Four Key Events Shaping the Development of DAOs in 2024

If you’re interested in the topic of DAOs, you should pay attention to four stories that took place in 2024. Each of them has influenced — and will continue to influence — the concept of decentralized autonomous organizations.

Before diving into these stories, let’s quickly revisit what a DAO is. According to Wikipedia: “DAOs are member-owned communities without centralized leadership.”

This means:

• A DAO is a member-based organization.
• It operates without a central governing body or even a human leader.

The assets managed by a DAO belong to its members, and governance occurs automatically via rules encoded in smart contracts. Although scholars argue that DAOs can exist without smart contracts, the most prevalent DAOs today rely on blockchain-based smart contracts.

AssangeDAO: Do Members Really Control a DAO?

In early September 2024, one of the founders of AssangeDAO — a group created to support Julian Assange — accused other members of engaging in a “rug pull.” The organization had raised funds in cryptocurrency but transferred a significant portion to the German nonprofit Wau Holland Foundation, which then lost the funds during a cryptocurrency market decline.

Amir Taaki, the DAO member who made the accusations, claimed he had advised both the foundation and other DAO members to convert the funds into stablecoins. However, they ignored his advice, and the foundation refused to communicate with him or with Silke Noa, a legal advisor who also helped establish AssangeDAO. Meanwhile, the foundation engaged with other DAO members, such as Harry Galpin, on fund management issues.

In a now-deleted tweet, Galpin suggested that the funds would likely not be transferred to Julian Assange. Source.

Key Lessons from the AssangeDAO Case:

• Loss of Control: Once funds are transferred to a DAO, contributors lose control over them. Even founding members may find their wishes overridden by collective decisions. What’s more, if the smart contract requires consensus from all participants, then no single person has control over the funds. Anyone who wants to do anything with the treasury has to get everyone else on board.
• Misaligned Decisions: DAOs can make financial decisions that deviate from their original mission, as seen in the transfer of funds to a foundation instead of direct support for Assange. Members who disagree with such decisions may have no recourse to influence outcomes.
• Lack of Accountability: If assets are handed over to another entity (like a foundation), that entity is not obligated to discuss fund management with all DAO members. It may selectively engage with some while ignoring others.

The AssangeDAO case highlights the challenges of DAO governance and accountability. In this instance, no one appeared to bear responsibility for the outcome.

Lido DAO: Who Really Governs a DAO?

Crypto investor Andrew Samuels filed a lawsuit against Lido DAO and major holders of LDO governance tokens. In determining whether these holders are legitimate defendants, the court examined prior statements these token holders had made.

Three of the four companies named in the lawsuit had publicly stated that their governance tokens gave them influence over the DAO, while the fourth company had not. The court ruled that the three companies were proper defendants, while the fourth was not. However, the court also remarked: “It’s unclear exactly who else might hold a large amount of LDO, how much they might hold, or when or how they might have bought in.”

Regarding Lido DAO itself as a potential defendant, the court stated: “Lido DAO did not respond to the lawsuit and did not appear in court.”

Samuels also owned a small number of LDO tokens. However, his holdings were so insignificant that he had no real influence over the DAO’s business, and therefore was not liable for any violations that may have occurred in that business.

Key Lessons from the Lido DAO Case:

• Governance and Liability: Even if DAO decisions are technically executed by smart contracts, governance token holders may still bear responsibility for the DAO’s actions if their tokens grant them significant influence.
• Centralized Control: If the majority of governance tokens are concentrated among a few individuals or entities, these players may have deliberately chosen the DAO structure to evade responsibility. However, this strategy might not always succeed.

Another important detail here is that, apart from the largest LDO holders, there are also the people who essentially created Lido DAO and issued all its tokens. Yet nobody is holding them accountable for the DAO’s actions.

Tornado Cash: Who Owns a DAO?

In 2022, OFAC added an entity called “TORNADO CASH (a.k.a. TORNADO CASH CLASSIC; a.k.a. TORNADO CASH NOVA)” to its Specially Designated Nationals (SDN) list. Strictly speaking, no decentralized autonomous organization was mentioned there, but Tornado Cash operates similarly to Lido DAO: it’s a system of smart contracts deployed on a blockchain, and its governance mechanism is also linked to holders of its token, TORN.

As with Lido DAO, we know who initially launched the Tornado Cash smart contracts, and we know that these individuals no longer participate in managing those contracts. Still, two of them have been charged with money laundering and sanctions violations, and one has already been found guilty.

In 2024, an appellate court noted that anyone with internet access can use Tornado Cash smart contracts. Because these contracts are publicly accessible, the court concluded they can’t be considered someone’s property.

Since the smart contract itself is the formal representation of the DAO, this appellate court ruling challenges the assertion that a DAO is truly a “member-owned community,” as Wikipedia states. Perhaps only the organization’s assets can be owned by someone, not the organization itself. Holding a token may simply give you a right to vote, rather than a claim to a share of the business.

DarkFi: Upgrading the DAO Model

These events created a challenging landscape for DAOs in 2024:

• Founders may accuse their own DAOs of fraud.
• Governance token holders may face liability for DAO activities.
• Developers of DAO smart contracts may be prosecuted for the contracts’ misuse.

To mitigate these risks, voices calling for an upgrade to DAOs with a focus on anonymity began to resonate more loudly in 2024. The idea is for:

• DAO smart contracts remain invisible on the blockchain.
• Assets are concealed, with no traceable links between incoming and outgoing transactions.
• Voting proposals and votes are anonymized.

Such an organization could operate using DarkFi, an anonymous blockchain under development for five years, with intensified efforts in 2024. DarkFi aims to provide all the tools needed for fully anonymous operations, from collaborative work to anonymous marketplaces.

Conclusion

Recent events suggest that DAOs, as we know them, may be outdated. Let’s examine the specifics:

• AssangeDAO was never set up as a truly decentralized organization. It was more like a decentralized crowdfunding campaign, and the money ended up in a traditional finance (TradFi) foundation, which lost much of it when the crypto market crashed.
• Lido DAO appears to mimic decentralization while being governed by a few major companies. True decentralization would have prevented the court from identifying significant token holdings by single entities.
• The Tornado Cash case, at its current stage, just confirms that no government authority has found a way to effectively shut down a fully decentralized operational model. The smart contracts themselves remain untouched, but the developers responsible for writing them might end up behind bars — even if they had no direct involvement in criminal schemes.

At rabbit.io, everyone can exchange tokens like JUSTICE (from AssangeDAO), LDO (from Lido DAO), and TORN (from Tornado Cash). We’ve observed that trading interest in these tokens spikes whenever there’s big news or sudden price movements — no different from any other crypto asset.

It’s pretty clear that the people swapping these tokens aren’t doing so because of a deep interest in the DAOs themselves. As with most cryptocurrencies, people buy such tokens because they believe in them, and sell such tokens when they believe in something else more.

For those who are genuinely interested in the future of DAOs, projects like DarkFi deserve a closer look. That’s likely where truly decentralized organizations will continue to evolve.