• Commentary
  • August 29, 2020

The past months have seen investment firms attempt to influence project and investor behavior through research releases:

  • In July, Zeus Capital, an asset management and research firm, shorted LINK and released a report arguing that LINK is a bad investment.
  • In August, Delphi Ventures, the investment division of Delphi Digital’s research firm, entered a position on DXdao while advocating project changes intended to fix perceived shortcomings.

Delphi’s attempt to influence DXdao most resembles activist investment, which, traditionally, is where an investor attempts to enact significant perceived value-increasing changes in a company through purchasing shares or acquiring board seats. Zeus Capital, in contrast, ostensibly merely aims to persuade other investors to short LINK or sell existing LINK holdings, rather than persuade Chainlink itself to make changes. For projects like DXdao, it is not equity shares but tokens and their integration into internal decision-making processes that make this investment tactic possible. How different models of distributed governance will handle such activist investment attempts is a question on Smith + Crown’s mind, as we observe whether more investment groups will try to improve their positions through DAO politics.

Activist investors’ attempts to influence project direction through projects’ governance infrastructure are apt to occur more publicly—proposal systems typically vote more frequently than the annual general meetings that shareholders vote in, and are more transparent than board meetings, which are often confidential. In a scenario where voting power were more or less evenly distributed among a system’s major stakeholder groups (developers, investors, end-users, contributors, etc), one would expect successful proposals to be made so as to have as much broad appeal as possible—e.g. proposals addressing how each group stands to benefit or offer compromises where the change in project direction would negatively impact a stakeholder group. (1)

In a reality, however, where token holdings and voting power are concentrated into a few addresses (Delphi notes that 10 addresses hold 50% of DXdao’s voting power), activist investors can enact change by more narrowly tailoring proposals to appeal to a small coalition of majority token holders. This illustrates how token concentrations and participation can leave projects vulnerable to forms of agency problems—situations where key decision makers may be incentivized to act out of personal interest at the expense of a project’s interests.

While it remains to be seen whether activist investing in projects with DAO-based governance models takes off, these developments suggest projects would do well to consider whether their governance infrastructures make activist investing possible, whether such attention is desirable, and to whom proposals for substantial changes should be made to appeal.


  1. See Beitz, C. Political Equality: An Essay on Democratic Theory, for a defense of this position and Christiano, T. The Rule of the Many: Fundamental Issues in Democratic Theory, for criticisms.