There are about 100 members who participate in the governance calls for MakerDAO.

About half of the tokens used on a recent Monday vote came from five addresses.

Decentralization is the core of the cryptocurrency sector, and this has attracted the likes of many companies. MakerDAO, for example, is working to diversify its assets, moving into multi-collateral stablecoin loans, which is a big milestone for this movement. However, there is still a long path ahead before key decisions are decentralized for the platform as well.

In the past, the collateral for loans secured through MakerDAO could only be done through the use of ether. However, MakerDAO recently also decided to work with the Basic Attention Token and added the option of DAI savings. In the old version of the DAI stablecoin, the asset was considered to be single collateral, referred to as SAI. Now, the term DAI will be used interchangeably, allowing providers to convert it. The GitHub for MakerDAO recently started encouraging consumers to freely transition from SAI to Dai, giving users more choices.

Despite this availability, the protocol is largely controlled by a small group of individuals. The transition proposal received a vote on Monday, including over 150 unique MKR token addresses, making it one of the highest turnouts for voters thus far, according to president Steven Becker. The vote involved 80,000 tokens with an estimated value of $662 each, though over half of these tokens came from five addresses. Basically, the votes from users with lower holdings were more symbolic than anything else. During an interview, Becker stated,

“It was really important to showcase what governance [participants] have done in selecting BAT, in order to figure out what to do going forward with other collateral types.”

Presently, the voters who took over the BAT choice aren’t being identified. However, Becker stated that the discussions during these public calls included “liquidity in secondary markets,” referring to Coinbase and other exchanges. While the protocol is open source, there are usually individuals working for traditional firms to build accessible portals.

Unfortunately, though there are very few people that are funding the movement, they hold influential power, which means that decentralized finance is still leaps and bounds away from actually happening. The present DeFi ecosystem is mostly made up of “centralized products and services,” and crypto veteran Meltem Demirors points out that they offer a better experience for users than if they were to directly interact with blockchain protocols.

Demirors explained, “We are hopeful that over time, disintermediation will become possible.” He also said that the presence of “market forces” and regulators have ultimately compelled “intermediation and centralization by service providers.” Instead of getting stuck on immediate decentralization, Demirors believes that the DeFi companies should be primarily focused on being transparent about their roles in the ecosystem and fees charged, which frequently intertwine.

Despite what DeFi might mean to the public, it seems that MakerDAO has the power to “terminate or suspend” a user from accessing DAI, and the lending pools of Compound are custodial, which could have something to do with compliance. Employees of companies like Coinbase and the Maker Foundation consistently are involved with the technology after all, even if they don’t own any part of it.

Demirors, in 2018 when MakerDAO had only been around for four years, stated that Coinbase was feigning growth with the use of “fancy financial engineering.” The people that use DeFi are hardly well known, but the individuals that benefit the most appear to be the ones that can influence the system the most. Even the founder of Compound, Robert Leshner, stated that the most common protocol users are “teams in crypto that have stockpiles of DAI and crypto.”

Maya Zehavi, a blockchain consultant, agreed with the recycling theory suggested by Demirors, and tweeted that it is a fairly public secret within the crypto community that the Ethereum ecosystem is being held up by MKR market makers with externalized risk.

We know MKR uses market makers & who. Why not just publish the trades, volumes in the name of full transparency before migrating to MCD & raising the risks by several levels of magnitude? — Maya Zehavi – DePi 🍕 (@mayazi) November 11, 2019

Zehavi compared the current model to the model of a central bank. The largest liquidity provider that is presently involved in the Compound ecosystem already offered over $1 million in DAI, and it looks like they’ve been swapping parts of the pool with the USDC stablecoin, which Coinbase contributed to in its development. As recently as September, Coinbase stated that it was planning on “investing USDC directly in the [Compound] protocol.”

Clearly, the current stage of the DeFi system is hardly decentralized, but the amount of capital at stake is substantial. DeFi Pulse reports that about $660 million is locked up in smart contracts in the form of cryptocurrency. Last year, there was only $220 million in ether involved in the systems.

However, Tether co-founder William Quigley stated that, at least comparatively, the DAI ecosystem seems to be much more decentralized than the stablecoin that came before it. Of the current DeFi, Quigley stated,

“I would call it quite decentralized, aside from the oracle system. On-chain leverage is a fantastic creation and I credit MakerDAO with that.”

The idea that a Coinbase “mafia” is in charge in the DeFi sector is challenged by the addition of BAT, as BAT is the first asset that has been supported outside of ether. Though there are a select group of DeFi leaders, none of the investors that are presently known are in those positions. Most cryptocurrency investors remember the massive BAT token sale in 2017, selling out within seconds. There’s no confirmation that DeFi investors were involved, though 1confirmation confirmed the opposite, stating that it wasn’t involved in the BAT sale. Quigley commented,

“I have my suspicions as to why BAT was chosen as the first collateral, and that has to do with voting. I haven’t seen a lot of communication among them [BAT fans] saying, ‘Wow, we really want this.’ But someone is going to use it. And there will probably be some sort of arbitrage.”

He also said that the DAI DeFi system is more decentralized and accessible than the previous stablecoin coins that only had the support of a few companies, even if the turnout amongst voters is low and even biased.

Realistically, anyone that has some software engineering skills and access to the internet would have the ability to create an interface with which to access the protocols. Though only a theory, Andreessen Horowitz partner Chris Dixon confirmed that this possibility is what inspired his firm to make investments in Coinbase and Compound. Dixon remarked,

“Compound is a lending protocol that is open to anyone in the world, that disintermediates banks and allows anyone to earn interest on their money.”

Not dismissing their efforts, CEO Taylor Monahan of MyCrypto states that the loan system used by MakerDAO is “pretty good” at informing users of the possible risks involving these loans. Monahan added, “When you think about what’s been accomplished, it’s super exciting. You can’t undermine that.”

There are already at least 1,278 borrowers on Compounds website, and 1,960 DAI loans through November with MakerScan, and these projects consistently push for users to participate with open-source code and public polls. Becker stated, “To the point about participation, that is a general condition that needs to develop as the protocol develops,” which means that “up to 100 people and organizations” are involved in the open governance calls. A year ago, these calls didn’t even include a total of ten people.

Even with around 100 participants, less than a third of these individuals who manage to dominate across the top DeFi platforms with liquidity and voting power. Monahan states that the process is too difficult for her to prioritize voting, and developer Georgios Konstantopoulos agrees with her that the new languages advertising automated services aren’t an accurate description for their current security efforts.

Decentralization is a concept that requires that no single entity hold enough power to be fully in control, which is a principle that Bitcoin was built upon. Realistically, the point of the cryptocurrency industry is to utilize this structure, and MakerDAO is working to get there. While they’ve made substantial progress, the platform hasn’t quite met the mark.