Why to DAO: a narrative analysis of the drivers of tokenized Exit to Community

TL;DR

This paper explores why blockchain startups exit to DAOs, identifying financial, governance, and environmental drivers through case studies, and positions DAOs as a hybrid entrepreneurial exit strategy influenced by market and social norms.

Contribution

It introduces a narrative analysis of three case studies to identify drivers of startup exits to DAOs, highlighting their hybrid nature and contextual influences.

Findings

Exit to DAO is driven by financial and stewardship goals.

Tokens add ownership and governance rights without relinquishing existing rights.

Market, legal, and social norms significantly influence exit decisions.

Abstract

This paper asks why startups in the blockchain industry are exiting to Decentralized Autonomous Organizations (DAOs), an outstanding phenomena in the wider digital economy which has tended to retain centralized ownership and governance rights of many platforms, products and protocols. Drawing on a narrative analysis of three case studies, I find three possible drivers: (1) exit to DAO is motivated by both financial and stewardship goals which it simultaneously promises to realize via the issuance of tokens; (2) exit to DAO adds an additional layer of ownership and governance rights via tokens, without requiring existing rights to be relinquished, thus making it a lucrative strategy; and (3) markets, laws and social norms underpinning the broader environment in which exits to DAO occur, seem to play an important role in driving the decision. This paper contributes to the academic literature by situating DAOs as a hybrid (and perhaps incomplete) entrepreneurial exit strategy and identifying plausible drivers of the phenomenon which warrant further dedicated research.