Community Pod [Ep 3 Part 3]: Limits of Decentralization

Economist Paulo explains how blockchain solves game theory problems using incentives and penalties—drawing from implementation theory and mechanism design. Decentralization replaces authority with rules, not just tech. Using ideas from Maskin, Arrow, and Hal Varian, Paulo argues crypto is fundamentally an economic system shaped by carefully constructed games, not just software. TimeStamps: 01:49 – PoW used for spam prevention 02:53 – Implementation theory in crypto 03:02 – Design games for desired outcomes 04:31 – Need punishments and rewards 05:24 – Punishments are harder to design 08:00 – Implementation design in crypto 08:46 – Four key concepts 09:45 – Social choice = state → outcome 11:15 – Ledger as outcome 12:29 – Collective vs individual outcomes 13:52 – Constitution as mechanism 14:27 – Solution concepts 16:15 – Nash equilibrium exists for all games 17:11 – What is Nash equilibrium 19:03 – Crypto is economic, not just technical 21:38 – DAOs as economic coordination 22:20 – Limits of decentralization 22:55 – Maskin monotonicity 24:54 – Arrow’s impossibility theorem 27:29 – Dictatorship outcome 30:18 – Good DAO proposals fail 31:07 – Auctions limit full value capture 32:27 – Google’s 2nd-price auction (Hal Varian) 33:49 – Trilemma: decentralization tradeoffs 35:40 – Users trade decentralization 38:47 – Decentralization is invisible 40:24 – Needs shift over time 41:15 – Centralized L2 blocks meme coins