Handshake Reflexivity


I just finished George Soro’s book The Alchemy of Finance, which details his concept of reflexivity as it relates to markets. In this post I will explore the role reflexivity can play in Handshake’s success.

Reflexivity is the idea that in any system with thinking participants, what participants think will affect the behavior of the system. The influence of thinking doesn’t affect natural events and physics, but the influence of thinking does affect social events. The effect of reflexivity is even more pronounced when you consider that people don’t base their actions on reality, but on their perception of reality. People’s perception of reality will always be inaccurate and biased, but those actions still affect social reality!

Reflexivity affects all aspects of social life, but it can be hard to measure the impact of reflexivity everywhere. When it comes to markets, however, reflexivity can be directly observed. Stock markets don’t reflect the true price of assets, they reflect the prevailing social perception of the value of assets (“prevailing bias”). The prevailing bias usually tracks closely to the underlying value of the asset, but what most people don’t consider is that the prevailing bias can affect the underlying value of the asset and vice versa.

When the prevailing bias of a market affects the underlying value, and the change in the underlying value feeds back to affect the prevailing bias the market falls into a positive feedback loop. This positive feedback loop can be in either the positive or negative direction which correspond to boom/bust cycles (regularly observed in the stock market). With this background in mind, let’s explore reflexivity in prior art.

Beanie Babies and Bitcoin

Beanie Babies are a famous example of reflexivity. When Ty Warner first started “retiring” popular lines of Beanie Babies, collector demand grew because of the artificial scarcity. Items bought for $5 could now sell for $10-20 in the secondary market. At this stage, the prevailing bias ($10-20) was still close to the underlying value ($5). However, the Beanie Baby frenzy grew across America and prices rose higher and higher. Items sold for $100, then $1000. The prices lead to people viewing Beanie Babies as investments. At its peak, rare items bought for $5 were flipped for over $5000.

In the case of Beanie Babies, the prevailing bias grew but did not affect the underlying value of the items (or if it did the effect was minimal compared to the skyrocketing prices of the items). The boom lasted for a few years but was inevitably followed by a bust.

Bitcoin’s growth may look like Beanie Babies on the surface, but there are a number of use cases that support Bitcoin’s underlying value that Beanie Babies did not have. Bitcoin is an investment, but it is also self-sovereign money. You can transfer large amounts of Bitcoin pseudo-anonymously, 24/7, with minimal fees. What’s more, the Bitcoin community has recently positioned it as a store of value aka digital gold. As long as people perceive that Bitcoin is digital gold Bitcoin’s underlying value will be that of digital gold. Reflexivity in action. The corollary of this is that if people stop believing in Bitcoin as digital gold reflexivity can work in the opposite direction and lead Bitcoin into a death spiral.

The idea of repositioning a market to support underlying value in light of reflexivity is interesting. If Beanie Babies had repositioned as artwork or as a store of value could its underlying value have increased to match its price? I think it’s unlikely since Beanie Babies were artificially scarce and not passable as art but it’s an interesting idea!


Here’s how I think reflexivity can play out for Handshake in the success case: initial speculation leads to more awareness and interest. Awareness and interest increases real usage (both among developers and consumers resolving Handshake names), which will lead to more speculation in a positive feedback loop. At a tipping point of awareness and real usage (underlying value), browsers will adopt Handshake which will drastically increase the underlying value of Handshake. The market for Handshake domains and HNS may skyrocket past the underlying value after this, but browser adoption will serve as the floor for Handshake’s market.

In this case, the biggest risk is in kickstarting the reflexive process. There will be initial speculation, but can we get enough awareness initially to get the first embers of real usage? If we get past this stage I think the reflexive process will run on its own but getting the flywheel to start is where most of the risk is.

Random musings


Community also has aspects of reflexivity. When a community seems like the winning team it makes you more inclined to join the community and work for it. When you join, you will contribute and invite friends. Those friends who join will increase the value of the community, thus increasing the prevailing bias.

There are many other dimensions that contribute to a community’s success more than reflexivity, but I think reflexivity is useful to consider.


In 2016 I asked slack what their differentiators were in comparison to Hipchat. They responded that they have better search and more integrations. This answer was interesting because I didn’t use Slack for those reasons at all. I used it because the product was super slick and easy to use, which I think is why most people used Slack initially.

In this case, Slack used marketing value props that customers perceived as valuable to get new customers in, but the actually value of Slack that retained customers was different. If Slack lead with the actual value props that retained customers, it may not have been convincing enough for customers to try out the product initially — “is slicker and easier to use than Hipchat” is less compelling than concrete differences like search and integrations. It’s kind of like a reflexive jump start.