We can put it DAO: How does the trend of decentralized autonomous organizations change the field of venture capital?

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With the advent of the NFT boom, the crypto industry is constantly unleashing the potential of decentralized autonomous organizations.

Written by: Adriana Hamacher
Translation: Turboggs, Jane, Salmon, from DAOchurch

summary

  • Thanks to the vigorous development of NFTs and the benefits of new laws, DAO is preparing to become mainstream.
  • People are enthusiastic about the prospects, especially the venture capital DAO.

Last month, a group of crypto art collectors bid for $525,000 for a promotional video about the crypto platform Uniswap created by the rapidly rising digital artist pplpleaser, which made global headlines. This artwork is a combination of today’s art and technology media, namely NFT, and the winning funds were donated to charity.

However, despite a lot of publicity for this acquisition, few media mentions the underlying infrastructure that made this acquisition possible: Decentralized Autonomous Organizations or DAOs. Thanks to this revolutionary organizational structure, a completely different group of more than 30 people, who had previously been interested in winning the bidding, are now able to unite under the call of social media , organize funds, and make a difference. Win the bid in a short time.

Essentially, DAO is an organization on Ethereum that is executed by a set of smart contracts. Historically, in the crypto world, they have been used by large and small groups to manage protocol development, raise funds, or complete various other tasks.

It turns out that DAO’s non-hierarchical structure is particularly popular in collaborative asset management. And now, with the help of the NFT boom, coupled with the legality provided by the new law, DAO supporters say they are about to become mainstream.

Just this week, 54 people met in a Discord room, established a DAO (“BeetsDAO”), and raised 300 ETH (over $500,000) at an OpenSea auction to purchase 4 EulerBeats NFTs .

José Nuno Sousa Pinto, chief legal officer of Aragon , one of the first DAO creation platforms, told Decrypt: “DAO is the perfect tool to manage these tokenized assets, such as this new trend-NFT.”

Parsing DAO

In an interview with Decrypt, Zheng He and others said that the rise of distributed Web3.0 (also known as the Internet of Value) is giving birth to a new type of organizational structure. This structure revolves around a decentralized application (dapp) and a community managed by its members, all of whom have decision-making power.

Chart / data from DeepDAO, April 2

Generally speaking, members of DAO use tokens to vote on topics such as fund distribution. In many DAOs, the influence of members’ votes will increase based on the increase in their contributions to the project, and the results will be determined according to the degree of participation and the voting preferences of coin holders.

As for the autonomous part, the DAO can be regarded as operating like a machine, and the work to be performed is determined through a series of pre-written smart contracts.

The concept has taken root in the fast-growing Decentralized Finance (DeFi) industry and has become the most popular Lego block in the Ethereum toolbox.

Aaron Wright, a professor at Cardoso Law School, told Decrypt: “Just like what we saw in DeFi, all these different systems can talk to each other, and we think the same thing will happen to the organization. “Wright.” Wright is the co-founder of the digital contract platform OpenLaw . He predicts that the independent functions that people build for their personal DAO projects will one day be superimposed to build a larger organization that may define Web3.0.

“Once the Wyoming Act is implemented, it will enable 1 million or even 1 billion DAOs to flourish.”

——Aaron Wright

But for critics, the DAO-driven website has caused numerous legal and corporate governance issues, and also brought the possibility of disaster-this is what happened in 2016, when the first ever DAO (The DAO) almost This led to the demise of the newly developed Ethereum network.

The project was large in scale and raised US$150 million for distributed venture funds. It was the most successful crowdfunding campaign at the time. But an undiscovered flaw in the code caused The DAO to fail within a few weeks of its release, and hackers stole $55 million from the collective fund.

Controversially, the Ethereum community voted to roll back the blockchain so that no one loses any funds. This decision ensured the future of this fledgling platform, but constant controversy made the development of DAO set back for several years.

“When the first DAO failed, because of the name of The DAO, people thought that all DAOs were essentially bad. Therefore, it actually took several years to make people change their minds,” Aragon co-founder Louis · Luis Cuende said in an interview with “Decrypt” magazine last year.

Aragon and thorough and transparent governance

Although the DAO remained in the shadows after the 2016 collapse, the experiments surrounding them have never really stopped. Projects such as Aragon, DAOstack, and Colony have learned important lessons (and the importance of auditing) from the original DAO. They continue to build and run DAOs for some of the largest DeFi protocols (including Synthetix, Aave, and Compound). After the project value soars, all these projects will delegate more control to users in 2020.

We can put it DAO: How does the trend of decentralized autonomous organizations change the field of venture capital?José Nuno Sousa Pinto, Chief Financial Officer of Aragon. Source of data: Aragon

Aragon now supports more than 1,600 communities , including DeFi projects Aave and Curve. They use platforms and services to achieve financial transparency, asset management, and agreement governance.

The community can adjust the DAO and program it according to its own goals. Sussa Pinto explained that the purpose is to make “governance completely transparent, unlike a traditional closed company” by establishing a new type of jurisdiction and “a set of technical contract rules that regulate the interaction between users”. . Aragon even provides a court to resolve disputes.

He claims that DAOs are the best way to attract communities with thousands of members, and predicts that mainstream entities such as businesses, charities, and community organizations will soon adopt them. He said: “This is a great technology, it’s transparent, fair, honest, and it’s open.”

But not everyone thinks that DAO-based management will be revolutionary.

Dragonfly Capital, which has invested in many DeFi projects that use DAO, such as Compound, Maker and Opyn, declared in a report in August that the governance of DAO so far “looks almost the same as traditional corporate governance.” They believe , The person with the most tokens is usually the one who gives orders and can control how their community operates.

At the same time, the process of managing DAO is also evolving with technological innovation. For example, the Vocdoni protocol acquired by Aragon earlier this year will soon release a digital voting solution that does not require participants to pay expensive fees to vote on the chain, thereby encouraging more people to participate.

The second adventure of Moloch and DAOs

Recently, a variety of radical ideas have emerged in the DAO field. But perhaps the most revolutionary is the new wave of DAO focused on venture capital, and the concept of hybrid financing designed with regulators in mind-different from the ICO cryptocurrency wave.

The purpose of creating MolochDAO is to manage the grants used to fund the development of Ethereum 2.0. Ethereum 2.0 is the network’s ongoing scale expansion plan, and it plays an important role in the new wave of risky DAOs. Its developers focused on simple smart contract solutions and clearly designed the program to minimize the possibility of attacks.

In 2019, developers in the Ethereum community forked its code. Branches are used to modify smart contracts to develop more complex DAOs, such as MetaCartel Ventures and Marketing DAO, which have the ability to distribute and transfer shares and other assets between members. Since then, MetaCartel Ventures, a profitable DAO focused on early investment in Ethereum projects, has raised nearly $24 million from 64 members.

The spirit behind these initiatives is to foster a healthy venture capital ecosystem, provide easily accessible funding for DAO projects, and help technology flourish. It also provides early investment opportunities for experts who use these cutting-edge technologies.

Most importantly, MetaCartel and similar companies provide a fast and effective way to raise funds. Unlike most ICOs in the 2017 era, this method will not conflict with US security laws. For example, MetaCartel Ventures has painstakingly registered as a limited liability company (LLC) in the cryptocurrency-friendly state of Delaware.

Aaron Wright of OpenLaw stated that in the United States, even without a manager, legal entities can enjoy limited liability and some other benefits, because “limited liability companies are the creation of contracts,” while DAO mainly supports The software is operated by smart contracts.

The LAO and the law

The LAO (acronym for Limited Liability Autonomous Organization), launched by OpenLaw in April 2020, is another step towards harmonizing radical encryption solutions with the traditional world. This is a venture capital DAO with additional legal protection, aimed at investors who want to comply with regulations, while getting the next wave of returns from the Ethereum project.

Like MetaCartel DAO, LAO has adopted Moloch’s framework to enable organizations to accept capital instead of just paying. So far, the project has attracted US$25 million in funding. So far, the company has invested about 30% of its funds in 40 projects, including SuperRare, the largest NFT market. Another investment Wright mentioned is aimed at improving privacy protection.

LAO even has the ability to incubate its own projects. In March of this year, it launched another DAO, this time the target is an institution. It will focus on providing much-needed liquidity for DeFi and blockchain projects.

Wright noted that many people who built DAOs have learned lessons about security and compliance. The 68 members of LAO (limited to 100) have been reviewed to ensure they comply with relevant KYC and anti-money laundering laws. In the United States, only qualified investors are eligible to join.

Although LAO seeks to become a model for regulatory compliance, it is not always clear whether other DAOs are also considering it. Wright said this is particularly the case in the United States, where legal minefields abound, especially in relation to token projects that may be considered securities.

However, he added, “If you have a very flat organization with no hierarchical system, where ownership and decision-making are very participatory, and all information related to the organization is available, I personally strongly advocate that, These benefits should not be seen as guaranteed.

Wright also helped the state of Wyoming, which embraced the crypto world, drafted landmark legislation to clarify the status of the DAO. The bill recently passed a key obstacle in the state Senate. Last year, Wyoming also became the first state in the United States to issue licenses for crypto banks, and it has issued licenses to two banks, Kraken and Avanti.

If passed, the new bill will give Dawes the legal personality of a traditional company currently enjoyed. “It should allow a million-if not a billion-DAO to flourish,” Wright said. He explained: “To legally install such a device, a lot of work still needs to be done.”

In fact, Wyoming is not the first place to consider giving Dawes a legal personality. Malta initiated this process in 2019.

However, Malta’s efforts have been criticized by entrepreneurs. They said that the legislation is too complicated and the managers have taken on too many responsibilities, which is contrary to the spirit of the DAO. But Ma Er is just laying the foundation, and further amendments can give DAO legal personality and reduce managers’ responsibilities.

But not everyone supports this legislation. Preston Byrne, a partner at Anderson Kill Law, warned that it could be usurped by “token peddlers” to justify the sale of junk coins and immature code.

He called on the state of Wyoming to repeal the bill, claiming that — having tried it as early as 2013 — the concept was unworkable and fraught with danger. In any case, the impact of the Wyoming plan may be limited because the state has a small population, minimal connections to the financial industry, and federal securities laws are supreme in the United States.

“We can DAO it.”

There are certain similarities between DAOs and ICOs used for fundraising or venture capital. If there was no disaster on that early DAO, critics would have established relevant theories, saying that the plan in Ethereum would use DAOs as a fundraising tool very early. Unlike the restricted access DAOs such as the LAO or MetaCartel Ventures, the DuckDAO fundraising platform allows anyone holding tokens to invest in early-stage startup projects, and encourages members to acquire users and conduct marketing for DAO-funded projects. These projects include Bondly, an NFT platform, and Synthetic, a protocol based on encrypted assets.

“The Web3.0 project needs long-term support.”

——Toshi Kamei

DAOs such as DuckDAO and DAO Maker are also operating public token sales. DAO Maker’s initial fundraising, Refundable Holder Issuance (rSHO) was approved by the Maltese regulator in February. The project will use on-chain analysis and check the wallet addresses of participants to identify which participants are more likely to become long-term token holders, that is, valuable community members. VAIOT is a startup company that develops AI enabling services for companies. They chose rSHO as their fund-raising method because it complies with the laws of Malta.

Christoph Surgowt, CEO of VAIOT, told Decrypt: “Since we are the first regulated project in Malta, we have in fact cleared the way for other projects. It has also proven that the project can simultaneously adopt a strict regulatory system, innovation and customer orientation. The center’s sales process benefited from all three.”

In Asia, people’s enthusiasm for DeFi and DAOs is also growing. Fracton Ventures is a Japanese start-up project that hopes to replicate the success of MetaCartel and the LAO. The founders of the project, Toshi Kamei, Naoki Akazawa, and Yudai Suzuki, are working to consolidate the DAO ecosystem by first establishing a connection between Web3.0 start-up projects and Asian investment institutions, so that they can enter the vibrant DeFi world. “We can DAO it” is their tagline. A chart produced by Fracton describes the progress of a decentralized project like this:

We can put it DAO: How does the trend of decentralized autonomous organizations change the field of venture capital?Fracton plans to allow institutional investors to participate in the venture capital DAO. Image source: Fracton

Suzuki said that almost all of the current DAO investments are in North America. Many people in Asia are very interested in this, but it is not so simple for people to enter the network formed in the United States. One of the reasons is the language barrier.

The three founders of Fracton are actually aware of the long-term financing problems faced by early-stage startup projects. Kamei worked as a producer and investor in Mistletoe, a social impact fund led by the brother of Japan’s Softbank founder Masayoshi Son. He believes that the financing goals of venture capital are often inconsistent. He said: “Web3.0 projects require long-term support. We think an investment model focused on Web3.0 will be more suitable for this field.”

One DAO, multiple scenes

Today, DAOs are not just exclusive to Ethereum. Dora Factory belongs to the Polkadot ecology, and it is using Polkadot’s own tool suite to build a public DAOs infrastructure. In February, they completed the first round of financing .

But as the NFT boom (or bubble) reaches its peak, the DAOs formed around NFTs continue to attract attention.

PleasrDAO is a DAO formed specifically to win Pplpleasr’s works of art. At present, they have purchased three more works of the artist and plan to continue investing .

But this is not the first DAO to focus on the field of NFTs. FlamingoDAO is a LAO project established in October 2020. According to Wright information, FlamingoDAO has a joint fund of 10 million US dollars, 40 members, and has obtained about 6-700 NFTs, including NBA Top Shot cards, and a rare CryptoPunk.

For other types of organizations, we cannot think of why they cannot be DAOs. Now there is a writer DAO mirror.xyz, which is getting more and more attention (we have already followed it, friends). It holds a regular $WRITE contest, every week there are writers who want to join Mirror, and the community will vote for writers who want to see on the platform.

We can put it DAO: How does the trend of decentralized autonomous organizations change the field of venture capital?Different types of projects will join LAOs and DAOs. Image source: OpenLaw

At the same time, Decrypt recently created its own NFTs and issued tokens to reward readers for their participation. According to Sousa Pinto, DAO is an effective way to increase reader participation, and Decrypt can also be deployed to write daily. He emphasized: “Voting will be the essence of participation” and “Voting is a new form of “like”.

Sousa Pinto believes that after asset tokenization, the next wave will be company tokenization. However, ordinary stocks will not be used. It will be replaced by tokens, which can be traded in different markets, which is equivalent to another form of participation or equity in the company. He said: “This is very important because it motivates people to participate.”

At the time of renewed interest, the developers brought DAO-focused tools, such as a decentralized automatic payroll management system, to act as the human resources department and ensure that each contributor’s efforts are rewarded.

But not everyone is passionate about it. The MIT Technology Review believes that entrusting important financial decisions to the public is a bad idea, and it may not be rewarding. It believes that if DAO-related projects are to be successful at any scale, changes need to be made.

At the same time, scale is also a problem for Ethereum, which includes high gas fees, which seriously hinders the development of DAO. To counteract this problem, projects such as Metis are building a solution called Layer 2, while others advocate that on-chain transactions should be retained for necessary transactions, such as asset transfers and security-related decisions.

We can put it DAO: How does the trend of decentralized autonomous organizations change the field of venture capital?DAOs are still relatively small in terms of the scale of assets under management. Image source: DeepDAO

From a broader perspective, DAOs can overcome the inherent shortcomings of many traditional companies, such as governance issues. However, DAOs still have many problems to be solved, such as simplifying voting procedures and reducing the overall complexity of the governance mechanism.

Finally, DAO is only an emerging niche market in the broad crypto world, and of course in the financial sector. According to the data of analysis and tracking tool DeepDAO, the assets under management of top DAOs are only 931 million US dollars. But they quickly attracted many new “converters” and more than 65,000 PEs were called DAO members. Whether you are interested in a part of the much-watched NFT, a Decrypt article or a place in a huge virtual meeting room, their team is expanding at a rate of 400 people per week.

Source link: decrypt.co