Several Leading DeFi Protocols Are Still Controlled by Whales

Decentralization is a key component of any crypto network. However, some of the industry’s leading DeFiDecentralized Finance (DeFi) are financial services built on blockchain technology. It seeks to empower the populace by creating an open, efficient, and all-inclusive financial system. Using smart contracts, DeFi platforms provide permissionless finance, thus enabling financial inclusion for all. DeFi…Know more projects still have large quantities of their token supplies controlled by founders and venture capital firms.

Recent findings by DeFiWhat is it that makes the Ethereum network such a popular choice for decentralized finance (DeFi)? Decentralized Finance (DeFi) is a term that is being used to describe the world of financial services that are increasingly being offered through decentralized…Know more researcher Thor Hartvigsen have revealed the extent to which whales could control some of the top crypto projects.

On Feb. 28, the researcher revealed findings from tracking down the top whales of eight “strong performing protocols.”

Furthermore, the findings are an eye-opener but hardly surprising given the nature of crypto project funding. The majority of projects are venture capital-backed, and these behemoths still hold big bags of tokens.  

Battle of the DeFi Whales

Liquid staking platform Lido was the first project to be analyzed since it has seen remarkable growth over the past year. However, venture firms Paradigm Capital and Dragonfly Capital control a whopping 10% of the LDO supply.

This equates to almost 100 million tokens worth an estimated $309 million at current LDO prices. “Paradigm’s 100m LDO vesting round finishes in May 2023 and Dragonfly unlocks 10m additional LDO tokens Aug. 25, 2023,” the researcher noted.

Decentralized perpetual exchange GMX also has a lot of whale influence. Around 7% of the circulating supply is held by just four whale accounts, including top whale Arthur Hayes who holds 200,500 GMX tokens worth $15 million.

Frax Finance has a raft of VC investors, many of which still control whale wallets full of FXS tokens. According to Hartvigsen’s findings, a whopping 15% of the FXS circulating supply is held by just five whale accounts.

DeFi stablecoin yieldDiscussions concerning stablecoins interest rate are natural if you are in the crypto space for some steady passive income . A good stablecoin interest rate may not be as lucrative as trading, but it is a more reliable source of…Know more platform CurveCurve Finance is a well-known decentralized exchange. Unlike competitors such as Uniswap, Curve’s protocol does not embrace the instability inherent with most cryptocurrencies. Instead, it focuses its agenda on stablecoin exchanges. This allows Ethereum-based DeFi to ask for lower trading…Know more is another one with whale influence. The researcher discovered that a handful of founder wallets hold nearly 400 million CRV tokens. The current circulating supply of CRVCurve Finance is a well-known decentralized exchange. Unlike competitors such as Uniswap, Curve’s protocol does not embrace the instability inherent with most cryptocurrencies. Instead, it focuses its agenda on stablecoin exchanges. This allows Ethereum-based DeFi to ask for lower trading…Know more is 752 million, but these founder tokens are locked for vesting for the next couple of years.

Other platforms with heavy whale dominance include dYdX, Synthetix (SNX), and Polygon (MATICPolygon is a multi-chain ecosystem that has made significant headway in the market. It was initially developed to address scalability challenges, but has become a whole ecosystem of its own.  But what is Polygon? Why are so many interested in…Know more). Five VC whale accounts hold around 8% of the entire MATIC supply.

The Decentralization Argument

Crypto projects like to tout how decentralized they are, especially in DeFi. However, this simply isn’t the case when a handful of whales can influence governance votingCan blockchain be used for voting? Across the globe, decisions made about many of society’s issues are decided by voting. Polling stations have been around for thousands of years and have allowed us to hear the voices of millions of…Know more with their huge bags.

Additionally, they could liquidate some of their hefty stashes at a whim which would affect token prices at the time. As usual, it would be the small retail holder that gets burnt should this happen.

Furthermore, the most glaring recent example was Andreessen Horowitz’s (a16z) influence over a Uniswap governance vote. Earlier this month, the firm used its 15 million UNI token voting block to vote against a proposal. The proposal was for the use of the Wormhole bridge for Uniswap V3 deployment on the BNB Chain. a16z is heavily invested in rival bridge platform LayerZero which it favored for the deployment.

It seems that the “decentralized” part of DeFi should be reconsidered for some platforms.

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