The promise of decentralization is being tested as decentralized autonomous organizations (DAOs) grapple with the need for legal clarity and corporate structures to attract institutional investment.
On March 11, Across Protocol, a cross-chain bridge and stablecoin infrastructure project, proposed transitioning from a DAO to a private company through a token-to-equity exchange buyout. This move, spearheaded by Risk Labs, the team behind Across (ACX), highlights the growing tension between the decentralized ethos of crypto and the practical demands of institutional finance.
The DAO Dilemma
DAOs were envisioned as a radical new form of organization, free from traditional corporate hierarchies and governed by their token-holding members. However, this structure often clashes with the legal and regulatory requirements of institutions, which demand clear ownership and accountability.
Matthew Pinnock, founder of DeFi project Altura, explained the issue: DAOs were supposed to replace the archaic organizational infrastructure marked by greed and a lack of trust. However, as the industry moves toward real-world assets and institutional capital, protocols are running into structural limitations.
A Trend Emerges
The industry reaction to Across’ proposal has been mixed. Decentralized finance (DeFi) researcher Ignas criticized the move, calling it a huge failure of crypto
and a betrayal of the crypto spirit
of global, open investment access.
Despite the backlash, the trend of DAOs exploring corporate structures may be growing. ShapeShift, a crypto trading platform, transitioned into a DAO in 2021 but has faced operational challenges that mirror those of Across. Tim Black, product lead at ShapeShift DAO, noted that many teams quietly operate like companies already, and the DAO experiment helped bootstrap the network, but a company structure is better suited for the next phase.
The Case for Centralization
Across co-founder Hart Lambur acknowledged the challenges of maintaining a DAO structure in the current market. We launched the Across token very early, at a very low valuation, and with a broad airdrop to build value with our community. Today, the macro environment has changed, and tokens are undervalued and underappreciated.
The proposal by Across to transition to a US C-corporation aims to streamline deal-making with enterprises and institutions. This shift is partly driven by the need to secure agreements that require clear legal entities and due diligence processes, which are not easily facilitated by decentralized structures.
Looking Forward
The future of DAOs may see a divergence in paths. On one side, protocols may adopt corporate structures to better integrate with traditional finance, while others may remain committed to decentralization, accepting the operational friction that comes with it. One side becomes corporate crypto, with tokens functioning more like shares, while the other side stays genuinely decentralized, accepting the operational challenges that come with it,
said Tim Black.
As the crypto industry continues to evolve, the balance between decentralization and institutional adoption will be a key factor in shaping the future of these innovative organizations.
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