Application of Mechanism Design Theory

Arca Chain introduces mechanism design theory, a branch of game theory, to optimize the allocation strategy of governance weight:

• Incentive Compatibility: In Arca Chain’s governance model, the combination of the TwPoS mechanism and token holdings ensures that nodes can achieve maximum utility by accurately expressing their preferences. This means that nodes can gain more governance weight and rewards by honestly participating in tasks and voting, thus avoiding the motivation for dishonest behavior during the governance process.

• Social Choice Function: Arca Chain’s governance decisions can be viewed as a social choice problem, using a social choice function to aggregate individual preferences into collective decisions. Methods like the Borda Count can be used to determine the best proposal among multiple options, ensuring that the voting results reflect the will of the majority of participants.

• Participation Constraint: Mechanism design theory emphasizes that the expected utility of all participants when joining the governance mechanism should not be less than their utility if they do not participate. Through the use of automatically executed smart contracts, Arca Chain ensures that each node receives corresponding rewards when participating in governance, thereby encouraging more nodes to actively participate in network governance.