background
• What is DAO?
In 2013, Ethereum co-founders Daniel Larmier and Vitalik Buterin discussed this concept for the first time in an article. The premise is that the company organizes human activities under a set of rules and goals established by the contract. In order to clarify and implement the content of the contract, companies in the traditional sense adopt a hierarchical management structure.
"DAO" replaces this hierarchical management structure with software. By virtue of "smart contract" operation, goals, rules and transaction records are encoded in the blockchain, which eliminates the need for centralized rights to participate in it. In theory, DAO has the following advantages:
Automated execution through smart contracts can reduce costs.
This model ensures that transactions are completely transparent and stakeholders trust each other more.
This model gives participants a sense of belonging, enables them to support each other financially and psychologically, and is more willing to improve the work efficiency of others. Compared with traditional workers, their work efficiency is higher.
• The story of the first DAO
In May 2016, some members of the Ethereum team established the first DAO, which was used as a venture capital operation in the blockchain and crypto space.
The DAO raised funds by issuing tokens in exchange for ETH, and achieved great success, raising nearly 150 million US dollars in total.
But due to a well-known technical flaw, one or several hackers have stolen nearly $70 million from the DAO. Later, Ethereum forced the hacker's funds to be sent to accounts that the original people could use, although this move was highly controversial.
In addition, the U.S. Securities and Exchange Commission found that the DAO tokens are securities and are therefore subject to federal securities laws. To protect investors and ensure proper disclosure, if there is no exemption, any tokens related to the interests of for-profit DAO owners must be traded on registered exchanges.
Unsurprisingly, this DAO was closed soon, but people's interest in DAO is far from over, and related experiments are still going on.
Company history and key personnel
•TributeLabs (formerly Open Law):
In June 2017, the founding team of Flamingo DAO gathered for the first time and created the "OpenLaw-Ricardo Contract System". The purpose is to create contracts that can be understood by humans and machines. More importantly, it can be understood by machines because it can The contract is cryptographically signed, verified and stored on the blockchain. Therefore, OpenLaw can serve as a bridge between the traditional legal system and the emerging crypto world.
The Ricardo contract system was proposed by Aaron Wright. Aaron Wright is a trained lawyer dedicated to researching blockchain and related regulations. He also published the book "Blockchain and the Rule of Law".
The OpenLaw team started experimenting with various use cases, such as real-time transmission of taxes. In the end, they decided that the best application is to help the emerging DAO ecosystem establish a legal structure that complies with US securities laws.
This is very important, because the first DAO established in May 2016 obviously failed. Its failure was not only because of the nearly $70 million in losses that the famous hacker attack initially caused, but also because the US Securities and Exchange Commission ruled that the first DAO and its investors violated the relevant laws of the US Securities and Exchange Commission. Therefore, DAOs that later operate in the same mode will operate under extremely uncertain supervision.
Note: In September 2021, Open Law was officially renamed Tribute labs. The clear purpose of this organization is to help DAO operate legally in the United States.
•LAO
In order to better understand the precise products that DAO needs, when they created DAO, they began to "eat their own dog food" (as much as possible using self-developed software). The first such important organization is LAO.
LAO is the abbreviation of "Limited Liability Autonomous Organization", established in April 2020, is a limited liability entity (complying with securities laws). People can buy "LAO Units" with ETH and become one of them. The pooled funds will be used to invest in blockchain-related projects in exchange for generalized stocks or functional tokens. All management and execution (such as voting, capital contribution, fund transfer, etc.) are carried out through smart contracts, and the project has raised $5 million in funds.
The second project that LAO invested in the Superrare platform is the well-known market for digital art and non-fungible tokens (NFTs). Soon, members began to discuss whether LAO should only invest in the project, platform or infrastructure level of the NFT space, or should it also purchase individual artworks? They decided to go hand in hand and launched a new investment tool dedicated to the NFT market called Flamingo DAO.
LAO has become a DAO incubator and has begun to give birth to other DAOs that make key investments in specific areas. So far, LAO has launched 6 different DAOs, with a total investment of 200 million U.S. dollars in Ethereum. Two other DAOs are also coming soon.
1.FlamingoDAO
2.Neptune(DAOՁDeFi)
3.Neon (DAOՁ Metaverse).
4.RedDAO(digital fashion)
5.ReadyPlayerDAO(gaming)
4.MuseoՁNFT-(native museum,art collection)
•FlamingoDAO
FlamingoDAO was established in October 2020, and the source of funds is through the sale of "FlamingoUnits". In view of the structure similar to LAO, FlamingoDAO raised approximately 6000 ETH (equivalent to US$6 million at the time).
In February 2021, Flamingo DAO purchased a crypto Alien Punk for $750,000.
•Key figures:
Aaron Wright is a lawyer, academic, and technology entrepreneur who sold the company to Wikia in 2007. He played a small role in the creation of Ethereum. His research on how blockchain and law intersect was finally published as a book, which records the original intention that led to the establishment of Open Law.
Priyanka Desai is a senior lawyer. He joined Aaron's OpenLaw project in 2017. He currently serves as the Vice President of Operations and is an outstanding member of Flamingo.
mechanism
•membership
Due to the rules, Flamingo’s membership is limited to U.S. accredited investors, with an upper limit of 100.
Initially, members purchased 100,000 "Flamingo Units" at a price of 60 ETH, representing 1% of voting rights and proportional rights. The maximum share that a member can have is 9%. The important thing is that this is not a token and cannot be traded or transferred unless otherwise agreed by the majority of members.
Existing members can decide when or whether to open a new membership within a limited time. Aaron said in the "This week in startups" program that the current cost of new members is 3,000 ETH. New members join by apportioning the equity of existing shareholders. In traditional investment companies, new members can only benefit from future investments, while new members of Flamingo DAO can benefit from all investments in Flamingo's entire operating cycle.
There are many outstanding applicants who want to join Flamingo DAO. The team carefully evaluates their expertise in the NFT field to determine whether they are eligible.
•Investment process
The company conducts telephone conversations every two weeks to discuss potential new investments and trends.
In order to protect privacy and prevent preemptive operations, members regularly vote in Moloch-style to discuss whether they should transfer a portion of Flamingo assets (about 20%) to purchase new assets.
Existing members nominate projects through a portal called "The dApp" or make NFT funding. After nomination, members will vote to decide whether to support the proposal.
Currently, members use two ways to conduct asset flow activities: allocate funds to members proportionally, or create tradable tokens that represent income and interest.
If a member wants to transfer funds, he only needs to sell part of his own shares in Flamingo DAO to another member after other members approve; if multiple members want to transfer assets at the same time, most members will decide how to achieve the above-mentioned liquidity .
• Voting system
Blockchain-based smart contracts provide convenience for voting, and voting results will be recorded on the Ethereum blockchain.
Voting rights are distributed proportionally. Decisions are based on consensus and there is no requirement for a quorum, that is, members do not need to vote, and the evaluation of the proposal results excludes the minimum number of votes.
For specific issues, voting rights can be delegated to other members, and authorized voting will not affect the members' income.
In addition to voting on whether to purchase, members can also submit proposals and vote on the structure and form of Flamingo DAO or other strategic decisions (how to deal with liquidity, launch Flamingo DAO tokens, etc.).
•Rage Quitting
Members can choose to withdraw their funds at any time. They can withdraw from Flamingo at any time as long as they want. This process is called "rage quitting", which ensures that members feel safe when joining the DAO and can vote comfortably.
After voting on each proposal, if any member disagrees with the result, they can choose "rage quitting". The exiting members will divide their shares in the unallocated capital, and they also have the right to obtain income from the investment made by the Flamingo DAO before the member withdraws the capital within the scope permitted by the law or investment provisions. The document does not clearly state how and when these proceeds will be transferred to the exiting members.
Note: Founder Aaron Wright pointed out that The Flamingo DAO governance document does not mention the right of exiting members to receive investment income. The above point of view comes from theLAO governance document, which is the same as the Flamingo DAO document.
• Other miscellaneous items:
All administrative and operational activities, such as establishing legal frameworks, maintaining software (called dApps when decision-making and governance occur) and smart contracts, community support, taxation and rules, etc.
Business model and secrets
•Activity
This trend may bring an obvious end, that is virtual idols (such as virtual pop star Miquela)
•combination
FlamingoDAO initially had $6 million in eth. Over time, they have acquired 1,300+ NFTs, including hundreds of cryptopunks (Flamingo DAO is the third largest holder of CryptoPunks), five rare auto-glyphs, digital artist’s NFT and OpenSea shares .
Although the total value is not easy to estimate due to fluctuations, Flamingo DAO currently holds its shares at a valuation of approximately US$100 million. The data source is mentioned by Aaron in the 54 minutes of the Boardroom Governance podcast on November 8, 2021.
•economy
Source of income:
Sales of digital assets and investments: including previously acquired assets and new NFTs launched in cooperation with artists.
Sell tokens to new members.
Flamingo currently has approximately 70 members, and according to the original charter of the organization, the number can rise to one hundred members. As pointed out in the previous part of the mechanism, existing members decide when and whether to open new members to join and the price of joining. At present, the price of 100,000 Flamingo Units has risen from 60 ETH at startup to 3000 ETH, which is a 2,000-fold increase in U.S. dollars.
Since this is an extremely emerging field, more revenue opportunities are expected to emerge, which may include monetization of digital museums and gallery exhibitions, the creation of a community or DAO around existing NFTs, and so on.
Cost structure
Fees to service provider OpenLaw (now Tribute Labs) for legal framework. Use DAO tools to handle administrative and compliance issues and community support. The initial fee is 2% of the annual subscription capital fee, which will be reduced to 0.7% after 5 years. (Source-This week in Startups-LAO's subscribed capital, and an explanation of the 2% annual fee).
Open Law does not charge carry, and the members make their own decisions. Flamingo DAO has no investment rights.
In addition to the above fees, the service provider will be entitled to 2% of the total revenue of any NFT acquired by Flamingo DAO. If the service provider divides the ownership interest of the NFT acquired by Flamingo, then it is 2% of the ownership interest of these NFTs.
Market commission, such as OpenSea's 2.5%.
•Competitive advantages
Note: Flamingo DAO and common DAO have very limited operating history, and they are in the cryptocurrency bull market. It may be too early to draw conclusions now.
Although the vehicle of competition is not yet clear, Flamingo DAO may compete with other DAOs for investment opportunities on the one hand, and venture capital companies and traditional investors on the other. The ability to identify new transactions and opportunities: In a highly dynamic and decentralized industry, where individuals involved are distributed all over the world, it is far more challenging to detect terrain and identify transactions than in a centralized world, such as investing in Silicon Valley start-ups.
Comparison of FlamingoDAO and VC.
FlamingoDAO has "collective intelligence" and a flat organizational structure. In this structure, there is a network of 70 digital asset experts from different backgrounds. Compared with traditional investment institutions, it is more suitable for identifying opportunities in a rapidly developing ecosystem.
a. Flamingo has a high-quality member base, and members have long-term exposure to the blockchain and NFT ecosystem, which makes it different from most DAOs. Although competitors such as Pleasr DAO have also planned a high-quality member base. This is further reinforced by a network of high-quality curators who assist Flamingo in identifying development trends and emerging opportunities, but not making any purchasing decisions.
b. Unlike many competitors, FlamingoDAO is a relatively close cavalry regiment composed of more than 70 people, and the participation rate may be higher. Aaron Wright (in this podcast) cited "60%" as the average participation rate of all DAOs in the LAO network. However, this data is much smaller than some peers (such as Fingerprints DAO, which has 250 members), who may be better at spotting long tail projects. Of course, time will tell us more about the possible trade-offs between the size of the DAO and the participation rate of its members, and how to offset each other through governance.
c. Goodwill, reputation and community: The nascent NFT and cryptocurrency industries are highly idealized and purpose-driven. A good reputation and community will guide the generation of valuable transaction flows.
This is another area where DAO, with its comprehensive network of all members and the spirit of matching the ecosystem, may have an advantage over traditional investor peers.
Flamingo is the most prominent, earliest and largest DAO. It is called the Medici of NFTs, and it is the only DAO in the list of the 50 most influential NFTs listed by Fortune magazine.