Voting Governance and Value Creation in Decentralized Autonomous Organizations (DAOs)

Abstract

Decentralized autonomous organizations (DAOs) use proceeds from crowdfunding in various projects. The decentralization feature of DAOs submits that decision-making is a collective democratic action of all DAO members. The autonomy feature of DAOs suggests that decision-making is an algorithmic process governed by self-executing smart contracts. However, in reality, DAOs are neither perfectly decentralized nor completely autonomous. Our empirical analysis shows that deviations from the ideals of decentralization and autonomy are costly. Non-algorithmic off-chain voting governance of decision-making leads to a substantial discount in DAO value. Non-decentralized aspects such as ownership concentration, power concentration, and voting coalitions also affect DAO value. Interaction and curvilinear effects are also shown. The study implies that platform governance design choices are crucial for DAO success.

Keywords: Decentralized autonomous organization (DAO), blockchain technology, on-versus off-chain, governance, crowdfunding

JEL Classification: G14, G30, L26, M13, O16