Token Chains: Building the Human Asset Class Through the IXO Protocol
ZÜRICH, SWITZERLAND – Unfamiliar to many, the recently launched IXO protocol can be traced to a significant and interwoven history of global ‘aid’ organizations, colonial ideals, international finance and advanced technology, that provides important context to understanding what it actually is. What follows below is an explanation of the technical nature of a protocol that embodies this history of social, financial and digital oppression, otherwise covered in Silicon Icarus and the work of researchers such as Alison McDowell.
To fulfill hegemonic goals, the wielders of capital, or ‘risk investors’ reform services traditionally provided by government or philanthropy to support their agendas and maintain power. They pursue this by marrying technology platforms, as well as gamifying real life interactions, reducing actions of love to digitally chained ‘data verified outcomes’ which trigger impact bond payouts, globally investable and tradeable through automated digital platforms.
Before diving into IXO I just want to warn readers about the complexity of these burgeoning systems. Besides the likely unfamiliar technological components such as blockchain-based financial and data markets; digitized social impact finance requires significant real life coordination between multiple groups who are tied to blockchain and related technologies. By piecing together the details of scaled ‘social impact investing’ via digital technology, and using those details to understand how it may play out, we gain clearer insight to the worrisome nature of these mental and technological frameworks.
I am happy to engage, so If any concepts need additional explanation please leave a comment.
Blockchain Basics
Before we even begin with IXO, we need to broach some basic concepts relevant to any blockchain systems. Let’s start with nodes, the spinal column of all blockchain systems. Nodes refer to computers connected to each other by the internet, running a specific collection of computer code. That sentence alone encapsulates blockchain.
The code that these nodes run, enforces various communication and cryptographic protocols in order to build a shared history between each other. In Bitcoin and other older blockchains, computational competition (for economic gain) determines how the history forms and maintains security of that history.
Almost all newer blockchains utilize a different process for creating the shared history in a secured manner. This is called proof of stake. In proof of stake, nodes which lock the native crypto coin (Ether of Ethereum, ADA of Cardano, ect) gain the right to create the blockchain’s history and earn a financial return.
Beyond this different protocol for ‘determining truth’, new blockchains often involve complex multi-chain structures where multiple different histories (and groups of nodes) can be created, interact and share their state.
IXO is built on the Cosmos blockchain, which aims to be the “internet of blockchains”, allowing interoperability between many independently secured blockchains.
The IXO protocol builds from a proof of stake system where the IXO token is locked in an independently secured blockchain. By building the protocol in the wider Cosmos ecosystem, IXO can interact with any other blockchain built on Cosmos, as well as utilize bridges Cosmos builds to other ecosystems such as Etherum, Cardano or Polkadot. The once siloed blockchain world increases interoperability daily.
Overview of IXO
The foundation for IXO rests on multiple paradigms, merging the burgeoning sector of social impact finance, with budding blockchain financial tools, powered through harvested data (collected in a variety of ways) and its subsequent analysis.
IXO’s work in the digitized social impact finance space dates back to at least 2015. Based in South Africa, IXO started through TrustLab which was funded by the UNICEF innovation fund, along with the Innovation Edge, a South Africa based social impact fund backed by UBS Optimus and the Omidyar foundation, for a project called Amply. Dr. Shawn Conway leads IXO and spearheaded the Amply project as well.
Amply involved a digital identity and subsidy management system for pre-schools in South Africa. The schools take attendance through an application on a tablet to generate impact tokens which the school redeemed for subsidies from the South African government. In order to take digital attendance every student was assigned unique digital identifiers. This project impacted over 60,000 students, whose digital identity will follow them throughout the public education system (and depending on how the government moves forward, could extend to healthcare and other government services).
The UNICEF innovation fund operates out of the Singularity University Campus, which they lease from NASA (Ames Research Center). Singularity University, a for profit “Benefit Corporation” (B-Corp) was originally founded as a non profit by grants from Google, Nokia, Autodesk and other tech names. The education center promotes Silicon Valley agendas openly, as the name suggests.
As a decent sized pilot, the Amply project generated significant press and succeeded enough for financial backers such as UBS to continue working with Dr. Shaun Cownay as he refined the application and as the blockchain ecosystem matured. IXO represents the culmination of several such pilots and seeks to serve as the global platform for social impact investing. Several blockchain projects focus on social impact investment and verification, however the IXO protocol is uniquely positioned within one of the largest social impact finance schemes to date. The Quality Education India Development Impact Bond.
The IXO protocol involves a complex set of technological and social engineering patterns. In order to birth the Internet of Impact, the project works with the wider Cosmos blockchain ecosystem on standards and other technical problems, as well as a multi year engagement with UBS Optimus. At its core, IXO serves an investment platform designed for high volumes of sharing and betting on data. The sharing and betting revolve around financing social outcomes, which pay out interest to the investors if the projects meet predetermined goals verified by digitally collected ‘evidence’. If the project fails, the investor risks losing their capital or interest payments.
Blockchain provides the financial technology to enable this type of tradable, investable, digital self-executing agreement. Tokenization creates an identifiable, programmable data construct known and tracked by the blockchain.
These projects are not limited to human centric outcomes, the infrastructure aims to replace almost any certificate imaginable. The white paper specifically mentions carbon credit, immunization, education and biodiversity certificates, as well as “any other certifiable outcome state”.
Evidence from outside the blockchain verifies an impact project’s outcome and processes claims. Data of any sort can serve as evidence, for example Internet of Things (IoT) sensors, surveys from an authenticated user, satellite imagery or data collected from devices connected to project participants. Data must fulfill predetermined “impact proofs” for service providers to claim they succeeded and for investors to receive their financial returns.
Besides using this data for verifying the ultimate state of a project, it also continuously fuels an internal prediction market between the project’s stakeholders, which dynamically adjusts the parameters, such as interest payouts from owning the impact token. Called an alphabond, this mechanism aims to increase the sophistication of the impact token as a financial instrument.
The protocol helps monetize data generated by the impact token, leveraging blockchain based data marketplaces, such as the Ocean protocol. Ocean protocol, founded by MIT allum Bruce Pon, partners with the World Economic Forum and MIT Media Lab. They aim to bootstrap the Web3-based global data economy. IXO and Ocean enable various possible configurations of rights to these data assets for the different actors within this system to “comply” with international data regulations. In a new addition termed Compute-to-Data, Ocean claims the ability to maintain data owners privacy while still allowing that data to build AI networks. These types of mechanisms provide the cover for governments and corporations to benefit from the data while pretending individuals who feed the machine are not affected by the resulting outputs.
Digital Identity
Digital identity, or so called decentralized identities (DIDs), are absolutely essential for building the protocol. Public-private key encryption, known as asymmetrical cryptography, defines ownership in blockchain technology, and forms the basis for digital identity. In other words, blockchain’s fundamental design acts as a digital identity system. The difference here is that instead of being able to generate as many identities (addresses, public keys) as you desire, a DID locks you into a specific identifier for a specific purpose.
IXOs decentralized identity solution was created jointly with Microsoft. The three primary participants that IXO needs to identify include the service provider, investor, and evaluator. The participants in the impact project may also receive digital identities.
The investor refers to the entities providing the initial capital for the impact program. In IXO, this could be any public key on their blockchain. Depending on the project, various levels of Know Your Customer due diligence may occur, or the project could open to any capital from the crypto world. As mentioned above, just the public key address of the investor providing capital can serve as a DID, but other more integrated forms of digital identity could be required for certain types of projects.
The service agent refers to the provider carrying out the impact program, or who the investor funds upfront with their initial bond. They typically generate impact claims through devices provided in the impact project; for instance a tablet based reading application. Service providers need a trusted DID to authenticate their devices and any other data input.
The line between service providers and evaluators remains murky, opening up obvious conflict of interest questions. IXO expects that initial evaluators will come from existing service providers:
– at least to begin with, Impact Evaluators will be existing professional service providers who now have a powerful set of new data collection and analytic tools for monitoring and evaluation, with higher quality data to evaluate.
Impact Tokens – Creating, Verifying and Valuing Outcome States
Impact Tokens are units of value created through the Internet of Impact. Each Impact Token represents a real-world outcome state that people care about, are willing to invest in, work towards, or spend their money on. Impact tokens will become the new standard for measuring, verifying, reporting and valuing impacts through marketplace mechanisms.
Almost every mechanism within IXO centers on impact tokens. These verifiable claims are manufactured in the form of a unique (non fungible) token. Almost all aspects of impact projects link to their respective impact tokens. Both the data assets generated by the programs that are used to verify the project’s outcomes, as well as the financial incentives, derive from the impact token. IXO itself explains this token precisely in their whitepaper, so I will translate the more arcane aspects,
Tokenizing verified outcome states through the ixo protocol transforms traditional certificate-based out-come representations, such as Carbon Emission Reduction Certificates, Education Certificates, Immunization Certificates, Biodiversity Certificates, or any other certified outcome state, into tradable and investible digital assets. Which are backed by data assets and verification proofs, with embedded executable rights.
The last part “into tradable and investible digital assets. Which are backed by data assets and verification proofs, with embedded executable rights.” forms the secret sauce of the protocol. As mentioned above, devices used in the impact project generate the impact claims from data. “Verification proofs” are digitally predetermined algorithms which decide what collections of 0s and 1s “prove” that outside reality has changed from a previous state.
Evaluators verify the impact claims/proofs, determining what kind of return the investors receive. To ensure interoperability, IXO normalizes and semantically defines the data through linked-data structures, incorporating and developing international standards for data management.
The executable rights refers to the ability for impact token stakeholders to trigger events such as payouts, data asset collection or success verification. Instead of traditional certificates, impact tokens aim to serve as the premier verification tool for any type of contrived real world goal, while monetizing the data used for verification and securitizing the fundraising for the endeavour.
Besides engineering the lives targeted by impact projects, the design also hopes to create a standard to measure professional expertise by judging the service provider’s collection of impact claims over time.
Alphabonds and Alphaoracles – Sophisticated Financialization of ‘Impact’ Through Predictive AI
As mentioned above, IXO gathers information from a variety of sources to validate the ‘impact tokens’. With alphabonds IXO ties the information gathered on the project to the financial instruments parameters. Currently IXO refines the alphabond mechanism through the largest impact bond to date, the Quality Education India Development Impact Bond and local currency initiative in Hong Kong in association with the Impact Data Consortium Chain. Since IXO’s beginning they have worked with UBS optimus to program sophisticated risk management tools into the impact tokens.
Alphabonds define a crypto financial building block. In the more technical parlance, an algorithmically adjusted bonding curve. Bonding curves in traditional finance refers to the function defining the payout of a debt instrument over time. Put more simply, the payouts that investors receive from a tokenized impact bond are automatically adjusted based on the real world data continuously gathered on the project. IXO describes alphabonds as the first “cybernetic sustainable DeFi mechanism”. From the latest whitepaper:
Alphabonds are the world’s first cybernetic Sustain-able DeFi mechanism which is built into the Internet of Impact. Alphabonds dynamically adjust the blockchain state in response to real-world risk signals.
Brookings Institute, an infamous Washington-based think tank highly involved in impact finance and data mining, hammers on the use of active and continuous data for outcomes focused projects. To acquire active data there needs to be a continuous source of data, requiring continuous surveillance and quantification of activity.
The real world data gets fed into “alphaoracles” which perform analytics to predict the probability of the project meeting their outcome goals (0-100%). Alphaoracles use AI and other data analysis tools to generate this “alpha”. Common parlance in the crypto world, but probably unfamiliar to most, ‘oracles’ facilitate any information exchange from the outside world into the blockchain. For instance, Blockchain does not possess the capacity to search the final score of the Red Sox’s game last night. An oracle can provide this data. In Ethereum, Makerdao, Augur and Chainlink were among some of the earliest projects experimenting with oracle and prediction market systems. In this case, rather than just feeding data into the blockchain the alphaoracle takes on the role of actually predicting real-world events, using all data available to it from data marketplaces such as Ocean protocol, along with data generated from devices in the impact project.
Using data mined from the project, the alphaoracle informs adjustments to the alphabond payout curves for the impact token. Alphabonds also enable impact token holders to engage in an internal prediction market to gauge their convictions on the project. The investors can enter “success” or “failure” pools, which IXO claims are designed to be biased towards success, but can also act as a hedging mechanism, meaning investors can bet against the project’s success.
The objectives of the protocol clearly extend beyond education or poverty alleviation; instead providing the complete framework for the securitization of any ‘observable’ phenomenon while simultaneously harvesting as much data as possible to inform the open-air, public-private global prison state.
Killing Relationship
Now let’s take the information above and consider how this plays out in real life.
First remember, the basis of computers currently rests on mathematical logic, meaning a perspective which sees all things as either TRUE (1) or FALSE (0). Computers cannot sit with nor discern ambiguity, or paradox, all inputs resolve to a black and white perspective. By viewing information generated through digital technology, as objective reality, our minds fall deeper into an illusionary notion of reality.
This illusory basis creates algorithms which are marketed as able to verify truth. The algorithm designers (not necessarily human) make all the decisions about what is a positive data input and what is a negative data input,purely derived from the desired outcome state. Love cannot be quantified, and the outcome states exclusively forms from an arbitrary quantitative goal such as the number of devices, operated by children, which reach a standardized reading comprehension goal, or the number of homeless people remaining in a specified box.
The designers choose to transform the nature of relationships by creating this type of world. For instance education, instead of the immeasurable energetic and psychological exchange between classmates and teachers, young children are isolated from this environment and encouraged to emotionally connect with software designed to hold their attention through programmed loops of activity. As the children do or do not flow through these loops, global investors constantly monitor their progress to try and guess whether enough children will fulfill the program’s impact claims, while also selling this data to the highest bidder.
Similar issues come from the myriad of “impact opportunities” outlined by IXO and the global forces behind impact investing. Each boils down to transforming relationships, not only between humans, but natural life, into digitally measured and managed states where nothing else matters besides transition of state. Algorithmically defining “positive” and “negative” events based on their correspondence to a predetermined state change by itself opens an incredibly dubious can of morality worms. Especially after considering that the entire operation is funded, securitized, monetized and speculated on by global investors.
While it’s trivial to imagine how this could go very badly, let’s take an example from a recent pilot in Denver, Colorado, which focused on keeping the homeless housed. The final report explains the difference between planned and unplanned exits from the housing program, determining the programs performance. Planned exits involved transitions to other permanent housing situations while unplanned exits referred to situations where participants did not stay housed for over 90 days because of jail time or other ‘negative’ reasons. Death was considered a “planned exit”
Deaths were also categorized as planned exits so provider performance would not be penalized because of the vulnerability of some participants
People’s literal deaths were counted as positive performance for the service provider. Sit with that for a moment. Investors made larger returns on their investment because the algorithm designers decided that keeping people alive was not relevant to the pre-defined outcome. Through the four year trial period out of 44 “planned exits” 38 of those were deaths. 365 people participated in the program, so approximately 10 percent of them died. Investors ended up earning an ~12% return over 3 and a half years.
In a future where these constructs prevail, only two choices present themselves: Do you want to play as the designer or designed? Hint… both mean the same thing…
