The promise of decentralized finance (DeFi) was that it would replace often conflict-ridden financial intermediaries and hierarchies with automated systems that we could trust. The reality, however, is that DeFi has not eradicated conflicts or trust issues but shifted them into new, less-regulated domains such as decentralized autonomous organizations (DAOs).

In a new paper, I examine the inner workings of crypto-enterprises, or financial DAOs, highlighting key structural deficiencies such as the absence of internal monitoring mechanisms, the concentration of specialized knowledge, and misaligned incentives. These shortcomings, inherent to the cryptoenterprise model, often give rise to conflicts of interest. I argue that the emerging role of cryptogatekeepers—a new category of intermediaries in DeFi—can help address and counterbalance these governance failures.

Cryptoenterprises are financial blockchain-based entities that use smart-contract code not just to automate transactions, but also to structure decision-making. They offer a series of financial services and products such as swaps, derivatives, perpetual contracts, and lending services.

Instead of traditional boards or managerial hierarchies, they rely on so-called direct or liquid democracy, which shapes a broad range of organizational decisions—not just the major ones. In theory, all cryptoasset holders (retail investors) can vote on proposals. In practice, voting power tends to concentrate in the hands of insiders: cryptopromoters, developers, and key catalysts. Dispersed cryptoasset holders exercise limited control over the cryptoenterprise.

Without internal governance safeguards, such as independent oversight or a clear division of functions, this concentration of power leads to misalignments of incentives. Cryptoasset holders often lack the specialized, code-based knowledge required to fully understand the risks they face. Meanwhile, cryptopromoters often act in their own interests, without accountability, setting their own compensation for the services they provide to the cryptoenterprise: driving the project forward, attracting participants, establishing strategic decisions before raising capital, defining the organization’s purpose and scope, and selecting collaborators.

In my paper, I identify just a few of the conflicts that arise, such as the unilateral variation of governance rules, misappropriation of funds, and insiders’ self-serving compensation schemes. The hope that technology alone could replace trust and oversight has, in many cases, left dispersed cryptoasset holders exposed.

My analysis highlights how cryptopromoters (those in control of DeFi protocols) retain significant decision-making power while obscuring accountability, leading to agency problems reminiscent of traditional finance but without regulatory safeguards. At the same time, in the alternative market of DeFi, cryptogatekeepers can introduce a layer of oversight that compensates for the governance void. Cryptogatekeepers operate as traditional business organizations mediating between parties in DeFi. Among this new category of intermediaries, there are not only cryptoexchanges but also cryptoauditing firms, certifiers of information, wallet providers, oracles, and other oversight agents.

In my paper, I offer policy recommendations that place cryptogatekeepers at the core of efforts to promote integrity in the DeFi market. These recommendations include implementing a disclosure system of the cryptoenterprise structure and business model, which would disclose technical risks, financial and risk management information, and the use of digital identities through decentralized identity (DID) systems. The recommendations also include creating certification mechanisms and audit reviews, which would help reduce information asymmetries and the use of pseudonyms that currently shield misbehavior. In addition, the policies call for transnational regulatory approaches for overseeing anyone acting in a gatekeeping capacity, cryptointermediary registries,  cross-jurisdictional recognition for licensed cryptointermediaries, and standardized reporting frameworks to bolster accountability in DeFi.

While cryptoenterprises present an innovative organization model for financial services and products in DeFi, they cannot escape fundamental governance challenges. The best practices offered do not reflect a collection of consolidated industry practices. On the contrary, they offer a preliminary and foundational framework that could inform future regulatory compliance, risk assessment, and mitigation. These practices remain flexible and could be adapted to the culture and context of each organization and vary across the industry. The rise of cryptogatekeepers suggests that intermediaries in some form are inevitable and necessary to balance decentralization with investor protection and market integrity.

This post comes to us from Vanessa Villanueva Collao, a visiting fellow at the European University Institute of Fiesole and academic fellow-adjunct professor at Bocconi University. It is based on her recent paper “Cryptogatekeepers as a Response to Conflicts in Decentralized Finance,” available here.