Inclusion and Democratization Through Web3 and DeFi? Initial Evidence from the Ethereum Ecosystem

Web3 and DeFi are widely advocated as innovations for greater financial inclusion and democratization. We conduct an initial investigation using data from the Ethereum network. We describe its network structure and distributions of transactions, mining, and ownership. Mining and ownership of Ether are concentrated in exchanges and a small set of individuals. Concerning usage and transactions, we observe a shift from peer-to-peer interactions to user interactions with Dapps and DeFi protocols, and significantly more transactions by large players. Moreover, high transaction-fee rates for small players, significant congestion-induced fluctuation of gas prices, and large return volatility of tokens present particular challenges for small and new agents in the network. These issues, coupled with users' suboptimal gas parameter setting and opportunity costs of additional gas limit reservations, cause high rate of transaction failures. Through burning base fees, EIP-1559 partially mitigates these issues through redistribution. Airdrop programs of DeFi tokens can similarly facilitate inclusion