It's The Walking Dead Out There

Many DAOs have a problem – they can’t die. Bankruptcy, dissolution, and creative destruction are essential to any well-functioning market. No one wants a market based on unprofitable zombie corporations (unless you’re a central banker). A healthy economy is one where businesses can fail, operations can wrap up, and people can move on to the next venture. Of course, traditional markets have processes for dealing with dissolutions promptly and efficiently. But not so with DAOs. 

Most DAOs make no plans for how they will wrap up and dissolve. There are some existing tools like Rage Quitting, but these tools are not broadly adopted. DAOs go all in on their success and refuse to ponder the chance that their app/protocol/business may fail and may need to wrap up in some reasonable manner. With bearish market conditions, there has been a growing chorus of DAO token holders who would prefer their DAO dissolve, payout token holders with existing assets, and move on. Of course, these token holders realize that except for a few specific circumstances, they have few ways to push a DAO into dissolution if a core team or foundation doesn’t want it. 

Enter Aragon Court and Arca. Last week, Aragon claimed there were under a coordinated attack from individuals, including Arca, to raid their treasury and attempt to dissolve Aragon. Called the RFV Raiders (great name) by Aragon, they claimed that the group was responsible for other DAO dissolution attempts at Temple DAO, Rook DAO, and others. Arca responded, basically claiming that Aragon acted unilaterally against token holders. 

I don’t want to opine on Aragon’s situation – operating DAOs is stressful, and I don’t have all the information. But, to me, the lesson is clear. If you are part of a DAO or thinking of starting one, you need to have some process where token holders can dissolve the DAO in a pre-agreed-upon manner. Businesses fail, and so will DAOs. It’s time that teams and token holders start planning for it. There is no shame in moving on from a failed venture. It’s part of the business.

If DAOs are unwilling to create a process for unwinding, I think we need more entities like the RFV Raiders. Many DAOs are struggling with declining runways, little market penetration, and no possible path to profitability and recovery – they should wind down, and their teams move on. If they refuse to do so, RFV Raiders may be the solution. Token holders may plan to coordinate to dissolve DAOs they think are failing. We could even see the emergence of an RFV DAO, or Bankruptcy DAO, centered around dissolving these struggling entities, which may not be wrong. The last thing we need is a market populated by zombie protocols and DAOs.

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