Competition Law and Protocol Governance Concentration Risks

1. Introduction

Protocol governance concentration refers to a situation in which decision-making power over a blockchain, distributed ledger, smart-contract protocol, digital marketplace, or other technical infrastructure becomes concentrated in a relatively small group of participants.

A protocol may appear decentralized because its ledger is distributed, while effective economic control may nevertheless be concentrated through:

large governance-token holdings;

validator concentration;

concentrated mining or staking power;

developer control;

foundation control;

multisignature wallets;

concentrated voting delegations;

control over protocol upgrades;

control over treasury assets;

control over interfaces or front ends;

control over technical standards.

This creates an important competition-law question:

Does technological decentralization actually prevent the accumulation and exercise of market power, or can governance itself become a source of economic concentration?

Academic analysis specifically identifies governance—who controls a blockchain and how that control is exercised—as an important missing component of conventional antitrust analysis. (ScienceDirect)

2. Meaning of Protocol Governance

Protocol governance is the process through which participants determine how a technological network operates.

Governance decisions can concern:

protocol upgrades;

transaction fees;

validation rules;

token issuance;

staking requirements;

block-production rules;

interoperability;

listing or exclusion of assets;

treasury expenditure;

smart-contract parameters;

dispute resolution;

access rights.

Governance can be:

A. On-chain governance

Decisions are made through blockchain-based voting mechanisms.

B. Off-chain governance

Decisions are made through:

developers;

foundations;

companies;

technical committees;

validators;

informal community structures.

C. Hybrid governance

Technical decisions may be proposed off-chain and subsequently implemented through on-chain voting.

3. Why Governance Concentration Creates Competition Concerns

A protocol can become economically important because many users, developers and businesses depend upon it.

If control over that protocol becomes concentrated, the controlling participants may acquire the ability to influence:

prices;

access;

interoperability;

technical standards;

transaction processing;

competing applications;

innovation;

data flows.

Thus:

Protocol adoption → network effects → governance importance → governance concentration → potential market power.

This does not mean that concentrated governance is automatically unlawful. Concentration may result from legitimate incentives, technical expertise, security requirements or efficient decision-making.

The competition-law concern arises when concentration enables anticompetitive coordination or exclusion.

4. Governance Concentration versus Market Concentration

These concepts should be distinguished.

Market concentration

Concerns the distribution of economic activity among competing firms.

Governance concentration

Concerns the distribution of decision-making power within a protocol.

A protocol could have:

many competing applications;

many users;

many validators;

but still have governance concentrated in a few entities.

Conversely, a protocol could have concentrated voting rights without possessing substantial market power because users can easily migrate to competing protocols.

Therefore:

Governance concentration is evidence potentially relevant to market power, but it is not equivalent to dominance.

Recent empirical research similarly cautions that token concentration alone does not establish governance domination because quorum, delegation and proposal rights can materially affect actual control. (Frontiers)

5. Sources of Protocol Governance Concentration

A. Token Concentration

A small number of holders may possess a substantial proportion of governance tokens.

They may therefore influence:

proposals;

protocol upgrades;

treasury decisions;

fee structures.

B. Delegated Voting

Token holders may delegate their voting power.

A relatively small number of delegates can consequently accumulate substantial effective voting power.

This can make nominally decentralized governance functionally centralized.

C. Validator Concentration

Proof-of-stake systems can become concentrated among large validators or staking providers.

If a few participants control substantial validating power, they may influence:

transaction ordering;

network upgrades;

censorship decisions;

protocol changes.

D. Developer Concentration

Technical control can remain concentrated even where voting power is distributed.

A small developer group may possess disproportionate influence because it controls:

source-code development;

upgrade proposals;

technical implementation;

security patches.

E. Foundation or Company Control

A foundation or corporate sponsor may control:

intellectual property;

treasury assets;

development funding;

protocol interfaces;

branding;

technical infrastructure.

The network can therefore be decentralized at the transaction layer but centralized at the governance layer.

6. Network Effects

Network effects are central to the problem.

A protocol becomes more valuable as:

more users adopt it;

more developers build upon it;

more assets become compatible;

more liquidity enters;

more applications integrate it.

This produces a potential feedback loop:

Adoption → liquidity → developers → applications → greater adoption.

Once a protocol reaches substantial scale, governance decisions may affect a very large economic ecosystem.

7. Switching Costs

Users may face switching costs because they have accumulated:

assets;

reputation;

liquidity;

applications;

smart-contract integrations;

transaction history;

developer tools.

Businesses may also incur significant costs when migrating:

software;

smart contracts;

customers;

liquidity;

technical infrastructure.

High switching costs can strengthen the competitive significance of governance decisions.

8. Protocol Governance as a Competitive Bottleneck

A protocol can become a competitive bottleneck where businesses cannot realistically reach users without interacting with it.

Examples include:

dominant payment protocols;

widely adopted blockchain settlement networks;

major token standards;

dominant oracle systems;

widely used interoperability protocols.

Control over such infrastructure can potentially affect competition in downstream markets.

9. Exclusion Through Governance

Governance participants might theoretically adopt rules that disadvantage competing applications.

Examples include:

discriminatory access rules;

exclusion of competing tokens;

discriminatory transaction fees;

restrictions on interoperability;

preferential treatment for affiliated applications;

technical barriers against competing protocols.

Such conduct must be distinguished from legitimate governance designed to protect:

network security;

fraud prevention;

system stability;

consumer protection.

10. Self-Preferencing

A governance group might control both:

the underlying protocol; and

an application operating on that protocol.

It could potentially give its own application:

preferential access;

lower fees;

priority processing;

better data;

technical integration advantages.

This resembles traditional platform self-preferencing.

The competition-law analysis would ask whether the governance structure permits the dominant undertaking or group to leverage control over an upstream infrastructure into an adjacent market.

11. Protocol Fees

Governance may determine:

transaction fees;

validator rewards;

liquidity incentives;

application fees.

If a dominant protocol imposes discriminatory charges on competing applications while favoring affiliated applications, competition concerns may arise.

A uniform fee structure, by contrast, may simply represent normal protocol economics.

12. Interoperability

Interoperability is one of the most important competition issues.

Suppose Protocol A has substantial market power and competing Protocol B needs access to A's infrastructure to provide effective competition.

Governance participants could potentially:

deny interoperability;

impose discriminatory technical conditions;

delay integration;

change standards.

Competition law may then examine whether the restriction amounts to exclusionary conduct.

The principles developed in refusal-to-deal and essential-facility cases become relevant.

13. Standard-Setting

Protocols frequently establish technical standards.

Standards can be highly pro-competitive because they:

reduce transaction costs;

promote compatibility;

facilitate innovation;

allow multiple firms to participate.

But standards can also become exclusionary where dominant participants manipulate them to:

exclude rivals;

disadvantage alternative technologies;

raise competitors' costs.

Thus, governance of technical standards can itself become a competition-law issue.

14. Algorithmic Coordination

Protocol governance can facilitate coordination among competitors.

For example, competing firms could participate in a common protocol that automatically determines:

prices;

fees;

transaction rules;

inventory allocation;

access conditions.

The crucial question is whether the common system merely creates legitimate infrastructure or facilitates concerted restriction of competition.

The use of blockchain does not immunize an arrangement from Article 101-type or Section 3-type analysis.

15. Information Exchange

A permissioned blockchain can permit participants to observe commercially sensitive information.

Examples include:

prices;

inventory;

transaction volumes;

customer activity;

future pricing;

supply information.

If competing undertakings exchange competitively sensitive information through a common protocol, traditional information-exchange principles may apply.

The important point is that distributed architecture does not automatically make information exchange competitively neutral. (ScienceDirect)

16. Case Law 1 — American Needle, Inc. v. NFL

American Needle, Inc. v. National Football League, 560 U.S. 183 (2010)

The U.S. Supreme Court considered whether NFL teams and the NFL constituted a single economic entity for antitrust purposes when they jointly licensed intellectual property.

The Court emphasized that the teams remained separate economic actors with separate economic interests.

Relevance to Protocol Governance

This is highly relevant to blockchain governance.

Suppose several independent businesses jointly govern a protocol.

Calling the arrangement a "decentralized protocol" does not automatically answer whether the participants are:

independent competitors;

a genuine single economic entity;

a joint venture;

a coordinating association.

Principle

Competition analysis must examine the actual economic relationships between participants rather than relying on organizational labels.

17. Case Law 2 — Broadcast Music, Inc. v. CBS

Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979)

The U.S. Supreme Court examined a blanket music-licensing arrangement involving competing copyright owners.

The Court recognized that some forms of collective organization can produce legitimate efficiencies and may not automatically constitute unlawful price fixing.

Relevance

Protocol governance may similarly involve competing participants establishing common rules.

A common protocol can:

reduce transaction costs;

standardize interactions;

create interoperability;

reduce contracting costs.

The existence of common governance therefore does not automatically establish an antitrust violation.

Principle

Competition law should distinguish legitimate collaborative infrastructure from agreements that unnecessarily suppress competition.

18. Case Law 3 — United States v. Microsoft Corp.

United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001)

Microsoft involved dominance in PC operating systems and conduct affecting complementary software.

The case is important because Microsoft controlled a technological platform upon which other products depended.

Relevance

A dominant blockchain protocol may similarly become an infrastructure layer upon which:

financial applications;

wallets;

exchanges;

smart contracts

depend.

If governance is used to disadvantage competing applications, Microsoft provides an important conceptual framework for analysing platform leverage and exclusionary conduct.

Principle

Control over an important technological platform can potentially be used to affect competition in complementary markets.

19. Case Law 4 — MCI Communications Corp. v. AT&T

MCI Communications Corp. v. AT&T Co., 708 F.2d 1081 (7th Cir. 1983)

The case is a leading U.S. authority concerning refusal to provide access to infrastructure.

The Seventh Circuit developed important principles for assessing when access to infrastructure may become an antitrust issue.

Relevance

Suppose a dominant protocol controls infrastructure that competing applications cannot reasonably reproduce.

Questions could arise concerning:

interoperability;

access;

technical interfaces;

transaction processing.

The case illustrates the importance of distinguishing ordinary commercial refusal from exclusionary refusal involving an important infrastructure.

20. Case Law 5 — Aspen Skiing Co. v. Aspen Highlands Skiing Corp.

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985)

The Supreme Court considered the refusal by a dominant ski operator to continue a cooperative ticketing arrangement with a smaller competitor.

The case is significant for refusal-to-deal doctrine.

Relevance

If a dominant protocol historically cooperated with competing applications and then deliberately withdraws interoperability or access in a manner that harms competition, Aspen Skiing principles may become relevant.

However, the case does not mean that every protocol has a general duty to cooperate with rivals.

21. Case Law 6 — Google Shopping

Google Search (Shopping), Case AT.39740

The European Commission found that Google had abused its dominant position by favoring its own comparison-shopping service in search results over competing comparison-shopping services.

The case was subsequently litigated before the EU courts.

Relevance

The case provides a useful analogy for protocol governance.

If a governance body controls an infrastructure layer and simultaneously operates a competing downstream service, questions may arise if governance decisions systematically favor the affiliated service.

Potential examples include:

preferential transaction processing;

superior data access;

lower fees;

privileged integration.

Principle

Dominance over an infrastructure or platform can create concerns where that control is used to advantage an affiliated downstream activity.

22. Case Law 7 — IMS Health v NDC Health

IMS Health GmbH & Co. OHG v NDC Health GmbH, Case C-418/01

IMS Health concerned access to a data structure used by pharmaceutical companies.

The Court established stringent conditions for requiring access to an infrastructure protected by intellectual-property rights.

Relevance

A protocol may control:

proprietary interfaces;

technical standards;

data structures;

APIs.

Competitors may argue that these are indispensable.

IMS Health demonstrates that indispensability is a demanding legal concept.

Principle

Competition law does not ordinarily impose a general obligation to provide competitors with access to infrastructure simply because that access would facilitate competition.

23. Case Law 8 — Bronner v Mediaprint

Oscar Bronner GmbH & Co. KG v Mediaprint, Case C-7/97

Bronner concerned access to a newspaper distribution network.

The European Court of Justice adopted a strict approach to refusal-to-supply claims involving infrastructure.

Relevance

A dominant blockchain protocol could face analogous arguments where a competitor claims:

"Without access to this protocol, I cannot compete effectively."

The analysis would require consideration of:

indispensability;

elimination of effective competition;

feasibility of alternative infrastructure;

objective justification.

Principle

Commercial importance is not necessarily the same as legal indispensability.

24. Case Law 9 — NCAA v Alston

NCAA v. Alston, 594 U.S. 69 (2021)

The U.S. Supreme Court examined NCAA restrictions affecting education-related benefits for student-athletes.

Although not a blockchain case, it illustrates the application of antitrust principles to collective rule-setting by organizations whose rules govern a wider competitive ecosystem.

Relevance

Protocol governance may similarly establish rules affecting multiple market participants.

The critical question is whether a collective governance mechanism:

facilitates legitimate cooperation; or

imposes restrictions that suppress competition.

25. Case Law 10 — Qualcomm

Qualcomm Inc. v European Commission, Case T-235/18

The EU litigation concerning Qualcomm's exclusionary payments illustrates how contractual arrangements and financial incentives can potentially be used to restrict competitors.

Relevance

Protocol governance could employ:

token incentives;

rebates;

staking rewards;

preferential liquidity;

exclusive arrangements.

These mechanisms may require examination where they reinforce market power or foreclose rivals.

26. Governance Tokens and Voting Power

Governance tokens create a special competition-law problem.

Suppose:

10,000 users hold governance tokens;

100 addresses hold 70% of voting power.

The protocol may formally be decentralized but practically controlled by a small group.

The relevant competition question is not simply:

"How many token holders exist?"

Instead:

Who can actually determine commercially significant protocol decisions?

Relevant evidence includes:

voting concentration;

delegation;

quorum;

proposal thresholds;

veto rights;

voting participation;

treasury control.

27. Delegation and Hidden Concentration

Nominal token distribution can conceal actual governance concentration.

For example:

1,000,000 tokens

may be distributed across thousands of wallets, but many holders may delegate voting power to only a handful of representatives.

Effective governance power may therefore be much more concentrated than token ownership suggests.

This is why governance analysis should examine effective voting power, not merely token distribution.

28. Developer Capture

A protocol may have decentralized voting but centralized technical implementation.

For example, a small developer group could:

write upgrade code;

determine which proposals are technically feasible;

control release schedules;

maintain core infrastructure.

This creates a distinction between:

formal governance power

and

practical technical power.

Competition analysis should potentially examine both.

29. Treasury Concentration

Protocol treasuries can contain substantial assets.

Governance participants may decide how treasury funds are used.

Treasury control can affect:

competitor funding;

developer incentives;

liquidity provision;

acquisitions;

ecosystem grants.

If a dominant protocol uses its treasury strategically to eliminate competing technologies, competition concerns could potentially arise.

30. Validator Concentration

Validators may compete to process transactions.

If a small group controls a significant proportion of validation capacity, they may potentially influence:

transaction inclusion;

transaction ordering;

protocol upgrades;

censorship;

network security.

A competition assessment would need to determine whether validator concentration reflects:

technical economies of scale;

efficient infrastructure;

legitimate security considerations;

or whether participants coordinate to exclude rivals.

31. Miner and Staking-Pool Concentration

Similar issues arise where a small number of:

mining pools;

staking pools;

institutional validators

control significant network resources.

Competition concerns may arise where these participants coordinate:

transaction fees;

access;

protocol changes;

exclusionary standards.

Again, concentration itself is not equivalent to an antitrust infringement.

32. Protocol Governance and Article 101 / Section 3

Collective protocol governance can potentially fall within the conceptual scope of agreements or concerted practices where independent economic actors coordinate their conduct.

Potentially problematic subjects include:

price coordination;

output restrictions;

customer allocation;

market allocation;

discriminatory access;

exchange of commercially sensitive information.

In India, Section 3 of the Competition Act, 2002 provides the principal statutory framework for agreements causing or likely to cause appreciable adverse effects on competition.

33. Protocol Governance and Article 102 / Section 4

Where an undertaking or identifiable group exercises dominance, governance conduct can potentially raise abuse-of-dominance issues.

Potential theories include:

refusal to deal;

discriminatory access;

tying;

leveraging;

exclusionary technical standards;

self-preferencing;

unfair conditions.

Under EU law, Article 102 addresses abusive conduct by dominant undertakings, including exclusionary conduct. The European Commission's 2026 exclusionary-abuse guidelines emphasize assessment of conduct by dominant firms under the established Article 102 framework. (Competition Policy)

34. Protocol Governance and Merger Control

Governance concentration can also arise through acquisitions.

A dominant technology company could acquire:

a protocol;

validator infrastructure;

an oracle;

a wallet;

a bridge;

a governance-token issuer.

The transaction could reduce competition by eliminating an emerging technological alternative.

Therefore, merger analysis should consider not only current revenues but also:

innovation competition;

potential competition;

network effects;

future expansion;

ecosystem leverage.

35. Cross-Ownership

Competition concerns become more significant if competing protocols share substantial ownership.

For example:

Investor X → Protocol A

and

Investor X → Protocol B

If X has meaningful governance influence over both, questions may arise concerning:

strategic information;

investment incentives;

product development;

interoperability;

pricing.

Common ownership does not automatically violate competition law, but its competitive effects may warrant investigation.

36. Governance Capture by Major Users

Large users may obtain disproportionate governance influence.

For example:

major exchanges;

financial institutions;

large liquidity providers;

institutional investors.

A governance structure could consequently become oriented toward the interests of its largest economic participants.

The competition issue is whether those participants use governance power to disadvantage competing users or suppliers.

37. Protocol Cartels

A particularly serious scenario would arise if competitors used protocol governance to coordinate:

transaction prices;

supply;

output;

market allocation;

customer access.

The distributed ledger could make the arrangement more transparent and enforceable rather than less anticompetitive.

Thus:

Decentralization of records does not necessarily mean decentralization of economic decision-making.

38. Benefits of Decentralized Governance

Governance concentration must be balanced against the potential benefits of protocol governance.

Decentralized governance can:

reduce dependence on a single intermediary;

increase transparency;

permit community participation;

facilitate interoperability;

lower transaction costs;

encourage innovation;

reduce arbitrary exclusion.

Research on blockchain governance also emphasizes that the competitive consequences depend heavily on the actual governance structure rather than simply on whether a technology is labelled "blockchain." (ScienceDirect)

39. Legitimate Reasons for Concentration

Not every concentration of governance is harmful.

Concentration can sometimes improve:

security;

speed of decision-making;

software maintenance;

crisis response;

fraud prevention;

technical consistency.

For example, emergency security decisions may require a small group of technically capable participants.

Competition law should therefore distinguish efficient governance from exclusionary governance.

40. Key Competition Risks

41. Indian Competition-Law Perspective

Under the Competition Act, 2002, protocol governance issues can potentially be analysed through:

Section 3 — Anti-competitive agreements

Potentially relevant where independent participants coordinate through:

governance mechanisms;

smart contracts;

common protocols;

information systems.

Section 4 — Abuse of dominant position

Potentially relevant where a dominant undertaking uses control over a protocol to:

deny access;

discriminate;

tie products;

exclude competitors;

leverage market power.

Sections 5 and 6 — Combinations

Potentially relevant where governance control changes through:

acquisitions;

mergers;

transfers of controlling interests.

The preliminary question remains whether the relevant participants qualify as "enterprises" and whether the relevant activity falls within the Act's jurisdiction.

42. The "Decentralization Defence"

An undertaking should not automatically escape competition-law scrutiny merely by asserting:

"The protocol is decentralized."

The relevant questions are factual:

Who controls the code?

Who controls governance votes?

Who controls the treasury?

Who can propose changes?

Who can veto changes?

Who controls validation?

Who controls interfaces?

Who controls access?

Who benefits economically?

Can users realistically switch?

These questions reveal effective control.

43. Important Distinction: Concentration Is Not Automatically Illegality

A central principle is:

Governance concentration ≠ dominance ≠ abuse.

These are three different inquiries.

Stage 1 — Concentration

Who has decision-making power?

Stage 2 — Market power

Does that power translate into substantial economic power in a relevant market?

Stage 3 — Conduct

Has that power been used in a manner prohibited by competition law?

This prevents competition law from treating every centralized governance structure as unlawful.

44. Possible Competition Remedies

Where governance concentration creates demonstrable competitive harm, possible remedies could include:

Structural measures

separation of competing businesses;

divestiture;

reduction of conflicting ownership interests.

Behavioural measures

non-discriminatory access;

interoperability obligations;

prohibition of exclusive arrangements;

transparent governance rules.

Technical measures

open APIs;

standardized interfaces;

data portability;

permissionless interoperability.

Governance measures

disclosure of voting concentration;

conflict-of-interest rules;

independent governance committees;

limits on affiliated voting.

The appropriate remedy would depend upon the particular infringement and applicable legal framework.

45. Conclusion

Protocol governance concentration represents an important emerging competition-law issue because economic power can be concentrated even where technological architecture appears decentralized.

The principal risks arise from:

governance-token concentration;

delegated voting;

validator concentration;

developer control;

foundation control;

treasury concentration;

interoperability restrictions;

discriminatory technical standards;

self-preferencing;

information exchange;

common ownership;

protocol-based coordination.

The cases American Needle, Broadcast Music, Microsoft, MCI v AT&T, Aspen Skiing, Google Shopping, IMS Health, Bronner and NCAA v Alston provide useful established competition-law principles that can be applied by analogy to protocol governance.

The most important analytical distinction is between formal decentralization and effective economic control. A blockchain may distribute transaction verification among thousands of participants while leaving critical decisions—such as software upgrades, access rules, treasury allocation or technical standards—in the hands of a small group.

Accordingly, competition-law analysis should examine who actually controls the protocol, what market the protocol affects, whether that control creates market power, and whether the governance mechanism is being used to restrict competition. The existence of concentrated governance by itself does not establish an antitrust violation; the competitive effects and the conduct through which governance power is exercised remain decisive.