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Created by

King of Harberger

Created by
Justin Heyns
An Ethereum governance game that helps players save money by levying Harberger Taxes against the current King.
Technology
1.10 of 8800 goal
11 # in queue since 10 December 2018
Technology
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Problem

Blockchain governance is still in its infancy and many of the popular methods such as token democracy introduce unintended problems. Chief among concerns with DAO voting is that large token holders (whales) can disproportionately sway results, driving small token holders into complacency. This can subject projects to capture by special interests.

Solution

In their book, Radical Markets, Glen Weyl and Eric Posner popularize a form of self assessed taxation put forward by Arnold Harberger. Under Harberger Taxation, an owner of an asset will publicly state the value of the asset. Anyone who wishes to posses the asset may simply offer the stated value and the ownership changes. To prevent owners from holding out for unreasonable prices, the owner is levied a tax on the stated value. These two incentives guide the owner into setting the price to be exactly what they value the asset at, no more, no less. We believe that we can apply the concept of Harberger Taxation to blockchain governance (as argued here, https://bitly.com/) by auctioning off seats of power and taxing the rulers according to their stated value. By trialing the concept in the form of a game, the principles can be honed so that they can be later applied to more serious problems such as DAO management. Once we have refined Harberger Tax on chain, it is our desire to use it whereever we can going forward.

How it Works

The game features a castle with a flag and a slogan. In its initial state, the castle is unnocupied. Anyone with a metamask wallet may claim ownership of the castle by clicking on the "claim" button. That person is now the monarch of the castle, the King of Harberger. The reigning monarch can change the flag and can set a new slogan (subject to a list of safe words).

The monarch has to set a buyout price in Ether. The price is floated above the castle and anyone visiting the dApp can depose the reigning King by sending the buyout value to the contract (via an intuitive UI experience). The King will be taxed at 7% of the stated value per 50 days, levied daily. When the King is deposed, all of the accumulated taxes paid during their reign is returned to them. In addition to the taxes, the King receives the buyout value minus 10% which is sent to the treasury to fund development.

In this way, the King Of Harberger acts as a personal savings vehicle by rewarding the act of savings with an eventual buyout bonus.

What if the King can't afford the tax?

If the reigning monarch falls behind in payments, the buyout price is discounted by the arrears so that it falls enough that someone can eventually buyout the King. The deposed monarch still receives whatever taxes they did manage to pay as well as the discounted buyout price.

Example 1

Sarah funds her metamask account with 3 Eth and visits the King of Harberger site. She notices it is currently occupied and has a slogan "Rick's Pharmacy is the best in Florida". The buyout price is 1.5 Eth. She decides to depose the monarch by paying 1.5 Eth. Rick has been King for 47 days. His accumulated tax is 7% x 1.5 /50 * 47 = 0.0987. In total he receives 1.35 (90% of his buyout price) plus 0.0987 in taxes which totals 1.4487 Eth.

Sarah immediately changes the slogan to "Sarah shall dominate all in her path" and changes the flag to the crest of the House of Habsberg for fun.

Example 2

Jordan decides that he'd like to receive a big payout when he is deposed. He sets his buyout price to 200 Eth. This means his daily obligation in tax is 200*0.07/50 = 0.28 Eth. The Ether price is currently $200 which makes his daily obligations $56. It's a tight squeeze but he can manage it for now. After 10 days, the price of Eth suddenly rises to $1000. His daily dollar taxation is now $280. Jordan can no longer afford to keep paying the Harberger Tax. He decides to stop paying. The buyout price is now discounted by his daily tax obligations so that after 1 day, the buyout price is 199.72. Rick would like to advertise his pharmacy again but calculates it's only worth it when the buyout price of the current monarch is below 150 Eth. After 180 days, Jordan's buyout price has fallen below 150 Eth. Rick deposes Jordan. Jordan has only paid 10 days in tax. After paying the fee to the contract of 15 eth, Jordan leaves with 135 + 2.8 = 137.8 Eth.

Calibration

The tax rates and frequency may change by the time of launch. The numbers have to be carefully calibrated to optimize for saving incentive and revenue generation for the dapp itself. The 7% figure is a hat tip to Radical Markets where it was shown that 7% per anum Harberger Tax achieves the most efficient asset allocation.

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