Decentralization vs. Blockchain Neutrality: The Unequal Burden of Ethereum’s Market Mechanism on dApps

Abstract

Blockchain platforms have been hailed for ushering our digital economy into Web 3.0, a more transparent, inclusive, and equal era of the Internet. To do so, blockchain platforms aim to disintermediate digital platforms by substituting a centralized authority with a network of peers who collectively validate and record transactions based on rules predefined in a public protocol. As this decentralization necessitates limiting the transaction supply, most blockchain platforms rely on a market mechanism to allocate the transaction recording service. We study how this market mechanism influences what type of applications can be sustainably offered on such platforms. Based on a sample of 1,560 applications running on Ethereum, the most popular blockchain platform, we show that allocating transactions by a market mechanism favors some types of applications over others and reduces the heterogeneity of platform complements. This finding highlights a trade-off between decentralization and blockchain neutrality—a new notion we introduce as the principle that all actors on blockchain platforms are treated equally. This trade-off is especially problematic as blockchain platform providers have no governance tools to mitigate this market discrimination and allow all types of applications to be offered on the platform.

Keywords: blockchain, decentralization, blockchain neutrality, platform orchestration, decentralized application

JEL Classification: C26, D47, D62, L11