Please describe your proposed solution.
How the problem perceived is to be solved
There is currently no community sourced alternative to the Edinburgh Decentralisation Index (EDI). It would be redundant to replicate the theoretical approach of the EDI and duplicate their work. However a different theoretical approach that explores Blockchain metrics from the aspect of the principal-agent problem offers a rich vein that is relatively unexplored, and offers a potentially useful complement and contrast to EDI.
What is the solution ?
The Fund 11 “Skin in the game and Agency Theory” proposal will research, develop and publish an Agency Theory approach to Cardano decentralization and blockchain metrics.
This project will cite and build upon a paper published in June 2023, in the journal “Technical Forecasting & Social Change”, entitled “Blockchain agency theory”. [<https://doi.org/10.1016/j.techfore.2023.122482>]. This paper examines the classic principal-agent problem in economics and attempts to assess blockchain solutions in this context.
Background
What is “skin in the game” ?
The phrase "Skin in the game" originated in the 1980s and referred to the amount of an investment owned by a company's management soliciting outside investment.
The more that was owned by management, the equity stake, was seen as an indication of confidence or stability in the investment. A sign that the management were personally invested and therefore had "skin in the game".
The phrase was subsequently taken up by Nassim Nicholas Talib in the 2018 book “Skin in the Game: Hidden Asymmetries in Daily Life”.
What is the principal-agent problem ?
Whilst “skin in the game” has often been presented as a positive sign of personal investment, an excess of interest or investment can prejudice participation and/or decision-making. This tendency is called the "principal-agent problem".
The principal–agent problem is about conflicts of interest and priorities when one party (the “agent”) takes action on behalf of another party (the “principal”). ( See https://en.wikipedia.org/wiki/Principal–agent_problem ).
What is Agency Theory ?
Agency theory examines problems and solutions arising from delegation of tasks from principals to agents where there is a conflict of interests between the parties. (See <https://www.sciencedirect.com/topics/social-sciences/agency-theory> )
What is the Edinburgh Decentralization Index (EDI) ?
The Edinburgh Decentralization Index was announced at IO Scotfest in a summary presentation by Professor Aggelos, Dr. Daniel Woods and Dr. Dimitris Karakostas.
A paper "Stratified Approach to Blockchain Decentralization" was published in November 2022 (https://arxiv.org/pdf/2211.01291.pdf) outlining a broad approach to the measurement of decentralization.
The reasons for this approach
How addressing the principal-agent problem differs from the scope of the EDI.
The EDI seeks to measure the extent to which a blockchain is decentralized. This proposal addresses the question of the extent to which blockchain technologies resolve principal-agent problems. Decentralization can operate at many levels, such as the resilience of a network to centralised control. But a robust, decentralized blockchain may still be subject to control by actors who implement legacy governance and commercial policies on the infrastructure.
Who will be engaged
Once funded we will engage with academics on their research as part of our literature review. In addition we will reach out to other community researchers in the Cardano ecosystem. Once initial research has been completed we will engage the Cardano community itself in a review and comment exercise.