Are DAOs destined for ‘decentralization theater’?

Decentralization theater is a term used in the early days of decentralized finance (DeFi) to describe a project that pretends to be more decentralized than it actually is. For example, a DeFi protocol might establish a non-profit foundation to hold its tokens, write governance proposals, and advise the project; this can often confuse users and regulators.

The term gained relevance in April when the community behind the Ethereum layer 2 network Arbitrum accused the Arbitrum Foundation of manipulating its first governance vote with $1 billion worth of ARB tokens at stake. The foundation had already moved the tokens into its control, making the upcoming vote to “ratify” the move essentially just retroactive permission. The vote was ultimately cancelled, and the foundation promised to make changes.

This article is an excerpt from CoinDesk’s Consensus @ Consensus Report, which is a product of intimate, curated group discussions that took place at Consensus 2023. Click here to download the full report.

During one of the Consensus 2023 brainstorming sessions, it became evident that compromising Web3’s ethos and objective by bending decentralization to satisfy particular interests can be detrimental. Several speakers emphasized the importance of building genuinely decentralized protocols and projects and what it means for the future development of Web3 ecosystems, particularly as more centralized companies enter the space.

See also: Web3 Represents a Strong Alternative to Today’s Internet | Opinion

“People can not only talk about this space, but they can also participate in it,” said Kyle Rojas, the global business development and partnerships lead at Edge & Node, the company behind The Graph protocol. “In Web2, there is a client-server relationship where whoever owns the server owns the data, controls everything.” The only way to disrupt that model is to use Web3 technology to build Web3 products…

Click here to download the full Consensus @ Consensus report.

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