Decentralized Autonomous Organizations (DAOs) Governed by Formal Game Theory

Abstract

Decentralized Autonomous Organizations (DAOs) present a novel paradigm for organizational structure and operation, leveraging blockchain technology and smart contracts. However, the inherent decentralization of DAOs introduces significant vulnerabilities to manipulation and challenges in achieving fair and efficient decision-making. This paper proposes a framework for governing DAOs utilizing formal game theory, aiming to establish robust governance mechanisms that mitigate these risks. The core claim is that DAOs necessitate rigorous governance, and the proposed mechanism involves designing a DAO governance system based on the equilibrium outcomes of a meticulously constructed game. Voting rights and decision-making processes are directly linked to these game-theoretic equilibria. This approach provides a mathematically sound and verifiable basis for DAO governance, offering a significant advancement over existing, often informal, governance models. We outline the key components of this framework, including game selection, parameter tuning, and the potential for dynamic adaptation. The system's capacity for predicting and preventing manipulation, coupled with its emphasis on fairness, represents a key contribution to the development of stable and trustworthy DAOs.