Tezos, MakerDAO, and Decred show signs of plutocracy, thanks to concentrated token supplies and on-chain governance.

CoinMetrics surveyed three blockchains with on-chain governance and discovered that their coin supplies are highly centralized among a small number of coinholders. The survey, published on Dec. 10, examines Tezos, Maker, and Decred — three blockchains that make development decisions through voting or staking.

“Most staking protocols give some form of advantage towards large balance holders,” CoinMetrics notes, adding that this has ramifications in stake-based governance. “If supply is mostly held by a small number of addresses, those addresses gain huge influence over the governance decision-making process, which can lead to a plutocracy.”

Plutocracy is a form of power concentration defined exclusively by wealth. It is normally used as a pejorative as the biggest historic examples of plutocracies were Medieval merchant republics like Venice — hardly examples of balanced governance.

Centralization by the Numbers

CoinMetrics observed that Maker has an incredibly centralized supply. 102 addresses individually hold at least 1/1000th of the total MKR supply. Together, they hold 79 percent of all the tokens. CoinMetrics suggests that a few addresses could easily control voting outcomes, adding that single coinholders have already dominated recent votes.

As reference, the top 100 addresses for Bitcoin control less than 16 percent of the total supply.

Tezos is slightly less centralized than MakerDAO. CoinMetrics found that 164 addresses individually hold at least 1/1000th of the XTZ supply. Together, these hold 62 percent of the total. Though CoinMetrics doesn’t say whether large coinholders can dominate voting, Tezos’ staking system is explicitly designed around differently sized accounts.

Decred is in turn less centralized than Tezos. Only 64 addresses hold at least 1/1000th of the DCR supply. Together, they account for 32 percent of it. CoinMetrics notes that it is difficult for individual coinholders to control voting outcomes thanks to Decred’s randomized ticket system, which does not give anyone instant control over governance.

Does Centralization Matter?

The centralization of a blockchain’s coin supply may not be as important as it seems. First of all, it is possible to redistribute voting rights away from large coinholders. As CoinMetrics notes, rules can give greater voting power to small coinholders through quadratic voting, identity-based accounts, and various other weighted voting strategies.

Furthermore, coin holders that have outsized control over governance and voting do not necessarily have the same amount of control over block validation. Tezos and Decred both use selection systems that prevent one block producer from repeatedly validating blocks. MakerDAO, meanwhile, relies on Ethereum and has no block producers of its own.

Finally, blockchains with on-chain governance are not uniquely centralized. CoinMetrics noted that forked blockchains such as Bitcoin Cash tend to develop centralized coin supplies, even if they do not have on-chain governance. Though the two models are not directly comparable, centralized coin supplies seem to be fairly commonplace.

Although the blockchains mentioned are fairly centralized, on-chain governance is still a nascent field. The industry will develop better solutions as these technologies mature.