Before starting the article, the writer wants to give a disclaimer that they are not an expert of web3, only an observer to the current situation of the space.
What the writer will write in this text will be a no-brainer to everyone in web3. This is a noob writing. But just a reflection of the other day.
One of the main values that is highly upheld by the people of web3 is Decentralisation. Powered by blockchain technology to decentralised things, web3 offers the potential to democratise the internet, allowing individuals to participate in decision-making processes and gain control over their data, identities, and assets. This vision of decentralisation aligns with democratic ideals, where the governance is transparent, decisions are made collectively, and power is distributed equally.
Well, democracy might not be a sexy name to say in this text. ***It’s too politicaLL!!***
Okay. We’ll call it democracy as DAO here. DAO is not equal to democracy, DAOs are democratic organisations where governance-token-holders (i.e. registered voters) vote on “policies”. It’s like the web3 model of democracy, ideally.
In theory, DAOs offer a model of governance that is meant to be democratic. Important components of DAOs includes:
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Voting rights for all participants: Token holders can vote on governance decisions, such as protocol upgrades, resource allocation, or changes to project direction.
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Transparency: The blockchain provides a public, verifiable record of all decisions and votes, ensuring a level of openness not seen in traditional organisations.
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Community-driven governance: Decisions are made collectively by the members, without the need for centralised control.
This system is often compared to a democratic model, where each token represents a "vote", giving participants the ability to influence decisions directly. However, the reality is more nuanced, especially with the presence of whales.
So… is DAO democratic enough in web3?
The question of whether Web3 DAOs remain democratic in the existence of whales (holders who own a large amount of token) is a critical and contentious one. While DAOs are designed to make the decentralised governance dream come true, where each participant ideally has a voice, whales can significantly undermine the democratic ideals that DAOs strive for.
Whale presence in this space reminds me of a theory I learned back in my college days: Bourdieu’s theory on capital.
In this theory, economic capital is a primary source of power and is easily converted into other forms of capital.
Why is the writer emphasising on the economic capital? Because we are going to talk about whales.
With their big modal that they bought into tokens of DAOs they are in, they will have the capital to dominate voting, which might convert their influence into social and cultural capital, and legitimise their dominance through symbolic capital (DAO Tokens). Instead of the decentralised, egalitarian systems that web3 aims for, DAOs might evolve into more hierarchical structures where power is concentrated among those with greater capital, in this case, whales.
Slowly, the capital that they own could convert into social capital, influencing the community socially. This can be a good thing for the DAO itself, if that one whale uses their capital for the DAO’s good. What if they are not? What if they do “buy and dump” to the community? This potentially leads to a 'whale effect', where a small number of individuals with significant holdings exert disproportionate control over the DAO's direction. This can also apply to the market price volatility as a whole: Whale dumps, market bad. Whale sweeps, market good.
Not so democratic, not so decentralised, eh?
Through the lens of Bourdieu’s theory of capital, it becomes pretty clear that the presence of whales in Web3 creates structural inequalities that challenge the democratic ideals of decentralisation. Whales not only dominate through their economic capital but also use other kinds of capitals to reinforce their position. Their presence is also can hold a significant impact and effects. Whether it’s positive or negative, such as:
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+ Stability:
Whales can provide substantial financial and social backing, which may help stabilise a DAO during downturns. It might gives a sense of safety and confidence for the smaller holders in the community.
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- Risk of Exit:
If a whale decides to sell a large portion of their holdings, it can lead to a sharp decline in the community’s value, creating panic among other holders.
Yeah, it’s a bit of contradiction.
To move closer to a true democracy in Web3 and a healthy DAO where whale can exists, the community must find ways to mitigate these imbalances, perhaps through innovative voting mechanisms like reputation-based governance, or limitation of votes amount that whales can give, no matter how much token they have.
The author is an active contributor to Utopia Club. The views expressed in this article are the author’s own and do not necessarily reflect the views of Utopia Club or its members.
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