A recent study raises questions about how decentralized decision-making actually is in DAOs. Specifically, researchers found significant evidence that a concentrated minority of voting power among core contributors makes their governance undemocratic in practice. This begs deeper questions about the real independence and equity of such institutions.
Stefan Kitzler and his co-authors looked at the actual concentration of power in DAOs. Their study, recently published in Financial Cryptography and Data Security, explored a subset of this vast dataset. It looked at 35,124 proposals across 872 DAOs and saw participation from 986,557 unique voters. Unfortunately, what this study made clear is that a small number of insiders disproportionately hold the power.
These research findings showed the emergence of “inner circles” in most DAOs. In 7.54% of the DAOs we reviewed, core contributors were majority vote holders. This provided them enormous leverage over key decisions. Moreover, in an estimated 20% of the DAOs studied, these contributors alone determined the result of at least one proposal at stake.
The article lays out a growing chasm between the theoretical promise of DAOs and their messy reality. This concentration of voting power stretches the idea of decentralized governance, and it calls into question whether such influence is fairly distributed.
The importance of the study is further amplified in light of regulatory scrutiny involving DAOs. U.S. authorities have accused Tornado Cash, a DAO-based application, of enabling money laundering operations connected with North Korean hackers. In 2022, the U.S. government sanctioned Tornado Cash—an open-source code project—which led to the arrest of two of its developers.
This work was presented at the International Conference on Financial Cryptography and Data Security. In addition, it constitutes the Lecture Notes in Computer Science book series. The research was led by Stefan Kitzler, Stefano Balietti, Pietro Saggese, Bernhard Haslhofer and Markus Strohmaier. Bernhard Haslhofer heads the Digital Currency Ecosystems research group at CSH, where Stefan Kitzler is a fellow researcher.
