Swimming with Whales: Analysis of Power Imbalances in Stake-Weighted Governance
For blockchain governance designers, this work quantifies the extent of power concentration in stake-weighted voting, revealing that current systems may be less democratic than assumed.
The paper analyzes power imbalances in stake-weighted governance of PoS blockchains using the Penrose-Banzhaf power index, finding that perfect alignment between power and stake is unattainable but can be approximated under specific conditions, with empirical data from Project Catalyst showing significant imbalances.
Voting methods weighted by stakes are the fundamental governance paradigm in Proof-of-Stake (PoS) blockchains. Such a paradigm is known to be prone to power distortions: a few users possessing large stakes may completely control decision making, even without owning the totality of the stakes. We study this phenomenon through the lens of computational social choice, focusing on the extent of power imbalances in stake-weighted voting when power is quantified using the Penrose-Banzhaf power index. Our work presents both analytical and empirical contributions. Analytically, we demonstrate that while a perfect alignment between power and relative stake ownership is generally unattainable, it can be approximated in expectation under specific conditions. Empirically, using data from a real-world on-chain governance system (Project Catalyst), we provide a more fine-grained understanding of the power imbalances that are likely to occur in current stake-weighted governance systems.