Finance Series
Is There Wisdom Among the DAO Crowd? Evidence from Vote Delegation
Working Paper Author/Authors
Chuxuan Fan
The Chinese University of Hong Kong, Shenzhen
Tao Shu
The Chinese University of Hong Kong
University of Delaware, Lerner College of Business and Economics
Key Finding
Vote delegation can contribute to DAO performance and growth, provided delegates have the requisite incentives and expertise
Abstract
We evaluate the efficacy of the vote delegation scheme in decentralized autonomous organizations (DAOs) by examining token holders' delegation decisions and delegates' voting behavior in MakerDAO, a pioneering DAO protocol. We find that token holders reward delegates who vote correctly to enhance MakerDAO's value by granting them additional delegated votes. Delegates with more aligned interest with token holders and greater expertise are more likely to vote correctly, whereas delegates with potential conflicts of interest tend to vote against token holders' interest. Finally, the effectiveness of the vote delegation scheme is positively related to MakerDAO' future token returns and economic activity.
