ECB Blockchain Report Challenges DeFi’s Decentralization Claims

Decentralized finance (DeFi) has, since its inception, sold itself on one premise: a financial system without intermediaries, governed collectively by its users through transparent, blockchain-based mechanisms.

The appeal of that premise, and its associated promise, was both ideological and practical, with code replacing institutions, and distributed ownership across a broad network of participants diluting power.

But a recent working paper from the European Central Bank (ECB) suggests that this vision may be more aspirational than real. The paper’s findings take a close, data-driven look at governance across major DeFi protocols and challenge one of the sector’s foundational assumptions: that decentralization meaningfully distributes power.

Instead, the evidence points to a system where control is concentrated, opaque and structurally resistant to change. After analyzing governance structures across major DeFi protocols such as Aave, MakerDAO and Uniswap, the report found that the top 100 addresses control more than 80% of voting power. Even more striking, a significant portion of those addresses are not individuals but entities such as protocol treasuries, exchanges and institutional actors.

Roughly one-third of influential voters remain unidentified. This ultimately may raise important questions for regulators, investors and the industry itself.

See also: Can Crypto’s Open Network Dreams Survive Going Corporate?

Untangling the DeFi Myth of Distributed Power

The concentration of governance power in DeFi protocols is not entirely surprising to those closely following the space. Token-based voting systems inherently favor early adopters, large capital holders and liquidity providers who accumulate governance tokens at scale. Over time, this creates a feedback loop: those with the most influence can shape protocol incentives in ways that reinforce their position.

Compounding the issue is the role of intermediaries. Centralized exchanges frequently hold governance tokens on behalf of users, aggregating voting power without necessarily reflecting user preferences. Protocol treasuries, meanwhile, act as quasi-institutional actors, wielding significant influence over their own governance structures.

What emerges is a system that, somewhat ironically, mirrors traditional shareholder capitalism more than decentralized democracy. Voting rights correlate with capital ownership, not with participation or contribution, and decision-making authority is concentrated among a narrow elite.

If concentration were the only issue, regulators might approach DeFi governance as a familiar problem of market structure. But the ECB report highlights a second, more complex challenge: anonymity.

Approximately one-third of key governance participants in major DeFi protocols cannot be definitively identified. Wallet addresses, by design, do not reveal the identity of their controllers. While blockchain transparency allows observers to track transactions and token balances, it does not necessarily provide insight into who is exercising governance power.

This creates a paradox. DeFi systems are often described as transparent because their transactions are publicly visible. Yet from a governance perspective, they are partially opaque. Regulators cannot easily determine whether a voting bloc represents a single actor, a coordinated group, or an exchange acting on behalf of thousands of users.

See also: Blockchain’s Institutional Future Is Private, Permissioned and Growing Fast

Rethinking Regulatory Entry Points

The question, then, is how existing and emerging U.S. policy frameworks as well as the institutional appetite of the traditional financial sector apply to a DeFi ecosystem that may be less decentralized than advertised.

Rather than treating DeFi as categorically outside regulatory scope, policymakers are exploring ways to distinguish between genuinely decentralized systems and those with identifiable control structures. The U.S. GENIUS Act, for example, specifically excludes decentralized, immutable protocols and non-custodial wallet providers from the definitions of “money transmission.”

The ECB report does not suggest that decentralization is impossible in financial systems. Rather, it highlights the difficulty of achieving it in practice, particularly when economic incentives favor concentration. As institutional participation in digital assets and financial blockchain infrastructure grows, the issues surrounding DeFi are likely to come under greater scrutiny.

PYMNTS Intelligence data in the report “Building the Blockchain Blueprint: How Leading FIs Are Modernizing Money, Markets and Trust,” a collaboration with Citi, found that as banks move blockchain pilots into live environments, the core design question is becoming one of public versus private networks.

And as covered here earlier, there is a growing consensus among large financial institutions that the future of tokenization is likely to be permissioned, not permissionless, and integrated, not parallel, to existing systems.