DAOs Explained: What Works, What Fails, and What’s Next

After several years of observing working Decentralized Autonomous Organization (DAO), some patterns have become clear. While DAOs begin with the promise of collective governance, they can turn into a struggle over funding, participation, and eroding trust. This blockchain-based model was designed to replace traditional corporate hierarchies with transparent, token-based systems.

Blockchain governance models vary widely, and some of these experiments have failed. DAO structures mimic traditional corporations in many ways, but their rules of engagement differ, especially when it comes to community management. Individuals in these roles often lack formal human resource (HR) training and may struggle to resolve disputes effectively.

Instead of a top-down structure, autonomous decentralization introduced bottom-up models where sovereign individuals have the chance to add their respective value. Native tokens are usually the entrance fee when it comes to voting. 

Members are intended to behave as an aligned community, keeping each other accountable for individual actions. The results of these token-based communities have been mixed. High hopes often give way to complex human realities, where not everyone is as valuable as they might think. This raises the question...

Are DAOs a breakthrough in digital coordination, or just an overhyped passing trend?

What is a DAO?

A DAO is a blockchain-based organization governed by smart contracts and its members. There is typically no CEO or executives. Instead, for most common DAO structures, token holders vote on proposals, and if approved, the contracts execute decisions automatically.

How is a DAO different from a traditional company?

This structure aims to remove centralized control and middlemen. Token holders propose and vote on things like how funds are spent, how the protocol evolves, and who receives compensation. Governance is supposed to be transparent, with activity recorded on-chain. Voting and consensus mechanisms vary across ecosystems, along with the power they yield over the blockchain itself.

Why did DAOs attract so much attention?

DAOs appealed to those seeking alternatives to legacy institutions and frameworks. The idea of shared decision-making, open funding, and community governance seemed revolutionary during crypto’s early rise. At their best, DAOs promised a more democratic digital future. They mirror traditional organizations, but many argue they haven't eliminated centralization.

They have been called DINOs by some participants who believe they offer democracy in name only. This is due to token concentration, vote brokers, and other variables that can act to game the overarching system. It’s important to consider the idea of decentralization itself because there is no absolute example; instead, when we examine ecosystems, it exists on a spectrum that varies from chain to chain.

What are the common challenges?

Participation can be inconsistent, and not all members add value in fact, some intentionally dilute it. Depending on barriers to entry, these organizations can also aggregate low-value contributors who have too much time on their hands. 

1. The Pareto principle (80/20 rule) often applies to both contribution and voting. Token distribution can concentrate power, especially when native crypto is earned through participation, creating unintended whales.
2. Some DAOs suffer from vague rules, low accountability, or inflated spending. Designing peace treaties and rules of engagement for autonomous organizations requires the skills of game theorists and master architects. This kind of talent is hard to find.
3. Hacks and vote manipulation have also exposed systemic weaknesses. When you bring together tech-native individuals that are guided by the principle “code is law,” gaming the system is to be expected. Many governance models look elegant on paper but break down under real-world pressure. 

Are any DAOs succeeding? 4 DAO-linked tokens available on Newton

While not a formal DAO, Bitcoin is often held up as a successful decentralized model. It operates without leaders and relies on built-in incentives. One reason it may have achieved its market cap position is that Satoshi disappeared after launch. Attempts to formalize governance, like the Bitcoin Foundation, later dissolved.

Launched in 2017 on Ethereum, Maker DAO manages the Dai stablecoin, pegged to the USD. Governed by MKR token holders, it has driven DeFi adoption. However, it faces challenges with slow governance, low voter turnout, and centralization risks. Its 2024 protocol rebrand seeks to improve operational effectiveness.

Aave governs a leading DeFi lending protocol that lets users borrow and lend crypto without intermediaries. With over $10 billion in total value locked (TVL) in 2025, it’s a notable story, though it has problems with governance complexity and security vulnerabilities, as seen in past DeFi exploits. 

Lido governs a liquid staking protocol for Ethereum and other blockchains, offering returns through token staking. Its governance token, LDO, enables voting on protocol operations, but like others, it struggles with concentrated voting power among a few holders.

What risks do DAOs face?

1. The biggest risk is people. DAOs challenge us to collaborate around common objectives. Time, energy, capital, hardware, and reputation are all on the line. But as anyone who has ever done a group project in school can attest, contributors rarely add equal value, especially if they are anonymous.
2. DAOs also carry technical risk. Smart contract treasuries can be exploited. Olympus DAO lost $300,000 in a hack, only to receive the funds back from the hacker hours later. Ethereum’s infamous 2016 DAO hack led to a network split and the creation of Ethereum Classic (ETC). Poor design and minimal safeguards remain serious liabilities.
3. There are also unresolved regulatory risks, especially for participants based in the United States. While some DAOs attempt to reduce exposure by incorporating as legal entities, such as Wyoming’s DAO LLC or Delaware’s series LLC, these frameworks are still untested in court. It remains unclear whether incorporation fully protects members from liability or if it can prevent enforcement action.

Will DAOs survive in the long term?

Some organizations are evolving with clearer rules, improved incentives, and more accountable governance. Others will likely dissolve as treasury funds deplete or the community momentum fades. The last decade has demonstrated that blockchains are undoubtedly disruptive. These new autonomous online organizations are neither a magic bullet nor a failure. They reflect the people who build and operate them, and whether they endure could depend less on code and more on human nature.

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