A group of internet friends had a dream: raise funds using cryptocurrencies to try and buy a rare copy of the U.S. Constitution. We know how that dream ended: a TradFi (aka “traditional finance”) billionaire ended up beating them at auction, while the drama briefly took over the news cycle and Crypto Twitter, where it was birthed.
But the story of the group above, known as ConstitutionDAO, also contains a tale about competition and coordination rooted in classical studies of the field. The clue is in ConstitutionDAO’s full name on Twitter, which includes a somewhat mysterious notation: ConstitutionDAO (📜,📜). (If that isn’t rendering correctly on whatever device you are using, it’s a set of brackets containing two scroll emoji, separated by a comma).
This type of notation is all over Crypto Twitter these days, usually rendered as (3, 3) although now sometimes as emojis. It’s kind of crypto inside joke, but its adoption by ConstitutionDAO has turned it into an internet-wide meme.
ConstitutionDAO’s significance wasn’t just the outlandish possibility of random people raising tens of millions on the internet to buy a historical artefact at a prestigious auction. It was an example of the internet-scale coordination that can happen when cryptocurrencies are injected into the mix, and how that effort yields outcomes predicted by the field of economics known as game theory—which gives us the notation we see above.
Dumb stunt and serious business venture
First, a quick recap of the ConstitutionDAO saga: Some internet friends started DMing on Twitter about getting a DAO together to buy the Constitution during the Sotheby’s auction. It was all “half-serious” until they got on a Zoom call to start discussing the possible logistics. Then it got real. “Wow, there’s some interest here.” Julian Weisser, one of the early members, told The New York Times.
The project quickly began to morph as more members joined and more money poured in. All told, the DAO raised about $45 million in Ether from over 15,000 contributors, Decrypt reported.
Auction day arrived and the DAO was locked and loaded. But Crypto Twitter watched on with confusion as it wasn’t clear who was bidding on behalf of the DAO—it turns out real names and Twitter usernames weren’t interchangeable. As bidding broke the $40 million mark, the DAO threw in the towel, later explaining that it wouldn’t have the funds to keep bidding and insure and store the document if it won.
But initial reports said that the DAO had won, leading to brief disbelief and celebration. Days later the real winner was revealed: hedge fund billionaire Ken Griffin. The symbolism was stark: a billionaire who aided traders who were shorting GameStop against a meme-stock army, was the victor. An avatar of Wall Street and centralization had outgunned a hastily assembled group of internet friends with $40 million to burn.
The (3, 3) strategy
So much for ConstitutionDAO’s saga. Its contest with Griffin at auction was itself an example of game-theoretical analysis: Could one party conduct a strategy at auction that allowed it to win, while publicly disclosing its funds, against competitors who remained anonymous?
The key problem was that competitors would know how much ConstitutionDAO could deploy, and therefore could wait until it ran out of cash. “You face a core tradeoff between transparently showing how much you raised, versus getting screwed in the auction,” University of Chicago assistant professor of finance Anthony Lee Zhang tweeted.
Well, we know how that turned out. But how did game theory notation make its way into the DAO’s name in the first place? That’s another crypto-meme rabbit hole to go down.
The origin of the game-theory notation is something called OlympusDAO. This is a project that attempts to create a “non-pegged” stablecoin—meaning it doesn’t derive its stability from being linked to any particular fiat currency. Instead it modifies the supply of its tokens, called OHM, to match the market value of its treasury (research firm Messari has an explanation, but it’s behind a paywall.)
The OlympusDAO folks published a Medium post in March explaining one of the mechanics behind the protocol. It was attempting to explain why the optimal outcome for people who participate in the protocol is to stake OHM tokens. Using game theory, it shows a matrix of three possible actions for OHM holders and all the possible outcomes from combinations of those actions. Each action is given a weight. The optimal outcome is one with the greatest weight.
The OlympusDAO game-theory matrix suggests that if all users staked their tokens, it would produce the optimal outcome of (3, 3). This is in contrast to the outcome if all players sold their tokens, which would produce (-3, -3).
A follow up post describes several strategies over time, including the so-called “(1,1) to (3,3)” strategy. This involves players first bonding their tokens, claiming protocol rewards from this, and then staking the principal plus the rewards.
The strategy of getting to (3, 3) promptly became a meme. Here’s podcaster, investor and self-improvement author Tim Ferriss dropping a double-meme tweet, combining the salutation “gm”, favoured by NFT folks, with (3, 3). The parody account Bored Elon Musk has (3, 3) in its bio.
Perhaps one irony of the adoption of the game-theory notation is that one of the most famous theories from the field is the Nash equilibrium, a notion conceived of by mathematician John Nash. The Nash equilibrium describes the outcome of a game played by two competing players, where each player anticipates the others’ move.
The big takeaway from the ConstitutionDAO episode, at least according to Web3 proponents and DAO boosters, is that the future is about coordination at scale — in other words, cooperative games. The Nash equilibrium, by contrast, describes competitive games.
It’s perhaps fitting then, that the game-theory notation wound up being part of ConstitutionDAO’s Twitter name, since it took part in a classic competitive game against Griffin, the most traditional of investors.