Crypto’s most controversial governance idea is making a comeback

Hi, Ben Weiss here! I’m filling in for Jeff for the next three weeks while he’s on vacation. Last week, crypto investors debated one of the wonkier terms in blockchain. In a discussion on X, Ali Yahya, general partner at Andreessen Horowitz’s crypto arm, mused about how previous iterations of DAOs, or decentralized autonomous organizations, didn’t work. “We spent the last 10 years rediscovering the hard way that direct democracy is a bad idea,” he wrote. Crypto loves decentralization. Founders have created decentralized versions of social media sites, wireless networks, and even apps that pay you to, um, sweat? To manage these decentralized platforms, many founders created DAOs. Most DAOs are akin to public companies. Like shareholders, members can vote on proposals, and their sway is determined by the proportion of cryptocurrency they own. But instead of one party counting each participant’s vote, DAOs use blockchains to coordinate. In theory, stripped of the humans underlying the decision-making, the idea works like an algorithm: log votes onto a blockchain, calculate a winning proposal, and execute the proposal with code. But, in practice, DAOs, like any human organization, become messy. If someone owns the majority of tokens, is there actually real democracy, or is it just theater? That criticism, which has since been called “decentralization theater,” is a repeat accusation in crypto. For example, industry watchers have criticized the prediction market Polymarket, which says it’s decentralized, for how it resolves disputes on whether an event has happened. Polymarket punts those disagreements to a network called UMA protocol, where tokenholders vote on whether, say, the crypto-hoarding company Strategy sold Bitcoin in May. While anyone can vote, in reality, a small group of “whales” often determine the results, the Wall Street Journal recently reported. Add in how messy DAOs can get (try wrangling a bunch of pseudonymous degens across the inte