Dominant Assurance Contracts

Dominant Assurance Contracts (DACs) incentivize public goods contributions by guaranteeing a win-win scenario for early supporters. If the project gets funded, the public good is delivered. If it doesn't, funders get refunded with a bonus. Originally proposed by economist Alex Tabarrok, DACs solve the public goods dilemma by removing first-mover risk.

How It Works

DACs make contributing the dominant strategy regardless of whether the project reaches its goal.

1. A project sets a funding target with a defined deadline
2. A bonus pool is established — sourced from sponsors, treasuries, or preset contract logic
3. Contributors pledge funds — held in smart contract escrow
4. If the target is met — funds are released to the project, and the public good is delivered
5. If the target is NOT met — all contributors receive their full refund PLUS a share of the bonus pool
6. Either way, contributors win — they either get the public good or a financial return

Advantages

• Overcomes initial traction barriers for high-impact projects
• Substantially reduces risk for early contributors — contributing is always rational
• Solves collective action coordination problems through game-theoretic incentive design
• Creates strong incentives for participation even when outcomes are uncertain

Limitations

• Not suited for ongoing or long-term funding — only works for discrete, goal-oriented projects
• Requires clearly defined project outcomes and costs
• Needs a secured bonus funding source (someone must fund the bonuses)
• Struggles in low-engagement environments where even bonuses don't attract participation

Best Used When

• Bootstrapping new initiatives where first-mover hesitation is the main barrier
• Public goods with quantifiable costs and clear deliverables
• Ecosystems experimenting with incentive mechanisms to solve collective action problems
• Protocols offering credible funding commitments via smart contracts

Examples and Use Cases

Community Infrastructure

A community needs $50k for a mesh network. A DAC is deployed: if the target is met, the network is built; if not, all contributors get refunded plus 5% from a sponsor's bonus pool.

DAO Tool Development

A DAO tool needs funding but contributors are uncertain about adoption. A DAC ensures early backers either get the tool or a guaranteed return.

Regional Mutual Aid Launch

A regional mutual aid project uses a DAC to bootstrap its first funding pool — contributors know they'll either get the community resource or their money back with a bonus.

Further Reading

• Allo Capital — Dominant Assurance Contracts