DAOs are sitting on a dangerous concentration risk: roughly 70% of their collective treasury assets are held in their own native tokens, according to a report from GSR. That heavy reliance, the report argues, creates a systemic liquidity problem that could ripple through the wider crypto market when prices fall.
A single point of failure
The math is simple. If a DAO's treasury is mostly in its own token, then the value of that treasury moves in lockstep with the token's price. When the token drops, so does the DAO's ability to pay contributors, fund development, or cover operational costs. That leaves the DAO with few good options: sell tokens into a falling market, or watch its runway shrink.
GSR's report points out that this isn't just a problem for individual DAOs. Because so many DAOs are structured this way, the risk is shared across the ecosystem. A coordinated sell-off in one sector could trigger a cascade.
Why downturns get worse
During a market downturn, the problem compounds. DAOs that need liquidity may be forced to dump their native tokens to cover expenses. That selling pressure pushes prices lower, which erodes treasury values further, which forces more selling. The report describes this as a dangerous feedback loop.
GSR also warns that this concentration could destabilize broader crypto markets, not just the DAO sector. If a major DAO's token collapses under the weight of forced selling, the shock could spill into exchanges, lending protocols, and other interconnected parts of the ecosystem.
The feedback loop problem
Feedback loops aren't new in crypto, but the scale here is unusual. With 70% of treasury assets tied up in native tokens, the system has little cushion. GSR's report doesn't name specific DAOs, but the implication is clear: the industry has built a structure that works fine in bull markets and breaks in bear ones.
The report stops short of prescribing a fix, though it notes that diversification would help. That's easier said than done — selling native tokens to buy stablecoins or other assets often means taking a price hit and signaling a lack of confidence.
For now, the clock is ticking. The next major downturn will test whether DAOs can manage this exposure without turning a bad market into a catastrophic one.
