How Does a Large Token Holding Impact a DeFi Protocol’s Governance Mechanism?
A large treasury holding translates directly into significant voting power for the core team or a few entities if the tokens are used for governance. This concentration undermines the decentralized nature of the protocol, creating a pseudo-centralized authority.
It can discourage community participation, as smaller voters feel their influence is negligible. This can lead to decisions being pushed through that benefit the insiders over the broader community.
Glossar
Immutable Smart Contracts
Execution ⎊ Immutable smart contracts represent self-executing agreements written in code and deployed on a blockchain, fundamentally altering the reliance on intermediaries in financial arrangements.
DeFi Governance
Mechanism ⎊ ⎊ DeFi Governance, within the cryptocurrency ecosystem, represents the protocols and processes by which decentralized finance projects are steered and modified, moving beyond centralized control.
Token Holding
Holding ⎊ A token holding, within the context of cryptocurrency derivatives and options trading, represents the ownership of a specific digital asset ⎊ typically a cryptocurrency or token ⎊ used as collateral or underlying asset for derivative contracts.
Governance Minimality
Constraint ⎊ Governance Minimality, within cryptocurrency, options trading, and financial derivatives, represents a strategic reduction in the complexity of on-chain governance mechanisms, prioritizing operational efficiency and capital allocation.