Compound Finance most decentralized DeFi protocols in on-chain governance

Andre Cronje thinks Compound Finance is the gold standard of DeFi protocol on-chain governance

By · Aug 25, 2020 . 6min read

Research by the legendary Andre Cronje, creator of DeFi’s hottest aggregator, Yield Finance shows Compound Finance as one of the most of decentralized DeFi protocols in terms of on-chain governance.

In a recent tweet, Cronje lays out charts showing the level of on-chain governance activities going on across DeFi protocols. According to Cronje, Compound Finance is one of the gold standards in this aspect. Cronje’s chart shows that about 32.83% of COMP tokens are participating in on-chain governance in the DeFi protocol.

Evidently, the amount of COMP tokens a protocol user holds determines the level of voting power they wield.

Compound DeFi on-chain governance token distribution

To illustrate this, Cronje posted charts which show Polychain hold 31.4% COMP tokens and Gauntlet with 13.5%. Surprisingly, even Robert Leshner, founder of Compound Finance, the DeFi protocol first to distribute token for on-chain governance, holds 10.1% ranking him as the third-highest holder.

However, a more accurate insight was provided by Leshner himself of Compound protocol. Going through shows a dashboard with COMP token address holders and the voting power they wield

Source: Compound website leaderboard

From the diagram above, a16z and Polychain Capital, who are both the early backers of Compound Finance, have the highest vote weight. Leshner is fifth on the table.

Compound and other DeFi protocol tokens possess strong utility in on-chain governance

Interestingly, on-chain governance is widely criticized by Vitalik Buterin. He argues against it and believes it’s not the best form of software protocol decision democratization. However, it has become one of the most reliable utilities of DeFi tokens today. It’s of critical importance that those who hold governance tokens put them to use, especially in governance voting proposals. If not, they are nothing but just a mere speculative tool. Speculation in itself is not bad but becomes a source of concern when that is all there is for token holders. This is what we see in some of the DeFi protocols out there. Many of their token holders are just hardcore arbitrageurs engaging mostly in yield farming and nothing more.

Cronje also posted another chart showing strong distribution but low participation level in governance for Balancer protocol.

Source: Andre Cronje’s Twitter

Yearn.Finance, Andre Cronje’s brainchild, also shows some decent governance token participation at 14.02% with equal token distribution among holders.

Source: Andre Cronje’s Twitter

In summary, Compound is a good standard for DeFi protocol out there when it comes to token distribution as well as on-chain governance participation level.

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