Token-Based Decentralized Governance

37 Pages Posted: 19 Oct 2022

See all articles by Jan Bena

Jan Bena

University of British Columbia - Sauder School of Business

Shiqi Zhang

University of British Columbia (UBC) - Sauder School of Business

Date Written: October 13, 2022

Abstract

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

Suggested Citation

Bena, Jan and Zhang, Shiqi, Token-Based Decentralized Governance (October 13, 2022). Available at SSRN: https://ssrn.com/abstract=4248492 or http://dx.doi.org/10.2139/ssrn.4248492

Jan Bena (Contact Author)

University of British Columbia - Sauder School of Business ( email )

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HOME PAGE: http://www.janbena.com

Shiqi Zhang

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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