DAOs have taken the crypto space by storm; communities are coming together and monetizing their work while simultaneously shaping the future of web 3.0. But what are they and why have they increasingly surged in popularity over the past few months?
An Introduction to DAOs
What is a DAO?
A decentralized autonomous organization (DAO) is a group of individuals who share the same values and are committed to working towards the same mission to help bring their brand forward via a decentralized set of rules.
A DAO is centered around community; it gives each individual member a voice via votes, and encourages social and community value. Whether it is comprised of 10 members or 1000, a group of individuals is a DAO if they are working towards a shared mission via the blockchain.
Why are DAOs significant?
DAOs fundamentally challenge the traditional comparisons of start-ups and companies in the sense that they are public, transparent, and decentralized. Effectively, they are more trustworthy and enable fair distribution of wealth in real-time.
While many traditional companies are closed, the entry barriers are high, usually non-transparent and hierarchical. DAOs in contrast are built from the ground up, they are more accessible and are open via the blockchain, where every transaction is viewable.
Consider web 2.0 where we consumed and participated in transactional ways, on the contrary web 3.0 is providing individuals with the opportunity to personally interact within communities and shape culture while receiving both financial and social value. Individuals are betting on the community as opposed to a specific person or name; this is the fundamental difference.
The History of DAOs
DAOs have been around since the crypto surge in 2016/17, but as with many crypto-related concepts, the acceleration surged enormously during 2020 and the pandemic. At a time when we could not socialize, we brought our day-to-day interactions to the web, and subsequently, we built meaningful and intimate relationships with those around us.
This brings us to DAOs. They similarly foster these same values, where social involvement is the key to their existence. In a world where we have our social and financial spheres often separated, DAOs have sought to merge the two, enabling friends to work alongside each other as co-workers, and seeing them financially incentivized by the work that they do together. From the group chats that we participated in, we are now seeing an opportunity to create value out of the interactions we produce.
As it has become easier to create our own identities and participate online—in addition to a growing interest in the novel technologies that comprise web 3.0—DAOs are seemingly the stepping stone into formalizing these communities into legitimate brands and businesses.
How do they function?
DAOs help to utilize funds in a productive manner. Members receive governance tokens, which allow them to propose or vote on where the funds and time should be allocated, as well as the direction of the mission. There are several types of DAOs, which include grants DAOs, protocol DAOs, investment DAOs, service DAOs, social DAOs, and collecting DAOs, all of which offer different purposes, yet they are all governed in the same way: community participation.
DAOs rely on blockchain technology and are coded via smart contracts. They cannot be changed unless DAO members vote.
A Conversation with Greg Isenberg:
I spoke to Greg Isenberg, a leading web 3.0 CEO, to find out more about what the community means within DAOs.
How do DAOs foster community and build digital culture?
"People need excuses in order to find community. Sports and streetwear are examples of this. DAOs are the digital excuses to find community. 'Come for the DAO, stay for the community,' is the new mantra."
How do you see communities evolving within and under web3 tech?
"Web3 will supercharge existing digital communities."
DAOs are challenging the norms that the mainstream world is accustomed to. Take for instance a traditional investor, they may invest in a company and see their gains increase by 20%, meanwhile, participants of DAOs and NFT traders are seeing extortionate gains in the thousands on their animal profile pictures overnight. This is enough to raise questions and doubt, with many describing the crypto space as a place of scams, money laundering, or even tax evasion.
If we zoom out, participants of DAOs and NFT traders are working within a complex market, they have to scope the sentiment of community which is a skill in itself, and thus to compare the two is difficult.
Despite the premise of DAOs focusing on community and social contribution, there will inevitably be a time when there are more speculators and investors as opposed to contributors. To counter this, there should be a focus on the core contributors and building value within this small percentage to lead the way forward.
Most DAOs are not structured around one vote per person. It's usually dependent on how many tokens an individual holds. Arguably, this could be perceived as undemocratic where bigger influencers outvoice the smaller ones, yet these issues could also be resolved via limits. It is also important to note that not every DAO operates in the same manner.
Legally, in terms of regulations and legislation, there is little known about what can and should be enforced. Furthermore, recognition by governments is also an issue that necessitates more exploration. It is extremely early in the history of DAOs and given that it is such a novel concept, what lies ahead is uncertain.
DAO use cases:
A few weeks ago, ConsitutionDAO attempted to buy the US constitution, narrowly missing with a crowdfunded $46 million bid. If this has proven anything, it has demonstrated the significance and ability for DAOs to rally thousands of people together towards achieving one goal. Despite losing the auction, it has certainly highlighted the potential of DAOs for the future, and namely the evolution of web 3.0.
DAOs are also pooling funds together to collect sought-after NFTs. Take for instance PleasrDAO, a group of DeFi leaders and collectors who have the goal of acquiring significant NFT pieces. They have collected some of the most iconic memes such as Doge, fractionalizing it amongst the DAO.
There is also SharkDAO, a DAO that began with a group of Internet strangers interested in pooling together resources to acquire Nouns, a novel experiment in generative, NFT art. Since their establishment, they have acquired 5 nouns, brought together over 400 Sharks, and raised almost 1000 ETH.
Jenny is the first-ever metaverse DAO that holds one of the largest NFT collections. The DAO is also the first-ever social token on Unicly. The DAO members have exclusive access to voting on which NFTs to acquire as well as access to group chats and research. In this DAO, 70% of the funds are used to acquire NFTS.
The Jenny token (uJENNY) is a membership card that gives access to exclusive channels, insights, and reports, AMA sessions, management of funds, and tie-ins to the Unicly protocol.
A Conversation with Kinjal Shah:
I also spoke to Kinjal Shah, a crypto investor who is down the rabbit hole of DAOs. We discussed the DAO landscape, what it means to work within one, and the future of DAOs.
What is a DAO and why did you decide to join one?
"DAO stands for a decentralized autonomous organization. Effectively, a DAO is a way to coordinate capital and labor. In laymans terms, it's a group of people with a shared mission and bank account. I love finding DAOs where the mission speaks to me. I co-founded Komorebi Collective this year with an amazing group of founders, investors and builders. We are investing in female / non-binary crypto founders via an investment DAO."
What are the pros of being in a DAO and what does working with one look like?
"It's a great way to coordinate with a larger group of individuals for a purpose or mission. There are a lot of operational pros (more transparency and less hierarchy). It also leads to being very entrepreneurial as a contributor. Everyone has to do their part for the entire group to move forward."
How do you see DAOs sustaining for the long-term future?
"I think we will start to see more models of organization. Orca Protocol's pod model is a great example of how smaller groups can form a larger DAO and get decisions across the line."
What is one piece of advice you would give to someone wanting to learn more about DAOs?
"Learn by doing—find a DAO whose people and mission really resonate with you, and then jump in."
Will DAOs eventually compete with some of the largest organizations and possibly even nations? The future remains to be seen, but what we do know is that DAOs will continue to gain mainstream adoption and investment; it is impossible for them not to.