Inside the Dark Ages of Blockchain Governance II
Far from transcending the flaws of human governance, blockchain networks have mirrored the very structures they sought to dismantle. Have we learned anything?
A three-part series reprising an unpublished book from 2017/8, and more recent pontifications on the state of protocol, community, power, and speculation. Resurrected with the help of thinking machines from the east.
DAOs and Their Lifecycles
Decentralised Autonomous Organisations (DAOs) offer a vision of organisations that operate entirely through smart contracts, without the need for centralised control or intermediaries. However, as with any experimental technology, the lifecycle of a DAO—from its inception to its potential sunset—reveals both the promise and the challenges of this approach. The idea that DAOs should have intentional sunsets or graceful degradation, rather than persisting indefinitely without purpose, is a crucial consideration for ensuring their long-term sustainability and alignment with their original mission.
The lifecycle of a DAO begins, naturally, with its creation, usually accompanied by a token generation event. At this stage, the DAO is governed by its founding members, who set the initial rules and parameters for decision-making. These rules are encoded in smart contracts, programmable scripts which automate the execution of decisions and ensure transparency. However, the early stages of a DAO’s lifecycle are often marked by a high degree of centralisation, as the founding members or developers retain significant control over the organisation. This centralisation can create tensions between the ideals of decentralisation and the practical realities of governance. As the work of Jo Freeman suggests, the absence of formal structures often leads to the emergence of informal hierarchies, where power is concentrated in the hands of a few. There is always a “key person” in each DAO, but how visible this person on group is does vary.
As DAOs mature, the idea is that decision-making power becomes distributed among its members. This is typically achieved through voting mechanisms, either onchain or internally, where token holders vote on proposals related to the DAO’s operations, funding, and development. The well-worn characterisation that DAOs can just be a group chat and a wallet maps fairly closely to this. However, as we’ve seen in networks like Dash, onchain governance can be vulnerable to manipulation by influential insiders, whales, and/or cartels. This highlights the need for governance mechanisms that are not only technically robust but also socially equitable: for example, some DAOs are experimenting with quadratic voting, where the cost of voting increases exponentially with the number of votes cast, reducing the influence of large token holders but requiring strong identity to avoid sockpuppetry.
The maturity phase of a DAO’s lifecycle is often marked by a focus on scaling and sustainability. This can involve expanding the DAO’s membership, increasing its funding, and developing new use cases for its tokens. However, this phase also presents challenges, particularly in terms of maintaining decentralisation and avoiding mission drift. As DAOs grow, they often face pressure to prioritise near-term capital accumulation and distribution over long-term goals, leading to conflicts between different stakeholder groups. This can result in a kind of "decentralisation theatre," where the appearance of decentralisation is maintained while power is quietly concentrated in the hands of a few.
The final stage of an ideal DAO’s lifecycle is its sunset, where the organisation is dissolved and any remaining value is returned to its stakeholders. This stage is often overlooked in discussions of DAOs, but it is of utmost import for ensuring that these organisations do not become self-perpetuating entities with no clear purpose: just like the legacy institutions they sought to render obsolete. The idea of a sunset is not just about ending the DAO; it is also about creating space for new organisations to emerge with new missions and goals. This approach reflects a broader philosophical shift away from the capitalist cancer of perpetual growth and towards a more sustainable and intentional model of organisation.
Drawing parallels to historical institutions like railroad corporations, which were often created to build specific infrastructure and were dissolved once their work was complete, can provide valuable insights for DAOs. These corporations were designed with a clear mission and a defined endpoint, ensuring that they did not outlive their usefulness. Similarly, DAOs should be designed with intentional sunsets and failsafes to prevent them from going "off the rails." This could involve mechanisms for graceful degradation, where the DAO’s operations are gradually wound down, and its assets are redistributed to stakeholders. It could also include failsafes, such as emergency shutdown procedures, to prevent the DAO from causing harm if it deviates from its original mission: see for example, the negative externalities which KlimaDAO irresponsibly created in global carbon markets shortly before it collapsed.
Informal Power Structures and Hierarchies
The promise of blockchain technology lies in its ability to create decentralised systems where power is distributed among participants, free from capture and influence of authorities. As the history of blockchain governance reveals, the reality often falls short of this ideal. Informal power structures and hierarchies frequently emerge within these networks, sometimes obscured by the very technology designed to eliminate them. These shadow hierarchies, driven by information asymmetry and power arbitrage, undermine the principles of decentralisation and highlight the enduring influence of human behaviour on governance systems.
A particularly shocking example of this phenomenon was identified (by yours truly) in the case of Dash, an early Bitcoin-like cryptocurrency that initially positioned itself as a pioneer in decentralised governance. Dash introduced the concept of masternodes: nodes that required users to lock up a significant amount of Dash tokens to participate in decision-making, whilst receiving income for participating in network duties such as coin mixing. While this system was designed to incentivise participation and decentralise power, it ultimately led to the formation of a cartel. Early adopters who amassed large amounts of Dash during the network’s "instamine" phase — a period where tokens were mined at an artificially high rate due to an “error” in the initial conditions — gained disproportionate control over the network. These actors used their accumulated wealth to create additional masternodes, consolidating their voting power and directing resources towards projects that benefited their interests. Over time, this feedback loop entrenched their dominance, transforming what was meant to be a democratic system into a de facto oligarchy. The network could have been relaunched fairly, but as the early adopters were largely insiders, they chose not to annul their entrenchment.
The unfortunate case of Dash illustrates how informal power structures can emerge even in systems designed to be, and presented to the world as, decentralised. Michel Foucault argued that power is not merely repressive but productive, shaping the norms and structures that govern behaviour. In Dash’s governance model, the technical mechanisms of masternodes and onchain voting created the appearance of decentralisation, while the underlying power dynamics remained hidden. This phenomenon, which has come to be known by many as "decentralisation theatre," reveals the limitations of relying solely on technology to address social and governance challenges. The human tendency to consolidate power, whether through wealth, information, or influence, often reasserts itself, even in systems designed to mitigate or prevent it. Indeed, sometimes it is the very designers of the systems themselves who engineer metaphorical traps and backdoors to allow them to game the system. Back in 2018, I characterised this manoeuvre as a “Social Sybil Attack”.
The emergence of informal hierarchies is, of course, not unique to Dash. It is usually brought about more subtly though. Across many blockchain networks, we see similar patterns of power concentration, often facilitated by information asymmetry. In proof-of-work (PoW) networks like Bitcoin, for example, early miners experienced low mining difficulty and high network subsidy in the network’s early days and accumulated vast amounts of tokens, later giving them outsized indirect economic influence over the network’s future. Similarly, in proof-of-stake (PoS) networks, validators with large token holdings often dominate governance decisions, creating a plutocratic system where wealth translates directly into power. These dynamics mirror historical analogues, such as the formation of cartels in industrial economies, professional guilds, or the consolidation of power in feudal systems, where land ownership dictated political influence. And even in earlier blockchain governance scandals, such as the “Carbon Vote” referendum which was used to manufacture consent for the irregular state transition which led to the post-DAO exploit network schism.
The challenge, then, is to design governance mechanisms that account for these human tendencies. Again, as Jo Freeman observed in her critique of structureless organisations, the absence of formal hierarchies often leads to the emergence of informal ones, where power is wielded without accountability. For instance, transparency measures, such as public contributor logs and onchain audits, could reduce information asymmetry and make power dynamics more visible.
Community and Its Complexities
The term "community" is often invoked in the blockchain and web3 space as a cornerstone of decentralised governance and collaboration. It conjures images of altruism, shared purpose, and collective action, suggesting a break from the hierarchical and exploitative practices of traditional systems. As with many idealised concepts, the reality of "community" in blockchain networks is far more complex—and often more duplicitous. Beneath the rhetoric of inclusivity and collaboration lies a shadow landscape where the term can be weaponised to obscure power dynamics, justify extractive practices, and perpetuate inequality. This phenomenon, akin to "greenwashing" in environmental discourse, can be termed "communitywashing," where the language of community is used to mask exploitative and/or centralised practices.
In the context of blockchain governance, communities are often portrayed as the lifeblood of decentralised networks, comprising users, developers, and stakeholders who collectively drive the network forward due to a delicate balance of aligned incentives. However, this idealised vision often clashes with the reality of how communities function—or fail to function—in practice. For example, in the case of Dash, the network was marketed as a community-driven project, with masternodes and users collaborating to fund proposals and guide development. As we’ve seen, this community-driven model was vulnerable to manipulation by a small group of insiders who consolidated power and influence whilst attempting to hide their tracks. This tension between the ideal of community and the reality of power dynamics is not unique to blockchain networks; it mirrors broader sociological and historical patterns.
The concept of "community" itself is deeply ambivalent. As Zygmunt Bauman proposed, community can be both a source of solidarity and a tool of exclusion. In the blockchain space, the term is often used in an abstract sense, masking the underlying economic incentives and power structures that shape participation. Token networks, by their very nature, embed speculative objects at their core, creating a tension between the altruistic ideals of community and the capitalist realities of token economics. This tension is particularly evident in decentralised autonomous organisations, where voting power is often proportional to token ownership. In such systems, the "community" is frequently dominated by a small group of early adopters, influential insiders, and/or wealthy investors, undermining the ideals of decentralisation and collective decision-making. This dynamic mirrors Pierre Bourdieu’s critique of cultural capital, where expertise and social networks become tools of exclusion, even in ostensibly open systems.
The phenomenon of "communitywashing" is particularly insidious because it exploits the positive connotations of the term to justify exploitative practices. Projects may encourage community participation in governance or development while quietly centralising power and/or extracting value behind the scenes. For example, some blockchain projects promote themselves as community-driven while allocating a disproportionate share of tokens to insiders or venture capitalists. This creates a veneer of decentralisation while maintaining centralised control, much like how corporations use "greenwashing" to market themselves as environmentally friendly while continuing unsustainable practices. In both cases, the rhetoric of virtue serves to deflect scrutiny and legitimise actions that might otherwise be criticised.
The parallels between "communitywashing" and "greenwashing" continue. Both phenomena rely on the manipulation of language to create a false sense of legitimacy. In the blockchain space, this can take the form of projects that claim to empower communities while enriching a small group of insiders, or governance models that tout inclusivity while concentrating power in the hands of a few. As Theodor Adorno observed, the commodification of community reflects a broader trend in capitalist societies, where even the language of resistance is co-opted and exploited for profit.
To move beyond the rhetoric of community, we must critically examine the power dynamics and incentives at play in blockchain networks. Who benefits from the community? Who holds the power? How are they accountable? And how are decisions made?
In the final instalment, we’ll look at post-capitalist experiments, what’s left for the left in blockchain, and consider the possibility of a dark enlightenment.