DAOs sit on $17.9B in value, ready to start governance wars

Decentralized autonomous organizations, or DAOs, are one of the richest whales in crypto. Armed with significant wallets and knowledge of governance, DAOs are a force among crypto protocols. 

DAO projects remain highly influential in the crypto ecosystem. The latest data reveals major DAOs sit on $17.9B in total reserves. The biggest organizations are tied to leading projects and act to redistribute earnings. 

A total of more than 50K DAOs exist, with varied goals and purposes. Some may use their holdings to invest in other DAOs and voting mechanisms, even aggressively seeking out the most rewarding protocols.

DAOs spent $5.9B of their wealth in the past month, but retain significant treasuries in ETH and stablecoins, including USDT, USDC and DAI. LidoDAO and Arbitrum remain one of the most active DAOs in terms of proposal counts. 

In total, the tokens of DAO-based projects are valued at more than $24B and include the most high-profile platforms. DAOs are often added to decentralized apps, with the goal of voting on redistribution. DAOs also operate to distribute ICO earnings, as in the case of Gnosis or Polkadot. DAO also differs in the potential for small or large-scale decisions, as well as in the number of participants. 

DAOs are open to anyone, but the influence of retail entrants may be limited. For some protocols, holding the token may be enough to count as part of the DAO and vote on proposals. Other DAOs are like clubs, with a more democratic distribution. DAO voting also depends on the proportion of tokens held. Whales may be favored, but also groups with delegated tokens. 

DAOs are a way for token buyers to tap value, while encouraging long-term holding of the underlying asset. Instead of relying on speculative trading, DAO members lock in their funds and try to gain rewards from the DAO’s reserves. 

STATE OF THE DAOs

According to DееpDАО.iо, 50,896 organizations are accounting for 17.8B total treasury with 14.9B of liquid and 2.9B of vested assets. During the last month, total DAOs treasury has decreased by 5.9B, marking a 33.15% down.

The most common treasury stablecoins… pic.twitter.com/XSqKExBXoA

— ???????? CryptoDiffer – StandWithUkraine ???????? (@CryptoDiffer) August 8, 2024

DAOs aim to shield voting results

The biggest problem of DAOs are large-scale whales, which then also receive the bigger part of earnings or reward pools. The other obstacle is the low number of retail voters, leading to easy proposal takeovers. Voters often attack protocols when most users are too busy to vote, especially when distributing treasuries. 

DAOs usually fall under attack due to the transparent nature of proposals. Whales and dark DAOs with significant reserves can see votes that lead to payouts, and can act at the right moment. DAO voting usually leaves days to users, who are often reluctant to vote or swayed by whale voters. Proposals also differ in the required quorum, with some proposals passed only by a fraction of the token holders.

Dark DAOs with stablecoin reserves can then borrow tokens and gain advantage in votes. For that reason, Aavegotchi recently launched a proposal on using shielded voting. 

Visible voting results may sway voters that do not have a strong opinion, if they see the result in real time. Visualizing the vote results may also help whales to swoop in and sway a vote at the last moment, especially if voting takes more than a week. 

DAOs also face problems through spam proposals, promises to bribe token holders, as well as through sybil attacks or other ways of acquiring more than 51% of voting power. DAO security also hinges on the soundness of smart contracts. End users can lose to fake smart contracts or malicious links that imitate proposal voting. 

Decentralized organizations often seem like a good decision, but for smaller protocols, a 51% attack would be easy. In the past, DAOs have tried to negotiate with attackers to save their funds. Malicious voters have also attacked DAOs where it was possible to vote on new token creation. 

Arbitrum is one of the largest DAOs, with a total of $32M worth of Ethereum (ETH) in its reserves, as well as access to ARB tokens for distribution. Attacking Arbitrum on decisions would be relatively easy for a big enough whale. It would cost $31.5M which is an easy enough target. Arbitrum has tools to prevent such an attack, by having a security council to track for malicious proposals or controlled votes. 

Cryptopolitan reporting by Hristina Vasileva