Voting governance and value creation in decentralized autonomous organizations (DAOs)

Abstract

Decentralized autonomous organizations (DAOs) crowdfunds to invest 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 large voting coalitions also affect DAO value. Interaction effects are also shown. The study implies that platform governance design choices are crucial for DAO success.