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When Bidders Are DAOs

Authors Maryam Bahrani, Pranav Garimidi, Tim Roughgarden



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Author Details

Maryam Bahrani
  • a16z Crypto, New York, NY, USA
Pranav Garimidi
  • a16z Crypto, New York, NY, USA
Tim Roughgarden
  • a16z Crypto , New York, NY, USA
  • Columbia University, New York, NY, USA

Acknowledgements

We thank Dan Boneh for helpful discussions and the reviewers for comments on future directions.

Cite AsGet BibTex

Maryam Bahrani, Pranav Garimidi, and Tim Roughgarden. When Bidders Are DAOs. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 21:1-21:21, Schloss Dagstuhl - Leibniz-Zentrum für Informatik (2023)
https://doi.org/10.4230/LIPIcs.AFT.2023.21

Abstract

In a typical decentralized autonomous organization (DAO), people organize themselves into a group that is programmatically managed. DAOs can act as bidders in auctions (with ConstitutionDAO being one notable example), with a DAO’s bid typically treated by the auctioneer as if it had been submitted by an individual, without regard to any details of the internal DAO dynamics. The goal of this paper is to study auctions in which the bidders are DAOs. More precisely, we consider the design of two-level auctions in which the "participants" are groups of bidders rather than individuals. Bidders form DAOs to pool resources, but must then also negotiate the terms by which the DAO’s winnings are shared. We model the outcome of a DAO’s negotiations through an aggregation function (which aggregates DAO members' bids into a single group bid) and a budget-balanced cost-sharing mechanism (that determines DAO members' access to the DAO’s allocation and distributes the aggregate payment demanded from the DAO to its members). DAOs' bids are processed by a direct-revelation mechanism that has no knowledge of the DAO structure (and thus treats each DAO as an individual). Within this framework, we pursue two-level mechanisms that are incentive-compatible (with truthful bidding a dominant strategy for each member of each DAO) and approximately welfare-optimal. We prove that, even in the case of a single-item auction, the DAO dynamics hidden from the outer mechanism preclude incentive-compatible welfare maximization: No matter what the outer mechanism and the cost-sharing mechanisms used by DAOs, the welfare of the resulting two-level mechanism can be a ≈ ln n factor less than the optimal welfare (in the worst case over DAOs and valuation profiles). We complement this lower bound with a natural two-level mechanism that achieves a matching approximate welfare guarantee. This upper bound also extends to multi-item auctions in which individuals have additive valuations. Finally, we show that our positive results cannot be extended much further: Even in multi-item settings in which bidders have unit-demand valuations, truthful two-level mechanisms form a highly restricted class and as a consequence cannot guarantee any non-trivial approximation of the maximum social welfare.

Subject Classification

ACM Subject Classification
  • Applied computing → Online auctions
Keywords
  • Auctions
  • DAOs

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