Concentration in Governance Control Across Decentralised Finance Protocols

TL;DR

This paper investigates the concentration of governance control in DeFi protocols by analyzing shared token holdings among addresses, revealing influential actors and how holding patterns shift with market cycles.

Contribution

It introduces a network-based approach to study shared token holdings across multiple DeFi protocols, highlighting influential addresses and their impact on governance centralization.

Findings

Influential addresses are persistent over time, mainly linked to institutional investors.

Token holding patterns change with speculative market cycles.

Shared governance token holdings form a network with influential nodes.

Abstract

Blockchain-based systems are frequently governed through tokens that grant their holders voting rights over core protocol functions and funds. The centralisation occurring in Decentralised Finance (DeFi) protocols' token-based voting systems is typically analysed by examining token holdings' distribution across addresses. In this paper, we expand this perspective by exploring shared token holdings of addresses across multiple DeFi protocols. We construct a Statistically Validated Network (SVN) based on shared governance token holdings among addresses. Using the links within the SVN, we identify influential addresses that shape these connections and we conduct a post-hoc analysis to examine their characteristics and behaviour. Our findings reveal persistent influential links over time, predominantly involving addresses associated with institutional investors who maintain significant token supplies across the sampled protocols. Finally, we observe that token holding patterns and concentrations tend to shift in response to speculative market cycles.