Decentralized Governance of Digital Platforms

Abstract

Over the past decade, the rise of blockchain technology has led to the emergence of a growing number of decentralized platforms that are governed less by platform owners and more through community efforts. The emergence of blockchain platforms offers a unique opportunity to examine alternative structures for platform governance and to develop a theory around the value of centralized, semi-decentralized, and decentralized governance. Drawing on mechanism design theory, we evaluate the tradeoffs between centralization and decentralization and hypothesize semi-decentralization as a higher-performing governance structure. Empirical evidence from the blockchain industry shows that decentralization has an inverted U-shaped relationship with platforms’ market capitalization, developer attention, and development activity. We further examine factors driving the decentralization of platform governance and find that digital platforms of the infrastructure layer — relative to those of the application layer — have a tendency to become more decentralized. This tendency, nevertheless, can be offset by experienced leaders to achieve semi-decentralization. Overall, this study contributes new insights on the characteristics, antecedents, and consequences of effective platform governance.

Keywords: platform governance; shared governance; decentralization; digital platform; mechanism design; blockchain; bitcoin; ethereum; ripple