THE GOVERNANCE LAYER OF THE LEADING DEFI PROTOCOLS: A REVIEW OF THE LITERATURE
Keywords:
Blockchain, Decentralized Finance, DeFi, Decentralized Governance, DeFi EcosystemAbstract
The DeFi ecosystem consists of a number of layers that enable it to operate. Although each of these layers is critical, it is the protocol layer that is responsible for handling the decentralized processes. Smart contracts and other decentralized applications are enabled by protocols, which are standardized codes that enable peer-to-peer communication between players in the market. A growing number of decentralized applications (dApps) are being developed to solve technical issues and meet user needs in the field of decentralized finance. In essence, these applications represent decentralized versions of traditional financial institutions such as currency exchanges, lending/borrowing institutions, and insurance companies, as well as prediction markets and asset management firms. As the cryptocurrency world changes rapidly, it is hard to predict what other platforms will emerge. By using blockchain-based tools, decentralized finance protocols emulate banking, investment, and trading solutions as well as provide a framework that creates incentives and conditions to develop an alternative financial services market. This study examines the governance layer of five leading DeFi protocols based on literature reviews. Specifically, this study examines the governance layer of these protocols, its significance, along with their limitations, challenges, and risks, and suggests regulatory avenues. An analysis of five selected protocols representing three different classes of DeFi was conducted in relation to what the protocols permit (e.g., decentralized exchanges, lending protocols, and asset management). The results show that, in order to address traditional governance challenges, DeFi DAOs need legal recognition.
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Copyright (c) 2023 Tanuj Surve `, Amit Tyagi , Guneet Kaur (Author)
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