Less than 1% of all holders have 90% of the voting power in DAOs: report

Decentralized autonomous organizations (DAOs) have become a rage in the ever-expanding crypto ecosystem and are often seen as the future of decentralized corporate governance.ย 

DAOs are organizations without a centralized hierarchy, intended to work in a bottom-up manner, where the community collectively owns and contributes to an organization’s decision-making process. However, recent research data suggests that these DAOs are not as decentralized as it was intended to be.

A recent report from Chainalysis analyzed the workings of ten major DAO projects and found that on average, less than 1% of all holders have 90% of the voting power. The finding highlights a high concentration of decision-making power in the hands of a selected few, an issue DAOs were created to resolve.

This concentration of decision-making power was evident with the Solana-based lending DAO Solend. Solend team tried to take over a whale’s account and execute the liquidation themselves via over-the-counter (OTC) desks to avoid cascading liquidations across the DEX books.

The proposal to take over was passed with 1.1 million โ€œyesโ€ votes to 30,000 โ€œnoโ€ votes, however out of these total โ€œyesโ€ votes 1 million came from a single user holding large amounts of governance tokens. The vote was later overturned after a heavy lash back.

Related: How a DAO for a bank or financial institution will look like

The Chainalysis report highlighted that although all governance token holders have voting rights, the right to make a new proposal for the community and to pass it is not very easy for everyone, given the number of tokens required to do so.

The report estimated that between 1 in 1,000 and 1 in 10,000 governance token holders have enough tokens to create a proposal. When it comes to passing a proposal only between 1 in 10,000 and 1 in 30,000 holders have enough tokens to do so.

Decentralized Finance (DeFi) ecosystem accounts for 83% of all DAO treasury value held and 33% of all of the DAOs by count. Apart from DeFi,ย venture capital, infrastructure, and NFTs are other ecosystems that have seen a rise in number of DAOs.