Inclusion and Democratization Through Web3 and DeFi? Initial Evidence from the Ethereum Ecosystem

Lin Cong, Ke Tang, Yanxin Wang and Xi Zhao

No 30949, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Web3 and DeFi are widely advocated as innovations for greater financial inclusion and democratization. We assemble the most comprehensive dataset to date on the largest Web3 ecosystem and use large-scale computing to conduct an initial investigation. We describe Ethereum’s network structure, time trends, and distributions of transactions, mining, and ownership. Mining income and Ether ownership are concentrated in exchanges and a few individual nodes. Network activities evolve from peer-to-peer to user-DApps/DeFi interactions, with significantly more transactions by large players. Moreover, high percentage transaction fees, congestion-induced fluctuation of gas prices, suboptimal reserve setting, and large return volatility of tokens present particular challenges for small, poor, unsophisticated, and new nodes, not to mention that the high failure rates hurt all users. Finally, we present suggestive causal evidence that base-fee burning mechanisms (e.g., EIP-1559) and airdrop programs (e.g., OmiseGo Airdrop) facilitate inclusion through token monetary redistribution.

JEL-codes: D63 E50 G29 H23 L14 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-fdg, nep-fle and nep-pay
Note: AP CF ME PR
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Citations: View citations in EconPapers (6)

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