Mojtaba Eshghie, Wolfgang Ahrendt, Cyrille Artho, Thomas Hildebrandt · 5 authors
Smart contracts manage blockchain assets and embody business processes. However, mainstream smart contract programming languages such as Solidity lack explicit notions of roles, action dependencies, and time. Instead, these concepts are implemented in program code. This makes it very hard to design and analyze smart contracts. We argue that DCR graphs are a suitable formalization tool for smart contracts because they explicitly and visually capture the mentioned features. We utilize this expressiveness to show that many common high-level design patterns representing the underlying business processes in smart contract applications can be naturally modeled this way. Applying these patterns shows that DCR graphs facilitate the development and analysis of correct and reliable smart contracts by providing a clear and easy-to-understand specification.
The distribution of royalties associated with the exchange of digital assets, especially Non-Fungible Tokens (NFTs), is now more than ever a strong point of contention. Between conceptual disagreements and technical limitations, actors have implemented a variety of solutions tailored to their needs. In the process, creators and buyers have lost the possibility of transparent, trusted, and interoperable exchanges of said assets, often having to compromise to connect with the rest of the community. This study deals with the automatic distribution of royalty payments. We first investigate the current day limitations, and formally state their underlying requirements, before advancing a royalty-friendly NFT marketplace-agnostic trading framework. The advanced solution, referred to as the RM-TLSC–Royalty Management Token-LevelSmart Contract, establishes synergies between the token and Smart Contract paradigms, thus ensuring royalties are managed throughout the life cycle of the asset. A comprehensive, open-source software implementation is provided for the Ethereum blockchain, while the generality of the approach is cross-checked by an open-source proof of concept for the Tezos blockchain. The effectiveness of the results is illustrated through a case-study related to ISO 21000–23 Smart Contracts for Media standard.
Johannes Rude Jensen, Nina-Birte Schirrmacher, Michel Avital, Omri Ross
In the span of just a few years, decentralized autonomous organizations (DAOs) have grown into a high-value form of organization. A growing body of IS literature examines the decentralized, transparent, and equitable design of these organizations. DAO governance is commonly mediated using ‘governance tokens’ in a one-token-one-vote system. However, the inconspicuous role of tokens for DAO governance is rarely investigated. We present preliminary findings from a netnographic study of controversial decision-making processes in two large DAOs. Our cases reveal how top holders of tokens leverage their favorable position to enact unpopular decisions unilaterally. The findings indicate a discrepancy between the espoused values and enacted practices of DAO governance, as economic capital rather than social capital investment becomes the primary determinant of voting power. We examine emerging alternative voting systems and offer a framework for parsing these new initiatives. Contributions to the literature and future work are discussed.
Qinxu Ding, Weibiao Xu, Zhiguo Wang, David Kuo Chuen Lee
This paper aims to provide a comprehensive overview of the different voting schemes used in DAO governance. We will examine the various features of these schemes and compare their differences. We propose a new hypothetical voting mechanism specifically designed for decentralized and permissionless DAO governance. This new scheme, which incorporates incentive designs, is intended to be more efficient than existing schemes and can be easily adapted to a permissioned scenario. Through this examination and proposal, we hope to contribute to the ongoing discourse on how to govern decentralized autonomous organizations effectively.
Environmental externalities from cryptomining may be large, but have not been linked causally to mining incentives. We exploit daily variation in Bitcoin price as a natural experiment for an 86 megawatt coal-fired power plant with on-site cryptomining. We find that carbon emissions respond swiftly to mining incentives, with price elasticities of 0.69-0.71 in the short-run and 0.33-0.40 in the longer run. A $1 increase in Bitcoin price leads to $3.11-$6.79 in external damages from carbon emissions alone, well exceeding cryptomining's value added (using a $190 social cost of carbon, but ignoring increased local air pollution). As cryptomining requires ever more computing power to mine a given number of blocks, our study highlights both the revitalization of US fossil assets and the potential value of financial industry accounting standards that incorporate cryptomining externalities.
Ensuring Critical Infrastructure Resilience (CIR) hugely relies on decisions and actions made by networks of public and private stakeholders and their inter-organizational collaborative capabilities.Public-Private Collaborations (PPCs) are currently the most prominent approach for building CI resilience all around the world, but still face many obstacles and challenges.The Decentralized Autonomous Organization (DAO) paradigm, enabled by blockchain technology and smart contracts, provides the conceptual and technological means for new kinds of decentralized systems and allows for the emergence of new ways of governance and coordination for CIR.The paper explores the potential of DAO for enhancing governance, decision-making, and coordinated resource management in order to tackle the current challenges of cross-organizational collaboration in CIR.It does so by critically comparing the traditional multi-actor governance models and the innovative DAO governance approach, taking the main objectives of PPCs and their current challenges in CIR as conceptual lenses.The key aspects of network governance are discussed, along with the advantages/shortcomings of different approaches, and their implications in the context of PPCs for CIR.This explorative study paves the way for both new streams of theoretical research and blockchain pilot projects in real contexts.
Paul van Vulpen, H.M. Heijnen, Thijn Kroon, S. P. van Mens · 5 authors
Upgrading smart contracts allows DAOs and other Dapps to fix bugs and upgrade their functionality. The most widely used pattern for upgrading is the proxy pattern. However, the proxy pattern centralizes power in the one who has access to the admin address, which can be called admin centralization. In this article, we describe how the diamond pattern (ERC-2535) can be used to set up decentralized governance. We describe how the diamond pattern is configured and complemented by census governance. The proposed pattern has three advantages: 1) governance of smart contracts without admin centralization; 2) non-technical member participation in governance without smart contract knowledge; 3) user-friendly upgradeable DAO implementation using a graphical interface. To extend the use of the diamond pattern, we call for the creation of user-friendly tooling and smart contract facets.
The objective of this study is to determine the factors that contribute to market efficiency in the crypto-asset market. Despite prior evidence from the literature demonstrating variations in efficiency across assets and time, few have investigated driving factors beyond liquidity. By using a dataset of 122 crypto-assets with imbalanced data, our analysis discovers that both market conditions and inherent characteristics of crypto-assets significantly impact the predictability of their returns. Specifically, market efficiency is positively associated with increased liquidity and age. Our findings highlight that DAO projects demonstrate greater efficiency compared to non-DAO projects. This result suggests that transparent decentralized decision-making model can help reduce information asymmetry leading to a more efficient market pricing.
Qinxu Ding, Daniel Liebau, Zhiguo Wang, Weibiao Xu
Decentralized Autonomous Organizations or DAOs are organizations governed by a set of pre-defined rules programmed as source code in smart contracts. Once implemented, a DAO can automatically execute tasks, coordinate, and facilitate decentralized decision-making, without any central authority. This new and emerging paradigm is still under development and has not been researched much until today. To our knowledge, the literature still lacks a comprehensive survey discussing DAOs and DAO governance. We conduct a systematic review of common characteristics, a DAO categorization, real-world DAO applications, DAO governance including voting schemes and dispute resolution mechanisms in DAOs to provide an initial overview. We anticipate that our work can provide useful insights and references for researchers and industrial practitioners who wish to delve deeper into this nascent area.
We study a mechanism design problem in the blockchain proof-of-stake (PoS) protocol. Our main objective is to extend the transaction fee mechanism (TFM) recently proposed in Chung and Shi (SODA, p.3856-3899, 2023), so as to incorporate a long-run utility model for the miner into the burning second-price auction mechanism $\texttt{BSP}(γ)$ proposed in Chung and Shi (where $γ$ is a key parameter in the strict $γ$-utility model that is applied to both miners and users). First, we derive an explicit functional form for the long-run utility of the miner using a martingale approach, and reveal a critical discontinuity of the utility function, namely a small deviation from being truthful will yield a discrete jump (up or down) in the miner's utility. We show that because of this discontinuity the $\texttt{BSP}(γ)$ mechanism will fail a key desired property in TFM, $c$-side contract proofness ($c$-SCP). As a remedy, we introduce another parameter $θ$, and propose a new $\texttt{BSP}(θ)$ mechanism, and prove that it satisfies all three desired properties of TFM: user- and miner-incentive compatibility (UIC and MIC) as well as $c$-SCP, provided the parameter $θ$ falls into a specific range, along with a proper tick size imposed on user bids.
Financial markets are undergoing an unprecedented transformation. Technological advances have brought major improvements to the operations of financial services. While these advances promote improved accessibility and convenience, traditional finance shortcomings like lack of transparency and moral hazard frictions continue to plague centralized platforms, imposing societal costs. In this paper, we argue how these shortcomings and frictions are being mitigated by the decentralized finance (DeFi) ecosystem. We delve into the workings of smart contracts, the backbone of DeFi transactions, with an emphasis on those underpinning token exchange and lending services. We highlight the pros and cons of the novel form of decentralized governance introduced via the ownership of governance tokens. Despite its potential, the current DeFi infrastructure introduces operational risks to users, which we segment into five primary categories: consensus mechanisms, protocol, oracle, frontrunning, and systemic risks. We conclude by emphasizing the need for future research to focus on the scalability of existing blockchains, the improved design and interoperability of DeFi protocols, and the rigorous auditing of smart contracts.
Blockchain smart contracts can support the decentralisation of business processes, but due to smart contracts’ specifics, their development is a complicated process. Introducing model-driven development principles in smart contract development can facilitate requirement specification, design, and implementation activities. This paper presents a model-driven development method MDAsmartCD (Model-Driven Architecture-based Smart Contract Development) to alleviate smart contract development by supporting the complete MDA life cycle, covering the definition of Computation-Independent Model, Platform-Independent Model, and two instances of Platform-Specific Models. In MDAsmartCD, model transformations (model-to-model and model-to-text) are used to produce smart contract code in the Hyperledger Fabric platform Go and the Ethereum platform Solidity programming languages. The method application was demonstrated by implementing the smart contract for the hackathon solution and executing the generated Solidity and Go smart contracts in the workflow of issuing certificates for hackathon participants. During the execution of the workflow, both deployed smart contracts behaved identically and recorded analogous results in respective blockchain data storages. This demonstrated that the MDAsmartCD method enables the generation of compilable and executable smart contract code, ready for deployment on a blockchain platform.
This paper examines the economic mechanism of cryptocurrency mining. By presenting a profit function, a maximization equilibrium is obtained. The model provides a formal approach to the demand for hashing power as a function of revenues, mining costs and the number of miners. We consider how the equilibrium is affected by passive miners. We use these results to introduce a formulation of the price elasticity of the demand for hashing power with respect to the cost of energy. The model is simulated using Reinforcement Learning algorithms that arrive to similar equilibrium results. The article concludes with implications of the model for policymaking.
Decentralized finance (DeFi) is by far the most popular application of blockchain technology. Despite the wide acceptance of new financial instruments and services, there are still many unexplored areas in the field. We dedicate this research to the understanding of one of the most crucial limitations of decentralized finance-oracles. DeFi protocols, as well as other blockchain applications, function in a closed environment and regularly need to fetch real-world information (e.g., assets' prices)-the tool used for this purpose is called an oracle. We review the existing oracle types in DeFi applications and focus our research on the least explored one: when another protocol, typically a decentralized exchange, serves as a price oracle. After explaining the mechanisms behind the decentralized exchanges, we introduce an algorithmic model that allows one to safely design a decentralized oracle and adjust crucial parameters. We believe that understanding and implementing the logic presented in the model can help to reduce the chances of price manipulations attacks, which are the most frequent incident types in DeFi.
Mathematical ranking plays a critical role in the era of the internet and bigdata. Google's PageRank is well-known as a trillion-dollar algorithm. Definitely, algorithmic ranking frameworks are found on every search engine. In this paper, the article shall investigate how PageRank can be applied in the blockchain space to build up reliable and verifiable social credit and reputation systems. It is expected to provide a measure of credibility complementary and parallel with FICO, which is not applicable for individuals lacking credit information in financial institutions. Moreover, the approach proposes an unbiased method of interpreting and measuring real social interaction and reputation ranking on a blockchain network. The authors envision a future of payment based on cryptocurrencies (especially stable coins) and digital fiats; thus the proposed credit scoring framework shall be helpful for P2P credit and lending networks, possibly for decentralized finance (Defi) applications.
Smart contracts have become increasingly popular in the development of trustworthy decentralized applications in recent years. These tools compare vulnerable contracts to a set of predefined rules. However, the emergence of new vulnerable types and programming skills to mitigate potential vulnerabilities results in many false positive and false negative tool reports. To address this, this data was analyzed using unsupervised machine learning to determine whether an algorithm can distinguish between shady/illegal owners and clean owners. Clustering algorithms are used in this paper. However, algorithms can cluster objects and detect fraud activity in Bitcoin transactions. Research on bitcoin network anomalies and suspicious transactions seeks to identify anomalous transactions, when all nodes on the bitcoin network are unlabeled. There is no evidence that any transaction is illegal. We are primarily interested in discovering irregularities in the bitcoin transaction network.
As a distributed ledger technology, blockchain can be used in the fields of information sharing, logistics chain, certificate storage and anti-counterfeiting. However, due to the isolated nature of the blockchain network and the high degree of heterogeneity between chains, the connection between different chains is hindered, which makes each blockchain form a value island and cannot serve the practical applications well. The emergence of cross chain technology realizes the value circulation between different chains and enhances the interoperability and scalability of blockchains. Among them, the cross-chain technology of notary mechanism transforms the trust problem among cross-chain users into the loyalty problem of notary, and is favored for its ability to support different types of underlying blockchain systems in a more flexible manner. However, the introduction of notaries in the notary mechanism also leads to the risk of centralization, and the loyalty of notaries will directly determine the success of cross-chain transactions. In this paper, by introducing the improved PageRank algorithm, we design a dynamic notary group election mechanism based on reputation value, which effectively avoids malicious nodes from becoming notaries and improves the success rate of cross-chain transactions while preventing the over-concentration of rights in a single node. The experimental analysis shows that selecting notary representatives by dynamically adjusting the reputation value ranking of notary nodes increases the selection probability of loyal nodes, which is more reasonable than the method of randomly selecting notaries.
Through providing products or financial assistance, poverty alleviation is an effective way to reduce poverty. With properties of decentralization, traceability, and publicity, blockchain technology has been well studied to solve the problems of corruption, single point of failure, and complex transaction procedure in traditional centralized poverty alleviation platforms. However, most of poverty alleviation programs in the market are built on single blockchain, which contain only one kind of product information. It is difficult for products to be exchanged on different blockchains, which limits the further expansion of poverty alleviation. This paper proposes a universal and efficient cross-chain fair exchange scheme for poverty-alleviation products. Specifically, we employ an adaptor signature scheme to achieve fairness in the exchange. It ensures that when one party gets the exchanged poverty alleviation product, the other party will also get his corresponding product. In addition, we also adopt the verifiable time discrete logarithm algorithm to solve the problem that the lack of a special scripting language does not allow us to set "timeout" on the transaction and fall into a deadlock problem. Finally, we deploy the scheme on the local environment, public test chains of Ethereum, and conduct a series of experiments to verify its effectiveness and efficiency.