In the realm of decentralized autonomous organizations (DAOs), the BanklessDAO saga stands as a cautionary tale, highlighting the potential pitfalls of misalignment, governance issues, and the delicate balance between community and control.
BanklessDAO, established in 2021, aimed to promote financial education and foster a community around the Bankless brand. The DAO’s governance structure empowered its tokenholders to vote on proposals that shaped the organization’s direction and resource allocation.
On November 20, a proposal surfaced that sought to allocate 1.8 million ARB tokens, worth approximately $1.8 million at the time, to fund a year-long educational initiative on the Arbitrum network. The proposal, submitted by BanklessHQ, the company behind the Bankless brand, raised concerns among DAO members regarding its lack of transparency and potential conflicts of interest.
Community Backlash and the Call for Separation
The proposal ignited a firestorm of criticism within the BanklessDAO community. Many members questioned the need for such a large allocation, particularly given that BanklessHQ already had a substantial presence in the education space. Concerns were also raised about the potential for BanklessHQ to leverage the DAO’s resources for its own benefit.
The controversy intensified when it was revealed that BanklessHQ had failed to disclose its financial relationship with Arbitrum, further fueling allegations of a conflict of interest. The resulting community backlash led to calls for BanklessHQ to separate from the DAO.
Token Burning and Separation
Facing mounting pressure, Bankless co-founders David Hoffman and Ryan Sean Adams have decided to cut ties with the Web3 community. Ryan took to X (formerly Twitter) over the weekend to announce that they would burn all of their BanklessDAO (BANK) tokens on the back of a proposal to separate the Bankless brand from the DAO.
According to Hoffman, the DAO was riding on the back of the Bankless brand and as such had no right to call the shots. He wrote:
The concern is that BanklessDAO would not be able to make such ambitious proposals without leveraging the weight of the Bankless brand, which they did not produce, is not theirs, and ought not to benefit from.
The BanklessDAO controversy serves as a valuable learning opportunity for both DAO communities and investors. It underscores the importance of transparency, accountability, and community engagement in the governance of DAOs.
For DAO communities:
- Transparency: DAOs must prioritize transparency in all aspects of their operations, including financial transactions, proposal details, and potential conflicts of interest.
- Accountability: DAO members should hold their leadership teams accountable for their decisions and actions, ensuring that they align with the DAO’s mission and values.
- Community engagement: DAOs should foster active community engagement, encouraging open dialogue, and incorporating member feedback into decision-making processes.
- Conduct thorough due diligence: Investors should conduct thorough due diligence on DAOs before investing, assessing their governance structures, community dynamics, and potential risks.
- Engage with the community: Investors should engage with the DAO community to gain insights into the organization’s culture, values, and decision-making processes.
- Diversify investments: Investors should diversify their investments across multiple DAOs to mitigate risks associated with individual organizations.
The BanklessDAO saga highlights the evolving nature of DAOs and the challenges associated with balancing community governance, organizational objectives, and investor interests. As DAOs continue to gain traction, addressing these challenges will be crucial for their long-term success and sustainability.