A pair of researchers from the University of Texas at Austin and Princeton University conducted a study to determine how tokenization affects decentralization in decentralized autonomous organizations (DAOs). Their findings indicate that many of the challenges to autonomy are related to the reasons individual users have for participating. 

According to their research, the larger a DAO grows, the more incentive participants have to consider DAO tokens investments:

“The presence of investors diverts the subsidy away from users and thus harms their participation. More importantly, investors may even take a majority stake to seize control of the platform.”

In a typical token-based DAO scheme, rather than having a CEO or leader implement decisions, individual participants are issued distributed authority through tokens. This prevents the people who maintain the DAO from exploiting the participants because their tokens work like votes.

“The key distinction between tokens and securities,” per the team’s research paper, “is that tokens are a claim to the platform’s services while securities are a claim to its revenue.”

As long as the participants in a DAO are aligned in purpose and willing to spend their tokens to vote for actions that move that purpose forward or on services and utilities that provide value to the community, the DAO tends to thrive.

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The researchers modeled DAOs over time to determine how user growth and tokenization affect outcomes. Their primary finding, according to the team’s research paper, is that tokenization serves the purpose of shifting ownership from initial equity holders to a platform’s users, but the tradeoff is that there’s no single entity that can subsidize network participation.

This evidently leaves the gates open for investors to treat purpose-driven DAOs like traditional stocks.

“The ability to get high returns has hurt cryptocurrencies as mediums for payment, because people don’t want to spend it,” said lead researcher Michael Sockin in a press release, “They can easily take us back to being like Amazons and Apples, which is the whole issue we were trying to move away from.”