From CAOs to DAOs

Table 1 below contains several definitions of DAOs drawn from the recent literature. In all these definitions there are five common features. Primarily, they operate without a central authority or management hierarchy, underlining their decentralised nature. Their autonomy is a fundamental attribute, emphasised by the capability of DAOs to function independently based on pre-set rules. These rules are typically encoded as smart contracts, enabling automated and tamper-resistant operation. The use of blockchain technology is a universal element across all definitions, showcasing its crucial role as the underlying infrastructure enabling DAO functionalities. In theory, it may be possible to devise a decentralised organisation using some other technology than blockchain, such as a distributed database or some other centralised infrastructure. At the time of writing, however, there is no substitute technology that can provide the transparency, automation, and trustless environment that blockchain can provide. Additionally, most definitions mention the significant role of tokens in DAO governance structures, granting voting rights and organisational influence to their holders, thereby ‘democratising’ the decision-making process.

Table 1.

Selected definitions of DAOs

Each of the definitions, however, also adds a distinctive feature. Hsieh et al. (Reference Hsieh, Vergne, Anderson, Lakhani and Reitsig2018) include voluntary contributions from stakeholders as a significant aspect of DAOs while El Faqir et al. (Reference El Faqir, Arroyo and Hassan2020) specifically mention common goals drawing people together. Hassan and De Filippi (Reference Hassan and De Filippi2021) include the point of DAOs enabling people to coordinate and govern themselves in achieving common goals. Wright (Reference Wright2021) introduces the idea of scalability. Zhao et al. (Reference Zhao, Ai, Lai, Luo and Benitez2022), Rikken et al. (Reference Rikken, Janssen and Kwee2023), and Bellavitis et al. (Reference Bellavitis, Fisch and Momtas2023) all highlight the underlying technology; machine-based automation, the ideas of value storage, transaction, and notary functions, and finally smart contracts.

The modern for-profit corporation, non-profit organisations and, even, some government agencies can be described as being centralised autonomous organisations. There is astonishing variation within these organisational forms as well. The modern corporation, for example, may manifest itself as being a sole-proprietary, or as a partnership, or as private company, or as public company. Each of these organisational forms has differing legal entitlements and consequences. Not-for-profit organisations may be anything from a charity, to a think-tank, to a religious organisation. For almost any form of cooperative human behaviour, there is a form of organisation to facilitate that behaviour. The issue of some importance then is what unique characteristics do DAOs have that existing organisation forms do not have? Of course, there may be more than one such characteristic, but for DAOs to survive as a unique organisational form, there must be at least one such characteristic (Fama and Jensen Reference Fama and Jensen1983).

In the first instance, both CAOs and DAOs are organisations. They facilitate cooperation and coordination amongst different individuals who have some or other common goal or purpose. CAOs and DAOs also tend to be autonomous – they ‘self-govern’ by some internal system of rules. CAOs usually achieve internal self-governance via bureaucratic systems. Bureaucracy has become to be considered a pejorative term, yet as Mises (Reference Mises1944) explains bureaucracy plays an important role in all organisations. By contrast, DAOs achieve self-governance via a series of smart contracts and voting by token holders. There are both advantages and disadvantages to bureaucracy and smart contracts for both CAOs and DAOs. Traditional bureaucracies, for example, offer structured, regulated environments with clear lines of authority, but they may lack flexibility, discourage innovation, and concentrate power. On the other hand, DAOs with smart contracts offer efficiency, transparency, and decentralised control, but they face technical and coordination challenges.

It is in decentralisation that CAOs and DAOs are most different. Decentralisation is the process of dispersing decision functions, powers, or people away from a central authority. Now it is true that successful CAOs, at scale, tend to decentralise decision-making (Williamson Reference Williamson1975, Reference Williamson1985, but see Freeland Reference Freeland2001 and Langois (Reference Langois2023) for a nuanced historical argument). In the context of DAOs, however, decentralisation refers to the lack of a single point of control or authority. Instead, control and decision-making power are spread out among the members or token holders of the organisation, typically through a voting system based on ownership of governance tokens. Unlike CAOs, DAOs are characterised by a lack of hierarchy. In principle, there is no management function within DAOs where resources are directed by authority or fiat. This is a radical departure from conventional organisational structures where decision-making authority often rests with a small executive group or an individual leader.

This radical differentiation between CAOs and DAOs is apparently facilitated and underpinned by blockchain technology, which provides a transparent and tamper-resistant medium for executing decisions and tracking ownership of governance tokens. It is important to recognise that, at the time of writing, the claim that blockchain technology can substitute for managerial and bureaucratic control is an empirical claim that, as yet, remains to be verified. As indicated above, Foss and Klein (Reference Foss and Klein2022) appear sceptical; they write (2022: 21–22):

There is another path to examining DAOs. Humans cooperate via different institutional forms – some cooperation occurs with organisational forms such as firms and government (hierarchy) while other forms of cooperation occur through markets. Davidson et al. (Reference Davidson, De Filippi and Potts2018: 654) define DAOs in that fashion – DAOs combine different mechanisms for cooperation into a single structure:

Davidson et al. (Reference Davidson, De Filippi and Potts2018) base their argument on the notion that blockchain technology is a new institutional technology as opposed to being a new general-purpose technology. It is not (just) the case that blockchain technology will allow people to do things faster or cheaper, but rather it will allow them to do entirely new things or old things differently than before. Again, however, the challenge is whether blockchain technology enables the emergence of an organisational form that is radically decentralised, i.e. an organisational form that has no central authority or management.

Davidson et al. (Reference Davidson, De Filippi and Potts2018) are very much influenced by Williamson (Reference Williamson1975, Reference Williamson1985) and his distinction between markets and hierarchy. Their definition of DAOs, however, introduces a new element to DAOs – in this view, DAOs combine the properties of markets and organisations to produce both private and public goods. They could be what Williamson (Reference Williamson1985) defines as being a ‘hybrid’ – although the examples of hybrids that he offers (strategic alliances, joint ventures, franchising, and the like) are not autonomous in the way DAOs are autonomous. Table 2 below is adapted from Williamson (Reference Williamson1999: 314 and 336) and adds a column where the governance attributes of DAOs are included. As per Williamson’s (Reference Williamson1975, Reference Williamson1985) theory, markets and hierarchy are mirror images of each other, while hybrids can be viewed as being an organisational compromise. In terms of Williamson’s (Reference Williamson1975, Reference Williamson1985) argument (the Instruments panel) DAOs are more like Markets than they are Hierarchy.

Table 2.

Attributes of governance structures

Key: ++ Strong; + Semi-Strong; 0 Weak.

Source: Adapted from Williamson (Reference Williamson1999), Author.

Williamson (Reference Williamson1993: 119) argues, building on Hayek’s (Reference Hayek1945) insight, that adaption to change is an important organisational attribute. He distinguishes between two forms of adaptation: ‘Autonomous Adaptation’ and ‘Cooperative Adaptation’. These two attributes are shown in the performance panel in Table 2.

Autonomous adaptation occurs when individual economic actors make spontaneous adjustments in response to market signals, such as changes in relative prices. This form of adaptation aligns closely with Hayek’s (Reference Hayek1945) view of the market as a decentralised mechanism that enables individuals to respond to new information effectively, even with limited knowledge of the broader system. Each actor independently modifies their behaviour to maximise outcomes based on personal incentives and the information at hand, making autonomous adaptation particularly efficient in environments where transactions are straightforward and can be managed without hierarchical intervention.

By contrast, cooperative adaptation requires intentional and coordinated efforts among economic actors, often facilitated by hierarchical governance structures. This type of adaptation is essential in situations where transactions are complex and interdependencies among actors are significant (see also Williamson Reference Williamson2002). The potential costs of misalignment in such scenarios are high, necessitating a level of coordination and shared understanding that cannot be achieved through market mechanisms alone. Hierarchies within firms enable this cooperative adaptation by ensuring that all components of the organisation are aligned towards common goals, allowing for deliberate and purposeful adjustments in response to changes.

In the context of DAOs, the challenge lies in replicating the cooperative adaptation typically facilitated by hierarchical structures, but without relying on centralised authority. For DAOs to emerge as a novel and viable organisational form, and to survive in the long run, they must demonstrate the ability to engage in cooperative adaptation through decentralised means. This requires that smart contracts and token-based voting systems within DAOs achieve ‘conscious, deliberate, purposeful cooperation’ (Williamson Reference Williamson1993: 119) among participants. While autonomous adaptation may naturally occur within DAOs due to the decentralised nature of blockchain technology, the real test of their viability lies in their capacity to facilitate cooperative adaptation effectively, ensuring that decentralised decision-making processes can align participants’ actions towards collective objectives in a manner that is both efficient and reliable.

Williamson (Reference Williamson1999) further makes the argument that the provision of public goods (he uses the somewhat extreme example of foreign policy) requires a high level of ‘adaptive integrity’. Adaptive integrity, in this context, refers to an organisation’s ability to navigate changing circumstances while preserving its core principles and objectives. It implies managing a trade-off between flexibility, which allows for responsiveness to environmental shifts, and stability, which ensures that the organisation’s fundamental values and goals remain intact. Williamson specifically highlights the role of ‘probity’ – the integrity and ethical conduct expected in the execution of transactions – in maintaining adaptive integrity. While the necessity for higher probity in public goods provision compared to private goods may not be immediately apparent, Williamson (Reference Williamson1999: 332) suggests that the complex, high-stakes nature of (some) public goods, such as foreign policy, demands greater levels of probity to ensure that actions taken in the public interest are carried out with the highest standards of loyalty and rectitude.

In market governance situations, probity is typically enforced through contract law or consumer protection law, which governs market transactions by establishing clear rules and consequences for opportunistic behaviour. Within formal organisations, however, a ‘probity hazard’ arises – this refers to the risk that individuals or groups within the organisation might engage in behaviour that, while not strictly illegal or in breach of contractual obligations, undermines the ethical standards, integrity, or mission of the organisation. This hazard represents a significant cost, as it can lead to actions that compromise the organisation’s credibility, efficiency, or public trust. To mitigate this risk, organisations implement policies and procedures designed to enforce probity, ensuring that all actions align with the organisation’s goals and objectives. Here probity is enforced via employment law.

In the context of DAOs, the challenge of maintaining adaptive integrity falls onto the operation and execution of the smart contracts. It is unlikely that token holders will be in a position to maintain probity and adaptive integrity. It is here that the problems of token-holder control (discussed in more detail below) become problematic.

Token holders may have divergent interests that do not necessarily align with the long-term objectives or foundational values of the DAO. For example, some token holders might prioritise short-term financial gains over the sustained growth and stability of the DAO. In many DAOs, governance decisions suffer from low turnout, Bellavitis, Fisch and Momtas (Reference Bellavitis, Fisch and Momtas2023: 195) report that two-thirds of token holders do not vote on DAO proposals. This lack of participation often results in a concentration of decision-making power in the hands of a few token holders (known as ‘whales’), potentially allowing them to influence outcomes in ways that do not reflect the collective will or best interests of the broader community. For example, in July 2024 there was a successful vote where assets from the Compound Finance DAO were to be diverted to another protocol called ‘goldCOMP’ (Reynolds Reference Reynolds2024). While the transaction was reversed, it did highlight a governance flaw in the Compound Finance DAO. Low voter participation may also be exacerbated by the complexity of proposals being voted on and the coordination challenges associated with getting a diverse and decentralised voter base to vote on issues in a timely manner.

The task of maintaining adaptive integrity must fall to smart contracts. By automating the enforcement of rules and reducing the potential for human error or malfeasance, smart contracts can theoretically perform the function of ensuring probity within a DAO. The effectiveness of smart contracts, however, in maintaining adaptive integrity depends on their design and implementation. In particular, are these contracts sufficiently ‘complete’ to cater to manage the trade-offs in the competing demands of flexibility and stability, align incentives among participants, and mitigate the risk of opportunistic behaviour? Here too, however, there is a major problem. As Williamson (Reference Williamson1985) explains, contracts are incomplete for good reason. In the first instance, bounded rationality is a problem, exacerbated by the complexity and uncertainty of the economic environment. The authors of smart contracts face the same constraints as the authors of any other contract. As Davidson (Reference Davidson2024a) has highlighted, the advent of Artificial Intelligence does not change this situation much.

A further challenge is that many DAOs function with what is known as ‘on-chain governance’. This form of governance relies exclusively on blockchain-based smart contracts and automated processes and offers a high degree of transparency and enforceability. Decisions are made and executed directly on the blockchain, which ensures that all actions are recorded and immutable, thereby reducing the potential for human intervention and error. The smart contracts, however, may also be immutable. The rigidity inherent in immutable smart contracts, however, can pose challenges to flexibility. The DAO may struggle to accommodate unforeseen circumstances or complex adaptations that require nuanced judgement, potentially compromising the DAO’s ability to maintain stability in the face of change. By contrast, some DAOs operate what is known as ‘off-chain governance’. This introduces an element of human discretion and deliberation, allowing for more flexible decision-making processes. Yet this simply returns us to the challenges of token holders voting to maintain probity.

This discussion raises a critical question: Can DAOs, through smart contracts or token-holder governance, effectively replicate the adaptive integrity traditionally maintained by hierarchical structures in formal organisations? While on-chain governance offers the advantage of strict rule enforcement and transparency, it may lack the adaptability required for complex decision-making. Conversely, off-chain governance provides the necessary flexibility but may struggle with maintaining the same level of integrity and alignment of incentives as hierarchical structures. Therefore, the ability of DAOs to preserve adaptive integrity may ultimately depend on how they integrate and balance these governance approaches, ensuring that their core objectives are upheld while remaining responsive to the dynamic nature of their operating environment.

The electronic markets hypothesis

As Foss and Klein (Reference Foss and Klein2022: 20) suggest, the argument for ‘bossless’ organisations is often an extrapolation:

One promising path to examine DAOs is to extrapolate from a literature that was originated by Thomas Malone in the late 1980s and early 1990s (Malone, Yates and Benjamin Reference Malone, Yates and Benjamin1987, Reference Malone, Yates and Benjamin1989, and Malone and Rockart Reference Malone and Rockart1991). To be fair – this extrapolation is neither ‘heavy-handed’ nor ‘wild speculation’.

Malone and his co-authors proposed a framework for understanding how information technology affects the coordination of economic activity and the structure of organisations. They argued that information technology is not just a computing tool, but a coordination tool that can lower the costs and increase the efficiency of communication and coordination amongst economic actors. They analysed how information technology influences the choice between different coordination structures, such as hierarchies and markets. They predicted that information technology will lead to a shift from hierarchical to market-based coordination, especially for products that are not asset-specific and have simple product descriptions. Taken at face value, that prediction seems consistent with the emergence of DAOs some 30 years later.

They also suggested that information technology would enable new forms of electronic markets and electronic hierarchies, as well as value-adding alliances among companies. Advancements in coordination technology would initially prompt a reduction in coordination costs. This first-order effect would see a substitution from human-led coordination to coordination by information technology. As costs associated with coordination decrease, organisations will tend to favour the efficiency and precision of technology-driven coordination over traditional human-led processes. Due to this reduction in coordination costs, a second-order effect would see an expansion in the total amount of coordination being utilised across the economy. Indeed, the increase in demand for coordination, they argued, could dominate the first-order effect of substituting human-led processes with technology. The third order would see a transition towards employing organisational structures that require more intensive coordination.

These three effects give rise to the so-called ‘Electronic Markets Hypothesis’. This hypothesis posits that information technology will reduce the transaction costs of using markets, such as search costs, bargaining costs, and monitoring costs, and thus make markets more attractive than hierarchies for coordinating economic activity. The Electronic Markets Hypothesis implies that information technology will reduce the benefits of vertical integration and encourage the formation of specialised firms that can compete or cooperate in electronic markets. The Electronic Markets Hypothesis also suggests that information technology will create new kinds of electronic markets that can offer convenience, cost savings, and choice to customers, and that can disrupt conventional marketing and distribution patterns. The Electronic Markets Hypothesis predicts that electronic markets will evolve from biased, to unbiased, to personalised markets, depending on the degree of information asymmetry and customisation involved. This means that as electronic markets develop and mature, they will become more sophisticated in their ability to match buyers and sellers, and to provide customised products and services to individual customers.

That is, more or less, what has happened. In a retrospective analysis, Alt and Klein (Reference Alt and Klein2011: 43) argue:

The challenge for us, however, is that all of those examples are very large centralised traditional organisations, with a large hierarchy. They provide more examples and successful electronic markets and conclude: ‘All examples … are centralized markets with a market provider acting as intermediary between buyers and sellers’ (Alt and Klein Reference Alt and Klein2011: 46). It seems that the electronic markets hypothesis is seen to explain the emergence of multi-sided markets, but not the kind of decentralisation associated with DAOs. Reimers, Guo and Li (Reference Reimers, Guo and Li2019: 287) describe online platforms as being ‘firms whose product is the organisation of a market’.

Within the electronic markets literature, there is one paper (Kollman, Hensellek, de Cruppe and Sirges Reference Kollmann, Hensellek, de Cruppe and Sirges2020) that speculates about the emergence of ‘blockchain-enabled electronic marketplaces’. They suggest that blockchain technology would be useful in a ‘renaissance of cooperative business model structures in a digital context’ (Kollman et al. Reference Kollmann, Hensellek, de Cruppe and Sirges2020: 281) but they warn that blockchain technology does not solve the problem of incomplete contracts (Reference Kollmann, Hensellek, de Cruppe and Sirges2020: 282).

So while the Malone electronic markets hypothesis seems very promising in explaining DAOs, at present it is very successful at explaining the emergence of platforms where a market is organised by a hierarchy and not where a hierarchy is supplanted by a market.

Information costs and transaction costs

It is apparently easy to construct ‘just so’ stories that explain the emergence of various organisational structures. Benkler (Reference Benkler2002: 403) suggests:

In this section, I will argue that DAOs constitute ‘peer production’ but Benkler’s suggestion is too easy. It is important, and necessary, to demonstrate the margins where the ‘costs of peering’ outperform the costs of hierarchy and not simply assert that they must do so.

Benkler (Reference Benkler2002: 399–404) makes the argument that peer production is especially important in the information economy. This economy is somewhat different from the industrial economy for four specific reasons. First, information has (some) public good characteristics in that it is non-rival. Furthermore, the primary input to the information economy, viz., information, is also the primary output. Second, the physical costs of information production have declined, as has, thirdly, the communication costs of exchanging information. Finally, the human input to information production, viz. human capital is highly heterogeneous and often specific to an individual. The second and third characteristics of information were discussed in the section ‘The electronic markets hypothesis’. Here we will focus on the organisational consequences of information heterogeneity and specific knowledge.

Harold Demsetz (Reference Demsetz1988) incorporated the notions of information and knowledge into the Coasian theory of the firm. Following Coase (Reference Coase1937), Demsetz agrees that the boundary of the firm is established by the relative transaction costs (i.e. costs of using the market) and management costs (i.e. the costs of organising resources within the firm). Demsetz (Reference Demsetz1988), however, argues that the standard Coasean analysis neglects information and knowledge. Knowledge itself is ‘costly to produce, maintain, and use’ (Demsetz Reference Demsetz1988: 157). Common knowledge allows for greater specialisation and division of labour. Demsetz’ important insight is that economic organisation must take into account that specialised knowledge must be produced, maintained, and used in the production of goods and services. This leads him to the (as he admits, rough and ready) definition that ‘the vertical boundaries of a firm are determined by the economics of conservation and expenditures on knowledge’ (1988: 159).

Jensen and Meckling (Reference Jensen, Meckling, Werin and Wijkander1992) make the argument that economies have the problem of dispersed knowledge (Hayek Reference Hayek1945) and the problem of decentralised decision-making rights. Further, they argue that capitalist economies solve this problem (dispersed knowledge and decentralised decision-making) by colocation. This occurs in practice by decision rights being alienable. Jensen and Meckling (Reference Jensen, Meckling, Werin and Wijkander1992: 112) recognise that their argument makes the existence of firms problematic – but they resolve this problem by simply appealing to Coase (Reference Coase1937) and Williamson (Reference Williamson1975). Firms tend not to make their internal decision rights alienable – but firms must offer other advantages. Firms do decentralise their internal decision-making (Williamson Reference Williamson1975) but that in turn also results in costs. The management of the firm must both decentralise decision-making to ensure the best decisions are being made by the people with the best information and knowledge to do so, and they must do so in a manner that ‘fosters desirable behaviour’ (Jensen and Mecking Reference Hayek1992: 115).

In Jensen and Meckling’s terminology, the decentralisation decision within CAOs can give rise to so-called agency problems (see also Jensen and Meckling Reference Jensen and Meckling1976).

Jensen and Meckling (Reference Jensen, Meckling, Werin and Wijkander1992: 116) then set out the optimal level of decentralisation within the organisation as the trade-off between ‘costs due to poor information’ which decline as the organisation becomes more decentralised, and ‘costs due to inconsistent objectives’ (or agency costs – ‘the sum of the costs of designing, implementing, and maintaining appropriate incentive and control systems and the residual loss resulting from the difficulty of solving these problems completely (Jensen and Meckling Reference Jensen, Meckling, Werin and Wijkander1992: 115)) which rise as the level of decentralisation increases.

I now apply these insights to DAOs. Clearly, DAOs as an organisational form exist to house information and knowledge. The internal processes of DAOs are, in principle, fully transparent and the internal market is (fully) contestable. Those individuals with the best knowledge to undertake specific tasks within a DAO can bid for the work. The wisdom of crowds (in this case the token holders) allocates tasks. In theory, this results in two effects: Costs due to poor information and knowledge should fall very rapidly resulting in faster decentralisation (this result is also consistent with the electronic markets hypothesis) than otherwise would be the case. The second argument is that agency costs within DAOs are suppressed because token holders are making the decisions and not delegating to management.

This is an important and profound insight: for DAOs to be decentralised, as claimed, agency costs (as defined by Jensen and Meckling Reference Jensen and Meckling1976, Reference Jensen, Meckling, Werin and Wijkander1992) must be suppressed.

This suppression of agency cost could occur because the internal incentives are maintained by contestable internal markets (i.e. managerial discretion is eliminated), and the control systems are a series of smart contracts (i.e. there is no deviation between expected behaviour and actual behaviour). It is trivial to observe that a smart contract cannot ever operate opportunistically and as such cannot (itself) be the source of agency costs as envisaged by Jensen and Meckling. If this view is correct, then the residual loss should be low. Applying the Jensen and Meckling logic (that builds on Demsetz) to DAOs, it appears that complete decentralisation can be achieved if, and only if, agency cost are suppressed within the DAO structure. The important point here is that contrary to Bellavitas, Fisch and Momtas (Reference Bellavitis, Fisch and Momtas2023) who argue that DAOs ‘could’ reduce agency costs, those costs must be suppressed. The techno-optimist claim being made for DAO is not that they have smaller hierarchies than do CAOs, but rather that they have no hierarchy.

This insight, that agency costs are suppressed (if indeed they are) in DAOs by their very structure, rests on a very important assumption. That assumption is that collective decision-making is ‘efficient’. A second assumption is that the smart contracts are error-free and execute as intended. This second assumption may or may not be trivial. That smart contracts are error-free and execute as intended is not an economic problem per se (although it could result in huge financial losses), but there is a possibility that smart contracts might be error-free but (still) not execute as expected. Davidson (Reference Davidson2021) and Davidson (Reference Davidson2024c) discuss the issue of decision rights within DAOs – who gets to propose, ratify, implement, and monitor the deployment of smart contracts. To the extent that all these decisions are made by (‘inefficient’) collective decision-making DAOs may be exposed to substantial agency costs and governance risks.

There is a large literature that suggests that collective decision-making is not as ‘efficient’ as might be hoped. Mancur Olsen (Reference Olsen1965), for example, has argued that in the absence of ‘coercion or some other special device to make individuals act in their common interest, rational self-interested individuals will not act to achieve their common or group interests’ (Reference Olsen1965: 2, emphasis original). Contrary to Olsen’s view, however, it could be argued that tokens serve the role of being that ‘special device’ that leads to cooperative behaviour within DAOs. It is not clear how valid that argument would be; modern corporations have shareholders who hold shares, analogous to tokens, and the free-riding problem that Olsen identifies as being problematic in collective decision-making bedevils corporate governance as much as it bedevils political governance (see Davidson Reference Davidson2024c for a discussion of the distinction between corporate governance and political governance in the cryptoeconomics context).

A third assumption, often overlooked in discussions of DAOs, is that decentralisation itself leads to more equitable and transparent governance. Proponents of DAOs frequently argue that decentralised structures inherently disperse power and reduce the likelihood of elite capture or collusion (see Atzori Reference Atzori2017). This assumption, however, warrants closer scrutiny. In practice, DAOs often exhibit significant centralisation of decision-making power among a small group of large token holders – so-called ‘whales’ – who can dominate voting outcomes due to their disproportionate token ownership. This phenomenon mirrors well-known issues in corporate governance, where institutional investors and majority shareholders can wield outsized influence, effectively sidelining minority shareholders. In the context of DAOs, this dynamic may be exacerbated by the pseudonymity and borderless nature of blockchain networks, where the identity and motives of major token holders remain opaque. Furthermore, the liquidity of tokens can lead to speculative behaviour, with short-term profit motives overriding long-term governance objectives. As a result, DAOs may face governance challenges similar to, if not more pronounced than, those encountered in traditional organisations. If decision-making becomes concentrated in the hands of a few large token holders, the DAO’s decentralised promise could devolve into a new form of centralised control, undermining the very rationale for its existence.