They could rule if they wanted to; they just had to make that choice and go about doing it. Nothing was stopping them from becoming whatever type of ruler they wanted to be. However, the players did not lose the right to be ruled, as they were not stuck as subject to an overlord or any other type of ruler. The rulers were hardwired into the system; they were subject to it. They only had power because they desired it; however, if the players they ruled over desired otherwise, then they desired otherwise. They did not have to submit because they were told, nor were they required to serve anyone.
All beta testers had a choice, regardless of whether they were players or demons. They could make the choice to submit or not; there was nothing that the dragon demon could do about that. They could become an overlord and rule over their original starting area with an iron fist. However, they could not imprison anyone nor prevent them from doing whatever they wanted, as long as they were directly affecting another beta tester's choice. Thus, rebels could exist without end if they wanted to, as the player in game were immortal after all. They could be killed in the game, but they would just respawn soon enough. Thus, they were unable to do anything other than use force to make the players do as they commanded. How one went about ruling was up to them, as the right to rule was open and available to everyone. They could take it whenever they wanted; however, they had to face the consequence of doing so, as the right to rule does not overwrite the right to be ruled. As if someone does not submit to a ruler's rule, they do not have to.
Of course, there are consequences for not doing so, but unlike the actual real world. Beta testers have become rulers can not just get rid of those people or even jail them. Jails do exist within the game world. They are only capable of working when the beta tester actually wants to be in them, as they have that choice. Forcing someone into jail just because you said so is not good enough, as there needs to be a proper rhyme and reason for them to be in jail. Crime is basically legal within the game world, as one can steal whatever they want; however, if they steal too much, then that is all they can ever end up doing. The moment they have to or actually want to buy something, the price will be insane for them. The right to steal comes with the counter of the right for those selling to sell for whatever price they want to whoever is asking. They change the price of anything at will, without explanation either. The owner of whatever is being sold controls the price, and if they are dealing with a thief, then they can charge them whatever they want. The five finger discount can get them far until that is all that they have, as they will never have enough money nor finger to properly afford anything as a result.
Thus, just like how theft can be punished by being forced to pay more when they actually have to or want to pay for something. A ruler can not take away their subjects' right to rebel against them; they attempt to flood them with their power and influence until they just submit or give up on their own. However, they can not remove the possibility of someone coming for them, though. As they say goes, when aiming for the ruler, one had better not miss their shot. Otherwise, they will have to face the result of their failure.
So the dragon demon has to deal with constant rebels over time, who pop up every now and then. They have no official followers like other demons do, as no one follows them because they want to. They do so because they believe that they have no other choice, or they can not leave their sphere of influence for numerous reasons. Some become unofficial followers that are legit loyal to the dragon demon, just never acknowledged by them. There are others who are loyal not to the dragon demon but the power of being under them that they are given and/or possess, as a result of being so. It was like how people follow those they know are corrupt and not a good leader/rule because of what they are and have, not who they are or can do.
The group that always rebels against the dragon demon is actually the most generic looking players who all have the same base default character design. The dragon demon, being one of them, means that every player attacks them or isolates them from everyone and everywhere else. The dragon demon and they look exactly like each other, because on the surface, they are truly alike, given that they have the same appearance after all. Thus, bulldozing through the character selection process ended up backfiring on them, resulting in one of them being selected for the nine demons.
If someone with your exact face and appearance is now the target of basically thousands upon thousands of players. There will be times when targeted as being the demon themselves. Without the ability to see status in their area, they can easily be mistaken for the dragon demon themselves. This resulted in the creation of a lot of player killers, as a result of another player killing one of their own. Building desire for revenge and justice for being hunted, when the only 'crime' they committed was rushing through the character selection process. Those who have become player killers as a result of this also end up with their own desire for vengeance against the dragon demon. Since they can not jail anyone without it being warranted or their own desire to be jailed. They can take as many shots at them as they want, as that is their choice after all.
So the dragon demon basically ousted themselves, thinking they were given the right to rule, but unaware they were not taking away the other player's right to be ruled, just suppressing it instead.