Updated: July 16, 2025
While open access to platform resources stimulates network effects, open governance does not yield similar benefits – users prefer pre-orchestrated systems and avoid costly governance participation.
Trust in platforms stems from predictable, stable institutions, typically ensured by a central orchestrator who absorbs entrepreneurial risk and coordinates resource access.
True decentralization, as defined by autonomy and sustained equal access, requires self-executing institutional rules – a highly ambitious vision that challenges the foundations of platform-based network effects.
Network effects have long been considered the cornerstone of successful platform strategies. As Boudreau (2010) demonstrated, open access to complementary platform resources attracts more users and stimulates network effects. However, open access to governance does not seem to produce a similar effect. Platforms with decentralized or open governance perform comparably to those with closed governance models.
This observation brings us to a broader and increasingly urgent question in the digital economy: Is decentralized governance truly desired, or does it undercut the very dynamics that platforms rely on to scale and thrive, such as network effects?
Drawing on prior research on platform governance, it appears that the promise of open governance is often unfulfilled. Users do not necessarily engage in platform governance with the same enthusiasm they show for using platform resources. This asymmetry suggests that users prefer to benefit from pre-orchestrated, readily available infrastructure rather than contributing to its maintenance or direction themselves.
There is a rational logic to this behavior. Users aim to minimize costs, including time and effort, and maximize output. Participating in governance requires effort and commitment, often without clear individual benefit. Meanwhile, platforms provide access to valuable resources – computing infrastructure, user bases, algorithms – which users can readily exploit.
One explanation for this behavior lies in the trust in platform institutions. (See my previous post about institutions.)
Institutions are defined as a set of formal and informal norms and rules that structure individual interactions (North, 1991).
These institutional norms are valuable precisely because they are predictable and stable, enabling users to form confident expectations. Over time, this fosters a reputation and trust that the resources will be consistently available.
Trust, therefore, emerges as a central factor in the functioning of platforms. It is not merely about access – it is about confidence that access will be preserved over time. Consider the example of YouTube: creators trust Google to provide stable infrastructure and continuous access. This trust is not abstract. It is grounded in the fact that Google actively maintains the platform, invests in its development, and takes on entrepreneurial risk.
In return, users are willing to pay rents, either directly or indirectly, to access this orchestrated system. This exchange echoes classic theories of entrepreneurship, where the entrepreneur absorbs risk and coordinates resources in exchange for rents.
However, trust is fragile. Signals of unequal access or concentration of power can undermine it. Recent macroeconomic studies (Palmisano & Sacchi, 2024) show that income inequality correlates with a decline in trust toward public institutions. This insight resonates strongly with discussions of decentralization in platform economies.
Challenge of Decentralized Trust
Vitalik Buterin, a key voice in the blockchain community, recently stated that true decentralization is not about the number of validators or DAO voting mechanisms. Instead, it hinges on what he called the "walkaway test": Would the platform continue to function if the founding team were to walk away? In platform terms, would the platforms attract users if they lost their orchestrator's function and delegated the maintenance of the shared resource pool to the users themselves?
This definition places the burden of decentralization on two criteria:
Autonomy – the absence of a central orchestrator.
Trustworthiness – the continued guarantee of equal access and effective governance.
Achieving both is a monumental challenge. It would require a system of self-executing rules – algorithms and protocols capable of regulating socio-economic interactions, resolving edge cases, and evolving. Essentially, it would mean replacing entrepreneurship with code-based governance over the public good, with (or without) community participation.
This brings us back to our original question: Do network effects still make sense without an orchestrator?
The platform model assumes an orchestrator who not only facilitates interactions but also absorbs responsibility for resource coordination, dispute resolution, and strategic vision. Network effects grow precisely because users trust that someone is managing the underlying complexity.
Absent such a figure or institution, the sustainability of network effects becomes questionable. Trust may not emerge organically. Institutional predictability and reputation cannot easily be replaced by smart contracts or code alone. Hence, decentralized systems may struggle to replicate the full dynamics of orchestrated platforms.
In summary, my central argument of this piece is that network effects rely on more than access – they require trust, stability, and an entrepreneurial orchestrator. Without these, decentralized platforms may face structural limitations, particularly when users are unwilling to collectively invest in governance.
Boudreau, K. (2010). Open platform strategies and innovation: Granting access vs. devolving control. Management Science, 56(10), 1849–1872. https://doi.org/10.1287/mnsc.1100.1215
North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge University Press.
Palmisano, F., & Sacchi, A. (2023). Trust in public institutions, inequality, and digital interaction: Empirical evidence from European Union countries. Journal of Macroeconomics, 79, 103582. https://doi.org/10.1016/j.jmacro.2023.103582
Vitalik slams fake decentralization in crypto, says founders build ‘straw houses’. (2023, September 5). Crypto.news. https://crypto.news/vitalik-slams-fake-decentralization-in-crypto-says-founders-build-straw-houses