# The interplay between loyalty and legitimacy in blockchain-based metaverses: the case of Decentraland

Morshed Mannan, Primavera de Filippi, Tara Merk

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Morshed Mannan, Primavera de Filippi, Tara Merk. The interplay between loyalty and legitimacy in blockchain-based metaverses: the case of Decentraland. Information, Communication and Society, 2025, pp.1-20. 10.1080/1369118x.2025.2523978. hal-05486473

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# The Interplay Between Loyalty and Legitimacy in Blockchain-based Metaverses: The Case of Decentraland

Morshed Mannanª, Primavera De Filippiᵇ and Tara Merkᶜ*

published in Information, Communication & Society (July 2025) - https://doi.org/10.1080/1369118X.2025.2523978

ªRobert Schuman Centre for Advanced Studies, European University Institute, Florence, Italy; ᵇBerkmann Klein Center, Harvard University, Cambridge, MA, US; ᶜCNRS/CERSA, Paris, France

Dr. Morshed Mannan is a Research Fellow at the Robert Schuman Centre for Advanced Studies at the European University Institute. His research focuses on blockchain governance within the ERC project ‘BlockchainGov’ and, more broadly, on cooperative governance. He received his Ph.D. from Leiden Law School, Leiden University for his dissertation entitled: The Emergence of Democratic Firms in the Platform Economy: Drivers, Obstacles and the Path Ahead. He has co-authored a book and published several articles in academic journals on topics pertaining to blockchain governance and the formation of a nascent type of cooperative business: platform cooperatives. Morshed is a Research Affiliate of the Institute for the Cooperative Digital Economy at The New School in New York City and is a dual-qualified lawyer (England & Wales/Bangladesh). He has also acted as a consultant on matters of cooperative law and governance for the International Cooperative Alliance and NCBA Clusa International, and an expert for the UN Department of Economic and Social Affairs and the European Commission.

Primavera De Filippi is a Research Director at the National Center of Scientific Research in Paris, and Faculty Associate at the Berkman-Klein Center for Internet & Society at Harvard. Her research focuses on the legal challenges and opportunities of the metaverse, web3, blockchain technology and artificial intelligence. She is the co-author of the book “Blockchain and the Law,” published in 2018 by Harvard University Press, and “Blockchain Governance” published in 2024 by MIT Press. She was recently awarded a €2M grant from the European Research Council (ERC) to investigate how blockchain technology can help improve institutional governance through greater confidence and trust.

Tara Merk is a political science PhD researcher at CNRS/University of Paris II, working in the ERC BlockchainGov. She is a research fellow in the Metagovernance project and associate researcher at the Weizenbaum Institute in Berlin. Her current research, conducted mainly through digital ethnography and action research, focuses on blockchain governance, Exit to Community, DAOs and labor in Web3.
**Competing interests:** The authors have declared that no competing interests exist that have influenced the text.

**Funding details:** This research is funded by the European Research Council (ERC) under the European Union's Horizon 2020 Research and Innovation Programme (Grant Agreements No. 865856).

.
# The Interplay between Loyalty and Legitimacy in Blockchain-Based Metaverses: The Case of Decentraland

This article explores the role of legitimacy in fostering user loyalty in open-source blockchain-based metaverses which offer an innovative alternative to the exit-and-loss logic of large centralized platforms. Specifically, we ask: how do perceptions about the legitimate governance blockchain-based metaverses shape users' decisions to exit, use their voice, or remain loyal to the platform? Conceptually, we ground our analysis in Albert Hirschman's framework of exit, voice, and loyalty—where legitimacy is hypothesized to serve as an indicator of loyalty. Drawing on a qualitative case study and online focus groups conducted in Decentraland, we find that contrary to our hypothesis legitimacy and loyalty seem to exhibit a bi-directional, mutually reinforcing relationship which changes depending on the type of user in question and is significantly shaped by individual's economic self-interest. Highly-invested users, for instance, demonstrated performative loyalty and engaged in self-legitimizing practices to convince other users and external actors that the governance of Decentraland was legitimate, thereby indirectly preserving the financial value of their investments. This paper expands the application of Hirschman's framework to the novel domain of blockchain-based metaverses and contributes to a better understanding of the relationship between legitimacy and loyalty in decentralised digital platforms with in-built economies.

Keywords: legitimacy; loyalty; blockchain; metaverse; governance

## 1. Introduction

Legitimacy is characterized as the perception that power is exercised in accordance with an existing set of rules, where the rules are justified in a wider system of beliefs and consented to by those subjected to said rules (Beetham, 1991). The topic of legitimacy is central to digital governance, but has received relatively limited scholarly attention in the domain of blockchain governance (De Filippi, Reijers, and Mannan 2024). A few authors have focused on the extent to which blockchain
technologies can enhance the legitimacy of public governance (Curry, 2025), international organisations (Dimitropoulos, 2022) or the financial industry after the Global Financial Crisis (Campbell-Verduyn and Hütten, 2019), and there has been research on how external business actors strive to legitimise the adoption of Bitcoin and the Bitcoin blockchain (Rosati, Lynn & Fox, 2021). However, blockchain-based systems are *governable spaces* in their own right and internal user perception about the legitimate governance of these spaces has been insufficiently explored (Schenider, 2024; De Filippi et al., 2022). Addressing this gap in the current literature, in this article we focus on legitimacy perceptions within a specific prominent blockchain-based metaverse platform. The metaverse broadly refers to an immersive, persistent, three-dimensional virtual space in which users interact with their environment and with one another through their avatars to engage in a wide variety of social and economic activities. Blockchain-based metaverses are a type of decentralised application, created by deploying code on a blockchain, which inherits the immutable and tamper-resistant properties of the underlying technology.

The operations of decentralised applications do not depend on any centralised intermediary. Instead, they rely on distributed governance by a large, voluntary community of users, who obtain governance rights concerning the policies and future development of these applications (Vergne, 2021). As such, blockchain-based metaverses need to retain users and build network effects without being able to rely on coercion or retention mechanisms implemented in large centralized platform ecosystems. Recognizing this tension as well as the gap in scholarship concerning the role of legitimacy within blockchain ecosystems, we ask: how do perceptions about the legitimate governance blockchain-based metaverses shape users’ decisions to exit, use their voice, or remain loyal to the platform? We hypothesise that legitimacy can serve as
an important precondition for the adoption and maintenance of decentralised metaverse platforms.

We explore our hypothesis by using the case study of Decentraland, the first blockchain-based metaverse which became famous in 2021 when a plot of land in Decentraland sold for over $2 million and celebrities like Paris Hilton began performing at virtual events. While not representative of all blockchain-based metaverses, Decentraland was chosen as a case study because it is the first large-scale instantiation of a blockchain-based metaverse which remains active to date, thus offering a meaningful blueprint for others (e.g., The Sandbox, Somnium Space) (Duziak, 2023).

The paper is structured as follows: The paper first introduces the concept of legitimacy (section 2.1), with a particular focus on blockchain systems (section 2.2), elaborating on Hirschman's famous framework of exit, voice and loyalty as a response to illegitimate behaviours (section 2.3). The paper then introduces the methodology (section 3) used to construct our case study of Decentraland, which serves as an empirical example for us to evaluate our conceptual hypotheses (section 4). Finally, the paper outlines our main findings with reference to the role of legitimacy in Decentraland, explaining why legitimacy matters in this context (section 5.1) and how users of Decentraland deal with perceived lack of legitimacy, by means of exit, voice, and loyalty (section 5.2). Specifically we find that contrary to our hypothesis, legitimacy and loyalty seem to have a bi-directional and mutually reinforcing causal relationship which changes depending on the type of user in question. While the decision to stay loyal for low-stakes users in Decentraland may be influenced by their legitimacy perceptions, we find that more high-stakes users also engage in practices of self-legitimization to prompt loyalty in others, and in performative loyalty which
ultimately serves their own economic interests. We conclude by highlighting the
implications of our findings and avenues for future research.

## 2. Conceptualizing Legitimacy

### 2.1. *A brief overview of legitimacy*

Although it is difficult to pin down one single authoritative definition of
'legitimacy', the role of legitimacy in governance has been extensively analysed in the
academic literature. One influential definition of legitimacy looks at whether a
governance system gives rise to outcomes that are seen as desirable by those actors that
are part of the system. For Suchman (1995, p. 754), legitimacy is "a generalised
perception or assumption that the actions of an entity are desirable, proper, or
appropriate within some socially constructed system of norms, values, beliefs and
definition". The perception of legitimacy has various functions. It is used to justify the
exercise of coercive power by dominant actors in a governance system (e.g., Rawls,
1993), or to justify authority, with some scholars contending that legitimate authorities
can create binding obligations on subordinate actors in a governance system (Raz,
1986).

We are particularly concerned with the legitimate exercise of power, where
power is understood as the ability of some actors “to influence or control the actions of
others, to get them to do what we want them to, and what they would otherwise not
have done” (Beetham, 1991, p. 43). Weber’s descriptive account of legitimacy
describes power relations in a governance system as being legitimate when dominant
and subordinate actors both *believe* them to be so (Weber, 1968). Beetham departs from
this Weberian conception of legitimacy to argue that it is the *justifiability of rules* in a
governance system on the basis of a shared belief system that makes the governance
system legitimate (Beetham, 1991). Take an example where rules are not unjustifiable: when electoral rules (e.g., voting by electoral colleges in US presidential elections) are no longer justifiable on the basis of citizen's beliefs on representative democracy, the election governance system loses legitimacy. This weakens the grounds for actors in a governance system to *obey* those dominant actors who wield power, and diminishes stability and order. (Beetham, 1991, p. 26, 34)

Thus, for Beetham, the core requirements for legitimate governance are: (1) *conformity* to established rules (written or unwritten), (2) the *justifiability* of rules with reference to beliefs shared by both the dominant and subordinate parties about the rightful origin of authority, the qualities needed to exercise power and the common interest in a governance system, and (3) the evidence of there being *consent* by the subordinate to that particular power relation (Beetham, 1991, 15-18). Power is exercised legitimately to the extent that these three conditions are met. Scholars have pointed out that the evidence of such consent can often be elusive, especially in complex governance systems, and the sufficiency of such evidence can also be difficult to determine (Buchanan, 2002). Instead, in advancing a more normative account of legitimacy, Buchanan contends that there should be a moral justification of a dominant group to wield political power. He argues that the inequality of power relations between dominant and subordinate parties is legitimate when every person has an equal say “in determining who will wield the power and how it will be wielded” (Buchanan, 2002, 710), at least concerning the most basic rules. Democratic governance is one means by which actors in a governance system can have such an equal say and participation.

However, scholars differ on how direct or deliberative such participation should be, and if it is the quality of the democratic procedure (e.g., perceived fairness) or the quality of
its substantive outcomes or a combination of both that determine legitimacy (Peters,
2023).

While traditional legitimacy scholarship has focused on the authority of the
state, recent research has begun extending this discourse to encompass non-state
institutions (Sadurski, Sevel, & Walton, 2019), such as international organisations and
corporations, as they are increasingly able to exercise *de facto* power and authority
without subordinate groups being able to express consent for these asymmetrical power
relations. Consider the setting of technical standards for the Internet by ICANN. To
avoid allegations of lacking legitimacy, ICANN transitioned to multi-stakeholder
governance (Jongen & Scholte, 2021), as it helped introduce greater justifiability of its
decision-making and accountability to the diverse global stakeholders of the Internet.

To increase their perceived legitimacy and reduce potential conflicts, global
governance organizations regularly engage in *self-legitimation* practices (e.g., UN
Department of Peace Operations). This can involve leaders convincing other individuals
within these organizations (e.g., staff) of the organization's legitimacy by highlighting
the values and beneficial qualities of the organization, or leaders constructing optimistic
narratives to reassure themselves of the organization's legitimacy (Christian, 2024).

## 2.2. *Theorising the role of legitimacy in blockchain-based systems*

The discourse on legitimacy typically centres on states and centralised
institutions, but Beetham's criteria for legitimate governance—*conformity, justifiability,
and consent*— can also be applied to assess the legitimacy of blockchain-based systems.
First, *conformity to established rules* is easily achieved to the extent that a blockchain
network is operated through a consensus mechanism that requires all participants to
adhere to the established protocol rules, referred to as a blockchain's *on-chain*
governance. On-chain governance refers to the rules that have been implemented into
the blockchain protocol, and whose enforcement is guaranteed by the underlying blockchain infrastructure. Second, the *justifiability of rules* with references to shared beliefs relates to the extent to which the blockchain protocol complies with the principles and beliefs of all network participants—in terms of e.g., immutability, irreversibility, traçability and credible neutrality<fnref n="1" /> (De Filippi, Mannan, and Reijers, 2022). Consequently, within blockchain systems, the concept of legitimacy takes on distinct nuances, intertwining technical protocols with socio-political dynamics.

Indeed, blockchain governance cannot be fully understood without regard to the social norms and rules that exist *off-chain*. This is because the justifiability of enacted decisions, the success of community forks, or even the monetary value of crypto-tokens ultimately relies on the active participation and governance dynamics of community members. As such, off-chain governance encompasses all the processes, norms, and rules which do not directly rely on blockchain-based code, including formal and informal processes of deliberation and power delegation. The justifiability of rules also depend on the social position and psychological traits of community members as it affects their willingness to accept existing or new power relations (Tyler, 2006). Third, *evidence of consent by the subordinate* is evidenced by the fact that public, permissionless blockchains are grounded on voluntary participation: all network participants need to intentionally opt-in to using the network (De Filippi, Mannan, and Reijers, 2022).

Yet, there are also a number of limitations on the applicability of traditional conceptions of legitimacy to public, permissionless blockchain networks. Firstly, the possibility of coercion differs markedly between states and blockchain networks. States have the *ability* to coerce through their monopoly on power and the concept of

<footnote n="1">¹ Buterin (2020) defines “credible neutrality” as the characteristic of a system built and perceived as not discriminating for or against specific people.</footnote>
legitimacy is often used to justify this coercion. In contrast, public blockchain networks
are governed by “distributed consensus”, making it impossible for any one actor to
single-handedly coerce other actors in the network—be they miners, validators, users,
etc (De Filippi, Mannan, and Reijers, 2020).

Secondly, the argument that legitimacy requires the existence of a set of shared beliefs also presents difficulties in the context of blockchain networks, as they seek to be a *neutral* substrate for computation and transactions. As a result, protocols like Ethereum act as a broadly shared foundation on which diversity and pluralism can flourish (Buterin, 2020)—with applications ranging from socially-grounded community currencies and mutual credit systems, to more speculation-driven protocols like Decentralized Finance (DeFI). This means the only shared set of beliefs that can be encoded within a particular blockchain protocol are the technological guarantees that ensure the proper operation of the blockchain network as a ‘confidence machine’ (De Filippi, Mannan, and Reijers, 2020), as opposed to the social or political beliefs of the users interacting with these networks.

These distinguishing features do not diminish the importance of legitimacy for
blockchain governance. On the contrary, the lack of coercive authority, and the ability
for people to easily opt-in and out of a blockchain-based system, is why Buterin
described legitimacy as one of the most important resources for the long-term
sustainability of these systems (Buterin 2021).

2.3. *Grappling with illegitimacy: exit, voice and loyalty in blockchain systems*

In his seminal book, *Exit, Voice, and Loyalty: Responses to Decline in Firms*,
Hirschman (1970) investigated how people respond to dissatisfaction, potentially due to
perceived illegitimacy within organisations. He identified two responses undertaken by
dissatisfied people: “exit”, when an individual decides to leave the organisation; and
"voice", when an individual provides feedback to impact the organisation. Beyond 'exit' and 'voice', Hirschman highlighted the crucial role of "loyalty" as a third response to organisational decline, which consists in people staying within the organisation, despite their apparent dissatisfaction with it.

Hirschman's conceptual framework remains foundational in understanding how individuals navigate choices and express dissatisfaction, even in the realms of online platforms and digital communities. Indeed, on the Internet, where users can voice their opinions on social media, and potentially exit from one platform to another, Hirschman's concepts of *exit* and *voice* take on a new significance. Yet, *loyalty* also plays a crucial role in the digital realm, as a modulating factor that reduces the incentives for people to exit and potentially increases the incidence of voice.

### 2.3.1 Exit

Within Hirschman's work, exit has been described as a choice made by consumers, workers, and citizens to signal their dissatisfaction with an organisation or state by departing from them. Exit alerts leaders about their failings, giving them the opportunity to correct their actions (Hirschman, 1970). However, exiting an organisation can have significant costs for the exiter: there may be no suitable alternatives, exit can be expensive, or bureaucraticly complex. In the contemporary context of centralized metaverse platforms, the lack of data interoperability with other platforms and suitable alternative platforms, makes exit a difficult and costly option.

The relationship between exit and legitimacy is fundamentally about threshold effects—users typically exit when perceived illegitimacy reaches a level that outweighs the costs of departure. Rather than viewing legitimacy as a binary state, it is more productive to understand legitimacy and illegitimacy as existing on a continuum, where governance systems can exhibit varying degrees of legitimacy across different
dimensions (e.g., meeting one of Beetham's three conditions, not all). As perceived illegitimacy increases along this continuum, the likelihood of exit correspondingly rises, though this relationship is mediated by the specific costs and alternatives available to users.

In the context of blockchain based metaverses, “exit” is arguably significantly less costly than in centralised metaverse platforms for two reasons. Firstly, because in-metaverse assets such as wearables are usually tokenized on a blockchain. Consequently, if and when a user decides to exit a blockchain-based metaverse, they have the opportunity to sell their metaverse assets on secondary markets. This stands in contrast to centralised metaverse platforms, which often introduce restrictions on the types of assets that can be sold back and to whom they can be sold. This type of market regulation significantly reduces the size and opportunities of the secondary market.

Secondly, central to the governance of blockchain-based platforms is the concept of ‘forking’, which allows participants dissatisfied with a particular platform to create a new one, more aligned with their preferences. When it comes to assessing exit costs, an important distinction must be made between forking in the context of traditional open-source projects, and forking in the context of blockchain networks (Berg & Berg, 2017). In the context of open-source platforms that do not rely on blockchain technology, forking typically involves creating a new and interoperable version or branch of the software codebase. Despite the creation of a new version, users and developers can still communicate, share resources, and even merge changes between the original and forked projects (Viseur and Charleux, 2021). As a result, the exit costs tend to be relatively low, as users retain the option to switch between different versions (Charleux et al., 2022).
In the context of blockchain systems, forking typically results in the creation of a new and separate blockchain network, or a new smart contract deployed on the same network. In both cases, this will result in the emergence of two divergent systems, each with their own digital assets or native tokens that are not readily exchangeable with one another. This lack of interoperability can increase exit costs relative to open-source projects, as users may need to navigate complex processes, exchanges, or conversions to transition between ecosystems. Additionally, the value of blockchain tokens can further amplify exit costs. Users who hold significant amounts of tokens in the original system may be hesitant to exit due to concerns about potential losses in token value, or difficulty in liquidating their holdings as a result of forks increasing market fragmentation.

Nonetheless, the *threat* of being able to seamlessly fork a project brings the question of legitimacy to the forefront and may explain why the concept has been gaining traction in the blockchain industry discourse (Buterin, 2021). As forking entails a replication of the overall system, the threat of ‘exit and loss’ that keeps users on traditional centralised platforms becomes weaker. This underscores the need for legitimacy: blockchain platforms must maintain sufficient legitimacy to prevent mass exodus, as even moderate increases in perceived illegitimacy can trigger cascading departures when exit costs are low. Sufficient dissatisfaction with the governance of an online platform could lead to an exodus of the user base towards alternative platforms—including those stemming from a fork—compromising network effects.

Thus, the ease of exit in blockchain systems paradoxically makes legitimacy maintenance more critical, as platforms operating closer to the illegitimacy end of the spectrum face greater existential risks than their centralized counterparts.
### 2.3.2 Voice

Hirschman's framework views voice "as any attempt at all to change, rather than to escape from, an objectionable state of affairs" through individual or collective appeals, protests, and petitions (1970, p. 30). This is an important complementary redress mechanism to exit, particularly in contexts where exit is unavailable or excessively costly (Hirschman 1970). Voice can also serve as an alternative to exit, with individuals deciding to postpone exit because they consider voice a more effective redressal mechanism (Hirschman 1970).

Voice emerges when users perceive governance channels as accessible and potentially effective, particularly when they have invested significant time, resources, or social capital in the platform. On contemporary centralized platforms, voice can be expressed by users through complaints, content moderation requests, and even virtual protests against the actions of the platforms on social media. In blockchain-based systems, voice manifests through formal governance voting, community forum discussions, developer communications, and coordinated social media campaigns - as seen in major governance disputes like Ethereum's transition debates or Bitcoin's scaling controversies.

While exit-based mechanisms are available by design in all blockchain networks, the intentional integration of voice-based mechanisms may play a crucial role in attracting and retaining users to the system because of its perceived legitimacy. In terms of Beetham's three-part criteria, these mechanisms can help the communities within a blockchain-based systems to cultivate, contest and justify shared beliefs (if any), as well as indicate consent for the power relations within that system.
### 2.3.3 Loyalty

Loyalty, according to Hirschman (1970), emerges when individuals choose to remain committed to the organisation despite their dissatisfaction, often in the hope of effecting positive change from within. Three factors influence the type of loyalty participants may choose to express: organisational factors, such as culture and governance styles, situational factors such as the degree and significance of dissatisfaction, and individual factors such as personal predispositions and preferences.

Loyalty in blockchain contexts often emerges from ideological alignment with decentralization principles, substantial token holdings that create switching costs, or deep community relationships that transcend immediate economic interests. For example, users may continue participating in governance despite poor short-term returns, or maintain token positions through market downturns based on long-term conviction rather than financial logic.

In most cases, loyalty must be inferred from contextual contingencies. For instance, loyalty may express itself in users opting to continuously exercise their voice to address ongoing illegitimacy, or it can be inferred through long-term participation in a network, consistent token holding, or engagement with governance processes, even in the absence of vocal or active dissent. Participants who remain despite challenges, such as technological flaws or market volatility—or most relevantly for our article—the perceived illegitimacy of the system, could be showing loyalty to the values or mission of the blockchain system. The loyalty could be contextual, tied to the strength of the community or the belief in the eventual success of the project, rather than an immediate, tangible return. Importantly, loyalty needs to be distinguished from simple self-interest: “For a meaningful concept of loyalty to an organisation, we need to have some degree of contradiction between one’s self-interest and the interest of the organisation.” (Rosanas & Velila, 2003, p. 53). Consequently, to determine the existence
of loyalty, it is important to evaluate members' actions against their individual
self-interests. In fact, only when members continuously exercise their voice or remain
silent in the face of ongoing illegitimacy, *despite* their own self-interest, can we observe
loyalty with certainty. We use the term *performative loyalty* to describe instances where
this contradiction is not clearly given, but actors nonetheless act ostensibly loyal. In
decentralised systems, loyalty is a subtle but critical force that sustains the system
through periods of instability, though distinguishing genuine loyalty from mere inertia
or switching costs remains a key analytical challenge.

3. Methodology

To construct our case study of Decentraland, we drew on publicly available
materials, collected between December 2021 and July 2024 from Decentraland's
website, blogs and documentation, as well as from proposals in the Decentraland's
governance forum. Furthermore, we drew on data gathered from three dedicated online,
semi-structured focus groups conducted between September 2021 and April 2022.
Online focus groups are a well established methodology for collecting qualitative data
across a broad variety of topics (Stewart and Williams, 2005). Generally, the strength of
focus groups lies in bringing people together to gain insights on particular experiences
and beliefs which emerge from the participants' interactions. As such, the understanding
and data that can be gained through focus groups goes beyond survey data or
one-on-one interviews (Guest, Namey and Mitchell, 2013). A focus group discussion is
thus well suited to our goal of uncovering the underlying and sometimes conflicting
beliefs and notions surrounding governance and legitimacy in Decentraland.

The focus group participants were recruited on behalf of the research team by an
active Decentraland community member and via Discord. Members were identified and
selected due to their involvement in and knowledge of Decentraland (e.g., individuals
acting as leaders or developers in various Decentraland initiatives such as Districts, or
those who were particularly active in Decentraland's forum and Discord chat) as well as
their willingness to participate. Given the focus on participants' extensive involvement
in Decentraland, our insights cannot be taken to represent the beliefs of 'regular users'
who may simply roam around Decentraland without a substantial interest in its
long-term future. Furthermore, our participant selection was not sensitive to the group
demographics (including gender, race, nationality, etc.) as our recruitment process
predominantly consisted of interacting with participants' pseudonymous avatars, which
many Decentraland participants rely on to protect their privacy. Our aim was to recruit
between 6 to 12 participants as previous research indicates this being an ideal size for a
focus group (Woodyatt, Finneran and Stephenson, 2016). While conducive to leading a
focused discussion and revealing insights from prominent actors in Decentraland, our
sample is not representative of the thousands of users and stakeholders in Decentraland.

The focus groups were structured to probe more directly into participants'
understanding of (1) the notion of legitimacy, (2) if and to what extent different
stakeholders within the Decentraland ecosystem are perceived as legitimate and (3) the
legitimacy of Decentraland's governance system as a whole. Throughout our focus
groups we aimed to also understand how participants responded to instances of
perceived illegitimacy. This was supplemented with an analysis of the data gathered
from desk research, where among other things we sought to understand the
self-legitimation practices within the Decentraland community. We now turn to our case
study and main findings on the function of legitimacy in Decentraland.
4. Case Study: Decentraland

<figure><img src="image_2.png" /><figcaption>Fig. 1: Two of the authors of this article in Decentraland, in front of the BlockchainGov office (January 2022)</figcaption></figure>

In Decentraland, users come together as avatars to do anything from attending parties, to playing in casinos, exhibiting art in virtual galleries, and hosting educational formats. Decentraland's economy, which consists primarily of three different types of blockchain-based tokens (LAND, MANA, and NAMEs), underpins various activities conducted within the metaverse. LAND are a set of 90,000 non-fungible tokens, representing plots of virtual land in Decentraland, which itself is rendered as a two dimensional finite grid. Each LAND token represents ownership rights over 16 x 16 virtual metres of land.
<figure><img src="image_3.png" /><figcaption>Fig. 2: Worldview of the Decentraland virtual world's map</figcaption></figure>

Ownership of LAND tokens confers special rights, such as the ability to develop ‘scenes’, i.e., three dimensional structures within the specific virtual location associated with the corresponding LAND token. NAME, another non-fungible token, functions as an identity system and allows users to publish private scenes. MANA is Decentraland’s native currency which can be used to transact within the metaverse or be exchanged for LAND and NAMEs. Today, LAND, MANA and NAME can be purchased on various secondary markets at prices that have fluctuated considerably over recent years.

MANA was launched a month after Decentraland was announced in a whitepaper published in July 2017 (Ordano et al., 2017). The private keys, which would be required to modify the smart contracts underpinning MANA, were destroyed after MANA's initial issuance, thus capping the currency's supply at 2,805,886,393 MANA. Decentraland's 'terraforming' event, during which a total of 43,356 parcels of LAND were auctioned off, took place once in December 2017 and again in December 2018.
Although holders of LAND could not initially do much with their tokens, an active
community began emerging around the terraform events, many of whom began to
coordinate around particular visions for Decentraland. Practically, 36,041 parcels of
LAND were pooled together to create thematic Districts, large adjacent areas of
individual LAND parcels that are held and controlled by a single entity. Several of these
districts are legally registered as off-chain corporate entities (e.g., LLCs) that operate
according to their own internal rules.

The money raised from conducting the MANA token sale in 2017 was used to endow the Decentraland Foundation, a non-profit organisation dedicated to advancing the open-source platform's core development and holds intellectual property rights in various technologies supporting access to Decentraland, such as the reference client software.

While the Foundation remains the major legal entity overseeing Decentraland's
development, a community-driven Decentralised Autonomous Organization (DAO) was
created to govern Decentraland itself. A DAO is a particular type of smart contract that
implments its own tokens and governance structure, and is generally used to govern
blockchain-based assets or infrastructures in a distributed manner. In the case of the
Decentraland DAO, holders of MANA, NAME and LAND can vote in the DAO to
make decisions about issues such as changing parameters in the smart contracts
underpinning LAND, banning offensive NAMEs or issuing grants out of a community
treasury. The decision making process begins with a member posting a proposal on a
dedicated forum, which is then discussed on the forum and other community chat
platforms before being put to a vote. To pass, a proposal needs to reach a specific
quorum of voting power (VP)<fnref n="2" /> and threshold of 'yes' votes. Here, different tokens

<footnote n="2">² 'VP' as an abbreviation for 'voting power' is adopted from Decentraland's documentation and used here in alignment with Decentraland's social conventions.</footnote>
confer different VP; specifically 1 LAND = 2000 VP, 1 NAME = 100 VP, and 1 MANA = 1 VP. Once a proposal passes, it is executed on-chain by three elected members who form the DAO committee.

There are other bodies that complement the activities of the DAO. For instance, the Security Advisory Board, composed of five technical experts, oversees the actions of the DAO committee, ensuring that the decisions they enact do not compromise the security of the LAND and Estate smart contracts. The board is accountable to the Decentraland DAO, as members are elected by the DAO and can at any point be replaced by the DAO.

Overall, Decentraland's governance has evolved into a complex socio-technical structure which comprises a variety of assets, forums to express voice and different centres of decision making.

**5. Findings: Legitimacy and Illegitimacy in Decentraland**

In this section we explore our hypothesis that legitimacy is an important precondition for loyalty, and thereby the adoption and maintenance of open, decentralised platforms like Decentraland.

**5.1 The significance of legitimacy in Decentraland**

Firstly, our focus group participants stated that they found the operations and governance of Decentraland to be legitimate because the founders and the Decentraland Foundation continued to actively devolve power. As one focus group participant explained, Decentraland was legitimate in keeping with its original vision: "it's structured pretty much as the white paper said it would be, so in that sense I think the DAO has high legitimacy, whether it will continue to feel legitimate has a lot to do with how people behave around it." Although some participants pointed towards various
challenges to the legitimacy of the Decentraland Foundation, such as its outsized role in core technical developments and the fact that the bylaws and other aspects of the Foundation are not public, for the majority, the participants believed that the Foundation's power was legitimate. Participants reiterated that the Foundation's legitimacy was justified by the fact that it continued to deliver on its promises and the Foundation's members were respected due to their role in founding Decentraland and in maintaining the core technology. This belief in the legitimacy of the Decentraland Foundation and Decentraland DAO can at least in part be interpreted as a form of self-legitimation (Christian, 2024), where powerful actors appeal to higher values and commitments to rationalize and contextualise the failings of the governance system to achieve beneficial outcomes (e.g., rapidly deteriorating popularity and market value of Decentraland).

Secondly, the example of the Aetheria District demonstrates the importance of building legitimacy for powerful actors. Aetheria, Decentraland's cyberpunk district, holds 10% of all LAND parcels in Decentraland, resulting in over 20 million VP. As such, there is a risk that Aetheria will use its outsized voting power to serve their own self-interest or undermine the decentralized nature of Decentraland's governance. Yet, our focus group participants shared that Aetheria has always voluntarily abstained from using its voting power to sway the outcome of governance proposals in order not to damage the perceived decentralisation of Decentraland's governance. Aetheria's governance power is also significant in the overall context of Decentraland as, at the time of writing, 18 wallets held by various Decentraland members control over 56 million VP, approximately 62% of total VP in Decentraland (see figure 3). Instead of voting, Aetheria uses other deliberation channels to express their voice. This voluntary abstention from using their voting power can be interpreted as a self-legitimation
practice, as it seeks to convince other actors in Decentraland that it upholds the shared
norms of Decentraland and preserves the shared belief that Decentraland's governance
is decentralized.

<figure><img src="image_4.png" /><figcaption>Fig. 3: Screenshot of the Decentraland DAOs transparency dashboard on the distribution of VP
(September 2024)</figcaption></figure>

Building legitimacy appears to be important in decentralized metaverses for
achieving network effects. Attracting and maintaining users in Decentraland is
important for the metaverse to achieve its vision of shared sociality, i.e., more users
increase the overall utility for each user on the platform. However, building network
effects in Decentraland clearly also matters for economic reasons. For the usage of the
platform to grow there needs to be a market for MANA, LAND and NAME tokens, in
addition to a potential customer base for in-metaverse commercial activities. Based on
past experience, it is arguable that actors with large token holdings such as Districts and
the Decentraland Foundation will thus have an economic incentive to maintain
legitimacy and thereby strengthen network effects to draw token-holders and users to
the platform. This creates a mutually reinforcing dynamic where self-legitimation by
powerful actors within Decentraland helps to sustain the conditions that foster genuine
loyalty among ordinary users.

## 5.2 Grappling with Illegitimacy in Decentraland

### 5.2.1 Exit

As discussed in section 2.3.1, exit can be a mechanism for actors to signal their dissatisfaction with the legitimacy of a governance system and based on the declining value and user engagement with Decentraland, it is an option that has been utilised.

Through our empirical research, we found that whether dissatisfaction with the current operations of Decentraland prompts users to stay or exit the platform depends on the type of user they are. The costs of exiting this distributed metaverse platform is low for most people. To enter Decentraland, roam around and then exit the platform does not entail the need for a wallet, tokens or specific costs to ordinary users. Furthermore, MANA token holders can readily sell their tokens on major cryptocurrency exchanges.

Thus, it is relatively trivial for such a user to express their views on whether Decentraland's governance is legitimate or illegitimate by exiting. Indeed, as DCL metrics (a dashboard maintained by the Decentraland community) shows, the number of unique users has dropped significantly from more than 25000 unique daily users in early 2022 to only around 600 unique daily users in late 2024 (Decentraland, 2024a). In the same timeframe, the volume of MANA tokens traded also dropped from almost US$400 million to only around US$30 million (CoinGecko, 2024), suggesting that trading activity has decreased significantly as the use of Decentraland declines. However, as the price of MANA has fallen from its peak of US$5.22 on 24 November 2021 to US$0.34 on 1 July 2024 (CoinDesk, 2024), large MANA token holders may incur significant financial loss if they were to sell their tokens today and might thus decide to simply
hold their tokens for the time being. The costs of exit are thus significant for users who hold large quantities of MANA. The same is true for individuals who hold LAND parcels or those who operate businesses in Decentraland.

For LAND holders in particular, exit costs are higher to the extent that they may have difficulty in re-selling LAND parcels that they purchased at a high price during the peak of interest in virtual real estate in 2021-2022 for a comparable price. For instance, in 2021, Tokens.com purchased a plot comprising 116 LAND parcels for the equivalent of EUR 2.49 million (equivalent to an average of EUR 21,465.5 per parcel), whereas today the price of many LAND parcels are in the hundreds of Euros (Decentraland, 2024b). In short, exit costs are now higher and LAND holders may thus refrain from incurring a substantial financial loss from selling their parcels—seeing them more as a long-term investment, for a time when the price of LAND might appreciate again.

Moreover, because of lack of interoperability amongst different metaverse platforms—including blockchain-based metaverses—the ownership claim over these virtual land parcels cannot be transferred in another distributed metaverse, thereby preventing exit being a viable option.

Similarly, both business owners and creatives in Decentraland have sunk costs in the investment they made towards this particular metaverse platform, which can increase perceived exit costs. A business operating on Decentraland, and its associated assets, cannot be seamlessly transferred or copied over to another existing distributed metaverse as there is currently no interoperability between platforms. Consequently, if they were to exit, business owners could stand to lose all of the digital assets that they have accumulated thus far, unless they manage to sell them to another party.

In theory, the option to fork Decentraland is possible as the codebase can be copied in order to impart changes to specific features and rules to make them more
appealing to some of the groups mentioned above. However, as we learned from focus
groups participants, forking Decentraland is not a popular option. Participants warned
that forking would split the community, and while some participants may be initially
enthusiastic about the endeavor for ideological reasons, if that enthusiasm is not
sufficiently sustained, the adoption of the newly formed Decentraland would suffer.

Overall, we find that exit as a response to perceived illegitimacy in Decentraland appeals differently to different groups of users. Those with relatively low stakes in Decentraland clearly experience minimal negative repercussions from exiting Decentraland. Thus, from the perspective of Hirschman’s exit, voice and loyalty framework, declining user rates and MANA price may be interpreted as a result of users’ dissatisfaction with the legitimacy of Decentraland. However, users with more significant token holding or who have invested time, skill and money in Decentraland and build in-world businesses, seem less inclined to exit or fork the platform. For these actors, the governance signal of exit when confronted with illegitimate governance has to be weighed against the potential costs.

5.2.2 Voice

If exit is not a choice for some Decentraland users, exercising voice becomes
particularly important for challenging illegitimate governance. In light of the initial
vision of Decentraland eventually becoming fully community-governed, there are
several ways in which users can exercise their voice today. In addition to submitting and
voting on governance proposals, users can engage in deliberation on pertinent topics
with other users in-world and on the public governance forum. They can join
Decentraland's active Discord server, attend virtual town hall meetings and real-world
meetups, launch petitions, or share their views on social media.
The use of voice also has an important function in cultivating social norms that are integral for justifying the rules in Decentraland. This includes foundational values of immutability and anti-censorship that are common in many blockchain communities (Wahrstätter et al., 2024). For instance, some participants have submitted proposals for LAND parcels to be expropriated under certain conditions: while technically possible, other participants have heavily criticised this approach under the ground that it would set a “dangerous precedent” (Decentraland Forum, 2023a) against immutability and the exercise of unilateral control by a person or body (e.g., by the DAO Committee).

Overall, our research reflects that Decentraland's governance system afforded members many different formal channels to exercise their voice. Voice is used both to contest proposals that are perceived as unsatisfactory (and in some cases illegitimate), as well as a means for the community to deliberate and clarify shared norms, which in turn serve as a backdrop against which users can evaluate the legitimacy of actors, governance mechanisms and outcomes in Decentraland. As with blockchain communities elsewhere (Mannan, De Filippi, & Reijers, 2024), these norms are gradually being articulated explicitly, e.g. through the elaboration of a new Code of Ethics for the Decentraland DAO. This document not only reaffirms the importance of norms like anti-censorship, it also endorses good governance practices that are non-coercive, such as encouraging governance participation and disclosing potential conflicts of interest.

### 5.2.3 Loyalty

Some of the actors within Decentraland appear to demonstrate commitment by acting against their own private self-interest, in favour of the overarching interest of Decentraland. The case of Aetheria, introduced in section 5.1., purported to demonstrate a form of *loyalty* by voluntarily choosing not to use their considerable voting power in
the governance of Decentraland, even when it may occasionally be in their self-interest to do so. Instead, this district opts to uphold the higher ideal of preserving the (pretence of) decentralisation in Decentraland.

However, as blockchain-based metaverses necessarily have a token ecosystem, there can always be questions about whether members' actions are purely selfless or are motivated by the future appreciation of token value. The perceived selflessness of the decision to not use their voting power may simply be due to having a different time horizon: sacrificing short-term financial gains for larger gains in the long-term.

In the context of our case study, it is impossible to show that users of Decentraland demonstrate a pure form of *loyalty*, as their actions might be motivated by ulterior motives. Instead, we often see instances of *performative loyalty*, where users demonstrate genuine commitment to the platform, but this commitment is intermingled with a degree of financial self-interest. This is clearly illustrated by the behaviour of certain community members of District X, a controversial district of Decentraland that was created in 2017 (Decentraland Forum, 2017), with support from the LAND contributions provided by 339 wallets for the purpose of developing a large-scale virtual red-light district. RobL assumed leadership of the district some time later, purposefully abandoning this objective and not issuing any financial statements or royalties to the contributors who thus felt aggrieved about the loss of virtual property and potential revenue. As the DistrictX leader, RobL single-handedly controls more than 4 million VP, which—as the participants of the study group have described—he has used to downvote several proposals over the years. As one user on Decentraland's governance forum puts it: "Unfortunately we still have the issue of Districts (namely District X) often ruling or centralizing the votes" (Decentraland Forum, 2023b).
This has led to some community members petitioning for the abrogation of RobL's voting power. One particularly aggrieved user vented that "RobL needs to hand the District land back to the community. He has a questionable legal claim and no ethical right to attempt to use the land or sell it, as he has attempted to do multiple times" (Jar0d, 2023). This complaint built on an earlier proposal to return the LAND allocated to District X to the original contributors (Decentraland Proposal, 2021). The absolute majority (68%) of votes supported transitioning complete ownership of the District to the Contributors, however, as the proposal was submitted as a "poll" rather than as an actual proposal, there was no clear avenue for enforcement. A change.com petition had also been launched, attracting 44 signatures, arguing that "RobL has assumed leadership of the District without holding either mandate or legitimacy" and calling for his removal (Decentralised Anon, 2021) (see figure 4).

<figure><img src="image_5.png" /><figcaption>Figure 4: Change.com Petition to Change District Leadership of District X</figcaption></figure>

This shows how many Decentraland users affiliated with District X are displaying a type of *loyalty* that is essentially *performative*, in that it seems not only motivated by a particular ideal or emotional attachment, but also by economic interests. The users who continuously exercise their disagreement with RobL are potentially
doing so to further the ultimate interest of the platform (i.e., by preventing the
emergence of a dominant actor), but also—and mainly—in order to further their own
financial and political interests. Ultimately, if these petitioners and protesters are
successful, they will benefit from receiving their LAND and voting power back. This is
akin to the performative nature of loyalty in the context of corporate governance in the
United States, where directors exercise loyalty towards their corporation and
shareholders as a class, due to their self-interest in complying with legal duties (i.e., the
fiduciary duty of loyalty) and receiving financial incentives (e.g., executive stock
options) (Kraakman et al. 2017). In other words, legal strategies and governance
mechanisms are designed to give the appearance of loyalty, rather than a voluntary and
selfless subordination of their personal interests in favour of the corporation or
shareholders. Observing performative loyalty does not preclude the possibility that
actual loyalty is at play, however it makes it hard to distinguish between selfless and
selfish acts. This issue is particularly pertinent in the case of Decentraland and other
blockchain-based metaverses where the appearance of loyalty can never be entirely
disentangled from members' economic self-interests.

Conclusion

The examination of legitimacy and loyalty in decentralised systems is crucial because these platforms face a fundamental governance paradox: they must maintain user commitment and participation without traditional mechanisms to retain or coerce users. Unlike centralized systems where users face high switching costs because of a lack of interoperability and data portability across different services, decentralized blockchain platforms notionally offer more affordable exit opportunities because of asset portability and forking capabilities. This creates an environment where loyalty and legitimacy become the primary mechanisms for user retention, making the
legitimacy-loyalty relationship particularly consequential for decentralized platforms'
viability. This is not only significant for Decentraland, but other newer
blockchain-based virtual worlds.

In this article, we found that in contrast to our hypothesis that legitimacy is a precondition for loyalty, in decentralised systems, legitimacy and loyalty are mutually reinforcing. While legitimate governance may cultivate loyalty among ordinary users, we found that powerful actors engage in self-legitimizing practices and performative loyalty to generate network effects and preserve the economic value of the platform.

Our analysis confirms that self-interest prevails in these systems, making the relationship between loyalty and legitimacy more complex than initially theorized, as different actors exhibit different motivations for their continued participation. The causal relationship between loyalty and legitimacy operates differently across user types, depending on the extent of their MANA and LAND token holdings. Specifically, while ordinary users may develop genuine loyalty in response to legitimate governance, in contrast, powerful actors and economically invested users may engage in strategic behaviour that mimics loyalty to create the perception of legitimate governance. This is done primarily to serve economic purposes. In some instances, powerful actors may be performatively loyal and downplay threats to the legitimacy of Decentraland through self-legitimisation practices, preferring to present the image that Decentraland has legitimate governance to avoid risks of potential depreciation of their token holdings.

Overall, those with a significant stake have less incentive to respond to illegitimacy through *exit* or *voice*, opting for performative *loyalty* instead. This is not to say that performative loyalty is incompatible with legitimate governance altogether. As we have argued in section 2.2., acting according to rational economic self-interest is part of the central operating philosophy of blockchain-based systems, with the logic of
self-interest underlying the tokenomics and consensus mechanism design that enables
the coordination of collective action without requiring coercion. To the extent that the
dominant actors in Decentraland conform to established internal rules, there is
justification of these rules, and there is some evidence of consent by subordinate actors
to existing power relations, Beetham's three-limb criteria for legitimate governance is
met (see section 2.2).

Future research may try to confirm and expand our findings regarding the
behaviour of powerful actors in decentralized systems engaging in performative loyalty
and self-legitimization practices. Such research may also try to correlate such behaviour
with the markets accompanying blockchain applications. Furthermore, as our focus
groups predominantly engaged leaders and highly invested individuals, future research
may also try to further evaluate the interplay between legitimacy and loyalty from the
perspective of ordinary users. Overall, we hope that such research can contribute to the
sustainability of decentralized virtual worlds.
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