Decentralization in DeFi Lending: A Network Perspective
A Multi-Layered Analysis of Governance-Active Users
S.A. Heslenfeld (TU Delft - Electrical Engineering, Mathematics and Computer Science)
Huijuan Wang – Mentor (TU Delft - Multimedia Computing)
Xucong Zhang – Graduation committee member (TU Delft - Pattern Recognition and Bioinformatics)
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Abstract
Decentralized Finance (DeFi) lending platforms claim to use decentralized, community-driven governance. In practice, however, governance power remains concentrated among a limited number of users. This thesis investigates the behavior of users actively participating in governance in two major DeFi lending platforms, Aave and Compound, using a network science approach. Data covering governance actions and both governance and yield token transfers is combined in a multi-layered network model. By combining these layers, it is possible to investigate the characteristics of governance-active users. Specifically, how their governance activity relates to their behavior in the token transfer networks. The analysis studies correlations between token transfer patterns and governance participation, detects communities in governance token transfer networks, and uses a Susceptible-Infected (SI) process to estimate each user's structural influence in a spreading process to compare this to governance activity. The results show that governance token transfer volume strongly correlates with voting power, while other network features do not. Most governance-active users cluster together in a few communities in the governance token transfer network. Users with a greater simulated spreading potential only tend to partially hold higher actual voting power. Together, these findings suggest that DeFi governance is strongly shaped by token wealth and tight user clustering, highlighting that open design alone does not guarantee broad and equal participation.