Chainalysis Study Finds Ownership of Web3 DAOs Not Actually Decentralized

According to the research, DAOs are the cornerstone of many blockchain and Web3 projects. The DAO based on the Internet and blockchain aims to provide a new, democratized management structure for enterprises, projects and communities, in which any member can vote on the organization's decisions by investing in the project.

Centralized voting rights

However, a new report from Chainalysis points out that while the operation of DAOs is often considered to be decentralized, in reality DAO ownership is highly centralized.

Chainalysis analyzed the workings of ten major DAO projects and found some clear details that DAOs are not as decentralized as expected. The study revealed that voting power in DAOs is largely centralized.

On average, less than 1% of members accumulate more than 90% of voting power. In other words, less than 1% of the main DAO members own 90% of the voting power.

This means that a lot of power is concentrated in the hands of a small number of chosen founding members, which is what DAOs should solve. This is an undemocratic situation where a small number of individuals (approximately 1% of all token holders) may overrule any decision of the remaining 99% of holders. In addition to this, the report also pointed out that the high demand for users who propose votes also violates the principle of decentralization.

After analyzing the governance structures of 10 major DAOs, Chainalysis found that: Users must hold between 0.1% and 1% of the outstanding token supply to create proposals; users must hold between 1% and 4% of tokens to pass proposal. Therefore, the high requirement to propose a vote becomes an obstacle for most users.

The Chainalysis report also pointed to another anomaly about the DAO.

The study found that if too many people create proposals, the quality of the average proposal could drop and the DAO could become flooded with governance spam. But if there are too few promoters, the community may think that "decentralized governance" sounds wrong. This is another area that DAOs have not yet addressed.

DeFi boosts DAO

In addition to focusing on voting rights within DAOs, Chainalysis also noted that DAOs encompass a range of projects and services in Web3. The research shows that DeFi-related DAOs are ahead of other categories such as venture capital, infrastructure, and NFTs, which have much smaller on-chain asset reserves than DeFi protocols. According to the report, 83% of DAO asset reserves come from DeFi.

The report further revealed that only 17.9% of DAO reserve funds come from centralized services. This means that the remaining 82.1% comes from decentralized platforms, which shows that DeFi protocols are highly related to DAOs.