What Are the Risks Associated with Holding a Large Percentage of a Protocol’s Governance Tokens?
Holding a large percentage of governance tokens carries the risk of regulatory scrutiny, as it may be viewed as a central point of control, potentially leading to a security classification for the token. Operationally, it exposes the holder to potential legal liability for protocol decisions and makes them a primary target for hackers or malicious proposals.
It also creates a high concentration risk in their investment portfolio.
Glossar
Governance Tokens
Token ⎊ Governance tokens represent a mechanism for distributing decision-making power within decentralized protocols, primarily within the cryptocurrency and decentralized finance (DeFi) ecosystems.
Legal Liability
Exposure ⎊ Legal liability in the crypto derivatives space refers to the potential financial and criminal exposure faced by platforms, developers, and market participants for violations of securities, commodities, or anti-money laundering laws.
Concentration Risk
Exposure ⎊ Concentration Risk arises when a significant portion of a protocol's collateral, trading volume, or governance weight is held by a small number of large entities or whales.