On the Centralization of Governance Power in Decentralized Autonomous Organizations

TL;DR

This paper analyzes 48 Ethereum-based DAOs to understand how governance mechanisms like token registration, staking, and delegation contribute to centralization of voting power, revealing systemic reinforcement of centralization.

Contribution

It systematically studies how specific governance mechanisms in DAOs reinforce voting power centralization, advancing understanding of DAO governance trade-offs.

Findings

Governance mechanisms like token registration, staking, and delegation contribute to centralization.

Most studied DAOs exhibit significant voting power concentration.

Design choices in DAO governance influence the balance between decentralization and security.

Abstract

A decentralized autonomous organization (DAO) is a governing entity that empowers its stakeholders (i.e., users who hold one or more of its tokens) to manage blockchain-based protocols (i.e., smart contracts) collaboratively. The governance of a DAO is explicitly encoded in the DAO's governance contract, which defines how stakeholders participate in governance and how much influence (or voting power) they have in any decision. While decentralization and autonomy are the fundamental tenets of a DAO's design, empirical evidence suggests that in practice governance is often highly centralized. In this work, we study the designs and implementations of 48 public and actively used DAOs, with substantially large capital, deployed on Ethereum. We identify how three key governance mechanisms--token registration, staking, and delegation--originally introduced to improve security or participation, contribute to the concentration of voting power. Unlike prior work on centralization of voting power in specific DAOs, our findings reveal that these governance mechanisms of DAOs themselves systematically reinforce centralization. By elucidating the relationship between governance design and voting centralization, this work advances the understanding of DAO governance structures and highlights the inherent trade-offs between decentralization, security, and usability of DAOs.