The crypto revolution promised to eliminate middlemen and democratize finance, but researchers have uncovered that Decentralized Autonomous Organizations (DAOs) have a dirty secret. According to a new international study, the insiders who created them often maintain enough control to dictate decisions, making a mockery of their democratic branding.
The research, published in Financial Cryptography and Data Security, revealed that in about 8% of DAOs, the insiders – developers, administrators, and project owners – held enough voting power to control decisions all by themselves. Even worse, these insiders single-handedly determined the outcome of at least one proposal in more than 20% of DAOs.
Even though these organizations market themselves as democratic, many actually work more like groups controlled by a small number of insiders with a lot of power.
For anyone unfamiliar with the crypto world, DAOs are supposed to be democratic communities where members vote on decisions using special “governance tokens.” The more tokens you hold, the more voting power you have, similar to owning shares in a company, but with decisions made directly by token holders instead of a board of directors.
The research team examined almost a million voters across 872 DAOs, analyzing over 5 million votes. They discovered that even major financial platforms like Uniswap, which handles billions in trading volume, showed concerning levels of insider control.
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Author: Marty Kaufmann
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