The cracks in DAO governance are starting to indicate. Within the span of some weeks, two high-profile gamers—Solana-based trade Jupiter and NFT conglomerate Yuga Labs—deserted their DAO constructions, issuing blunt statements about dysfunction and disillusionment.
Jupiter cited a “breakdown in belief,” whereas Yuga CEO Greg Solano known as Apecoin DAO “sluggish, noisy and infrequently unserious governance theater.”
Whereas a whole lot of DAOs nonetheless function throughout crypto with hundreds of contributors, questions are being raised over whether or not DAOs, as soon as the beating coronary heart of crypto’s decentralization dream, can flourish on this cycle.
DAOs, decentralized autonomous organizations, are blockchain-native governance programs that enable token holders to vote on treasury allocation, protocol upgrades, and extra. Within the final decade of crypto experimentation, they had been heralded as the way forward for neighborhood capitalism. Now, their limitations appear to be catching up with them.
“I completely perceive the frustration with sluggish, damaged governance,” stated Kollan Home, founding father of MetaDAO. “That is the issue with token voting.”
From Political Idealism to Tokenized Theater
Initially celebrated as a method to “give a voice to the unvoiced,” DAOs have typically been criticized for being a authorized and monetary grey space. By issuing “governance tokens,” many tasks discovered a method to circumvent securities legal guidelines, with out delivering the accountability or utility these tokens promised.
Right now, CoinMarketCap lists 273 DAO tokens with a mixed market cap of over $21 billion. However these numbers are deceptive. Practically 50% of that worth is concentrated in simply three tokens—Uniswap (UNI), Aave (AAVE), and Bittensor
. On the different finish of the spectrum, 63 DAO tokens are value lower than $1 million, successfully dead-on-chain.
Take Mango Markets for instance. It was as soon as a bustling decentralized trade that notched greater than 1,000 governance proposals. It now has zero exercise after the platform shut down in February, however $19 million value of MNGO tokens nonetheless exist – utterly ineffective.
A Damaged Mannequin?
DAOs had been typically criticized for “governance theater”—in different phrases, for showing to be decentralized and ruled by the group, however truly being managed or dictated by a small variety of folks.
DAOs required massive numbers of individuals to take part in an effort to be efficient. However numbers had been typically missing, resulting in disillusionment. “To vote on something, you want a quorum. However to succeed in quorum, you want incentives. And while you begin incentivizing voting, you get mercenary participation. All the pieces works in opposition to itself from the beginning,” Home stated.
Joshua Tan is government director of Metagov, a analysis group targeted on self-governance.
“There are cheap questions concerning the worth DAOs are literally offering,” Tan, co-author of a current report on DAO M&A, instructed CoinDesk. “Grant programs are sometimes inefficient. Governance could be a mess. Nonetheless, this doesn’t imply DAOs are performed. It simply means they’re altering.”
In Tan’s view, the struggles of Jupiter and Yuga Labs are symptomatic of deeper systemic points. However governance failures at explicit tasks shouldn’t be confused with a failure of the DAO idea itself.
Learn extra: Joshua Tan, Jillian Grennan and Bernard Schmid – The State of DAO M&A
“For those who examine billion-dollar DAOs to billion-dollar public firms, certain, DAOs look inefficient,” he stated. “However so do most company boards. Governance is a value middle—not a revenue middle. That doesn’t imply it’s dispensable.”
Not Useless—However Mutating
Removed from writing off the idea, Tan and Home each see a shiny future for DAOs—albeit one that appears radically completely different. Home factors to futarchy, a governance mannequin the place selections are made primarily based on prediction markets, as a promising evolution. MetaDAO is actively constructing a fundraising platform rooted in that imaginative and prescient.
“We’re fixing points with liquidity, determination making and possession,” Home stated. “The aim is to construct the organizations of the longer term from the beginning.”
Tan is concentrated on infrastructure—growing requirements for DAO mergers and acquisitions (M&A), governance tooling, and valuation metrics via Metagov and DAOstar.
“We have to construct muscle tissues that TradFi has had for many years,” Tan stated. “That features M&A workflows, authorized frameworks, and strong metrics—not simply counting on TVL.”
The regulatory grey zone is one other ongoing headwind. Whereas some jurisdictions like Wyoming, Utah, and the Cayman Islands have constructed authorized wrappers for DAOs, others lag behind. And even the place constructions exist, they’re typically costly and impractical for small groups.
“We’re nonetheless seeing two to a few DAO registrations per week within the Caymans,” Tan famous. “These are $50K setups. The truth that persons are paying that a lot tells you DAOs nonetheless provide distinctive benefits.”
DAO Consolidation is Coming
Each consultants agree: a shakeout is inevitable.
“We’ll most likely find yourself with 50 to 100 vibrant DAOs,” Tan stated. “Similar to after the ICO growth, most will disappear. And that’s nice.”
What stays shall be leaner, higher ruled, and—hopefully—much less performative.
Tan sees a future the place DAOs don’t disappear, however merge into broader organizational methods, notably within the merging of TradFi and DeFi. DAOs might change into instruments within the company stack—used when obligatory, ignored when not.
“The underlying tech, sensible contracts, is right here to remain,” he stated. “Not everybody needs the ‘motion’ model of DAOs. However the infrastructure layer is decentralized. It’s modular. Corporations will select what suits.”
What Occurs Now?
An excellent governance system is invisible when it really works—and painfully apparent when it doesn’t. That truism now haunts the DAO ecosystem.
“The dream of community-led protocols is not useless,” stated Home. “However we’re nonetheless discovering the correct method to construct it. And failure is a part of that.”
“Governance can’t be optionally available. With out it, you get chaos. However that doesn’t imply the system we’ve constructed up to now is the correct one,” Tan stated.
It stays to be seen whether or not extra DAOs will comply with Yuga and Jupiter in shutting down neighborhood governance, however one factor is obvious. DAOs could also be struggling, however they aren’t useless, for now.
Learn extra: What Is a DAO?
