Romain Rossello

Abstract: Decentralized Finance (DeFi) platforms mainly choose as a governance structure to be Decentralized Autonomous Organizations (DAOs). Because they rely on frequent governance decisions, and because granular data on these decisions are available, I show how DeFi DAOs offer an interesting laboratory to study corporate governance. I find that large voters strategically influence votes. Relying on event studies, I put forward that the way in which they exercise their voting power signals whether their interests are aligned with those of minority token-holders. This information is then efficiently incorporated in the market valuation of the DeFi DAOs’ governance tokens. The first time a majority voter sways the decision against the votes of minority tokenholders causes on average a -12.77% weekly abnormal return. In line with corporate governance theory, the presence of blockholders in votes is positive. Their votes are associated with an average 1.7% weekly abnormal return. However, the first time a blockholder strategically votes in the last minutes of a proposal triggers on average a -9.65% weekly abnormal return. Leveraging an NLP algorithm on governance texts, I distinguish DeFi DAOs which advertised decentralization and righteous management and show that negative effects on token returns following first strategic voting occurrences are exacerbated for those DeFi DAOs. 

Abstract: While corporate governance theory predicts substantial voter-level heterogeneity in the willingness to pay for voting rights, empirical evidence has remained scarce due to data limitations and limited governance proposal heterogeneity in traditional finance. We use the new laboratory that is the governance of Decentralized Finance platforms where governance proposals are high-frequency and span a wide set of subjects to analyze over individual 230,000 votes and bring new supporting evidence of how voters' preferences shape their willingness to pay for voting rights. Voters opposing the prevailing outcome are willing to pay significantly more for voting power, with large variations across proposal subjects. Through a novel vote-level measure of the probability of being pivotal, we confirm untested recent corporate governance theory predictions that increasing pivotality fundamentally reshapes how preferences are valued, amplifying, attenuating, and even reversing average effects on the willingness to pay for voting rights. At the proposal level, we recover established corporate governance results to further validate our new laboratory.