The Prisoner’s Dilemma is a classic problem in game theory(branch of mathematics and economics), where two individuals decide whether to cooperate or betray each other without knowing what the other will do. It’s a thought experiment that highlights how self-interest can lead to worse outcomes for everyone involved, even when cooperation would have been better for all.
In Decentralized Finance (DeFi), the Prisoner’s Dilemma plays out in fascinating ways as users, liquidity providers, and protocols navigate trustless systems, balancing self-interest and collective benefit. Understanding how this dilemma applies to DeFi reveals why cooperation is crucial for decentralized systems to thrive — and how misaligned incentives can destabilize them.
Explanation:
Let’s say in a traditional setup :
Two prisoners are caught for a crime are interrogated separately. Each prisoner has 2 choices — Cooperate (stay silent) or Defect(betray the other).
The outcomes depend on their decisions:
1.Both cooperate — They get a light sentence
2.One defects, the other Cooperates — The defector goes free, and the cooperator gets a heavy sentence
