Series: What Crypto Governance Actually Is (Part 3 of 5)

Early crypto narratives framed decentralization as the removal of centralized control.

The expectation was simple: if no single authority governs the system, power cannot concentrate.

But the governance crises of Bitcoin and Ethereum revealed something more structural.

Eliminating formal authority does not eliminate power.

It changes how power is exercised.

After those crises, networks faced a choice: embed formal governance mechanisms directly into the protocol, or allow decisions to emerge through informal social consensus.

These two approaches, on-chain governance and off-chain governance, have become the dominant models in cryptocurrency.

They do not eliminate power.

They structure it differently.

Networks faced a structural choice: embed formal governance mechanisms directly into the protocol, or allow decisions to emerge through informal social consensus.

These two crypto governance models dominate the ecosystem:

These approaches address different problems and create distinct vulnerabilities.

On-chain governance embeds decision-making directly into the protocol.

Token holders can propose changes.

Votes are recorded on-chain.

If a proposal passes, the protocol automatically executes the upgrade.

This model underlies many DAO governance systems.

Its appeal is straightforward:

Some networks, such as Tezos, built “self-amendment” into their protocols, allowing token holders to vote on upgrades implemented without requiring a chain split.

This design creates a clear trade-off: decision-making becomes transparent and automatic, but voting power is directly tied to token ownership.

To vote on protocol changes, you need tokens. More tokens mean more votes.

The governing rule is simple:

One token equals one vote.

In practice, this resembles shareholder voting in a corporation. The more tokens you own, the more influence you have over protocol decisions.

When voting power scales with token ownership, influence scales with wealth.

Large token holders can dominate proposals.

Exchanges that custody customer assets can vote with those holdings.

Early insiders accumulate disproportionate influence over time.

If voting power increases with token ownership, then concentration of influence is predictable. It follows directly from the incentive design.

Some ecosystems, such as Polkadot, attempted to mitigate this by introducing layered governance structures, including councils and committees alongside public referenda.

The result was increased procedural complexity and lower participation.

When voter turnout is low, concentrated token holders decide outcomes.

On-chain governance makes voting power publicly visible. It does not prevent its concentration.

Neither Bitcoin nor Ethereum embedded token-weighted voting into their base protocols.

There is no automatic on-chain ballot that determines protocol upgrades.

Instead, decisions about rule changes and upgrades are coordinated through social processes.

Developers draft improvement proposals.

Technical discussions unfold on GitHub, mailing lists, and forums.

Miners and validators signal support by choosing which version of the software to run.

Exchanges and infrastructure providers decide which chain to list and support.

This model is often described as “rough consensus,” meaning that changes move forward when enough key participants signal agreement.

The intended advantage is resilience.

Without a formal voting mechanism, there is no single governance contract or council that regulators or corporations can directly pressure.

But removing a formal voting layer does not remove hierarchy.

Decentralized does not mean leaderless. It means leadership is informal, reputational, and harder to remove.

In practice, influence concentrates around:

During the Bitcoin Block Size War, control over major discussion platforms and the reference software implementation shaped which proposals gained legitimacy. That was governance without a formal ballot.

Off-chain governance reduces the risk of capture through a single formal mechanism.

But it makes influence harder to measure.

There is no on-chain record of who persuaded whom in a private developer call.

There is no formal vote to remove a developer with repository access.

Authority emerges through reputation, coordination, and sustained participation rather than token ownership.

Authority in these systems is exercised through participation and reputation, not automated voting rules.

Every crypto governance model concentrates power somewhere.

The difference is where leverage sits.

Power aggregates around:

Consider the mechanics.

If a single exchange holds 12% of the circulating supply and votes with customer tokens, it can swing close decisions without customers ever participating directly.

If a whale acquires a large governance position ahead of a proposal, voting influence scales instantly with capital deployed.

Blockchain voting is transparent.

But transparency does not neutralize capital dominance.

It formalizes it.

The governance process becomes legible — and wealth becomes executable influence.

Power aggregates differently.

Not through token ownership, but through control of coordination channels.

During the Block Size War, a single reference implementation — Bitcoin Core — became the gravitational center of influence. If your proposal was not merged into that codebase, your version struggled to gain adoption.

No formal ballot.

But enormous structural leverage.

Off-chain governance amplifies technical expertise and reputation capital.

It reduces wealth dominance.

It increases insider influence.

Power does not disappear in decentralized systems.

It migrates toward whoever controls:

The architecture determines which of those dominates.

Decentralization does not eliminate authority.

It fragments it.

On-chain governance turns ownership into voting weight.

Off-chain governance turns access into influence.

Each model solves one vulnerability and creates another.

Crypto governance exposed something most political systems obscure:

Power always accumulates at leverage points.

Decentralization doesn't eliminate them. It relocates them.

Where does influence concentrate?

Who can realistically change the rules?

Who absorbs the cost when governance fails?

These are structural questions, not ideological ones.

The models are clear in theory.

But theory is not the test.

What matters is how these governance architectures perform under pressure.

Some chains formalized voting to prevent a recurrence of the DAO crisis.

Others doubled down on informal consensus to preserve ideological purity.

Each made tradeoffs.

Each paid different costs.

To understand what those trade-offs look like in practice, we must examine real implementations—platforms that turned governance theory into operational systems.

On-Chain Governance Examples

Hybrid Approaches

Political Philosophy Context