DAOs: Struggling with Centralization and Ineffective Leadership

Paradox of Power: How DAOs Struggle with Centralization and Ineffective Leadership

Decentralized autonomous organizations (DAOs) have emerged as a promising alternative to traditional organizational structures, offering a bottom-up decision-making process driven by token-based voting enforced and executed by smart contracts. However, as DAOs grow beyond theoretical governance experiments, they face significant hurdles in balancing decentralization and effective leadership.

Danny Cooper, Venus Protocol’s Vanguard Team Lead, spoke with BeInCrypto about the challenges DAOs face, including low voter turnout, large token holders, and decision paralysis. These issues hinder effective leadership and raise questions about whether DAOs are genuinely the ideal governance model or merely a stepping stone toward something more refined.

DAOs often struggle with balancing decentralization and the need for effective leadership, raising questions about their suitability as a governance model. As DAOs grow beyond theoretical governance experiments, they face significant hurdles in addressing these challenges.

Lowered Voter Turnout

DAOs operate without a central authority, with governance decisions distributed among their members through code-based mechanisms. However, equally distributed voting power does not always yield the expected results. Frequent voting on every issue can discourage participation, leading to low voter turnout or uninformed voting decisions.

“As DAOs grow, decision-making can indeed become cumbersome,” said Cooper. “Many DAOs use referendum-style voting, assuming members will thoroughly research proposals. However, time constraints, lack of information, or simple disinterest can lead to low voter turnout or uninformed voting decisions.”

Waiting for every DAO member to vote on a proposal can also slow the decision-making process, especially when an urgent solution is needed. Segmenting voting matters by priority and topic and assigning them to specific delegates can solve this issue.

“Decentralized decision-making can scale with the implementation of sub-DAOs and layered governance systems, which delegate decision-making to smaller, focused groups. This approach reduces operational complexity while empowering specialized teams to act autonomously within defined boundaries. Advanced governance tooling and clear, codified processes ensure efficiency and coherence across a growing, decentralized community,” Cooper added.

Increased Centralization Among Major Players

To address low voter turnout, some DAOs allow less active participants to entrust their voting power to more informed members to