The Exchange Theory of Web3 Governance

Allen, DWE, Berg, C, Lane, AM, MacDonald, T, Potts, J (forthcoming) The Exchange Theory of Web3 Governance, Kyklos

38 Pages Posted: 23 Sep 2022 Last revised: 11 Apr 2023

See all articles by Darcy W E Allen

Darcy W E Allen

Royal Melbourne Institute of Technolog (RMIT University)

Chris Berg

Royal Melbourne Institute of Technolog (RMIT University)

Aaron M. Lane

Royal Melbourne Institute of Technolog (RMIT University)

Trent MacDonald

RMIT University; RMIT Blockchain Innovation Hub; ARC Centre of Excellence for Automated Decision-Making and Society

Jason Potts

Royal Melbourne Institute of Technolog (RMIT University)

Date Written: September 5, 2022

Abstract

Blockchains have enabled innovation in distributed economic institutions, such as money (e.g., cryptocurrencies) and markets (e.g., decentralised exchanges), but also innovations in distributed governance, such as decentralised autonomous organisations (DAOs). These innovations have generated academic interest in studying web3 governance, but as yet there is no general theory of web3 governance. In this paper we draw on the contrast between a ‘romantic view’ of governance (characterised by consensus through community voting) and the ‘exchange view’ of governance (characterised by an entrepreneurial process of bargaining and exchange of voters under uncertainty) from public choice theory. Our analysis is the first to argue that the latter ‘exchange view’ of governance is best to understand the dynamics of governance innovation in web3, and provides the foundations for a new general theory of governance in this frontier field. We apply the exchange lens of governance to three case studies (Curve, Lido and Metagov), exploring how these projects enable pseudonymous, composable, and permissionless governance processes to reveal value. The exchange lens also helps illuminate how this emergent polycentric process can generate robustness in decentralised systems.

Keywords: blockchain, governance, public choice, innovation, entrepreneurship

JEL Classification: D02, D72, D82, H40, L26, O31

Suggested Citation

Allen, Darcy W E and Berg, Chris and Lane, Aaron M. and MacDonald, Trent and Potts, Jason, The Exchange Theory of Web3 Governance (September 5, 2022). Allen, DWE, Berg, C, Lane, AM, MacDonald, T, Potts, J (forthcoming) The Exchange Theory of Web3 Governance, Kyklos, Available at SSRN: https://ssrn.com/abstract=4209827 or http://dx.doi.org/10.2139/ssrn.4209827

Darcy W E Allen

Royal Melbourne Institute of Technolog (RMIT University) ( email )

Melbourne, 3000
Australia

Chris Berg

Royal Melbourne Institute of Technolog (RMIT University) ( email )

124 La Trobe Street
Melbourne, 3000
Australia

Aaron M. Lane

Royal Melbourne Institute of Technolog (RMIT University) ( email )

124 La Trobe Street
Melbourne, 3000
Australia

HOME PAGE: http://https://www.rmit.edu.au/contact/staff-contacts/academic-staff/l/lane-dr-aaron

Trent MacDonald

RMIT University ( email )

124 La Trobe Street
Melbourne, VIC 3000
Australia

RMIT Blockchain Innovation Hub ( email )

106-108 Victoria Street
Carlton, VIC 3053
Australia

ARC Centre of Excellence for Automated Decision-Making and Society ( email )

106-108 Victoria Street
Carlton, VIC 3053
Australia

Jason Potts (Contact Author)

Royal Melbourne Institute of Technolog (RMIT University) ( email )

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