DAOs Are Failing

But Here’s What They’re Teaching Us About Human Collaboration

It has become almost cliché to point out that most DAOs (Decentralized Autonomous Organizations) collapse within a year of their creation. The graveyard is full of once-hyped collectives:

NFT projects that dissolved after a bear market, governance experiments where voting participation fell to near zero, treasuries looted by insiders, communities splintering over minor disputes.

Skeptics call this proof that DAOs were a fad. But that’s lazy analysis. The failures themselves are revealing each one is a live experiment in human coordination at scale. And when you zoom out, DAOs aren’t simply about crypto tokens and smart contracts. They’re stress tests for how groups of strangers can make decisions, allocate resources, and trust one another in digital-first environments.

The promise that drew people in

DAOs emerged with a seductive idea: replace hierarchy with code. Instead of corporations with CEOs, boards, and opaque processes, a DAO would give every member a voice, enforce rules via smart contracts, and allow the group to coordinate without traditional middle management. It was Silicon Valley startup meets co-op meets open-source project, with a sprinkle of utopian internet culture.

In theory: no gatekeepers, just transparency and collective ownership.

In practice: human nature crept in.

Why most DAOs fail

• Incentive misalignment: Token holders are not equal participants. Whales accumulate disproportionate influence, small holders disengage. This mirrors the shareholder inequality of corporations — just faster and less regulated.
• Voter apathy: In some DAOs, only 5–10% of members vote regularly. The dream of decentralized governance crashes against reality: most people don’t want to spend their evenings deciding on treasury allocations.
• Poor UX: Crypto wallet setups, confusing governance interfaces, and tokenomics jargon repel anyone but hardcore enthusiasts. Imagine trying to get your mom to participate in DAO governance — that’s the adoption gap.

The result: DAOs often end up as mini-oligarchies, ghost towns, or squabbling Discord servers.

Lessons hidden in the wreckage

1. Humans still crave hierarchy. Even in “flat” organizations, natural leaders emerge. Without explicit structure, informal hierarchies form — the loudest voices dominate, mods and admins consolidate power. The absence of hierarchy doesn’t eliminate it; it just makes it invisible.
2. Transparency doesn’t equal trust. Putting everything on-chain makes every transaction visible, but information overload overwhelms members. Trust isn’t built by flooding people with data — it’s built through culture, reputation, and accountability.
3. Culture beats code. No smart contract can enforce shared purpose. Without a unifying mission or identity, token-holding members treat DAOs like speculative assets instead of communities.

DAOs as mirrors of older systems

If DAOs feel chaotic, it’s because they’re not that different from older organizational forms. Cooperatives struggle with participation fatigue. Open-source projects face contributor churn. Even traditional corporations wrestle with disengaged shareholders.

The difference is that DAOs put these flaws on display in months instead of decades. They compress organizational growing pains into fast, public experiments.

What’s next?

DAOs won’t “replace” companies or governments. But they’re not going away either. They’ll survive as laboratories — prototypes for new kinds of digital collaboration. Some will stabilize around niches: managing open-source software, funding creative collectives, organizing local activism. The failures are not signs of irrelevance; they’re tuition paid for organizational learning.

Takeaway

DAOs are less about decentralization than about surfacing what we’ve always struggled with: incentives, participation, and trust. They are messy, fragile, and often disappointing — but every failure gives us data about how humans really collaborate when hierarchy is stripped away.

They’re not the future of all organizations. But they may be a preview of the cracks in our current ones.

DAOs Are Failing was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.