Saving Decentralized Autonomous Organizations (DAOs) from Internal Harm




Due to the rise of decentralized autonomous organizations (DAOs), the inherent democratic governance models of these organizations face particular difficulties, such as the threat of voter apathy. The stability of the DAO may be threatened if a majority of token holders abstain from voting, allowing a small but tenacious group to seize control of the DAO's funds. To prevent such unfavorable effects, strict safety measures must be put in place. Several security measures are suggested in this paper that can be used in DAOs.


  1. Make a fundamental DAO charter

The unchanging principles that guide the DAO's operations are outlined in the organization's founding document, or DAO Constitution. It outlines the organization's mission, vision, and fundamental goals and expressly forbids making any decisions that are inconsistent with these tenets. An inherent level of protection against potential appropriation may be offered by this constitutional framework.


  1. Put in place quorum minimums

Quorum requirements are incorporated into decision-making, particularly in significant financial-related activities, to ensure a higher level of democratic participation. In order for such a mandate to be valid, a predetermined proportion of all tokens or participants must approve it. This safeguards the DAO from potential control by a select few.


  1. Embrace the system for emergency management

The use of contingency management procedures can be advantageous for DAOs. For example, multi-signature delegations may be used, which call for the consent of a certain number of reliable individuals to make crucial decisions. If malicious intent is believed to be present, an alternative is to implement a "pause" feature to momentarily halt the operation of a specific DAO.


  1. Encourage voting

The risk of power concentration can be significantly decreased by addressing the issue of voter apathy. Strategies for voter incentives may include incentives for engaged voters or penalties for steadfast non-voters. A more engaged and dedicated community is fostered by this method.


  1. Monitor the neighborhood and conduct regular audits.

To maintain openness and public trust, a system for routine audits of cash transactions is necessary. Regular reporting can improve oversight by keeping the public informed about financial activities.




  1. Aspire to be a legal entity


Additional protections are offered by the incorporation of DAOs into a single legal entity. Due to its legal status, the DAO is now subject to jurisdictional rules that can guarantee that all operations are legal and offer legal protection in the event of disputes or abuse.


  1. Use forks that are hard

The community may decide to carry out a "hard fork" in extreme circumstances where the DAO is threatened internally. A new, distinct DAO that is free of malicious actors must be created in this process. These safeguards are effective tools for guaranteeing the DAO's democratic integrity. Finding a balance is crucial, though, as too much regulation can stifle DAO viability and jeopardize the decentralization principle.

Consequently, the creation of such governance mechanisms must be in line with the moral principles, practical objectives, and needs of the living community of the DAO. The resilience of DAOs will be increased and will help to their long-term success as these mechanisms are continually improved to meet changing challenges.






Author: Pooyan Ghamari, Swiss Economist and Specialist in Blockchain Technology







Published: 2023-06-23