As discussed in our last blog, Introducing CCOs,a Community Contribution Offering is a new fundraising model introduced by DaoHaus that has the potential to transform the way start-ups raise capital. We are proposing to use a modified version of the CCO as a mechanism to bootstrap NFT DAOs to build their initial NFT portfolio.
We all know that DAOs are a powerful tool to manage and coordinate communities around NFT collections; however, a huge question all of us working on these projects have faced is… how do we get people to contribute NFTs to a brand new DAO and why would they do that?
Having NFTs stored in DAOs makes logical sense as they provide a way to pool capital to expand collections, instantly diversify exposure on an individual level, and do cool community curated initiatives. This is just scratching the surface of the magical combination of DAOs and NFTs (hint: unlocking the ability to use NFTs on dApps like Aave).
If a DAO holds an NFT collection full of punks, apes, and exotic 1 of 1s and the collection is worth say 10 million DAI, then it would be an easy decision for an outside collector to tribute 1 Bored Ape to the collection in exchange for say 1% ownership of the DAO at it’s holdings.
However, convincing a collector to tribute a Bored Ape to a brand new DAO for anything less than 100% ownership of the DAO would be a hard sell, and it would also defeat the purpose of having a DAO. Sure, you could approve DAO members 1 by 1, where the first person would own 100% of the DAO until another person can be approved, at which point the two people would each own 50% of the DAO, and so on, but this process is slow, boring, and is not ideal or efficient for truly decentralized NFT DAO bootstrapping.
Another option is to raise capital for a DAO in ETH, DAI, etc. via a CCO and then use those funds to purchase NFTs. This works fine, but why have this extra step of raising a capital token if it is not needed? Let’s be efficient. What we are proposing is a model which takes out the unnecessary steps of first raising a capital token. Instead, NFTs are directly tributed to the DAO in exchange for Project Tokens.
For example:. 1 million DAI worth of NFTs are tributed to DAO A in exchange for 10% of Project A tokens. This gives project A, a fully diluted value of 10 million DAI and gives tokens instant value backed by NFTs (assets), instead of speculation for future usage/fee metrics.
Now the DAO has NFTs, what do you do? Well, start monetising them. Provide liquidity, lend them using DeFi, license to metaverse galleries, etc. to begin generating income for the DAO which can be used to further expand the collection.
The Issues
Pricing: There is currently no way to accurately price NFTs on-chain which is why their utility is severely restricted, especially in DeFi. Pricing comes from highly centralised platforms like OpenSea which can be easily manipulated by users buying and selling NFTs to themselves to inflate values, as well as the technical risks of having to rely on oracles to relay this pricing data to smart contracts living on-chain.
One approach to solve this problem is to use a DAO member council to vote on appropriate prices for tributed NFTs. But the problem with this is a classic chicken vs egg problem. You want to distribute Project Tokens (voting power in DAO) via tributing NFTs, but you need users to have tokens to be able to vote to accept the NFTs at a specific price into the DAO.
If you have a non-token based DAO voting model, there is still the inherent risk of centralisation as you cannot efficiently have a highly diversified and decentralised group in a DAO voting on these NFTs and pricing.
The only clear solution for this is to have NFT pricing data directly on-chain. The way this can be solved is through an NFT AMM. For this NFTs would need to be fractionalised and put into pools against a native token such as WETH. This process will automatically generate accurate, highly decentralised on-chain pricing data which can then enable NFTs to be tributed into DAOs and most importantly, used in DeFi (read more about it here — NFT AMM Blog).
Once pricing is solved, a DAO can have an open contribution period (otherwise known as a CCO, or Community Contribution Offering) where NFTs are tributed. After the period closes, users receive their share of Project tokens. For example, If a user tributes a Bored Ape worth 30 ETH, and a total of 300 ETH worth of NFTs were tributed (as priced based on the AMM markets), the user would receive 10% of the Project Tokens. The clear problem with this is that if an NFT is in the AMM, then it is fractionalised and the native NFT is locked and therefore cannot be tributed into a DAO. For PFP collections, an aggregate price can be achieved based on averages; however, the AMM pricing solution excludes 1 of 1 collections.
This brings us into our next major point, on why we believe only fractionalised shares of NFTs (Fraktions) should be tributed into DAOs.
What happens if someone wants to quit the DAO? Normally when you quit a DAO, you receive your share of assets automatically. This cannot be done with native NFTs because they are non-fungible and have differing values. For example, you can’t withdraw 10% of a punk, ape, and other NFTs within the DAO. So instead we propose that DAOs accept fractionalized pieces of NFTs into their banks because they solve for both the pricing issue above and for the ragequit problem present with native NFTs.
Fractional NFTs also unlock major utility across NFTs which can be leveraged by the DAO to monetize and grow collections in ways not possible for DAOs which hold native NFTs. For example, Fraktions can be directly provided to liquidity pools via the DAO and earn fees on trades and LP rewards. In addition, these NFTs can now be used across DeFi on platforms such as Aave for providing collateral against loans because pricing is solved and the markets are now liquid.
Join the Fraktal Discord and let us know what you think of this proposal