By now you’ve likely heard all of the buzz around DAOs (decentralized autonomous organizations) and, while we are still in the early innings for DAOs, the implications of technology and the economy as a whole are massive. DAOs are the web3 version of a company, but share many similar traits of traditional businesses.
Like in web2 companies, it's all about maximizing stakeholders' value, from users to investors. But for DAOs, token holders of the DAO have the ability to submit proposals, vote, and share in the upside. DAOs are member-owned and do not have centralized leadership. DAOs, built on Web3, combine protocols directly with money and provide network effects on steroids. Every time someone else joins the DAO and/or uses the protocol, the user’s tokens theoretically become more valuable.
As the DAO gets stronger, more people build on top of it, which in return makes the DAO stronger, which attracts more people, and so on. Ethereum has platform network effects, like Windows, but with financial steroids.
Once a DAO picks up steam, it’s going to be very hard to reverse it…..
DAOs mature on the back of community-driven services and governance. As treasuries grow in size and communities grow in quality, core contributions become more and more important to keep the ball rolling. Governance brings order and structure to a DAO, managing collective decision-making in order to run the organization and manage operations.
Governance will become increasingly important as DAOs grow and feature a much wider design of possibilities. With this, so will the number of teams working to put capital to work through on-chain proposals.
Tools for DAOs will also be required in the near future: from grants to payroll, token swaps to M&A. We will explore this further in our next post. We expect the next wave of projects to show why web3 governance is a complete paradigm shift.
To launch a DAO, we can leverage existing infrastructure systems such as Aragon or DAOstack, among many. It is important that the DAO has the following core components to it to be a fully operational DAO:
- Group chat: DAOs usually start off with someone saying “wouldn’t it be cool if…” and then adding a few friends to a Telegram group or Discord server.
- Treasury: The most common type of DAO collects blue-chip NFTs and stores them in a multi-sig. Ex; Party Bid, people love tapping into NFTs with their friends. It’s an experience. DAOs can also bootstrap their treasury through tokenized crowdfunding. This enables the DAO to fill their treasury with ETH to spend on operations and growth.
- Token: As word gets out about how much fun your DAO is having, people start begging for you to let them in. At this point, many DAOs issue an ERC-20 token as a way to gate membership. Depending on the exclusivity of the DAO, membership can cost anywhere from a few dollars' worth of ETH to a few thousand dollars worth.
- Governance: DAOs with valuable treasuries and hundreds of members need a way to make collective decisions. Usually, rough consensus is reached in the group chat and the governance vote is just a formality. But it’s fun to see who voted, how much voting power they have, and what they voted for. Also, most DAOs empower small, focused teams of 5 to 10 members to own specific work streams instead of requiring a governance proposal for every small decision.
- On-chain cash flow: This is the most nascent component of DAOs, but also the most interesting. On-chain cash flow turns a fun group chat with your friends into a sustainable business. So far, the most common way to generate on-chain cash flow has been through NFT drops.
Enough smart people with passion, tools, voice, and incentives can rapidly experiment their way to the next big thing. My bet is that when this happens, the world is going to be a very different place. We are experiencing early innings now.
The DAOs that wins have to have 3 things in common:
- Belonging( brand/network/community)
- Capital ($ and humans to do cool shit)
- Reach ( distribution of ideas).
In future posts, we will explore DAO tooling, different types of DAOs, and the broader DAO landscape. Below are recommended resources for further reading - there are so many resources, but these are some great ones: