Game theory is the study of how people behave rationally in situations where they are interdependent. An interaction analysis method for analyzing the interactions of a group of intelligent and strategic persons is described in detail below. When people think about game theory, they often think of broad logic and reasoning, despite the fact that it is based on pure mathematics and may be applied to any situation where humans interact or coordinate with one another, such as business situations.
It was designated as a milestone in scientific research by the publication “Theory of Games and Economic Behavior” because game theory created an organized way of examining the actions of people who are entangled in a web of fortunes. When it was first developed, it was intended to deal with zero-sum games, in which one person’s profits result in losses for all other players. Any gains or losses earned by one player in a game of poker, for example, are precisely proportional to the losses suffered by the other players in the game.
For blockchain systems and protocols, game theory aims to describe and forecast human reasoning in order to construct networks that require no monitoring while yet achieving beneficial outcomes for the greater good. Coordination games or attaining a Nash Equilibrium in a non-zero-sum game, and aligning stakeholder incentives in such a way that any action they conduct for their own advantage would result in the benefit of the entire system at large are used to achieve this goal.
There are several Nash equilibriums in coordination games, which are strategic games. No one wants to change their strategy in the face of other players’ actions, hence a Nash equilibrium is the result of this strategic game. Assuming the actions of the other player, each player plays their own best-response strategy. Everyone in the Nash Equilibrium assumes that the other players know their strategies, hence changing one’s strategy is of no benefit to anyone.
The Game Theory in EPNS
The protocol of the EPNS ensures that all network participants have incentives that are aligned with one another over time, resulting in efficient and self-sustaining governance over the long term. Therefore, the game theory of governance for the EPNS ecosystem is now being created with the participation of all stakeholders in mind. As more individuals join the protocol, the token’s usefulness improves, raising the fees pool and awards, which in turn boosts the token’s value in a way that is not directly related to protocol expansion, i.e., indirectly. The token is a critical medium of exchange for all protocol-related transactions, and it must be used at all times.
Throughout the Ethereum Push Notification Service (EPNS) Whitepaper, $PUSH tokens, the protocol’s native governance tokens, are described as being used to regulate a variety of network-wide fundamental features. Fees in the form of $ETH or $DAI are levied within the protocol, and governance token holders have the ability to influence the changes in the costs.
The Fees pool contains all fees earned from EPNS protocol usage and will be allocated in the following proportion:
30% for the Ecosystem development pool
Ecosystem development pool (EDP) = x% for Integration partners pool
y% for Future integration reward pool
Where x% + y% = 100% of EDP
The EPNS protocol’s incentive layer is structured as follows for the various ecosystem stakeholders.
- Service providers are already rewarded to send alerts because doing so puts them on par with the web2 experience, and with platform-agnostic and incentivized notifications, we can even go so far as to say that EPNS outperforms the present notification game of web2 / centralised.In addition, there will be third-party developers who will be developing ways to profit from liquidity mining.
- In exchange for wanting to receive notifications related to payments, DeFi (distributed computing), games, or any other service on web3, users are rewarded. This strategy is clearly effective, as evidenced by the widespread use of alerts and traditional services (web 2), which are becoming increasingly integrated into everyday life. Users benefit from these features in addition to receiving token incentives as a result of notifications and universal distribution, as previously stated.
- Wallets / Infra Services
- Existing wallets and service providers have an incentive to continue operating because doing so ensures that they will receive a consistent share of the integration partners pool.
- As the EDP reward pool increases in size, Future wallets will be compelled to join with it in order to reap the benefits of the increased pool (as more and more notifications are sent). Consequently, future wallets will be more likely to investigate protocol integration in order to be eligible for this award and to submit an application to be included in the Integration partners pool in perpetuity as a result.
Note: The more wallets that are integrated into the system, the more users there are, which in turn leads to more services and a larger fee pool, which in turn leads to more wallets being integrated in the future.
To ensure that the protocol’s value is maximised and that it is widely adopted, Token holders are encouraged to hold on to and vote for the best proposal, as well as to keep important feature fees as low as possible in order to encourage widespread use of the protocol.
For instance, More users imply greater demand for integration, which raises the fees present in the fees pool (and, consequently, the integration partner pool and incentive pool), which in turn encourages more wallets to support the protocol, resulting in even greater user participation in the ecosystem. Initially, we see the network effect working on smaller wallets, but when the EDP funds start to increase as a result of the above scenario, we see the network impact working on larger wallets, which leads to larger wallets considering integration, and thus the cycle begins again.
As a result, EPNS, which is a decentralized notifications protocol, employs game theory to generate network effects, resulting in a win-win situation for all parties participating in the ecosystem, whether they be users, services, wallet providers, or token holders. And it becomes critical in order to properly align stakeholder incentives in a way that is both business and economic in nature in order to enhance network effects and attract more users and services to the platform in the first place.