Incentive Compatibility In Consensus Protocols And DAOs: A Game-Theoretic Approach

This study aims to explore blockchain technologies by integrating the economic perspective and the computer science approach, with a special focus to economic applications where non-cryptocurrency blockchain are usually adopted. This interdisciplinary approach may help to create blockchain solutions that are both technically robust and economically sustainable. For non-cryptocurrency permissioned blockchains to be widely adopted in various business and organizational applications, it is important to view nodes as economic agents rather than abstract entities. These agents exhibit behaviour driven by their individual interests. Therefore, the consensus protocol must be designed to consider effective incentive compatibility constraints. The theoretical approach is based on the evaluation of incentive compatibility constraints for both honest and faulty nodes, according two different remuneration schemes. By extending the principles of incentive compatibility from non cryptocurrency blockchains to organizational structures modelled as DAOs, we explore how decentralized governance models can benefit from blockchain-based incentive mechanisms while addressing the inherent economic risks and legal challenges.