DAOs, or Decentralized Autonomous Organizations, exploded in popularity during a crypto boom in 2020. Once hailed as the future of organizational structure, they promised a new era of borderless, leaderless coordination. By 2024, over 13,000 DAOs had been created, collectively managing US$ 24.5 billion in assets and attracting more than 11 million token holders globally according to CoinLaw studies.
Yet this rapid expansion came with a reality check. While the numbers remain impressive, the momentum has clearly slowed. Capital inflows have dwindled, and user participation has flattened. Behind the scenes, a familiar pattern is emerging: despite being designed to decentralize power, many DAOs have become dominated by a small group of large token holders, highlighting what experts now call the “centralisation paradox”.
This paradox reflects a deeper governance challenge. While the ethos of DAOs is inclusivity and collective decision-making, the reality is far more complicated. Research conducted in Cornell University, published in early 2024, found that most DAO decisions are made by fewer than 5% of token holders, with Gini coefficients for voting power often exceeding 0.90, which represents an extreme level of concentration.
Snapshot data confirms that voter apathy is widespread, with proposals routinely passing with minimal engagement. The problem isn’t only social, in this case, it’s structural. Voting power linked to token ownership inherently favours the wealthy and discourages smaller participants, making the dream of truly decentralised governance increasingly difficult to achieve in the short term, if rules remain as they are.
Structural challenges
On top of that, legal and technical uncertainties continue to cloud the DAO ecosystem. In 2025, the US. Commodity Futures Trading Commission (CFTC) charged Ooki DAO with violating commodity laws, raising red flags for countless other projects operating in legal grey zones. Many DAOs still rely on early blockchain infrastructure like IPFS for storage and governance tools, creating technical fragilities and scalability limits.
Meanwhile, legal scholars and regulators have yet to agree on whether DAOs should be treated as partnerships, corporations, or something entirely new. This lack of clarity makes it hard for DAOs to interface with traditional finance, raise capital securely, or hire employees within existing legal frameworks.
Silver lining
Still, not all is stagnant. A new wave of experimentation is underway as DAOs attempt to evolve rather than disappear. Hybrid models that mix smart contracts with real-world legal entities are gaining traction, offering a path to regulatory compliance while preserving decentralised governance. Some DAOs, like Optimism, have started separating powers via bicameral structures, splitting governance between “Token Houses” and “Citizen Houses”, to balance influence and encourage broader participation. Others have implemented “rage quit” mechanisms, allowing members to exit with their share if they disagree with a proposal.
The DAO ecosystem today resembles a decentralised system under stress, still operational, still innovating, but undeniably in a phase of recalibration. Recent signs of DAO mergers and treasury realignments point to a growing awareness that scale and sustainability require more than ideology. Recurring revenue models, simplified user interfaces, legal wrappers, and active community incentives will be essential if DAOs want to mature beyond their experimental phase.
