Abstract: Decentralized Autonomous Organizations (DAOs) have emerged as a novel way to coordinate a group of (pseudonymous) entities towards a shared vision e.g., promoting sustainability), utilizing self-executing smart contracts on blockchains to support decentralized governance and decision-making. In just a few years, over 4,000 DAOs have been launched in various domains, such as investment, education, health, and research. Despite such rapid growth and diversity, it is unclear how these DAOs actually work in practice and to what extent they are effective in achieving their goals. Given this, we aim to unpack how (well) DAOs work in practice. We conducted an in-depth analysis of a diverse set of 10 DAOs of various categories and smart contracts, leveraging on-chain (e.g., voting results) and off-chain data (e.g., community discussions) as well as our interviews with DAO organizers/members. Specifically, we defined metrics to characterize key aspects of DAOs, such as the degrees of decentralization and autonomy. We observed CompoundDAO, AssangeDAO, Bankless, and Krausehouse having poor decentralization in voting, while decentralization has improved over time for one-person-one-vote DAOs (e.g., Proof of Humanity). Moreover, the degree of autonomy varies among DAOs, with some (e.g., Compound and Krausehouse) relying more on third parties than others. Lastly, we offer a set of design implications for future DAO systems based on our findings.
@misc{sharma2023unpacking,
title={Unpacking How Decentralized Autonomous Organizations (DAOs) Work in Practice},
author={Tanusree Sharma and Yujin Kwon and Kornrapat Pongmala and Henry Wang and Andrew Miller and Dawn Song and Yang Wang},
year={2023},
eprint={2304.09822},
archivePrefix={arXiv},
primaryClass={cs.CY}
}
What are the current perceptions & practices of DAO participants in fulfilling DAOs’ vision?
How decentralized is a DAO?
How autonomous is a DAO?
Perceptions and practices of DAO experts:
early-stage DAOs often require certain level of decentralization.
differentiate decentralization in terms of technical and social aspects.
certain types of DAOs require centralization for effective cooperation.
token-based governance is inefficient, 3 or 4 whales have 51% of the power.
often proposals do not reach quorum without whale voters.
people don’t like to participate in governance, just speculating on the price value.
creating different “pods” for different operations so one god doesn’t have too much power.
intervention is necessary due to lack of tooling.
limitations around token holdings and lack of interest often cause delays.
the majority of whales belong to the managerial team leading to vote in a similar way.
a lot of people just follow, they trust, whales know what they’re doing.
contextual factors should be incorporated: community sentiment, timing and the situation in which people join DAOs, financial metrics from exchanges, the type of proposal being considered.
Takeaways:
AssangeDAO, Bankless, and Krausehouse protocols exhibit high polarization based on token holdings while Proof of Humanity, MGD, and Moloch protocols exhibit more equitable distribution.
Proposal success has a significant positive correlation with token holdings by proposers for KrauseHouse, CompoundDAO, and dxDAO. However, BitDAO, BanklessDAO, and AssangeDAO showed no significant correlation due to predefined whitelisted authors.
In many DAOs, richer token holders tend to participate more actively in the voting process, which aggravates the decentralization of the voting process. Moreover, almost all DAOS that we analyzed are suffering from poor decentralization.
The decentralization dynamics analysis shows that decentralization has been gradually aggravated in a voting protocol based on token capital, while it has improved over time in the one-person-one-vote protocol.
DAOs vary in their approach to executing arbitrary transactions, with fully on-chain pipeline being the most autonomous. Multisig approach trades autonomy for simplicity, while Kleros contract also lacks autonomy even though it increases decentralization.
Most DAOs require services from third parties to operate with common case is employment for some future services. Despite such necessity of third parties in DAOs, there are many strategies to minimize the risk of third-party reliance.
Our data on the number of proposals canceled after voting ends suggests that DAOs tend to follow proposal binding ideology even if it is not guaranteed programmatically. A high number of unknown status proposals suggests that there is a need for proposal
transparency tools.