Understanding Blockchain Governance: Analyzing Decentralized Voting to Amend DeFi Smart Contracts

Governance protocols define the means for amending or changing smart contracts without any centralized authority. They distribute the decision-making power to every user of the smart contract: Users vote on accepting or rejecting every change. In this work, we review and characterize decentralized governance in practice, using Compound and Uniswap -- two widely used governance protocols -- as a case study. We reveal a high concentration of voting power in both Compound and Uniswap: 10 voters hold together 57.86% and 44.72% of the voting power, respectively. Although proposals to change or amend the protocol receive, on average, a substantial number of votes (i.e., 89.39%) in favor within the Compound protocol, they require fewer than three voters to obtain 50% or more votes. We show that voting on Compound proposals can be unfairly expensive for small token holders, and we discover voting coalitions that can further marginalize these users.