Banksy DAO explained using Game theory

A new approach to DeFi

2 min readMar 26, 2022

A few years ago, DeFi 1.0 was introduced by great project such as Goose, Panther, and others.

Last year, Olympus DAO came along and presented a DeFi 2.0. A complete disruptive way to see DeFi.

But there wasn’t something in the middle, an evolution of DeFi 1.0
We are proud to present the evolution of DeFi 1.0 to 1.5.

Game Theory Background

Game theory is the study of mathematical models of strategic interactions among rational agents. It’s based on hard math, and its being studied since the early 1900.

From here, the prisoner’s dilemma was presented.

As explained in a great article by Sandman Finance Team, you can think of DeFi 1.0 by a 2-by-2 matrix:

The simplest model has two players with two possible actions:
Buy. Players are most likely to stake when they anticipate an expansion in supply and/or price. It has the effect of pushing the price up +2.
Sell. Players are most likely to sell when they anticipate a contraction in supply and/or price. Selling has the effect of pushing the price down -2.

The dominant strategies are all cooperative.

The BANKSY DAO iniciative

What BAnksy DAO is adding to all this analysis is a great feature: the ownership token, provided by the Kurama Protocol.

The ownership token is more than a new feature, is a driving force that suggest the investor to STAKE the token because it will reward USDC like an owner of the project.

25% of fees are distributed amongst token stakers

Now, the previous matrix is unbalanced: Stake is more appealing that selling. Because the token will distribute project profit for the duration of the entire farming period.

The new matrix will be:

Buy (Stake). Players are most likely to stake when they anticipate an expansion in supply and/or price. It has the effect of pushing the price up +3.
Sell. Players are most likely to sell when they anticipate a contraction in supply and/or price. Selling has the effect of pushing the price down -2.