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Risks inherent within various models of decentralised crypto networks: `A framework for an objective discussion about the level of decentralisation in crypto networks and risks to true decentralisation`

Author

Listed:
  • Lüssem, Julien

    (Senior Lead Experience Strategist, Oliver Wyman, Germany)

  • Aziz, Abdel

    (Senior Manager, The Digital Practice, Oliver Wyman, France)

  • Frías, Antonio

    (Knowledge Expert, Oliver Wyman, UK)

  • Koyluoglu, Ugur

    (Partner, Vice Chairman for Financial Services, Oliver Wyman, USA)

Abstract

Decentralisation is not a binary concept, but a spectrum. This paper presents a starting point for an objective discussion about the levels and risks related to decentralisation across ecosystem, consensus protocol, tokens and network distribution attributes for the largest networks of today — such as Bitcoin, Ethereum, Solana, Cardano, BNB Smart Chain, Polygon, Polkadot, Uniswap, Compound, AAVE, Curve, MakerDAO and Lido. The paper argues that it is imperative to identify, mitigate, monitor, measure and manage risks for a successful decentralised network to meet its business objectives, and emphasises that the true degree of decentralisation and risks in the network are shaped by the strengths and weaknesses of the design, and further affected by market forces creating a wide range of operational, technological, financial, strategic, legal and regulatory, reputational and business risks, among many.

Suggested Citation

  • Lüssem, Julien & Aziz, Abdel & Frías, Antonio & Koyluoglu, Ugur, 2023. "Risks inherent within various models of decentralised crypto networks: `A framework for an objective discussion about the level of decentralisation in crypto networks and risks to true decentralisatio," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 16(4), pages 354-382, September.
    • Handle: RePEc:aza:rmfi00:y:2023:v:16:i:4:p:354-382
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    More about this item

    Keywords

    decentralisation; digital assets; risk management; decentralised autonomous organisations; DAOs; governance; centralisation; blockchain;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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