Web3 Reputation: Introducing Dynamic Incentives into Distributed Networks

Posted: 14 Aug 2023

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Luofeng Zhou

New York University (NYU) - Leonard N. Stern School of Business

Date Written: August 14, 2023

Abstract

We introduce dynamic incentives into distributed systems via formally incorporating (decentralized) suppliers/users' reputation. Reputation aligns contributors’ incentives with platform welfare and makes myopic service providers internalize their long-term impacts. Starting with Proof-of-Stake (PoS) as an example, we show that Web3 reputation allows networks to support more throughput with same amount of staking, and averts cryptocurrency price shocks to suppliers by transferring cyclicality risks in transaction fees to users. We further analyze how dynamic incentives mitigate moral hazard in decentralized reporting game (e.g., for modeling oracle networks), and demonstrate how decentralization solves wealth concentration caused by dynamic incentives. Our findings validate proposals of adding Web3 reputation to distributed networks for efficiency improvements and long-run sustainability.

Keywords: Decentralized Identity, Blockchain, Dynamic Incentive

JEL Classification: D47, D86, L86,

Suggested Citation

Cong, Lin and Zhou, Luofeng, Web3 Reputation: Introducing Dynamic Incentives into Distributed Networks (August 14, 2023). Available at SSRN: https://ssrn.com/abstract=4540862

Lin Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Luofeng Zhou (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
417
PlumX Metrics