The Evolution

Power Separation

Outer Loop | Three Pillars | Functional Powers | Engaging Institutions

Outer Loop

a. change boundaries

Hayek conceptualized the link between price and communication.
It has been closed into a tripartite loop by Conway's law:
linking communication to (price) systems (of economic rules).
- Our specific application of the law has been parenthesized. -
A system of rules is a protocol and the economy is an ecosystem.
It is made of communication, price and rule subsystems.
As examples of looped and intertwined dependencies across the paradigm:
prices communicate changes driven by protocols, influenced by prices;
communication structures protocols and value their token prices;
IT, market or company regulation cascades through the other two;
idem for innovation, for they're all linked in an encompassing protocol.
The market, often a main locus of debates, is a subproblem of the economy.
We have long been suboptimizing the bigger whole.
The entire frame allocates subsystemic resources.
Fitting a subsystem oblivious of bigger changes makes the whole fragile.
Suboptimization introduces particular system conditions in core processes.

Controlled but unoptimized variability of subsystems builds up resilience.
- We will see how to manage it at the end of the upcoming chapter. -
In the last principle [1], a system designer must leave room for change.
The inner loop regulates unexpected and new knowledge within structures.
Laws are centralized on the outer but inner rules must be decentralized.
Opportunity costs of suboptimization are even bigger than temporary gains.
The bulk of wasted value occurs in the interfaces of economic subsystems.
Outside systems, the value chain loses most in blind spots.
The integration of a harmonious ecosystem should be the utmost priority.
Harmony is created in well delimited and connected functions.
They spare us forceful ideologies and sovereignty debates.
No need to posit that markets should rule over the state and vice versa.
Clear limits and borders is the first management principle of commons.
It was prominently highlighted by Ostrom among eight other principles.
They promote self-governed institutions with ample evidence.

Let us also recall a piece of Edwards Deming wisdom;
on the first page of "The New Economics":

Knowledge necessary for improvement comes from outside.

That is how subsystemic collaboration is maintained within a bigger whole.
The exercise of a well delimited function optimizes its public utility;
rather than its internals, which are merely extraneous artifacts.

[1] 4. Change System: Inner Loop, d. from data to actions

Three Pillars

b. split prerogatives

The public utility of subsystems should be the primordial system's focus.
Technical optimization of a function does not improve the system.
The definition or redefinition of a functional utility does.
Only then, inner subsystems can be derived.
Suboptimization is a symptom of decentralization at the top of a system.
Decentralization must be organized at the bottom to synthesize at the top.
Confused governance originates in a failed oligarchy of subsystems.
Besides its definition, a utility or purpose should not be decentralized.
A system of equal objectives makes conflicting subsystems.
One system equals one utility; one sub-system equals one sub-utility.
No system should be built before an overarching agreement on public value.
Look no further to understand why political polarization does not help.
Partisans project different visions of the State.
They fight unless they agree on a function with clear boundaries.
Let's do it before we do it.
We often waste debates because we engage before "it" has been agreed.
A single motive makes a multi-objective system of subsystems possible.
Those can be decentralized because one utility centralizes contributions.
In turn, utilities of subsystems harmonize an almighty system of rules.

A blockchain purpose is to decentralize; it seeks to distribute.
But a Dapp attempts to centralize the decentralization of a given matter.
Fearing forks, it aims to grow as close as possible to a single consensus.

The three independent pillars of a republic respect power separation.
Their reason to exist, uniting purpose and common utility is the Law.
It is an intrigue for a mind aware of the three economic subsystems:
the legislative is devising protocol rules;
the executive is taking actions according to the protocol;
and the judiciary is resolving compliance.
What if we'd turn the legislative into an autonomous organization;
the judiciary into a market;
and put the executive into an automated and incorruptible software?
What would we get?
Bye bye presidents, senators, judges and ministers…
We'd get a tripartite economy optimized as one;
a promising ecosystem;
a decentralized application;
an autonomous organization running on a blockchain.
The vision of a limited toolset in the Ethereum blockchain is spot-on.
Vitalik has been championing the executive purpose of the blockchain.
Pre-packaging decentralized finance would be restricting the legislative.
And the usability of price systems would decrease, harming the ecosystem.

• The executive decentralizes the legislative.
• The legislative centralizes the executive.
• The judiciary aligns the legislative and the executive.

Functional Powers

c. two third legacy

From an economy to a tokenomy, puzzling mismatches occur.
An executive of competing organizations has been replaced by softwares.
And in the early-day tokenomy, autonomous organizations legislate.
But they better be knowledge systems to leverage communication.
Thereby, each power maps to a functional and economic component.
Communication, price and rule subsystems roughly map to:
the legislative, the judiciary and the executive.
Conway's law explicitly relates an informed DAO to a utilitarian Dapp:
undirected communication graphs devise fair systems of bilateral rules.
Representative knowledge of affected parties makes popular protocols.
The legislative is the executive, underpins the medium is the message.
McLuhan did not face such an exact causality in his society, however.
Structures could shape but they did not detail enforcement.
For better or for worse, the Tokenomy is the end of social unrest.
Technology could have shrunk room for civil disobedience and plurality.
Smart contracts are the children of a lawmaker and a police officer.
Strict parents have been wise enough not to micromanage their kids.

Judgment's decentralization democratized the perfection of Conway's law.
Without a built-in consensus mechanism, digital laws topple republics.
On the blockchain, a distributed executive became a legislative order.
It contrasts with presidential and executive orders bypassing a congress.
A programmable DLT aligns management powers in a new State of the art.
Organizations are their own master and legislate a cooperative executive.
Original functions of the two management powers remained.
They only changed mechanics when turned into DAOs and smart contracts.
The judiciary, however, has been fully replaced to deter despotism.
The judiciary did not reward active participation;
which is crucial to remove hierarchical control.
Obedience to law disappears with authority.
A system of prices replaces the need for a dominant order.
It can be arranged to reward or penalize any kind of activity.
The protocol optionality facilitates the removal of imperatives.
It is easy enough to opt out and sell tokens on a conclusive disagreement.

Even so, protocols create welcoming environments in their own interest.
The token is a protocol share and its price an expression of a consensus:
the value of such a share, determined by visible features.
Internals do not matter without a purpose.
Thereby, we find a single meaningful drift in the institutional evolution.
Pillars of states and tokenized protocols differ by the rule of law.
Trade is the business of peers and obedience that of subjects.
The Tokenomy legalized corruption in a market of regulations.
Perfectionist enforcement is also putting an end to small-scale extortion.
We went from small hacks and big taxes to big hacks and small taxes.
The new scales of authority and creativity inverted redistribution norms.
The Economy and the Tokenomy balance out taxing hacks and hacking taxes.
A technocratic and capitalized industry would better stick to an Economy.
Bigger taxes insure a company's treasury.
Open source and decentralized apps represent the tokenomic archetype.
Low taxes make up for the loss of intellectual property on a bigger base.

A stronger and strict legislative micromanages an Economy;
while a stronger and free executive macromanages a Tokenomy.
Thereby, the judiciary shifted from the authoritative to the consensual.

Engaging Institutions

d. gamified society

On DLT, the use of institutions has been turned into a business game.
The tradition of power separation could make it a remarkably fair game.
The legislative, the executive and the rule of law have been preserved.
Participants don't game the ecosystem but subsystems where they're active;
what is expected in a fair environment.
While the judiciary urges citizens to obey;
the price system encourages the exploitation of a win-win design.
The blockchain evolution of institutions gives a lesson to politics:
engaging with a protocol is a precondition to engage with its governance.
It's been achieved thanks to a democratic version of power separation;
which is the organizational pattern of self-regulation.

Only power can stop power.
Hence, self-regulation requires a multipartite power.
Peer regulation is in the nature of controlled power.
(Authority regulation is in the nature of controlling power.)
Checks and balances thrive in network communication structures.
Trustless consensus resides at the level of countless agent interactions.
The 1748 political triad spreads exponentially beyond the third dimension.
"The Spirit of Laws" described power patterns to unite freely.
Montesquieu's book was the second most quoted by US Founders.
It would be the first by now because biblical stories have lost steam.
Already a few years after the US Constitution, Louis XVI lost his head.

In an interconnected world, the advocated principle is stronger than ever:

Power ought to serve as a check to power.