Penelope Lai
The Democracy Trap of DAO
The research was presented at the 7th Annual Conference of Network Society, titled “Never Mind the Web3, Here’s the P2P,” held by the Institute of Network Society at the China Academy of Art in November, 2022.
Paper Title
The Democracy Trap of DAO: Are we really heading for the future we expect?
Paper Summary
This research offers a critical examination of the current trajectory of Decentralized Autonomous Organizations (DAOs) within the emerging Web3 landscape. While DAOs are often celebrated for enabling transparent, decentralized governance free from centralized control, this research contends that their development is paradoxically prone to a “democracy trap,” where supposed decentralization leads to increased control by a select few and perpetuates inequality. Through a detailed analysis of phenomena such as inequitable voting mechanisms, reliance on Web 2.0 social networks, and the monopolization by large-scale DAOs, the paper demonstrates how these organizations risk undermining their foundational democratic ideals. For example, many DAOs utilize a “one token, one vote” system (1T1V), where governance power is proportional to the number of tokens owned, inherently favoring wealthier participants. Friends with Benefits (FWB) DAO, a social DAO, requires members to purchase a significant number of $FWB tokens—at one point exceeding $10,000—to access voting rights and full membership benefits, thereby creating substantial financial barriers. Similarly, MakerDAO, the pioneering DAO on the Ethereum blockchain, issues MKR governance tokens, which are expensive and grant more influence to those who hold a greater amount, potentially leading to a plutocratic governance structure rather than an inclusive, democratic one.
The paper further explores how DAOs are inherently linked to real-world social networks and Web 2.0 platforms, resulting in centralized tendencies that contradict their decentralized aspirations. For instance, the influence of prominent figures like Trevor McFedries, founder of FWB DAO, extends beyond the DAO itself and is reinforced by his social capital and visibility on platforms such as Twitter. This influence can skew decision-making and create centralized nodes of power, despite the DAO's commitment to flat governance. Moreover, offline events and networking opportunities are typically hosted in major global cities, such as New York or Lisbon, inadvertently excluding members from other regions and limiting participation to those who can afford to travel. The research also critiques the current landscape where large DAOs, such as MakerDAO, Gitcoin DAO, and SeeDAO, establish a monopolistic presence in their respective niches, hindering the development and visibility of smaller DAOs. This issue is particularly pronounced in developing regions like China, where restrictive regulations and limited access to platforms further exacerbate barriers to entry.
The paper argues that these practices risk replicating centralized structures reminiscent of Web 2.0, posing a threat to the core democratic principles that Web3 advocates. It calls for a critical reevaluation of DAO governance models to ensure that they truly embody the values of decentralization, inclusivity, and transparency, and to prevent the realization of a future that contradicts the very ideals DAOs are built upon.
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