Governance Gone Wrong: The Rot in DAO Democracy
In part two of a three part series, Fly You Fools explores how democracy dies in the troughs of Discord and how decentralized control leaves many powerless.
The Cracks: When Freedom Feels Like Feudalism
Freedom is the DAO pitch: open, wild, no chains. But peek under the big top, and it’s a feudal mess waiting to unravel. The cracks aren’t loud; they’re sneaky, creeping in the shadows where promises twist into something less accountable. What happens when a system built on “everyone’s in charge” leaves no one steering? It’s a circus where the clowns juggle chaos, and the crowd’s left blinking at the fallout.
The governance process becomes as cryptic as reading the blockchain itself. A labyrinth of transaction hashes, proposal IDs, and technical jargon that even the initiated struggle to decode. Token holders stare at Etherscan like archaeologists at undeciphered hieroglyphics, wondering what mysteries lie behind the hex strings and cryptographic signatures that supposedly represent their democratic power.
“Imagine trying to step into a DAO governance meeting. You expect an open hall, a forum of equals. Instead, you find a wall of faceless voices speaking in acronyms, where decisions have already been made and transactions are pending approval.”
Black Thursday: The Bystander Effect
Take @MakerDAO’s Black Thursday, early 2020: MakerDAO’s golden goose lets users lock Ether to mint the DAI stablecoin, with overcollateralized loans keeping it steady. Smooth sailing until March 12, when the pandemic panic guts the market. Ether crashes 50% in a day, and collateral is sinking below debt levels.
But wait! The system’s defense protocols spring into action; bots rally to auction off ETH and balance the books, but Ethereum’s network chokes. Gas fees spike, transactions stall, and the bots freeze mid-step. Meanwhile, the multi-sig crew watches as the ship sinks. By the time the dust settles, $8 million’s gone from the treasury. Why? No one grabbed the wheel, everyone assumed someone else would.
That’s the bystander effect on blockchain, and it’s a quiet killer. Ever hear those grim tales - that woman assaulted in a courtyard in NYC, dozens watching? No one dials for help because “someone else will.” It's the same social phenomenon here: when accountability is spread thin, action stalls. In DAOs, it’s not fists flying - it’s funds vanishing, trust eroding, systems crumbling. MakerDAO’s meltdown wasn’t a fluke; it’s a crack in the dream, showing how freedom can flip to feudalism when no one’s accountable.
And it doesn’t stop there. It’s a pattern that haunts contributors everywhere. An agreement is locked in, work, pay, done. But midstream, a DAO can turn into the rogue-client from a freelancer’s fever dream.
“Oh, you built the bridge? Cool. Now add a moat and a drawbridge while you’re at it. Payment? Uh, let’s table that for the next epoch.”
But the system’s gears grind slow. Decisions vanish like socks in a dryer, stalled by a chorus of voices that never harmonize. Priorities shifting like sand underfoot. Holders chase updates through a haze of silence, only to find the inner circle’s already calling the shots.
When Consensus Kills Urgency
This isn’t a new problem. The Romans knew democracy could stall when it mattered most - that’s why they appointed temporary dictators during crises. Not because they loved autocracy but because slow consensus doesn't win wars.
Same debate today: some say China can tackle climate change faster than the West. Not because it’s fairer but because it can act. No gridlock. No endless deliberation. For instance, China’s centralized system enabled it to pledge carbon neutrality by 2060 in mere months, while Western democracies often spend years debating and negotiating similar climate laws. China’s rapid rollout of renewables also backs this up: by 2020, it added nearly half the world’s new solar and wind capacity, per the International Energy Agency.
DAOs face the same tension. The dream is pure participation. But in practice? It's a traffic jam of proposals, unread governance threads, and token holders squinting at Etherscan, wondering if anything's happening. So, while the crowd debates, the inner circle moves quietly, efficiently, and unaccountably.
It’s not tyranny. It’s analysis paralysis. And in that vacuum, soft power calcifies. That creeping dysfunction? It’s not a one-off. Welcome to…
This isn’t a fluke – it’s systemic.
Athlete's Foot Governance: The Itch That Won't Quit
Imagine trying to step into a DAO governance meeting. You expect an open hall, a forum of equals. Instead, you find a wall of faceless voices speaking in acronyms, where decisions have already been made and transactions are pending approval.
This isn’t a fluke – it’s systemic.
Dao’s were sold as a torch to burn bureaucracy to ash. Yet here we are, ankle-deep in a creeping, itchy mess that starts as a tickle and festers into a limp.
Picture the crowd - contributors everywhere, coders, dreamers - diving in with golden-retriever gusto only to smash into a wall of silence. Handlers turn into human hopper-funnels. Decisions vanish like socks in the dryer, stalled by a chorus that never syncs. Priorities shift like sand dunes while members are left clutching their contracts like lunatics in a sandstorm. Yet the Dao chugs along, blissfully oblivious.
It’s not sabotage—it’s inertia, the same diffused haze that sank MakerDAO, is a warning for us all. Look at Ethereum’s roll-up push…
Roll-Up Roll-up: Ethereum’s Native Cleansing
Bundling transactions off-chain speeds things up—clever, huh? But in fact, the Ethereum Foundation’s picking winners, cozying up to big shots like Optimism and Arbitrum while shunning smaller fry like zkSync and StarkNet. It’s not innocent favoritism—it’s a power grab in a hoodie, seeding control over what a “native” Ethereum Layer 2 can be. They’re rigging the game to crown their chosen few, leaving the rest out in the cold.
Ethereum preaches an open, permissionless platform where innovation doesn’t need a permission slip—yet its actions tell a different tale. Fee capture funnels 97% of L2 profits back to L1, a windfall for validators that favors the Foundation’s chosen few. The Pectra upgrade amplifies this, cutting fees for the big names while others scramble. New leadership, tasked with keeping Ethereum “attractive”, are doubling down on the profitable pals whilst sidelining “riskier” bets.
Ethereum is not alone–take Binance Smart Chain, with its 21 validators—all Binance’s handpicked posse. And Hedera? A blockchain run by a council of suits—IBM, Google, the gang—voting on every tweak like a corporate boardroom with crypto glitter. Lords lording, serfs forking code in the gloom.
What happened to letting the markets decide? The result is a system that talks decentralization but walks a curated path, where the promise of a level field bends under the weight of selective support.
The irony stings like menthol on cracked heels: a trust minimalization dream choking on trust issues. It’s not even a conspiracy—it’s just apathy.
As token holders watch from the sidelines, their voting power diluted to symbolic gestures, the question remains: can these systems evolve beyond the governance traps they've fallen into?
The Governance Trap: Cracking the Code of Control
Innovations are always emerging. Futarchy uses prediction markets instead of votes to govern DAOs, potentially breaking governance deadlock.
On Solana, Metadao, backed by Anatoly Yakovenko and Pantera Capital, leads this shift, with Jito and Drift following. Participants bet on outcomes, aligning incentives with results over rhetoric. Though promising for decentralized decision-making, it faces challenges like market manipulation and accessibility.
With DAOs stumbling under apathy and favoritism, it’s hard not to wonder: are they just feudalism with better branding? The question remains - who really holds power in the wider decentralized circus? And can anything break the cycle of feudal control masquerading as democratic freedom.
In the final piece of this series, we’ll shift our lens to the whales and power plays quietly steering the ship of decentralized systems. Who are these influential players pulling the strings in a supposedly leaderless world?
Author: Fly You Fools
Fly You Fools is the fool in residence at a cybernetic research lab. You can follow them at @Fly_you_fools on X [Twitter].
Stay tuned for part three of this series next week. We’ll look at how DAOs promised a new order—leaderless, transparent, fair. But ultimately, behind the token votes and community calls, the same old power games play out. Whales whisper, insiders feast, and governance becomes performance art. Want to see who really runs the show?