Decentralized finance, centralized ownership? An iterative mapping process to measure protocol token distribution

Abstract

In this paper, we analyze various Decentralized Finance (DeFi) protocols in terms of their token distributions. We propose an iterative mapping process that allows us to split aggregate token holdings from custodial and escrow contracts and assign them to their economic beneficiaries. This method accounts for liquidity-, lending-, and staking-pools, as well as token wrappers, and can be used to break down token holdings, even for high nesting levels. We compute individual address balances for several snapshots and analyze intertemporal distribution changes. In addition, we study reallocation and protocol usage data, and propose wrapping complexity as a proxy for measuring token dependencies and ecosystem integration. The paper offers new insights on DeFi interoperability as well as token ownership distribution and may serve as a foundation for further research.

Concentration of DeFi’s liquidity

“…Moreover, concentration is also observed at the supply level of liquidity for DEXs examined: a small number of liquidity providers participating in these pools seem to represent a significant part of the trading activity (at the pool level), as measured by the amount of liquidity pool tokens held by those liquidity providers. The latter is cross-examined through an analysis of the amount of mints and burns 5 by liquidity providers in the examined pools. Even in cases of large absolute numbers of liquidity providers in the examined DEXs, most of them participate in only a minority of liquidity pools, and specifically in the pools with the highest trade size, possibly driven by respective financial incentives those particular pools offer relative to other pools.…”

“…Instead of order books, AMMs rely on liquidity pools where liquidity providers lock one or several crypto-assets in exchange for rewards, paid by traders using the pool's liquidity. Trading volumes in DEXs tend to follow the wider crypto-asset market volume trends, and particularly that of the Bitcoin, knowing that most crypto-asset prices tend to move in sync between themselves (Lahajnar and Rožanec, 2020 [5]) 6 .…”