Below the fold is the text of my brief introductory remarks with links to the sources. I will discuss the report in a subsequent post once I have studied it.
|3 pools control ETH|
|2 pools control BTC|
It is doubly so in that 14 years since Satoshi Nakamoto's magnum opus has shown these benefits are completely illusory, for two fundamental reasons:
- The permissionless blockchain infrastructure upon which these systems are based is necessarily slow, inefficient and expensive when compared to centralized systems performing the same functions. They are slow because they depend on gossip protocols for communication. They are inefficient because they require massive replication of resources. They are expensive because the only defense against Sybil attacks is to make mounting such an attack infeasibly expensive, and this requires that participation in the network be expensive.
- Partly because participation must be expensive powerful economic forces, such as economies of scale and network effects, mean that however "decentralized" their architecture, the practical implementations of blockchains and the systems layered on them are inevitably centralized around a small number of large participants. We observe this at the blockchain level, at the "smart contract" level, among exchanges, in money laundering, in the Gini coefficients of cryptocurrencies, and in numerous other aspects. Thus even if the alleged benefits of decentralization using permissionless blockchains were real, they would not be obtained in practice.
|Crypto "market cap"|
Why are they not regulated properly? Because the regulators have been gaslit and lobbied into acting as though they are "decentralized" when they aren't, and as though "decentralization" represents an innovative breakthrough with vast potential when it isn't.
|DeFi "value" locked|
|ETH transaction cost|
It would seem to be an existential issue for regulators if they can be rendered ineffective simply by smearing operations out across a large number of supposedly but not actually independent computers. Regulators should carefully distinguish between permissioned systems that are overtly centralized, such as Tether, and permissionless systems that claim to be decentralized, such as Ethereum. They should focus on the actual centralization of the latter.
Emily Nicolle summarizes the report's recommednations in DeFi Probes Should Focus on the Developers in Charge, Standards Body Says:
In the crackdown on decentralized finance, regulators should assume power is anything but dispersed.It seems the working group was listening to me and other skeptics.
That’s the message from the world’s top securities standards body, which recommended regulators home in on the people and organizations that directly influence or control areas like design, maintenance and finance in DeFi, which underpins the cryptocurrency industry.
It noted that in the case of so-called decentralized autonomous organizations, which often manage DeFi projects, less than 1% of a project’s token holders typically control 90% of the organization’s total voting power.