A new working paper from the European Central Bank examined four major protocols and found that a small number of actors control the bulk of governance token holdings.
A European Central Bank working paper challenges the notion that decentralized autonomous organizations (DAOs) deliver on their promise of distributed governance, finding that token holdings and voting power across four major DeFi protocols are heavily concentrated among a handful of actors.
The study examined governance structures at Aave, MakerDAO, Ampleforth, and Uniswap using data from late 2022 and mid-2023. The researchers analyzed the top 100 token holders and top 20 voters for each protocol, reviewed 248 governance proposals, and attempted to trace the real-world identities behind pseudonymous blockchain addresses.
The findings land at a moment when governance disputes are roiling some of the very protocols examined in the study, and DeFi projects more broadly are grappling with whether the Labs-plus-DAO structure is fit for purpose.
Top 100 Holders Command Over 80% of Supply
Across all four protocols, the top 100 holders controlled more than 80% of the total governance token supply during both snapshot periods. At Aave and Uniswap, the top five accounted for roughly half of all holdings. MakerDAO was the relative outlier, with the top five holding around 36%.
The concentration proved sticky over time, with distributions remaining largely unchanged between October 2022 and May 2023.
When the researchers dug into who sits behind the top addresses, they found that for most protocols, roughly half or more of holdings traced to addresses associated with the protocols themselves — encompassing treasuries, founders, and developer allocations — or to centralized and decentralized exchanges.
Protocol-associated addresses held 43% of Uniswap’s UNI supply. Centralized exchange holdings were particularly notable at Aave (16%) and Ampleforth (19%). Binance emerged as the dominant exchange holder across all four protocols, with holdings ranging from 2% to 15% of total supply.
The researchers cautioned that available data doesn’t distinguish between tokens held by exchanges on their own behalf versus those held in custody for customers.
Delegates Dominate Voting
The most active voters on governance proposals turned out to be predominantly delegates — entities to whom smaller token holders assign their voting power. This dynamic has long been a known issue in DAO governance, where low voter turnout and outsized whale participation leave a small group of recurring participants shaping protocol decisions.
The top voter at Uniswap in both snapshots was a16z, the venture capital firm, which saw its delegator count grow from 100 to 125 over the study period. At Aave, the protocol’s own smart contracts held the top-voter position.
Of the 68 top voters identified across all protocols, the researchers could not determine the identities of roughly one-third to nearly half of them. Among those they could identify, individuals made up about 21%, followed by Web3 companies at 19%, university blockchain societies, and VC firms.
Uniswap had the highest delegation rate at 27%, with its top 18 voters holding more than half the delegated power.
The ECB team also systematically categorized the 248 proposals and found that “risk parameters” — covering loan-to-value ratios, liquidation thresholds, borrowing rates, and debt ceilings — were the most common, accounting for 28%. Asset listing proposals made up 23%.
Implications for Regulation
The findings carry direct implications for the ongoing policy debate over how to regulate DeFi. The EU’s Markets in Crypto-Assets regulation exempts services provided in a “fully decentralized manner,” but the ECB researchers argue the protocols they studied fall well short of that standard.
Governance token holders, protocol developers, and centralized exchanges have frequently been proposed as potential regulatory entry points. However, the researchers concluded that the ambiguity surrounding who actually controls governance makes all three difficult to use in practice.
“It is not always clear who in the end is responsible or can be held accountable based on publicly available data,” the authors wrote.
The paper also drew parallels between DeFi governance and traditional corporate shareholder governance, noting that both systems suffer from low voter turnout and outsized influence by a small number of recurring participants.
But DeFi lacks the institutional safeguards — proxy voting rules, stewardship codes, disclosure requirements, and fiduciary obligations — that help mitigate those dynamics in public companies. As DAOs increasingly adopt formal legal structures, the researchers suggested that hybrid models integrating traditional legal frameworks with blockchain-based governance may ultimately be needed.
This article was written with the assistance of AI workflows. All our stories are curated, edited and fact-checked by a human.
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