Token-Based Decentralized Governance
37 Pages Posted: 19 Oct 2022
Date Written: October 13, 2022
We study blockchain-based decentralized governance of a platform where users contribute to the platform's output and incur differential costs that depend on the type of platform's technology. The objective of the platform's founder is to maximize the platform's total output by devising properties of the platform's governance token. Token holders decide about the platform's technology improvement. We provide novel insights on the economics of tokens and platforms: Governance rules drive the extent of platform adoption by users and the technology improvement in opposite directions. The optimal platform's governance rules depend on the type of platform's technology. Users' heterogeneity matters for the impact of governance rules on total output. The governance token has a non-zero price and allowing token buy-back increases user adoption. Decentralization increases social welfare.
Keywords: Decentralized Governance, Governance Token, Tokenomics
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