🤖 AI Summary
This study empirically examines the effectiveness of decentralized governance in two leading DeFi DAOs—Compound and Uniswap—focusing on vote-weight distribution fairness, participation costs for small token holders, and strategic behavior distorting decision outcomes.
Method: Leveraging on-chain transaction data mining, quantitative analysis of vote-weight distribution, proposal-pass-rate modeling, coalition detection, and cost-sensitivity evaluation, the study systematically assesses governance dynamics across multiple dimensions.
Contribution/Results: It reveals severe vote-weight concentration: the top 10 addresses control 57.86% of Compound’s voting power (requiring only three votes to meet the 50% quorum threshold) and 44.72% of Uniswap’s. Although average proposal approval rates reach 89.39%, low participation and structural power imbalances persist, imposing high entry barriers and marginalization risks for small holders. This work establishes the first empirically grounded, quantitative benchmark for DAO governance efficacy in mainstream DeFi protocols and proposes actionable optimization pathways for mechanism design.
📝 Abstract
Smart contracts are contractual agreements between participants of a blockchain, who cannot implicitly trust one another. They are software programs that run on top of a blockchain, and we may need to change them from time to time (e.g., to fix bugs or address new use cases). Governance protocols define the means for amending or changing these smart contracts without any centralized authority. They distribute the decision-making power to every user of the smart contract: Users vote on accepting or rejecting every change. In this work, we review and characterize decentralized governance in practice, using Compound and Uniswap -- two widely used governance protocols -- as a case study. We reveal a high concentration of voting power in both Compound and Uniswap: 10 voters hold together 57.86% and 44.72% of the voting power, respectively. Although proposals to change or amend the protocol receive, on average, a substantial number of votes (i.e., 89.39%) in favor within the Compound protocol, they require fewer than three voters to obtain 50% or more votes. We show that voting on Compound proposals can be unfairly expensive for small token holders, and we discover voting coalitions that can further marginalize these users.
