The interplay between governance mechanisms of blockchain platforms

Abstract

Research shows that governance is critical to predict the value and success of blockchain platforms. Although prior studies have recognized multiple mechanisms employed in governing blockchain platforms, the combined effects of these mechanisms on platform performance are still poorly understood. In this paper, we examine the interactions among decentralization, consensus mechanisms, and whales ownership concentration mechanisms and their impacts on the market performance of blockchain platforms. We analyze data of 555 and 243 largest market capitalization blockchain platforms using Hierarchical Linear Regression. Our analysis shows support for our hypotheses of the two-way and three-way interactions among the governance mechanisms. With a low degree of decentralization, proof-of-stake and other consensus mechanisms, such as proof-of-authority or the combined proof-of-work and proof-of-stake, are associated with higher market value than the proof-of-work mechanism. The interaction between decentralization and other consensus mechanisms is reinforced when there is low whale ownership concentration, highlighting the important role of the information environment. Our findings are robust to various endogeneity tests, offering important theoretical and practical implications regarding the interplay between consensus mechanisms, decentralization, and whale ownership concentration and their impacts on the market value of blockchain platforms.