DAO Governance

75 Pages Posted: 3 Feb 2023 Last revised: 19 Dec 2023

See all articles by Jungsuk Han

Jungsuk Han

Seoul National University - College of Business Administration; Finance Theory Group (FTG)

Jongsub Lee

Seoul National University; University of Florida - Warrington College of Business Administration

Tao Li

University of Florida - Department of Finance, Insurance and Real Estate

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

Han, Jungsuk and Lee, Jongsub and Li, Tao, DAO Governance (February 3, 2023). Available at SSRN: https://ssrn.com/abstract=4346581 or http://dx.doi.org/10.2139/ssrn.4346581

Jungsuk Han

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Finance Theory Group (FTG) ( email )

United States

Jongsub Lee

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

University of Florida - Warrington College of Business Administration ( email )

Department of Finance Insurance & Real Estate
P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-273-4966 (Phone)
352-392-0301 (Fax)

Tao Li (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

Warrington College of Business
Gainesville, FL 32611
United States

HOME PAGE: http://warrington.ufl.edu/contact/profile.asp?WEBID=7628

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
683
Abstract Views
2,052
Rank
69,479
PlumX Metrics