Decentralized Crypto Governance? Transparency and Concentration in Ethereum Decision-Making

46 Pages Posted: 22 Jan 2024 Last revised: 23 Jan 2024

See all articles by Cesare Fracassi

Cesare Fracassi

University of Texas at Austin

Moazzam Khoja

Finance, McCombs School of Business

Fabian Schär

Center for Innovative Finance, University of Basel; University of Basel - Economics Department; Swiss Finance Institute

Date Written: January 10, 2024

Abstract

The regulatory treatment of cryptoassets depends primarily on three main governance characteristics: transparency, decentralized decision-making, and the effect of governance on token prices. We offer the first comprehensive analysis of the decision-making process of Ethereum, the leading programmable blockchain. We find that its governance is open and transparent, with all Ethereum Improvement Proposals (EIPs) disclosed and discussed in public venues, engaging thousands of people. At the same time, EIPs are predominantly shaped by a core group of influential authors: 10 individuals are responsible for proposing 68% of all implemented Core EIPs. The success of these proposals is significantly associated with key attributes of the proposers, including their social outreach, community engagement, and company affiliation. Furthermore, we observe a notable concentration in client development, where on average 10 people per client implementation are responsible for 80% of all software changes, and identify stablecoin issuers and oracle providers as potential governance centralization vectors. The governance concentration has been slowly decreasing over time, with the Ethereum Foundation still playing an important role. Finally, we find that governance decisions influence crypto prices: Ether price increases 12% leading to the final discussion of Core EIPs.

Keywords: Blockchain, Crypto, Governance, Open Source Communities

JEL Classification: G34, L17

Suggested Citation

Fracassi, Cesare and Khoja, Moazzam and Schär, Fabian, Decentralized Crypto Governance? Transparency and Concentration in Ethereum Decision-Making (January 10, 2024). Available at SSRN: https://ssrn.com/abstract=4691000 or http://dx.doi.org/10.2139/ssrn.4691000

Cesare Fracassi (Contact Author)

University of Texas at Austin ( email )

McCombs School of Business
2110 Speedway Stop B6600
Austin, TX 78712-1276
United States
512-232-6843 (Phone)

HOME PAGE: http://https://faculty.mccombs.utexas.edu/cesare.fracassi/

Moazzam Khoja

Finance, McCombs School of Business ( email )

TX
United States

Fabian Schär

Center for Innovative Finance, University of Basel ( email )

Basel, 4001
Switzerland

HOME PAGE: http://cif.unibas.ch

University of Basel - Economics Department ( email )

Petersgraben 51
Basel, CH-4003
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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