DAOs Have an Early-Adopter Problem—But It Can Be Solved

DAOs Have an Early-Adopter Problem—But It Can Be Solved

DAOs, or decentralized autonomous organizations, have rapidly grown in popularity over the past few years. By enabling online communities to pool funds, coordinate efforts, and make group-based decisions around a shared mission, DAOs facilitate new models of large-scale collaboration previously impossible.

However, despite ambitious visions of decentralization, most early DAOs still struggle with concentrated power dynamics—especially when it comes to governance voting. The majority of influence and decision-making power tends to end up in the hands of a small group of founders, early financial backers, and whale token holders rather than general community members.

For example, ConstitutionDAO, one of 2021’s most famous DAO experiments that raised millions to bid on a copy of the U.S. Constitution, wound up refunding nearly all of that money back to its earliest large donors after a failed auction bid. Minority token holders still interested in the project felt ignored and lacking agency—their participation didn’t matter much compared to the outsized influence of early whales focused more on quick profits than long-term community alignment.

Situations like this reveal an inconvenient truth—while DAOs theoretically promise decentralization and equal participation for all members, in practice this ideal rarely manifests, at least initially. Thanks to substantial token holdings, the earliest adopters strongly dominate oversight and voting leverage to steer the DAO’s mission to their interests rather than the community’s.

Thankfully, solutions exist to ensure governance decentralizes more meaningfully over time for fledgling DAOs through technical means. Specifically, smart contracts can programmatically decrease the proportional control of early whale wallets as overall participation grows.

Bonding curves could provide the perfect mechanism to formalize this transition. Founders can implement bonding curves that dynamically adjust voting power based on factors like length of time tokens are staked, quantity held, or other signals of genuine commitment beyond profit-seeking motives.

For example, a bonding curve might grant just 1 vote per token initially but 10 votes per token after 3 years locked in governance. Through clever implementations like this, architects can transfer influence over time from fickle early speculators to engaged community stakeholders.

Bonding curve designs even allow founders to “bake in” governance decentralization on a set schedule, avoiding accusations of centralized custodianship. For instance, a bonding curve could ratchet down voting influence for a DAO’s earliest private sale investors by 10% quarterly. This progressively diffuses decision-making until arriving at a 1-person-1-vote system after a couple years.

Creative application of bonding curves serve to honor dedicated members ahead of transient opportunists. Allowing founders to guide their DAOs through precarious early days, before organically moving to community-wide consensus as participation grows.

If the crypto ethos emphasizes decentralization above all else, then nascent DAOs would do well to remember that ideal applies to governance too. By handing over the reins from founders to community over time via planned bonding curve mechanics, projects can truly deliver on promises of decentralized administration. This will only bolster legitimacy and longevity moving forward.

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