Just how much power do crypto CEOs actually have?

Crypto CEOs from Cardano, Binance, and Ripple are using their knowledge of decentralized blockchains to speak out in the media.

Crypto CEOs from Cardano, Binance, and Ripple are using their knowledge of decentralized blockchains to share in the media. How big is their power, really?

According to the Cambridge Dictionary, a chief executive officer (CEO) holds the "most important position in a company." This is because they are primarily responsible for steering the company and receive mandatory reports from all other departments.

What defines blockchain isn’t inherently centralized or especially democratic. Yet both traits are claimed by nearly every project in the crypto world. So what power do CEOs have over crypto companies?

It’s not the blockchains themselves that give CEOs power

In most cases, there is more than one driving force behind a crypto project. Depending on the organization, one or more entities are overseeing it in the background, often known as "foundations" or "labs" — think of the IOTA Foundation backing the token of the same name.

On one hand, they try to attract more developers and projects to the blockchains. On the other, they influence political and economic decision-making and educate stakeholders about the projects. Each of these entities has its own top boss.

In Cardano’s case, the back-end entities include EMURGO, the Cardano Foundation, and Input Output Hong Kong (IOHK). EMURGO’s CEO is Ken Kodama, the Cardano Foundation is led by Frederik Gregaard, and Charles Hoskinson is CEO of IOHK.

Each CEO, whether from Cardano or another protocol, is periodically asked to provide statements and assessments to the media. Rightly so, because by definition these CEOs are largely responsible for the direction and priorities of the companies, aren’t they?

Do CEOs control blockchains?

The companies are led by their CEOs, and they play a major role in developing the decentralized platforms. But they don’t have decision-making authority over the protocols themselves, if they’re programmed that way. Through their consensus mechanisms and tokens, most blockchain protocols try to give users a say and distribute power across the network.

Currently, most blockchains rely on a proof-of-stake consensus mechanism. This enhances decentralization insofar as developers ensure anyone can participate in the network. Through staking, the owner gains the right to participate in votes on the network’s development.

The rule is: one token, one vote. At the same time, rewards are paid for the total number of tokens held, at a pre-set percentage. This is the flip side of Proof of Stake for decentralization. Because the percentages mean stakers are paid based on their stake, existing power structures stay in place. Simply put: someone who stakes a large amount of tokens gets more tokens than someone with a smaller stake. Since both receive proportionally the same number of tokens, there’s no change in governance rights.

If we look at the biggest proof-of-stake blockchains by market cap in terms of token distribution, XRP stands out with an unusually high concentration. With more than 80 percent of XRP held by the top 50 holders, governance power is effectively "shared" among just a few addresses.

The situation is different with Cardano, where the top 50 holders own roughly ten percent of all available ADA coins. Cardano thus has by far the lowest concentration in this category.

So why do CEOs have influence?

One reason for the high level of centralization is that the CEOs are often the founders or developers behind the respective projects. Since only a few people are typically involved in building blockchains, they initially own the majority of all existing tokens.

In Cardano’s case, the protocol was developed by Charles Hoskinson and Jeremy Wood. After coding, they brought in more developers to support their idea. They participate in the network as validators and hold ADA coins in line with their stake. Over time, more users joined who neither stake nor validate but still owned coins.

The situation looks different with Binance Coin (BNB). The network remains highly centralized here. The top 50 Binance Coin holders own more than 95 percent of the available coins. A large share of these top 50 is actually on the Binance exchange itself — more on that later.

Because the exchange, via Binance funds, controls a big stake, it can strongly influence decisions that serve its own interests. This access makes Binance CEO Changpeng "CZ" Zhao one of the most powerful crypto CEOs in the world. Regulators around the world, however, are not sure this is legal. Zhao, who Bloomberg ranked among the world’s 10 richest people earlier this year, has previously faced accusations of tax evasion.

Stakes can be delegated

The top addresses, however, must be viewed with care. Because often the wealthiest addresses point to the biggest crypto exchanges. These aren’t necessarily the true owners, but rather the "managers" of the coins for their users.

This gives the impression of a single address, when it’s really many separate addresses. At the same time, the numbers can be misleading in the other direction as well — for example, in Cardano where several wallet addresses belong to the same owner. The top 100 accounts hold roughly one-sixth of the total available coins.

Also to note in practice: just because many addresses can participate in the sampling doesn’t mean they will. When considering decentralization and power, you have to look closely at the validating nodes.

The result is shocking for the uninformed: in Binance’s case, for example, only 21 nodes participate in Binance token decisions. Zhao, who can always mobilize Binance’s deposits for staking mass, gains a huge influence over how the protocol develops.

Things look a bit more decentralized, but still heavily centralized for XRP with its 150 validating nodes. The only Proof-of-Stake blockchain that evenly distributes validation and governance across the network is Ethereum, with more than 220,000 nodes.

Despite these ratios, it’s important to remember many protocols are still in their infancy. Decentralization can grow with broader participation. So keep a close eye on the validators and the number of addresses.

Power depends on others

A CEO’s influence on a decentralized network mainly depends on how much token stake they own personally, whether the CEO pushes to gain relatively more, and how much the token supply among other users grows.

Since December 2020, Cardano has added more than 3,900 addresses that hold more than $10,000 and less than $1 million in ADA. That increases their influence, provided they use their governance rights.

If Hoskinson doesn’t buy new coins, his influence on voting is already reduced by these newly added “small whales.”

In essence, decentralization isn’t a gift. The power of individual CEOs, whether Charles Hoskinson at Cardano or Changpeng Zhao at Binance, is defined by the protocol’s foundations and how actively participants engage inside. If decentralization matters before investing, you should inspect the networks for power dynamics before you invest.