DAO Evolution: Progress or Stagnation?

DAOs have come a long way in a seemingly short time. Certainly, DAOs have evolved from simple theoretical constructs to complex and varied governance structures with thousands of members and real-world use cases. Yet, has that evolution been going in the right direction? Or is it falling far short of its full potential?

The three stages of DAO evolution

Cointelegraph Research published a fascinating and detailed chronology of the DAO evolution where it sees DAOs developing in 3 stages:

Stage 0: Before the DAOs actually came into being, researchers were theorizing business decentralization as far back as the 1960s. The actual term “Decentralized Autonomous Organization” was coined in 1997 in reference to IoT-interconnected houses.

Stage 1: In 2013, Stan and Daniel Larimer’s Decentralized Autonomous Corporation (DAC) created DAO 1.0 as a concrete concept based on blockchain technology. Yet there was no way to actually implement it autonomously since the Bitcoin blockchain is not Turing complete and could not run self-executing smart contracts necessary for DAOs to work.

Stage 2: In 2015, Dash’s two-tiered master node network allowed for decentralized governance. Yet it was really the launch of the Turing complete Ethereum network in the same year that enabled DAOs 2.0 to function. The first and most infamous case of The DAO (with its $60M hack and the subsequent split of the Ethereum blockchain into ETH and ETC) kicked off the race to build more secure and easier-to-govern DAOs.

Stage 3: This is the stage we’re currently in. Starting around 2018 and continuing today, there are hundreds of tools built for better DAO governance, accompanied by an explosion in DAOs (counted in the thousands) and tens of thousands of DAO-like governance spaces.

Of course, this is just one way to categorize the DAO evolution. Looking at the various milestones, the journey could be divided into tens or even hundreds of stages. In any case, there is no denying that DAOs today are more robust, more complex, and have more use cases than ever before. But are they working as intended, as actual decentralized autonomous organizations? As the saying goes: “Are we there yet?”

Decentralized?

Are the DAOs today actually decentralized? According to DeepDAO, only 1.6% of DAOs have more than 100 governance token holders. Token-holder voting sometimes looks very bleak. For example, Nouns DAO's unique voter count hovers at around 10%. And an alarmingly large number of DAO decisions is unanimous or near-unanimous, as we wrote about here, in big part because of the concentration of voting power in the hands of the team and early investors/whales. We wrote about the centralizing, plutocratic tendencies of current DAOs here. Arbitrum’s case is telling, where only 11.6% of voting power is held by individual wallets.

Autonomous?

Smart contracts allow for the automatic execution of governance decisions, among other things. Yet that does not automatically happen. Much of DAO voting is off-chain and requires the signers of a multi-sig wallet to execute it (which is also contributing to centralization since multi-sigs are usually limited to just a handful of signers).

And it’s not merely a technical inconvenience. How secure is a DAO that has a choke point before the “will of the people” is enacted? Knowing that, how motivated are rank-and-file members to trust the smaller circle of leadership?

Organization?

The more something is decentralized, the harder it is to keep it organized. After all, how many countries or corporations do you know where everybody participates in every decision? The DAO structure promises to make it work via various mechanisms such as delegation, working groups, etc. — but does it?

On the most basic practical level, DAO members must navigate a number of forums, social networks, voting portals, reputation tools, and many other tools to make any sense of what they need to vote on, when, and why. Participating in DAO governance feels like a full-time job. For some, it actually is. But doesn’t that act as a gatekeeper since those who can afford to spend time on non-paid governance get a leg up over those who can’t? Doesn’t it give an advantage to those with the time and technical expertise to figure out the tooling over those who do not have such opportunities?

Security

Since The DAO hack, security has been an ongoing massive headache for anyone in DeFi, let alone in DAOs. Hacks happen too often in many varied ways and with devastating consequences both financially and reputationally. These are not only protocol-level technical attacks but also human-focused attacks where malicious actors lie their way into taking control of a DAO only to drain its treasury. Why is this happening over and over again?

On the technical side, new DAOs fork the code of old DAOs that are supposed to be secure yet aren’t, especially when adapted by the new DAO with small but critical oversights. Maybe there is a better way? Maybe the process of DAO creation should be less about modifying code than using the existing audited code to create a new DAO without new coding. Maybe having all the tools in-house can reduce the number of attack vectors.

On the human side, if it appears that humans are too easily manipulated by bad actors, what can be done to educate them better? To guard them against manipulation? Yes, blockchain pioneered trustless collaboration. But maybe there is a way to bring some trust into DAOs, at least via trusted community members and/or experts of some sort.

Conclusion

DAOs are certainly evolving. Yet, they are not living up to what decentralized, autonomous, and organized (let alone secure) is supposed to look like — and this is because there is a gaping lack of infrastructure for them to achieve those fundamental aspects of what it means to be a DAO. Imagine how much better DAOs will be in every one of the above categories; DAOs will be once that infrastructure is in place….

If one compares it to human evolution, today’s DAOs are no longer Neanderthals but not quite homo sapiens. There is no doubt that DAOs are the future and that there are many good tools emerging to help them get there. It’s just that all the excitement does need to get checked against the reality of where DAOs are today in their evolution. Are they anywhere near DAO 4.0? Are the limiting infrastructure factors described above being fully addressed?

These are the questions we’re grappling with at DeXe, trying to find the best answers for our own DAO and for others. It sure feels that the time is ripe for giving the DAO evolution a sharp evolutionary kick.

Also published here.