Decentralized Governance and Asset Prices

Abstract

Decentralized Autonomous Organizations (“DAOs”) are crypto-native organizations run without centralized management. Instead, managerial and financial decisions are made by token holders via a decentralized voting process. The first DAO, founded in 2016, was an investor-directed venture capital (VC) fund. Taking advantage of the transparency of blockchains, we gather data on a wide variety of DAOs and 10,764 of their proposals put to a vote (e.g., investment decisions). We offer a novel classification of DAOs’ objectives and governance structures. We also examine the relation between governance and performance. Aspects of governance that promote broad participation in decision-making or enhance security are associated with positive abnormal returns. Barriers to the adoption of new proposals are associated with negative abnormal returns. Overall, our findings provide some of the first evidence on the governance of this new organizational form.