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  • Writer's pictureMichael Paulyn

According to Research by Chainalysis: Some Web3 DAO Ownerships Aren't Truly Decentralized

Updated: Oct 21, 2023

DAOs and much of blockchain technology have been hailed as a new way to democratize wealth, opportunity, and the internet. As luck would have it, some things don't quite work out as first intended, and for some DAOs, that's precisely the case.

Recent research published by Chainalysis states that although many decentralized autonomous organizations (DAOs) have developed structures that point to a future of decentralized governance, there are several issues with this proposed plan.

Voting Power Still Highly Centralized

This detailed study found that although DAOs play a fundamental role in blockchain and many cutting-edge Web3 projects, ownership tends to have a certain amount of centralized power.

Looking at ten prominent DAO projects, Chainalysis found some interesting insights regarding how un-decentralized many of these endeavors were in reality. It turns out that less than 1% of all members have amassed over 90% of all the voting power in these DAOs, meaning the 1% held 90% of power for decision-making.

Along with this eye-opening info, Chainalysis found some exciting takeaways:

  • A user must hold between 0.1% and 1% of the outstanding token supply to create a proposal,

  • A user must hold between 1% and 4% to pass it.

For anyone looking to propose a vote, there were severe barriers for most individuals.

Following that, the report found two unexpected aspects of most DAOS:

  • If too many users created proposals, the DAO would be swamped with spam, and the governance system would fall into chaos.

  • But if not enough users put forth proposals, the community within the DAO might feel the idea of a "decentralized governance" was nothing more than a joke.

Chainalysis says most DAOs have yet to fully address and try and solve this, as these issues could be an Achilles heel for many future projects.

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