Report: Governance remains highly centralized on many DeFi projects

A new report jointly developed by DappRadar and Monday Capital analyzes the token distribution and governance proposals seen in major DeFi protocols.

Despite efforts to decentralize control in the yield farming phase, the researchers maintain that many projects - especially those with strong venture capital roots - remain highly centralized.

The analysts noted that Maker governance appears to be the most mature of all, owing to its longer existence.

For Compound, researchers noted that the leaderboard of COMP holders primarily includes venture capitalists, team members and some other blockchain projects - notably Dharma and Gauntlet.

Thus, only a small portion of the community is engaged in governance, and the true percentage is likely even lower given the presence of aggregated exchange addresses.

Curve and Uniswap have similar issues, with the former featuring a single address apparently holding 75% of the voting power, while the latter is suffering from scandals and allegations of governance takeover by insiders.

"Protocols started using their governance tokens as 'rewards' for users participating in the network. Although the idea sounds nice - governance goes to those who use the product - in reality the financial incentives have been stronger than the governance incentives."

It is worth noting that there is no easy way of proving an identity on-chain, making plutocracy the only practical mechanism of governance so far.

Lastly, researchers noted that initial investment plays a large role in centralizing governance.

Venture capitalists and other investors will often have large initial stakes, which may also discourage other users from trying to acquire governance power.