When Bidders Are DAOs
Maryam Bahrani, Pranav Garimidi, Tim Roughgarden

TL;DR
This paper studies auction mechanisms where bidders are DAOs, revealing fundamental limitations in designing incentive-compatible, welfare-optimizing two-level auctions, and providing mechanisms with provable approximation guarantees.
Contribution
It introduces a formal model for auctions with DAO bidders, proves a logarithmic welfare approximation lower bound, and presents mechanisms matching this bound.
Findings
Incentive-compatible welfare maximization cannot achieve better than an $ oughly \\ln n$ approximation.
A natural two-level mechanism matches the lower bound, achieving logarithmic welfare approximation.
Extensions to multi-item auctions with additive valuations are included, but limitations remain for unit-demand bidders.
Abstract
In a typical decentralized autonomous organization (DAO), people organize themselves into a group that is programmatically managed. DAOs can act as bidders in auctions, with a DAO's bid treated by the auctioneer as if it had been submitted by an individual, without regard to the internal structure of the DAO. We study auctions in which the bidders are DAOs. More precisely, we consider the design of two-level auctions in which the "participants" are groups of bidders rather than individuals. Bidders form DAOs to pool resources, but must then also negotiate the terms by which the DAO's winnings are shared. We model the outcome of a DAO's negotiations by an aggregation function (which aggregates DAO members' bids into a single group bid), and a budget-balanced cost-sharing mechanism (that determines DAO members' access to the DAO's allocation and distributes the total payment demanded from…
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Taxonomy
TopicsAuction Theory and Applications · Experimental Behavioral Economics Studies · Economic Policies and Impacts
