The DeFi protocol is not 100% decentralized from day one, but will become more and more decentralized over time. At the same time, there should be some mechanisms, such as the ability to activate a self-destruct switch to stop the operation of the protocol in an emergency, so as to protect users' funds.
All these DeFi protocols are open source and auditable. If the development company of an agreement decides to close/terminate the project, other companies/individuals can use the code of the agreement.
DeFi has room for improvement in terms of decentralization. And DAO (Decentralized Autonomous Organization) may be the best tool to further improve the degree of decentralization of DeFi products. DAO allows DeFi users to make decisions on major decision-making aspects, such as adding features to the DeFi protocol, or deploying a new version of the DeFi protocol, and so on.
The concept of DAO is the cornerstone of promoting DeFi projects to increase the degree of decentralization, but this does not mean that projects such as Maker and Uniswap have been 100% decentralized. On the contrary, although these DAO projects have set a path towards complete decentralization, there is still a long way to go to achieve this goal.
Why is DAO important for DeFi to achieve decentralization?
First of all, we need to explain the definition of DAO:
The membership of DAO is open, and is not limited to only specific groups/individuals to join;
DAO members/investors can propose decisions/vote on decisions, and any decision cannot be blocked or modified by a central authority;
DAO members directly or indirectly obtain economic incentives through participation, thereby ensuring the consistency of the incentive mechanism.
These characteristics of DAO are essential for realizing effective decentralization. In this sense, we can consider Bitcoin to be the most successful DAO. In the Bitcoin network, anyone can participate by running a node or just holding BTC. Anyone can propose, support or criticize the Bitcoin Improvement Proposal (BIP), and ultimately all
Everyone who participates can (at least indirectly) benefit from participating and keeping the system operating in accordance with the rules.
Similarly, these characteristics also make DAO an excellent governance mechanism to make DeFi products truly decentralized.