How Decentralized is the Governance of Blockchain-based Finance:\n Empirical Evidence from four Governance Token Distributions

Abstract

Novel blockchain technology provides the infrastructure layer for the\ncreation of decentralized appli-cations. A rapidly growing ecosystem of\napplications is built around financial services, commonly referred to as\ndecentralized finance. Whereas the intangible concept of decentralization is\npresented as a key driver for the applications, defining and measuring\ndecentralization is multifaceted. This pa-per provides a framework to quantify\ndecentralization of governance power among blockchain appli-cations. Governance\nof the applications is increasingly important and requires striking a balance\nbe-tween broad distribution, fostering user activity, and financial incentives.\nTherefore, we aggregate, parse, and analyze empirical data of four finance\napplications calculating coefficients for the statistical dispersion of the\ngovernance token distribution. The gauges potentially support IS scholars for\nan objective evaluation of the capabilities and limitations of token governance\nand for fast iteration in design-driven governance mechanisms.\n