Decentralization illusion in Decentralized Finance: Evidence from tokenized voting in MakerDAO polls

Xiaotong Sun, Charalampos Stasinakis and Georgios Sermpinis

Journal of Financial Stability, 2024, vol. 73, issue C

Abstract: Decentralized Autonomous Organization (DAO) is very popular in Decentralized Finance (DeFi) applications as it provides a decentralized governance solution through blockchain. We analyze the governance characteristics in the Maker protocol, its stablecoin DAI and its governance token Maker (MKR). To achieve that, we establish several measurements of centralized governance. Our empirical analysis investigates the effect of centralized governance over a series of factors related to MKR and DAI, such as financial, network and Twitter sentiment indicators. Our results show that governance centralization influences the Maker protocol and that the distribution of voting power matters. The main implication of this study is that centralized governance in MakerDAO very much exists, while DeFi investors face a trade-off between decentralization and performance of a DeFi protocol. This further contributes to the contemporary debate over whether DeFi can be truly decentralized.

Keywords: decentralized finance; blockchain; tokens, governance (search for similar items in EconPapers)
JEL-codes: G23 G32 O30 O33 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Decentralization illusion in Decentralized Finance: Evidence from tokenized voting in MakerDAO polls (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:73:y:2024:i:c:s1572308924000718

DOI: 10.1016/j.jfs.2024.101286

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