The Economics of Decentralized Autonomous Organizations

Abstract

The advent of blockchain, smart contracts, and Web3 has empowered new concepts for equity partnerships with autonomous operating systems and democratic corporate governance. This paper explores 2,377 of such new partnerships and uses detailed transaction data (from 2017 through 2022) to examine the performance of so-called decentralized autonomous organizations (DAOs) on Ethereum. As a result, I find that DAOs with greater participation rates in voting are associated with superior performance. Small members are a prevalent and important class of investors, while the degree of decentralization in DAOs (ownership concentration) plays only a minor role in firm valuation. Overall, DAOs are an effective organizational structure, when members take an active interest in the venture.