Is DeFi really as decentralized as advertised?

The explosion of decentralized finance (DeFi) over the past decade has opened up a new vision of a borderless, transparent financial system that completely eliminates traditional intermediaries such as banks. However, as this ecosystem enters its maturity stage in 2025 and 2026, analytical reports from major financial institutions and independent research by Tan Phat Digital have raised major questions about its true decentralization. Operational reality shows that DeFi often operates in a hybrid model, combining elements of centralized finance (CeFi) to maintain performance and legal compliance, leading to a phenomenon known as the "illusion of decentralization".

The nature and theoretical measures of decentralization

In its core theory, DeFi relies on blockchain and smart contracts for automation peer-to-peer (P2P) transactions, allowing users to fully control assets through personal wallets without the need for permission from any central authority. However, to determine whether a protocol is truly decentralized, the research community has developed a complex set of quantitative metrics that measure the distribution of power and assets within the system.

The most popular metrics include the Nakamoto Coefficient, Gini Coefficient, and Shannon Entropy. The Nakamoto Coefficient represents the minimum number of entities that can cooperate to gain control of more than 50% of the network, while the Gini Coefficient measures the degree of inequality in token ownership. A Gini coefficient close to 1 indicates an extremely high concentration of assets in the hands of a small number of actors, a situation commonly seen in today's token economies.

Decentralization index of major Blockchain networks (Early 2026 data):

Solana: Uses Proof of Stake mechanism; The Nakamoto coefficient is 19; there are 784 Validators; Total staked value reached 52.22 billion USD; Governance according to the Off-chain model.
BNB Chain: Using Proof of Staked Authority mechanism; The Nakamoto coefficient is 7; there are 45 Validators; Total staked value reached 22.56 billion USD; Governance according to the On-chain model.
Polkadot: Uses Nominated Proof of Stake mechanism; The Nakamoto coefficient is 178; there are 600 Validators; Total staked value reached 1.51 billion USD; Governance according to the On-chain model.
Avalanche: Using Proof of Stake mechanism; The Nakamoto coefficient is 29; there are 755 Validators; Total staked value reached 2.52 billion USD; On-chain management.
Cardano: Uses Proof of Stake mechanism; The Nakamoto coefficient is 21; there are 2,146 Validators; Total staked value reached 7.54 billion USD; Governance according to the On-chain model.
Tron: Uses Proof of Stake mechanism; The Nakamoto coefficient is 14; there are 27 Validators; Total staked value reached 12.62 billion USD; On-chain governance.

In addition to traditional metrics, the newly introduced Apokedro Index provides a more comprehensive view by evaluating the probability of all subsets of nodes being able to centralize control together. The need for these metrics stems from the increasing complexity of decentralized autonomous organizations (DAOs), where centralization of governance or access to resources can lead to catastrophic risk.

The State of DeFi Governance: The Rise of the Delegate Class

One of the most important aspects of DeFi is community governance through DAOs, where governance token holders have the right to propose and vote on protocol changes. However, analysis of the performance of leading DAOs such as Aave, Lido, Uniswap and Arbitrum in 2025 shows a worrying trend of centralization.

Data indicates that the number of governance proposals at the six largest DAOs is down between 60% and 90% compared to the previous year, reflecting voter fatigue and a shift to a more centralized decision-making model. While the number of individual voters has decreased, the total number of votes cast has increased, suggesting that power is shifting to "delegates" – professional entities that hold or are delegated large amounts of tokens.

At large DAOs, less than 1% of wallets regularly control up to 90% of the voting power, creating a governance structure that resembles an oligarchy rather than a direct democracy. This centralization allows venture capital funds (VCs) and financial whales to dominate key decisions, from treasury management to setting risk parameters.

Control mechanism through Admin Keys and Multisig

While DeFi protocols are advertised as running automatically on the source code, most projects still maintain control of the development team through “management keys” "admin keys" or multi-signature wallet (multisig). These tools allow the core team to pause transactions, upgrade smart contracts, or change sensitive parameters in an emergency.

However, the existence of these mechanisms creates centralized weaknesses. If the administrative keys are compromised or the development team has malicious intentions, the entire assets in the protocol could be at risk. 2025 security reports indicate that 47% of total losses from DeFi attacks stem from compromised administrative accounts or errors related to private key management.

Technical risks and reliance on centralized infrastructure

DeFi's decentralization is often severely impacted by its reliance on infrastructure components that are not truly decentralized. The two most critical elements are Oracle systems that provide price data and centralized stablecoins that serve as a liquidity platform.

The Dangers of Oracle Manipulation

Oracle is the bridge that provides data from the real world into the blockchain. Many DeFi protocols still rely on centralized price data sources or low-security oracles, leading to price manipulation attacks through flash loans. In the period 2024-2025 alone, Oracle attacks caused an estimated $380 million in damage. When an Oracle is manipulated, it can erroneously trigger mass asset liquidations, causing chain disruptions similar to asset sell-offs in traditional finance.

Centralized Stablecoin Dominance

The current DeFi ecosystem relies heavily on centralized stablecoins such as USDT and USDC as collateral and primary means of exchange. These stablecoins are controlled by companies that have the power to freeze any wallet address upon request by law enforcement, which directly contradicts the decentralized and censorship-resistant nature of DeFi. The USDC peg loss in March 2023 sent shockwaves throughout the DeFi market, demonstrating that the stability of decentralized systems is tightly tied to centralized entities.

Security risk analysis and attacks in 2025

DeFi continues to be the top target of cybercriminals with increasingly sophisticated techniques. Total losses from blockchain exploits reach $2.36 billion in 2024 and increase to $2.47 billion in the first half of 2025 alone.

Common attack vectors

Vulnerabilities in smart contracts remain the leading cause of asset loss. Reentrancy attacks, although known for a long time, continue to occur due to the complexity in the logic of new protocols. In addition, input validation errors and logic errors in calculating collateral values are frequently exploited by hackers to withdraw funds from liquidity pools.

List of typical DeFi attacks and scams in 2025:

Nobitex (June 18, 2025): Estimated loss of 90 million USD. Caused by theft of private keys and administrative information.
Resupply (June 26, 2025): Estimated damage is 9.5 million USD. Caused by exploiting smart contract errors.
ALEX Protocol (June 6, 2025): Estimated damage is 8.3 million USD. Caused by an attack on the vault authorization system.
HyperVault (September 24, 2025): Estimated damage is 3.6 million USD. Form of Rug pull (Withdrawal of capital and deletion of social network channels).
Balancer v2 (November 3, 2025): Estimated damage of 120 million USD. The cause was a loss of accuracy in mathematics.
Abracadabra (January 1, 2025): Estimated damage of 1.8 million USD. Flash loans manipulate collateral prices.

The complexity of cross-chain bridges also creates major vulnerabilities. Private key management and errors in the signature verification process of bridge participants have led to losses of hundreds of millions of USD.

The trend towards centralization due to regulatory pressure: KYC and Permissioned DeFi

One of the strongest forces pushing DeFi away from its original decentralization is the intervention of global regulators. To maintain access to capital from traditional financial institutions and comply with anti-money laundering (AML) regulations, many DeFi protocols have begun integrating know-your-customer (KYC) processes.

The Birth of Permissioned Pools

Many large protocols such as Aave and Uniswap have developed institutional-specific versions where only wallets have passed audits New identities are allowed to participate in transactions. For example, Coinbase Verified Pools uses “hooks” in Uniswap v4 to enforce KYC processes right at the smart contract level. This creates a stark fragmentation: a truly free DeFi layer and a "permissioned" DeFi layer that caters to financial institutions.

The CeDeFi Model: The Inevitable Hybrid

CeDeFi (Centralized Decentralized Finance) has emerged as a compromise solution, combining the transparency and efficiency of DeFi with the user protection and compliance of CeFi. CeDeFi platforms allow users to choose between holding their own keys or using the platform's custodial service, while also providing real-time audit reports and proof of reserve to increase trust. According to the 2025 survey, more than 60% of fintech leaders see CeDeFi as the "main bridge" to bring digital finance to real life in the next five years.

DeFi Economics 2025: Concentration of Capital Flows and Revenue

Even though the DeFi market has thousands of tokens, economic concentration is still very high. By 2025, total value locked (TVL) in DeFi will reach around $117-140 billion, but the majority of this capital is concentrated in just a handful of "blue-chip" protocols.

Top DeFi protocols ranking by TVL (June 2025):

Rank 1 - Aave V3: Lending Sector (Lending); TVL reached 30.25 billion USD; 30-day change rate increased by 2.54%.
2nd place - Lido: Liquid Staking sector; TVL reached 27.60 billion USD; 30-day change rate increased by 4.15%.
3rd place - EigenLayer: Restaking sector; TVL reached 14.49 billion USD; 30-day change rate down 3.36%.
Rank 4 - Etherfi: Liquid Restaking sector; TVL reached 9.41 billion USD; The 30-day change rate is up 2.69%.
Rank 5 - Ethena: Aggregate Stablecoin Sector; TVL reached 7.45 billion USD; 30-day change rate increased 0.05%.
Rank 15 - Uniswap V3: Exchange (DEX) Sector; TVL reached 1.98 billion USD; The 30-day change rate increased 2.50%.

On the toll side, the concentration is even more pronounced. In 2025, the top 10 protocols account for 60% of total fees collected, and the top 20 account for 80%. This dominance creates a high barrier for new projects to enter the market, leading to a market structure that increasingly resembles the traditional banking industry.

Analyzing the Impact of Real Assets (RWA) and AI on Decentralization

The integration of real assets (RWA) into DeFi is an explosive trend in 2025 that brings new challenges. Tokenization of assets such as government bonds requires close connection to regulatory frameworks and offline verification entities.

Protocols like MakerDAO have shifted heavily to investing in RWA to increase stability. However, the management of these assets is often delegated to expert councils, reducing direct community control. Besides, the rise of AI in DeFi (DeFAI) helps optimize profits but also raises questions about the transparency of "black box" algorithms and the ability to centralize control in the hands of advanced AI model owners.

The truth about DeFi: Real benefits and personal responsibility

Despite signs of centralization, Tan Phat Digital commented that DeFi still brings core values that traditional finance cannot provide. The transparency of the blockchain ledger allows anyone to check the flow of money in real time. Composability allows developers to build complex financial products by connecting protocols like Lego blocks.

However, users face a great deal of personal responsibility. Managing your wallet yourself means that if you lose your private keys, you lose your assets forever. Additionally, extremely high volatility and the risk of automated liquidations require users to have deep technical knowledge.

Detailed comparison of financial models (2026 Context):

About Control: DeFi (Users keep their own private keys); CeFi (Asset Holding Exchange); CeDeFi (Flexible options between self-keying or escrow).
About Transparency: DeFi (Absolute, on-chain data); CeFi (Low, depends on corporate reporting); CeDeFi (High, through public proof of reserve).
About Compliance (KYC): DeFi (Zero or minimal); CeFi (Required by law); CeDeFi (Built-in for legal compliance).
About Key Risks: DeFi (Smart Contract Source Code Errors); CeFi (Bankrupt or fraudulent exchange); CeDeFi (Mixed risks from both technical and human).
About Customer Support: DeFi (No direct support); CeFi (With professional support team); CeDeFi (Provides basic support services).
About Accessibility: DeFi (Permissionless); CeFi (Account approval required); CeDeFi (Authentication required to use premium features).

Frequently Asked Questions (FAQ)

What is DeFi in its simplest definition? DeFi (Decentralized Finance) are financial services built on blockchain, operating automatically through smart contracts without the need for banks or intermediaries system.
Why is DeFi still important in 2026 despite its risks? Because it supports real trading, lending, and payments with sustainable fees and is attracting huge interest from financial institutions thanks to its superior transparency compared to legacy systems.
Does DeFi really completely eliminate intermediaries like advertising? Not really. Despite eliminating banks, DeFi still has many new layers of intermediaries such as software developers, data-providing oracles, and centralized stablecoins as liquidity platforms.
What are the biggest risks facing DeFi users today?Bugs in smart contract source code, market liquidity shocks, DAO governance failures, and uncertainty around global regulatory regulations.
What is CeDeFi and how is it different from pure DeFi? CeDeFi is a hybrid model between CeFi and DeFi. The main difference is that CeDeFi requires KYC (know your customer), has clear legal compliance and offers flexible asset custody options instead of being completely self-custodial like DeFi.
How to know whether a blockchain network is highly decentralized or not? Researchers often use the "Nakamoto Coefficient" - an index that measures the minimum number of entities needed to take control or disrupt the network. The higher the coefficient, the more decentralized the network.
Why is decision-making power in DAO organizations centralized? Due to the "one token - one vote" model, which leads to the dominance of venture capital funds (VCs) and "whales" owning large amounts of tokens, combined with the fatigue of small voters leading to the delegation of authority to professional delegates.
How serious was the Balancer v2 attack in late 2025? Hackers exploited rounding errors in smart contract mathematics to withdraw more than 120 million USD from liquidity pools on various blockchain chains in just under 30 minutes.
How will AI (DeFAI) change DeFi in the future? Agents AI (AI agents) can automatically execute complex trading orders, optimize profits from providing liquidity and manage portfolio risks 24/7 without the need for manual human intervention.
What is the legal situation of DeFi in Vietnam today? From January 1, 2026, the Digital Technology Industry Law (DTI Law) officially took effect, recognizing it for the first time. Digital assets and cryptoassets are legal to exchange and invest in Vietnam.

Towards an adaptive financial ecosystem

Comprehensive analysis of the DeFi ecosystem in 2025-2026 shows that the concept of "decentralization" is being redefined. Instead of an absolute state, decentralization is now seen as a dynamic spectrum, where protocols adjust the level of control to balance the ideal of freedom and operational reality.

The team of experts at Tan Phat Digital assess that DeFi is actually moving towards a professionalized model, where governance is performed by competent delegates, risk is managed by AI and security experts. While this may disappoint purists, it is a necessary step for DeFi to scale globally.

The truth is that DeFi still offers a strong alternative to traditional banking thanks to its transparency and efficiency. However, users need to get rid of the "decentralization illusion" to properly evaluate the potential risks. Distinguishing between truly innovative protocols and disguised centralized projects will be the most important skill for any investor in the new era of digital finance.