It’s 2023, and decentralized finance (DeFi) has emerged as a major trend in the blockchain and cryptocurrency space, with the emergence of protocols and the promise of building a financial system “free” from the control of central authorities. However, despite its potential benefits, DeFi has faced its fair share of criticism for its lack of true decentralization.
Undermining the fundamental principles of decentralization, many DeFi protocols are still subject to centralized control and oversight by a select few. “DeFi is not decentralized at all,” said Samson Mow, former chief strategy officer at Blockstream, in a discussion with Cointelegraph about how DeFi projects are governed by entities that can change the protocols at will.
The decentralization illusion
Decentralized autonomous organizations (DAOs) are touted as the future of decentralized corporate governance, functioning without a centralized hierarchy. However, DAOs have failed to achieve their intended level of decentralization. A study by Chainalysis revealed that less than 1% of all holders have 90% of the voting power, indicating a significant concentration of decision-making power in the hands of a select few. This finding highlights a critical problem, as DAOs were created to address the issue of centralized power.
This was exemplified in July 2022, when popular DeFi lending protocol MakerDAO was scrutinized for its centralized decision-making process. A new proposal was put forth to the MakerDAO community for the implemention of a new governance structure that would centralize power in the hands of a smaller group of stakeholders, including the project’s largest investor, Andreessen Horowitz.
However, there was significant pushback from the community on the grounds that it would undermine the decentralized and democratic nature of the project. This controversy also highlighted the ongoing debate in the DeFi space about the balance between decentralization and efficiency, and the challenges of maintaining a truly decentralized system.
While there is concern as to the state of decentralization, there is also promise slowly emerging in the DeFi space.
A good example is Canto, a relatively new and fast-growing layer-1 blockchain solution in the Cosmos (ATOM) ecosystem. The project has recently made waves in the market with its goal to truly deliver on the promise of decentralized finance by providing a secure and scalable infrastructure for building decentralized applications.
Canto is still in its early stages and faces significant competition from established DeFi protocols such as Aave or Yearn.Finance (YFI). However, Canto’s unique architecture and focus on true decentralization have caught the attention of many in the cryptocurrency community. The project has been successfully launched without a token presale, official foundation, vesting rounds or venture capital funding. Moreover, Canto’s goal is to build a “free public infrastructure,” which means that its decentralized exchange (DEX) cannot issue its own tokens in the ecosystem, unlike Uniswap (UNI) and SushiSwap (SUSHI).
Due to the project’s promise to build an accessible, transparent and fully decentralized ecosystem, many crypto and financial platforms such as XGo are listing Canto’s very own native token, CANTO.
Strong foundations and community confidence matters
Of course, projects can have strong missions, but the crux of a protocol lies in its foundation and the confidence the community has in it. For example, in 2020, Uniswap, the highly reputable Ethereum-based DEX with a strong mission to promote financial freedom and inclusivity, faced heavy scrutiny when its first governance vote on the platform failed despite receiving 98% support from voters.
This failure raised questions about the strength of Uniswap’s foundation and governance structure. Despite having a strong mission, a failed governance vote highlights the importance of a solid foundation and governance structure to ensure the success and sustainability of a project.
Emerging projects like Canto once again boast an impressive lineup of developers and have the confidence of the DeFi community to back its talent. According to the pseudonymous “Spector,” lead developer at Alto, a free public NFT marketplace on Canto, it would be “interesting to try a feeless marketplace that is monetized via Canto’s CSR (contract-secured revenue) while respecting the royalties set by the creators.”
Spector also praised Canto’s core contributor Zak Cole, with whom he has worked, touting Canto as an “ideal sandbox for new ideas, with the expertise of Zak and other core contributors driving innovation in the blockchain space.”
Canto now has:— zkCole (@0xzak) March 17, 2023
Ansybl providing node as a Service
1000+ builders across 6 seasons of canto online hackathon
This was all done in ~6 months with 0 funding. No VCs. Nothing but love, friends, and brain power.
DeFi needs to reorient itself
As DeFi continues to gain popularity, the debate around true decentralization will remain ongoing. However, as projects begin to pivot focus toward creating a truly decentralized platform that is accessible and transparent, the promise of DeFi is getting closer.
This shift toward decentralization will help create a more equitable and decentralized financial system, paving the way for a future where DeFi is a viable alternative to traditional finance. As the DeFi space gains recognition and traction, it will be interesting to see where the ideal sandbox will — or rather can — go.
Digi516 has been a crypto researcher and NFT enthusiast for almost a decade, with experience in educating and managing several crypto communities. Now, as head of community lead at XGo, Digi516 is on a mission to onboard the next 100 million users to Web3 and empower sovereign financial freedom.
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