Delegated Control, Agency Conflicts and Governance Cycles in Token-Based Platforms

Token-based platform governance has evolved into a mediated voting system, in which users outsource voting to specialized agents. While this vote delegation can improve governance efficiency, it also reintroduces agency conflicts. We develop a dynamic principal-agent model in which agents are initially unknown and exert effort to build reputation. However, as perceived quality (reputation) rises, users rationally reduce active oversight. This decline in monitoring increases agents’ returns to opportunism and misconduct, eventually leading to governance failures and agent turnover. To mitigate these governance cycles, we show that designs that slow reputation accumulation and use token-based compensation improve the platform’s stability.