Download This PaperDAO Governance
75 Pages Posted: 3 Feb 2023 Last revised: 19 Dec 2023
Date Written: February 3, 2023
Abstract
Decentralized autonomous organizations (DAOs) are entities without central leadership and operate based on a set of decision-making rules encoded into smart contracts using blockchain technology. In this study, we develop a theoretical model of DAO governance featuring strategic token trading under token-based voting to investigate potential conflicts of interest between a large participant (a "whale") and many small participants. Our results show that ownership concentration has a negative effect on platform growth, but platform size, token illiquidity, and long-term incentives can mitigate the negative effect. We confirm these predictions using novel voting data on major DAOs between 2020 and 2022.
Keywords: DAO, Decentralized Finance, Governance, Blockchain, Whales, Incentive Conflicts, Strategic Trading, Token Liquidity, Network Effects
JEL Classification: D21, D26, G34, G38, O33
Suggested Citation: Suggested Citation
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