Will Blockchains Disintermediate Platforms? The Problem of Credible Decentralization in Daos

7 Pages Posted: 28 Sep 2022

See all articles by Yannis Bakos

Yannis Bakos

New York University (NYU) - Department of Information, Operations, and Management Sciences

Hanna Halaburda

New York University (NYU) - Leonard N. Stern School of Business

Date Written: August 7, 2022

Abstract

Blockchain technologies are designed to promote decentralization and self-governance in economic and social settings. In the context of platforms, an early claim of some proponents of these technologies was that blockchains would promote disintermediation, replacing intermediaries with decentralized governance, for instance leading to platforms governed by decentralized autonomous organizations (DAOs).

We have seen some elements of that (e.g., in DeFilDecentrilized Finance), but upon closer examination, most of the "decentralized" platforms are actually controlled by a small number of agents, or even a single agent, that effectively act as intermediaries. In this work we study the underlying dynamics and explore the potential for decentralized governance of blockchain-based platforms by modeling a simplified setting with a one-sided platform and comparing control by a centralized intermediary to control by a DAO that makes decisions via majority voting of its governance tokens.

We find that in the baseline case a "democratic" DAO with tokens equally distributed among potential users would set a low access price for the platform and maximize network size and total surplus. This is different from a profit maximizing centralized intermediary that would set a higher "monopoly price. If tokens can be traded, however, there is a strong tendency for concentration of control, which makes it challenging to maintain decentralized governance. Concentration in the ownership of governance tokens can be limited either by design or by regulations such as trading restrictions for the governance tokens, but implementing and enforcing such limitations is challenging. Intermediaries may be changed by blockchain technologies, but they are not likely to disappear.

Keywords: blockchain, platforms, decentralization, Digital Autonomous Organizations

Suggested Citation

Bakos, Yannis and Halaburda, Hanna, Will Blockchains Disintermediate Platforms? The Problem of Credible Decentralization in Daos (August 7, 2022). Available at SSRN: https://ssrn.com/abstract=4221512 or http://dx.doi.org/10.2139/ssrn.4221512

Yannis Bakos

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States
212-998-0841 (Phone)

HOME PAGE: http://www.stern.nyu.edu/~bakos

Hanna Halaburda (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

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