Decentralization is a key component of any cryptographic network. However, some of the industry leaders DeFi projects still have large amounts of their token supplies controlled by founders and venture capital firms.
Recent discoveries by DeFi Researcher Thor Hartvigsen has revealed the extent to which whales can control some major cryptocurrency projects.
On Feb. 28, the researcher revealed the findings by tracking the best whales from eight “strong-performing protocols.”
Furthermore, the findings are revealing, but hardly surprising, given the nature of cryptographic project funding. Most of the projects are backed by venture capital, and these giants still have big bags of tokens.
Battle of the Whales DeFi
The Lido net betting platform was the first project to be analyzed, as it has seen remarkable growth over the past year. However, venture firms Paradigm Capital and Dragonfly Capital control a staggering 10% of the LDO supply.
This equates to nearly 100 million tokens worth an estimated $309 million at current LDO prices. āParadigmās 100 million LDO acquisition round ends in May 2023 and Dragonfly unlocks an additional 10 million LDO tokens on August 25, 2023,ā the researcher noted.
The GMX decentralized perpetual exchange also has a lot of whale influence. About 7% of the circulating supply is held by just four whale accounts, including the great whale Arthur Hayes, which holds 200,500 GMX tokens worth $15 million.
Frax Finance has a number of VC investors, many of whom still control whale wallets full of FXS tokens. According to Hartvigsen’s findings, a staggering 15% of the FXS’s circulating supply is held by just five whale accounts.
DeFi stablecoin yield platform Curve is another one with whale influence. The researcher found that some founder wallets hold nearly 400 million CRV tokens. The current circulating supply of CRV is 752 million, but these founding tokens are locked for acquisition for the next two years.
Other platforms with heavy whale dominance include dYdX, Synthetix (SNX) and Polygon (MATIC). Five VC whale accounts hold about 8% of the entire MATIC supply.
The Decentralization Argument
Crypto projects like to advertise how decentralized they are, especially in DeFi. However, this is simply not the case when a handful of whales can influence governance. vote with their huge suitcases.
Also, they could liquidate some of their heavy stocks on a whim, which would affect token prices at the time. As usual, it would be the small retailer who would be burned if that happened.
Furthermore, the most recent example was the influence of Andreessen Horowitz (a16z) on a Uniswap governance vote. Earlier this month, the company used its voting block of 15 million UNI tokens to vote against a proposal. The proposal was to use the Wormhole bridge to implement the Uniswap V3 in the BNB Chain. a16z invested heavily in rival bridge platform LayerZero, which it favored for deployment.
It seems that the ādecentralizedā part of DeFi should be reconsidered for some platforms.
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BeInCrypto has reached out to the company or individual involved in the story for an official statement on the recent developments, but has yet to hear back.