Decentralized Governance and Digital Asset Prices

Abstract

Decentralized Autonomous Organizations ("DAOs'') are crypto-native organizations run without centralized management. Instead, managerial and financial decisions are made by token holders via a decentralized voting process. Taking advantage of the transparency of blockchains, we gather data on DAOs and 10,764 of their improvement proposals. We offer a novel classification of DAOs' objectives and governance structures. We also examine the relation between governance and performance. Aspects of governance that promote broad participation in decision-making or enhance security are associated with positive abnormal returns. Barriers to the adoption of improvement proposals are associated with negative abnormal returns. Overall, our findings provide some of the first evidence on the governance of this new organizational form.

Keywords: DAOs, cryptocurrency, blockchain, tokens, digital assets, decentralization, digital governance, Web3, FinTech, decentralized finance, DeFi, protocols, voting rights, cybersecurity, compliance, stablecoins, entrepreneurship, organizational economics, corporate governance, political economy

JEL Classification: O30, G34, M10, M50