The European Central Bank published a working paper on March 26 examining governance structures across four major decentralized finance protocols: Aave, MakerDAO, Ampleforth, and Uniswap. The paper finds that despite governance tokens being distributed across tens of thousands of wallet addresses, the top 100 holders control more than 80% of the total supply in each of the four protocols. The findings raise significant questions about whether these systems are as decentralized as commonly portrayed.
Drawing on token holding snapshots taken in November 2022 and May 2023, the authors determined that a substantial portion of governance tokens could be traced to the protocols themselves or to centralized and decentralized exchanges. Binance was identified as the largest centralized exchange holder across all four protocols. The paper notes it is not possible to determine from public data alone whether protocol-linked holdings belong to founders, developers, or treasuries, or whether exchange wallets are casting votes on behalf of customers or their own positions.
The paper also examines actual voting behavior, finding that the most active participants are largely delegates who exercise voting power passed on from smaller token holders. In Ampleforth, the top 20 voters control 96% of delegated voting power, while the top 10 voters in MakerDAO hold 66% of delegated votes, and the top 18 in Uniswap account for 52%. Roughly one-third of the most active voters cannot be publicly identified, and among those who can, the largest groups are individuals and Web3 companies, followed by university blockchain societies and venture capital firms.
The authors argue these findings challenge the assumption that decentralized autonomous organizations, or DAOs, are inherently decentralized, with implications for regulatory efforts. The paper specifically references the European Union‘s Markets in Crypto-Assets Regulation, known as MiCA, which currently excludes fully decentralized services from its scope. The concentration of governance power complicates efforts to identify clear regulatory anchor points, and the paper warns that the relevant anchor may differ from protocol to protocol and may require information that is not publicly available.
Kavi Jain, a senior research associate at Bitwise, told reporters that many large DeFi protocols are not as decentralized in practice as they may appear, particularly in earlier stages when a small group still holds meaningful influence over decisions. He pointed to a recent governance debate within Aave as an example of how voting power can remain concentrated among a limited number of participants even within a DAO structure. The paper’s catalogue of governance activity found that the largest share of proposals relates to risk parameters that shape each protocol’s overall risk profile.
The paper includes several methodological caveats, acknowledging that it does not capture the full scope of the DeFi ecosystem due to data limitations. The authors also stress that the paper reflects their own views and does not represent official ECB policy. Its conclusions echo earlier warnings from the Financial Stability Board and other bodies cited in the paper, which have cautioned that DeFi’s promise of removing intermediaries often conceals new forms of concentration and governance risk that can mirror, and sometimes exceed, those found in traditional finance.
Originally reported by CoinTelegraph.
