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

Abstract

The growing importance of data as a crucial input in production poses a governance challenge related to efficiency and fairness. To explore a potential solution, we analyze the optimal design of decentralized governance using blockchain technology for a platform that leverages user data as input. Users face varying costs when sharing their data with the platform. As the extent of data sharing expands, both the platform's productivity and the costs faced by users increase. The platform founder aims to maximize the platform's total output by defining the governance token's properties. This token is distributed to users without charge and provides them with voting rights. The platform's governance structure, the extent of data requirements, and user adoption are endogenously determined. We show that decentralized governance through the use of a governance token leads to a higher user surplus compared to the centralized governance of a traditional firm. Additionally, the platform's founder can achieve greater output by offering token buy-back. This is because tokens allow the founder to incentivize early platform adoption by committing to enable transfers among users at a later date. Token-based decentralized governance has the potential to align the interests of platform founders with those of users while also being the preferred governance regime for founders.

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

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