We can give a few examples to illustrate the agency risk on the blockchain. Let's start with the best known in the industry, Bitcoin, where ideally, we would not have to rely on any third party to either preserve assets or transfer them. This is what many people refer to as the "sanctity of private property" guaranteed by cryptography. It is not without risk, for example, the code can be wrong (although it has been tested for 10 years, but not impossible), but the code is open source from the beginning, and this risk is fully disclosed and unmodifiable for everyone (except forks). More importantly, this process has no possibility for an individual or institution to have any influence on the transfer of BTC, and we can credibly complete peer-to-peer payments. This major technological innovation has completely changed the economic model of the past, bringing us to a new era of trusting algorithms rather than individuals.
In looking at another famous blockchain project USDT, the digital dollar issued on Ether. While USDT is on the blockchain, the system that guarantees the value of USDT is off-chain, i.e. a promise by the issuer, Tether, that each USDT is equal to one dollar. While Tether has done a lot to ensure this promise is valid, such as escrowing bank accounts, auditing, etc., for the whole process to be truly smoothly executed, we must trust Tether, the auditors, the custodian banks, etc. This is a big difference from BTC trusting the algorithm completely. Although blockchain is used, its value contains a huge proxy risk, and once Tether Inc. and others don't cash out, USDT becomes a string of code, not a dollar.
There is a special class of assets in the blockchain industry called platform coins, which reflect the value of a particular exchange platform in terms of fee waivers, transaction pricing, profit rebates, etc. This class of asset, such as BNB, serves as a token for the Binance platform, which, regardless of whether it uses blockchain technology, essentially contains the same huge agency risk as USDT, i.e., the Binance exchange can change, revoke, or even replace the value embodied in that token. What can we do? The only thing we can do is trust cryptocurrency.
In addition, there is a special class of assets, such as MakerDAO's stable coin DAI. Essentially, it is a stable option, a DAI generated through ETH collateral, an option based on ETH. It has a strict pricing formula, which is consistent with the design that we have in mind that there is no agency risk, only algorithmic risk. But the DAI also has a problem in that the price variable that determines its value-at-risk is artificially entered, and that price has no good validation mechanism, but is only entered from time to time through a few internal nodes, and we close positions based on the input prices of these so-called nodes. Obviously, this risk is not algorithmic, but requires trust that these nodes do not do evil or do not make mistakes. While Maker has a rollback mechanism, it again introduces the risk of trust in the rollback: who determines that a rollback is needed? On what basis can they be trusted?
Decentralized and agency risk
In the blockchain world, a complete value interaction process, as long as there is a link with agency risk, then it is actually different source from BTC, i.e., we still introduce human risk, not code risk. So, in the blockchain world, decentralized level and agency risk are two sides of one coin, different ways of expression, the former is an emotional description, and the latter is the rational definition. It is entirely appropriate for us to use de-agency risk to measure the degree of decentralization. Not only can we use it to judge the degree of decentralization of a system, but we can also dig out which areas of agency risk can be solved by blockchain, so that we can really enter the era of blockchain application.