Chainalysis: 90% of DAO governance tokens are held by 1% of organizations’ members

What’s new? Analysts at Chainalysis have found that in several large decentralized autonomous organizations (DAOs), less than 1% of all holders own 90% of governance tokens. Experts note that if at least some of the large holders work together, in theory, they can vote against the remaining 99% of the community members in making any decision. A large concentration of votes in a small part of users contradicts the very principles of decentralization, analysts believe.

Governance proposal SLND1 has passed.Special margin requirements for accounts that represent over 20% of borrows are now in effect.There will be a grace period for 3oSE...uRbE to reduce their leverage by themselves. pic.twitter.com/dsZhFRC8ZX— Solend (we're hiring!) (@solendprotocol) June 19, 2022

DAO is one of the forms of governance for decentralized cryptocurrency projects. Decisions in such an organization are made by all its members through a general vote. Its interactions are based on blockchain and automatically executable smart contracts.

What else does the report say? A user must hold 0,1-1% of the token supply in order to create a governance proposal for the organization, and between 1-4% to pass it. Analysts estimate that only between 1 in 1000 to 1 in 10 000 users have enough assets to do so. In this, one user out of 10 000 to 30 000 members has the necessary number of tokens to single-handedly pass a proposal.

Analysts cited the situation in Solend, a lending protocol based on the Solana (SOL) blockchain, as an example. During one of the votes on the proposal, out of 1,1 million “yes” votes, more than 1 million belonged to a single member. 30 000 people participated in the vote without a major governance token holder, the proposal would not have been passed.

Earlier, Electric Capital Engineer Emre Caliskan revealed that the number of DAOs increased 8,8 times in the past year. There were around 700 in May 2021 and 6 000 by May 2022. The number of proposals increased by 8,5 times and the number of votes showed an 8,3-fold increase from 448 000 to 3,7 million. However, the engineer noted that only 10% of all organizations were the most active.