A Dominant Assurance Contract Example: One $100 Piece, Both Outcomes

Every crowdfunding site asks you to back projects. Ours asks something stranger: back this project, and if it fails, you come out ahead.

That reads like a trick until you run the numbers. So let’s run them, all the way through, both endings.

The setup

Maya is a musician. She locks a 4-track EP on Pieces with three settings:

• Funding goal: $100
• Deadline: 14 days
• Kickback: 10%

The EP is sealed. Nobody can hear it, copy it, or leak it, because it is not public yet. It unlocks for everyone only if backers put up the full $100 before the clock runs out.

Those three settings fix a fourth automatically. The bond pool on a Piece is capped at the kickback percentage times the goal, so this EP accepts exactly $10 of bonds: 10% of $100. A Piece never takes on more bonding than the kickback it can pay out.

Early in the campaign, two people who know Maya’s music decide to stand behind her and fill it. One stakes $6, the other stakes $4. They are not buying anything. They are betting, with their own money, that this EP will fund, and their stake is on the line if they are wrong.

Now the stage is set: a $100 goal, a filled $10 bond pool, and a ticking clock.

Ending one: it funds

Backers put up $100 before the deadline. The moment the last dollar lands, everything settles at once:

• The EP is released publicly. Backers wanted it to exist, and now it does, for everyone.
• The bonders are paid for being right. The 10% kickback comes off the top of the raise: $10, split pro-rata across the pool. Because the pool was capped at that same $10, each bonder’s share of the kickback equals their own stake: the $6 bonder walks away with $12, the $4 bonder with $8.
• Maya gets paid. $100, minus the $10 kickback she offered, minus a flat 3% platform fee on her share. She walks away with $87.30, before the EP has earned a single stream anywhere else.

Ending two: it falls short

Say backers only put up $60 by the deadline. The Piece fails, and the money flows the other way:

• The EP stays sealed. Forever. Not even Maya’s followers get it. Sealed means sealed.
• Every backer is refunded in full, plus the bonus. The $10 bond pool is forfeited and split pro-rata across the $60 of backing. If you backed $10, you get $11.67 back. You showed up for something that did not happen, and you still came out ahead. (The kickback percentage is the dial here: a bigger kickback raises the bond pool’s cap, making room for a bigger bonus for backers if the Piece falls short.)
• The bonders lose their stakes. They took a real risk and it did not pay. That risk is what makes the whole thing credible.

Why the numbers matter

On Kickstarter, backing early is the worst seat in the house. If the campaign stalls, your money sat frozen for a month and you got nothing for the trouble. So the rational move is to wait and see, and when everyone waits, campaigns die that everyone actually wanted. That is the free-rider problem, and it kills good work quietly.

The refund bonus deletes the reason to wait. Fund it and you get the work. Fall short and you get paid for showing up. There is no belief you can hold about a campaign’s chances that makes waiting the better move, which is why economist Alex Tabarrok, who proposed this mechanism in 1998, called it a dominant assurance contract: backing is the dominant strategy.

What Pieces changes is who pays the bonus. In Tabarrok’s design, the entrepreneur posts the bond themselves; on Pieces, the platform never pays it and the creator never has to. Bonders do, the people confident enough in the work to bet it will never need to be paid. (A creator can still choose to be one of them and bond their own Piece, which is the loudest confidence signal of all.)

One campaign, two endings, and nobody who backed it lost a dollar in either one. That is the entire pitch.

Want the full mechanism, step by step? Read how Pieces works, or get started on Pieces.