This paper considers the "DeFi intermediation chain"-the market structure that underlies the creation and distribution of ETH, the native cryptocurrency of Ethereum-to examine how information asymmetry shapes intermediation rents.We argue that using proof-of-stake blockchain technology in DeFi leads to a novel limit to arbitrage, arising from the tension between arbitrageurs' privacy needs and blockchain transparency.Using a new dataset which distinguishes private and public transactions in Ethereum, we find that a 1% increase in private information advantage leads to a 1.4% increase in intermediaries' profit share.We develop a dynamic bargaining model that predicts information market power stems exclusively from participants' private information advantage.Our analysis illustrates how blockchain technology can sustain arbitrage opportunities despite low entry barriers.
The e-commerce market heavily relies on e-coupons, and their digital nature presents challenges in establishing a secure e-coupon infrastructure, which incurs maintenance costs. To address this, we explore using public blockchains for the e-coupon system, providing a highly reliable decentralized infrastructure with no maintenance costs. Storing coupon information on a blockchain ensures tamper resistance and protection against double redemption. However, using public blockchains shifts gas cost responsibility to users, potentially impacting user experience if not managed carefully. This paper focuses on cost-effective management of multiple e-coupons on Ethereum-based chains by minimizing reading and writing to storage. It applies the NFT standard with implicit ownership for creating, transferring, and removing coupons from circulation, utilizing bitmaps for efficient execution of these operations. Coupon information is stored in unused bits of a mapping that associates coupon id with the ownerâs address, ensuring more economical transaction for executing e-coupon business logic. Additionally, the findings outlined in this paper hold significance to all platforms that represents services or goods as NFTs, embedding features in a single storage slot.
As blockchains shift from energy-hungry Proof-of-Work to capital-intensive Proof-of-Stake, they trade electricity costs for a new vulnerability: the risk of a capital run that can destabilize consensus and security. We model investors who choose between staking their coin to earn rewards or exiting to cash out, potentially triggering mass withdrawals. These "staking runs" are more likely when protocols are weak, when failure would hit coin prices hard, or when staking rewards are low. Leverage worsens things: margin calls accelerate exits and amplify run dynamics. Longer lock-up periods slow the run but may not prevent it. Previous research shows that low rewards are good for protocol security. We show they also raise the risk of a run. A run on a major Proof-of-Stake chain---like Ethereum---could destabilize the entire crypto ecosystem, threatening DeFi platforms that depend on it.
Mobile smart contracts (MSCs) are essential to facilitate quick, safe, and decentralized transactions on mobile blockchain networks. Scalable blockchain solutions facilitate the establishment of a mobile blockchain ecosystem characterized by enhanced resilience and adaptability. This encourages an increase in the number of users and, thus, spreads the adoption of blockchain technology in the mobile domain. With the inception of blockchain technology, a wide range of applications use smart contracts due to their high customizability. However, problems with scalability and resource-intensive consensus procedures prevent their general use. Therefore, by conducting a systematic survey using Kitchenhamâs guidelines of available scalable blockchains and consensus methods, this work seeks to identify and analyze these constraints. Out of a preliminary pool of 2,073 publications, our study, which consists of 25 selected studies, identifies 12 consensus mechanisms and 13 scalable blockchain systems. Our investigation shows that, despite the wide range of techniques, no existing blockchain solution provides the scalability and lightweight operating requirements to implement smart contracts on mobile devices. This realization draws attention to a significant gap in academic and industry-driven blockchain research that may have implications for the creation of MSCs. Our findings encourage academics to explore scalable and energy-efficient blockchain technology, targeting the creation of more approachable smart contracts designed with mobile devices in mind.
Global finance is redefining grand strategy and influence in the 21st century. There is no practical alternative today that has the scale to challenge the U.S.-led financial system. With it, American influence has been projecting its strategic goals through sanctions, causing unease among international friends and foes alike, applying a pressure referred to as âweaponized interdependence.â However, state-backed digital currencies, developed for efficiency and financial inclusion, are now being considered around the world as a defense against being cut off from the global financial systemâand by extension American sanctioning power. This paper will analyze the concept of weaponized interdependence in payment systems, the British financial empire as a historical precedent for it, and how America came to inherit this enviable position. This paper will also analyze what central bank digital currencies (CBDCs) are, the challenge they pose to American financial power, and offer an initial down payment on policy solutions that policymakers may consider to preserve American financial power.
Jan 1, 2024¡Proceedings of the ... Annual Hawaii International Conference on System Sciences/Proceedings of the Annual Hawaii International Conference on System Sciences
Annika Bengts, Ville Eloranta, Esko Hakanen, Taija Turunen ¡ 5 authors
Business models integrate activities for value creation and capture. While ecosystems have emerged as potent catalysts for value creation through collaborative innovation, the common understanding is that value capture occurs within individual firms. This paper challenges this dichotomy. In an empirical study using a polar types case approach, we first illustrate how two ecosystems employ decentralization technology, specifically blockchain-based Web3 platforms, to elevate value capture to the ecosystem level. We then outline the implications beyond the blockchain domain using two non-Web3 cases. Specifically, we showâfrom the perspectives of value proposition, value constellation, and profit equationâhow business models can rise to the ecosystem level.
Abstract The following contribution explains how a DAO (Decentralized Autonomous Organization) can technologically supplement the governance process in complex environments, in this case urban environments where Fab City is active. DAOs are implementations of the blockchain technology which can be considered as coordination tools and de facto âdecentralized ERP* (Enterprise Resource Planning) systems on the internetâ. They can enable organizations and communities to address challenges that are otherwise too complex in a tangible, dynamic and sustainable manner which caters to the general need for transition governance. To facilitate collaboration and coordination, the idea of a DAO is to effectively capture the various rule sets, actor constellations and general conditions to address the four universal problems in organizing-task division, task allocation, reward distribution, and information flows. The following conceptualization aims to provide a practical solution alternative to supplement cooperation and coordination between various actors within the wider ecosystem using a DAO. The current state of blockchain and DAO research serves as a rich backdrop when exploring the given opportunity and shedding light on the most important requirements, risks, and success factors. Despite remaining challenges in particular the legal domain, the focus of this article is to showcase how a progressive path forward can lead to a setting in which DAOs can be successfully integrated and become an operational part of an urban environment.
Jan 1, 2024¡Proceedings of the ... Annual Hawaii International Conference on System Sciences/Proceedings of the Annual Hawaii International Conference on System Sciences
Ted Ladd, Robert S. Barlow, Beau Giannini, Annette Pflaum
Multi-sided platform marketplaces like Alibaba, Alphabet, Amazon, and the Apple App Store (to name only those beginning with âAâ) dominate many industries already, generating growth and profits that make them among the most valuable companies in the world. Yet a new suite of technologies collectively known as Web3, including blockchain and smart contracts, enable a new type of organization labeled a decentralized autonomous organization (DAO) that could perform many of the same functions as centralized platform companies, perhaps with an even stronger value proposition for the buyers and sellers in a DAO marketplace. This article uses and expands theories of substitutive competition and disintermediation to explain if and how DAOs might displace centralized platforms.
Douglas Wegner, Rovian Dill Zuquetto, Fernando Correa Grisi
Objective: this study aims to review the literature on DAOs in business administration and propose a framework for DAOs compared to the key features of market, hierarchy, and network governance forms and avenues for future research. Methods: we performed a systematic literature review in Scopus and Web of Science databases and identified 69 articles on DAOs published in or before March 2024 in the field of business and management. Results: we describe the main characteristics, opportunities, and challenges for DAOs. Our study also discusses how DAOs can be further explored and how they may or may not fit in different governance and organizational forms. Conclusions: we conclude by offering several guidelines to researchers who want to comprehend the phenomena of DAOs and contribute to theory and practice in business administration.
Effective governance plays a pivotal role in aligning the interests of diverse stakeholders and shaping the strategic directions of organizations. However, the dominant model of corporate governance often concentrates power among a limited group of directors, leading to concerns about potential power imbalances that may distort fair representation and compromise decision-making integrity. Decentralized autonomous organizations (DAOs) present an alternative model that distributes power among a broader base of stakeholders, fostering a more democratic approach to collective decision making and governance. However, the openness and fluidity inherent in DAOs can expose them to coordination challenges, governance complexities, and potential exploitation by malicious entities. In response to possible governance challenges, we consider DAOs as digital commons and adapt Ostrom's eight principles for governing the commons to propose a new governance framework for DAOs. This governance framework is designed to foster the collective stewardship of shared digital assets and the equitable distribution of decision-making authority in the Web3 era. As DAOs emerge as a novel organizational structure, our governance framework aims to maintain their resilience, inclusiveness, and decentralization, reinforcing their crucial role in the evolving Web3 landscape.
The advent of decentralized finance (DeFi) has instigated a paradigm shift in finance and economics, challenging the established norms of traditional network economics. This research offers a comprehensive comparative analysis of DeFi's impact on market power, pricing dynamics, and user adoption, juxtaposed against traditional centralized financial systems. Utilizing advanced analytical methodologies, the study reveals significant findings in the redistribution of market power, the evolution of pricing models, and the shifting landscape of financial service consumers. Central to this study is the investigation of how DeFi platforms, characterized by their decentralization, are reshaping market power dynamics. Traditional financial networks, often dominated by central entities (Nakamoto, 2008), are witnessing a gradual erosion of these centralized powers in favor of a more equitable distribution through DeFi systems (Schär, 2021). This redistribution represents a tangible shift in the power dynamics of financial markets, driven by the unique structure of DeFi. Additionally, the research explores the differences in pricing models between DeFi and traditional finance. It uncovers a novel pricing mechanism within DeFi that starkly contrasts with traditional methods, influencing asset valuation and market volatility (Gorton & Zhang, 2020). This distinct pricing approach in DeFi has the potential to significantly alter the global financial market landscape. Furthermore, the study examines user adoption patterns, highlighting a swift uptake of DeFi, especially in emerging economies (Catalini & Gans, 2020). This trend not only challenges existing financial models but also sheds light on the demographic and psychographic variances between DeFi and traditional finance users (Auer & Claessens, 2020; Biais et al., 2019). This research provides a foundational understanding of DeFi's implications on traditional network economics, paving the way for further studies and informing policy development. It is a vital resource for policymakers and financial institutions navigating the evolving financial service industry.
In this article, we discuss the potential of Web3 in the context of decentralized finance (DeFi). Web3, as the new generation of the internet and new approaches, comes with a decentralized architecture and increased security through the use of blockchain technology. These characteristics make Web3 a suitable environment for DeFi, which is a decentralized financial system based on blockchain technology and smart contracts to provide financial services. DeFi eliminates the need for intermediaries in financial transactions and can provide access to financial services globally, even for those who do not use traditional financial instruments. We address the various aspects of DeFi that are possible through the use of Web3, such as payments, loans, and digital asset exchanges. We also aim to address how Web3 can solve some of the current issues facing DeFi, such as scalability and interoperability. Additionally, we discuss the regulatory perspective, how these new financial systems bring and create new risks, and what the management tools for these risks can be from two perspectives: financial stability and the protection of consumers/investors, and financial education as a proactive element of self-management of increasingly complex new financial concepts. DeFi is one of the most innovative and exciting applications of blockchain technology that can transform and improve the global financial system. However, DeFi is still in its early stages and faces certain challenges, such as scalability and interoperability between different DeFi platforms. Web3 can play a significant role in addressing these challenges by creating a decentralized environment that can facilitate value transfer and interconnectivity between different DeFi platforms. Web3 can also enhance the security and transparency of DeFi platforms by leveraging blockchain technology and smart contracts. The emergence of DeFi also brings new risks and challenges, particularly in terms of regulation and consumer protection. Financial authorities must adopt a proactive approach to regulate these new financial systems and ensure their stability and security, while also promoting financial education and awareness among consumers and investors
With rising concerns about the security of IoT devices, network operators need better ways to handle potential risks. Luckily, IoT devices show consistent patterns in how they communicate. But despite previous efforts, it remains unclear how knowledge of these patterns can be made available. As data marketplaces become popular in different domains, this paper1 proposes creating a special marketplace focused on IoT cybersecurity. The goal is to openly share knowledge about IoT devices' behavior, using structured data formats like Manufacturer Usage Description (MUD) files. To make this work, we employ technologies like blockchain and smart contracts to build a practical and secure foundation for sharing and accessing important information about how IoT devices should behave on the network. Our contributions are two-fold. (1) We identify the essential features of an effective marketplace for sharing data related to the expected behaviors of IoT devices. We develop a smart contract on the Ethereum blockchain with five concrete functions; and, (2) We implement a prototype of our marketplace in a private chain environment-our codes are publicly released. We demonstrate how effectively our marketplace functions through experiments involving MUD files from consumer IoT devices. Our marketplace enables suppliers and consumers to share MUD data on the Ethereum blockchain for under a hundred dollars, promoting accessibility and participation.
The relevance of the research is confirmed by the fact that, with the widespread distribution of ecosystems as high-tech heirs of clusters and platforms, the issues of financing business ecosystems are rarely studied in the scientific literature and do not receive the necessary theoretical generalization. The purpose of the research is to systematize the available forms of financing in industrial business ecosystems within a united digital space. The objectives of this research are defined as clarifying the need to include financing functions in the toolkit of emerging industrial business ecosystems and revealing the possibilities of using selected financing methods. The methods of research , on the one hand, are based on the emerging theory of ecosystems, which develops both as a firmâs theory and as ecosystem management, and on the other hand, on a new concept that can be formulated as a fusion of finance, industrialization and digitalization . The results of the research show that there are several approaches to the organization of ecosystem finance. Ecosystems are reported to be equally susceptible to decentralized and centralized (traditional) financing, providing opportunities to create their own decentralized financial environment as well as collaborating with current cryptocurrency-based services. Several forms of financial organization in ecosystems have been identified: a) compensating costs by forming budgets for the creation and ongoing activities; b) attracting ecosystem participantsâ own funds to various forms of lending (including on the basis of financial technologies). It is concluded that the development of financing instruments depends on three factors: 1) government policies to regulate the financial aspects of business ecosystems; 2) the efficiency of using the resources of ecosystem participants; 3) ecosystem interactions with supply chains. It is determined that a completely new theory of business ecosystem finance will be completed only after the exit from the experimental mode of financing business ecosystems.
This note and agenda serve as a cause for thought for scholars interested in researching Decentralized Autonomous Organizations (DAOs), addressing both the opportunities and challenges posed by this phenomenon. It covers key aspects of data retrieval, data selection criteria, issues in data reliability and validity such as governance token pricing complexities, discrepancy in treasuries, Mainnet and Testnet data, understanding the variety of DAO types and proposal categories, airdrops affecting governance, and the Sybil problem. The agenda aims to equip scholars with the essential knowledge required to conduct nuanced and rigorous academic studies on DAOs by illuminating these various aspects and proposing directions for future research.
Andrea Carotti, Cosimo Sguanci, Anastasios Sidiropoulos
The Bitcoin Lightning Network (LN) is designed to improve the scalability of blockchain systems by using off-chain payment paths to settle transactions in a faster, cheaper, and more private manner. This work aims to empirically study LN's fee revenue for network participants. Under realistic assumptions on payment amounts, routing algorithms and traffic distribution, we analyze the economic returns of the network's largest routing nodes which currently hold the network together, and assess whether the centralizing tendency is incentive-compatible from an economic viewpoint. Moreover, since recent literature has proved that participation is economically irrational for the majority of large nodes, we evaluate the long-term impact on the network topology when participants start behaving rationally.
In the PoS blockchain landscape, the challenge of achieving full decentralization is often hindered by a disproportionate concentration of staked tokens among a few validators. This study analyses this challenge by first formalizing decentralization metrics for weighted consensus mechanisms. An empirical analysis across ten permissionless blockchains uncovers significant weight concentration among validators, underscoring the need for an equitable approach. To counter this, we introduce the Square Root Stake Weight (SRSW) model, which effectively recalibrates staking weight distribution. Our examination of the SRSW model demonstrates notable improvements in the decentralization metrics: the Gini index improves by $37.16 \%$ on average, while Nakamoto coefficients for liveness and safety see mean enhancements of $101.04 \%$ and $80.09 \%$, respectively. This research is a pivotal step toward a more fair and equitable distribution of staking weight, advancing the decentralization in blockchain consensus mechanisms.
Ghareeb Falazi, Uwe BreitenbĂźcher, Frank Leymann, Stefan Schulte
The introduction of smart contracts has expanded the applicability of blockchains to many domains beyond finance and cryptocurrencies. Moreover, different blockchain technologies have evolved that target special requirements. As a result, in practice, often a combination of different blockchain systems is required to achieve an overall goal. However, due to the heterogeneity of blockchain protocols, the execution of distributed business transactions that span several blockchains leads to multiple interoperability and integration challenges. Therefore, in this article, we examine the domain of Cross-Chain Smart Contract Invocations (CCSCIs), which are distributed transactions that involve the invocation of smart contracts hosted on two or more blockchain systems. We conduct a systematic multi-vocal literature review to get an overview of the available CCSCI approaches. We select 20 formal literature studies and 13 high-quality gray literature studies, extract data from them, and analyze it to derive the CCSCI Classification Framework. With the help of the framework, we group the approaches into two categories and eight subcategories. The approaches differ in multiple characteristics, e.g., the mechanisms they follow, and the capabilities and transaction processing semantics they offer. Our analysis indicates that all approaches suffer from obstacles that complicate real-world adoption, such as the low support for handling heterogeneity and the need for trusted third parties.
In this paper, to estimate the risk of economic loss incurred by both parties in production order transactions, we propose a scheme that enables escrow and confirmation of the results without relying on a third party. In such transactions, both parties risk incurring economic losses if the other party behaves dishonestly. Generally, the risk can be reduced with an escrow service provided by a trusted third party. However, there is a risk of fraud by the third party; in some cases, the third party may not be available for the buyer or seller. Several existing schemes utilize fair exchange and blockchain to disburse the deposited payment upon the delivery of specific data. However, in production order transactions, some cases cannot be handled only by completion of delivery, such as disputes that arise when the data does not meet the quality expected by the buyer. In such cases, before the transaction starts, a party would confirm the counterpartyâs behavior in past transactions to estimate the risk of a dispute occurring. In this paper, we propose a scheme that records the history of past transaction processes while utilizing blockchain-based escrow and allows future counterparties to confirm the history as a reference for estimating risk. By the opportunity loss that a history of dishonest behavior causes and applying blockchain-based escrow, the scheme motivates sellers and buyers to behave in good faith. We implemented a prototype system on top of Ethereum and verified its feasibility. By expanding the scope of transactions, we expect that it will be possible to determine whether transactions between individuals over the Internet are feasible without relying on a specific escrow service.
Despite the growth in the number of decentralized applications (DApps) supported by the Ethereum blockchain, we can observe the narrow scope of these DApps, concentrated within the fintech and games areas. A cause for the lack of range of DApps lies in the fees for transactions sent to backing smart contracts. While consistent steps have been made to overcome cost efficiency problems, introducing rollups as a secondary layer solution, intertwined accessibility and security drawbacks still persist. Measures addressing some of these issues like account abstraction were independently proposed. These solutions bring changes in transaction handling that often exceed the scope of smart contracts, where the core of DApp logic resides. Integrating such measures often requires the use of new frameworks and understanding the changes in the transaction flow, which can prove challenging to a DApp developer. A question is whether the current landscape of solutions proposed for increasing usability is capable of producing a consistent impact on DApp scope trends. In this position paper we try to answer this, raising also the matter of impact on DApp engineering.