The idea seems straightforward: using blockchain should make it hard for a handful of stakeholders to control an organization, often a concern for regulators who oversee publicly traded companies.
Yet so far, the nascent but rapidly expanding phenomenon of decentralized autonomous organizations, or DAOs, seems to fall short of that promise, suggests the working paper “Centralized Governance in Decentralized Organizations.” At worst, these systems—which promote transparency, security, and speed—are open to manipulation, says research by Daniel Rabetti, a visiting scholar at Harvard Business School.
Emerging from the cryptocurrency and NFT markets, DAOs eschew traditional corporate structures and use smart contracts to enable individual tokenholders to govern collectively. The approach—popular in decentralized finance (DeFi) but also used to manage and fund social projects—relies on automation via smart contracts to carry out stakeholders’ decisions, speeding transactions.
We thought that because the information is so readily available that would curb potential financial misconduct. But that does not seem to be the case.
Some have questioned whether DAOs could replace publicly traded companies, but Rabetti’s research suggests that DAO investors face many of the same issues as conventional shareholders.
While the approach aims to democratize stakeholder input, in more than 200 DAOs examined by researchers, the top 10% of voters controlled more than three-quarters of a DAO’s voting power by accumulating blocks of tokens. That’s almost twice the voter concentration of traditional shareholders of publicly traded companies. Voter participation hovered at 6.3%, far below traditional participation rates of shareholder voting in public companies, the authors find.
Potential for insider trading
As soon as they’re created, proposals are shepherded by a manager and visible to the DAO’s tokenholders along a blockchain—the tamper-proof, publicly transparent electronic ledger best known as the backbone for cryptocurrencies.
Rabetti’s researchers found that managers who steer DAO governance proposals—a loose equivalent to traditional corporate insiders like executives or board members—earn an average rate-adjusted return of 9.5% on token trades before proposals are created versus after they are posted. People who hold tokens can trade them on decentralized exchanges.
“The high vote concentration and low participation rates are surprising in one way. But insider trading, for me, is the most surprising, because we know that sunlight is the best detergent,” says Rabetti, who’s also an assistant professor at the National University of Singapore Business School. “We thought that because the information is so readily available that would curb potential financial misconduct. But that does not seem to be the case."
The findings shed light on a rapidly expanding class of firms as US regulators form policy that broadens access to cryptocurrency markets. These emerging decentralized markets require more research to ensure that the vision of democratized ownership can be realized while protecting stakeholders, he says.
Rabetti coauthored the study with Charles C. Y. Wang, the HBS Tandon Family Professor of Business Administration; Yu Yan, a doctoral student at National University of Singapore; and Lin William Cong, a professor at Cornell University’s SC Johnson College of Business.
Almost 3,000 governance proposals for 200 DAOs
As of early 2025, the number of active DAOs stood at more than 10,000 with 3.3 million voters. Total assets in the treasuries of DAOs stood at about $22.5 billion, up from $521 million in January 2021, based on statistics from tracking platform DeepDAO.
The authors examined 2,988 governance proposals for 216 DAOs from 2020 to 2024, tracking voters and trades. They found that the top 10% of stakeholders control 76% of a DAO’s voting power, compared with 39% for public companies. The largest tokenholder holds an average of 38% of the voting power.
