Vitalik Buterin: Five reasons why Ethereum needs DAOs to thrive

Ethereum needs to head back to its roots after years of sacrificing its ideals to chase scale and mainstream adoption, the blockchain’s co-founder Vitalik Buterin says.

“The original drive to build Ethereum was heavily inspired by decentralised autonomous organisations,” Buterin wrote on X. “We need more DAOs — but different and better DAOs.”

DAOs are a kind of crypto collective where owners of a DeFi protocol’s governance token can propose and vote on changes to its code and how best to allocate resources. Proponents of DAOs say they offer a more decentralised and less hierarchical alternative to traditional corporate governance.

Buterin’s pledge comes after trust in the DAO structure has deteriorated in recent years. Major scandals have erupted and put into question the viability of decentralised governance.

Critics argue that the DAOs governing DeFi lender Aave and decentralised exchange Uniswap have little control over major decisions at their respective protocols.

Other DAOs have been accused of mismanaging funds, resulting in hundreds of millions of dollars evaporating with little to show for it.

Elsewhere, inactivity and voter apathy has left many DAOs vulnerable to hostile takeovers.

Overall, DAOs are becoming quieter and less decentralised, according to a joint report by DefiLlama and DL Research. DefiLlama and DL Research are DL News’ sister companies.

Buterin is no stranger to the issues DAOs face. The current interaction of DAOs are inefficient, vulnerable to capture, and fail to mitigate the weaknesses of human politics, he said.

Here are Buterin’s five arguments for more and better DAOs.

Fixing oracle design

Many crypto products rely on oracles — tools that tell the blockchain things like asset prices or other offchain information.

Buterin says the current oracle designs are fundamentally flawed and easy to manipulate. If voting is based on tokens, big holders can push answers their way. If humans control the data, it stops being truly decentralised.

“Today, decentralised stablecoins, prediction markets, and other basic building blocks of DeFi are built on oracle designs that we are not satisfied with,” Buterin said.

Settling disputes onchain

Some apps, like DeFi insurers or prediction markets, need to make judgement calls when things go wrong.

Right now, Ethereum doesn’t handle those disputes well. They often end up offchain, handled by companies or courts.

Buterin says DAOs are the best way to handle these decisions together, onchain, without giving control to one central authority.

Onchain dispute resolution is a “necessary component of many types of more advanced smart contract use cases,” he said.

Keeping lists honest

Ethereum depends on lots of lists of which apps are safe, which smart contracts are real, and which interfaces are standard.

Today, many of these lists are run by small teams or single organisations, creating hidden and opaque power.

DAOs can maintain these lists openly, letting communities decide together instead of trusting one gatekeeper, Buterin argues.

Helping startup projects

DAOs let people come together, raise funds, and build something fast, especially for small or short-term projects.

“If you have a group of people, who all want something done and are willing to contribute some funds (perhaps in exchange for benefits), then how do you manage this, especially if the task is too short-duration for legal entities to be worth it?” Buterin said.

Keeping projects alive

When crypto founders disappear, many projects slowly die.

DAOs solve that by letting communities take over. New people can join, funding can continue, and important tools don’t vanish just because the original team moved on, Buterin said.

“We need DAOs to do long-term project maintenance.”

Lance Datskoluo is DL News’ Europe-based markets correspondent. Got a tip? Email at [email protected].