Introduction

Every economic transaction, every promise made, every contract signed creates what we call a Quantified Commitment - a pledge from one party to another that carries measurable economic value. Yet the value of these commitments varies wildly depending not just on what is promised, but on how clearly we can see it, how certain we are to receive it, and how easily we can transfer it to others.

A $1,000 government bond and a $1,000 personal IOU both promise the same amount, yet one trades near face value while the other might be worth only pennies. A mortgage-backed security with a $1 million face value collapsed to $12,000 in the 2008 crisis - not because the underlying obligation changed, but because the anchors of value themselves disintegrated.

Law 1 establishes the foundational framework for understanding how commitments transform from legal obligations into economic value. It reveals why identical promises can have vastly different worth, how value can vanish overnight despite unchanged terms, and what determines whether a commitment creates wealth or destroys it.

This is not theoretical abstraction - it is the atomic unit of all economic activity, the DNA from which markets, crises and prosperity itself emerge.

The Core Definition

A Quantified Commitment is the expressed and implied information of a pledge from one party (the Liable Authority) to another (the Holding Entity).

• Expressed information comprises the explicit, documented terms: "I will pay you $100 on January 1st."
• Implied information includes everything reasonably inferred but unstated: the stability of the currency, the functioning legal system, the reliability of dependencies, the cultural norms governing fulfillment.

This commitment exists simultaneously in two realities that must never be confused:

The Fundamental Duality

From the Holding Entity's Perspective:

CV = CV₀ × V × A × (1 + T)

This could be considered as market value - what the commitment is worth right now based on current conditions. It changes with market perceptions, new information, deteriorating credibility, or improved liquidity.

From the Liable Authority's Perspective:

Base Value = CV₀

This is legal obligation - what must be delivered regardless of circumstances. A company that issues a $1,000 bond owes $1,000 at maturity, whether the bond trades at $600 or $1,200.

Confusing these two perspectives creates phantom value, accounting distortions and seeds crises. Banks holding loans at face value while those loans trade at 60 cents on the dollar are hiding catastrophic value degradation. This confusion was central to the 2008 financial collapse.

The Formula and Its Components

CV = CV₀ × V × A × (1 + T)

Base Value (CV₀): The intrinsic worth under ideal conditions - the face value of a bond, the principal of a loan, the coverage amount of insurance or the cost price of a product. This is what the Liable Authority has pledged to deliver. It must not be negative (CV₀ ≥ 0) and expressible in monetary units.

Examples: $10,000 treasury bond, $500,000 mortgage, $250,000 life insurance benefit.

Visibility (V) [0 ≤ V ≤ 1]

The degree to which the commitment's existence, terms, status, and the Liable Authority's performance are knowable and verifiable.

Components:

• Commitment Transparency (CT): How clear are the terms?
• Authority Transparency (AT): How visible is the obligor's capacity?
• Interpretability (I): Can the holder understand it?
• Relevance (R): Is the information decision-useful?
• Dependency Visibility (D_V): Are critical dependencies disclosed and understood?

V = CT × AT × I × R × D_V

Moderately high visibility means a U.S. Treasury bond with clear terms, public financials, simple language and known dependencies (V ≈ 0.70). Low visibility means a handshake deal with unclear terms, unknown counterparty capability and opaque dependencies (V ≈ 0.10).

Assurance (A) [0 ≤ A ≤ 1]

The probability of fulfillment by the Liable Authority as assessed by the Holding Entity, considering both current ability and historical willingness of the Liable Authority.

Components:

• Capacity (C): Does the authority have resources to fulfill?
• Reliability (R): Have they honored past commitments?
• Dependency Assurance (D_A): Are critical dependencies stable?

A = C × R × D_A

Moderately high assurance means a well-capitalized bank with perfect payment history and stable dependencies (A ≈ 0.69). Low assurance means a financially stressed entity with multiple past defaults (A ≈ 0.10).

Critical insight: A commitment's assurance cannot exceed its weakest critical dependency. A corporate bond depending on an unstable currency has A_max limited by currency stability, regardless of the company's strength.

Transferability (T) [0 ≤ T ≤ 1]

The ease with which ownership can change between Holding Entities without requiring the Liable Authority's fulfillment.

T = [N/(N+1)] × (1-F)

Where:

• N: Number of potential buyers
• F: Friction (transaction costs, barriers, complexity, regulatory requirements etc)

High transferability includes exchange-traded securities with millions of potential buyers and minimal costs (T ≈ 0.95). Zero transferability includes personal service contracts that legally cannot be transferred (T = 0).

The transferability premium: When T = 1, the (1+T) term doubles value. This reflects pure optionality - the right to exit without waiting for fulfillment.

How the Anchors Interact: The Virtuous Cycle

The three anchors don't operate independently - they create self-reinforcing feedback loops:

Visibility improves Assurance perception:

• Better disclosure → More accurate assurance assessment
• Transparency signals quality → Market confidence increases

Formula: A_signaled = A × (1 + γ × ΔV)

Assurance reduces Friction:

• Lower risk → Less due diligence required
• Higher confidence → Lower risk premiums

Formula: F_effective = F₀ × (1 - A)^φ

Lower Friction expands Market Depth:

• Fewer barriers → More participants

Formula: N(F) = N₀ × (1-F)^k

Greater Depth increases Transferability:

• More buyers → Higher liquidity

Direct effect through T formula

Higher Transferability enhances Visibility:

• Active trading → Price discovery
• Liquid markets → Information revelation

This creates a virtuous cycle above a critical threshold (V × A ≥ 0.40) where improvements compound exponentially. Below this threshold, a vicious cycle emerges where degradation accelerates.

Mathematical Constraints

Boundaries:

• 0 ≤ V ≤ 1
• 0 ≤ A ≤ 1
• 0 ≤ T ≤ 1
• CV₀ > 0
• CV_min = 0 (when V = 0 or A = 0)
• CV_max = 2 × CV₀ (when V = A = T = 1)

Perspective Constraint: 

• The CV formula applies only to Holding Entities.
• Liable Authorities always measure obligations at CV₀.
• Violating this creates accounting fraud.

Dependency Constraint: 

No commitment can exceed the anchor quality of what it depends on:

• V_dependent ≤ V_underlying
• A_dependent ≤ A_underlying
• A ≤ min(A_dependency₁, A_dependency₂, ...)

Essential Corollaries

Corollary 1.1: The Weakest Link

Overall commitment value is disproportionately constrained by the weakest anchor. A commitment with V = 0.95, A = 0.95, T = 0.15 yields CV = 1.04 × CV₀ despite excellent visibility and assurance - the low transferability is the binding constraint.

Corollary 1.2: Base Value Dominance

No amount of visibility, assurance, or transferability can create commitment value from zero base value. Perfect anchors (V = A = T = 1) are worthless if CV₀ = 0.

Corollary 1.3: Transferability Amplification

Transferability serves as a value amplifier, not a value component. It can nearly double value, but only when visibility and assurance are present. With V = 0.8 and A = 0.8, increasing T from 0 to 1 increases CV from 0.64 × CV₀ to 1.28 × CV₀ - a 100% premium purely from liquidity.

Corollary 1.4: The Dependency Inheritance Principle

A commitment's assurance cannot exceed the assurance of its weakest critical dependency. A 30-year mortgage funded by overnight borrowing has inherent fragility - the short dependency can fail before the long commitment matures.

Corollary 1.5: The Virtuous Cycle Activation Threshold

There exists a critical threshold (V × A ≥ 0.40) below which improvements decay and above which they compound. Systems below threshold require external intervention; systems above naturally improve.

Corollary 1.6: The Transparency Dividend

Investments in visibility generate compounded returns through the virtuous cycle, creating value 2-5× their direct costs through assurance signaling and friction reduction cascades.

Corollary 1.7: Crisis Cascade

During systemic stress, anchor deterioration follows predictable patterns where failure in one anchor rapidly propagates to others. The 2008 sequence: Assurance failed (mortgage defaults) → Visibility collapsed (complexity prevented understanding) → Transferability vanished (markets froze) → Values approached zero despite unchanged CV₀.

Corollary 1.8: Recovery Sequence

Post-crisis recovery requires specific ordering: Visibility → Assurance → Transferability. Attempting to restart trading (T) without transparency (V) fails because no one trades what they cannot see.

Illustrative Examples

Example 1: The Tale of Two Bonds

U.S. Treasury 10-Year Note:

• CV₀ = $10,000
• V = 0.98 (transparent government, clear terms)
• A = 0.99 (sovereign with taxing power, no modern defaults)
• T = 0.95 (millions of buyers, minimal friction)
• CV = $10,000 × 0.98 × 0.99 × 1.95 = $18,916

The Treasury trades at 89% premium to face value.

Small Business Loan:

• CV₀ = $10,000
• V = 0.40 (limited disclosure, unclear dependencies)
• A = 0.50 (thin margins, volatile business, dependency risks)
• T = 0.10 (few potential buyers, high transfer costs)
• CV = $10,000 × 0.40 × 0.50 × 1.10 = $2,200

The business loan is worth 22% of face value - an 88% discount for poor anchor quality.

Same face value, 8.6× commitment value difference, purely from anchor quality.

Example 2: The 2008 Mortgage Security Collapse

Subprime MBS, June 2006:

• CV₀ = $1,000,000
• V = 0.25 (complex structure, opaque underlying mortgages, hidden dependencies)
• A = 0.70 (AAA-rated, overcollateralization appears adequate)
• T = 0.75 (active market, many buyers)
• CV = $1,000,000 × 0.25 × 0.70 × 1.75 = $306,250

Even at peak, only 31% of face value due to poor visibility.

Same Security, November 2008:

• CV₀ = $1,000,000 (unchanged legal obligation)
• V = 0.08 (opacity revealed, dependencies failed)
• A = 0.15 (collateral evaporated, housing market dependency collapsed)
• T = 0.03 (market frozen, effectively zero buyers)
• CV = $1,000,000 × 0.08 × 0.15 × 1.03 = $12,360

96% value destruction - from $306k to $12k - through dependency cascade and anchor collapse, despite unchanged CV₀.

The lesson: Low visibility (0.25) masked catastrophic dependency risk. When housing dependency (D_A) failed, assurance of MBS collapsed, triggering visibility readjustment, causing transferability death spiral. The virtuous cycle became vicious.

Example 3: Cryptocurrency Custody Choice

$100,000 Bitcoin on Exchange:

• CV₀ = $100,000
• V = 0.35 (can see balance, cannot verify reserves, opaque dependencies)
• A = 0.40 (exchange claims solvency, multiple unverified dependencies)
• T = 0.85 (easy internal transfers)
• CV = $100,000 × 0.35 × 0.40 × 1.85 = $25,900

$100,000 Bitcoin in Self-Custody:

• CV₀ = $100,000
• V = 0.95 (cryptographic proof, transparent blockchain)
• A = 0.95 (no counterparty risk, minimal dependencies)
• T = 0.90 (global transferability)
• CV = $100,000 × 0.95 × 0.95 × 1.90 = $171,575

Self-custody worth 6.6× exchange custody purely from eliminated counterparty dependencies.

When FTX collapsed in November 2022, exchange-held crypto fell to near-zero (hidden dependency revealed: customer funds lent to Alameda). Self-custody Bitcoin maintained full value - no dependency failure, no contagion.

Practical Applications

Application 1: Investment Due Diligence

Before investing, calculate true CV:

Step 1: Assess Visibility

• Can you verify the commitment exists?
• Are terms clear and documented?
• Is the obligor's capacity transparent?
• Are dependencies disclosed?

Rate V: ___/1.0

Step 2: Assess Assurance

• Does obligor have resources to fulfill?
• What's their track record?
• What are their critical dependencies?
• What's the weakest dependency?

Rate A: ___/1.0

Step 3: Assess Transferability

• How many potential buyers exist?
• What are transaction costs?

Calculate T: ___/1.0

Step 4: Calculate Commitment Value

CV = CV₀ × V × A × (1+T)

Compare to market price

• If CV < Price: Overvalued
• If CV > Price: Undervalued

Application 2: Contract Negotiation

Scenario: 

Negotiating a $2M service contract with poor anchors (V=0.5, A=0.65, T=0.2) yielding CV = $780k - only 39% of asking price.

Strategy: 

Improve anchors, not just price.

Improve Visibility (target V=0.8):

• "Require weekly progress reports with metrics"
• "Grant access to project management system"
• "Include independent quarterly audits"
• "Disclose all critical dependencies"

Improve Assurance (target A=0.85):

• "Require $500k performance bond"
• "Add completion guarantees with penalties"
• "Include parent company guarantee"
• "Prove key resource availability"

Improve Transferability (target T=0.45):

• "Include assignment rights"
• "Standardize deliverables to industry norms"
• "Allow subcontracting with notification"

Result: CV increases from $780k to $1,972k - nearly fair value at $2M price, achieved by improving anchors rather than cutting price. Both parties win - buyer gets real value, seller gets full price.

Application 3: Crisis Early Warning

Monitor anchor quality continuously:

Yellow Alert (Investigate):

• V drops >10% in 1 month
• A drops >15% in 3 months
• V × A falls toward 0.40 threshold

Orange Alert (Prepare Exit):

• V drops >20% in 1 month
• A drops >30% in 3 months
• T drops >40% in 1 week

Red Alert (Emergency Action):

• V drops >30% in 1 month
• A drops >50% in 3 months
• T drops >60% in 1 week
• V × A < 0.25

Had investors monitored anchor quality in 2007, the V × A product dropping from 0.56 to 0.35 would have triggered yellow alerts months before the 2008 crash, enabling protective action.

Application 4: Portfolio Construction

Don't just diversify by asset class - diversify by anchor quality.

Traditional approach: 

• 40% bonds,
• 40% stocks,
• 20% real estate (by face value).

Anchor-aware approach:

• Calculate CV for each holding
• Assess V × A product for resilience
• Target portfolio V × A > 0.60 for stability
• Avoid concentration in low-anchor assets
• Stress-test: What if all anchors drop 30%?

A portfolio with weighted V × A = 0.80 will lose 49% in crisis. A portfolio with V × A = 0.50 will lose 72%.
The anchor quality difference determines survival.

Application 5: Economic Development Strategy

Developing nations should prioritize institutional anchor quality over capital injection.

The Development Cascade:

Phase 1: Establish information freedom

• Freedom of Information Act
• Independent media protection

Impact: V increases from 0.30 to 0.70

Phase 2: Strengthen rule of law

• Independent judiciary
• Contract enforcement
• Property rights

Impact: A increases from 0.35 to 0.70

Phase 3: Reduce friction

• Ease capital controls
• Simplify regulations

Impact: T increases from 0.20 to 0.55

Result: Bond CV increases from 12.6% of face value to 76% - a 6× improvement from institutional quality alone. This reduces borrowing costs from 35% to 8%, enabling sustainable development.

$1B invested in institutions generates $6B+ in value creation - superior returns to any direct capital injection into low-anchor environments.

The Fundamental Insight

Economic value is not static - it is the dynamic product of information quality, fulfillment certainty, and transfer ease. Identical legal obligations can have vastly different economic worth based purely on anchor quality.

The framework reveals that:

• Most "value destruction" is actually revelation of hidden reality - poor anchors were always present, merely invisible. The 2008 crisis didn't destroy value; it revealed that low V had been hiding low A all along.
• The virtuous cycle explains why wealth concentrates - above the V × A ≥ 0.40 threshold, improvements compound automatically. Below it, degradation accelerates. This creates natural divergence between high-anchor and low-anchor systems.
• Transparency is not just ethical - it's economically multiplicative - investing in visibility generates 2-5× returns through signaling, friction reduction, and virtuous cycle activation.
• Dependencies are destiny - no commitment can exceed its weakest dependency. Systemic stability requires transparent, diversified, resilient dependency structures.
• Crisis prevention is anchor maintenance - monitoring V, A, T, and their product V × A provides early warning. Recovery requires restoring anchors in correct sequence: V → A → T.

This is Law 1: Commitment Value - the atomic unit from which all economic phenomena emerge.

Master it, and markets, money, crises, and prosperity itself become comprehensible.