Tuesday, February 27, 2024

Token hoarders defeat the purpose of most DAOs: Study

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A pair of researchers from the College of Texas at Austin and Princeton College conducted a research to find out how tokenization impacts decentralization in decentralized autonomous organizations (DAOs). Their findings point out that lots of the challenges to autonomy are associated to the explanations particular person customers have for collaborating. 

In response to their analysis, the bigger a DAO grows, the extra incentive contributors have to think about DAO tokens investments:

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“The presence of traders diverts the subsidy away from customers and thus harms their participation. Extra importantly, traders could even take a majority stake to grab management of the platform.”

In a typical token-based DAO scheme, moderately than having a CEO or chief implement choices, particular person contributors are issued distributed authority by way of tokens. This prevents the individuals who keep the DAO from exploiting the contributors as a result of their tokens work like votes.

“The important thing distinction between tokens and securities,” per the crew’s analysis paper, “is that tokens are a declare to the platform’s providers whereas securities are a declare to its income.”

So long as the contributors in a DAO are aligned in objective and prepared to spend their tokens to vote for actions that transfer that objective ahead or on providers and utilities that present worth to the group, the DAO tends to thrive.

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The researchers modeled DAOs over time to find out how person development and tokenization have an effect on outcomes. Their main discovering, in keeping with the crew’s analysis paper, is that tokenization serves the aim of shifting possession from preliminary fairness holders to a platform’s customers, however the tradeoff is that there’s no single entity that may subsidize community participation.

This evidently leaves the gates open for traders to deal with purpose-driven DAOs like conventional shares.

“The flexibility to get excessive returns has harm cryptocurrencies as mediums for fee, as a result of individuals don’t need to spend it,” said lead researcher Michael Sockin in a press launch, “They’ll simply take us again to being like Amazons and Apples, which is the entire concern we have been attempting to maneuver away from.”