Note: the Kernel Treasury holds PAN, much of which was given to us as part of early Gitcoin grants rounds. This post attempts to remain neutral, but there is an implicit conflict of interests which you should take into account.

Panvala is a network of communities who cooperate in order to earn perks from a networked endowment; a shared treasury meant to reignite community life using carefully crafted incentives.

This is a treasury for communities, plural, not a community treasury. It differs from a single community treasury in that the idea is not to try and hold as much ETH (or other asset type and/or token) as possible, but rather on managing the flow of value for communities. We are not primarily interested in Assets Under Management (AUM) and figuring out strategic ways to spend them all: we are interested in how communities can cooperate to direct money to what they each actually value.

PAN adopts the same basic mechanic as Bitcoin does. Bitcoin releases new BTC every 10 minutes in order to reward miners for participating in and securing the network, up to the famous 21 million BTC limit. In PAN, the treasury releases new tokens every quarter, up to a limit of 100 million tokens. So, we know a priori how many tokens there will be in the treasury (which is why the system is not really about TVL). What we're actually interested in is how those tokens come to be valuable, and how that value might flow to each of the communities who participate. "The share of PAN you hold is the share of Panvala's subsidies that your communities can enjoy in perpetuity."

How does Bitcoin become valuable? Well, mostly through shifts in collective perception. If more people think it is worth something - either as a store of value, medium of exchange, unit of account or some combination of those three - then the price they are willing to pay in order to attain it tends to rise. The same thinking applies to PAN: the more communities are involved, and the more each community uses PAN to perform any task within that community, the more the overall perceived value of the token rises, and the more value can flow back to the communities who use of it created that shift in perception.

It is a virtuous feedback loop (in both senses of the word "virtue" - ethical and cybernetic), implemented on top of an extremely simple inflationary design, which has a set limit intended to provide the psychological incentive to participate as soon as you learn about it.

It's at this point where some people cry foul and accuse such thinking of being no more than a glorified ponzi scheme. This is the problem with sincere language (which is ultimately theatrical, or performative): it can easily be interpreted as manipulation. It can also be easily mimicked by people who do indeed have manipulative ends in mind: the great trick of all multi-level marketing schemes.

However, the fact of open source code deployed on a shared and public ledger that can be read, studied, and verified by anyone shifts the possible set of interpretations toward sincerity and away from manipulation. This is the real hope of most prosocial token designs. As we said previously in this section, it's not "Don't Be Evil"; it's "We can't be evil. Here is the proof."

Money is a powerful coordination mechanism, a language, an open protocol, an ancient technology, an metaphorical energy field for relationship. It has a profound effect on how we perceive the world, and this effect always occurs in and through dialogue. The kinds of money we have and the ways in which we use them shape us, just as we shape the kinds of money we have and the ways in which we can use them.

PAN is one such example of this.

From their documentation:

Communities can create their own matching funds through doing the same work and organizing they always have, except they can do so under the auspices of a transparent, public treasury whose unit of value is likely to increase the more they use it and encourage others to do the same. It sounds almost exactly like a ponzi, except for this very simple fact: there is no-one at the top to extract profits. So, if you're really insistent, maybe it is a ponzi, except that we can all prove there is no-one who benefits more than anyone else.

Is there, then, any ethical problem left? (This is a genuine question for study and reflection, not a rhetorical one for effect.)

The part we have highlighted in bold is the key difference between the actual economic action of Panvala when contrasted with Bitcoin. In Bitcoin, the BTC that are created in each block are allocated exactly and totally to the miner of that block: there is no further decision or community allocation. How communities in Panvala allocate PAN is therefore of critical importance to understanding whether this system is just another ponzi, or whether it is a ponzi which provably benefits every person who uses it and provides no way in which that can be arbitrarily changed by any single person or community.

Of course, reality is messier than the neat line of questioning laid out above. "Governance in Panvala is focused on what happens off-chain in stakeholder groups, not on on-chain voting." If and only if there is a dsipute at the end of each quarter is anything put to an on chain vote, which requires a deposit of 50,000 PAN to initiate. This kind of off chain, "soft governance" approach is favoured by many communities as being safer, more flexible, more humane and more easily extendable.

We've seen an "everything on chain" approach to governance with MakerDAO and DAI; we've seen a "governance minimized" approach which seeks to limit human intervention with RAI; now PAN presents us with this "soft governance" approach that assumes some kind of commonwealth and common use. Indeed, if there is not this commonwealth already working with PAN, then the token design and incentive structure has already failed.

This may seem like a somewhat trite thing to say: "the token design has already failed if the commonwealth it assumes in order to function properly is not there". However, it points at the order of priorities in the system. PAN is not a token built for the sake of demonstrating how powerful incentive mechanisms can be. PAN is a token which - in assuming certain things about how communities interact - hopes to bring about exactly such a coordinated group of communities who can use the way it is designed in a prosocial and widely beneficial way.

This is not an argument for or against its design. There are, as always, certain trade-offs that have been made across the widely divergent fields which converge in the practice of token or mechanism design. It is simply an examination of the context which surrounds and informs this particular way of thinking about tokens and their potential uses.

We quoted E. F. Schumacher at the beginning of this section, and it's worth returning to him now again:

PAN is economics done as if people really matter (to paraphrase the subtitle of Schumacher's famous book, Thinking Small). It is an attempt to reignite community life. The way it does so is suprisingly sincere, so much so that it is difficult not to see it as being somehow manipulative. However, this very impulse calls you to question deeply, within yourself, what the forces are which drive your fundamental perception of the world(s) within which you exist.