Battle for Decentralization: Examining the Dominance of DeFi Whales and Their Ability to Control Crypto Projects

It’s no surprise that decentralized finance (DeFi) is becoming increasingly popular as blockchain technology provides users with the potential for a faster, more secure and inclusive world. Automated market makers, derivatives, liquidity pools and flash loans are just some of the tools used to make DeFi more accessible. But some people are raising the alarm bells regarding DeFi whales and their potential influence on crypto projects.

Recent findings by DeFi researcher Thor Hartvigsen have revealed the extent to which whales could control some of the top crypto projects. This includes projects such as Lido, GMX and Curve. Thor’s findings revealed that some of these DeFi giants held significant amounts of tokens, with some prominent venture capital firms controlling up to 10% of the LDO supply. Furthermore, these tokens are locked for vesting for the next couple of years, meaning that these whale accounts can easily hold an influencer vote when necessary.

The current crypto landscape reflects that many of the key projects are venture capital-backed. This means that these firms can easily hold large bags of tokens, increasing the amount of control that they have over the project. Projects like Uniswap, which recently voted against a proposal due to the influence of venture firm Andreessen Horowitz, highlight this risk.

The main issue is that these “decentralized” projects are not as decentralized as they claim to be. These whales can use their large amounts of tokens to influence governance voting, as well as to liquidate their stashes at a whim which could affect the prices dramatically. The small retail holders are often the ones who suffer when this happens.

Therefore, it is essential that potential users and investors of these projects do their research and are aware of the associated rewards and risks. Aggregation solutions are making DeFi more accessible, particularly to those who want to pursue strategic alternatives which could provide real yields. Ultimately, the battle for decentralization rages on, as users and investors should always be careful to ensure that the DeFi whale’s influence is limited.

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Kassidy Florette
Kassidy followed her friends to buy her first Bitcoin in 2015, has been participating in various projects since 2019 as a marketing communication lead. Her knowledge and passion brings her in as a contributor.