This past year has been one big growth spurt for DAOs (decentralized autonomous organizations) but not everyone in the space is convinced that they’re being formed properly or in a way that ensures success.

Before we get into it, it’s important to know that DAOs are community-led entities with no central leadership. Decisions are made by members of the group voting on governance proposals in an automated and decentralized manner.

It could be as big as running a decentralized exchange like Uniswap or as small as a group of friends pooling funds for parties or vacations.

Many are political or mission driven, but they all exist for a purpose, Parker McCurley, CEO of Decent Labs, said to TechCrunch.

Right now, there are over 1.7 million governance token holders across almost 5,000 DAO organizations, according to data on DeepDAO. Across the organizations, there’s over $10 billion wrapped up in DAO treasuries, up $552.4 million month on month, the data showed.

Even though the total treasury is higher on the month, it’s down from a November 2021 peak of $13.2 billion.

But what happens when the hype fades? People stop voting, treasuries can wither and abandoned, dead communities turn into “DAO graveyards.”

“I wouldn’t call DAOs any more frothy than startups in the tech industry,” McCurley said. “I think it’s identical to startups. There’s a lot of great concepts that don’t have good product-market fit, and for one reason or another, they don’t scale or achieve long-term success.”

To prevent that from happening, there needs to be a restructuring of the way community members look at — and form — DAOs, Imran Khan, a core contributor for the DAO and web3 accelerator Alliance, told TechCrunch.

Building with a purpose

“DAOs that are launching should have a product in mind,” Khan said. “Without a product and team behind it, it’ll be hard to be self-sustainable.”