DeFi, Not So Decentralized: The Measured Distribution of Voting Rights

Presenter Information

Tom Barbereau, University of LuxembourgFollow
Reilly Smethurst, University of LuxembourgFollow
Orestis Papageorgiou, University of LuxembourgFollow
Alexander Rieger, SnT - Interdisciplinary Center for Security, Reliability and Trust, University of LuxembourgFollow
Gilbert Fridgen, University of LuxembourgFollow

Location

Online

Event Website

https://hicss.hawaii.edu/

Start Date

3-1-2022 12:00 AM

End Date

7-1-2022 12:00 AM

Description

Bitcoin and Ethereum are frequently promoted as decentralized, but developers and academics question their actual decentralization. This motivates further experiments with public permissionless blockchains to achieve decentralization along technical, economic, and political lines. The distribution of tokenized voting rights aims for political decentralization. Tokenized voting rights achieved notoriety within the nascent field of decentralized finance (DeFi) in 2020. As an alternative to centralized crypto-asset exchanges and lending platforms (owned by companies like Coinbase and Celsius), DeFi developers typically create non-custodial projects that are not majority-owned or managed by legal entities. Holders of tokenized voting rights can instead govern DeFi projects. To scrutinize DeFi’s distributed governance strategies, we conducted a multiple-case study of non-custodial, Ethereum-based DeFi projects: Uniswap, Maker, SushiSwap, Yearn Finance, and UMA. Our findings are novel and surprising: quantitative evaluations of DeFi’s distributed governance strategies reveal a failure to achieve political decentralization.