KPI Oracles and the Future of Organizations

tl;dr: how offline data becomes the key to accountability within decentralized organizations.

There’s a difference between so-called “on chain” data and “off chain” data.

“On chain” data comes from the blockchain itself (e.g. if a transaction happened and when) and thus it’s veracity is not in doubt. If you trust the blockchain, you trust the data you are taking from the blockchain.

This is particularly useful for smart contracts.

For example, “if this transaction occurred on chain, then do that” or whatever.

The challenge comes when you want to use “off chain” or “real world” data in a smart contract. For example, “who won the US Presidential election?”

We’ll leave aside the fact that the ‘off chain’ world can’t even seem to agree on this for the moment. Perhaps a better example is “who won the Men’s NCAA basketball tournament in 2021?” (Answer: Baylor)

The question is: “how do we get this information ‘on chain’?”

Oracles

The answer is: Oracles.

An “oracle” is exactly what it sounds like, a source of truth, that can then be migrated into an ‘on chain’ experience or contract.

The obvious question then becomes: “well, how do you know you can trust the oracle?”

The answer is: you can’t, which is why you need cryptoeconomics.

The key is to create a way for “off chain’ data to be moved ‘on chain’ where the person responsible for certifying that, in fact, Baylor won the basketball tournament, has ‘skin in the game.”

So, if someone says “Kentucky won the basketball tournament,’ others have a financial incentive to disprove that claim and have arbitration settle the dispute, with the challenger taking the money of the submitter.

This doesn’t address the problem as to what happens if you submit a claim to a chain full of QAnon people who will say “Trump won the election” other than the fact that we’ll have multiple versions of the truth with forked versions of the blockchain.

UMA Enters the Oracle Game

But I digress, slightly, because I haven’t even gotten to what I want to talk about, which is the introduction of?UMA’s new Optimistic Oracle,?the latest entrant into the field of reliably moving “off-chain” data “on chain.”

If you’re interested in the cryptoeconomics behind how this works, click on over to the article, but know that it’s similar to the way that?Erasure Bay?does it.

Both of these are part of the next wave of Reputation Building (which I touched on here in?Trusted Oracles and Bulletproof Reputations). When they start working, they will lead to?The beginning of the end of ratings agencies.

Why this matters is because their post added another piece of the puzzle to the make up of the?Transparent Organisations?of the future.

Decentralized Accountable Organizations

The term DAO refers to a Decentralized Autonomous Organization, meaning that the bulk of the “back office” elements of the organization is run by smart contracts.

This is great and when they work, they will work at orders of magnitude less cost than traditional, centralized organizations.

However, just because the back office works that efficiently, doesn’t mean the ‘front office’ will, because it still involves people.

I’ve been turning over in my mind how the Objectives and Key Results (OKR) methodology might get deployed into these types of organizations. I call it DAOkr’s.

There’s a financial perspective, which is what I was touching on in?The Value of Cryptoeconomics + OKRs?as well as a measurement perspective, which I touched on in?OKRs vs. KPIs

What UMA’s Optimistic Oracle does is extend the capability of the KPI piece to include off-chain data. Well, they didn’t really invent it, but they did highlight it as a use case and it clicked for me.

As?Hart Lambur?writes:

UMA’s KPI Options?are a great example of needing arbitrary data, on things other than crypto prices. KPI options are synthetic tokens that pay out based on a specific metric — this metric can be anything measurable. This is data that is not available on-chain, but can be queried using the Optimistic Oracle.

To date, KPI Options have been built for?UMA’s TVL, for the number of?positive rebases of Badger’s DIGG token, and for?Aragon DAO migrations. Under the surface, all of these contracts are all enforced by the Optimistic Oracle.

Ultimately, by connecting off-chain data in?a verifiable way?to on-chain organizations, a DAO, we’ll be able to increase the level of accountability that the “front office” has for executing the strategy, whether it’s a collective strategy or an individual one.

This enhances overall reputation, trust, and performance.

The world is migrating this way anyway, but the raw openness of “transparent by default” organizations, such as DAOs, is going to accelerate it.

For the foreseeable future, most of these DAOs will need to use or rely upon ‘off-chain’ data. Those that use it most effectively and create distributed cultures of performance accountability will be in a better position to succeed than those that don’t.