Reintermediation in Decentralized Governance

Decentralized Autonomous Organization (DAO) is a blockchain-based governance structure allowing all shareholders to participate in daily decision-making through voting on proposals. However, as centralization trends of blockchain documented in previous literature, voting delegation is on the rise for governance efficiency. This paper utilizes a DeFi company called MakerDAO to analyze the efficiency of such delegation design on DAO. Firstly, the delegates have demonstrated their expertise, thereby more likely to participate in voting and make well-informed choices. Secondly, voting delegates may prioritize personal interests over the collective interests of MakerDAO when their interest conflicted with MakerDAO is large enough and they gain sufficient voting power to influence the voting outcome. Thirdly, market monitoring can generally reward (punish) delegates for correct (wrong) votes through giving new or withdraw old delegations. What’s more, delegates with skills will be further rewarded. However, it remains challenging to consistently penalize delegates whose interests misalign with those of DAO, even when their holdings are transparently visible. This paper contributes to literatures on the evolutionary process of decentralized designed platform to be centralized or reintermediated