Decentralized Autonomous Organizations (DAOs) have become a rage in the ever-expanding crypto ecosystem and are often seen as the future of decentralized corporate governance.
DAOs are organizations without a centralized hierarchy, intended to operate from the bottom up, where the community collectively owns and contributes to the organization’s decision-making process. However, recent research data shows that these DAOs are not as decentralized as they were intended.
A recent report by Chainalysis analyzed the performance of ten major DAO projects and found that on average, less than 1% of holders hold 90% of the voting power. This finding highlights the high concentration of decision-making power in the hands of a select few, which the DAO was created to solve.
This concentration of decision-making power was evident with Solana-based debt DAO Soland. The Soland team tried to capture Whale’s account and carried out self-liquidation through over-the-counter (OTC) desks to avoid cascading liquidations in DEX books.
It’s pretty wild. The Soland team wants to take over Whale’s account and execute the liquidation themselves. Whales are in such a bad shape that if the SOL drops too low it will lead to cascading liquidations in the DEX books (and potentially bad debts). “DFI” https://t.co/TEVKz18NSm pic.twitter.com/2A3t2fOhnl
— Fatman (@FatManTerra) June 19, 2022
The takeover motion was passed with 1.1 million “yes” votes followed by 30,000 “no” votes, although 1 million of these total “yes” votes were from a user holding a large amount of governance tokens. The vote was later overturned after a vigorous push.
related: What would a DAO look like for a bank or financial institution
The Chainalysis report highlighted that although all Governance token holders have voting rights, it is not very easy for the community to create a new resolution and pass it on to everyone, given the amount of tokens needed to do so. Looking at the numbers.
The report estimates that 1 in 1,000 and 1 in 10,000 governance token holders have enough tokens to make an offer. When it comes to passing resolutions only 1 in 10,000 and 1 in 30,000 holders have enough tokens to do so.
All DAOs held in the decentralized finance (DeFi) ecosystem account for 83% of the Treasury value and 33% of all DAOs by calculation. Apart from DeFi, venture capital, infrastructure, and NFTs are other ecosystems that have seen an increase in the number of DAOs.