietary derivative work but requires the distributor to pay reciprocity fees back to the commons based on their self-assessed valuation of retaining exclusive rights to their proprietary derivative work . A decentralized autonomous organization is used to help bootstrap and monitor the commons by directing shared resources towards absorbing derivative works back into the public domain.

Our model builds on emerging ideas within the Radical Markets and Token Engineering communities and applies them towards the goal of creating a positive feedback loop that can drive the emergence and growth of a more collectively wealthy open source software commons.

Agent Motivations

Entrepreneurs

An entrepreneur is interested in earning a return by investing their time and effort.

Open Source Developers

A developer wants to contribute to the public good by working on software projects they find interesting or useful.

Investors

Investors want to earn a return by investing capital.

Resource Pools and Flows

Grants Pool

The purchasing pool contains funds which are allocated by the commons using conviction voting (or alternatively via some sort of bottom up grant allocation mechanism like CLR matching) for the purpose of providing grants to help grow the open source commons by funding non-profit institutions working on software projects that leverage the commons license or support the commons through education or legal assistance in enforcing the commons license.

Purchasing Pool

The purchasing pool contains funds which are allocated by the commons using conviction voting for the purpose of purchasing the rights to derivative works on behalf of the commons by paying the creator their self-assessed valuation. The intention of the purchasing pool is to provide a continuous incentive for entrepreneurs to avoid low balling their self-assessed valuations in order to minimize reciprocity fees.

Reserve Pool

The Hive Commons community is defined by a boundary determined by a bonding curve. The reserve pool holds funds necessary to maintain the solvency of the bonding curve and provide a base line level of liquidity… this baseline level of liquidity ensure that people can always join and participate in the community without the need to find a counter party.

Reciprocity Fees

Entrepreneurs may leverage open source software in derivative works and maintain exclusive rights to distribution so long as they register the work and pay reciprocity fees calculated using a harberger tax scheme where the entrepreneur must self-assess the value of exclusive rights to their derivative work. Reciprocity fees are directed into the Purchasing Pool as they are received.

Entrance and Exit Tributes

The Hive Commons community is defined by a boundary determined by a bonding curve. Members of the community can choose to participate in influencing how funds are allocated from the Purchasing Pool. As members enter and exit the community using the bonding curve to deposit or withdraw funds from the Reserve, a portion of those funds are redirected and split between the Matching and Purchasing pools.

Valuation Model for Investors

How can an investor expect to make a return by investing in the creation of an open source software commons? Investors are able to direct funds that enter the purchasing pool in order to yank derivative works back into the commons. While this is not a direct cash flow for the investor, it is quantifiably valuable.

As the software commons grows, the value associated with leveraging derivative works grows, and in turn the flow of reciprocity fees into the purchasing pool grows. As the capital flow into the commons grows, demand to direct those flows will increase.