Exploring Decentralized Governance: A Framework Applied to Compound Finance

This research proposes a methodology which can be used for measuring governance decentralization in a Decentralized Autonomous Organization (DAO). DAOs, commonly, have the ambition to become more decentralized as time progresses. Such ambitions led to the creation of decentralized governance models that use governance tokens to represent voting power. Relevant research suggests that the distribution of the governance tokens follows centralized accumulations in a few wallets. By studying the accumulations of voting power from a DeFi protocol, this research presents a framework for identifying and measuring decentralization via analyzing all the various governance sub-systems instead of focusing on one or a small group. Governance within a DAO is a multi-layered process. By examining the decentralization of each layer or subsystem within the overarching governance structure, we can compose a comprehensive understanding of the entire protocol. To demonstrate this method, this paper uses the Compound Finance protocol as a case study. The first sub-system that this research discusses is the delegated and self-delegated wallets which are the only entities that can participate in the voting process in the Compound platform. The second sub-system is the actual proposals and votes that have taken place in the protocol's governance. Data is derived directly from the protocol's web data and for two time periods.