DAO governance reaches scaling limits as major protocols move toward partial centralization

The DAO model is changing, affecting most of the biggest organizations. Governance is reaching its limits, with some protocols moving back to partial centralization. 

DAO platforms are evolving in 2026, as some have reached the capacity for governance. Others have shed the model entirely, citing slowness and the need for emergency decision powers. 

Based on the latest estimates, DAO holds $13.6B in total liquidity for over 50,845 organizations. The funds are mostly locked in the biggest DAO. Governance tokens were still highly active, recently expanding their value to over $31B.

Of 11.8M DAO token holders, only around 3.3M are active voters. The active voting share may vary across protocols and communities. The DAO model has proven resilient and has led to ongoing governance, although over the years, some of the decisions have been disputed. The biggest concern with DAO is the ability of whales to take over the voting process and push decisions. 

As Cryptopolitan reported, Optimism DAO was the latest to split its community on a decision to buy back OP tokens. 

DAO shifted to partially centralized governance

The past year was dynamic for some projects that used a DAO structure as part of their development. Based on DAO analysis by one of the active voter organizations, decentralized governance had reached capacity. 

As a result, several large-scale DAOs abandoned their voting process in whole or in part. Arbitrum consolidated all DAO operations in its new OpCo structure. Jupiter paused governance for six months to reassess upgrades and rebuild the process and incentives. Uniswap also concentrated operational authority into the DUNI framework. 

Gnosis introduced hard forks with limited community input, while Scroll transitioned to a CEO-led structure. 

Most DAOs linked to a working protocol have noted their governance process does not scale, and voting is often slow or causes conflicts. Not all voters understood technical nuance, and some proposals caused panic. As a result, governance shifted to specialized groups aware of context, while the broader community shifted to oversight. 

Participation in DAO declined in 2025

Governance also declined in 2025 as participation reached new lows. The lack of incentives and airdrops meant some DAOs could not find enough voters. Others saw voting taken over by whales to push a specific result. Lido Finance adopted a dual governance mode and saw engagement rise. 

While Uniswap and Arbitrum had the highest DAO participation, their communities still declined in the past year. 

As a result, most projects switched to small, focused groups with less frequent governance calls. Token burns and fee switches were the main issues in 2025, linked to profit sharing and support for tokens. 

DAO ownership is still a legal gray zone, despite the proposals for DAO LLC registration formats in some jurisdictions. DAOs exist in a gray zone, leading to uncertainties on who owns the protocol, brand, or has the right to payouts, as in the case of Aave DAO versus Aave Labs. 

DAO tokens may also switch from pure governance to some form of ownership or revenue sharing, as token holders may demand some form of compensation.

If you're reading this, you’re already ahead. Stay there with our newsletter.