Decentralised autonomous organisations (DAOs) are entities which are not controlled by a central governing body but by its members, who hold governance tokens. Instead of appointing a CEO and a Board of Directors, the members of a DAO make proposals that are then voted on by anyone who holds the tokens. The process of nominating and voting is transparent as it is written in code, using smart contracts. Governance tokens are usually issued and sold at the start of the project or airdropped. They are used not only to govern the organisation but also to bootstrap the creation of a network and fund the development of the project. DAOs are one of most successful use cases of distributed ledger technology (DLT). They control DeFi projects, such as Uniswap and MakerDAO, virtual worlds such as Decentraland, social clubs and NFT creators such as Bored Ape Yacht Club, and they provide grants, such as Gitcoin. In terms of assets under management and number, DeFi DAOs are by far the biggest, as shown in Figure 1.
Figure 1: Total assets held and number of DAOs by Web
Centralisation of voting power
Although DAOs are designed to be decentralised and not controlled by anyone, in practice there is significant concentration of voting power among a few members.
Figure 2: Share of users holding 90% of all governance tokens by DAO
Figure 2 shows that, across a number of DAOs, a very small proportion of members hold more than 90% of all governance tokens. Moreover, although every token holder can vote on a proposal, not everyone can create one. For these ten DAOs that Chainalysis studied, members need to hold between 0.1% and 1% of the token supply to create a proposal, and between 1% and 4% in order to pass it and present it for voting. This makes concentration an even more significant problem. As…