The Economics of Blockchain Governance: Evaluate Liquid Democracy on the Internet Computer

TL;DR

This paper evaluates how the Network Nervous System's liquid democracy governance model on the Internet Computer can enhance cooperation and economic growth in DAOs through theoretical analysis and simulations.

Contribution

It provides a novel evaluation of the NNS's staking mechanism and reward multiplier in aligning individual incentives with DAO prosperity.

Findings

Staking mechanisms significantly influence cooperation levels.

Reward multipliers can align short-term incentives with long-term goals.

Simulations show improved economic outcomes with optimized governance parameters.

Abstract

Decentralized Autonomous Organizations (DAOs), utilizing blockchain technology to enable collective governance, are a promising innovation. This research addresses the ongoing query in blockchain governance: How can DAOs optimize human cooperation? Focusing on the Network Nervous System (NNS), a comprehensive on-chain governance framework underpinned by the Internet Computer Protocol (ICP) and liquid democracy principles, we employ theoretical abstraction and simulations to evaluate its potential impact on cooperation and economic growth within DAOs. Our findings emphasize the significance of the NNS's staking mechanism, particularly the reward multiplier, in aligning individual short-term interests with the DAO's long-term prosperity. This study contributes to the understanding and effective design of blockchain-based governance systems.