Smart Contract for Information Aggregation
Smart contracts can replicate market functions like Uniswap and Bancor, enhancing information aggregation in economics. Learn about the nexus of contracts versus markets and the role of private signals in aggregating information via markets and contracts, as explored by Jiasun Li, Assistant Professor of Finance at George Mason University.
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Smart Contract for Information Aggregation? Jiasun Li Assistant Professor of Finance George Mason University
The question Smart contract replicate market functions Uniswap, Bancor, Contracts vs. markets Classic topics in economics, too Firm as a nexus of contracts vs. market (Coase 1937, Alchian & Demsetz 1972) One important function of the market: information aggregation Efficient market hypothesis (Fama 1970) Rational expectation models (Grossman & Stiglitz 1980, Kyle 1989) Information aggregation via contracts -- specifically smart contracts? Jiasun Li George Mason
Information aggregation via market A group of traders Jiasun Li George Mason
Information aggregation via market A group of traders Each has a private signal ? ?1 ?3 ?2 Jiasun Li George Mason
Information aggregation via market A group of traders Each has a private signal ? Submit a set of limit orders A demand schedule ?(?,?) ?1(?1,?) ?3(?3,?) ?2(?2,?) Jiasun Li George Mason
Information aggregation via market A group of traders Each has a private signal ? Submit a set of limit orders A demand schedule ?(?,?) ? determined by mkt clearing ???(??,?)= asset supply ? aggregates all the signals ?1(?1,?) ? ?3(?3,?) ?2(?2,?) Jiasun Li George Mason
Analogy: Information aggregation via contract A group of investors Jiasun Li George Mason
Analogy: Information aggregation via contract A group of investors Each has a private signal ? ?1 ?3 ?2 Jiasun Li George Mason
Analogy: Information aggregation via contract A group of investors Each has a private signal ? Submit a smart order ?(?,?) ? is the realized total investment ? aggregates all the signals Work for scalable projects Work for nonscalable projects together with ? ?1(?1,?) ?3(?3,?) ?2(?2,?) Jiasun Li George Mason
Going beyond investment Re-interpret monetary investment as providing other production inputs (e.g. effort, human capital) Contracts vs. markets in terms of organizing general business activities for efficient uses of everyone s information Old wisdom with new insight Old wisdom: Firm as a nexus of contracts New insight (maybe): DAO as a nexus of smart contracts Jiasun Li George Mason
