# On-chain incentives: beyond collaterals By [Sg](https://paragraph.com/@shogochiai) · 2024-07-11 --- Overview -------- Litigable Protocol, Whistle Blowing Protocol, and Coercive Protocol are potential powerful on-chain incentive patterns and must be used carefully. ### Litigable Protocol “Terms & Conditions” is a type of “damn contracts” between a service and users. While keeping safety & liveness (trustless-ness) of a protocol, we can utilize a potential feasibility of disputation against certain role within a protocol. **Litigability Oracle**: This is an audit mechanism that records trusted information and attributes on-chain. It ensures safety and liveness by delegating protocol roles to KYCed individuals, organizations, or entities meeting specific financial conditions, maintaining a trustless system while allowing for off-chain legal enforcement. **Repeated Game**: The protocol is designed with the concept of a repeated game, where participants interact over multiple rounds. This setup discourages dishonest behavior because the long-term benefits of cooperation outweigh short-term gains from cheating. **Real World Disputation as Layer-2**: This involves using traditional legal systems as a layer-2 mechanism to resolve disputes. On-chain incentives ensure participants adhere to agreements, but when disputes arise, they can be resolved in the real world, thus enhancing the protocol's reliability and trustworthiness. ### Applications of Litigable Protocol **Key Restoration**: In cases where a user's private key is lost, the litigable protocol can enable a trusted entity, such as a KYCed institution or legal authority, to assist in key recovery while ensuring the process is secure and verifiable on-chain. **Compound Finance with KYC and Utility Corp. Backup**: Borrowers on a platform like Compound Finance can be KYCed, and their local electricity utility corporation can act as an enforcer. If a borrower's collateralization ratio falls below a certain threshold, the utility corp can trigger a blackout to incentivize repayment or collateral liquidation, adding a real-world layer of enforcement. **Fast Finality with Plasma**: Using the Plasma framework, transactions can achieve fast finality by leveraging the security of the Ethereum mainchain. The litigable protocol can ensure that any disputes regarding these transactions are quickly and efficiently resolved through legal channels, maintaining the high throughput and low latency benefits of Plasma while ensuring legal recourse is available. For more information, refer to the original sources: * [Litigable Protocols on Ethereum Research](https://ethresear.ch/t/litigable-protocols/5234) * [Plasma Contract Fast Finality](https://scrapbox.io/cryptoeconomicslab/Plasma_Contract_Fast_Finality_\(Plasma_CFF\)) * [Taxation over Litigable Protocol](https://scrapbox.io/cryptoeconomicslab/Taxation_over_Litigable_Protocol) ### Whistle Blowing as an Incentive System As we can see in [Semaphore Protocol](https://semaphore.pse.dev/), anonymous whistle blowing is technically feasible and it is indeed a form of cryptoeconomic incentive. **Properties of Whistle Blowing as Cyber Force** 1. **Transparency and Accountability**: Whistle blowing reveals hidden malpractices, ensuring accountability. 2. **Protection of Integrity**: Exposing corruption helps maintain institutional integrity. 3. **Decentralized Vigilance**: Acts as a decentralized oversight mechanism, akin to blockchain's decentralized validation. **Applications of Whistle Blowing** 1. **Corporate Governance**: Employees can expose unethical practices to ensure compliance with standards. 2. **Government Oversight**: Citizens and insiders can report corruption, enhancing public trust. 3. **Cybersecurity**: Internal whistle blowers can alert to breaches and vulnerabilities, preventing cyber attacks. 4. **Environmental Protection**: Reporting illegal practices ensures adherence to environmental laws. ### Integration with Smart Contracts **Enhanced Dispute Resolution**: Whistle blowing can provide crucial inside information to resolve disputes legally. **Legal Protections**: Blockchain-based smart contracts can protect and incentivize whistle blowers, ensuring safety and anonymity while validating their claims on-chain. **Strengthening Integrity**: Integrating whistle blowing mechanisms within smart contracts fosters transparency and accountability, subjecting actions to scrutiny. ### Application Example: Nuclear Decision Making A smart contract could gather bets on potential nuclear targets. If insiders manipulate bets for personal gain, suspiciously concentrated betting patterns would emerge. This could signal people to run away. ### Coercive Protocol: Using Threats and Force This is a hypothetical design pattern which is not preferable but possible, although, coercion is a form of cryptoeconomic incentive. **Properties of Coercive Protocol** 1. **Intimidation and Threats**: Uses threats, such as potential harm to family members or individuals, to coerce actions. 2. **Assassination and Violence**: Employs assassination or physical violence to enforce compliance or punish non-compliance. 3. **Control and Domination**: By aiming for control and domination through anonymous fear and power by entities other than rule-based states, compliance with desirable behaviors is ensured. **Applications of Coercive Protocol** 1. **Political Control**: Violent entities may use coercion to maintain control, suppress dissent, or enforce policies. 2. **Corporate Compliance**: Corporations might employ coercion to prevent whistle blowing or enforce internal policies through fear. 3. **Criminal Organizations**: Crime syndicates can use threats and violence to enforce loyalty and control over their operations. **Integration with On-Chain Systems** 1. **Enforcement through Fear**: Coercive tactics can be documented on-chain, creating a digital trail of intimidation and threats, which can be used to enforce compliance through fear. 2. **Real-World Implications**: On-chain records of coercive actions can serve as evidence in legal disputes, providing a transparent and immutable record of threats and violence. 3. **Preventing Coercion**: Blockchain transparency can also serve as a deterrent against coercion, as actions are permanently recorded and visible to all participants. ### Specific Implementation: Violent entities resort to gradual threats only when on-chain KYCed users fail to take desired actions. These entities remain anonymous, using low-level operatives for the coercive acts. This incentive ensures that users generally behave correctly. Conclusion ========== By understanding and carefully managing these powerful on-chain incentive patterns, we can create transparent, accountable, and enforceable systems while minimizing the potential for abuse and coercion. This not only contributes to broadening the range of applications for smart contracts but also implies additional design space for improving convenience factors such as interest rates and speed. --- *Originally published on [Sg](https://paragraph.com/@shogochiai/on-chain-incentives-beyond-collaterals)*