DAOs aim to create all the benefits of democracy — both on the ownership and the governance level. In politics we call this direct democracy.

Direct democracies are impractical: if everyone has to argue about every single issue, it simply takes too long to get anything done.

Direct democracies also suffer from information problems. Voters have little incentive to educate themselves on the issues. It’s actually irrational for them to spend much time investigating any given democratic choice, because the odds that a single vote matters (breaks a tie) are very low.

evolution from democracy to oligarchy is known as the Iron Law of Oligarchy.

the Iron Law of Oligarchy states that all organizations, including those committed to democratic ideals and practices, will inevitably succumb to rule by an elite few (an oligarchy).

The theory states that true democracy can't happen mechanically, because a large number of people cannot coordinate or organize. Only small groups can organize.

America was famously established as a republic, or a representative democracy, not a true direct democracy. They designed Congress and the presidency to be offsets to what would otherwise become a mob.

Monarchy (rule by one): Monarchies are efficient because one person can make all of the decisions quickly. However, if the monarch is bad or ineffective, this can lead to poor outcomes.

Oligarchy (rule by a few): Oligarchy is rule by the elite few. Because no one person can make decisions, it is difficult for oligarchies to make radical changes. While oligarchy is the most stable form of government, oligarchies tend to serve themselves and not the entire population. This is closest to representative democracy we have today.

Democracy (rule by many): Direct democracy is the least stable of the governance forms. Information costs are high (does your average person know much about intricate monetary policy?), and decision-making is cumbersome.

there is an evolution between monarchy, oligarchy and democracy. The Greeks called this cyclical theory of governance anacyclosis.

Over time, the oligarchy develops values that are at odds with its regular members. Elites become higher status, and feel that they must have some way of differentiating themselves from the democratic masses. They slowly begin to push for things that are good for elites but not necessarily good for the rest of the group.

the oligarchy won out as the most effective structure due to its strategic capabilities. For this reason, in any formally democratic organization, power will always slowly disperse away from members and into the hands of an elite.

any democratic governance structure you put together for your DAO will lend itself to becoming an oligarchy over time. Is it possible to slow down this process through financial incentives and pre-programmed rules within the DAO? Maybe! But it’s worth knowing that the default within most democratic organizations is to trend towards oligarchy.

The pure democracies of web3 are going to have the same problems that democracies of every other period for the last 500 years have also had: that while they might start as democracies, they won’t stay that way.