If most people hodl on Binance, then Binance has the majority stake in many PoS coins 😱

Binance could end up dominating many PoS networks which give out governance rights to tokenholders, since most cryptocurrency investors tend to keep their funds on centralized exchanges of which Binance is the biggest.

POS GOVERNANCE

Many Proof-of-Stake (PoS) cryptocurrencies give tokenholders some kind of voting right on their respective blockchains. Usually these voting rights have to do with who runs the main nodes, or regarding which software/blockchain upgrades are voted in.

The theory is sound: an attacker to the network would need to invest a significant amount of money in order to gain a large enough stake in the network to dominate it. I realized today, however, that centralized exchanges are left out of this equation.

BINANCE

Not only do the majority of cryptocurrency investors and traders keep their funds on the exchange they are trading on, but most people also aggregate to the biggest exchanges because of their volume. Right now, for example, most people are trading and hodling on Binance and it is commonly known that the biggest wallets in any cryptocurrency rich-list usually belongs to a handful of the same exchanges with Binance often topping the charts as well.

If the token in PoS gives out voting and governance rights, this would mean that as long as people keep their crypto on centralized exchanges they are actually giving these exchanges such as Binance an extremely large stake and power in the network. If they opt to (mis?)use these governance rights they could exert significant influence over many of the cryptocurrencies and quite possibly even attack it.

In some cases this would require actively staking the coin, which could be problematic for exchanges who need the crypto to be more liquid because of deposits and withdrawals. In other cases such as NEO which operates on a more passive way, or even EOS (even though it's not a staking coin, it does gain voting rights), Binance or other exchanges could end up controlling the majority of voting power. For as long as most people give their governance tokens to these exchanges for safekeeping, this problem would continue to exist and we will just have to trust that they do not abuse this power.

I don't see a direct solution to this problem. I know EOS has implemented a rule that no account can own more than X% of the voting rights, but this seems relatively easy to circumvent with multiple accounts. In other blockchains I don't know if there are ways designed to work around this power centralization without introducing new, other centralized barriers (like 'banning' certain accounts from participating).

I'm curious if any of you are aware of this problem, and/or know of any PoS governance tokens with integrated features that protect against this kind of centralization? Please do share!