ECB Paper Questions Whether DeFi DAOs Are Truly Decentralized

• An ECB paper found that the top 100 holders control over 80% of the supply in four DeFi protocols.
• The study examined Aave, MakerDAO, Ampleforth, and Uniswap using holdings data.
• Delegates held most voting power in key governance decisions across the protocols.

A new European Central Bank working paper is challenging one of DeFi’s core claims. The study says governance in four major protocols remains heavily concentrated, even when tokens are spread across tens of thousands of addresses. That finding puts fresh focus on who actually controls decentralized finance and how regulators may classify those systems under Europe’s crypto rules.

Aave, MakerDAO, Ampleforth, and Uniswap were the subjects of the paper. The top 100 token holders had over 80% of the supply in every protocol. The paper also found that many of these holdings may be controlled by exchanges or protocol-linked entities, weakening the idea of widely distributed voting power.

Token Ownership Remains Concentrated Across DeFi Protocols

The ECB paper used holdings data from November 2022 and May 2023 to assess governance structures. It found that governance tokens were widely distributed on paper, but real control sat with a narrow group of large holders. Binance was identified as the largest centralized exchange holder across all four protocols examined in the study.

The paper indicated that such a framework poses a significant challenge to the narrative of DAOs’ decentralization. The number of wallets in the public may indicate widespread participation, but the concentration of tokens tells the opposite. The paper further stated that public blockchain data lacks clarity on whether protocol-linked wallets are managed by treasuries, founders, developers, or other insiders, posing key governance questions.

Delegate Voting and Unknown Identities Complicate Regulation

Additionally, it examined voting activity rather than token balances alone. It found that delegates dominated real governance decisions after receiving voting power from smaller holders. In Ampleforth, the top 20 voters controlled 96% of the delegated voting power. In MakerDAO, the top 10 voters held 66% of delegated votes, and in Uniswap, the top 18 voters controlled 52%.

One in three key voters was not publicly identifiable. Among the participants that could be identified, the paper listed individuals and Web3 firms at the top, followed by university blockchain societies and venture firms. The paper indicated that such trends make it difficult to identify explicit regulatory anchor points within the framework of the EU Markets in Crypto-Assets Regulation (MiCA), where fully decentralized services are not yet in place.

Related: France Warns 90 Crypto Firms Could Shut Down Over MiCA Rules