In the current wave of Web3, DAOs (Decentralized Autonomous Organizations), with their core characteristics of decentralization, democracy, and transparency, are seen as the future form that disrupts traditional organizational models. They are like a new type of collaborative entity in the digital world, based on smart contracts and linked by token incentives, outlining a beautiful blueprint for equal participation by all. However, beneath the glow, DAOs are not without flaws, and the many challenges hidden in their development make this organizational experiment full of uncertainty. Today, we will deeply analyze the true face of DAOs and explore their trajectory between ideals and reality.
1. The Core Logic of DAOs: A New Sample of Democracy in the Digital World
DAOs are essentially digital autonomous organizations built on blockchain technology, with the core logic being "code is law." Smart contracts serve as the "invisible charter" of the organization, solidifying all operational rules into automatically executable code, allowing for orderly operation without relying on a centralized management layer.
Ownership and governance rights within the organization are distributed through governance tokens. Token holders are akin to shareholders in traditional enterprises, entitled to vote on major organizational decisions. This model breaks the traditional pyramid management structure, theoretically achieving an open collaborative ecosystem where "everyone can participate, and everyone has a voice," enabling globally dispersed individuals to efficiently collaborate based on common goals.
2. The Highlights of DAO Practice: Successful Breakthroughs in Diverse Scenarios
DAOs do not remain on a conceptual level; in multiple fields of practice, they have demonstrated strong collaborative value and innovative vitality.
(1) MakerDAO: A Model of Decentralized Central Banking in the DeFi Field
As a benchmark project in DeFi (Decentralized Finance) within the Ethereum ecosystem, MakerDAO has established a stablecoin issuance system based on collateralization of crypto assets, with its core asset DAI not requiring support from traditional fiat currencies, generated through users over-collateralizing ETH and other crypto assets, and fully managed by smart contracts.
MKR, as its governance token, allows holders to collectively decide on key matters such as interest rate adjustments and risk parameter settings, forming a unique governance model of "decentralized central banking." Even during the "Black Thursday" crisis in March 2020, when global financial markets plummeted, the MakerDAO community successfully resolved the liquidity crisis through efficient collective voting decisions, fully demonstrating the resilience and feasibility of the DAO governance model.
(2) Gitcoin Grants: A transparent new paradigm for public goods funding
Gitcoin Grants innovatively digitizes and transparently processes the funding process for open-source and public welfare projects, using a mechanism of "community small donations + quadratic matching donations" to direct funds more accurately to projects that are truly in need.
As of now, the platform has raised tens of millions of dollars for digital public goods such as developer tools, technical documentation, and localized education. Its core advantage lies in the on-chain traceability of the entire process, from proposal submission, community review to matching fund distribution and fund settlement, with every step being verifiable and traceable, effectively reducing ineffective funding and enabling a virtuous cycle where "someone uses, someone pays, and someone maintains" public goods. Its replicable mechanism provides new ideas for funding in the public domain.
(3) PleasrDAO: Decentralized Practice in Digital Art Dissemination
In June 2024, the digital art collection DAO—PleasrDAO lent the only album of the Wu-Tang Clan (Once Upon a Time in Shaolin) to the Museum of Old and New Art (MONA) in Tasmania, Australia, hosting a limited 30-minute listening session of selected clips.
This was the first public appearance of this "unique" record, attracting widespread attention, with thousands queuing for standby and every session fully booked. Behind this is the support of the DAO model: collective ownership determines the circulation of the collection, community power drives the exhibition, and on-chain records and offline curating form a complete closed loop, perfectly illustrating how decentralized governance balances artistic value and public accessibility.
3. The Real Dilemma of DAOs: The "Achilles' Heel" Beneath the Glossy Surface
Despite the impressive results of DAOs, delving into their operational core reveals that many inherent problems are hindering their further development, becoming "fatal weaknesses" that restrict their maturity.
(1) Re-concentration of Power: Divergence from the Ideal of Decentralization
The vision of "equality for all" advocated by DAOs is difficult to implement in actual operations. The distribution of governance tokens often reflects the Pareto principle, where a small number of "whales" (large token holders) control the vast majority of voting rights.
Related research shows that the top 1% of addresses in UniswapDAO control nearly half of the voting rights, while the proportion of members participating in monthly votes has dropped sharply by 61% from its peak. This means that the fate of a protocol with a market value of hundreds of billions is effectively decided by a few individuals, turning the so-called "decentralization" into a superficial formality, contrary to its original intention.
(2) Decision-Making Dilemma: The Dual Shackles of Voter Apathy and Inefficiency
Low participation rates and inefficient decision-making are common challenges faced by DAOs. In 2024, multiple governance proposals within the Arbitrum ecosystem fell into a deadlock, with not only low voter participation but also lengthy and repetitive discussions, leading to severe delays in key budget approvals and project launches.
This situation is akin to a large ship that requires everyone to row, with only a few people putting in effort, and every course adjustment requiring a vote from everyone. In the rapidly changing "storm" of the market, opportunities are often missed due to slow decision-making.
(3) Technical Risks: The Double-Edged Sword Effect of Code as Law
"Code is law" is the core principle of DAOs, but technical vulnerabilities in smart contracts can lead to catastrophic consequences. In 2023, Tornado CashDAO suffered a malicious proposal attack, where attackers exploited a smart contract vulnerability to modify core parameters and successfully transfer platform tokens, exposing the fragility of code rules.
It's like a fully automated building that seems to run stably without human intervention, but a tiny code vulnerability could lead to the collapse of the entire system.
(4) Legal Gaps: Compliance Risks in the Gray Area
The decentralized nature of DAOs places them outside traditional legal frameworks, resulting in ambiguous legal positioning. In 2023, a certain court in the United States ruled that a member of a DAO must bear joint liability for damages caused by the agreement, revealing the potential legal risks faced by DAO members.
Just like a group of people establishing a "no man's land" on the high seas, there are no clear legal constraints and a lack of legitimate rights protection, and they may face accountability from regulatory agencies at any time. The compliance challenge has become a significant obstacle to the scaling development of DAOs.
4. Breaking the Deadlock: The Evolutionary Direction and Practical Exploration of DAOs
Facing numerous challenges, the DAO community has not stagnated but is actively exploring innovative solutions to promote the continuous evolution of organizational models.
(1) Innovation of Governance Mechanisms
To balance power distribution and decision-making efficiency, many DAOs have begun to experiment with new governance models. Quadratic voting adjusts voting weights to reduce the influence of a few large holders; reputation systems allocate voting rights based on member contributions to encourage active participation; delegated voting allows members to delegate their voting rights to professional nodes, balancing participation and decision-making expertise.
(2) Upgrade of Technical Security
In response to the risks of smart contract vulnerabilities, the industry has generally strengthened technical protective measures. Smart contract auditing has become a necessary step before project launch, formal verification technology uses mathematical methods to prove code security, and bounty programs incentivize white-hat hackers to actively find and fix issues, enhancing system security from multiple dimensions.
(3) Construction of Legal Framework
Some DAOs actively communicate with regulatory agencies to explore legitimate and compliant organizational forms. Wyoming in the United States has passed a bill legalizing DAOs, providing them with a clear legal status, and other regions are gradually improving relevant regulatory rules to promote the transition of DAOs from a "gray area" to compliant development.
(4) Gradual Decentralization
Some organizations abandon the idea of achieving decentralization in one step, adopting a layered governance structure and meta-rule design. The core team initially leads development, gradually transferring governance power as the organization matures, ensuring efficiency while steadily advancing the decentralization process to achieve a dynamic balance between efficiency and fairness.
5. Steadily Moving Forward Between Ideals and Reality
As an organizational innovation in the Web3 era, DAOs attempt to solve the trust dilemma and efficiency bottleneck of traditional organizations using technology as a blade, and their exploratory value is worth affirming. However, the gap between ideals and reality determines that the development of DAOs cannot be achieved overnight.
Recognizing the flaws and challenges of DAOs does not negate their significance; rather, it is to promote their development more rationally. There is no absolutely perfect organizational model in the world, and the maturity of DAOs requires continuous trial and error and iterative optimization in practice. Only by embracing innovation with original intent and confronting real problems, accumulating experience through exploration, and perfecting mechanisms through adjustment, can DAOs gradually mature and truly release their collaborative value in the digital age.
