Greetings and salutations!
Our readers here will be noting about now the one year anniversary of the disappearance of the Hermesus exchange and the blow which that dealt to the Woodcoin community. There has been time to reflect on errors we have made and what we can learn from them.
One mistake this author was guilty of, which affects many crypto related projects, was assuming that people will work towards incentives. The design of many architectures uses incentives, for example the mining reward of bitcoin which assumes that miners will work towards maximizing their own profit. However, as we have seen in the Hermesus saga, people don't always work to maximize their own profit.
And why not? This is a question for the psychiatry blog but there are many reasons that people will forego financial and social rewards for some other immediate feeling, for example the feeling of having hurt others. Unfortunately such behavior is all to common today in a political era we might call late stage kakistocracy. Many are out there today claiming victory when in fact they are now vastly poorer, and with many corpses to clean up.
The idea is extremely simple and has a certain logic to it. If we assume a "zero sum game" hypothesis of sorts, we can assume that in order to win, someone else must lose. If you hurt someone else, then they have in some sense lost. Find some people, hurt them, and you can feel as though you have won.
In the case of Hermesus, the three principals of that company did whatever they could to hurt all investors and users of their platform, letting everyone down at a time when there was the most potential to gain. It was only after securing the bulk of the LOG on the platform that they shut down operations, that is to say when incentive was maximized for them to continue work - to unload their bags - was exactly when they shut down. Rather than maintaining their platform even through the bull run, they rugged all their customers at the time when they stood to gain the least for doing so, and in the most dishonest and self incriminating fashion available to them.
The moral of the story is that people work towards incentives only in a probabilistic sense. We can't ever predict the behavior of an individual but over a large enough group we know people will on average work towards maximizing their profits. Unfortunately, the sample size of the Hermesus folks was too small for our incentives to be effective; they chose the short term feeling of power that comes with losing a lot of money and gaining lots of enemies over the long term success of having a lot of money and friends.
People will do that from time to time, smart ones too, and ones that we care about. It's a hard lesson but there it is. Hopefully recognizing this behavior will enable all of us to avoid practicing it ourselves.