Risks inherent within various models of decentralised crypto networks: `A framework for an objective discussion about the level of decentralisation in crypto networks and risks to true decentralisation`

Julien Lüssem, Abdel Aziz, Antonio Frías and Ugur Koyluoglu
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Julien Lüssem: Senior Lead Experience Strategist, Oliver Wyman, Germany
Abdel Aziz: Senior Manager, The Digital Practice, Oliver Wyman, France
Antonio Frías: Knowledge Expert, Oliver Wyman, UK
Ugur Koyluoglu: Partner, Vice Chairman for Financial Services, Oliver Wyman, USA

Journal of Risk Management in Financial Institutions, 2023, vol. 16, issue 4, 354-382

Abstract: Decentralisation is not a binary concept, but a spectrum. This paper presents a starting point for an objective discussion about the levels and risks related to decentralisation across ecosystem, consensus protocol, tokens and network distribution attributes for the largest networks of today — such as Bitcoin, Ethereum, Solana, Cardano, BNB Smart Chain, Polygon, Polkadot, Uniswap, Compound, AAVE, Curve, MakerDAO and Lido. The paper argues that it is imperative to identify, mitigate, monitor, measure and manage risks for a successful decentralised network to meet its business objectives, and emphasises that the true degree of decentralisation and risks in the network are shaped by the strengths and weaknesses of the design, and further affected by market forces creating a wide range of operational, technological, financial, strategic, legal and regulatory, reputational and business risks, among many.

Keywords: decentralisation; digital assets; risk management; decentralised autonomous organisations; DAOs; governance; centralisation; blockchain (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2023
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