A new report jointly developed by DappRadar and Monday Capital analyzes the token distribution and governance proposals seen in major DeFi protocols. Despite efforts to decentralize control in the yield farming phase, the researchers maintain that many projects — especially those with strong venture capital roots — remain highly centralized.

The researchers analyzed projects like MakerDAO (MKR), Curve (CRV), Compound (COMP) and Uniswap (UNI).

All present a significantly skewed token distribution that favors large holders. The analysts noted that Maker governance appears to be the most mature of all, owing to its longer existence. The MakerDAO forum is where preliminary discussion and analysis is conducted by members of the community, and it is open to all irrespective of their MKR holdings.

Nevertheless, the actual on-chain voting process appears to be controlled primarily by large holders as the top 20 addresses hold about 24% of the total supply. Compared to some other projects analyzed, this distribution is still fairly equitable.

For Compound, researchers noted that the leaderboard of COMP holders primarily includes venture capitalists, team members and some other blockchain projects — notably Dharma and Gauntlet.

Only 2.3% of the addresses have delegation, a requirement to make proposals and vote. Thus, only a small portion of the community is engaged in governance, and the true percentage is likely even lower given the presence of aggregated exchange addresses. The total supply is also heavily skewed towards the top 20 addresses.

Curve and Uniswap have similar issues, with the former featuring a single address apparently holding 75% of the voting power, while the latter is suffering from scandals and allegations of governance takeover by insiders.

The researchers identified three main causes that have led to this centralization of power. The first is that users see the governance tokens as yield and not as a voting tool:

“Protocols started using their governance tokens as ‘rewards’ for users participating in the network. Although the idea sounds nice — governance goes to those who use the product — in reality the financial incentives have been stronger than the governance incentives.”

The second issue is that the systems are designed as plutocracies — where wealth defines power. There are no minimum participation requirements that could establish “sufficient decentralization” and large initial holders are able to exert their power largely uncontested. It is worth noting that there is no easy way of proving an identity on-chain, making plutocracy the only practical mechanism of governance so far.

Lastly, researchers noted that initial investment plays a large role in centralizing governance. Venture capitalists and other investors will often have large initial stakes, which may also discourage other users from trying to acquire governance power.

In their conclusion, the analysts assert that it’s the distribution mechanisms that encourage centralization of power, suggesting that the current outcome is no surprise.