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Repeated Auctions with Speculators: Arbitrage Incentives and Forks in DAOs

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  • Nicolas Eschenbaum
  • Nicolas Greber

Abstract

We analyze the vulnerability of decentralized autonomous organizations (DAOs) to speculative exploitation via their redemption mechanisms. Studying a game-theoretic model of repeated auctions for governance shares with speculators, we characterize the conditions under which -- in equilibrium -- an exploitative exit is guaranteed to occur, occurs in expectation, or never occurs. We evaluate four redemption mechanisms and extend our model to include atomic exits, time delays, and DAO spending strategies. Our results highlight an inherent tension in DAO design: mechanisms intended to protect members from majority attacks can inadvertently create opportunities for costly speculative exploitation. We highlight governance mechanisms that can be used to prevent speculation.

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  • Nicolas Eschenbaum & Nicolas Greber, 2025. "Repeated Auctions with Speculators: Arbitrage Incentives and Forks in DAOs," Papers 2505.21296, arXiv.org.
    • Handle: RePEc:arx:papers:2505.21296
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    References listed on IDEAS

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    3. Marco Pagnozzi, 2010. "Are Speculators Unwelcome in Multi-object Auctions?," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 97-131, May.
    4. Lukkarinen, Anna & Schwienbacher, Armin, 2023. "Secondary market listings in equity crowdfunding: The missing link?," Research Policy, Elsevier, vol. 52(1).
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