When we talk about decentralization, we no longer mean revolution; only an evolutionary approach has proven effective over a long distance. Today, far fewer people are betting on the emergence of radically new institutions. Instead, DeFi aims to solve existing problems by offering more efficient approaches to areas traditionally suffering from opacity and corruption.
And it's not just about finances. Today, we are talking about decentralized identifiers, prediction markets, and autonomous organizations. All of these are now referred to as DeSoc or Decentralized Society. While DeFi aims to build a more accessible, transparent, and efficient financial system, DeSoc aims to improve society and its institutions.
Banks guard the centralized financial system, which acts as intermediaries in financial operations and courts, overseeing the enforcement of agreements and supervising disputes. In DeFi, numerous protocols already provide banking services in a decentralized manner, so it would not be very smart to think that the judicial system would not have a decentralized counterpart.
Interestingly, in the "real" world, the court, or the decision-making process, has long been quite decentralized. The jury system is an example of "autonomous decentralization," where the social construct transitions from a centralized form to a decentralized one, seen as more efficient. A lone and public judge could be bribed, intimidated, or simply given instructions from "above." It was much more difficult to manipulate the collective opinion of several anonymous jurors. The collective judgment of representatives from different walks of life often leaned towards fairness, being more objective and less biased than a decision made by one person.
Applying a similar logic to the blockchain, at first glance, raises no questions - select anonymous jurors to collect their anonymous responses to clearly formulated questions and then transmit the data on the decision reached to a smart contract.
However, some unforeseen pitfalls may arise when you delve into it. Despite multiple attempts to establish a decentralized judicial system, only one project has yet to achieve success thus far.
Founded in 2017 and inspired by the game theory research of Nobel laureate Thomas Schelling, the Kleros project was created as a blockchain-based platform for resolving disputes. Its goal was to utilize smart contracts to enforce court decisions automatically.
Game theory, of course! Kleros involves creating a judicial system consisting of a general court and specialized sub-courts, within which their own "laws" - specific rules for dispute resolution, session time limits, cost of dispute resolution, number of jury members, and so on - apply.
Anyone purchasing $PNK tokens on the exchange can stake them in any available courts and become a candidate for jury duty. If selected as a juror, they can make decisions in cases. The fairness of the jury's decisions is ensured through a special system based on the concept of "Schelling points" (or "focal points"), developed by Thomas Schelling, who received the Nobel Prize in Economics in 2005 and first introduced this concept in his book, The Strategy of Conflict (1960).
A Schelling (or focal) point is a "solution that people tend to use to coordinate their behavior (in the absence of communication between parties or in a situation where neither party can be sure of the truthfulness of the other party's statements), as such a solution seems natural or relevant to them."
Building on this concept, Vitalik Buterin proposed creating a multi-layered system with a randomly selected jury sitting in a decentralized judicial system with special economic incentives to ensure the adoption of a fair decision. In dispute resolution, jury members will vote fairly because they anticipate that other jury members will do the same.
One crypto-institution that would be very useful for a large set of different applications is a mechanism by which a user could ask a question, expressed in the form of English text, and have a decentralized mechanism, perhaps based on schellingcoin, Martin Koppelmann’s ultimate oracle, subjectivocracy (a very similar concept to slock’s DAO splitting) or some other scheme with similar properties determine the answer, and then send a callback and a log to the user who asked the question. To achieve scalability, a multi-stage scheme where only a few randomly selected judges look at each question by default, and are incentivized by the threat of a larger “supreme court” contradicting them, is probably optimal.
In this system, jurors who decide against the majority face heavy penalties and lose a portion of their deposit. This lost deposit is then redistributed among more successful competitors. As a result, only participants who consistently deliver fair verdicts should remain in the system, while those who consistently vote "incorrectly" will gradually be phased out.
Jurors are not randomly selected. The probability of being selected as a juror for a specific case depends on the size of their stake in special tokens called PNK. Any participant in the exchange can acquire these PNK tokens. A larger stake in PNK tokens increases the likelihood of being chosen as a juror. This creates an economic incentive for participants to be more active and honest in the system. People expect acceptable and fair behavior from other participants by investing resources in these tokens. Thus enabling the use of Kleros as a universal arbitrator for decentralized justice.
As Federico Ast, the Founder of Kleros, emphasizes in his vision of the future of Kleros:
This is why a type of a Supreme Court mechanism is a key part of blockchain governance. And Kleros can provide this layer, which makes sure that initiatives voted by a community comply with their Constitution. [...] Kleros can play this key role in the future of blockchain governance: a Decentralized Supreme Court for the Internet. Of the people, by the people, for the people.
Before we conclude, it’s essential to highlight the collaboration between NFT Protect and Kleros. One might wonder why NFT Protect uses Kleros. The answer lies in the robustness of Kleros’s decentralized judicial system, which aligns with NFT Protect’s mission to provide secure and fair solutions in the NFT space.
Denis Smirnov, founder of NFT Protect, has mentioned:
NFT Protect collaborated with Kleros due to its proven record of delivering fair and objective decisions. Based on game theory and economic incentives, Kleros's decentralized courts model ensures high integrity and reliability in dispute resolution. This alignment of values and principles made Kleros the preferred choice for NFT Protect.
Currently, Kleros solutions are being utilized across various industries. NFT Protect is one of the possible solutions. The others aid in tracking the addresses of hackers (for instance, the labels seen under addresses on Etherscan are provided by Kleros) and verifying identities in the Proof-of-Humanity protocol. Kleros also handles insurance claims following protocol hacks in Unslashed Finance and bridges prediction markets like Omen with the real world. Moreover, Kleros has a long-standing history of facilitating token listings on the Ethfinex exchange. Furthermore, there have been instances where traditional jurisdiction courts have recognized decisions made by Kleros.
With the increasing popularity of the DeSoc concept, we can anticipate an explosion of protocols utilizing decentralized dispute resolution models to address a wide array of problems.