A recent working paper from the European Central Bank (ECB) has raised questions about whether decentralized finance (DeFi) protocols are truly decentralized. The report suggests that governance in major DeFi platforms remains highly concentrated, which could complicate how these systems are regulated under the European Union’s Markets in Crypto-Assets (MiCA) framework.

MiCA currently excludes fully decentralized services from its regulatory scope, but the ECB’s findings indicate that many DeFi protocols may not meet that standard in practice.

Earlier coverage: Parsec closes after five-year run as DeFi and NFT slowdown reshapes crypto analytics market

GOVERNANCE TOKENS REMAIN HIGHLY CONCENTRATED

The ECB paper analyzed four major DeFi protocols — Aave, MakerDAO, Uniswap, and Ampleforth — and found that governance tokens are heavily concentrated among a small group of holders.

While these tokens are distributed across thousands of wallet addresses, the top 100 holders control more than 80% of the total supply in each protocol. This level of concentration suggests that decision-making power is not as widely distributed as often assumed.

The study also found that a significant portion of these tokens is linked to the protocols themselves or held by centralized and decentralized exchanges. Among these, Binance was identified as the largest centralized exchange holder across the analyzed protocols.

TOP VOTERS HOLD SIGNIFICANT CONTROL

Beyond token ownership, the report examined governance participation and voting power. It found that key decisions are often influenced by a small number of delegates who receive voting power from other token holders.

In some cases, control is highly concentrated. For example, the top 20 voters in Ampleforth control 96% of delegated voting power. Similarly, the top 10 voters in MakerDAO hold 66%, while the top 18 in Uniswap control 52%.

The report also noted that around one-third of major voters cannot be publicly identified. Among those that are known, participants include individuals, Web3 companies, university groups, and venture firms.

Industry observers say this level of concentration is not unusual in early-stage decentralized systems, where a smaller group often retains influence during development and governance phases.

MICA REGULATION FACES ACCOUNTABILITY CHALLENGE

The findings raise broader concerns about how DeFi protocols can be regulated under MiCA. Since the framework excludes fully decentralized platforms, identifying who is responsible for governance becomes a key issue.

The ECB paper highlights that many governance decisions relate to risk parameters that directly affect how protocols operate. However, it is often unclear whether token holdings belong to founders, developers, protocol treasuries, or exchange users.

This lack of transparency makes it difficult to determine who should be held accountable under existing regulatory structures.

The authors also caution that their analysis does not capture the full DeFi ecosystem due to limited available data. They emphasized that the paper reflects their own views and does not represent official ECB policy.

BROADER IMPLICATIONS FOR DEFI

The report echoes earlier concerns raised by global regulators, including the Financial Stability Board, about hidden concentration risks in decentralized systems. While DeFi is often presented as a way to remove intermediaries, the ECB suggests that new forms of centralization may still exist.

As regulators continue to examine the sector, the challenge will be balancing innovation with accountability. The findings indicate that different DeFi protocols may require different regulatory approaches, depending on how governance is structured and controlled.