The Biggest Lie in Blockchain Governance

DAOs have become the standard in decentralization, transparency, and community-driven decision-making. But is that really true? Or is the reality far messier than that?

The Lie: DAOs Are Led by Communities

A research paper published by the Institute of Electrical and Electronics Engineers (IEEE) sheds light on how DAOs often diverge from the initial vision of truly community-driven decision-making.

Here’s how the authors came to this conclusion:

First things first, data shows that most DAOs use token-based voting systems, meaning the more tokens you have, the higher your voting power. This allows whales (those holding the most tokens) to dominate decision-making, and in many cases overriding the will of thousands of smaller voters (turning DAOs into plutocracies where money dictates decisions).

Second, blockchain analytics data reveals that while token voting sounds democratic, in reality, most members don’t vote. The few who do vote are often large token holders, and they end up making all the decisions.

Lastly, even though anyone can propose governance changes, in many DAOs, the most important proposals often come from the founding team or insiders. This means that the community is mostly reacting to pre-determined choices!

How Can We Fix It?

While DAO governance isn’t as decentralized as we thought, that doesn’t mean blockchain governance is broken. Here are a couple of ways we can fix it:

First, for a democracy to work, participation is key. If most people don’t vote, their true will is never communicated. Token holders should be rewarded for voting to increase engagement and prevent decisions from being made by a tiny elite.

Another suggestion made by governance experts is creating “pods” within DAOs for different operations, such as marketing or legal. Each pod would govern itself, preventing any single group from having too much power. This enhances both decentralization and efficiency.

Lastly, research shows that DAOs following a one-person-one-vote system tend to become more decentralized over time. This voting mechanism allows for broader participation in decision-making, instead of concentrating power in the hands of a few whales.

Final Thoughts

Blockchain governance is supposed to be different from traditional governance. But what some DAOs are doing is turning blockchain into a decentralization theater, a system that appears to be decentralized, but operates with centralized control.

If we want true decentralized governance, we need to rethink how decisions are made, who holds power, and how to drive participation.

Until the next hash, Abed