External member of the UK Financial Policy Committee Carolyn Wilkins has argued that the current decentralized finance governance structure is more centralized than it claims to be.
Carolyn Wilkins in an Oct. 19 speech, said that crypto protocols need to re-examine their decision-making process which is largely “centralized” and adopt best practices to improve their transparency so as to retain the trust of investors.
To make her case against the decentralization of crypto, Wilkins noted that Ethereum is fairly centralized. In the events that led to the Merge, Ethereum’s core development team had a unilateral decision-making power to determine the timeline and features of the PoS transition.
In the case of bitcoin, it is estimated that about 50 miners control half of the mining capacity. This makes it easier for bad actors to collaborate front-run or manipulate the market for profits.
For DeFi protocols like MakerDAO and Polkadot, a select committee is assigned with emergency powers to unilaterally make decisions in times of uncertainty.
Establishing trust for crypto adoption
Wilkins advocates that as the crypto community works to improve its governance, it needs to improve trust and transparency in the system.
For starters, the industry needs to develop codes of conduct and best practices as it relates to disclosing financial statements, sources, and uses of funds. To increase transparency, protocols could regularly audit their codes and disclose how decisions are determined and who controls the “commit keys.”
Wilkins added that regulatory clarity is an important issue the industry has to deal with. She called on the government to provide the necessary legal and regulatory infrastructure that will ensure consumer protection similar to traditional finance.
Wilkins called on the crypto industry to be more proactive so as not to lose out to traditional institutions that have trusted infrastructures and now adopting blockchain technology to improve their services.
“It is in the interest of the private sector to be proactive. Major investors must “get up, stand up” to demand change. It is critical that the industry adopts best practices and codes of conduct to reinforce trustworthy behavior and culture. “