Analysts at DappRadar and Monday Capital have analyzed the distribution of governance tokens in the major Decentralized Finance (DeFi) protocols and concluded that most of them remain very centralized.
The report analyzes DeFi projects MakerDAO (MKR), Curve (CRV), Compound (COMP) and Uniswap (UNI).
Analysts noted that the Maker control system is the most distributed due to the project's longer existence.
However, the actual voting process is most likely controlled by the big holders, as the top 20 addresses only account for about 24% of the total supply.
The main holders of Compound tokens are venture capitalists and the development team. The total supply is strongly biased towards the top 20 addresses.
At Curve, almost 90% of the offer is controlled by 20 addresses. At Uniswap, which is accused of having an opaque token distribution process, 20 addresses control 48% of the supply.
Researchers have identified three main reasons that led to this centralization. First, users view governance tokens as profitability rather than a voting tool. “Protocols started using their governance tokens as 'rewards' for users. A good idea in theory (control goes to those who use the product), but in reality financial incentives were stronger than management incentives, ”analysts write.
The second problem is that these systems are designed as plutocracies, where decisions are made by a group of wealthy investors. There is no minimum participation requirement that can provide “sufficient decentralization,” and large original holders influence all decisions.
Finally, the initial distribution plays a key role in centralizing management, so the venture capitalists of a project will often own a large number of tokens.