Anatomy of the DAO: Web3 ownership is surprisingly centralized

Decentralized Autonomous Organization (DAO) is the flagship product of web3. The DAO is based on the Internet and blockchain, and aims to provide a new, democratized governance structure for businesses, projects and communities in which any member can vote on organizational decisions as long as they invest in a project.

At a high level, this is how DAOs work.

1. The founders of The DAO created a new cryptocurrency called a governance token.

2. They distribute these tokens to users, investors and other stakeholders.

3. Each token corresponds to a certain amount of voting rights within the organization. Each token also corresponds to a price on the secondary market, where it can be bought and sold at will.

While this process is often described as a way to decentralize power, governance token data suggest that DAO ownership is highly centralized.

Centralization of governance token holdings

By analyzing the distribution of governance tokens for ten major DAOs, we found that in several major DAOs, less than 1% of all holders have 90% of the voting power.


User share data holding 90% of governance tokens in the DAO

This has profound implications for the governance of DAOs. For example, if only a fraction of the top 1% of holders work together, they could theoretically vote over any decision over the remaining 99%. This has obvious practical implications, as far as investor sentiment is concerned, it is likely to affect whether small holders feel they can contribute meaningfully to the proposal process.

The Impact of High Centralization on DAO Governance

For a governance token holder, there are three key governance actions. Voting is easy – any holder can do it. But what about creating a proposal through it?

According to the proposal requirements of these ten DAOs, we found that:

1. Users must hold 0.1% to 1% of the outstanding token supply in order to create proposals.

2. A user must hold between 1% and 4% to pass.

Using these ranges as upper and lower bounds, we found that 1 in 1,000 to 1 in 10,000 holders of these ten DAOs had enough tokens to create a proposal.


There are several tradeoffs here. If too many holders can create a proposal, the quality of the average proposal may drop, and the DAO may be flooded with all kinds of governance spam. But if there is too little, the community may feel that “decentralized governance” is fake.

When it comes to passing a proposal single-handedly, 1/10,000 to 1/30,000 holders have enough tokens to do it.

An excessive concentration of voting power in a DAO can lead to decisions that appear to be contrary to the principles of decentralization on which web3 is built. For example, in June 2022, the DAO that manages Solend, the Solana-based lending protocol, faced a problem: the price of Solana was falling, and if it fell further, the protocol’s largest whale users would face a margin call, which could put Solend out of business, And sending around $20 million worth of Solana to the market could send the asset’s price down and disrupt the entire Solana ecosystem. The DAO convened a vote to take control of the whales’ accounts and liquidate their positions through the OTC market instead of the open market.


The proposal passed easily, with more than 1.1 million “yes” votes to 30,000 “no” votes. However, more than 1 million of those tickets came from a user with a huge governance token holdings. Without their vote, the bill would not have passed the 1% participation rate required by the quorum.

The decision sparked a backlash in the cryptocurrency community, with many questioning how a platform could claim to be decentralized and then control users’ funds against their will. After this, the Solend DAO voted again to invalidate the proposal, and whale users finally started to unwind. While the crisis was avoided in this case, it raises the question of whether DAOs have the ability to act in the best interests of all participants when a few voters control such a large share of governance tokens.

How exactly are DAOs governed?

The actual governance process varies from DAO to DAO, and this question is best answered with examples. Let’s start with the biggest one: Uniswap.

Example: Uniswap Governance

Uniswap is a decentralized exchange (DEX) that, like many DeFi protocols, is governed by a DAO.

Anyone who holds Uniswap’s governance token, UNI, is a member of this DAO. They can participate in governance by delegating their voting power to their own or others’ addresses, publicizing their opinions, or submitting their own proposals. The content of these proposals varies widely: Holders recently voted on whether to fund a grant program, whether to integrate a new blockchain, and whether to lower the threshold for submitting governance proposals.

However, before someone can submit a suitable proposal, their idea must pass through the first two stages: a temperature check and a consensus check.

1. Temperature checks determine whether there is enough community will to change the status quo. At the end of the two days, a majority of 25,000 UNI votes in favor wins.

2. A consensus check establishes a formal discussion around a potential proposal. At the end of five days, a majority of 50,000 UNI votes in favor wins.

If both checks pass, the formal governance proposal can be put to a vote. Then, there is a seven-day deliberation period to discuss the merits of the proposal in the governance forum. If, at the end of the period, there are at least 40 million votes in favor and a minority of negative votes, the proposal is passed and will be enacted after a two-day time lock.

Example: Dream DAO Governance

Not all DAOs operate like Uniswap, but most operate on at least similar infrastructure, using voting systems like Snapshot and chat servers like Discord. The Dream DAO is no exception, although its mission and its governance process are necessarily unique.

Dream DAO is an impact-driven DAO created by 501(c)(3) charity Civics Unplugged to provide different Gen Zers around the world with the training, funding and community they need to use the web3 for the betterment of humanity. Their governance process is run by SkywalkerZ holders – the NFT is both a governance token and a fundraising incentive for anyone interested in donating to the project. For every SkywalkerZ NFT purchased by a donor, a new SkywalkerZ is reserved for future Gen Z to join as a voting member, thereby gaining power in the DAO without paying. Buyers of NFTs can apply to join the DAO and become voting members, or they can leave it to the Gen Z students they sponsor – the NFT is theirs anyway.

By removing financial barriers to participating in the DAO governance process, Dream DAO empowers its target audience – future Gen Z leaders – to influence decision-making, immerse themselves in Web3, and actively leverage blockchain technology.

Where are the most common and well-funded DAOs?

DAOs span the entire “breadth” of web3, they manage:

  • DeFi 议, Nyo Uniswap ($ UNI) Japanese Sushi ($ SUSHI).
  • Social clubs like Friends With Benefits ($FWB) and Bored Ape Yacht Club ($APE).
  • Funders such as Gitcoin ($GTC) and Seed Club ($CLUB).
  • Play and earn game guilds like the Good Games Guild ($GGG) and Yield Guild Games ($YGG).
  • NFT generators like Nouns (1 NFT = 1 vote).
  • Venture funds such as MetaCartel and Orange DAO.
  • Charities like Big Green DAO and DreamDAO (1 SkywalkerZ = 1 vote).
  • Virtual worlds like Decentraland ($MANA) and Sandbox ($SAND).
  • there are more. (Example: Constitution Dao, Lex Dao)

But in terms of raw numbers and coffers size, DeFi-related DAOs have a huge lead. The DeFi category accounts for 83% of the value of the treasury held by all DAOs and 33% of all DAOs by volume.


Total assets and DAOs held by Web3 category

There are also a large number of DAOs focused on venture capital, infrastructure, and NFTs, indicating that DAOs have a strong appeal to investors, developers, and artists. However, their on-chain treasury is relatively small.

To be fair, the lines between these categories are blurred. Gaming DAOs frequently engage with NFTs, venture DAOs frequently fund DeFi, and infrastructure DAOs support all of the above categories.

Financial management: What assets does the DAO hold?

Even though DAOs vary in type and size, their on-chain coffers mostly hold similar cryptocurrencies. The most commonly held cryptocurrency is the stablecoin (USDC), with more than half of the 197 DAOs we analyzed holding balances in USDC.


However, stablecoins rarely account for the majority of on-chain property value. On average, 85% of the DAO’s on-chain assets are stored in a single asset, and in the DAOs we studied, only 23% of that asset is a stablecoin.


The percentage of the DAO treasury allocated to stablecoins

The volatility of these on-chain treasuries is about the same as Bitcoin. By assuming the DAO’s current holdings are their historical portfolio for the past year, we find that:

  • DAOs with assets over $1 million have an average annualized volatility of 82%, compared to 69% for Bitcoin.
  • DAOs with more than $1 million in assets, on average, have seen their biggest drawdowns over the past year of 51%, compared to 72% for Bitcoin.

The DAO treasury value is also quite correlated with Bitcoin price action. 38% of on-chain DAO treasuries have a correlation between 0.5 and 1.00 to Bitcoin.


How strong is the correlation between the value of the DAO treasury and the price trend of Bitcoin

One of the most interesting areas of DAO money management that has yet to take off is mergers and acquisitions (M&A). M&A makes sense for DAOs because it allows DAOs to enter adjacent areas without having to develop internal tools. As the DAO model matures, we suspect M&A will become more common.

To date, DAOs have also been fairly limited in the types of instruments they use and hold. For example, so far, few DAOs have used loans or credit, perhaps because of their uncertain legal status. As DAOs mature, we are likely to see more standardized regulations, management strategies, and reporting practices.

Who is contributing to the DAO?

While we do not collect demographic data about DAO participants, we can learn something about DAO contributors using blockchain data.


Where do DAO contributions come from? Token Smart Contract = project specific ERC-20 or layer 1 token contract

As one might expect, DAO participants are power users of cryptocurrency services. Only 17.9% of DAO treasury funds come from centralized services, while the remaining 82.1% come from decentralized services. This suggests that most DAO contributors are also involved in DeFi platforms and may self-custody their cryptocurrencies.

The future of DAOs

As DAOs gain momentum, a cottage industry of tooling services and advocacy groups has emerged to help them grow and govern. Superdao simplifies DAO creation; Snapshot simplifies governance; Coin Center on Capitol Hill to promote the industry. As they continue to expand, it will be interesting to see what they can accomplish, what they will become, and how far they will achieve their goal of decentralized internet ownership. With the proliferation of DAOs today, we will see a lot of opportunities.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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