Built to Last, Not to Scale: The Long Run of Decentralized Autonomous Organizations

Abstract

The ongoing FTX scandal and the crash in the crypto market witnessed in 2022 has called into question the sustainability and viability of such systems in the DeFi sector. Decentralized autonomous organizations or DAOs which use the same underlying architecture of blockchain under a 'governance by code' mechanism are also being scrutinized. There is an increasing interest from policymakers now to bring DAOS into a legal and regulatory ambit. This article contends that, contrary to the notion that mainstreaming the technology will allow for its broad adoption, certain systemic features of DAOs will limit the ability of such systems to expand their market presence. Going forward, DAOs will be tasked with finding solutions to the challenges of governance, scalability, and financial regulation. Innovative approaches to these issues will be essential for allowing DAOs to reach their full potential and bring about the transformative economic, social, and political impact that they have promised.