Do DAOs in the real world truly achieve complete decentralization and autonomy?

Are Decentralized Autonomous Organizations Really Decentralized? This article enumerates the difficulties they face on the road to full autonomy.

While the organizational structure of a Decentralized Autonomous Organization (DAO) should fundamentally be “decentralized,” this is not the case for some of the largest DAO protocols, including Uniswap. Many day-to-day activities within DAOs still require a few core members of the organization to make major decisions. This raises the question of whether DAOs are fully decentralized. If not, is a fully decentralized future possible?

More broadly, DAOs can be compared to how democracies operate. While ideology is decided by the people for the country, it is largely governed by a powerful few who hold most of the license to decide laws and control decisions. Also similar to large organizations, shareholders are allowed to vote, but key policies are determined by the board.

DAOs are different in that they have more attractive qualities than traditional organizations. For example, if anyone has an idea within a traditional organization, the idea has to go through the manager before it reaches the top. In a DAO, everyone can participate in proposals due to the flat structure and no hierarchy.

Community members come together to vote on proposals that will benefit the future operation of the protocol, and once the proposal is approved, it is executed in a smart contract. In this model of community cooperation, it is in the best interest of everyone within the DAO to agree on proposals that benefit the protocol due to incentives. A protocol that attracts more users will push up the value of the token, which is what token holders want.

Despite the appearance of complete decentralization, the reality is that there are still significant challenges to achieving complete decentralization.

Why it is difficult for DAO projects to achieve complete decentralization

The DAO protocol is struggling to achieve its fully autonomous nature because complete decentralization is challenging, and the times are.

Decision makers are not taking enough responsibility, leading the core founding team to distrust a system where anyone can control decisions. Over-reliance on a large community that lacks a direct leader creates tension within the group and delays the decision-making process, which in turn affects the entire company.

Today, almost all traditional early-stage startups have few decision makers. This is mainly because one wrong decision in the initial growth phase can upend a company and cause many early-stage founders to be wary of the core team members they involve. In this case, founders make quick decisions and act quickly. However, the DAO goes against this principle, emphasizing the importance of member recognition and community voting.

One of the main qualities of a DAO is that it is a community-led organization that considers possible short-term gains. In this case, founders need to trust that the community itself is capable of making the right decisions based on long-term goals and vision. In general, there are no absolute restrictions or responsibilities on who can join the DAO community, making it impossible for the core team to trust intent. Therefore, for some protocols, a more rigorous recruitment process is required to ensure the reliability of new DAO members.

Decentralization needs to be implemented in stages

If the DAO is to retain its essence, where the community can make decisions on an equal footing, decentralization needs to happen in stages. However, a certain level of control is required in order to maintain shared prosperity in the organization. While participating communities should be empowered to make recommendations and decisions, gatekeepers or councils who can effectively uphold the company's core values may be required.

Most successful DAOs, including Uniswap, MakerDAO, PieDAO, Decred, etc., have different gatekeeping systems, and proposals go through different stages before being accepted. For example, Uniswap’s governance protocol has multiple stages of execution before any proposal is accepted. Its final stage is a group of elected users who have the power to stop the execution of any proposal deemed malicious or unnecessary. MakerDAO, on the other hand, has a more open community where people do not need to hold their tokens to participate in off-chain voting. However, its proposal has undergone rigorous scrutiny.

The community is the foundation of the DAO, and it is critical that the DAO evolve towards a structure that is not entirely dependent on the core team. Currently, voting is an important part of a truly participating DAO. However, future protocols must focus more on engagement and hand in hand with builders.