According to a joint report by think tank DappRadar and Monday Capital, most DeFi projects have a high degree of centralization due to the token distribution model.
The authors of the report stated that in the MakerDAO, Curve, Compound and Uniswap projects, tokens are unevenly distributed, which creates favorable conditions for large holders. The Maker control system is the most “mature”.
At the MakerDAO forum, community members can conduct a preliminary analysis and discuss the proposals that are put to the vote. The forum is open even to those who are not holders of MKR. However, the voting process in Maker can be controlled by large token holders. These include 20 addresses, where 24% of the total MKR volume is concentrated. However, analysts have concluded that compared to other projects, the distribution of tokens in Maker is the most equitable.
As for Compound, the main holders of COMP tokens were venture investors, team members and some projects, in particular, Dharma and Gauntlet. Only 2.3% of addresses have the possibility of delegation. This means that only this small part of the community can participate in project management, and if you exclude exchange addresses, this figure may be even lower. Similar problems arise in the Uniswap and Curve projects. In the case of Curve, one address controls 75% of all votes.
Analysts have named three main factors that contribute to the centralized management of DeFi projects. First, many users do not view their tokens as a voting tool, but use them to participate in profitable farming. Network members receive voting tokens as a reward. At first glance, the idea seems good – management goes to those who use the product. But in this case, material motivation becomes stronger than the desire to manage.
Second, such systems operate on the principles of plutocracy, where wealth determines power. This is due to the lack of minimum requirements for voting participants to ensure the necessary level of decentralization, and no one is able to compete with large token holders. Identifying participants in decentralized protocols is quite difficult, and plutocracy becomes the only method of governance.
Third, initial investments also play an important role in centralizing management. Venture companies and other investors often own large amounts of tokens, and for this reason other users lose interest in voting. Analysts have concluded that it is the distribution mechanisms that encourage centralized management, so the current result should come as no surprise.
According to MolochDao researchers, the transition to Ethereum 2.0 could put DeFi applications at risk due to reduced liquidity, which could also lead to centralization.
