Decentralised Finance's timocratic governance: The distribution and exercise of tokenised voting rights

Ethereum's public distributed ledger can issue tokenised voting rights that are tradable on crypto-asset ex-changes by potentially anyone. Ethereum thus enables global, unincorporated associations to conduct gover-nance experiments. Such experiments are crucial to Decentralised Finance (DeFi). DeFi is a nascent field of unlicensed, unregulated, and non-custodial financial services that utilise public distributed ledgers and crypto-assets rather than corporate structures and sovereign currencies. The inaugural Bloomberg Galaxy DeFi Index, launched in August 2021, included nine Ethereum-based projects - non-custodial exchanges as well as lending and derivatives platforms. Each project is governed, at least in part, by unregistered holders of tokenised voting rights (also known as governance tokens). Token-holders typically vote for or against coders' improvement pro-posals that pertain to anything from the allocation of treasury funds to a collateral's risk parameters. DeFi's governance thus depends on the distribution and exercise of tokenised voting rights. Since archetypal DeFi projects are not managed by companies or public institutions, not much is known about DeFi's governance. Regulators and law-makers from the United States recently asked if DeFi's governance entails a new class of "shadowy" elites. In response, we conducted an exploratory multiple-case study that focused on the tokenised voting rights issued by the nine projects from Bloomberg's inaugural Galaxy DeFi index. Our mixed methods approach drew on Ethereum-based data about the distribution, trading, staking, and delegation of voting rights tokens, as well as project documentation and archival records. We discovered that DeFi projects' voting rights are highly concentrated, and the exercise of these rights is very low. Our theoretical contribution is a philosophical intervention: minority rule, not "democracy", is the probable outcome of token-tradable voting rights and a lack of applicable anti-concentration laws. We interpret DeFi's minority rule as timocratic.