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Distributed ledgers and the governance of money

Author

Listed:
  • Auer, Raphael
  • Monnet, Cyril
  • Shin, Hyun Song

Abstract

Distributed ledgers promise to enable the classical vision of money as a universal transaction record. But is it ever optimal to update a ledger through decentralized consensus? Analyzing an exchange economy with credit, we show that centralized updating is optimal when long-term rewards are more valued, minimizing redundant validation costs and maximizing economic surplus. Decentralization becomes preferable under weaker intertemporal incentives and when validators are drawn from market participants. We show how competing ledgers – anonymous or identified, permissioned or permissionless – can achieve socially optimal outcomes even in low-trust environments. Our framework provides a foundation for designing robust and efficient ledger systems.

Suggested Citation

  • Auer, Raphael & Monnet, Cyril & Shin, Hyun Song, 2025. "Distributed ledgers and the governance of money," Journal of Financial Economics, Elsevier, vol. 167(C).
  • Handle: RePEc:eee:jfinec:v:167:y:2025:i:c:s0304405x25000340
    DOI: 10.1016/j.jfineco.2025.104026
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    More about this item

    Keywords

    Market design; Money; Distributed ledger technology; DLT blockchain; Cryptocurrencies; Decentralized finance (DeFi); Global game; Consensus; Stablecoins;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G2 - Financial Economics - - Financial Institutions and Services
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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