Decentralized Autonomous Organizations (DAOs) have been around for a while. Still, they have
recently gained traction as more blockchain-powered projects look to go fully decentralized at all levels.

For those unfamiliar, DAOs are blockchain-powered and community-driven organizations with no hierarchy whatsoever.

They propose a mechanism to let individuals come together collectively to make decisions in the digital world.

The two main approaches DAOs employ are the rules based on the “if/then” statements directly coded into a blockchain and the voting shares issued to stakeholders in the form of proprietary governance tokens.

DAOs seem to be a promising new startup ecosystem, but many fail or don’t grow as expected. If you manage a blockchain startup and want to transition it into a DAO to let it flow independently, be aware of these five most important factors that may hinder the progress of your project:

1. Excessive fully diluted valuation (FDV)

Suppose the governance token has a high discrepancy between the FDV figure and the current market cap. In that case, stakeholders may not be that interested in holding it long-term and participating in the governance process.

A token’s FDV refers to its market cap once all the supply has been released. It happens that a large portion of the token supply is locked and released gradually to fund certain players (such as stakers) and incentivize specific processes within the ecosystem.

However, an excessive FDV figure that surpasses the current market cap by several times doesn’t bode well, given that it points to inflationary pressure in the future, which may discourage those who hold the governance token.