Governance Adaptation in Distributed Autonomous Organizations (DAOs)

Abstract

Distributed autonomous organizations (DAOs) are a new organization form that resides entirely on a blockchain. In a DAO, organizational governance rules are hardcoded in an immutable smart contract. This paper examines whether DAOs are able to adapt their governance structures when shocks in the external environment occur. If the DAO is truly decentralized and governance is hardcoded in a smart contract, then effective adaptation may be a challenge. Using case examples, we illustrate approaches to governance adaptation including orderly voting by DAO members, contentious voting with exit by some participants as the DAO evolve, hard forks in the event of negotiation failure, off-chain resolution mechanisms, and the role of a “benevolent dictator”. We provide justification for why DAOs may not be as decentralized as conceptualized if they are to be effective. Our research contributes to the theoretical development of DAO management strategies as this new organizational form evolves.