Balancing Power in Decentralized Governance: Quadratic Voting and Information Aggregation

37 Pages Posted: 24 Apr 2023 Last revised: 10 Apr 2024

See all articles by Alon Benhaim

Alon Benhaim

University of Pennsylvania - Department of Mathematics

Brett Hemenway Falk

University of Pennsylvania - Department of Computer and Information Science

Gerry Tsoukalas

University of Pennsylvania - The Wharton School; Boston University; Luohan Academy

Date Written: April 2, 2024

Abstract

While decentralized platforms offer transformative potential, their success relies on effective governance models for aggregating user information. Most platforms currently use Linear Voting mechanisms (LV) like stake-weighted voting, which are not always optimal. One promising alternative is Quadratic Voting (QV), where the cost of acquiring voting power is convex rather than linear. QV restores optimality when users are certain about the quality of the proposals they are voting on. But what if they aren't? We show that quality uncertainty can not only break optimality but can also make QV underperform LV. Intuitively, this is because cost convexity can disincentivize better-informed voters from conveying their private information. This effect, however, fades as voter numbers increase. In fact, both mechanisms become optimal asymptotically, highlighting the importance of managing voter participation in decentralized governance.

Keywords: decentralized governance, blockchain, dApps, Information Aggregation, crowdsourcing, Voting

Suggested Citation

Benhaim, Alon and Hemenway Falk, Brett and Tsoukalas, Gerry, Balancing Power in Decentralized Governance: Quadratic Voting and Information Aggregation (April 2, 2024). Available at SSRN: https://ssrn.com/abstract=4416748 or http://dx.doi.org/10.2139/ssrn.4416748

Alon Benhaim

University of Pennsylvania - Department of Mathematics ( email )

209 S 33rd St
Philadelphia, PA 19104
United States

Brett Hemenway Falk

University of Pennsylvania - Department of Computer and Information Science ( email )

3330 Walnut Street
Philadelphia, PA 19104
United States

Gerry Tsoukalas (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Luohan Academy ( email )

No. 556, Xixi Road, Z Space
Xihu District
Hangzhou, Zhejiang 310013
China

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