A Value-Driven Blockchain Network: The Efficacy Of Ostrom’s Design Principles In Designing A Collaborative Community Governance Model

Abstract

The current structure of blockchain governance, which is predominantly reward-based, faces a myriad of challenges regarding decision-making, centralized control, lack of incentives, and an overall absence of a value-driven network. To propose a solution, the study aims to (1) explore the advantage of treating blockchain protocols as digital commons instead of public infrastructure and (2) introduce a value-driven blockchain governance model. Termed collaborative community governance, our proposed governance structure incorporates the principles of good governance while incentivizing a governor to be a “good governor”. We utilize Ostrom’s design principles (Nobel Memorial Prize in Economic Sciences, 2009) in a blockchain network to design such a governance model. We demonstrate that Ostrom’s principles can potentially introduce a stable decentralized governance mechanism that ensures fair, equitable, and voluntary participation of a governor regardless of the reward while enhancing the value of the network and the reliability of its tokenomics. We consider Ostrom’s eighth principle – “building a nested enterprise” – as the foundation for a bottom-up interconnected decentralized blockchain ecosystem that ensures the Commons governance is driven by multi-faceted community interests. Capitalizing on Ostrom’s design principle, we show that a governance protocol premised upon a set of rules (participation, enforcement, and dispute resolution) can significantly enhance the value of a blockchain network and incentivize a governor to be a good governor. We believe this will constitute one of the first practical applications of Ostrom’s design principles in blockchain’s governance protocol.