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.