Last month, millions of viewers tuned into HBO for the premier of the final season of Game of Thrones. Game of Thrones offers an intimate look at the consequences of using backroom dealing to pursue an outcome in a competitive setting and fans of the show await with anticipation to see who will finally rule Westeros. But one need not look to television to find such a battle for power—just look to the crypto market. Every investor is vying for the throne (or in this case, a maximized profit) but not all players are made equal. Those with better social ties or monetary power can more easily enter into coalitions and create backhanded deals to achieve a better outcome.

As in Westeros, the crypto landscape does not behave according to Nash equilibrium. There are too few individuals controlling the fate of the market, making it difficult for others to fairly pursue their own rewards. However, if Nash equilibrium were present, these impediments to the pursuit of individual reward would be eliminated.

By definition, Nash equilibrium describes “players” in a “game” in a pure non-cooperative setting (a competitive setting devoid of alliances). In such a scenario, any strategy change by one player will not result in a better outcome at the expense of the other players if all players’ continue to pursue their own strategies. This outcome serves the self-interests of all players, not just merely a few. And in order for any decentralized currency or token to enjoy enduring success, its price must be described by Nash equilibrium. If it is not, all participants (or players) will not understand the value and as a result it become subject to artificial pricing factors.

While most markets do not operate in a non-cooperative setting (there typically exists coalitions and cartels which yield significant influence and pressure on a market), more sophisticated marketplaces function in closer alignment with Nash equilibrium because greater participation inevitably means more transparency and better infrastructure promoting fair competition. The equities market, for example, has a large number and variety of established participants and a supporting infrastructure which promotes information transparency. The cryptocurrency marketplace on the other hand, which is still a much more nascent and emerging ecosystem, remains plagued by coordination among a few larger participants to profound effect.

Take, for example, Bitcoin. The coin’s rapid rise and decline is the result of investors speculating on the winning cryptocurrency. It’s akin to the various characters of Game of Thrones throwing their support behind those seeking the throne and, to function in Nash equilibrium, the players must simultaneously work, unimpeded, to serve their own best interests. In forming alliances, the parallel pursuit of self-interest by all players no longer occurs, replaced by the interests of the group, to the detriment of those outside of the coalition.

If the cryptocurrency market were to function in a truly non-cooperative setting, where individuals can pursue their own utility more fairly, it would defend against potential manipulation by eliminating incentives for collaboration. The so-called 51% attacks, for instance, where substantial computing resources are utilized to take over a network’s mining power to reverse and block transactions (akin to robbing a bank), are a symptom of the current marketplace. Larger players take advantage of their size to wield influence.

There are a few ways such behavior can be eliminated. First, a digital asset with well-acknowledged, long-term price dynamics is necessary. If a digital assets’ price evolution is more or less knowable and clear then the resulting certainty defeats the incentives for coordinated behavior that would be detrimental to other players.

Second, a marketplace where a clear relationship exists between the outstanding supply of tokens and the value of the ecosystem should be established. In such an environment, price discovery is more likely to exhibit well-organized and orderly characteristics. Public companies, for example, list their stock on an exchange, which serves as a centralized source for price discovery. They also publicly disclose the number of shares on the market. All participants have an expectation of the general contours of the outcomes in the market, so there is less risk of market manipulation.

Third, introduce a token or blockchain construction that disincentivizes bad behavior (like the 51% attacks). If all token holders enjoy the same privileges in the ecosystem, there would be no additional benefit from coordinating to seize mining power of a network, or join any other coalition. Such an ecosystem is achievable via a token construction where ownership confers on all holders the same capabilities and privileges on the blockchain. In other words, one cannot buy their way to influence. As the ecosystem grows, the token would capture the value of that increased adoption, creating equal motivation for involvement from all participants and leveling the playing field.

The crypto market will burn to the ground if it continues to operate outside of Nash equilibrium and without a construction that promotes the self-interest of all players. If participants just keep vying for the Iron Throne through manipulation, we’ll continue to see a few prevailing at the expense of everyone else.

Seth Patinkin is co-founder and CEO of Ampersand Markets and did his PhD work in mathematics under the late John Forbes Nash at Princeton University.

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