Contract Theory Framework for Cryptoeconomics




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Cryptoeconomics is the research on how incentives should construct a decentralized and distributed cryptographic system. Economic incentives are used to motivate the efforts and govern the allocation of resources in the cryptoeconomic ecosystem, ensuring specific types of information security qualities. Compared to the costly and time-consuming cryptography, incentives obtained through game theory are much more cost-efficient and easier to implement. However, there lacks sufficient research on the incentive issue of cryptoeconomics.

We investigate the various incentives of blockchain networks to fill in the gaps in cryptoeconomics research. The first research focuses on the blockchain network with shards and adopts the security-deposit-based consensus protocol, studying the problem of how to balance the security incentive and the economic incentive. The contract theory is utilized to formulate the problem between temporary blockchain leaders and validators. Compared with fixed deposits, flexible deposits can provide sufficient financial incentives for the participants without losing the security incentives. In the second work, we adopt the cyber insurance idea and propose the insurance contract to help determine the withdrawal delay and the insurance claim to relieve the loss of victims. Specifically, instead of requiring the insurance premium from the validators, the cyber insurer first signs the contract with the blockchain representative (e.g., beacon chain). Then the blockchain representative would sign a series of contracts with the validators. Through the simulations, we demonstrate that the proposed model can provide adaptive insurance contracts for the different validators and keep the profits of the blockchain network and the cyber insurer. In the last work, we propose a random-contract-based scheme to maximize the service provider's revenue and assign the service buyers the feasible service price under the framework of a sidechain linked to the public blockchain. We systematically demonstrate random contracts' superiority under the increasing absolute risk-aversion assumption. The simulation results show that random contracts can provide more significant revenue for sidechains by an average of 24.70% compared to deterministic contracts. Efficient service payments can be reduced by an average of 44.65% compared to the main chain's cost.



Cryptoeconomics, Contract theory, Game theory, Incentive


Portions of this document appear in: Li, Jing, Tingting Liu, Dusit Niyato, Ping Wang, Jun Li, and Zhu Han. "Contract-theoretic pricing for security deposits in sharded blockchain with internet of things (IoT)." IEEE Internet of Things Journal 8, no. 12 (2021): 10052-10070; and in: Li, Jing, Dusit Niyato, Choong Seon Hong, Kyung-Joon Park, Li Wang, and Zhu Han. "Cyber insurance design for validator rotation in sharded blockchain networks: A hierarchical game-based approach." IEEE Transactions on Network and Service Management 18, no. 3 (2021): 3092-3106.