3 min readAmongst the many micro-bubbles the crypto industry has seen in its 15-year history — masternodes, NFTs, social tokens, or presumed Ponzi schemes (Bitconnect, HEX…) — DAOs have had their fair share.
For those unfamiliar with the acronym, it stands for Decentralised Autonomous Organisation: entities represented and governed transparently through token holdings. This possibility, enabled by blockchains, has fuelled many fantasies (for instance, what if an entire country were governed on-chain?) and produced its share of failures. The most famous is, of course, The DAO, the largest crowdfunding effort on a blockchain at the time, which fell short due to a bug in its Ethereum smart-contract code. The exploit led to a US$50 million theft, making it one of the largest crypto heists to date. It ultimately resulted in the split that gave us today’s Ethereum — the second version of the original project — while the original chain became Ethereum Classic, untouched by any rollback.
Upgrades like Fusaka should not be taken for granted
Other high-profile DAOs have also been short-lived, either because of low participation or, ironically, centralisation: on-chain governance does not prevent off-chain collusion. Nouns DAO, associated with a well-known NFT collection, lost millions from its treasury and saw the value of its collection almost wiped out; the Solana lending platform Solend nearly went extinct after a vote was controlled by a single entity; and ApeCoin DAO, tied to the Bored Ape Yacht Club ecosystem, was criticised for its spending. On top of that, DAOs face a harsh reality: they still lack a clear legal basis. To operate properly, it is not rare to see some of them set up conventional LLCs, which obviously challenges the original concept of being a decentralised organisation.
On-chain governance is hard. This is why what Ethereum achieved this week should not be overlooked. The Ethereum blockchain went through another upgrade, Fusaka (a contraction of the star Fulu and the city Osaka), its 17th in its history, just seven months after Pectra. To keep it simple and avoid technical jargon, Fusaka will help Ethereum scale by increasing the block gas limit, removing the need for all nodes to store all blob data, and preparing the chain for the next major upgrade, Glamsterdam, scheduled for mid-next year.
During this update, Ethereum did not halt for a second. It kept processing transactions. Applications continued to run. That might look normal, but it should not be taken for granted: these words are written at a time when Cloudflare, and therefore a large share of the worldwide web, has experienced yet another outage. Ethereum just kept rolling. And that is extremely hard to do. It takes months, even years, of preparation: technical debates and agreements, bug verification, client implementation, testnet rehearsals, and, on a specific date and at a specific block, coordinated upgrades by all stakeholders (validators, RPC services, exchanges, infrastructure providers, and so on). Failing to update means following the old rules and potentially creating a separate chain. And that is only the simplified version; the real process is actually far more technical. For Ethereum, we are talking about thousands of entities involved, with a lot to lose: this is, after all, an ecosystem capitalised at roughly US$380 billion securing around US$450 billion, not even counting the secondary networks that settle on it.
So, this week, Ethereum proved again that on-chain governance is not a meme but a reality. In a sense, it is one of the most successful DAOs ever, as Bitcoin is, too. Even if this characteristic is often overlooked, Bitcoin was conceived as a DAO, as noted multiple times in academic work. “Unlike traditional organisations, Bitcoin is distinctive for its decentralised governance, emerging from complex interdependencies among its diverse stakeholders. Its permissionless structure enables individuals to independently act on behalf of Bitcoin, ensuring its autonomy, backed and mediated by a set of self-executing rules on-chain (e.g., Nakamoto consensus). This aligns Bitcoin with being classified as a DAO according to the definition given by Hassan and De Filippi,” we read in Bitcoin, a DAO, published last April. “We proposed the label ‘decentralised autonomous organisation’ (DAO) to theoretically characterise what is at play with Bitcoin and other comparable organisations,” researchers Ying-Ying Hsieh, Jean-Philippe Vergne, Philip Anderson, Karim Lakhani and Markus Reitzig wrote as early as 2018.
Systems that operate billions of transactions, 24/7, without a central authority. That means decentralisation is not a faint dream, and call them DAOs or not, it is worth continuing to pursue this original ethos.
