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Governance Risks
Mitigate governance risks with this analysis.

Key Risks

Networks and protocols that are governed by their token holders are subject to all governance decisions, including malicious ones.

Token Holder Distribution

Token holder distribution is the single most important variable when assessing the governance risk of a protocol. A protocol whose majority of tokens is held by a single entity is completely reliant on this entity. We are analyzing the on-chain token holders/hash rate distribution of a network in order to determine how centralized it is.

Governance System

The governance system that a protocol uses decides when a protocol change takes place. It can also pose significant risks, e.g. when only low participation in governance votes is needed to force a change in the protocol.

Execution of Governance Decision

Who is executing governance decisions on-chain and who has access to a protocol’s treasury are essential questions here.

Governance Track Record

Risk Analysis

Item
Weighting (Total of 12)
Token Holder Distribution
6
Execution/Access
3
Governance System
1.5
Track Record
1.5

Token Holder Distribution

We do an on-chain forensic investigation of token holders, and token vesting schedules and determine how well-distributed a token’s holder base is. Based on this assessment, we give out 0-6 points.

Execution of Governance Decision

We determine who has access to a protocol’s treasury and executes decisions.
  • Multi-sig wallet + smart contract execution: 3 points
  • Multi-sig wallet + multi-sig wallet execution: 1.5 points
  • Multi-sig wallet + unknown execution: 1 points
  • No multi-sig wallet use: 0 points

Governance System

We do a qualitative assessment of the governance system implemented and how it relates to the current token holder distribution: 0-1.5 points

Track Record

We assess the participation of a protocol’s community in discussions around governance, and their participation and do a qualitative analysis of how previous governance votes have played out and whether there have been any incidents: 0-1.5 points