12:10 p.m
5
min read ▪ by
The ECB is clearly challenging one of the basic narratives of modern cryptocurrencies. In practice, several major DeFi protocols remain concentrated in the hands of the few, especially when looking at actual governance rather than just marketing talk. This is the gist of a working paper published this week that observes a heavy concentration of token governance and voting power at Aave, MakerDAO, Ampleforth and Uniswap.
In short
- The ECB is focused on real governance, not just the DeFi narrative.
- The study shows a high concentration of tokens and votes.
- The real debate now is about proof of sufficient decentralization.
A direct attack against the crypto story of decentralization
According to a study of the top 100 cryptocurrency holders, they control more than 80% of governance tokens across the four protocols examined. Even more remarkable, the top five wallets concentrate between 36% and 59% of the supply depending on the case.
In other words, DeFi crypto may appear scattered on the surface, with thousands of addresses visible on the blockchain, while remaining very tightly held at the top. The paper adds that delegates are often the most active voters, which can strengthen the power of a small core of actors rather than actually expanding participation.
However, an important nuance must be maintained. The ECB is speaking here through a working paper, meaning a research paper intended to stimulate discussion. The institution itself clarifies that these documents are being worked on and the opinions expressed do not necessarily reflect its official position.
What the study actually measures and what it doesn’t
The paper does not claim to demonstrate that all DeFi cryptos are illusions. It primarily measures governance. Simply put, it tracks who holds tokens, who votes, who receives delegations, and which decisions actually go through these mechanisms. This is not quite the same as measuring the technical decentralization of a protocol.
The method covers two observation periods, November 2022 and May 2023. The authors focus on Ethereum, which represented about 57% of the total value locked in DeFi during the period under review. The four selected protocols together covered about 32% of this ecosystem, with 248 management proposals out of 1,051 recorded included in the analysis.
But the study also has its blind spots. Data were manually collected from public and pseudonymous sources. The authors themselves acknowledge possible inaccuracies, missing information, and the inability to include crypto protocols such as Curve or dYdX due to insufficient data. This is not an insignificant detail. It’s actually a major limitation when trying to draw a general conclusion about the whole of DeFi.
The real controversy lies in the chosen threshold
The sharpest criticism comes from Bill Hughes, a lawyer for Consensys. According to him, the paper puts real numbers together, then applies a subjective reading of the spectrum between centralization and decentralization. So his complaint is not that the data are completely false, but that they lead to an almost impossible standard.
This is where the debate becomes political. The paper explains that crypto-decentralization exists on a spectrum, stating that “full decentralization” is not achieved in the sample studied. It also points out that there is no clear boundary that defines what constitutes full decentralization.
Yet this ambiguity matters a lot in Europe. MiCA stipulates that crypto services provided in a fully decentralized manner without intermediaries should not fall within its purview. At the same time, the AMF reminds that the text also focuses on activities provided or managed directly or indirectly by persons or entities, including cases where part of the service is performed in a decentralized manner. So the battle is no longer just about technology. It refers to proof of absence of control.
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Fascinated by Bitcoin since 2017, Evariste has been constantly researching the topic. While his initial interest was in trading, he now actively seeks to understand all developments focused on cryptocurrencies. As an editor, he strives to consistently produce high-quality work that reflects the state of the industry as a whole.
DISCLAIMER OF LIABILITY
The views, thoughts and opinions expressed in this article are solely those of the author and should not be taken as investment advice. Before making any investment decision, do your own research.
