The need for governance in blockchain dispute resolution (BDR): institutional possibilities frontier (IPF) perspective

Blockchain, as a decentralized ledger technology, has been applied in various domains, including dispute resolution for issues arising from blockchain and smart contract transactions. Blockchain-based dispute resolution platforms claim to operate free from central authority, eschewing traditional procedural and substantive rules. However, these platforms have raised concerns among legal scholars regarding their potential to undermine fundamental rights, prompting calls for governance in blockchain-based dispute resolution (BDR). Allen et al. proposed the Dispute Resolution Possibilities Frontier (DRPF), inspired by the Institutional Possibilities Frontier (IPF) from new comparative economics. The DRPF highlights blockchain’s potential to reduce disorder and dictatorship costs in dispute resolution. This study analyzes BDR processes across the dispute resolution spectrum through normative and doctrinal legal research, further refining the DRPF framework. The analysis reveals that while BDR may increase efficiency, as suggested by Allen et al., by reducing dictatorship and disorder costs up to a certain point, it does not entirely transform the dispute resolution framework. To achieve the loss-minimizing point—where dictatorship and disorder costs are optimized—some form of governance or order is necessary. Consensual methods like negotiation and mediation pose minimal risks, while adjudicative mechanisms, such as self-enforcing crowd voting and on-chain arbitration that enforce outcomes via smart contracts, lack adequate safeguards. To address these challenges, we propose governance strategies that incorporate design elements safeguarding disputants’ rights. By balancing efficiency and fairness, such measures can optimize BDR processes, ensuring they remain effective and compliant with essential legal standards.