The DeFi sector, which experts claim is completely decentralized, but recent reports show that this is not the case.
We have all witnessed the growth of the DeFi sector and witnessed it grow from nothing.
The report shows that the top DeFi brands are managed by a regulatory body, this cannot be called decentralized.
A recent report by Monday Capital and DappRadar states that in many Defi projects, top-level holders still control higher amounts of tokens. Their analysis of governance proposals and token distribution showed that this is the case for most prominent Defi projects.
One of the highlights of Defi projects is the decentralized control system that everyone thinks is in order. Although it seems that top projects with stronger venture capital support are highly centralized. This contrasts with the efforts of the pioneers to achieve decentralized control in the revenue generation phase.
Most defi projects are not decentralized
In an attempt to uncover the functioning of the Defi projects, the researchers conducted an in-depth analysis of Curve, MakerDAO, Uniswap and Compound. They found that these projects distribute their tokens in a way that favors the largest token holders.
MakerDAO, for example, has always been a decentralized project that allows owners at all levels to participate in forum analyses and discussions. This project is one of the oldest to be launched and the community believes it is highly decentralized.
However, it seems that while everyone can participate in the forum discussions when it comes to the actual voting, the major owners control the process. According to Monday Capital and DappRadar, the major shareholders control about 24% percent of the token supply. Therefore, the researchers still believe that the distribution is not bad when they compare it with other projects.
During the analysis of the compound, the researchers found that people with more control are the top COMP owners. This group includes team members, venture capitalists, Dharma & Gauntlet, who are independent block chain projects.
After these top owners, others who can participate in the management are only the remaining 2.3% owners who may not be real due to the aggregated addresses. They also noted that the supply of tokens also tends to be more towards the top twenty addresses.
As for Curve & Uniswap, the researchers discovered the same. For example, Curve has a top address with 75% voting rights, while Uniswap has to contend with accusations of insider influence on governance.
Causes for centralization problems?
According to Monday Capital and DappRadar, there are three main causes for this centralization process in Defi projects. The first is that they do not use the governance tokens as voting tools. Instead, they see them as revenue.
Second, the people who design these systems follow the system of plutocracy. In such a system, wealth determines the degree of power that a holder can weld together.
The final reason for this question of centralization is that the people with the highest initial investment usually also have the highest stakes. If this is the case, researchers say, other people may not be willing to exercise government power. Given all these scenarios, Monday Capital and DappRadar conclude that these projects cannot help but operate under a centralized control system.