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Governance of Decentralized Autonomous Organizations

The authors Alexander Braun, Niklas Haeusle (both I.VW-HSG) and Stephan Karpischek develop in the current Working Paper a model of decentralized autonomous organizations and examine when these new institutional arrangements are both incentive compatible and collusion proof. Incentive compatibility can be achieved through a staking mechanism. Participants are required to post stakes, a digital form of collateral that carries voting rights. Additional effort must be spurred by higher stakes, which increase the risk of collusion. To be inherently collusion proof, DAOs either require a high revenue or a sufficient degree of decentralization in combination with a large network size. If neither one of these conditions is fulfilled, collusion can be precluded by governing the DAO with stochastic voting and having voting power concentrated among a few key token holders.

Author: Elisabeth Heidecke

Date: 28. April 2022