Rules Without Rulers: Economic Implications of Autonomous Mechanisms in Decentralized Finance

Abstract

This paper introduces Autonomous Mechanism Economics (AME), a theoretical framework for analyzing economic systems where human discretion is removed from mechanism execution. While classical mechanism design theory (Hurwicz, 1960; Maskin, 1999; Myerson, 1981) focuses on designing incentive-compatible rules, it implicitly assumes human agents execute these rules. We formalize a new class of economic mechanisms-Autonomous Mechanisms (AM)-where execution is performed by deterministic, immutable code rather than discretionary human agents. We establish four core theoretical results. First, Non-Discretionary Buyback (NDB) mechanisms minimize execution-layer agency costs (Theorem 1). Second, assets satisfying specific structural conditions-revenue increasing in market volatility combined with NDB execution-may exhibit antifragility, generating positive expected returns during market stress (Theorem 2). Third, when algorithmic buying capacity exceeds maximum individual selling capacity, markets may undergo threshold transitions to qualitatively different dynamics (Theorem 3). Fourth, USDdenominated staking requirements create self-reinforcing supply dynamics with bounded equilibrium returns (Theorem 4). We connect this framework to Kydland and Prescott (1977)’s “rules versus discretion” literature, arguing that AM protocols may represent a strong rules-based solution by eliminating not merely the incentive but potentially the ability to deviate from prescribed rules. Using data from Hyperliquid—a decentralized exchange implementing NDB at scale—we provide preliminary empirical support, documenting a volume-volatility correlation of 0.627 (p