Swimming with Whales: Analysis of Power Imbalances in Stake-Weighted Governance

2026-05-18

AI Summary

This study addresses the imbalance between stake and voting power in token-weighted governance, where large stakeholders may disproportionately dominate decision-making. For the first time, it systematically applies the Penrose–Banzhaf power index to on-chain governance analysis, integrating computational social choice theory with empirical data from Project Catalyst. The findings reveal significant and fine-grained power concentration under current proof-of-stake mechanisms. Theoretically, the paper proves that perfect alignment between economic stake and decision-making power is unattainable, yet such alignment can be approximately achieved in expectation under specific conditions. These results provide both theoretical foundations and empirical support for designing more equitable and decentralized governance protocols.

Abstract

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.

Problem

• power imbalances
• stake-weighted voting
• Proof-of-Stake
• governance
• Penrose-Banzhaf power index

Innovation

• stake-weighted voting
• power imbalance
• Penrose-Banzhaf index
• computational social choice
• Proof-of-Stake governance