Economics of Protocol Design
Protocols do not only define what is technically possible; they also shape how rational participants behave. This talk introduces the economic perspective on protocol design, focusing on how incentives, selfish behavior, and emergent outcomes interact in decentralized systems. We will look at ideas from mechanism design, game theory, and concepts such as the Price of Anarchy: the gap between individually rational behavior and globally desirable outcomes. The Lightning Network provides a useful case study. While participants may act locally rationally when routing payments or setting fees, such behavior can still lead to depleted channels, reduced reliability, and inefficient liquidity allocation. The goal of this talk is to motivate why protocol designers must think beyond correctness and security. A well-designed protocol should make good behavior the natural outcome of self-interested actions. By exploring examples from Lightning and related systems, we will discuss how economic incentives can either support or undermine decentralized infrastructure.
