A Repeated-Game Framework for Incentives in Decentralized Infrastructure Protocols

Abstract

We introduce a repeated dynamic incentive framework for characterizing when "compliance", or full-effort honest service provision, is incentive compatible in Decentralized Physical Infrastructure Networks (DePIN). We model quality control in this setting as a repeated moral-hazard problem between the protocol and each provider, where compliance is enforced by both slashing posted collateral and the discounted threat of demotion to probation tiers on a reputation ladder. Our main contribution is the "deterrence ratio" $\Gamma$, the worst-case ratio of a deviation's private gain to its marginal probability of detection. We find that if any profitable deviation does not increase the fail probability relative to compliance, then binary public-outcome protocols cannot deter it. When all profitable deviations have positive detection gaps and no weakly costlier action is less likely to fail, compliance is sequentially incentive compatible if and only if immediate slashing plus discounted reputation loss is at least $\Gamma$ at every reputation tier. We use this condition to formulate a protocol design problem mapping service primitives to stake requirements, reward schedules, probation rules, and audit frequency.

19 pages