On Exercising Governance Power in Decentralized Autonomous Organizations
TL;DR
This work explicates the trust and transparency trade-offs of the design choices in implementing a DAO and highlights how poor choices introduce critical vulnerabilities, using real-world examples as case studies.
Abstract
A decentralized autonomous organization (DAO) is a governance entity that allows its stakeholders to manage blockchain-based protocols through smart contracts. The DAO explicitly specifies how stakeholders make and enforce decisions concerning a protocol's operation in a smart contract, aptly referred to as its governance contract. The design of this governance contract, therefore, has far-reaching implications for the security (trust) and privacy (transparency) of the smart contracts managed by the DAO and its stakeholders. In this work, we (i) explicate the trust and transparency trade-offs of the design choices in implementing a DAO and (ii) highlight how poor choices introduce critical vulnerabilities, using real-world examples as case studies. To this end, we analyze $48$ public, actively used Ethereum-based DAOs that control a vast capital. We classify the design choices into a handful of key dimensions that succinctly capture how a DAO's stakeholders initiate a protocol change, vote on it, and, based on the voting outcome, execute that change. Our analyses crucially uncover a new class of attacks, which we call governance attacks, that directly exploit the fundamental design of a DAO's governance mechanisms, even if we assume bug-free implementations.