Skin in the Game and Agency Theory

[GENERAL] Name and surname of main applicant

@swhitenstall

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

Individual

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

6

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language.

No

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

Research, develop and publish an Agency Theory approach to Cardano decentralization metrics.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

No

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

No dependencies.

[GENERAL] Will your project’s output/s be fully open source?

Yes

[GENERAL] Please provide here more information on the open source status of your project outputs

Apache 2.0 License

[METADATA] SDG rating

n/a

[SOLUTION] Please describe your proposed solution.

How the problem perceived is to be solved

There is currently no community sourced alternative to the Edinburgh Decentralisation Index (EDI). It would be redundant to replicate the theoretical approach of the EDI and duplicate their work. However a different theoretical approach that explores Blockchain metrics from the aspect of the principal-agent problem offers a rich vein that is relatively unexplored, and offers a potentially useful complement and contrast to EDI.

What is the solution ?

The Fund 11 “Skin in the game and Agency Theory” proposal will research, develop and publish an Agency Theory approach to Cardano decentralization and blockchain metrics.

This project will cite and build upon a paper published in June 2023, in the journal “Technical Forecasting & Social Change”, entitled “Blockchain agency theory”. [https://doi.org/10.1016/j.techfore.2023.122482]. This paper examines the classic principal-agent problem in economics and attempts to assess blockchain solutions in this context.

Background 

What is “skin in the game” ?

The phrase "Skin in the game" originated in the 1980s and referred to the amount of an investment owned by a company's management soliciting outside investment. 

The more that was owned by management, the equity stake, was seen as an indication of confidence or stability in the investment. A sign that the management were personally invested and therefore had "skin in the game".

The phrase was subsequently taken up by Nassim Nicholas Talib in the 2018 book “Skin in the Game: Hidden Asymmetries in Daily Life”.

What is the principal-agent problem ?

Whilst “skin in the game” has often been presented as a positive sign of personal investment, an excess of interest or investment can prejudice participation and/or decision-making. This tendency is called the "principal-agent problem".

The principal–agent problem is about conflicts of interest and priorities when one party (the “agent”) takes action on behalf of another party (the “principal”). ( See https://en.wikipedia.org/wiki/Principal–agent_problem ).

What is Agency Theory ?

Agency theory examines problems and solutions arising from delegation of tasks from principals to agents where there is a conflict of interests between the parties. (See https://www.sciencedirect.com/topics/social-sciences/agency-theory )

What is the Edinburgh Decentralization Index (EDI) ?

The Edinburgh Decentralization Index was announced at IO Scotfest in a summary presentation by Professor Aggelos, Dr. Daniel Woods and Dr. Dimitris Karakostas.

A paper "Stratified Approach to Blockchain Decentralization" was published in November 2022 (https://arxiv.org/pdf/2211.01291.pdf) outlining a broad approach to the measurement of decentralization.

The reasons for this approach

How addressing the principal-agent problem differs from the scope of the EDI.

The EDI seeks to measure the extent to which a blockchain is decentralized. This proposal addresses the question of the extent to which blockchain technologies resolve principal-agent problems. Decentralization can operate at many levels, such as the resilience of a network to centralised control. But a robust, decentralized blockchain may still be subject to control by actors who implement legacy governance and commercial policies on the infrastructure.

Who will be engaged

Once funded we will engage with academics on their research as part of our literature review. In addition we will reach out to other community researchers in the Cardano ecosystem. Once initial research has been completed we will engage the Cardano community itself in a review and comment exercise.

[IMPACT] Please define the positive impact your project will have on the wider Cardano community.

How impact will be demonstrated.

What is unique about your solution, who will benefit, and why this is important to Cardano.

This solution is unique in building on recent academic research to apply Agency Theory methods to assessment of Blockchain solutions. Dimensions of the principal-agent problem will be explored in a Blockchain assessment context in a way that complements other theoretical approaches.

This research is intended to benefit stakeholders in the Cardano ecosystem by providing an informed approach to Blockchain assessment. 

It is important to Cardano in providing a way to reflexively develop its blockchain strategy from economic, social and developmental perspectives.

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

I have already delivered several proposals successfully and worked in collaboration with a broad range of community projects (outlined in the [RESOURCES & VALUE FOR MONEY] section below).

I am committed to the open-source ethos, and have extensive experience of working on projects (developer-based and other) that are accessibly documented through GitHub and GitBook, providing a trackable, accountable and trustworthy audit trail.

[Project Milestones] What are the key milestones you need to achieve in order to complete your project successfully?

Milestone 1 - Preliminary work

Main task & Key Activities - Preliminary work. Planning, documentation and administrative setup

Success or acceptance criteria - Successful setup of project infrastructure

Proposed cost - 4000 in ADA - (Approx 7.14 % of total budget)

Expected timeline - March 2024

Milestone 2 - Literature Review

Main task & Key Activities - Literature Review

Success or acceptance criteria - Completion of Literature Review

Proposed cost - 8400 in ADA - (Approx 15 % of total budget)

Expected timeline - April 2024

Milestone 3 - Interim Draft Paper

Main task & Key Activities - Interim Draft Paper

Success or acceptance criteria - Completion of Draft Paper

Proposed cost - 8400 in ADA - (Approx 15 % of total budget)

Expected timeline - May 2024

Milestone 4 - Draft Paper Community Review

Main task & Key Activities - Draft Paper Community Review

Success or acceptance criteria - Completion of Community Review Workshops

Proposed cost - 8400 in ADA - (Approx 15 % of total budget)

Expected timeline - April 2024

Milestone 5 - Final Paper & Close Out

Main task & Key Activities - Final Paper & Close Out Report

Success or acceptance criteria - Completion of Final Paper & Acceptance of Close Out Report

Proposed cost - 11200 in ADA - (Approx 20 % of total budget)

Expected timeline - May 2024

[RESOURCES] Who is in the project team and what are their roles?

Stephen Whitenstall is the co-founder of Quality-Assurance DAO, https://qadao.io/ , and has provided project management consultancy for many Catalyst projects since Fund 4 including Catalyst Circle, Audit Circle, Community Governance Oversight, Training & Automation (with Treasury Guild), Governance Guild and Swarm. A Circle V2 representative for funded proposers. Also engaged in cross chain collaboration with SingularityNET managing an Archive project. He has 30 years experience in development, test management, project management, social enterprises in Investment Banking, Telecoms and Local Government. A philosophy honors graduate with an interest in Blockchain governance.

• LinkedIn: https://www.linkedin.com/in/stephen-whitenstall-166727210/
• Twitter: https://twitter.com/qa_dao

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources.

Fixed Costs -

Software Licenses & Services (GitBook, Zotero, Subscriptions, Hosting)

500 ADA

Human Resources - 

Project management (Co-ordination of project)

3000 ADA

Documentation setup and maintenance (Maintaining documentation of Research materials and commentary on GitBook and Website)

2000 ADA

Communications and publicity

Contacting and liaising with relevant academics (1 day a month)

5000 ADA

Publicizing your work to the community (Weekly posts on Telegram, Discord and Twitter)

(150 ADA a week x 26 weeks)

3900 ADA

Reporting

Monthly and milestone reporting)

3000 ADA

Research

Literature Review (1250 ADA per day X 4 days)

5000 ADA

Interim Draft Research paper (1250 ADA per day X 4 days)

5000 ADA

Community review

Organizing and publicizing the meetings

Facilitation of meetings (3000 ADA per Workshop Session X 2)

6000 ADA

Final Research paper

6000 ADA

Close out report

2000 ADA

Total - 40400

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

These are self-employed rates that take into account the employment overheads of the resources contracted. The rates are based on the low end of US and European averages. The amounts are calculated for each milestone based on the hours to complete.

In addition all the resources working on this project are taking on the currency risk of being paid in ADA. This means that a fall in the ADA price will result in being paid less or delivering less in each milestone. Any rise in the ADA price will represent a reward for investing in the Cardano ecosystem.

Consequently, given these factors, we believe this proposal offers excellent value for money in a volatile cryptocurrency environment

[IMPORTANT NOTE] The Applicant agrees to Fund Rules and also that data in the submission form and other data provided by the project team during the course of the project will be publicly available.

I Accept