Collusion-Proof Decentralized Autonomous Organizations

44 Pages Posted: 19 Jan 2021 Last revised: 17 Sep 2022

See all articles by Alexander Braun

Alexander Braun

Institute of Insurance Economics (University of St. Gallen); Swiss Finance Institute

Niklas Häusle

Institute of Insurance Economics (University St. Gallen)

Stephan Karpischek

Date Written: April 22, 2022

Abstract

We develop a model of decentralized autonomous organizations and examine when these new institutional arrangements are both incentive compatible and collusion proof. Incentive compatibility can be achieved through a staking mechanism. Participants are required to post stakes, a digital form of collateral that carries voting rights. Additional effort must be spurred by higher stakes, which increase the risk of collusion. To be inherently collusion proof, DAOs either require a high revenue or a sufficient degree of decentralization in combination with a large network size. If neither one of these conditions is fulfilled, collusion can be precluded by governing the DAO with stochastic voting and having voting power concentrated among a few key token holders.

Keywords: Decentralized Autonomous Organization, Blockchain, Incentives, Collusion

JEL Classification: D02, D23, D82, G22

Suggested Citation

Braun, Alexander and Häusle, Niklas and Karpischek, Stephan, Collusion-Proof Decentralized Autonomous Organizations (April 22, 2022). Available at SSRN: https://ssrn.com/abstract=3760531 or http://dx.doi.org/10.2139/ssrn.3760531

Alexander Braun

Institute of Insurance Economics (University of St. Gallen) ( email )

Tannenstrasse 19
St. Gallen, 9000
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

HOME PAGE: http://https://www.alexandria.unisg.ch/persons/2621

Niklas Häusle (Contact Author)

Institute of Insurance Economics (University St. Gallen)

Tannenstrasse 19
St. Gallen, 9000
Switzerland

No contact information is available for Stephan Karpischek

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