Speaking to an audience at the University College London (UCL) Centre for Blockchain Technologies Wednesday (Oct. 19), Carolyn Wilkins of the Bank of England’s (BoE) Financial Policy Committee discussed crypto governance, DeFi and the need for regulatory oversight of both.
Wilkins acknowledged the success of Ethereum’s governance protocols, which recently enabled the long-awaited upgrade that saw the network transition to a Proof-of-Stake transaction mechanism. Nonetheless, she cautioned that there are “serious deficiencies in governance in the crypto ecosystem.”
Primarily, she discussed the fact that decentralization in the crypto ecosystem does not equate to democracy. Instead, voting rights in most blockchain projects are distributed among token holders according to a model that more closely resembles a system of company shareholders than it does an open democracy.
However, as crypto projects are not governed in the same way as corporations, Wilkins said that decentralization and the frequent anonymity of token holders raise questions of accountability and transparency. Additionally, she noted that concentrations of power arising from individuals owning a large stake in crypto projects that adheres to the shareholder model of governance are not subject to the same regulatory checks against abuse as is witnessed elsewhere.
Pointing to the U.S. Commodity Futures Trading Commission’s (CFTC) ongoing enforcement action against the Ooki decentralized autonomous organization (DAO), Wilkins suggested that liability for decentralized crypto projects is a rapidly evolving legal gray area.
Finally, she said there are “hard limits to how decentralized a system can become in practice.”
Pointing to the way broadly decentralized governance systems such as Polkadot and MakerDAO retain emergency powers held by assigned technical committees, Wilkins made the case that such mechanisms create an important protection against crypto-populism. She said they are useful when it isn’t practically feasible to gain the consensus of an entire community in the needed timeframe.
