Is MakerDAO centralized?

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This happens to be one of the recently discussed topics, though not so openly about MakerDAO, but more about how the crypto space has taken a beating with centralized structures tearing down. And so today, we’re going to attempt a conclusion on if MakerDAO is indeed centralized or decentralized in fact.


What is MakerDAO?


MakerDAO is said to be a decentralized autonomous organization(DAO), powered by maker token holders. Maker creates and issues DAI stablecoin on the Ethereum blockchain.

Recently, we’ve bodied a couple of conversations about MakerDAO as a result of the crash of Luna, and its algorithm stablecoin. This raised concerns as to how truly safe the ecosystem is. Citing stablecoin issuers to be a threat, causing fear, uncertainty, and doubt (FUD). That said, the need to properly understand the inner workings of an ecosystem is crucial, and one of the best ways to do that is by looking deep into the blockchain!



Maker basket 1.jpg



First, we look at the supply


Numbers matter a lot when dealing with cryptocurrency, and so the first thing to look at would be the supply, how widely spread the token supply is, determines how much centralized the ecosystem is or not. Being a token-governed economy, a whole lot of things rely on the token and so, that marks the importance.

The chart above displays data in a container, what that means is that it is being grouped, like a basket of assets showing the volume contained. Specifically, this shows the number of addresses holding tokens of different sizes. So far, the number 0.1-1 dominates the equation, but does that really make a difference? I'd say no, but let's look at the next chart.



Maker basket 2.jpg



"Emphasis on numbers"


Looking deeper makes the picture a bit clearer, as I would say that the first chart may have been a bit misleading if one doesn't pay attention to numbers. The container of addresses holding 0.1-1 Maker displays just about 4,437 tokens. This is clearly a small figure on the wide metrics, the influence cannot be spotted on the volume chart. We have to consider the price while compiling this. 1 Maker token Is worth over $900, which means, it's an expensive bet for any small pockets to dream of influence.

This helps us know what we are dealing with. If you look at the dominant container, you'd realize where addresses with millions in Maker tokens are.


how does this contribute to centralization?


We've always looked at top address holdings to justify projects with decentralized metrics or centralized if that's the case. That said, considering that the MakerDAO ecosystem is based on vote ruling, we have to understand how much governance influence these big entities have.



Maker Number of potential voters.jpg



Governance


As aforementioned, to lay "emphasis on numbers", which is why we have to understand first, what's important to fully attain the influence of top accounts. This would be the number of voters! Just as in any system, not every member votes, but there is always a way to determine the number of potential voters.

with the chart above, a lot of small accounts are eliminated from the equation due to certain things like "gas fees"

MakerDAO is based on the Ethereum network, which happens to be the largest chain on a scale of Dapps therein, but the biggest setback on Ethereum is the cost of transactions. As such, when you eliminate tiny accounts (That's addresses holding less than 1 Maker based on this chart) that will obviously not be interested in voting, you have 6,304 as of July 4th, 2022. I would expect this number to be way lower as many investors within the 10 Maker tokens mark may still abstain from voting and focus more on using that value to grow their holdings.

The numbers begin to shrink even more and you eventually have smaller circles of votes flowing in.


Maker top 1 holder influence.jpg


The biggest marker holder has an influence of approximately 11%, is that bad? you decide, but it would be interesting to note that on a scale of 20% influence, 3 accounts control this, see chart below



how about 50%?



21 addresses control 50% of the governance influence, this isn't particularly a good share considering that there are over 6,000 addresses identified to be potential voters.


Why does all of this matter?


When dealing with a token-based economy, whereas governance is a thing, the harder it is for a small circle to influence this, the better! Some may argue that 21 is a lot, but I really don't see how fair a share it is compared to 6,000.

The one purpose for this review is Maker's recent moves in real-world investments, which raised concerns. We have that the protocol voted to invest 500 million DAI into U.S. treasury bills and corporate bonds in an attempt to generate yield while diversifying its holdings, the protocol voted to include the French multinational investment bank in its list of Real World Assets (RWA). Maker also voted to loan $100 million in DAI to Huntingdon Valley Bank.

All of this calls for an alarm about how are these transactions being managed? With the involvement of off-chain collaterals, what are the measures taken to avoid asset centralization?

Notwithstanding the cases, judging from this review, not many of the metrics put MakerDAO in a position of true decentralization, but that's just my take, now you can have yours, do leave a comment below if you made it this far.


This content is primarily meant for educational purposes, SEO and so, not any form of financial advice.

All charts are obtained from here

Posted Using LeoFinance Beta



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