Decentralized autonomous organizations (DAOs) are entities without central leadership and operate based on a set of decision-making rules encoded into smart contracts using blockchain technology. In this study, we develop a theoretical model of DAO governance featuring strategic token trading under token-based voting to investigate potential conflicts of interest between a large participant (a “whale”) and many small participants. Our results show that ownership concentration has a negative effect on platform growth, but platform size, token illiquidity, and long-term incentives can mitigate this negative effect. We confirm these predictions using novel voting data on major DAOs from 2020 and 2024. This paper has been accepted by Lin William Cong for the Virtual Special Issue on Digital Finance. Funding: J. Han and J. Lee received financial support from the Institute of Management Research at Seoul National University. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2024.07033 .
Han et al. (Fri,) studied this question.