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

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  • Johannes Rude Jensen
  • Victor von Wachter
  • Omri Ross

Abstract

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

Suggested Citation

  • Johannes Rude Jensen & Victor von Wachter & Omri Ross, 2021. "How Decentralized is the Governance of Blockchain-based Finance: Empirical Evidence from four Governance Token Distributions," Papers 2102.10096, arXiv.org, revised Feb 2021.
    • Handle: RePEc:arx:papers:2102.10096
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    References listed on IDEAS

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    1. Johann Kranz & Esther Nagel & Youngjin Yoo, 2019. "Blockchain Token Sale," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 61(6), pages 745-753, December.
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    Cited by:

    1. Raphael Auer & Bernhard Haslhofer & Stefan Kitzler & Pietro Saggese & Friedhelm Victor, 2024. "The technology of decentralized finance (DeFi)," Digital Finance, Springer, vol. 6(1), pages 55-95, March.

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