DAO 2.0: What is the next step for Decentralization governance?

Author: Kurt Watkins, Source: Coindesk, Translated by: Shaw Golden Finance

Decentralized Autonomous Organizations (DAOs) represent the most radical dream of cryptocurrency: a complete decentralization, community-driven innovation, and a total rejection of traditional corporate power structures. However, even the most radical revolutions often return to familiar territory.

One might think of the Oneida Community, which emerged in the picturesque region of northern New York in the 19th century, founded by the charismatic John Humphrey Noyes. This utopian group resolutely rejected private property and practiced the controversial "complex marriage" (similar to a communal living arrangement that involves partner swapping), pursuing spiritual perfection through collective decision-making. The Oneida Community upheld a spirit of liberalism and unabashedly sought pleasure, echoing the unrestrained, almost anarchistic enthusiasm found in early cryptocurrency culture.

But idealism also has its limitations. As the community expanded in size and ambition, it fell into internal conflicts, became mired in legal disputes, and became a target of social anger. Faced with the threat of survival, the Oneida community developed into a more organized and pragmatic entity: the Oneida Community Limited, which is now known for its exquisite silverware. Although this transformation sacrificed some revolutionary fervor for stability, it brought clarity of direction, legal coherence, and sustainability—key elements for long-term success.

As a lawyer who has been providing legal consulting for blockchain companies since 2016, I have personally witnessed a remarkably similar evolution. Initially, decentralized autonomous organizations (DAOs) promised to abandon traditional corporate structures, strongly advocating for a completely decentralized governance model. However, much like Onida, as these projects continued to expand and integrate into broader economic systems and real-world application scenarios, the purely decentralized governance model faced scalability issues, inefficiencies, and legal complexities. This inevitable shift towards structured governance models did not abandon the fundamental principles of cryptocurrency, but rather represented a necessary adaptation and maturation.

As blockchain technology becomes increasingly intertwined with broader economic and social systems, this evolution is particularly critical. As cryptocurrencies become an essential component of everyday finance, supply chains, digital identity systems, and even national infrastructure projects, the demand for predictable, legally compliant, and clearly structured governance is growing stronger. The industry needs to strike a balance between the structured frameworks necessary to operate effectively in ideal conditions and the complexities of the social environment.

The core functions of blockchain, such as transparency, token-based decision-making, incentivizing community participation, and immutable governance records, are not only worth preserving, but if cleverly integrated into a structured governance model, they can also bring significant competitive advantages.

These attributes can enhance trust, promote participation, and improve adaptability, but their full potential can only be realized when combined with clear accountability, well-defined roles, and legal consistency. The key is not to choose between decentralization and structuring, but to find a balance that stimulates community-driven innovation while ensuring that projects can scale, remain compliant, and operate sustainably.

Example of MakerDAO

Recent internal developments within MakerDAO (now renamed "Sky") highlight that even projects that initially embody the principles of decentralized autonomous organizations (DAOs) can experience a concentration of power. Although Maker has long served as a model in the decentralized finance (DeFi) space, concerns have grown as power becomes increasingly concentrated in the hands of a few leaders and representatives, particularly following the controversial approval of the Sky name change.

Critics argue that the voting rights of the agreement are highly centralized, undermining the principle of collective decision-making. These changes indicate how operational complexity, voter apathy, and technocratic control gradually erode decentralization from within, making structured and hierarchical governance not only essential for transparency and sustainability but possibly unavoidable.

Similar to Sky, the operations of many DAOs have become highly centralized, with disagreements among stakeholders. The current challenge is to acknowledge this reality and design a structure that balances community opinions while ensuring that leadership is accountable and efficient.

The founders of the renowned NFT "Bored Ape Yacht Club", Yuga Labs, are also facing similar issues of centralized voting and minority shareholders. Due to operational inefficiencies, low voter participation, and governance challenges, the company recently proposed to dissolve its ApeCoin DAO. CEO Greg Solano described the governance of ApeCoin DAO as "slow, noisy, and often not serious enough", and advocated for adopting a structured corporate model, ApeCo, to achieve clearer accountability and more efficient decision-making processes.

ApeCo maintains participatory token governance but places it within a clearer corporate framework, which is similar to how Oneyda retains certain aspects of its cooperative philosophy within structured legal entities.

Decentraland initially advocated for pure decentralized governance, but faced similar issues such as voter fatigue, declining participation, and concentration of power among early adopters. Recently, its community has been actively exploring governance reforms, including the establishment of a governance committee and an executive committee, while ensuring governance is clear and efficient, maintaining transparency and community participation.

The legal status of DAOs regarding securities regulation, trust obligations, and responsibilities is currently unclear. Blockchain projects are increasingly inclined to accept clearer legal frameworks and ongoing guidance provided by regulatory bodies such as the U.S. Securities and Exchange Commission (SEC) and European Union regulators (e.g., the SEC's statement on protocol staking or the EU's Markets in Crypto-Assets (MiCA)). Such frameworks provide much-needed legal certainty, reduce compliance risks, and foster greater trust among mainstream stakeholders.

The evolution of cryptocurrency towards structured governance is similar to the transformation of Onada. Effective governance and clear accountability are crucial for sustainable success and widespread acceptance. While decentralized elements remain essential, beneficial, and unique, the integration of structured governance models will enable blockchain enterprises to better achieve stability, scalability, and broader social integration.

The transition to more structured governance in the cryptocurrency space, much like the adaptability of Oneida, represents an important step towards actual sustainability. This does not abandon the core ideals of blockchain, but rather ensures that these revolutionary technologies remain relevant, resilient, and effective in complex economic and social environments.