Token-based Decentralized Governance, Data Economy and Platform Business Model

Abstract

The growing importance of data as an input for platform businesses, combined with users' concerns about sharing their personal data, raises questions how to balance efficiency and fairness in governing these platforms. As a potential solution, we examine the decentralized governance of a platform that utilizes governance tokens issued to users. We explore the incentives for founders to establish platforms with decentralized governance and the resulting benefits for users. Decentralized platforms lead to a greater surplus for users compared to traditional, centrally governed platforms, enhancing fairness. In `data-heavy' platforms, a buy-back market for governance tokens emerges, enabling the founder to promote early platform adoption by committing to future transferability of tokens among users. Consequently, the platform's founder can achieve equal or greater output compared to a centrally governed platform, which provides a rationale for token issuance. Regulations that limit data sharing negatively impact stakeholders of decentralized platforms, while they might protect users in centralized ones. Token-based decentralized governance offers a way to align the interests of platform founders with those of users.

Keywords: Decentralized governance, Governance token, Tokenomics, DAO, Data economy, Personal data, Privacy concerns, Platform business model

JEL Classification: D21, D23, D24 G34, G38, O33