DAOs — A Primer on the Latest Trend in Crypto & DeFi
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DAOs Will Be Everywhere in 2022…
They say one tweet is worth a thousand words…
Unless you haven’t been following the news, there’s no question that NFTs were something that became very hot this year. After all, who could forget the moment when the artist known as Beeple made the headlines after selling a NFT for $69 millions at Christie’s?
Even though NFTs became very popular around the second semester of this year…
… there’s something else catching people’s attention.
And as Cooper Turley (@Cooopahtroopa) pointed out in the tweet above, what we’re starting to see a lot more now is a growing interest in DAOs and DAOs tooling.
So let’s talk about DAOs because whether you like it or not, it’s coming.
What are DAOs?
According to an article written by Linda Xie, the definition of a DAO is:
A decentralized autonomous organization (DAO) is a group organized around a mission that coordinates through a shared set of rules enforced on a blockchain.
The first DAO ever created was called “The DAO” launched in 2016 in order to fund crypto projects. It was basically a crowd-funded venture capital fund. At the time, The DAO had raised $150 million USD worth of ether (ETH).
Unfortunately, things didn’t work out as planned.
Three months later, an event which became known as the DAO hack resulted in the loss of 3.6 million ETH (approximately $10 billion USD in today’s prices).
It took five years, but DAOs are finally making a comeback thanks to DeFi protocols and NFTs.
While a DAO isn’t used in every crypto project, the rise of decentralized finance (DeFi) protocols has brought more attention to blockchain governance. If you take a look at CoinMarketCap, you’ll see that the DAO sector is now worth $ 34 billion.
And it has been growing rapidly. DAOs are becoming a new way to coordinate community members who are part of a crypto project. And it’s also allowing thousands of people to organize themselves without the need of formal roles or hierarchy.
To understand how DAOs are different from traditional companies, just take a look at the image below.
As Cooper Turley mentioned in his article, DAOs seek to:
- Provide members with a voice through governance.
- Flatten hierarchy and create fluid workstreams.
- Allocate resources to achieve a core mission.
DAOs are the internet-native way to manage projects.
As a result, these crypto projects are able to scale their operations more quickly than traditional companies. Not to mention that DAOs are more democratic than traditional companies because anyone (who holds governance tokens) can vote on or propose changes to the DAO.
DAOs also offer stakeholders significantly more transparency and control over the organization than traditional corporations because all the major decisions are recorded on the blockchain. And if you are wondering how that works, let’s take a look at Uniswap.
Uniswap
In September 2020, Uniswap made the transition from a protocol that was owned and operated by Uniswap labs to a DAO. To make this happen, UNI tokens were launched via community airdrop and liquidity mine.
After the token distribution, anyone holding UNI tokens could vote on changes to the protocol or create proposals to change something in the protocol. UNI token holders also have the right to vote and decide how the funds from the governance treasury should be allocated.
DAO Landscape
According to analytics tool DeepDAO, there are over 164 DAOs with a total of $8.1 billions USD in digital assets as of September 27th, 2021. And that may just be scratching the surface!
The DAO landscape has evolved to include lots of different communities and business needs.
As you can see on the chart above, there are plenty of DAOs serving various purposes: from grants and investment DAOs like MetaCartel, to social DAOs like FWB and media DAOs like Bankless.
Here’s some breakdowns of the common types of DAOs:
- DAO Operating Systems
These DAOs offer different templates, frameworks and tools for communities to pool resources and launch their first DAO. - Grants DAOs
Grants DAOs focus more on reviewing, vetting and funding proposals. In this category, you’ll find MetaCartel which invests in early-stage decentralized applications (DApps). - Protocol DAOs
Protocol DAOs are the ones where there’s a change in power. In this case, the power goes from the core team into the hands of the community via the issuance of tokens into the market.
(It’s important to say that not all protocols are necessarily DAOs, and vice versa. To understand this better, let’s look at Uniswap again.
Uniswap is considered a DAO because UNI tokens give holders governance rights such as: the right to vote on proposals and to allocate UNI to grants, partnerships, and more.) - Investment DAOs
Investment DAOs work like investment clubs and allow members to pool capital and invest in projects at their earliest stages. While these DAOs come with a lot more legal restrictions than a Grants DAO, they demonstrate that any group of individuals can come together to invest larger amounts of capital with low barriers to entry. - Service DAOs
Service DAOs explore the future of work and what employment looks like in crypto-native world. In other words, they act as crypto-native talent agencies. From legal to creative, governance to marketing, development to treasury management, Service DAOs create funnels to contract web3 talents. - Social DAOs
Social DAOs are the natural evolution of group chats, where friends become co-workers. Where social media turned everybody into a media company, Social DAOs turn every group chat into a digital business. - Collector DAOs
Now digital collectors are able to acquire NTFs that would otherwise be too expensive or perhaps too risky to be purchased on their own. Collector DAOs have been created with the sole purpose of purchasing NFTs. One example is FlamingoDAO. - Media DAOs
Media DAOs give that power back to those who consume the content and break down the way in which writers, streamers and readers engage with the content they release. Whether it be media mining programs to incentivize contributions or governance over which topics make the front page, Media DAOs turn consumption into a two-way street.
How are DAOs shaping the future?
After seeing all this you might get the feeling that DAOs (aka the Web 3.0 Business Model) might be everywhere in 2022. Especially because the concept of the DAOs is being applied in many different sectors of society.
It seems inevitable that DAOs will one day take over many businesses. And if that wasn’t enough, DAOs are even changing the investment landscape…
Suddenly, it starts to make sense why the MoneyWeek article explained how the 2020s could become the “decade of the DAO”.
DAOs could be the next big thing in crypto
Whether or not DAOs could become the next big thing in crypto, we still have to wait and see. But we can already see their success in today’s ecosystem, and one thing’s for sure…
DAOs are creating new business models that are more community-oriented and participatory. DAOs also embody some of the main benefits that come from working on the blockchain such as ownership and a better governance model.
So if you are still wondering why you should get involved in DAOs, the answer is simple.
As Raoul Pal mentioned in one of his interviews:
The future of business models is actually community.
Or, better yet…
The Future of Crypto is Community.
For now, we’ve only seen a preview of what’s coming next for crypto…
It’s only a matter of time before we begin to see DAOs completely disrupting many industries and businesses.
So if you are thinking about joining a DAO, now is your chance to add (and receive) more value from these communities in a way that didn’t exist before.
Written by Debbie Akamine
You can find Debbie on Twitter @debbieakamine
TradFi to DeFi is a networking hub, project incubator, talent connector, mentorship provider, and opportunity maximizer for the DeFi enthusiast, whether new or experienced. Every Friday at 3 pm EDT, we host an open mic round table, where we discuss DeFi (decentralized finance), how it intersects with traditional finance, and where we see this whole thing going. This article briefly summarizes the topics of our latest discussion. Want to join us? Check out the links below!
