Centralized Intermediation in a Decentralized Web3 Economy: Value Accrual and Extraction
This paper examines the paradoxical emergence of centralized intermediaries within the supposedly decentralized Web3 ecosystem. We analyze how these intermediaries accumulate and extract value, despite the underlying blockchain technology being designed to eliminate such middlemen.
Abstract
Through empirical analysis of major cryptocurrency exchanges, NFT marketplaces, and DeFi platforms, we demonstrate that network effects and economies of scale naturally lead to the concentration of power in a few dominant players. Our research challenges the assumption that decentralized technology automatically leads to decentralized economic outcomes.
Key Findings
1. The Centralization Paradox While Web3 infrastructure is technically decentralized, economic forces drive centralization at the application layer. We document how platforms like Coinbase, OpenSea, and Uniswap have captured dominant market positions.
2. Value Extraction Mechanisms We identify three primary mechanisms through which intermediaries extract value:
- Transaction fees and commissions
- Information asymmetries and front-running
- Platform lock-in and switching costs
3. Network Effects in Web3 Despite permissionless protocols, user experience advantages and liquidity concentration create strong network effects that favor incumbent platforms.
Implications
Our findings suggest that while blockchain technology provides the technical infrastructure for decentralization, economic incentives often push the ecosystem toward centralization. We propose:
- Enhanced protocol-level mechanisms for value redistribution
- Regulatory frameworks that preserve decentralization benefits
- Technical solutions like cross-platform interoperability standards
- Community governance models that resist capture by intermediaries
This research contributes to understanding the economic dynamics of Web3 systems and provides insights for building truly decentralized alternatives.
Keywords: blockchain, cryptocurrency, decentralized finance, network effects, market structure, value accrual, intermediation
