Decentralized Autonomous Organizations (DAOs) have introduced a notable shift in organizational governance. Characterized by decentralized control and transparency, they challenge traditional governance models based on centralized mechanisms of control and authority. This study investigates how changes in governance activity, coupled with governance interest and network activity, impact the overall performance of DAOs. To this end, we leverage a unique longitudinal sample comprising 36 DAOs, encompassing detailed data on governance activities, including governance proposals and votes, alongside financial performance metrics. Our analysis reveals a nuanced picture: While high rates of governance activity are associated with lower market capitalization, the relationship changes as a function of governance interest and network activity. Specifically, as governance interest, as reflected in proposal votes, increases, governance activity has a positive impact on DAO performance, suggesting that community engagement in DAO governance is necessary to improve performance. At the same time, as network activity increases, the relationship between governance activity and DAO performance becomes increasingly negative, suggesting possible inertia in overcoming governance challenges in highly active environments. This research contributes to the understanding of DAO governance by providing insights into the equilibrium dynamics that constitute effective decentralized governance, while highlighting areas for future research in the context of market volatility and trading activity.
