Is There a Future for DAOs?

The cracks successful DAO governance are opening to show. In the span of a fewer weeks, 2 high-profile players—Solana-based speech Jupiter and NFT conglomerate Yuga Labs—abandoned their DAO structures, issuing blunt statements astir dysfunction and disillusionment.

Jupiter cited a “breakdown successful trust,” portion Yuga CEO Greg Solano called Apecoin DAO “sluggish, noisy and often unserious governance theater.”

While hundreds of DAOs inactive run crossed crypto with thousands of participants, questions are being raised implicit whether DAOs, erstwhile the beating bosom of crypto’s decentralization dream, tin flourish successful this cycle.

DAOs, decentralized autonomous organizations, are blockchain-native governance systems that let token holders to ballot connected treasury allocation, protocol upgrades, and more. In the past decennary of crypto experimentation, they were heralded arsenic the aboriginal of assemblage capitalism. Now, their limitations look to beryllium catching up with them.

“I perfectly recognize the vexation with sluggish, breached governance," said Kollan House, laminitis of MetaDAO. “This is the occupation with token voting.”

From Political Idealism to Tokenized Theater

Originally celebrated arsenic a mode to “give a dependable to the voiceless,” DAOs person often been criticized for being a ineligible and fiscal grey area. By issuing “governance tokens,” galore projects recovered a mode to circumvent securities laws, without delivering the accountability oregon inferior those tokens promised.

Today, CoinMarketCap lists 273 DAO tokens with a combined marketplace headdress of implicit $21 billion. But those numbers are misleading. Nearly 50% of that worth is concentrated successful conscionable 3 tokens—Uniswap (UNI), Aave (AAVE), and Bittensor (TAO). At the different extremity of the spectrum, 63 DAO tokens are worthy little than $1 million, efficaciously dead-on-chain.

Take Mango Markets for example. It was erstwhile a bustling decentralized speech that notched much than 1,000 governance proposals. It present has zero enactment aft the level unopen down successful February, but $19 cardinal worthy of MNGO tokens inactive beryllium – wholly useless.

A Broken Model?

DAOs were often criticized for “governance theater”—in different words, for appearing to beryllium decentralized and governed by the crowd, but really being controlled oregon dictated by a tiny fig of people.

DAOs required ample numbers of radical to enactment successful bid to beryllium effective. But numbers were often lacking, starring to disillusionment. “To ballot connected anything, you request a quorum. But to scope quorum, you request incentives. And erstwhile you commencement incentivizing voting, you get mercenary participation. Everything works against itself from the start,” House said.

Joshua Tan is enforcement manager of Metagov, a probe radical focused connected self-governance.

“There are tenable questions astir the worth DAOs are really providing,” Tan, co-author of a caller study connected DAO M&A, told CoinDesk. “Grant systems are often inefficient. Governance tin beryllium a mess. Still, this doesn’t mean DAOs are done. It conscionable means they’re changing.”

In Tan’s view, the struggles of Jupiter and Yuga Labs are symptomatic of deeper systemic issues. But governance failures astatine peculiar projects shouldn’t beryllium confused with a nonaccomplishment of the DAO conception itself.

Read more: Joshua Tan, Jillian Grennan and Bernard Schmid - The State of DAO M&A

“If you comparison billion-dollar DAOs to billion-dollar nationalist companies, sure, DAOs look inefficient,” helium said. “But truthful bash astir firm boards. Governance is simply a outgo center—not a nett center. That doesn’t mean it’s dispensable.”

Not Dead—But Mutating

Far from penning disconnected the concept, Tan and House some spot a agleam aboriginal for DAOs—albeit 1 that looks radically different. House points to futarchy, a governance exemplary wherever decisions are made based connected prediction markets, arsenic a promising evolution. MetaDAO is actively gathering a fundraising level rooted successful that vision.

“We’re solving issues with liquidity, determination making and ownership,” House said. “The extremity is to physique the organizations of the aboriginal from the start.”

Tan is focused connected infrastructure—developing standards for DAO mergers and acquisitions (M&A), governance tooling, and valuation metrics done Metagov and DAOstar.

“We request to physique muscles that TradFi has had for decades,” Tan said. “That includes M&A workflows, ineligible frameworks, and robust metrics—not conscionable relying connected TVL.”

The regulatory grey portion is different ongoing headwind. While immoderate jurisdictions similar Wyoming, Utah, and the Cayman Islands person built ineligible wrappers for DAOs, others lag behind. And adjacent wherever structures exist, they're often costly and impractical for tiny teams.

“We’re inactive seeing 2 to 3 DAO registrations per week successful the Caymans,” Tan noted. “These are $50K setups. The information that radical are paying that overmuch tells you DAOs inactive connection unsocial advantages.”

DAO Consolidation is Coming

Both experts agree: a shakeout is inevitable.

“We’ll astir apt extremity up with 50 to 100 vibrant DAOs,” Tan said. “Just similar aft the ICO boom, astir volition disappear. And that’s fine.”

What remains volition beryllium leaner, amended governed, and—hopefully—less performative.

Tan sees a aboriginal wherever DAOs don’t disappear, but merge into broader organizational strategies, peculiarly successful the merging of TradFi and DeFi. DAOs could go tools successful the firm stack—used erstwhile necessary, ignored erstwhile not.

“The underlying tech, astute contracts, is present to stay,” helium said. “Not everyone wants the ‘movement’ mentation of DAOs. But the infrastructure furniture is decentralized. It’s modular. Companies volition take what fits.”

What Happens Now?

A bully governance strategy is invisible erstwhile it works—and painfully evident erstwhile it doesn’t. That truism present haunts the DAO ecosystem.

“The imagination of community-led protocols isn't dead,” said House. “But we’re inactive discovering the close mode to physique it. And nonaccomplishment is portion of that.”

“Governance can’t beryllium optional. Without it, you get chaos. But that doesn’t mean the strategy we’ve built truthful acold is the close one,” Tan said.

It remains to beryllium seen whether much DAOs volition travel Yuga and Jupiter successful shutting down assemblage governance, but 1 happening is clear. DAOs whitethorn beryllium struggling, but they aren’t dead, for now.

Read more: What Is a DAO?