When is a DAO Decentralized?

Complex Systems Informatics and Modeling Quarterly, CSIMQ, no. 31, pp. 51–75, 2022. https://doi.org/10.7250/csimq.2022-31.04

25 Pages Posted: 23 Sep 2022 Last revised: 16 Feb 2023

See all articles by Henrik Axelsen

Henrik Axelsen

University of Copenhagen - Department of Computer Science

Johannes Rude Jensen

University of Copenhagen

Omri Ross

University of Copenhagen

Date Written: July 31, 2022

Abstract

While previously a nascent theoretical construct, decentralized autonomous organizations (DAO) have grown rapidly in recent years. DAOs typically emerge around the management of decentralized financial applications (DeFi) and thus benefit from the rapid growth of innovation in this sector. In response, global regulators increasingly voice the intent to regulate these activities. This may impose an excessive compliance burden on DAOs, unless they are deemed sufficiently decentralized to be regulated. Yet, decentralization is an abstract concept with scarce legal precedence. We investigate dimensions of decentralization through thematic analysis, combining extant literature with a series of expert interviews. We propose a definition of “sufficient decentralization” and present a general framework for the assessment of decentralization. We derive five dimensions for the assessment of decentralization in DAOs: Token-weighted voting, Infrastructure, Governance, Escalation and Reputation (TIGER). We present a discretionary sample application of the framework and five propositions on the future regulation and supervision of DAOs. We contribute new practical insights on the topic of compliance and decentralized organizations to the growing discourse on the application of blockchain technology in information systems (IS) and management disciplines.

Keywords: DAO, Sufficient Decentralization, Regulation, DLT, Blockchain, Compliance

JEL Classification: G30, E51, F30

Suggested Citation

Axelsen, Henrik and Jensen, Johannes Rude and Ross, Omri, When is a DAO Decentralized? (July 31, 2022). Complex Systems Informatics and Modeling Quarterly, CSIMQ, no. 31, pp. 51–75, 2022. https://doi.org/10.7250/csimq.2022-31.04, Available at SSRN: https://ssrn.com/abstract=4210073

Henrik Axelsen (Contact Author)

University of Copenhagen - Department of Computer Science ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Johannes Rude Jensen

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Omri Ross

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

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