Social Institutions in the Era of Blockchain-Based Governance
Blockchain provides a new institutional architecture, reshaping how societies coordinate, govern, and build trust at scale
Mariana Carmona
Blockchain is often described as a breakthrough in finance, an instrument for faster payments, cheaper settlement, or censorship-resistant money. But these descriptions miss something more fundamental: blockchain is an institutional revolution, not just a technological innovation.
At its core, blockchain technology changes how humans coordinate, govern, and cooperate at scale. To understand the potential impact of blockchain on human governance, we must step back and ask a deeper question: how do societies organise interaction and collective action in the first place? The answer is institutions.
Institutions are not only organisations such as governments or banks. They also include the rules, norms, roles, and enforcement mechanisms that structure social life. Institutions determine who can participate, which actions are permitted, how decisions are made, how conflicts are resolved, and how trust is established. They are the invisible infrastructure that makes large-scale coordination possible.
For most of modern history, major institutions have been hierarchical: states, corporations, and platforms operate through central authority, fixed roles, and identity-based control. Blockchain introduces a radically different possibility.
From hierarchy to polycentric order
Long before blockchain existed, Nobel laureate Elinor Ostrom studied how communities governed shared resources such as forests, fisheries, and irrigation systems. Her work challenged a foundational assumption of political theory: that effective governance requires a central authority.
Instead, Ostrom observed polycentric systems – arrangements with multiple, independent centres of decision-making that coordinate through shared rules, feedback, and incentives rather than command. Such systems can be adaptive, self-correcting, resilient, and surprisingly effective.
A core feature of polycentricity is autonomy for bottom-up experimentation. Order can emerge from the intentional behaviour of individuals rather than from the conscious design of a single central entity.
Blockchain systems resemble this architecture. Public blockchains have no single authority. They rely on shared, transparent rules, and they coordinate behaviour through incentives, consensus mechanisms, cryptographic verification, and network protocols.
To understand this model, it helps to think in governance layers.
At the deepest level, blockchains encode constitutional rules directly into protocols. These rules determine how consensus works, how transactions are validated, and how change can occur. From a governance perspective, a technical event such as a hard fork can be seen as a constitutional shift or, as we know it, regime change. It creates a new governance order with its own rules and values.
On top of this base layer sits an ecosystem of smart contracts and decentralised applications. Here, communities define rules, allocate resources, vote on proposals, and coordinate collective action. Smart contracts automate enforcement, reduce ambiguity, and minimise reliance on discretionary interpretation by encoding conditions of execution as explicitly as possible. This enables institutional innovations that scale interaction among individuals who do not need to know or trust one another.
A prominent example of this institutional capability is the decentralised autonomous organisation (DAO): a governance structure in which collective decisions are made and enforced through smart contracts rather than through legacy firm- or state-based hierarchies. Such organisations, while often organised exclusively through distributed online coordination, can produce effects far beyond the digital realm.
Finally, at the operational level, we find tokenised tribes: digital communities that coordinate economically, socially, and politically. These groups produce public goods, organise work, and enforce norms. Participation is voluntary, exit is credible, and identity can be optional.
Together, these layers form what might be called a blockchain institutional stack, which can also be understood as a polycentric system with overlapping jurisdictions.
Blockchain governance revolves around tokenised tribes
Social groups can interact in both cooperative and competitive ways. In legacy institutional settings, these groups often take the form of hierarchical organisations – companies, NGOs, or cooperatives. While it is tempting to compare blockchain communities to free and open-source software (FOSS) or to “bazaar” forms of network governance, this analogy only goes so far. A more precise term for many emerging arrangements is tribal governance.
In blockchain-based systems, online communities become tokenised tribes. Unlike many network communities, tokenised tribes operate under conditions where data must be unique, history must be immutable, and value is continuously at stake. This creates rivalry among actors in ways that differ from FOSS, where replication costs are near zero, and scarcity is often irrelevant. Beyond network effects, tribes also share interdependent interests in the uniqueness, reliability, and value of data, making forks less desirable and cooperation more meaningful because participants have “skin in the game”.
At the same time, participation remains open: actors can join or leave a tribe at will. This makes governance elective, thereby promoting participation in a way that centralised institutions cannot. Blockchain communities are not merely online social groups; they function as economic and political systems that actively shape institutions and institutional change.
How blockchain redefines social institutions
Below, we will consider how blockchain governance creates new social institutions by formalising rules and arrangements in code.
Returning to Ostrom’s framework, institutional performance depends heavily on information and information flows, as these shape the set of choices from which individuals decide how to interact, whether cooperatively or competitively. The choices available are also moulded by rules, policies, and the mechanisms that enforce them. In polycentric systems, rules are collectively agreed and visible, while other parts of the system monitor performance and provide feedback. Finally, any social order requires mechanisms for dispute resolution.
That said, blockchain governance still depends on human intervention. Automation has limits, and some social processes are not fully decentralisable or autonomous. In practice, onchain and offchain governance arrangements are often intertwined.
New grounds for information
One of Ostrom’s key insights was that effective governance depends on information: who is participating, what the rules are, how others behave, and how costs and benefits are distributed.
Shared ledgers create a common, tamper-resistant history. However, information entering the chain from outside sources can distort onchain governance. Decentralised oracles can mediate reliable information flows into and out of blockchains, but a crucial challenge is ensuring these oracles remain tamper-resistant.
Beyond oracles, tokenised tribes depend on continuous, high-quality data flows. Tools such as indexing protocols enable blockchain data queries and support analytics and tooling, making system behaviour observable in near real time – unlike many traditional institutions, where public data often depends on periodic reporting and regulatory capacity.
A remaining limitation is the exposure of sensitive information via blockchain explorers; however, privacy-by-default architectures and personal privacy tools increasingly address this concern.
Identity without exposure
Centralised governance often relies on identity disclosure: participants must reveal who they are to participate and form contractual relations. Blockchain reduces the need for maximal disclosure by relying on cryptographic verification.
New social rules for attesting and authenticating identity are shifting from state issuance and third-party recognition toward self-sovereign identity, increasingly supported by zero-knowledge proofs and other privacy-preserving techniques that enhance data ownership.
Blockchain enables individuals to prove their humanity, qualifications, or entitlements without revealing sensitive personal information. Paradoxically, in blockchain-based systems, less disclosure can enable deeper cooperation because trust is replaced by verification.
Reputation-based execution: Trust in a trustless world
As blockchain systems mature, onchain reputation is emerging as an effective institutional mechanism. Instead of credit scores or professional licences, blockchain communities can track behaviour directly. Contribution, participation, and reliability accumulate onchain and can be publicly verified.
Encoded rules and automated enforcement can reduce ex ante opportunism, while programmable escrow and token-slashing mechanisms can dissuade misconduct once agreements are in place.
Reputation-based institutions also include the minting of badges that accumulate into dynamic, non-transferable tokens – often described as “passports” – that showcase onchain achievements and reputation metrics. These tools allow others to assess credibility without relying on intermediaries.
Some systems go further by linking reputation to transaction privileges. For example, in Status Network, a non-tradable token called Karma accumulates through onchain behaviour and functions as an indicator of reputation. Higher Karma corresponds to a stronger onchain standing, and this system is used to discourage abuse of the network’s gasless transaction model.
Reputation can enable cooperation not only within communities but also between them. A tribe – represented, for instance, by its DAO – can accrue a reputation that makes it a more attractive counterparty for exchanges with other reputable DAOs. Umbrella organisations – sometimes called meta-DAOs – begin to resemble forms of onchain diplomacy. In this sense, reputation becomes a currency of inter-community trust.
Power without positions
In hierarchical systems, power and roles are tied to formal positions. Andrej Zwitter and Jilles Hazenberg contribute significantly to understanding how blockchain governance alters these dynamics. Blockchain-based governance relocates power into actors themselves, making relationships more fluid and dynamic.
For example, the same individual might validate transactions, vote in a DAO, contribute to an indexing protocol, audit smart contracts, or serve as a juror in onchain courts – often simultaneously.
These roles can be assumed and abandoned without disrupting the system. In other words, blockchain governance reduces single points of failure. As with the underlying technology, governance becomes modular, composable, and dynamic.
This has implications for institutions and for labour markets in the twenty-first century. Instead of fixed careers, blockchain can enable portfolios of roles and contributions. Labour becomes plural, flexible, and increasingly self-directed.
At a macro level, this is especially relevant amid robotics, artificial intelligence, and blockchain technologies, where fears of displacement and job obsolescence persist. This landscape offers scope to reimagine labour markets rather than merely anticipate their decline.
Automated agreement execution
Onchain enforcement is closely tied to DAOs. DAOs operate through rules encoded on public blockchains that can be enforced automatically.
There is a wide variation in DAO design. Some DAOs are “internet-native entities with no central management, regulated by a set of automatically enforceable rules on a public blockchain, and designed to pursue a shared mission”. Others aim to minimise or even eliminate human intervention.
The institutional focus here is on tools and arrangements that support DAO governance, where onchain and offchain decision-making intersect. In automated agreement execution, communities program the implementation of policies that have been collectively approved.
For example, in 2021, the DAO governing the largest decentralised exchange by total value locked (TVL) voted to establish a lobbying group – the DeFi Education Fund – allocating $20 million from its treasury. Rather than relying on an external authority to oversee the decision, smart contracts allocated resources according to predefined rules.
Onchain enforcement can strengthen accountability. Participants with skin in the game can monitor assets in real time, verify decision rules, and observe payoff distributions. By embedding rule-making and rule-execution within the same system, DAOs can reduce reliance on external enforcement and limit sources of conflict.
These mechanisms are supported by a growing ecosystem of DAO tools that enable modular, customisable governance. Such tools include onchain and offchain discussion forums, voting protocols, payout systems, governance dashboards for decision support, crowdfunding tools, community coordination protocols, analytics, reputation tools, and project-management frameworks. Some of these categories overlap because decentralised institutional development is not centrally planned: communities assemble governance structures from interoperable components.
Analogous to the composability of DeFi (often described as “financial LEGO”), blockchain governance can emerge through institutional assemblages – “LEGO institutions” – where diverse governance components are combined to fit local needs. The variety of tools reflects competitive experimentation, in contrast to monopolistic institutional environments where alternatives are limited or slow to change.
Dispute resolution with decentralised courts
Conflicts still arise. Bugs happen, oracles introduce errors, and adversarial attacks exploit limits of automation. Disputes must be resolved. Some parties may prefer traditional courts, regulatory agencies, or arbitration bodies. That is plausible. However, there is also a case for decentralised administration of justice.
Blockchain ecosystems have responded with institutional experiments such as onchain courts, decentralised arbitration, and escrow-based adjudication. These should not be conflated with reforms to existing judicial systems for handling onchain disputes. Rather, they represent new dispute-resolution institutions in which the administration of justice is reconfigured. A prominent example is the decentralised arbitration service Kleros.
Monitoring and fraud prevention as public goods
Blockchain governance remains incomplete if ecosystems cannot manage risk, prevent fraud, and mitigate conflict. Impunity undermines social order. Regardless of whether crypto communities explicitly theorised this problem, what has clearly emerged are monitoring and fraud-prevention onchain institutions that function as decentralised policing mechanisms.
Examples include decentralised transaction tracking and investigative platforms that support cross-chain monitoring and analysis. Such tools enable labelling systems, real-time alerts for phishing and suspicious behaviour, and detailed tracing of fund movements.
Alongside monitoring, decentralised audit marketplaces are emerging to improve smart contract security and protect users from exploits. Although still limited, their importance is driving rapid development. Platforms such as Sherlock exemplify this model by using competition among security professionals to strengthen ecosystem safety.
An open institutional frontier
This exploration provides only a glimpse into the transformation of governance institutions enabled by blockchain technology. New developments are already taking shape: emergent common-law-like frameworks, voluntary jurisdiction selection, and incentive-aligned provision of public goods, to name but a few.
What is emerging is not a single governance model but an institutional design space. Protocols increasingly function like governance software development kits, allowing communities to assemble, adapt, and evolve institutions aligned with their values.
The most important contribution of blockchain-based governance is its collective nature. These powerful new experimental models for human organising are being built collectively, out in the open.
The product of this collective effort will shape the future of how communities coordinate, allocate resources, and resolve conflict in digital and physical domains alike. The institutional frontier is available to all, and those who build new systems or governance today will define the norms others inherit tomorrow.
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